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TIDMBC39 RNS Number : 1411J Yorkshire Electricity Distribution 24 March 2010 The following regulated information, disseminated pursuant to DTR 6.3.5, comprises the Annual Report and Accounts of Yorkshire Electricity Distribution plc for the year ended 31 December 2009. Pursuant to LR 9.6.1, two copies of the document have been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at: Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS Tel. No. 020 7066 8224 The 2009 Annual Report and Accounts are also available on the website www.ce-electricuk.com YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 REPORT & ACCOUNTS TO 31 DECEMBER 2009 YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 REPORT AND ACCOUNTS TO 31 DECEMBER 2009 CONTENTS Directors' Report 1 Business Review 2 Review of the Year 2 Strategic Objectives 3 Principal Risks and Uncertainties 3 Internal Control 6 Financial Strength 7 Customer Service 11 Operational Excellence 12 Employee Commitment 15 Environmental Respect 17 Regulatory Integrity 19 Corporate Governance Statement 23 Responsibility Statement of the Directors in respect of the Annual Report and Accounts 29 Independent Auditors' Report to the Members of Yorkshire Electricity Distribution plc 30 Income Statement 32 Statement of Comprehensive Income 32 Statement of Changes in Equity 33 Balance Sheet 34 Cash Flow Statement 35 Notes to the Accounts 36 YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 Registered Office: Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF DIRECTORS' REPORT Cautionary statement regarding forward-looking statements This annual report has been prepared for the members of the Company only. The Company, its directors, employees or agents do not accept or assume responsibility to any other person in connection with this document and any such responsibility or liability is expressly disclaimed. This annual report contains certain forward-looking statements, which can be identified by the fact that they do not relate only to historical or current facts. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, business prospects, the availability of financing to the Company and anticipated cost savings are forward-looking statements. By their nature, these statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward-looking statements reflect the knowledge and information available at the date of preparation of this annual report and will not be updated during the year. Nothing in this annual report should be construed as a profit forecast. The directors present the annual report and accounts of Yorkshire Electricity Distribution plc (the "Company") for the year ended 31 December 2009, which includes the business review and audited financial statements for that year. Pages 1 to 28 inclusive of this annual report comprise a directors' report that has been drawn up and presented in accordance with the Companies Act 2006. PRINCIPAL ACTIVITIES The Company is part of the CE Electric UK Funding Company group of companies (the "CE Group") and its principal activity during the year was to distribute electricity to customers connected to its electricity distribution network. The Company serves an area of approximately 10,700 sq. km encompassing the counties of West Yorkshire, East Yorkshire and almost all of South Yorkshire, together with parts of North Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and Lancashire, receives electricity from the National Grid's transmission system and distributes it to approximately 2.2 million customers connected to its electricity distribution network of transformers, switchgear and overhead and underground cables, at voltages of up to 132kV. The Company is an authorised distributor under the Electricity Act 1989 and holds an electricity distribution licence granted by the Secretary of State. During the year, the Company distributed electricity to customers in its distribution services area and continued to improve the overall performance of its distribution network through its investment strategy being targeted at delivering improvements in an efficient and cost-effective manner. In common with the CE Group, the Company operates a business model and strategy based on its six core principles (the "Core Principles"), which remain consistent and are: +---------------+----------------------------+----------------------+ | Principle | Strategy | Indicator | | | | | +---------------+----------------------------+----------------------+ | Financial | Effective stewardship of | Profitability. | | strength | the Company's financial | Cash flow. | | | resources, investing in | Maintenance of | | | assets and focusing on | investment grade | | | long term opportunities, | credit ratings. | | | which contribute to the | | | | Company's future strength. | | | | | | +---------------+----------------------------+----------------------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) PRINCIPAL ACTIVITIES (continued) +---------------+----------------------------+----------------------+ | Principle | Strategy | Indicator | +---------------+----------------------------+----------------------+ | Customer | Delivering reliability, | Improving network | | service | fair prices and | resilience and | | | exceptional service. | performance, | | | | measured by: | | | | Customer minutes | | | | lost; | | | | Customer | | | | interruptions; and | | | | Customer | | | | satisfaction. | +---------------+----------------------------+----------------------+ | Operational | Setting high standards for | Effective asset | | excellence | the Company's operations | management. | | | and system investment, | Managing commercial | | | operation and maintenance. | risk. | | | | Improving network | | | | resilience and | | | | performance. | | | | | +---------------+----------------------------+----------------------+ | Employee | Equipping employees with | Leading safety | | commitment | the resources and skills | performer. | | | they need to operate | Engaging employees. | | | successfully and in a safe | Effective | | | and rewarding environment. | leadership. | | | | | +---------------+----------------------------+----------------------+ | Environmental | Using natural resources | Reducing | | respect | wisely and effectively | environmental | | | protecting the | impact. | | | environment, where it is | Promoting and | | | impacted by the Company's | pursuing long term | | | operations. | sustainability. | | | | | +---------------+----------------------------+----------------------+ | Regulatory | Adhering to a policy of | Strong internal | | integrity | strict compliance with | controls. | | | appropriate standards, | Regulatory | | | policies and legislation. | engagement. | | | | Industry influence. | +---------------+----------------------------+----------------------+ The Company continues to put plans in place to deliver its objectives against the strategy based on the Core Principles, executes on those plans across a range of activities, measures its progress and introduces corrective action wherever required. Adherence to its strategy and Core Principles enabled the Company to deliver a pleasing financial performance against the challenging economic environment, which persisted throughout 2009 and which included the highest reduction in the number of units distributed across its network for a number of years. BUSINESS REVIEW Review of the year The Company continued to make good progress in many areas of its business during the year, with financial performance meeting the challenges of the year, assisted by a strong cost control and mitigation exercise, customer service performance improving in the call centre with the introduction of a new inter-active voice recognition system and a significant reduction being achieved in relation to the work in progress to repair faults on the distribution network. Disappointingly, those incidents classified by the Company as preventable vehicle accidents increased during the year and the Company failed to meet its targets in respect of operational incidents. During 2009, the Company was fully engaged with the Office of Gas and Electricity Markets ("Ofgem") in the Distribution Price Control 5 ("DPCR5") process, which culminated on 7 December 2009 with Ofgem publishing its final proposals in respect of the price control formula that will take effect for the five-year period commencing 1 April 2010. That process involved submission of the Company's detailed business plans in February 2009, the publication by Ofgem of an initial set of proposals on 3 August 2009 and continuing subsequent dialogue between the Company and Ofgem throughout the remainder of the year. Following detailed analysis, the Company advised Ofgem, on 23 December 2009, that it was accepting its final proposals. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Review of the year (continued) Under its final proposals for DPCR5, Ofgem set a 4.7 per cent 'vanilla' weighted average cost of capital, which equates to 5.6 per cent pre-tax, in order to allow the Company to fund its cost of debt and equity. The Company was disappointed at the low level of the return on capital allowed but pleased that Ofgem recognised the Company as one of the more efficient distribution network operators ("DNOs"). The Company was also pleased to see the focus in DPCR5 on rewarding DNOs for delivering high standards of customer service and providing the opportunity for outperforming Ofgem's baseline expenditure and performance targets. In addition, Ofgem has set out the "outputs" it expects the Company to achieve and, as an incentive to provide better customer service, will introduce new, statutory guaranteed standards of performance in respect of connections to the Company's network, more challenging targets for network reliability and a new measure of customer satisfaction with the service provided. The Company's charges based on the DPCR5 final proposals, together with a rebalancing of distribution charges between customer groups, mean that, on 1 April 2010, the Company's charges made in relation to the distribution of electricity to domestic customers will increase by about 2.8%, or equivalent to about 0.4% on their electricity bills. Changes to the charges made in relation to non-domestic customers will vary more widely between different types of non-domestic customers.. Strategic objectives As part of the CE Group, the Company's strategic objectives remain based on its core principles and are to build a business, which: · continues to generate value over the long-term, in keeping with the nature of that business; · invests in and manages its electricity distribution network in an efficient and effective manner; · provides its customers with an excellent standard of service; · engages with its employees so that they feel rewarded and recognised as part of a team that sets and achieves increasingly high standards of performance; and · is viewed as being a leader in terms of shaping the future direction of the electricity distribution network sector in the United Kingdom. As part of its strategy, the Company continues to be committed to putting safety first, respecting its customers, their time and property, doing a quality job, responding effectively in times of severe weather (when it is needed most) and caring for its local environment. Principal risks and uncertainties There are a number of potential risks and uncertainties, which could have an impact on the Company, its financial position and its operations and may cause actual results to vary materially from those expected or historically experienced. The principal risks are outlined as follows: Financial strength: As a holder of an electricity distribution licence, the Company is subject to regulation by the Gas and Electricity Markets Authority ("GEMA"), which acts through Ofgem. Most of the revenue of the electricity distribution licence holders is controlled by a distribution price control formula set out in the electricity distribution licence. The price control formula does not constrain profits from year to year but is a control on revenue that operates independently of most of the electricity distribution licence holder's costs. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Principal risks and uncertainties (continued) Financial strength (continued): It has been the practice of Ofgem to review and reset the formula at five-year intervals, although the formula has been, and may be, reviewed at other times at the discretion of Ofgem. The current five-year price control period became effective on 1 April 2005 and has set the Company's revenue through to 31 March 2010. A resetting of the formula requires the consent of the electricity distribution licence holder but licence modifications may be unilaterally imposed by Ofgem without such consent following review by the Competition Commission. During the term of the price control, changes in costs incurred will have a direct impact on the financial results of the Company. The other financial strength risks facing the Company are outlined in the Treasury section on page 9 below. Operational risk: The principal risks facing the Company in respect of the other core principles include: +------------------+-------------------------+-----------------------+ | Risk | Issue | Mitigation | +------------------+-------------------------+-----------------------+ | Counter-party | A counter-party with | The treasury function | | security | which the Company | has strict controls | | (Financial | trades may go bankrupt | in respect of the | | Strength) | causing loss of | counter-parties with | | | invested funds or | which it deals, | | | amounts owing. | including the use of | | | | credit ratings and | | | | appropriate limits. | | | | Credit cover | | | | arrangements are in | | | | place with the | | | | electricity | | | | suppliers, which | | | | would allow recovery | | | | of defaulted payments | | | | through the price | | | | control mechanism, if | | | | good debt control | | | | practices continue to | | | | be followed. | | | | | +------------------+-------------------------+-----------------------+ | Potential | Recent weather patterns | A robust major | | flooding and | suggest a heightened | incident management | | other weather | risk of flooding of 'at | plan is in place. The | | related events. | risk areas' and the | Company's critical | | (Operational | potential for increased | property unit plan | | Excellence and | occurrence of damage to | assesses those | | Customer | the overhead network. | properties most at | | service) | | risk and a flood | | | | mitigation plan is in | | | | place, including the | | | | erection of permanent | | | | and temporary | | | | defences. | | | | | +------------------+-------------------------+-----------------------+ | BT ESP Analogue | Potential withdrawal of | The Company is | | Circuits | service puts existing | represented on the | | (Operational | communication | Energy Networks | | Excellence) | arrangements at risk. | Association's working | | | | group, which is | | | | working with BT, the | | | | Cabinet Office, Ofgem | | | | and Ofcom to consider | | | | the issues. Options | | | | include retaining the | | | | equivalent service, | | | | potentially at higher | | | | than current cost or | | | | utilising an | | | | alternative solution. | | | | | +------------------+-------------------------+-----------------------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Principal risks and uncertainties (continued) Operational risk (continued): +--------------------+------------------------+-----------------------+ | Risk | Issue | Mitigation | +--------------------+------------------------+-----------------------+ | | | | +--------------------+------------------------+-----------------------+ | Network risk in | Should the 132kV | Completion of a | | the Bradford area | infeeds fail, the main | number of the key | | (Operational | supply point would be | deliverables has gone | | Excellence) | lost and result in | some way towards | | | substantial cost | reducing the overall | | | impact to restore the | risk and a programme | | | customers via the use | of major replacement, | | | of generating units or | reinforcement and | | | through potential | refurbishment works | | | guaranteed standards | runs through to 2015. | | | failures and incentive | | | | penalties. | | | | | | +--------------------+------------------------+-----------------------+ | Motor accident | Any significant road | The inclusion of road | | management | traffic accident | risk related issues | | (Employee | involving a Company | in the CE Group's | | Commitment and | vehicle may create a | Safety Improvement | | Regulatory | liability, which the | Plan and the | | Integrity) | Company has to meet, | appointment of a | | | and involve injury to | dedicated road risk | | | employees and/or third | manager, together | | | parties. | with improved | | | | reporting routines, | | | | has increased the | | | | focus on road safety. | | | | | +--------------------+------------------------+-----------------------+ | Electricity | The regulations impose | A full site | | Safety, Quality | various statutory | inspection and risk | | and Continuity | obligations, | assessment regime is | | Regulations 2002 | non-compliance with | in place designed to | | (Employee | which could lead to | ensure compliance. | | Commitment and | incidents, prosecution | | | Regulatory | and claims. | | | Integrity) | | | | | | | +--------------------+------------------------+-----------------------+ | Shortage of supply | The global demand for | Improved and more | | and increased | copper has impacted | efficient procurement | | demand for copper | the availability and | processes have been | | (Operational | cost of a number of | introduced and | | Excellence) | core products and | security at all sites | | | increased the risk of | where copper products | | | theft. | are stored has been | | | | reviewed and enhanced | | | | where required. | | | | | +--------------------+------------------------+-----------------------+ | Influenza pandemic | A pandemic may occur, | A pandemic group was | | (Employee | substantially | established and an | | Commitment and | impacting on normal | action plan | | Operational | business operations. | incorporated into the | | Excellence) | | Company's existing | | | | crisis management and | | | | business continuity | | | | plans, which included | | | | information and | | | | practice obtained | | | | from liaison with | | | | government agencies, | | | | health professionals | | | | and occupational | | | | health experts. | +--------------------+------------------------+-----------------------+ A Compliance Assurance Programme Steering Group ("CAPSG") is in place, consisting of certain directors and senior managers of the CE Group, in order to provide oversight at a strategic level and steering of the CE Group's performance in respect of governance and its key facets of compliance and risk management. The Company operates a structured and disciplined approach to the management of risk, as part of the overall risk management approach of the CE Group. Those risks assessed to be significantly high are logged within a risk register that is reviewed regularly by the CAPSG and key indicators track the number of significant risks actively monitored by the CAPSG at any one time. