National Grid 2014 Annual Report Download - page 170

Business
information in detail
continued
Risk factors
Law and regulation
Changes in law or regulation or decisions by governmental
bodies or regulators could materially adversely affect us.
Most of our businesses are utilities or networks subject to
regulation by governments and other authorities. Changes in
lawor regulation or regulatory policy and precedent, including
decisions of governmental bodies or regulators, in the countries
or states in which we operate could materially adversely affect
us. If we fail to engage in the energy policy debate, we may not
be able to influence future energy policy and deliver our strategy.
Decisions or rulings concerning, for example:
(i) whether licences, approvals or agreements to operate or
supply are granted, amended or renewed, whether consents
for construction projects are granted in a timely manner or
whether there has been any breach of the terms of a licence,
approval or regulatory requirement; and
(ii) timely recovery of incurred expenditure or obligations, the
ability to pass through commodity costs, a decoupling of
energy usage and revenue, and other decisions relating
tothe impact of general economic conditions on us, our
markets and customers, implications of climate change,
whether aspects of our activities are contestable, the level
ofpermitted revenues and dividend distributions for our
businesses and in relation to proposed business
development activities,
could have a material adverse impact on our results of
operations, cash flows, the financial condition of our businesses
and the ability to develop those businesses in the future.
As the result of control weaknesses in our US business, we
maybe unable to provide timely regulatory reporting, which may
include the provision of financial statements. This could result in
the imposition of regulatory fines, penalties and other sanctions,
which could impact our operations, our reputation and our
relationship with our regulators and other stakeholders.
For further information see pages 160 to 165, which explain
ourregulatory environment in detail.
Business performance
Current and future business performance may not meet our
expectations or those of our regulators and shareholders.
Earnings maintenance and growth from our regulated gas and
electricity businesses will be affected by our ability to meet or
exceed efficiency targets and service quality standards set by,
oragreed with, our regulators.
If we do not meet these targets and standards, or if we do not
implement the transformation projects we are carrying out as
envisaged, including to our US financial systems and controls
over financial reporting, or are not able to deliver our RIIO
operating model and the US Elevate 2015 strategy successfully,
we may not achieve the expected benefits, our business may be
materially adversely affected and our performance, results of
operations and reputation may be materially harmed and we
maybe in breach of regulatory or contractual obligations.
Growth and business development activity
Failure to respond to external market developments and
execute our strategic ambition may negatively affect our
performance. Conversely, new businesses or activities that
we undertake alone or with partners may not deliver target
outcomes and may expose us to additional operational and
financial risk.
Failure to grow our core business sufficiently and have viable
options for new future business over the longer term could
negatively affect the Group’s credibility and reputation and
jeopardise the achievement of intended financial returns.
Business development activities and the delivery of our growth
ambition, including acquisitions, disposals, joint ventures,
partnering and organic investment opportunities (including
organic investments made as a result of changes to the energy
mix), are subject to a wide range of both external uncertainties
(including the availability of potential investment targets and
attractive financing), and internal uncertainties (including actual
performance of our various existing operating companies and
ourbusiness planning model assumptions and ability to integrate
acquired businesses effectively). As a result, we may suffer
unanticipated costs and liabilities and other unanticipated effects.
We may also be liable for the past acts, omissions or liabilities
ofcompanies or businesses we have acquired, which may be
unforeseen or greater than anticipated. In the case of joint
ventures, we may have limited control over operations and our
joint venture partners may have interests that diverge from our
own. The occurrence of any of these events could have a material
adverse impact on our results of operations or financial condition,
and could also impact our ability to enter into other transactions.
Cost escalation
Changes in foreign currency rates, interest rates or
commodity prices could materially impact earnings
orourfinancial condition.
We have significant operations in the US and so are subject to the
exchange rate risks normally associated with non UK operations,
including the need to translate US assets and liabilities, and income
and expenses, into sterling, our primary reporting currency.
Inaddition, our results of operations and net debt position may
beaffected because a significant proportion of our borrowings,
derivative financial instruments and commodity contracts are
affected by changes in interest rates, commodity price indices and
exchange rates, in particular the dollar to sterling exchange rate.
Furthermore, our cash flow may be materially affected as a result
of settling hedging arrangements entered into to manage our
exchange rate, interest rate and commodity price exposure,
orbycash collateral movements relating to derivative market
values, which also depend on the sterling exchange rate into euro
and other currencies.
168 National Grid Annual Report and Accounts 2013/14