National Grid 2016 Annual Report Download - page 52

Looking back. Examples of Board focus during the year included:
Areas of focus Commentary
Cyber security The Board is responsible for overseeing cyber security,
and this year the Board has seen an increase in their focus
on this issue. As mentioned in the Chairman’s letter, the
cyber security team provided the Board with a detailed
overview in relation to cyber security, so that the Board
had increased visibility and understanding of the
Company’s long-term strategy on cyber security.
The focus was on the guiding principles and on
determining what questions the Board should be asking
of the cyber security team. The Board’s discussions
concluded that they needed to have greater visibility
of cyber security and there should be training for the
Board members in dealing with cyber security risks.
Proposed majority
sale of the UK
Gas Distribution
business
The Board regularly reviews the composition of the
Company’s portfolio. As part of this review the Board
received a strategy briefing in September, outlining
the proposed commencement of a process for
the potential sale of a majority stake in the UK Gas
Distribution business.
The discussion included: various transaction options;
detailed financial impacts; significant challenges to be
addressed; the communication strategy; return of
proceeds to shareholders and the future dividend policy;
and the transaction timeline. Following discussion and
challenge on a number of issues, the Board unanimously
agreed to the commencement of the sale process.
The Board has been kept up to date on progress.
Principal risks
and viability
The risk team provided updates on the UK Corporate
Governance Code 2014 requirement for the Company
to produce a viability statement. Discussions at Board
meetings included: a review of the Company’s principal
risks; the viability statement period; the management and
mitigation of the principal risks; and how we would test
the impact of the risks on the Company, including through
the use of scenario planning. In May 2016, the Audit
Committee recommended the viability statement to the
Board which was approved.
US regulatory rate
case filings
In April 2015, the Board received an update on work
being undertaken by the US finance and regulatory groups
for the preparation of the Company’s first rate case filings
since 2012. During the year the Board received regular
progress reports on the rate case filings for our downstate
New York gas companies, KEDNY and KEDLI, and also
Massachusetts Electric. An overview of each filing was
received by the Board before they were submitted,
including a term sheet outlining the key metrics of each
submission. An extension request for the rate case filing in
Niagara Mohawk was also seen by the Board before filing.
This extension proposed electricity and natural gas delivery
prices for customers being frozen at current levels through
to March 2018 while allowing the Company to increase
investments to enhance its gas and electricity systems.
European energy
and the politics
of energy
The Board received an update on important UK and EU
political developments prior to the UK General Election
in May 2015. Following the General Election, the Board
received a paper on the potential implications for the
Company and an engagement plan. The Board was also
kept up to date on the referendum on the continued UK
membership of the EU and the potential effects of exiting
Europe, including on the development of interconnector
projects and on our continuing involvement and benefits
of being in the Integrated Energy Market.
The future of the
System Operator
The future of the SO has been considered previously
by the Board and was reviewed again in detail in
September 2015. In particular, Ofgem’s Integrated
Transmission Planning and Regulation (ITPR) project
and emerging DECC thinking on the possible creation
of a ‘super System Operator’ were developments the
Board considered. Additional updates on progress were
provided in January, March and April 2016 when the Board
received updates on future option modelling following
discussions with Government.
UK onshore
competition
In addition to defining our role on the future of the
SO, the Board has recently discussed the Company’s
position on where consenting activity to support
competitively tendered onshore transmission should
be undertaken. In conclusion, the Company’s view was
that competition should only be taken forward where
it was in the interests of consumers.
In March 2016, the Board discussed specific questions
posed by Ofgem in relation to the Company’s position on
onshore competition and discussed working with Ofgem
to explore an enduring consenting solution, taking into
account shareholder and consumer benefits.
Strategy sessions In addition to time allocated during the year at Board
meetings, the Board participated in two interactive strategy
sessions involving a combination of a full Board discussion
and breakout groups. The Board’s focus was on the
state of the market in the UK and US, future opportunities
for the Company including business development, merger
and acquisition opportunities, and how the Company’s
core capabilities could be used to best effect.
Site visits In January 2016, the Non-executive Directors visited the
Company’s UK cyber security operations centre, which
provided an insight into its day-to-day operations and
highlighted awareness of the direct security threats to
the Company as they occur and are analysed 24 hours a
day. Other visits by the Directors included safety site visits,
including a visit to Power Plant Operations to celebrate
over 10 years of no accidents, a field visit in Brooklyn to
one of our LNG trucking provider locations to see facilities
and meet management, and a site tour in Eakring.
Another visit was to the Western Link project to review
the Scotland/England interconnector and new sub-station.
In September 2016, the Board members will be visiting
our Buffalo, New York office which will include a site
tour. These visits provide the opportunity for Directors
to meet local management teams, discuss aspects
of the business with employees, and gain insight into
our day-to-day business.
50 National Grid Annual Report and Accounts 2015/16 Corporate Governance
Corporate Governance continued