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Operational risk (continued): Risks are assessed with due regard to probability and impact and the risk environment is reviewed continually in order that new or emerging potential risks are identified. Risk mitigation and loss control plans are prepared in response to strategic risks in order that the directors can be assured that appropriate mitigating actions are in place and being implemented. These plans are monitored through to implementation and reviewed to determine whether the level of residual, mitigated risk is within an acceptable level of tolerance. The CE Group's strategy is to follow an appropriate risk policy, which is intended to effectively manage exposures related to the achievement of its business objectives. The CE Group identifies and assesses risks associated with the achievement of its strategic objectives, including those of an environmental and social nature. Any key actions needed to further enhance the control environment are identified, along with the person responsible for the management of the specific risk. A regular review of the key risks, controls and action plans is undertaken. The Governance and Risk Section co-ordinates the risk and compliance activity, emphasising the CE Group's commitment to maintaining an appropriate risk and governance framework across the business. The use of a well-defined risk management methodology allows a consistent and co-ordinated approach to risk reporting and mitigation. A key element and requirement of the risk management process is that a written certificate is provided by the President and Chief Operating Officer of the CE Group confirming that the effectiveness of the system of internal controls has been reviewed during the year. A self-certification process is in place, in support of this review, whereby senior managers are required to confirm that the system of internal control in their area of the business is operating effectively. Internal control A rigorous internal control environment exists within the CE Group based on regular reporting, a series of operational and financial policy statements, investigations undertaken by internal audit and a stringent process for ensuring the implementation of any recommendations. MidAmerican Energy Holdings Company ("MidAmerican"), a parent company of the Company, requires a quarterly control risk self-assessment to be undertaken by all senior managers as part of its programme for compliance with the requirements of the Sarbanes-Oxley Act. During the year, the annual, extensive programme to review the company-wide controls was completed and opportunities to enhance control arrangements, identified by that review, have been implemented. The CE Group is committed to proper business conduct and, in common with the other affiliates of MidAmerican, has adopted a code of business ethics that emphasises the requirement for all staff to manage their activities to achieve the highest level of ethical conduct. The CE Group has a "speaking up" policy in place for staff to raise any instances of unethical acts, malpractice or impropriety. An additional process is also available to all staff via an international, anonymous help line operated by an independent company. Human resource policies focus on skills, motivation and excellence and the promotion of high standards of probity among staff. In addition, the appropriate organisational structure has been developed to control business units and to delegate authority and accountability, having regard to acceptable levels of risk. The Company has appropriate controls in place directed at ensuring compliance with the conditions in its licence requiring any payments made to, or received from, affiliates or related undertakings in respect of goods and services provided or supplied to be on an arm's length basis and on normal commercial terms. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Internal control (continued) Other key features of the internal control system are: · Comprehensive business planning and financial reporting procedures, including the annual preparation of detailed operational budgets for the year ahead and projections for subsequent years; · Regular review of key performance indicators to assess progress towards objectives; · A range of policies, codes of practice and more detailed instructions that define the processes to be followed; · A strong internal audit function to provide independent scrutiny of internal control systems and risk management procedures, including the standards required by the Sarbanes-Oxley Act; · On-going health and safety performance reviews carried out by in-house safety professionals in addition to the regime of routine health and safety risk assessment and management processes carried out within each of the operating units; · Processes and procedures to operate under the Occupational Health and Safety Assessment Series ("OHSAS") standard OHSAS 18001, which is subject to external certification and regular assessment; · An external obligations programme, which provides a robust approach to, and compliance with, financial, legal and regulatory obligations; · Centralised treasury operations that operate within defined limits and are subject to regular reporting requirements and audit reviews; and · Established procedures for planning, approving and monitoring major capital expenditure, major projects and the development of new business which includes short and long-term budgets, risk evaluation, detailed appraisal and review procedures, defined authority levels and post-investment performance reviews. Financial strength During 2009, the Company continued to improve its management of routine financial performance, implemented tighter expenditure controls through a wide-ranging cost mitigation exercise, enhanced the reporting of management information and embedded the culture of continuous financial improvement in all areas of its operations. In addition, representations were made to Ofgem, in accordance with the provisions set out in the electricity distribution licence, regarding certain categories of cost not fully taken into account when the current price control was set, effective from 1 April 2005, due to uncertainties at that time regarding the amount and materiality of those costs. After a due process of review Ofgem generally accepted those representations and agreed that the Company was able to recover approximately GBP34m, in addition to the otherwise agreed principles for calculating its allowed revenue, over the three regulatory years starting on 1 April 2009 and ending on 31 March 2012. The price control was adjusted accordingly to enable recovery of the GBP34 millionin future periods. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Financial strength (continued) The Company remains very aware of the impact that the general economic climate has had and may continue to have for the forseeable future on it and its customers. In that respect, procedures are in place to more closely monitor and manage the issues that may impact on the Company's business more significantly than others, including a reduction in overall demand for electricity leading to less units being distributed through the Company's network, lower activity in terms of new connections required to the network and the potential for higher debt write-off, if the economic downturn further affects the Company's customers. Key aspects of financial performance for the year were as follows: Revenue Revenue at GBP287.6m was GBP0.6m higher than the previous year as a result of a tariff increase in the year, partly offset by a reduction in units distributed over the network. Operating profit Operating profit at GBP139.7m was broadly in line with the previous year, reflecting stable income and costs. Finance costs Finance costs at GBP33.9m were GBP4.7m lower than the previous year reflecting lower balances owed to group undertakings throughout the year and a lower rate of interest compared to 2008. Taxation The effective tax rate in the current year is 27.3%. The Company's taxation charge in 2008 was affected by changes in tax legislation. Details are provided in Note 9 to the accounts. Results and dividends The Company made a profit after tax for the year of GBP77.4m. An interim dividend of GBP40m was paid during the year and the directors recommend that no final dividend be paid in respect of the year. Share capital and debt structures There were no changes to the Company's share capital or debt structure during the year. Dividend policy The Company's dividend policy is that dividends will be paid only after having due regard to available distributable reserves, available liquid funds and the financial resources and facilities needed to enable the Company to carry on its business for at least the next year. In addition, the level of dividends is set to maintain sufficient equity in the Company so as not to jeopardise its investment grade issuer credit rating. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Financial strength (continued) Cash flow The Company aims to collect from customers and pay suppliers within contracted terms. Any surplus cash is remitted to Yorkshire Electricity Group plc ("YEG"), a fellow company in the CE Group, and invested accordingly, generating a market rate of return for the Company. Movements in cash flows were as follows: * Operating activities: Cash flow from operating activities at GBP121.3m was GBP7.2m lower than 2008, mainly due to adverse variances on working capital of GBP16.0m, offset by reductions in tax and interest paid of GBP7.9m and an increase in cash profits of GBP1.3m. * Investing activities: Net cash used in investing activities at GBP144.2m was GBP207.6m higher than the previous year, mainly reflecting the sale of GBP200.0m of short-term securities in 2008. * Financing activities: The net cash generated by financing activities at GBP15.9m was GBP200.8m higher than the prior year reflecting an increase in the level of borrowings in the year, compared to a decrease in 2008. Treasury The Company's short-term financial objective is to ensure that it has access to sufficient liquidity to enable it to meet its obligations as they fall due and to provide adequately for contingencies. The long-term objective is to provide a stable, low cost of financing over time whilst observing approved risk parameters. The main risks are liquidity and interest rate risk. Liquidity risk The Company has access to short-term borrowing facilities provided by YEG and a GBP50m committed revolving credit facility provided by Lloyds TSB Bank plc and Royal Bank of Scotland plc. Although the revolving credit facility is due to expire in April 2010, the Company has commitments in place to increase those facilities to GBP75m withLloyds TSB Bank plc, Royal Bank of Scotland plc and Abbey National Treasury Services plc, part of the Banco Santander group, for a three year period. An additional overdraft facility of GBP2m is provided by Lloyds TSB Bank plc, which is renewed on an annual basis. Interest rate risk The Company is financed by long-term borrowings at fixed rates and has access to short-term borrowing facilities at floating rates of interest. As at 31 December 2009, 73% of the Company's borrowings were at fixed rates and the average maturity for these borrowings was 19 years. Currency risk No material currency risks are faced by the Company. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Financial strength (continued) Treasury (continued) Trading risk Throughout the year under review, the Company's policy was that no trading in financial instruments should be undertaken. Financial derivatives As at 31 December 2009 and during the year it was the Company's policy not to hold any derivative financial instruments. Pensions The Company is a participating employer in the Northern Electric Group of the Electricity Supply Pension Scheme (the "Scheme"), a defined benefit scheme. Full details of the Company's commitments to the Scheme and the associated deficit repair payments are provided in Note 23 to the accounts. During 2010, Northern Electric plc, a fellow company in the CE Group and the Principal Employer of the Scheme, will be engaged with the Group Trustees in the triennial actuarial valuation process, which is to take place as at 31 March 2010, in order to determine the funding position of the Scheme and the associated deficit repair arrangements. Ofgem recognises that pensions, particularly with respect to the current deficit positions of various schemes, represent a significant cost to the DNOs and, as part of the DPCR5 process, undertook a review of the pension principles it established in 2003. That review included the issue of three consultation documents and the holding of three seminars for interested parties and, as a result, Ofgem confirmed that the DNOs would be allowed to recover the full value of the deficits attributable to the licensee's distribution business that were in existence as at 31 March 2010, via their regulated revenues. However, given the regulated nature of the DNOs' businesses, Ofgem took the view that there is not the same risk or urgency as in other sectors of the economy to ensure that those deficits are repaired as soon as possible and, therefore, set a notional repair period of 15 years for the purpose of assessing the DNOs' allowed revenues in respect of pension costs over the DPCR5 period. As the actual repair period for each scheme is a matter for the trustees of that scheme to agree with its sponsoring employer, Ofgem recognised that there is the potential for there to be a difference between the repair period so agreed and the 15 year notional repair period used in DPCR5. Noting this position, Ofgem commented in the DPCR5 final proposals that, should shorter deficit repair periods be agreed between trustees and sponsoring employers, the DNOs allowed revenues over the remaining portion of the 15 years will be adjusted so that the DNOs suffer no detriment on a net present value basis. The Company also participates in the Yorkshire Electricity Pension Plan and the Northern Electric Money Purchase Scheme, which are defined contribution schemes. Insurance As part of its insurance and risk strategy, the CE Group has put in place a range of insurance policies covering it against risks, including damage to property and employer's, third party motor and public liability. The CE Group carries appropriate excesses on those policies and is effectively self-insured up to the level of those excesses. Consequently, the risk management and health and safety programmes in place are viewed as extremely important elements of the business, given the contribution they make to the elimination or reduction of exposure to such risks. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Customer service During the year, the Company distributed electricity to customers in its distribution services area and continued to improve the overall performance of its distribution network through its investment strategy being targeted at delivering improvements in an efficient and cost-effective manner. The Company is focused on delivering a reliable and dependable supply of electricity and a high standard of service to its customers. During the year, a significant number of tangible improvements have been identified and delivered as part of the overall goal to improve customer satisfaction with the service provided, including: · implementing a new interactive voice response system into the Company's front line call centre, which takes advantage of the latest developments in automatic messaging, in order to assist in the handling of customer loss of supply calls; · improving the accuracy of network fault estimated restoration times inputted to the trouble management system and, consequently, communicated to customers; · implementing a new complaint handling process to ensure robust compliance with the Gas and Electricity (Consumer Complaints Handling Standards) Regulations 2008 and to meet the target of in excess of 90% of complaints being resolved at the initial point of contact; · continuing to improve under-performing parts of the distribution system by identifying "hot spots" and taking specific action to address the issues in those areas; · extending the priority services register so that the Company is aware of people with disabilities or special needs, who may be affected by interruptions to the electricity supply and can take appropriate action to assist those people in such circumstances; and · undertaking a programme to reduce the number of instances by 5%, in which the Company fails to meet an electricity guaranteed standard of performance. The Company's customer service satisfaction scores continued to show an improving trend through the year and in excess of 97% of complaints were resolved at the first time of asking. In that respect, developing the new telephony system for other customer facing processes will form a significant part of the customer service improvement plan in order to meet the target of a customer satisfaction score of greater than 90%. Ofgem has established an incentive scheme for quality of service, by which DNOs, such as the Company, are provided with financial incentives based upon targets set by Ofgem for each of the DNOs with regard to their performance in the following areas: · The number of interruptions to supply; · The duration of interruptions to supply; and · Customer satisfaction. Customer minutes lost ("CML") and customer interruptions ("CI") are the key performance indicators used by the Company to measure the quality of supply and system performance. CML measure the average number of supply minutes lost for every connected customer due to faults and planned outages that last for three minutes or longer. CI measure the average number of supply interruptions for every 100 connected customers due to faults and planned outages that last for three minutes or longer. DNOs' performance against guaranteed standards, set for activities such as restoring supplies after unplanned interruptions, provides a measure of the level of customer service. Performance against these measures forms part of the Company's regular reporting to Ofgem. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Customer service (continued) In respect of the key customer service performance indicators, the Company did not perform particularly acceptably for the regulatory year ended 31 March 2009, as it failed to achieve the targets, as follows: +---------------+--------------------+--------------------+ | | Actual | Target | +---------------+--------------------+--------------------+ | CML: | 73.1 (2008: 75.0) | 63.4 (2008: 65.1) | +---------------+--------------------+--------------------+ | CI: | 76.4 (2008: 75.7) | 68.5 (2008: 68.5) | +---------------+--------------------+--------------------+ | Customer | 88.2% (2008: | 90% (2008: 90%) | |satisfaction: | 86.8%) | | +---------------+--------------------+--------------------+ At the time the above targets were set, no account was taken of the customer service impact arising from additional vegetation management obligations, which were not allowed for in the distribution price control 4 settlement. The customer service targets were not adjusted to take account of the effects of the representations made by the Company and accepted by Ofgem, which are noted on page 7. Instead, the benefits arising from that decision were reflected in a favourable adjustment to the Company's base allowed revenue. That position will continue until 31 March 2010. Operational excellence The Company's core service continues to be providing and maintaining an efficient distribution network that delivers electricity effectively. During the year, GBP170.2m was invested in the improvement of the distribution system, including the replacement of assets and continuing network improvements intended to increase the quality of the electricity supply provided to customers. Operational activity The investment strategy is designed to deliver improvements in an efficient and cost-effective manner by minimising the number of faults that occur, reducing the average number of customers affected by a fault and providing a quicker restoration service in the event of a fault. Such actions are expected to have a positive impact on future CI and CML performance. The focus in 2009 was on delivering the core operational programmes, in particular the installation of remote control units, and improving the lead times for fault repair work-in-progress. That focus was designed to support the Company's goals in the area of operational excellence and to ensure that the distribution network is operated as well as possible. To that end, the Company's priorities are to deliver an underlying improvement in the network's resilience, deal appropriately with any risks as and when they arise, plan its operational activity so as to operate within the planning assumptions for pre-arranged system unavailability and, while doing so, to pay close attention to the underlying cost. Consequently, the Company has established five targets to enhance its performance in terms of operational excellence: · Deliver enhancements to the network by adding intelligent reconfiguration capability, which includes the commissioning of additional rural and urban remote control units on the high voltage system and auto-sectionalisers in rural area; · Minimise abnormal running arrangements by maintaining a routine service level for fault repair work-in-progress on the high voltage network, building on the success in that respect during 2009; · Minimise the impact on costs and customer service by pursuing a "fix-first-time" approach on the low voltage network, which will further improve the level of fault repair work-in-progress; · Enhance the operational availability of the installed remote control units by improving the level of work-in-progress of failure investigations, which will have a consequential benefit in respect of the successful operation of those units; and YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Operational excellence (continued) Operational activity (continued) · Complete the capital and maintenance work programmes, along with repair, connection and diversion work, within the pre-arranged interruption target. The major projects undertaken in support of those targets and as part of the investment strategy included: · Commencement of the major asset replacement of 132kV open terminal substations with indoor gas insulated switchgear in the Wakefield and Hull areas; · Completion of major replacement of 33kV oil-filled cables in the Leeds area; · Continuation of major replacement of 33kV oil-filled cables in the Dewsbury area; · Completion of reinforcement of the Kirkstall - Horsforth 132kV & 33kV infrastructure; · Completion of the construction of 33/11kV substations to provide increased capacity to the Scunthorpe, Knottingley, and Selby areas; · Continuation of the construction of a 33/11kV substation to provide increased capacity to the Snaith area; · Continuation of a major 66kV asset replacement scheme at Ferrybridge; · Continuation of three 66/11kV substation replacement schemes in the South Yorkshire area; · Completion of a major protection upgrade scheme in the Bradford area; · Refurbishment of 12km of 132kV overhead line; · Replacement of 7 units of high voltage outdoor switchgear; · Replacement of 68 high voltage distribution substations; · Replacement of 68 units of high voltage indoor switchgear; · Refurbishment or rebuilding of 70km of high voltage overhead line; · Refurbishment or rebuilding of 18km of low voltage overhead line; · The upgrade and reinforcement of 26.8km of overhead line to address the quality of supply performance issues relating to those circuits; and · The installation and commissioning of 449 new remote control units. In order to deliver its investment strategy, the Company used a mix of its own staff and contractors, including Integrated Utility Services Limited, a company registered in the Republic of Ireland and part of the CE Group, to undertake its activities. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Operational excellence (continued) Enduring operating model During the year, a significant project was undertaken by the senior Field Operations team to reorganise the operating structure within that area of the Company's business in order to provide the best possible foundation for optimum operational performance into the future. The management structure within Field Operations is based on seven individual business units, as follows: * Network Operations provides the day-to-day and reactive management of the distribution network at all voltages and includes activities such as network performance, emergency planning and restoration activities associated with network faults; * Service Delivery has responsibility for the control and management of the craft-based staff, direct labour and the provision of this resource to the other business units and is structured across three geographic zones; * Network Repairs focuses on core repair activities and significant cost control initiatives in respect of expenditure on the repair of faulted assets; * Connections Delivery undertakes non-discretionary, customer-driven work and is structured across three geographic zones; * Programme Delivery has a functional bias to its activities and includes primary engineering projects, overhead programme delivery, asset programme delivery and protection and technical services; * Operational Services includes contract management, business controls and administration and supply chain management; and * Field Standards provides training, quality assurance, services standards and health and safety services across Field Operations. Commercial risk Managing commercial risk in the context of the difficult economic and financial trading conditions, which continued throughout 2009, was and will continue to be of key importance to the Company's operations. In that respect, the Company has, throughout the year, focused on ensuring strict adherence to the CE Group's policies for credit checking, payment terms, payment performance tracking and debt management. During 2009, the CE Group completed the process of putting in place contracts in the commercially significant areas of IT facilities management and cable engineering services. A number of major IT suppliers responded to the tender for IT facilities management services and, following an extensive evaluation process, the new contract was awarded to Logica and will be effective from 1 April 2010 until 31 March 2015. Following a similar tender exercise, contracts for the provision of cable engineering services were awarded to Balfour Beatty Utility Solutions, Clancy Docwra, the Freedom group of companies, J Murphy & Sons, Morrison Utility Services and Murphy Limited and are effective for the five year period to June 2014. The Company's relationship with its main customers is governed by a distribution connection and use of system agreement ("DCUSA"), which is place with each of those customers. Those customers are the electricity suppliers who, under the terms of the DCUSA with the Company, pay charges for the use of the distribution network, in respect of which it is necessary to ensure that the credit cover arrangements in line with Ofgem's guidance remain in place. The principal electricity suppliers that use the Company's network are RWE Npower, British Gas, EdF Energy, E.on, Scottish and Southern Energy and Scottish Power. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Employee commitment Health and safety During the year, the focus on health and safety continued to be of paramount importance for the directors, as it is for all employees. Providing and maintaining a safe working environment is the first objective of the Company. There is a continuous drive for improvement in safety performance through the setting of challenging goals and the pursuit of a programme of on-site safety audits, whichreflect the Company's fundamental objectives that none of its staff should go home injured and all employees should commit to behaving safely all of the time. The Company makes no compromise in respect of its health and safety obligations and centres its safety plans and systems on the principles found in companies with world class safety performance. The Company received a first Gold Medal from the Royal Society for the Prevention of Accidents for occupational health and safety performance and provision, to recognise the achievement of continued or improving standards of health and safety over a sustained period. The Gold Award is the highest achievement award and the Gold Medal is presented for receiving five or more successive Gold Awards. The Company continued to maintain its OHSAS 18001 certification. The main key performance indicators used by the Company to monitor safety performance are as follows: +--------------------+----------+-----------+-----------+-----------+ | | 2009 | 2008 | +--------------------+----------------------+-----------------------+ | | Target | Actual | Target | Actual | +--------------------+----------+-----------+-----------+-----------+ | Lost time | 1 | 1 | 1 | 4 | | accidents | | | | | +--------------------+----------+-----------+-----------+-----------+ | Medical treatment | 3 | 3 | 4 | 1 | | accidents | | | | | +--------------------+----------+-----------+-----------+-----------+ | Operational | 4 | 5 | 4 | 7 | | incidents | | | | | +--------------------+----------+-----------+-----------+-----------+ | Preventable | 13 | 19 | 12 | 17 | | vehicle accidents | | | | | +--------------------+----------+-----------+-----------+-----------+ Although safety performance against target was disappointing in certain areas during 2009, the Company is not complacent and continues to rigorously implement, review and adjust the safety improvement plan accordingly to deliver continuous improvement. In terms of preventable vehicle accidents, the performance has been unacceptable and focus continues heavily on this area with implementation of a robust assessment and training plan aimed at changing behaviour and improving concentration skills. It is expected that this, together with the zero tolerance approach, should continue to deliver improvements in safety performance. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Management structure The CE Group has a clearly defined leadership team, in which specific roles are identified, so allowing more effective management of the CE Group's business and response to any control weaknesses that may become apparent, with single units being in place for field operations, customer operations, asset management, performance and innovation and health, safety and environment. The business systems, human resources, procurement and finance functions are centralised in order to provide those services across the CE Group. Employees 2009 was a particularly challenging year. The external economic environment and a tougher than expected DPCR5 final settlement have driven tight controls on a number of key activity programmes. Internal programmes of cost containment have been a key theme across the business and these have extended to the control of headcount and salary cost allocation with improved management processes being introduced in the first quarter of the year. Those improvements included enhanced control over external recruitment, the targeting of that recruitment at key hires and all such appointments being subject to the approval of the President and Chief Operating Officer of the CE Group. The Company has and will continue to place significant emphasis on the importance and application of high standards of management and performance in pursuit of its Core Principles and ensures that a level of consistency is adopted in doing so. In respect of emloyee relations, the CE Group and the trades unions continue to build a constructive relationship. Given the demographics of the Company's workforce, the increasing investment in the distribution network and in order to encourage investment in a sustainable workforce, Ofgem provided an allowance, in its DPCR5 final proposals, in order to fund the Company's plans for workforce renewal across the DPCR5 period. Ofgem has stated that the allowance is on a "use it or lose it" basis and the Company will need to demonstrate that it has used that allowance appropriately and efficiently to recruit and train new staff or for other means of renewing its workforce and report annually on its progress in that respect. The Company employed 1,102 staff at the end of December 2009 at various locations throughout its distribution services area (2008: 1,116). Disabled employees The Company is an equal opportunities employer and is committed to the criteria underpinning the Employment Service disability symbol. It is the Company's policy to provide disabled people with equal opportunities for employment, training, career development and promotion, having regard to their aptitudes and abilities. Should any member of staff become disabled during their employment, that member of staff would be retrained and redeployed, wherever possible. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Employee commitment (continued) Employee consultation The Company has a constitutional framework in place and has agreed that framework with trade union representatives. In addition, the Company communicates directly, and through the management structure, with personal contract holders and keeps them informed and involved as appropriate in any developments that may impact on them now or in the future. The Company is committed to maintaining and improving effective communication with employees, principally through regular staff briefs on current issues, meetings with staff and their representatives and the issue of an employee publication. During 2009, the Company introduced an additional means of communication in the form of regular broadcast briefings by the President and Chief Operating Officer of the CE Group using telephone conference call facilities. The broadcast briefings were used to provide employees with updates such as on the performance of the Company and the CE Group, progress in respect of DPCR5, organisational restructures and safety issues and performance. Environmental respect The Company's approach to environmental compliance is governed by its environmental policy and the MidAmerican policy of Environmental RESPECT (Responsibility, Efficiency, Stewardship, Performance, Evaluation, Communication and Training). These policies and their subordinate operational control procedures and systems address legal compliance, pollution prevention and continual improvement and also the promotion of environmental awareness and best practice amongst the Company's staff and contractors. The Company has operated a United Kingdom Accreditation Service accredited scheme to the environmental management systems ("EMS") standard ISO 14001 since the late 1990s that is subject to regular six-monthly assessments by an external certification body in order to retain that status. The 2009 asessment was carried out by Lloyd's Register Quality Assurance in September with no major or significant non-conformances raised. The report concluded that a sound approach to the implementation, maintenance and improvement of a mature EMS had been demonstrated. The Company delivered its targeted improvement in the key area of fluid-filled cable leakage, was compliant against the required streetworks performance standards under the Traffic Management Act and was fully compliant with all required Environmental Agency reporting obligations. Improvements in support of the CE Group's environmental policy objectives during the year included: · A programme to enhance secondary containment provision for primary transformer sites to prevent oil leakage; · A programme to enhance emergency response provision for primary transformer sites to mitigate oil leakage; · Replacement of oil-filled circuit breakers with vacuum and sulphur hexafluoride (SF6) gas filled units at outdoor substations to reduce gas leakage; · Improved monitoring and response measures with regard to the management of fluid-filled underground cable networks and the reduction of leakages; · Installation of additional engineering controls where required to improve pollution prevention at strategic sites; YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Environmental respect (continued) · Installation of underground cables using trenchless technology as opposed to open-cut excavations; and · Environmental awareness training for all new start personnel and contractors, complemented by periodic refresher training for all staff. Sustainability The Company takes its responsibilities towards reducing the impact of global warming seriously, both in its capacity as a major participant in the UK energy industry and in terms of its own carbon footprint. Through its involvement in industry groups and its interactions with government and regulators, it is contributing to the target of transforming the UK electricity industry into a low carbon emitter. The Company also works with customers to assist in solving issues raised by the introduction of low carbon generation and products and their implications for the planning and operation of the electricity distribution network. The Company measures and publishes its own carbon footprint and has set a target of a reduction in its carbon footprint of 20 per cent by 2020. Actions taken during the course of the year to assist in meeting this target include fitting speed limiters to about a third of its vehicle fleet, the procurement of building energy management systems for its major office sites and a pilot project to recycle office waste at one of its non-operational sites. In addition, Ofgem will be looking to the Company to contribute to the sustainability agenda through more detailed reporting on the carbon footprint of its business, considering the use of better demand side management techniques to address network constraints and by the provision of simpler information to those parties interested in connecting local, embedded generation to the network. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Regulatory integrity The Company manages its business to the highest behavioural standards and adheres to a policy of strict compliance with all relevant standards, legislation and regulatory conditions. The CAPSG continued to monitor and manage performance in risk-related and compliance areas and met on three occasions during the year. As has been the case for some years, breaches by a DNO of its licence conditions could lead to financial penalties, which Ofgem has stated "will have a proportionate impact on shareholder returns". In order to assure compliance with its licence and other regulatory obligations, the Company operates a regulatory compliance affirmation process, under which ownership of the approximately 1,170 regulatory obligations contained within the compliance database is currently assigned to some 49 owners in the CE Group. Those owners are required, on a quarterly basis, to review compliance with their relevant obligations and report on any perceived risks to the compliance process, which are then addressed. The Company's Regulation Manager reports to the board of directors on the outcome of each quarter's exercise. The regulatory framework across the energy industry in the UK is undergoing a wholesale review, which could result in fundamental changes to the way the industry is regulated in the future. A significant part of that process is Ofgem's "RPI-X@20" project, which is specifically considering the way in which energy networks are regulated. The Company has and will continue to take an active part in the debate, which is ranging from the potential for new technologies, such as "smart" metering, and the increased use of micro and distributed generation to the low carbon agenda insofar as it applies to electricity distribution networks. Other directors' report requirements Corporate social responsibility The Company values its relationship with its customers and their communities, recognising the importance of a secure power supply to the local communities and economy, and aims to enhance its relationship through a wider involvement in the activities of and dialogue with the communities it serves. As part of its customer service strategy, the Company engages directly with the communities it serves to create a dialogue on quality of supply issues, actions and investment planned to improve quality of supply, environmental and social implications of its operations and other opportunities to assist and engage in the life of the community. Where appropriate, this may include financial support for community projects. The Company has a targeted donations programme, focusing on its key priorities of support for youth, education and the environment. The CE Group is an active member of Business in the Community. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Charitable and political donations During the year, charitable donations of GBP50,301 were made (2008: GBP34,649), principally to local charities serving the communities in which the Company operates. No contributions were made to political organisations (2008: nil). Research and development The Company supports a programme of research that is expected to contribute to higher standards of performance and a more cost-effective operation of its business. The main areas of activity during the year were: · Active participation in programmes of national significance in collaboration with other DNOs and academic institutions to make significant technological progress for utilisation by the industry as a whole; · Continuing to support collaboration with other DNOs, both through industry associations and on a multilateral basis, on a range of incremental improvements to tools and equipment that, if successful, will further add to overall efficiency improvements; · Contributing to the ongoing development of eligibility for and governance of the new Low Carbon Networks Fund, initiated by Ofgem, as a part of DPCR5. The Low Carbon Networks Fund is intended to encourage innovation in terms of the technology used and the commercial and operational environments, in which the DNOs undertake their activities in order to contribute towards achieving a low or zero carbon position in the industry. The Company will, therefore, be looking to develop its programme of research and development in order to provide opportunities to access that fund; · Initial field trials of newly developed superconducting fault limiters have been successfully undertaken; · The network deployment of a fault passage indicator system, reducing reaction time to network faults and minimising customer impact; · Further developing a suite of health indices, for improved asset management, completing EHV cables and commencing work on poles and substations; and · Continuing to support a project at Durham University to assess electrical network risk with the objective of improving decision making on network reinforcement and operation. A follow up project, investigating demand side management impacts on network risk, has also been developed. Supplier payment policy The Company complies with the Better Payment Practice Code for the prompt payment of suppliers in accordance with the normal terms of trade. It is CE Group policy with respect to its suppliers to settle the terms of payment with those suppliers when agreeing the terms of each transaction, to ensure that those suppliers are aware of the terms of payment and to pay in accordance with the CE Group's contractual and other legal obligations. The number of days purchases in trade creditors for the Company at 31 December 2009 was 9 (2008: 8). YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Future developments The financial position of the Company, as at the year end, is shown in the balance sheet on page 34. There have been no significant events since the year end and the directors intend to develop the business in a manner that concentrates on its core skills of electricity distribution by continuing to operate its business with the goal of out-performing the allowances in the distribution price control, while efficiently investing in the electricity distribution system with the aim of improving the quality of supply provided to its customers. Directors The directors who served during the year and since the year end were as follows: G E Abel resigned 16 October 2009 P E Connor resigned 16 October 2009 R Dixon Non-Executive Director, appointed 16 October 2009 T E Fielden Finance Director, CE Electric UK, appointed 16 October 2009 J M France Regulation Director, CE Electric UK N M Gill Field Operations Director, CE Electric UK P A Jones President and Chief Operating Officer, CE Electric UK K Linge resigned 16 October 2009 Details of the directors' emoluments are included in note 8 to the accounts. Auditors A resolution to reappoint Deloitte LLP, as auditors, and to authorise the directors to determine their remuneration will be proposed at the Annual General Meeting. Going Concern The Company's business activities, together with details regarding its future development, performance and position are set out in the Business Review in the Directors' Report. In addition, the Company's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk are included in the Directors' Report and the appropriate notes to the accounts. When considering continuing to adopt the going concern basis in preparing the annual report and accounts, the directors have taken into account a number of factors, including the following: a) The Company is a stable electricity distribution business operating an essential public service and is regulated by GEMA. In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have regard to the need to secure that licence holders are able to finance their activities,which are the subject of obligations under Part 1 of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by the Utilities Act 2000; b) The Company is profitable with strong underlying cash flows and has investment grade credit ratings; and c) The Company has considerable financial resources, in the form of short-term borrowings made available by YEG and committed revolving credit facilities from Lloyds TSB Bank plc and Royal Bank of Scotland plc. Those facilities have recently been renewed and will be provided by Lloyds TSB Bank plc, Royal Bank of Scotland plc and Abbey National Treasury Services plc, part of the Banco Santander group, for a three year period. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Going Concern (continued) Consequently, after making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. Audit of the accounts Each of the directors, who is a director of the Company as at the date of this report, confirms that: a) so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware; and b) he has taken all the steps he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of S418 of the Companies Act 2006. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement The Financial Reporting Council issued a revised version of the Combined Code on Corporate Governance (the "Combined Code") in June 2008. The Disclosure and Transparency Rules ("DTR") require an issuer, to which section 7.2 of the DTR applies, to provide, in its annual directors' report, a corporate governance statement. That statement set out how the issuer has applied the main principles in the Combined Code and, to the extent that it departs from the Combined Code, the issuer is required to explain from which parts of the Combined Code it departs and the reasons for doing so. A Directors Principle A1: The Board: The board of directors is responsible for the overall management of the Company and its system of internal controls. The directors have agreed a quarterly schedule of board meetings at which they review performance, strategy and operational and risk-related issues. Regular items on the agenda for consideration at board meetings are general business performance, internal control, key business activities and projects and the regulatory compliance process. In addition, the President and Chief Operating Officer of the CE Group participates in weekly performance review meetings with the President of MidAmerican and other senior managers of the MidAmerican group, including the Senior Vice President and Chief Financial Officer. At those weekly meetings, the views of the President of MidAmerican and the senior management team regarding the key, current issues facing the Company are discussed. The President of MidAmerican also receives weekly, monthly and quarterly reports on the Company's performance from the CE Group's President and Chief Operating Officer. MidAmerican's Senior Vice President and Chief Financial Officer and General Counsel also hold similar weekly review meetings in respect of MidAmerican's financial and legal functions, at which the Company's Finance Director and General Counsel present their respective weekly reports. The board meets quarterly and as required to consider relevant issues and met on seven occasions in total during the year ended 31 December 2009, with the attendance of those directors, who were directors as at 31 December 2009, being as follows: R Dixon Non-Executive Director 2 (of 2 held following appointment) T E Fielden Finance Director, CE Electric UK 2 (of 2 held following appointment) J M France Regulation Director, CE Electric UK 6 N M Gill Field Operations Director, CE Electric UK 6 P A Jones President and Chief Operating Officer, CE Electric UK 6 Mr Dixon attended the five board meetings held prior to his appointment as a non-executive director of the Company in his capacity as an independent non-executive director of CE Electric UK Funding Company, the Company's ultimate parent company in the United Kingdom. Operational management of the Company's business (and that of its affiliate, Northern Electric Distribution Limited) is delegated to a single senior management team, with specific functional responsibilities. That senior management team meets monthly with the senior management of the CE Group to monitor performance and address issues of policy across all areas of the business and holds weekly conference calls to report on and consider performance related issues for that week. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement (continued) Principle A1: The Board (continued): The directors have overall responsibilty for the internal control environment, which, within the CE Group, is based on regular reporting, a series of operational and financial policy statements, investigations undertaken by internal audit and a stringent process for ensuring the implementation of any recommendations. In addition, MidAmerican requires a quarterly control risk self-assessment to be undertaken by all senior managers as part of its programme for compliance with the requirements of the Sarbanes-Oxley Act. A review is undertaken of the company-wide controls in place on an annual basis and the review carried out in 2009, while not identifying any areas of significant weakness, resulted in the implementation of various recommended improvements. The key features of the CE Group's internal control system and the issues addressed by the Company and the CE Group during the year can be found in the business review of the year. Details of the management structure of the CE Group are provided in the directors' report. A schedule of key delegations of authority has been approved by the board, which delegates authority for decision-making to senior and other managers in respect of issues such as capital expenditure, procurement, contractual, human resource and payment matters and for the conduct of claims and litigation. That schedule reserves decision-making to the directors above certain financial limits. During the year, there were a number of committees in operation, acting under delegated terms of reference, which oversee CE Group and, therefore, Company policy. As part of the approved terms of reference, those committees report regularly to the board on their activities. The committees in operation during the year were as follows: Health and Safety Management Committee The board of CE Electric UK Funding Company has established the CE Group Health and Safety Management Committee with delegated powers to manage the health and safety policy and performance of the CE Group. Membership of the committee comprises: T E Fielden Finance Director, CE Electric UK J M France Regulation Director, CE Electric UK N M Gill Field Operations Director, CE Electric UK P A Jones President and Chief Operating Officer, CE Electric UK A J MacLennan Managing Director, IUSL and P McCormick Director of Health, Safety and Environment, CE Electric UK The committee meets on a regular basis in order to oversee implementation of health and safety policy, review and agree strategy for the management of health and safety issues, monitor health and safety performance across the CE Group, establish goals and targets, review the effectiveness of the health and safety policies and the health and safety management system and consider recommendations for changes in CE Group policy due to changes in appropriate legislation, codes of practice or guidance or due to recommendations arising from significant incidents. Treasury Committee The Treasury Committee oversees and implements the treasury policies outlined in the business review of the year in the directors' report and comprises: G E Abel President, MidAmerican P Ainsley Financial Controller, CE Electric UK D Brady Treasurer, CE Electric UK T E Fielden Finance Director, CE Electric UK P J Goodman: Senior Vice President and Chief Financial Officer, MidAmerican P A Jones President and Chief Operating Officer, CE Electric UK R D McHaddan Assistant Treasurer, CE Electric UK and O Sutherland Investor Reporting Manager, CE Electric UK. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement (continued) A Directors (continued) Principle A1: The Board (continued): Pensions Committee The Pensions Committee oversees the CE Group's approach to the pension schemes to which it contributes and comprises: P Ainsley Financial Controller, CE Electric UK T E Fielden Finance Director, CE Electric UK J M France Regulation Director, CE Electric UK K A Mawson Head of Finance Development and Systems, CE Electric UK A J Patterson Director of Human Resources, CE Electric UK N Dawson Pensions Manager, CE Electric UK and L Taylor Director of Business Systems, CE Electric UK. Compliance Assurance Programme Steering Group ("CAPSG") As mentioned in the business review of the year, the CAPSG is the principal management forum in the CE Group with regard to corporate governance. Its purpose is to ensure that CE Group companies apply and maintain appropriate arrangements to deliver sound corporate governance and comply with the overall strategy, framework and supporting policies. The CAPSG monitors and reviews the strategic risk environment, ensuring the continued suitability, adequacy and effectiveness of risk management arrangements. The CAPSG comprises: J P Barnett Director of Customer Operations CE Electric UK R Dixon Non-Executive Director, CE Electric UK Funding Company M Drye Director of Asset Management CE Electric UK J Elliott Company Secretary, CE Electric UK T E Fielden Finance Director, CE Electric UK J M France Regulation Director, CE Electric UK N M Gill Field Operations Director, CE Electric UK and L Taylor Director of Business Systems, CE Electric UK. The risk management framework was monitored regularly during the year to ensure that all strategic risks, including those relating to environmental and social issues, were being addressed. Risk management policies and procedures were reviewed and updated to ensure a robust and clear approach was maintained. Mr Dixon attends meetings of the CAPSG to provide an independent view in respect of the matters discussed. Asset risk continued to be a strong focus through the Asset Risk Management Executive Review Group and comprehensive plans continued to be in place to manage risks affecting all critical property assets and to strengthen the arrangements for crisis management and business continuity planning. Further details of the CE Group's approach to corporate governance and the management of internal controls can be found in the business review of the year in the directors' report. As explained in Principles A4 and B1, the Company does not have a remuneration committee or a nomination committee. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement (continued) A Directors (continued) Principle A2: Chairman and Chief Executive The Company does not have a formally appointed Chairman or Chief Executive. However, the President and Chief Operating Officer of the CE Group chairs the board meetings and is responsible for the operation and management of the CE Group. Principle A3: Board balance and independence The board comprises four executive directors who, collectively, bring a range of skills and experience to the board. Consequently, the board believes that it possesses the skills and experience necessary to provide effective leadership, stewardship and control of the Company. During the year Mr Abel, Mr Connor and Mr Linge resigned and Mr Dixon and Mr Fielden were appointed as directors of the Company. The directors of the Company, as at the date of approval of the annual accounts, were as follows: R Dixon Non-Executive Director; T E Fielden Finance Director, CE Electric UK J M France Regulation Director, CE Electric UK N M Gill Field Operations Director, CE Electric UK and P A Jones President and Chief Operating Officer, CE Electric UK. Principle A4: Appointments to the Board The CE Group does not have a nomination committee. Appointments to the board are made by MidAmerican, in conjunction with the President and Chief Operating Officer of the CE Group. Principle A5: Information and professional development Directors receive monthly reports outlining progress against the Company's goals and targets, enabling financial performance against budget and operational performance against a number of indicators to be reviewed, and also participate in weekly meetings, which consider the key issues of that week in some detail. The directors are able to utilise the advice and services of the Company Secretary, in respect of their duties and responsibilities as directors and any new legislation that may affect those duties and responsibilities. A briefing programme continued to run throughout the year for the directors in respect of the changes introduced by the phased implementation of the Companies Act 2006 including the procedural requirements in respect of the authorisation of potential conflicts of interest. The directors also have access to external legal advice, should they feel it necessary. Interim briefings are provided to the non-executive director, as appropriate. Mr Fielden joined the CE Group on 27 July 2009 and was appointed a director of the Company on 16 October 2009. During that period Mr Fielden worked closely with the previous Finance Director and the senior management team of the CE Group as part of his induction as a director, which included exposure to all aspects of the operation of the CE Group's business. Principle A6: Performance evaluation As part of their approved terms of reference, the committees report regularly on their activities, enabling the directors to evaluate the activities of those committees. However, the board does not have a process of evaluation of its own performance or the performance of individual directors in their capacity as directors. The CE Group has a performance appraisal and development scheme in place, under which each senior manager of the CE Group is subject to a formal annual appraisal of performance against his individual and the CE Group's goals. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement (continued) A Directors (continued) Principle A7: Re-election The Company's articles of association do not require periodic retirement and re-election of directors. B Remuneration Principle B1: The level and make-up of remuneration The CE Group does not have a remuneration committee. Annual remuneration awards for senior management of the CE Group are subject to the performance appraisal and development scheme process and consideration by the President of MidAmerican and the CE Group's President and Chief Operating Officer. The Company has only debt securities listed on the London Stock Exchange. Accordingly, it has availed itself of the exemption from the requirements to make directors' remuneration disclosures and for auditor review thereof. Principle B2: Procedure As mentioned under Principle B1, the annual remuneration awards for senior management of the CE Group are subject to the performance appraisal and development scheme process and consideration by the President of MidAmerican and the CE Group's President and Chief Operating Officer. Other than Mr Dixon, the directors of the Company are subject to the performance appraisal and development scheme process in their capacity as senior managers of the CE Group and not, specifically, in their capacity as board directors. No director is involved in deciding his own remuneration. C Accountability and Audit Principle C1: Financial Reporting The board believes that the directors' report and business review of the year included in the annual accounts provides a balanced and understandable assessment of the Company's position and prospects. The directors have explained, at page 29, their responsibility for preparing the annual accounts, reported, at page 21 in the directors' report that the Company is a going concern and included the independent accountant's report to the members of the Company at page 30 of the annual accounts. Principle C2: Internal control The principal risks and uncertainties facing the Company and the key features of the CE Group's internal control system, together with details of the issues addressed by the Company and the CE Group during the year, can be found at pages 3 to 7 of the business review of the year in the directors' report. Principle C3: Audit committee and auditors CE Electric UK Funding Company has established an audit committee for the CE Group under delegated terms of reference, which include monitoring of the financial reporting process, the effectiveness of the internal control, internal audit and risk management systems, the statutory audit of the accounts, the independence of and the provision of additional services by the auditor and receiving an annual report from the CE Group's Head of Internal Audit on the work of the Internal Audit Section during the year and the audit plan for the following year. DTR 7 requires an audit committee to have at least one independent member and a member with competence in accounting and/or auditing, although these requirements could be satisfied by one and the same person. However, code provision C.3.1 states that the board should establish an audit committee of at least three independent non-executive directors and should satisfy itself that at least one member has recent relevant financial experience. Given that Mr Dixon is the CE Group's sole independent non-executive director, the Audit Committee comprises: YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) Corporate Governance Statement (continued) Principle C3: Audit committee and auditors (continued) R Dixon Non-Executive Director; and T E Fielden Finance Director, CE Electric UK. The CE Group also operates under the oversight of the MidAmerican Audit Committee, which is comprised of Mr. Marc D. Hamburg who, the MidAmerican board of directors has determined, qualifies as an "audit committee financial expert," as defined by the rules of the Securities and Exchange Commission, based on his education, experience and background. The MidAmerican Audit Committee is attended, from time to time, by the Senior Vice President and Chief Financial Officer and the Vice President and Chief Accounting Officer of MidAmerican, the Director of Internal Auditing of Berkshire Hathaway, Inc. and the Heads of Internal Audit of the various MidAmerican business platforms. The directors confirm that no fees were payable by the Company to Deloitte LLP in relation to non-audit services during the year. The internal control section on page 6 of the directors' report contains details of the CE Group's "speaking up" policy. D Relations with shareholders Principle D1: Dialogue with Institutional Shareholders This principle of the Combined Code is not applicable to the Company, as it is a wholly-owned subsidiary of a privately held group of companies and, therefore, has no institutional shareholders. Principle D2: Constructive use of the AGM This principle of the Combined Code is not applicable to the Company, as it is a wholly-owned subsidiary of a privately held group of companies. Compliance statement Set out above and in the business review of the year in the directors' report are the areas in which the Company adopts and complies with the principles of the Combined Code. The Company has not complied with certain principles of the Combined Code, including the principles A2, A3, A4, A6, A7, B1, B2, C3, D1 and D2. The directors confirm that such non-compliance was of a continuing nature throughout the year but consider the governance framework in place to be appropriate to the Company's circumstances, given that it includes regular reporting to and meetings with the President and senior management of MidAmerican, the presence of an independent non-executive director and astrong internal control environment designed to meet the standards required by the Sarbanes-Oxley Act. The intention of the Combined Code is that companies should be able to explain their governance policies in light of the principles contained in the Combined Code, including any special circumstances applying to them, which have led to a particular approach. The directors are of the opinion that, in the instances where the Company does not comply with certain provisions of the Combined Code, this approach is justifiable, given the ownership structure of the Company. By order of the board John Elliott Company Secretary 19 March 2010 YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 DIRECTORS' REPORT (CONTINUED) RESPONSIBILITY OF DIRECTORS FOR THE PREPARATION OF THE REPORT AND ACCOUNTS The directors are responsible for preparing the Annual Report and the financial statements and are required to prepare financial statements for the Company in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. Company law requires the directors to prepare such financial statements in accordance with IFRS, the Companies Act 2006 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to: · Properly select and apply accounting policies; · Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and · Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors' report which complies with the requirements of the Companies Act 2006. The directors are responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS Each of the directors as at the date of the Annual Report, whose names and functions are set out on page 21 of the Directors' Report confirms that, to the best of their knowledge: a) the Company accounts, prepared in accordance with applicable UK law and in conformity with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and b) the Management Report (which is comprised of the Directors' Report and the Business Review) includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces. This responsibility statement was approved by the Board of Directors on 19 March 2010 and signed on its behalf by: P A Jones President and Chief Operating Officer INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF YORKSHIRE ELECTRICITY DISTRIBUTION PLC We have audited the financial statements of Yorkshire Electricity Distribution plc (the "Company") for the year ended 31 December 2009 which comprise the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Balance Sheet and the Cash Flow Statement and the related notes 1 to 26. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the financial statements: · give a true and fair view of the state of the Company's affairs as at 31 December 2009 and of its profit for the year then ended; · have been properly prepared in accordance with IFRSs as adopted by the European Union; and · have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF YORKSHIRE ELECTRICITY DISTRIBUTION plc (CONTINUED) Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: · adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or · the financial statements are not in agreement with the accounting records and returns; or · certain disclosures of directors' remuneration specified by law are not made; or · we have not received all the information and explanations we require for our audit. John Charlton (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne England 23 March 2010 YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009 +----------------------------------------------+-------+----------+--------+----------+--------+ | |Notes | | 2009 | | 2008 | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | GBPm | | GBPm | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Revenue | 3 | | 287.6 | | 287.0 | +----------------------------------------------+-------+----------+--------+----------+--------+ | Cost of sales | | | (11.2) | | (11.5) | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Gross profit | | | 276.4 | | 275.5 | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Distribution costs | | | (94.2) | | (91.4) | +----------------------------------------------+-------+----------+--------+----------+--------+ | Administrative expenses | | | (42.5) | | (43.4) | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Operating profit | 6 | | 139.7 | | 140.7 | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Profit on disposal of property, plant and | | | 0.7 | | 0.2 | | equipment | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Investment income | 4 | | - | | 1.8 | +----------------------------------------------+-------+----------+--------+----------+--------+ | Finance costs | 5 | | (33.9) | | (38.6) | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Profit before tax | | | 106.5 | | 104.1 | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Income tax expense | 9 | | (29.1) | | (41.1) | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ | Profit for the financial year | | | 77.4 | | 63.0 | +----------------------------------------------+-------+----------+--------+----------+--------+ | | | | | | | +----------------------------------------------+-------+----------+--------+----------+--------+ All activities relate to continuing operations. There has been no other income or expense for the Company other than the profits reported above in the current or the prior year. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 +------------------------------------+---------+----------+----------+----------+---------+ | | | | | | | | | Share | |Retained | | | | |Capital | |Reserves | | Total | | | | | | | Equity | +------------------------------------+---------+----------+----------+----------+---------+ | | GBPm | | GBPm | | GBPm | +------------------------------------+---------+----------+----------+----------+---------+ | | | | | | | +------------------------------------+---------+----------+----------+----------+---------+ | At 1 January 2008 | 290.0 | | 182.7 | | 472.7 | +------------------------------------+---------+----------+----------+----------+---------+ | Comprehensive income for the year | - | | 63.0 | | 63.0 | +------------------------------------+---------+----------+----------+----------+---------+ | Dividends paid | - | | (40.0) | | (40.0) | +------------------------------------+---------+----------+----------+----------+---------+ | | | | | | | +------------------------------------+---------+----------+----------+----------+---------+ | At 31 December 2008 | 290.0 | | 205.7 | | 495.7 | +------------------------------------+---------+----------+----------+----------+---------+ | Comprehensive income for the year | - | | 77.4 | | 77.4 | +------------------------------------+---------+----------+----------+----------+---------+ | Dividends paid | - | | (40.0) | | (40.0) | +------------------------------------+---------+----------+----------+----------+---------+ | | | | | | | +------------------------------------+---------+----------+----------+----------+---------+ | At 31 December 2009 | 290.0 | | 243.1 | | 533.1 | +------------------------------------+---------+----------+----------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 BALANCE SHEET AS AT 31 DECEMBER 2009 +------------------------------------------------+-------+-----------+----------+-----------+ | |Notes | 2009 | | 2008 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | | | GBPm | | GBPm | +------------------------------------------------+-------+-----------+----------+-----------+ | Non-current assets | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Property, plant and equipment | 11 | 2,006.9 | | 1,897.4 | +------------------------------------------------+-------+-----------+----------+-----------+ | Intangibles | 12 | 6.1 | | 8.3 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | | | 2,013.0 | | 1,905.7 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Current assets | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Inventories | 14 | 0.5 | | 0.5 | +------------------------------------------------+-------+-----------+----------+-----------+ | Trade and other receivables | 15 | 61.7 | | 49.1 | +------------------------------------------------+-------+-----------+----------+-----------+ | Cash and cash equivalents | 15 | - | | 7.0 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | | | 62.2 | | 56.6 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Total assets | | 2,075.2 | | 1,962.3 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Current liabilities | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Trade and other payables | 16 | (45.9) | | (44.4) | +------------------------------------------------+-------+-----------+----------+-----------+ | Current income tax liabilities | 16 | (13.2) | | (11.6) | +------------------------------------------------+-------+-----------+----------+-----------+ | Deferred revenue | 19 | (18.8) | | (16.9) | +------------------------------------------------+-------+-----------+----------+-----------+ | Borrowings | 17 | (201.2) | | (145.4) | +------------------------------------------------+-------+-----------+----------+-----------+ | Provisions | 20 | (1.2) | | (1.2) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | | | (280.3) | | (219.5) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Net current liabilities | | (218.1) | | (162.9) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Non-current liabilities | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Borrowings | 17 | (449.4) | | (449.2) | +------------------------------------------------+-------+-----------+----------+-----------+ | Deferred income tax liabilities | 18 | (218.5) | | (218.6) | +------------------------------------------------+-------+-----------+----------+-----------+ | Deferred revenue | 19 | (593.2) | | (578.6) | +------------------------------------------------+-------+-----------+----------+-----------+ | Provisions | 20 | (0.7) | | (0.7) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | | | (1,261.8) | | (1,247.1) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Total liabilities | | (1,542.1) | | (1,466.6) | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Net assets | | 533.1 | | 495.7 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Equity | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Share capital | 21 | 290.0 | | 290.0 | +------------------------------------------------+-------+-----------+----------+-----------+ | Retained earnings | | 243.1 | | 205.7 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ | Total equity | | 533.1 | | 495.7 | +------------------------------------------------+-------+-----------+----------+-----------+ | | | | | | +------------------------------------------------+-------+-----------+----------+-----------+ The financial statements were approved by the board of directors and authorised for issue on 19 March 2010 and were signed on its behalf by: P A Jones Director YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009 +------------------------------------------------+-------+---------+----------+---------+ | |Notes | 2009 | | 2008 | +------------------------------------------------+-------+---------+----------+---------+ | | | GBPm | | GBPm | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Net cash from operating activities | 22 | 121.3 | | 128.5 | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Investing activities | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Proceeds from disposal of property, plant and | | 0.7 | | 2.8 | | equipment | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Purchases of property, plant and equipment | | (179.9) | | (195.3) | +------------------------------------------------+-------+---------+----------+---------+ | Receipt of customer contributions | | 35.0 | | 55.9 | +------------------------------------------------+-------+---------+----------+---------+ | Sale of short-term securities | | - | | 200.0 | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Net cash (used in)/generated by investing | | (144.2) | | 63.4 | | activities | | | | | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Financing activities | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Equity dividends paid | | (40.0) | | (40.0) | +------------------------------------------------+-------+---------+----------+---------+ | Movement in loans from Group undertaking | | 34.2 | | (158.9) | +------------------------------------------------+-------+---------+----------+---------+ | New borrowings | | 21.7 | | 14.0 | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Net cash generated by/(used in) financing | | 15.9 | | (184.9) | | activities | | | | | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Net (decrease)/increase in cash and cash | | (7.0) | | 7.0 | | equivalents | | | | | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Cash and cash equivalents at beginning of year | | 7.0 | | - | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ | Cash and cash equivalents at end of year | | - | | 7.0 | +------------------------------------------------+-------+---------+----------+---------+ | | | | | | +------------------------------------------------+-------+---------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 1 GENERAL INFORMATION Yorkshire Electricity Distribution plc is a company originally incorporated in England and Wales under the Companies Act 1985. The address of the registered office is Lloyds Court, 78 Grey Street, Newcastle-upon-Tyne, NE1 6AF. The nature of the Company's operations and its principal activities are set out in the Business Review in the Director's Report and in Note 3. 2 ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 1985 (the "Act") that are applicable to companies reporting under IFRS. The accounts have been prepared under the historical cost convention. Going Concern The directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. Further detail is contained within the Directors Report on page 21. Judgments in applying accounting policies and key sources of estimation uncertainty Many of the amounts included in the financial statements involve the use of judgment and/or estimation. These judgments and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgments and estimates is contained in the accounting policies and/or the notes to the financial statements, and the key areas are summarised below. Areas of judgment and estimation which have the most significant effect on the amounts recognised in the financial statements are: · The estimation of useful economic lives for property, plant and equipment; · The split of operating and capital expenditure and the allocation of overheads to capital projects; and · Impairment reviews carried out to evaluate the carrying value of assets held at the balance sheet date. Critical accounting policies The critical accounting policies adopted by the directors relate to property, plant and equipment, taxation, pensions and revenue and are described below. The accounting policies have been applied consistently throughout the year and the preceding year. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Adoption of new or revised standards In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in the financial statements. Standards affecting presentation and disclosure IAS 1 Presentation of Financial Statements - Amendments to IAS 1 IFRS 8 Operating Segments IFRS 7 Financial Instrument Disclosure - Amendment to IFRS 7 IAS 1 has introduced a number of changes in the format of the financial statements. No third balance sheet has been presented in these financial statements as no changes in accounting policy have been adopted retrospectively. IFRS 8 is a disclosure Standard that redefines the process for measuring segmental information in the notes to the accounts. In practice however, the adoption of this Standard has not led to any change in the disclosures contained within these financial statements. Further detail can be found in note 3 to the accounts. The amendments to IFRS 7 expand the disclosures required in respect of fair value measurement and liquidity risk. In practice these amendments have had no material impact on these financial statements. Standards affecting the reported results and the financial position IAS 23 Borrowing Costs - Amendments to IAS 23 The principal change to IAS 23 was to eliminate the option to expense all borrowing costs when incurred. From 1 January 2009, all borrowing costs relating to qualifying assets have therefore been capitalised. The impact on these financial statements has been less than GBP0.1m. Standards and Interpretations approved by not yet effective At the date of authorisation of these financial statements there were a number of Standards and Interpretations in issue but not yet effective, which have therefore not yet been applied. The directors consider that the adoption of the following Interpretation may be relevant to the Company in future periods. IFRIC 18 Transfer of Assets from Customers The directors anticipate that the Company will adopt this Interpretation on the date on which it is endorsed by the European Union. The directors are currently considering the impact of the adoption of this Interpretation, which is still unclear. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Revenue Revenue is only recognised when the risks and rewards of ownership have been transferred to a third party. No revenue is recognised where there are significant uncertainties regarding the consideration to be received or the costs associated with the transaction. Revenue represents charges for the use of the Company's distribution network, amortisation of customer contributions, recharge of costs incurred on behalf of related parties and the invoiced value of other goods sold and services provided, exclusive of value added tax. Revenues from charges to end customers for the use of the Company's distribution network include estimates of the units distributed. The estimated usage is based on historic data, judgment and assumptions. Revenues are gradually adjusted to reflect actual usage in the period during which actual meter readings are obtained. Any under or over recovery of allowed distribution network revenues as prescribed by Ofgem is not provided for in the financial statements and will be recovered/repaid through future tariffs. Customer contributions towards distribution system assets are included in deferred revenue. The Company's policy is to credit the customer contribution to revenue over 45 years on a straight-line basis, in line with the useful life of the distribution system assets. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. Research costs Expenditure on research activities is written off to the income statement in the year in which it is incurred. Operating profit Operating profit is stated before investment income and finance costs. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Taxation (continued) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or asset realised, based on tax rates and tax legislation enacted or substantively enacted at the balance sheet date. Property, plant and equipment and depreciation Property, plant and equipment is stated at cost. Cost includes the purchase price of the asset and any costs, including internal employee and other costs, directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The charge for depreciation is calculated to write off assets to their residual values over their estimated useful lives using the straight-line basis: Distribution system assets......................................................................... ........45 years Metering equipment included in distribution system assets.................................up to 15 years Information Technology equipment included in distribution system assets..............up to 10 years Non-operational assets: Buildings - freehold....................................................................... .... ...up to 60 years Buildings - leasehold.....................................................lower of lease period or 60 years Fixtures and equipment...... ....................................................................up to 10 years Software development costs ........................................................................up to 15 years Freehold land is not depreciated. Assets in the course of construction are carried at cost. Depreciation on these assets, on the same basis as other assets, commences when the assets are commissioned. The estimated useful economic lives of property, plant and equipment are based on management's judgment and experience. When management identifies that actual useful lives differ materially from the estimates used to calculate depreciation, that charge is adjusted prospectively. Due to the significance of the Company's investment in property, plant and equipment, variations between actual and estimated useful lives could impact operating results both positively and negatively. The Company is required to evaluate the carrying values of property, plant and equipment for impairment whenever circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. An impairment review requires management to make judgments concerning the cash flows, growth rates and discount rates for the cash-generating units under review. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Software development costs Costs in respect of major developments are capitalised and amortised over the expected life of the software. Capitalised software costs that are not an integral part of the related hardware are included in intangible assets on the balance sheet and amortised over the expected life of the software of up to 15 years. Investments Fixed asset investments are stated at cost less provision for impairment in value. Inventories Inventories are stated at the lower of cost and net realisable value as follows: Work in progress is valued at the cost of direct materials and labour plus attributable overheads based on the normal level of activity less progress payments. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and disposal. Provisions Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date. Reasonable estimates involve judgments made by management after considering information including notifications, settlements, estimates performed by independent parties and legal counsel, available facts, identification of other potentially responsible parties and their ability to contribute and prior experience. Where the effect is significant, provisions in respect of material future liabilities are stated at their net present value and arrived at by discounting the anticipated future costs, at the market rate at the balance sheet date. Leases Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease rentals are charged to the income statement in equal annual amounts over the lease term. Trade receivables Trade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Trade payables Trade payables are not interest bearing and are stated at their nominal value. Borrowings Borrowings are classified as other financial liabilities at amortised cost. They are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement for redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective interest rate method. They are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise. Financial instruments Financial assets and financial liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions on the instrument. Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the income statement. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 2 ACCOUNTING POLICIES (CONTINUED) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Pensions The Company contributes to the Northern Electric Group of the Electricity Supply Pension Scheme ("the Northern Electric Group of the ESPS"). The Northern Electric Group of the ESPS is a defined benefit plan that shares risk between various entities under common control. There is no contractual agreement or stated policy for charging the net defined benefit cost for the plan as a whole to individual group entities and accordingly the Company accounts for the Northern Electric Group of the ESPS as if it were a defined contribution scheme. Contributions to the Northern Electric Group of the ESPS are charged to the income statement or capitalised as appropriate. The capital costs of ex-gratia and supplementary pensions are normally charged to the income statement in the period in which they are granted. The Company also participates in the Northern Electric Money Purchase Scheme ("NEMPS") and contributes to the Yorkshire Electricity Pension Plan ("YEPP"), which are defined contribution schemes. Contributions payable to the defined contribution schemes are charged to the income statement in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet. The Company has adopted IFRS 8, Operating Segments, with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the President and Chief Operating Officer of the CE Electric UK Funding Company group of companies (the "CE Group") to allocate resources to these segments and to assess their performance. In practice, the President and Chief Operating Officer allocates resources and assesses performance based upon the aggregate results of the Company and Northern Electric Distribution Limited, another distribution network operator in the CE Group, suggesting that no segmental reporting is required. Therefore, the adoption of IFRS 8 does not impact these financial statements. Revenue, profit before tax and net assets are attributable to electricity distribution. Revenue is all in respect of sales to United Kingdom customers. Revenue represents charges made to customers for use of the distribution system, the recharge of costs incurred on behalf of related parties, amortisation of customer contributions and other services and is included net of value added tax. +------------------------------------------------+------+----------+------+ | |2009 | |2008 | +------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Interest receivable on loans to Group | - | | 0.4 | | undertaking | | | | +------------------------------------------------+------+----------+------+ | Dividends receivable | - | | 0.1 | +------------------------------------------------+------+----------+------+ | Interest receivable on non-current investments | - | | 1.3 | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Total investment income | - | | 1.8 | +------------------------------------------------+------+----------+------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) +------------------------------------------------+------+----------+------+ | |2009 | |2008 | +------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Interest payable on loans from Group | 4.1 | | 8.5 | | undertakings | | | | +------------------------------------------------+------+----------+------+ | Interest payable on other loans | 29.8 | | 30.1 | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Total finance costs | 33.9 | | 38.6 | +------------------------------------------------+------+----------+------+ 6 OPERATING PROFIT +------------------------------------------------+--------+----------+--------+ | | 2009 | | 2008 | +------------------------------------------------+--------+----------+--------+ | | GBPm | | GBPm | +------------------------------------------------+--------+----------+--------+ | This is stated after charging/(crediting): | | | | +------------------------------------------------+--------+----------+--------+ | Staff costs (Note 7) | 21.3 | | 26.1 | +------------------------------------------------+--------+----------+--------+ | Research costs | 0.4 | | 0.5 | +------------------------------------------------+--------+----------+--------+ | Depreciation of property, plant and equipment | 61.8 | | 58.9 | +------------------------------------------------+--------+----------+--------+ | Amortisation of deferred revenue | (16.1) | | (15.3) | +------------------------------------------------+--------+----------+--------+ | Amortisation of intangibles | 2.2 | | 2.3 | +------------------------------------------------+--------+----------+--------+ | Impairment loss on trade and other receivables | 0.3 | | 0.3 | +------------------------------------------------+--------+----------+--------+ | | | | | +------------------------------------------------+--------+----------+--------+ | Analysis of auditors' remuneration is as | | | | | follows: | | | | +------------------------------------------------+--------+----------+--------+ | | 2009 | | 2008 | +------------------------------------------------+--------+----------+--------+ | | GBP000 | | GBP000 | +------------------------------------------------+--------+----------+--------+ | | | | | +------------------------------------------------+--------+----------+--------+ | Fees payable to the Company's auditors for the | | | | | audit of the Company's annual accounts | 105 | | 111 | +------------------------------------------------+--------+----------+--------+ There were no fees payable in relation to non-audit services in 2009 or 2008. +------------------------------------------------+--------+-+--------+ | | 2009 | | 2008 | +------------------------------------------------+--------+-+--------+ | | GBPm | | GBPm | +------------------------------------------------+--------+-+--------+ | | | | | +------------------------------------------------+--------+-+--------+ | Salaries | 44.3 | | 44.4 | +------------------------------------------------+--------+-+--------+ | Social security costs | 4.0 | | 3.9 | +------------------------------------------------+--------+-+--------+ | Defined contribution pension costs | 0.1 | | 0.1 | +------------------------------------------------+--------+-+--------+ | Defined benefit pension costs | 13.2 | | 13.8 | +------------------------------------------------+--------+-+--------+ | | | | | +------------------------------------------------+--------+-+--------+ | | 61.6 | | 62.2 | +------------------------------------------------+--------+-+--------+ | Less charged to property, plant and equipment | (40.3) | | (36.1) | +------------------------------------------------+--------+-+--------+ | | | | | +------------------------------------------------+--------+-+--------+ | | 21.3 | | 26.1 | +------------------------------------------------+--------+-+--------+ The majority of the Company's employees are members of the Northern Electric Group of the ESPS, details of which are given in Note 23. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) +------------------------------------------------+-------+----------+-------+ | The average monthly number of employees | | | | | during the year was: | | | | +------------------------------------------------+-------+----------+-------+ | | 2009 | | 2008 | +------------------------------------------------+-------+----------+-------+ | | No. | | No. | +------------------------------------------------+-------+----------+-------+ | | | | | +------------------------------------------------+-------+----------+-------+ | Technical | 266 | | 271 | +------------------------------------------------+-------+----------+-------+ | Industrial | 626 | | 633 | +------------------------------------------------+-------+----------+-------+ | Administration | 123 | | 130 | +------------------------------------------------+-------+----------+-------+ | Other | 94 | | 86 | +------------------------------------------------+-------+----------+-------+ | | | | | +------------------------------------------------+-------+----------+-------+ | | 1,109 | | 1,120 | +------------------------------------------------+-------+----------+-------+ +-------------------------------------------------+----------------+----------+------------+ | DIRECTORS' REMUNERATION | 2009 | | 2008 | +-------------------------------------------------+----------------+----------+------------+ | | | | GBP | | | GBP | | | +-------------------------------------------------+----------------+----------+------------+ | Highest Paid | | | | +-------------------------------------------------+----------------+----------+------------+ | Short-term employee benefits | 130,745 | | 103,612 | +-------------------------------------------------+----------------+----------+------------+ | Post employment benefits | 10,570 | | 9,767 | +-------------------------------------------------+----------------+----------+------------+ | Other long-term benefits | 59,454 | | 101,707 | +-------------------------------------------------+----------------+----------+------------+ | | 200,769 | | 215,086 | +-------------------------------------------------+----------------+----------+------------+ | | | | | +-------------------------------------------------+----------------+----------+------------+ | Total | | | | +-------------------------------------------------+----------------+----------+------------+ | Short-term employee benefits | 430,541 | | 396,464 | +-------------------------------------------------+----------------+----------+------------+ | Post employment benefits | 106,934 | | 117,051 | +-------------------------------------------------+----------------+----------+------------+ | Other long-term benefits | 153,903 | | 325,208 | +-------------------------------------------------+----------------+----------+------------+ | | | | | +-------------------------------------------------+----------------+----------+------------+ | | 691,378 | | 838,723 | +-------------------------------------------------+----------------+----------+------------+ | | | | | +-------------------------------------------------+----------------+----------+------------+ | Directors who are members of the defined | 3 | | 5 | | benefit scheme | | | | +-------------------------------------------------+----------------+----------+------------+ | | | | | +-------------------------------------------------+----------------+----------+------------+ | Accrued pension benefit relating to highest | - | | - | | paid director | | | | +-------------------------------------------------+----------------+----------+------------+ +-------------------------------------------------+---------+----------+---------+ | OTHER KEY PERSONNEL REMUNERATION | 2009 | | 2008 | +-------------------------------------------------+---------+----------+---------+ | | | | GBP | | | GBP | | | +-------------------------------------------------+---------+----------+---------+ | Total | | | | +-------------------------------------------------+---------+----------+---------+ | Short-term employee benefits | 283,483 | | 293,907 | +-------------------------------------------------+---------+----------+---------+ | Post employment benefits | 75,737 | | 72,182 | +-------------------------------------------------+---------+----------+---------+ | Other long-term benefits | 25,706 | | 91,917 | +-------------------------------------------------+---------+----------+---------+ | | | | | +-------------------------------------------------+---------+----------+---------+ | | 384,926 | | 458,006 | +-------------------------------------------------+---------+----------+---------+ Other key personnel includes a number of senior functional managers who, whilst not board directors, have authority and responsibility for planning, directing and controlling the activities of the Company. The directors and key personnel are remunerated for their services to the CE Group, of which the Company is a subsidiary. The figures above represent the share of the costs borne by the Company. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | 2009 | | 2008 | +--------------------------------+--------------------------+----------+--------------------------+ | | GBPm | | GBPm | | GBPm | | GBPm | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Tax expense comprises: | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Current tax expense: | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Corporation tax charge for the | 29.1 | | | | 30.3 | | | | year | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Under provision for prior | 0.1 | | | | 0.1 | | | | years | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Total current tax charge | | | 29.2 | | | | 30.4 | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Deferred tax: | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Deferred tax expense relating | | | | | | | | | to the origination and | (0.1) | | | | (1.0) | | | | reversal of temporary | | | | | | | | | differences | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Effect of changes in | - | | | | 11.7 | | | | legislation | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Total deferred tax | | | (0.1) | | | | 10.7 | | (credit)/charge | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Tax on profit before tax | | | 29.1 | | | | 41.1 | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | The total charge can be | | | | | | | | | reconciled to the accounting | | | | | | | | | profit as follows: | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Profit before tax | | | 106.5 | | | | 104.1 | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Tax on profit before tax at | | | 29.8 | | | | | | standard rate of corporation | | | | | | | | | tax in United Kingdom of 28% | | | | | | | 29.7 | | (2008: 28.5%) | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Effect of changes in | | | - | | | | 11.7 | | legislation | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Disposals | | | (0.3) | | | | - | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Over provision for prior years | | | (0.4) | | | | (0.3) | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ | Tax on profit before tax | | | 29.1 | | | | 41.1 | +--------------------------------+-------+----------+-------+----------+-------+----------+-------+ The tax rates used are the UK corporate rate of 30% until 31 March 2008 and 28% from 1 April 2008, time apportioned for 2008. There was an increase in the deferred tax liability in 2008 due to the cessation of capital allowances on qualifying industrial buildings from 2011, as a result of changes in legislation introduced by the Finance Act 2008. +-----------------------------+-------+----------+-------+----------+------+----------+-------+ | | 2009 | | 2008 | |2009 | | 2008 | +-----------------------------+-------+----------+-------+----------+------+----------+-------+ | |Pence | |Pence | |GBPm | | GBPm | | | per | | per | | | | | | |share | |share | | | | | +-----------------------------+-------+----------+-------+----------+------+----------+-------+ | | | | | | | | | +-----------------------------+-------+----------+-------+----------+------+----------+-------+ | Dividend paid | 13.79 | | 13.79 | | 40.0 | | 40.0 | +-----------------------------+-------+----------+-------+----------+------+----------+-------+ | | | | | | | | | +-----------------------------+-------+----------+-------+----------+------+----------+-------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | |Non-operational | | | | | | | | | land & | | Fixtures | | | | |Distribution | | buildings | | and | | | | | | | | |equipment | | Total | | | system | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | GBPm | | GBPm | | GBPm | | GBPm | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | COST | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 1 January | 2,004.9 | | 6.0 | | 11.3 | | 2,022.2 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Additions | 193.0 | | - | | 2.0 | | 195.0 | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Disposals | (6.3) | | - | | (0.2) | | (6.5) | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 2,191.6 | | 6.0 | | 13.1 | | 2,210.7 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Additions | 170.2 | | - | | 1.7 | | 171.9 | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Disposals | (4.3) | | (2.4) | | (0.1) | | (6.8) | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 2,357.5 | | 3.6 | | 14.7 | | 2,375.8 | | 2009 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | ACCUMULATED DEPRECIATION | | | | | | | +---------------------------------+----------+-----------------+----------+-----------+----------+---------+ | At 1 January | 251.6 | | 2.6 | | 6.7 | | 260.9 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Charge for the | 55.1 | | 0.2 | | 3.6 | | 58.9 | | year | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Disposals | (6.3) | | - | | (0.2) | | (6.5) | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 300.4 | | 2.8 | | 10.1 | | 313.3 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Charge for the | 59.8 | | 0.2 | | 1.8 | | 61.8 | | year | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Disposals | (4.3) | | (1.8) | | (0.1) | | (6.2) | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 355.9 | | 1.2 | | 11.8 | | 368.9 | | 2009 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Net book value | 2,001.6 | | 2.4 | | 2.9 | | 2,006.9 | | at 31 December | | | | | | | | | 2009 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Net book value | 1,891.2 | | 3.2 | | 3.0 | | 1,897.4 | | at 31 December | | | | | | | | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Assets in the | | | | | | | | | course of | | | | | | | | | construction | | | | | | | | | included above: | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 1 January | 134.6 | | - | | - | | 134.6 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Additions | 193.0 | | - | | - | | 193.0 | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Available for | (207.4) | | - | | - | | (207.4) | | use | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 120.2 | | - | | - | | 120.2 | | 2008 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Additions | 170.2 | | | | 1.7 | | 171.9 | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | Available for | (215.8) | | - | | (1.7) | | (217.5) | | use | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | At 31 December | 74.6 | | - | | - | | 74.6 | | 2009 | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ | | | | | | | | | +------------------+--------------+----------+-----------------+----------+-----------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) The net book value of non-operational land and buildings comprises: +------------------------------------------------+------+----------+------+ | |2009 | |2008 | +------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Freehold | 1.4 | | 1.6 | +------------------------------------------------+------+----------+------+ | Long leasehold | 1.0 | | 1.6 | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | | 2.4 | | 3.2 | +------------------------------------------------+------+----------+------+ The Company has entered into contractual commitments in relation to the future acquisition of property, plant and equipment of GBP27.3m (2008: GBP9.8m). 12 INTANGIBLES +-------------------------------------------------------+--------------------+ | | Software | | | Development | | | Costs | +-------------------------------------------------------+--------------------+ | | GBPm | +-------------------------------------------------------+--------------------+ | COST | | +-------------------------------------------------------+--------------------+ | At 1 January 2008, 31 December 2008 and 31 December | 29.5 | | 2009 | | +-------------------------------------------------------+--------------------+ | | | +-------------------------------------------------------+--------------------+ | AMORTISATION | | +-------------------------------------------------------+--------------------+ | At 1 January 2008 | 18.9 | +-------------------------------------------------------+--------------------+ | Charge for the year | 2.3 | +-------------------------------------------------------+--------------------+ | | | +-------------------------------------------------------+--------------------+ | At 31 December 2008 | 21.2 | +-------------------------------------------------------+--------------------+ | Charge for the year | 2.2 | +-------------------------------------------------------+--------------------+ | | | +-------------------------------------------------------+--------------------+ | At 31 December 2009 | 23.4 | +-------------------------------------------------------+--------------------+ | | | +-------------------------------------------------------+--------------------+ | Net book value at 31 December 2009 | 6.1 | +-------------------------------------------------------+--------------------+ | | | +-------------------------------------------------------+--------------------+ | Net book value at 31 December 2008 | 8.3 | +-------------------------------------------------------+--------------------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 13 INVESTMENTS Details of the principal investments of the Company at 31 December 2009 are listed below: +-------------+--------------+-----------+------------+----------------+ | | Country of | Holding | | Nature of | | Name of |Registration | of |Proportion | Business | | Company | | Ordinary | | | | | | Shares | | | +-------------+--------------+-----------+------------+----------------+ | | | | | | | Electralink | England | 717 at | 7.8% | Data transfer | | Limited | and Wales | 10p | | network | | | | | | operator | +-------------+--------------+-----------+------------+----------------+ | MRA | England |1 at GBP1 | 1.0% | Governance of | | Service | and Wales | | | the | | Company | | | | electricity | | Limited | | | | industry's | | | | | | Master | | | | | | Registration | | | | | | Agreement | +-------------+--------------+-----------+------------+----------------+ | DCUSA | England |1 at GBP1 | 2.0% | Management and | | Limited | and Wales | | | governance of | | | | | | the | | | | | | Distribution | | | | | | Connection and | | | | | | Use of System | | | | | | Agreement | +-------------+--------------+-----------+------------+----------------+ The above investments are unlisted. The cost and net book value of the investments are Electralink Limited GBP72 (2008: GBP72), MRA Service Company Limited GBP1 (2008: GBP1) and DCUSA Limited GBP1 (2008: GBP1). 14 INVENTORIES +-------------------------------------------------+------+----------+------+ | |2009 | |2008 | +-------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | Work in progress | 0.5 | | 0.5 | +-------------------------------------------------+------+----------+------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 15 OTHER FINANCIAL ASSETS Trade and other receivables +-------------------------------------------------+------+----------+------+ | |2009 | |2008 | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | Distribution use of system receivables | 45.3 | | 35.6 | +-------------------------------------------------+------+----------+------+ | Amounts receivable from sale of goods and | 12.0 | | 7.9 | | services | | | | +-------------------------------------------------+------+----------+------+ | Prepayments and accrued income | 4.4 | | 5.6 | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | | 61.7 | | 49.1 | +-------------------------------------------------+------+----------+------+ The directors consider that the carrying amount of trade and other receivables approximate their fair value calculated by discounting the future cash flows at the market rate at the balance sheet date. The maximum exposure to risk to the Company is the book value of these receivables less any provisions for impairment. Distribution use of system receivables The customers served by the Company's distribution network are supplied predominantly by a small number of electricity supply businesses with RWE NPower plc accounting for approximately 34% of distribution revenues in 2008 (2008: 36%). Ofgem has determined a framework which sets credit limits for each supply business based on its credit rating or payment history and requires them to provide credit cover if their value at risk (measured as being equivalent to 45 days usage) exceeds the credit limit. Acceptable credit typically is provided in the form of a parent company guarantee, letter of credit or an escrow account. Included within other payables are customer deposits of GBP1.8m as at December 2009 (2008: GBP1.8m). Ofgem has indicated that, provided the Company has implemented credit control, billing and collection processes in line with best practice guidelines and can demonstrate compliance with the guidelines or is able to satisfactorily explain departure from the guidelines, any bad debt losses arising from supplier default will be recovered through an increase in future allowed income. Losses incurred to date have not been material. Included within the Company's use of system ("UoS") receivables are no debtors which have been placed into administration and provided for in full at the year end (2008: GBP0.4m). Amounts receivable from sale of goods and services Sales of goods and services comprise all income streams which are not classified as UoS income. Examples of non-UoS income streams would be customer contributions in relation to distribution system assets and recovery of amounts for damage caused by third parties to the distribution system. The average credit period on sales of goods and services is 30 days. Interest is not generally charged on the trade receivables paid after the due date. An allowance for doubtful debts is made for debts past their due date based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience. Included in the Company's amounts receivable for goods and services balance are debtors with a carrying amount of GBP0.8m (2008: GBP0.7m) which are past due at the reporting date and for which the Company has provided an irrecoverable amount of GBP0.2m (2008: GBP0.3m) based on past experience. The Company does not hold any collateral over these balances. The average age of these receivables is 303 days (2008: 568 days). YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 15 OTHER FINANCIAL ASSETS (CONTINUED) Amounts receivable from sale of goods and services (continued) Included in the Company's amounts receivable for goods and services balance are debtors with a carrying amount of GBP0.8m (2008: GBP1.8m). These amounts are past due at the reporting date and the Company has not provided for any amounts as not being recoverable because there has not been a significant change in credit quality and the amounts are still considered recoverable. The Company does not hold any collateral over these balances. The average age of these receivables is 99 days (2008: 87). Ageing of past due but not impaired receivables +-------------------------------------------------+------+----------+------+ | |2009 | |2008 | +-------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | 30-60 days | 0.4 | | 0.6 | +-------------------------------------------------+------+----------+------+ | 60-120 days | 0.3 | | 0.6 | +-------------------------------------------------+------+----------+------+ | 120-210 days | 0.1 | | 0.6 | +-------------------------------------------------+------+----------+------+ | | | | | +-------------------------------------------------+------+----------+------+ | Total | 0.8 | | 1.8 | +-------------------------------------------------+------+----------+------+ Movement in the allowance for doubtful debts +-------------------------------------------------+------+----------+-------+ | | | | GBPm | +-------------------------------------------------+------+----------+-------+ | | | | | +-------------------------------------------------+------+----------+-------+ | At 1 January 2009 | | | 0.7 | +-------------------------------------------------+------+----------+-------+ | Amounts recognised in income statement | | | 0.3 | +-------------------------------------------------+------+----------+-------+ | Amounts utilised/written off in the period | | | (0.8) | +-------------------------------------------------+------+----------+-------+ | | | | | +-------------------------------------------------+------+----------+-------+ | At 31 December 2009 | | | 0.2 | +-------------------------------------------------+------+----------+-------+ In determining the recoverability of the trade and other receivables, the Company considers any change in the credit quality of the trade and other receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk, other than in relation to UoS receivables, is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. Included in the allowance for doubtful debts are specific trade receivables with a balance of GBP0.1m (2008: GBP0.4m) for the Company, which have been placed into administration. The impairment represents the difference between the carrying amount of the specific trade receivable and the present value of the expected liquidation dividend. Cash and cash equivalents Cash and cash equivalents comprise cash balances held at bank. The fair value of cash and cash equivalents is equal to their book value. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 15 OTHER FINANCIAL ASSETS (CONTINUED) Categories of financial assets +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | +------------------------------+--------------------------------------------------+----------+------------------------------+ | | | | | | | | 2009 | | 2008 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | GBPm | | GBPm | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Cash and bank balances | | | | | | | - | | 7.0 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Loans and receivables | | | | | | | 57.3 | | 43.5 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Total financial assets | | | | | | | 57.3 | | 50.5 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Non current assets | | | | | | | 2,013.0 | | 1,905.7 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Inventories | | | | | | | 0.5 | | 0.5 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Prepayments and accrued | | | | | | | 4.4 | | 5.6 | | income | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Total non-financial assets | | | | | | | 2,017.9 | | 1,911.8 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | | | | | | | | | | | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ | Total Assets | | | | | | | 2,075.2 | | 1,962.3 | +------------------------------+----------+----------+----------+----------+------+----------+---------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 16 OTHER FINANCIAL LIABILITIES Trade and other payables +------------------------------------------------+-------------------+----------+------+ | | 2009 | |2008 | +------------------------------------------------+-------------------+----------+------+ | | | | | +------------------------------------------------+-------------------+----------+------+ | | GBPm | |GBPm | +------------------------------------------------+-------------------+----------+------+ | | | | | +------------------------------------------------+-------------------+----------+------+ | Payments received on account | 16.2 | | 12.8 | +------------------------------------------------+-------------------+----------+------+ | Trade payables | 2.5 | | 3.1 | +------------------------------------------------+-------------------+----------+------+ | Amounts owed to Group undertakings | 0.4 | | 0.2 | +------------------------------------------------+-------------------+----------+------+ | Other taxes and social security costs | 4.6 | | 3.5 | +------------------------------------------------+-------------------+----------+------+ | Other payables | 2.2 | | 2.8 | +------------------------------------------------+-------------------+----------+------+ | Accruals | 20.0 | | 22.0 | +------------------------------------------------+-------------------+----------+------+ | | | | | +------------------------------------------------+-------------------+----------+------+ | | 45.9 | | 44.4 | +------------------------------------------------+-------------------+----------+------+ Current income tax liabilities +------------------------------------------------+------+----------+------+ | |2009 | |2008 | +------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Corporation tax | 13.2 | | 9.4 | +------------------------------------------------+------+----------+------+ | Group relief | - | | 2.2 | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | | 13.2 | | 11.6 | +------------------------------------------------+------+----------+------+ The directors consider that the carrying amount of other financial liabilities approximates their fair value, calculated by discounting future cash flows at market rate at the balance sheet date. Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Invoices are paid at the end of the month following the date of the invoice. The Company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 16 OTHER FINANCIAL LIABILITIES (CONTINUED) The following tables detail the remaining contractual maturities for the non-derivative financial liabilities included in Notes 16 and 17. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest possible date on which the Company can be required to pay. The tables include both interest and principal cash flows. +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | Less | | 3 | | 1 to | | 5+ | | | | | than | |months | | 5 | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | 3 | | To 1 | |years | |Years | | Total | | |months | | year | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | GBPm | | GBPm | | GBPm | | GBPm | | GBPm | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | 2009: | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Non-interest | 29.7 | | - | | - | | - | | 29.7 | | bearing | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Variable | 176.1 | | - | | - | | - | | 176.1 | | interest rate | | | | | | | | | | | liability | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Fixed interest | 18.5 | | 13.8 | |129.1 | |787.5 | | 948.9 | | rate liability | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | 224.3 | | 13.8 | |129.1 | |787.5 | | 1,154.7 | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | 2008: | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Non-interest | 32.4 | | - | | - | | - | | 32.4 | | bearing | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Variable | | | | | | | | | | | interest rate | 120.2 | | - | | - | | - | | 120.2 | | liability | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | Fixed interest | 18.5 | | 13.8 | |129.1 | |819.8 | | 981.2 | | rate liability | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | | | | | | | | | | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ | | 171.1 | | 13.8 | |129.1 | |819.8 | | 1,133.8 | +-----------------+--------+--+--------+----------+-------+----------+-------+----------+----------+ Categories of financial liabilities +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | +-----------------------------+------------------------------------------+----------+-------------------------------+ | | | | | | | | 2009 | | 2008 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | GBPm | | GBPm | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Loans and payables | | | | | | | 655.7 | | 600.7 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Total financial liabilities | | | | | | | 655.7 | | 600.7 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Payments received on | | | | | | | 16.2 | | 12.8 | | account | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Income tax liabilities | | | | | | | 231.7 | | 230.2 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Other taxes and social | | | | | | | 4.6 | | 3.5 | | security | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Accruals | | | | | | | 20.0 | | 22.0 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Deferred Revenue | | | | | | | 612.0 | | 595.5 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Provisions | | | | | | | 1.9 | | 1.9 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Total non-financial | | | | | | | 886.4 | | 865.9 | | liabilities | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | | | | | | | | | | | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ | Total liabilities | | | | | | | 1,542.1 | | 1,466.6 | +-----------------------------+----------+----------+--+----------+------+----------+----------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 17 BORROWINGS The Directors consideration of liquidity, interest rate and foreign currency risk are described in detail in the Directors Report on page 9. +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | Book value | | Fair value | +----------------------------+--------------------------+----------+--------------------------+ | | 2009 | | 2008 | | 2009 | | 2008 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | GBPm | | GBPm | | GBPm | | GBPm | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Loans | 466.2 | | 444.4 | | 501.2 | | 456.5 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Amounts owed to Group | 184.4 | | 150.2 | | 190.0 | | 152.5 | | undertakings | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | 650.6 | | 594.6 | | 691.2 | | 609.0 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | The borrowings are repayable as follows: | +---------------------------------------------------------------------------------------------+ | On demand or within one | 201.2 | | 145.4 | | 201.2 | | 145.4 | | year | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | After five years | 449.4 | | 449.2 | | 490.0 | | 463.6 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | 650.6 | | 594.6 | | 691.2 | | 609.0 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Analysis of borrowings: | +---------------------------------------------------------------------------------------------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Short-term loan | 46.5 | | 25.2 | | 46.5 | | 25.2 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Inter-company short term | 129.6 | | 95.2 | | 129.6 | | 95.2 | | loan | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Yorkshire Electricity | 54.8 | | 55.0 | | 60.8 | | 57.3 | | Group plc 2016 (6.5%) | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Eurobond due 2020 (9.25%) | 216.2 | | 215.9 | | 270.2 | | 261.8 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | Bond due 2035 (5.125%) | 203.5 | | 203.3 | | 184.1 | | 169.5 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | | | | | | | | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ | | 650.6 | | 594.6 | | 691.2 | | 609.0 | +----------------------------+-------+----------+-------+----------+-------+----------+-------+ The fair value of the 2020 and 2035 bonds are determined with reference to quoted market prices. The directors' estimates of the fair value of internal borrowings are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions or dealer quotes for similar instruments. The fair value of short-term borrowings is equal to their book value. All loans are non-secured and are denominated in sterling. Interest on the inter-company short term loans is charged at the base rate and interest on short-term loans is charged at a floating rate of LIBOR plus 0.25%, thus exposing the Company to cash flow interest rate risk. A 1% movement in interest rates would subject the Company to an approximate change in interest costs of GBP1.7m per year. This is considered to be an acceptable level of risk. All other loans are at fixed interest rates and expose the Company to fair value interest rate risk. The covenants associated with the 2035 bonds issued by the Company include restrictions on the issuance of new indebtedness and the making of distributions dependent on the scale of the ratio of Senior Total Net Debt to Regulatory Asset Value ("RAV"). The definition of Senior Total Net Debt excludes any subordinated debt and any debt incurred on a non-recourse basis. In addition, it excludes interest payable, any fair value adjustments and unamortised issue costs. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 17 BORROWINGS (CONTINUED) The Company's Senior Total Net Debt as at 31 December 2009 totalled GBP630.3m. Using the RAV value as at March 2010, as outlined by Ofgem in its Final Proposals for Distribution Prices published in December 2009, and up rating for the effects of movements in the value of the Retail Price Index gives an approximation for the RAV value as at December 2009 of GBP1,107.3m. The Senior Total Net Debt to RAV ratio for the Company is therefore estimated at 57%. At 31 December 2009, the Company had available GBP6.7m (2008: GBP28.0m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | Accelerated | | | | | | | | | Tax | | Holdover | | | | | | |Depreciation | | Relief | |Other | |Total | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | GBPm | | GBPm | | GBPm | | GBPm | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | At 1 January | 207.0 | | 1.8 | | (0.9) | | 207.9 | | 2008 | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | (Credit)/charge | 12.1 | | (1.4) | | - | | 10.7 | | to income | | | | | | | | | statement | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | At 31 December | 219.1 | | 0.4 | | (0.9) | | 218.6 | | 2008 | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | (Credit)/charge | (0.4) | | | | 0.3 | | (0.1) | | to income | | | - | | | | | | statement | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | At 31 December | 218.7 | | 0.4 | | (0.6) | | 218.5 | | 2009 | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ | | | | | | | | | +------------------+--------------+----------+------------+----------+-------+----------+-------+ Other comprises provisions and employee expenses deductible for tax on a paid basis. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 19 DEFERRED REVENUE +---------------------------------------------------+---------+ | | | +---------------------------------------------------+---------+ | | GBPm | +---------------------------------------------------+---------+ | | | +---------------------------------------------------+---------+ | At 1 January 2008 | 553.0 | +---------------------------------------------------+---------+ | Additions | 57.8 | +---------------------------------------------------+---------+ | Amortisation | (15.3) | +---------------------------------------------------+---------+ | | | +---------------------------------------------------+---------+ | At 31 December 2008 | 595.5 | +---------------------------------------------------+---------+ | Additions | 32.6 | +---------------------------------------------------+---------+ | Amortisation | (16.1) | +---------------------------------------------------+---------+ | | | +---------------------------------------------------+---------+ | At 31 December 2009 | 612.0 | +---------------------------------------------------+---------+ +-------------------------------------+----------+----------+---------+ | | 2009 | | 2008 | +-------------------------------------+----------+----------+---------+ | | GBPm | | GBPm | +-------------------------------------+----------+----------+---------+ | | | | | +-------------------------------------+----------+----------+---------+ | Included in current liabilities | 18.8 | | 16.9 | +-------------------------------------+----------+----------+---------+ | Included in non-current liabilities | 593.2 | | 578.6 | +-------------------------------------+----------+----------+---------+ | | | | | +-------------------------------------+----------+----------+---------+ | | 612.0 | | 595.5 | +-------------------------------------+----------+----------+---------+ Deferred revenue represents contributions from customers made in advance towards distribution system assets. This income is released to the income statement over 45 years on a straight line basis, in line with the useful economic life of the distribution system assets. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) +---------------------------------+--------+----------+-------+----------+--------------+ | |Claims | |Other | | Total | +---------------------------------+--------+----------+-------+----------+--------------+ | | GBPm | | GBPm | | GBPm | +---------------------------------+--------+----------+-------+----------+--------------+ | | | | | | | +---------------------------------+--------+----------+-------+----------+--------------+ | At 1 January 2009 | 0.8 | | 1.1 | | 1.9 | +---------------------------------+--------+----------+-------+----------+--------------+ | Utilised/paid in the year | (0.7) | | (0.2) | 874. | (0.9) | +---------------------------------+--------+----------+-------+----------+--------------+ | Charged to the income statement | 0.7 | | 0.2 | | 0.9 | +---------------------------------+--------+----------+-------+----------+--------------+ | | | | | | | +---------------------------------+--------+----------+-------+----------+--------------+ | At 31 December 2009 | 0.8 | | 1.1 | | 1.9 | +---------------------------------+--------+----------+-------+----------+--------------+ +-------------------------------------------+-------+----------+------+ | | 2009 | |2008 | +-------------------------------------------+-------+----------+------+ | | GBPm | |GBPm | +-------------------------------------------+-------+----------+------+ | | | | | +-------------------------------------------+-------+----------+------+ | Included in current liabilities | 1.2 | | 1.2 | +-------------------------------------------+-------+----------+------+ | Included in non-current liabilities | 0.7 | | 0.7 | +-------------------------------------------+-------+----------+------+ | | | | | +-------------------------------------------+-------+----------+------+ | | 1.9 | | 1.9 | +-------------------------------------------+-------+----------+------+ Claims: Provision has been made to cover costs arising from actual claims, which are not externally insured. Settlement is expected substantially within 12 months. Other: Primarily consists of a provision for future safe disposal of transformers which contain oil contaminated with Polychlorinated Biphenyls (PCBs) and for an amount to cover claims made under Section 74 of the New Road and Street Works Act 1991. Costs are expected to be incurred over the next 20 years. 21 SHARE CAPITAL +-------------------------------------+-------------+----------+--------------+ | | 2009 | | 2008 | +-------------------------------------+-------------+----------+--------------+ | | No./GBP | | No./GBP | +-------------------------------------+-------------+----------+--------------+ | Ordinary shares of GBP1 each | | | | +-------------------------------------+-------------+----------+--------------+ | Authorised |400,000,000 | |400,000,000 | +-------------------------------------+-------------+----------+--------------+ | Allotted, called up and fully |290,000,000 | |290,000,000 | | paid | | | | +-------------------------------------+-------------+----------+--------------+ The Company has one class of ordinary shares which carries no right to fixed income. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 22 NET CASH FROM OPERATING ACTIVITIES +---------------------------------------------+--------+----------+--------+ | | 2009 | | 2008 | +---------------------------------------------+--------+----------+--------+ | | GBPm | | GBPm | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Operating profit | 139.7 | | 140.7 | +---------------------------------------------+--------+----------+--------+ | Depreciation and amortisation | 64.0 | | 61.2 | +---------------------------------------------+--------+----------+--------+ | Amortisation of deferred revenue | (16.1) | | (15.3) | +---------------------------------------------+--------+----------+--------+ | Decrease in provisions | - | | (0.3) | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Operating cash flows before movements in | 187.6 | | 186.3 | | working capital | | | | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Decrease in inventories | - | | 0.5 | +---------------------------------------------+--------+----------+--------+ | (Increase)/decrease in receivables | (5.1) | | 13.8 | +---------------------------------------------+--------+----------+--------+ | Increase/(decrease) in payables | - | | (3.4) | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Cash generated by operations | 182.5 | | 197.2 | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Income taxes paid | (25.4) | | (26.8) | +---------------------------------------------+--------+----------+--------+ | Group relief paid | (2.2) | | (8.1) | +---------------------------------------------+--------+----------+--------+ | Dividends received | - | | 0.1 | +---------------------------------------------+--------+----------+--------+ | Interest received | - | | 7.9 | +---------------------------------------------+--------+----------+--------+ | Interest paid | (33.6) | | (41.8) | +---------------------------------------------+--------+----------+--------+ | | | | | +---------------------------------------------+--------+----------+--------+ | Net cash from operating activities | 121.3 | | 128.5 | +---------------------------------------------+--------+----------+--------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 23 PENSION COMMITMENTS The Company has three retirement benefit schemes. The Northern Electric Group of the ESPS is a defined benefit scheme for directors and employees, which provides pension and other related benefits based on final pensionable pay. The assets of the Northern Electric Group of the ESPS, which was closed to staff commencing employment on or after 23 July 1997, are held in a separate trustee-administered fund. NEMPS and YEPP are made available to new employees. The Northern Electric Group of the ESPS, NEMPS and YEPP are operated by Northern Electric plc on behalf of the participating companies within the CE Group. The last full actuarial valuation of the Northern Electric Group of the ESPS was carried out by the Group Trustees' actuarial advisors, Hewitt Associates, as at 31 March 2007. The projected unit method was used for the valuation. The principal actuarial assumptions were that pre retirement investment returns would exceed salary increases by 1.8% per annum (inclusive of merit awards) and post retirement returns would exceed future pension increases by 1.8% per annum. The total market value of the assets of the Northern Electric Group of the ESPS, at the date of the actuarial valuation, was GBP926.7m. For the Northern Electric Group of the ESPS, the actuarial valuation showed that the value of the assets represented 90.7% of the actuarial value of the accrued benefits. This represents a shortfall of assets compared to the value of accrued benefits of GBP95.1m. The accrued benefits include all benefits for pensioners and other former members, as well as benefits based on service completed to date for active members, and allows for an estimate of future salary increases. The CE Group reached agreement during March 2008 with the Group Trustees to repair this deficit. The agreement comprises monthly cash payments of GBP2.4m (GBP28.4m per annum) backdated to commence in April 2007 in addition to the normal employer contributions. Of these annual payments, GBP5.7m will be paid by the Company. These payments aim to remove the shortfall of GBP95.1m by December 2010 subject to the actuarial assumptions adopted for the triennial valuation as at 31 March 2007 being borne out in practice. The Northern Electric Group of the ESPS is a defined benefit plan that shares the risk between various entities under common control. There is no contractual agreement or stated policy for charging the net defined benefit cost for the plan as a whole to individual group entities and accordingly the Company accounts for the scheme as if it were a defined contribution scheme. The contribution rates to the Northern Electric Group of the ESPS, in addition to the deficit repair contributions mentioned above, for 2009 were 44.7% for certain senior management and 26.3% for other employees. These rates will remain in place until such a time as a new schedule of contributions is agreed between the trustees of the Northern Electric Group of the ESPS and the Company as part of the triennial valuation process.. The money purchase pension schemes are also accounted for as defined contribution schemes. The Company's pension cost for the year ended 31 December 2009 was GBP13.3m (2008: GBP13.9m). YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 23 PENSION COMMITMENTS (CONTINUED) Disclosures in relation to the Northern Electric Group of the ESPS are: Principal assumptions: +-----------------------------+-----------------+--------------+ | | 2009 | 2008 | +-----------------------------+-----------------+--------------+ | Valuation method | Projected unit | Projected | | | | unit | +-----------------------------+-----------------+--------------+ | Discount rate | 5.70% | 6.40% | +-----------------------------+-----------------+--------------+ | Inflation rate | 3.20% | 3.00% | +-----------------------------+-----------------+--------------+ | Increase to pensions | 3.20% | 3.00% | +-----------------------------+-----------------+--------------+ | Increase to deferred | 3.20% | 3.00% | | benefits | | | +-----------------------------+-----------------+--------------+ | Salary increases | 2.75%* | 3.25% | +-----------------------------+-----------------+--------------+ * 2.75% per annum for ten years then 3.0% thereafter The mortality assumptions are based on the recent actual mortality experience of members within the CE Group and the assumptions also allow for future mortality improvements. The assumption is that a member currently aged 60 will live for a further 26 years, if he is male, and for a further 27 years, if she is female. Life expectancy at age 60 for non-pensioners (currently aged 45) is assumed to be 28 years, if they are male, and 28 years, if they are female. For closed schemes, such as the Northern Electric Group of the ESPS, under the projected unit method the current service cost will increase as the members of the scheme approach retirement. Changes in present value of the defined benefit obligation are as follows: +-----------------------------------+---------+----------+--------+ | | 2009 | | 2008 | +-----------------------------------+---------+----------+--------+ | | GBPm | | GBPm | +-----------------------------------+---------+----------+--------+ | | | | | +-----------------------------------+---------+----------+--------+ | Opening defined benefit | 855.3 | | 917.2 | | obligation | | | | +-----------------------------------+---------+----------+--------+ | Current service cost | 7.5 | | 10.3 | +-----------------------------------+---------+----------+--------+ | Interest cost | 53.7 | | 53.0 | +-----------------------------------+---------+----------+--------+ | Contributions from employees | 3.0 | | 3.1 | +-----------------------------------+---------+----------+--------+ | Actuarial gains | 145.7 | | (87.3) | +-----------------------------------+---------+----------+--------+ | Benefits paid | (43.3) | | (41.0) | +-----------------------------------+---------+----------+--------+ | | | | | +-----------------------------------+---------+----------+--------+ | Closing defined benefit | 1,021.9 | | 855.3 | | obligation | | | | +-----------------------------------+---------+----------+--------+ Changes in the fair value of the plan assets are as follows: +----------------------------------+---------+----------+---------+ | | 2009 | | 2008 | +----------------------------------+---------+----------+---------+ | | GBPm | | GBPm | +----------------------------------+---------+----------+---------+ | | | | | +----------------------------------+---------+----------+---------+ | Opening fair value of plan | 801.4 | | 956.6 | | assets | | | | +----------------------------------+---------+----------+---------+ | Expected returns | 54.6 | | 66.2 | +----------------------------------+---------+----------+---------+ | Actuarial losses | 78.6 | | (231.4) | +----------------------------------+---------+----------+---------+ | Contributions by employer | 44.1 | | 47.9 | +----------------------------------+---------+----------+---------+ | Contribution from employees | 3.0 | | 3.1 | +----------------------------------+---------+----------+---------+ | Benefits paid | (43.3) | | (41.0) | +----------------------------------+---------+----------+---------+ | | | | | +----------------------------------+---------+----------+---------+ | Closing fair value of plan | 938.4 | | 801.4 | | assets | | | | +----------------------------------+---------+----------+---------+ YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 23 PENSION COMMITMENTS (CONTINUED) The fair value of the plan assets at the balance sheet date is analysed below: +----------------------+------+----------+------+----------+-------+----------+-------+ | | Long term rates of | | | | return expected at | Value | +----------------------+------------------------+-------------------------------------+ | | 2009 | | 2008 | | 2009 | | 2008 | +----------------------+------+----------+------+----------+-------+----------+-------+ | | % | | % | | GBPm | | | | | | | | | | | GBPm | +----------------------+------+----------+------+----------+-------+----------+-------+ | | | | | | | | | +----------------------+------+----------+------+----------+-------+----------+-------+ | Equities | 8.50 | | 8.90 | | 340.5 | | 322.2 | +----------------------+------+----------+------+----------+-------+----------+-------+ | Gilts | 5.10 | | 5.35 | | 516.0 | | 404.7 | +----------------------+------+----------+------+----------+-------+----------+-------+ | Cash | 4.50 | | 3.25 | | 0.5 | | (4.8) | +----------------------+------+----------+------+----------+-------+----------+-------+ | Property | 8.50 | | 7.90 | | 81.4 | | 79.3 | +----------------------+------+----------+------+----------+-------+----------+-------+ | | | | | | | | | +----------------------+------+----------+------+----------+-------+----------+-------+ | Total fair value of | | | | | 938.4 | | 801.4 | | scheme assets | | | | | | | | +----------------------+------+----------+------+----------+-------+----------+-------+ The CE Group employs a building block approach in determining the long-term rate of return on pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The assumed long-term rates of return on each asset class are set out within these disclosures. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Northern Electric Group of the ESPS. The CE Group expects to contribute approximately GBP44.6m to its defined benefit plan in 2010, including GBP28.4m of pension deficit repair costs. 24 OPERATING LEASE ARRANGEMENTS +------------------------------------------------+------+----------+------+ | |2009 | |2008 | +------------------------------------------------+------+----------+------+ | |GBPm | |GBPm | +------------------------------------------------+------+----------+------+ | | | | | +------------------------------------------------+------+----------+------+ | Minimum lease payments under operating leases | 3.7 | | 4.7 | | recognised in the year | | | | +------------------------------------------------+------+----------+------+ At the balance sheet date, the Company had outstanding commitments for future minimum lease payments under non-cancelable operating leases, which fall due as follows: +------------------------------------------------+------------+----------+---------+ | | 2009 | | 2008 | +------------------------------------------------+------------+----------+---------+ | | GBPm | | GBPm | +------------------------------------------------+------------+----------+---------+ | | | | | +------------------------------------------------+------------+----------+---------+ | Within one year | 2.4 | | 2.3 | +------------------------------------------------+------------+----------+---------+ | In the second to fifth year inclusive | 4.7 | | 4.2 | +------------------------------------------------+------------+----------+---------+ | After five years | 0.9 | | 3.3 | +------------------------------------------------+------------+----------+---------+ | | | | | +------------------------------------------------+------------+----------+---------+ | | 8.0 | | 9.8 | +------------------------------------------------+------------+----------+---------+ Leases consist of rent payable in respect of vehicle leases from a related party and property. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 25 RELATED PARTY TRANSACTIONS The Company has advanced/received loans to/from companies in the CE Group. The total interest included in investment income in the income statement for the year ended 31 December 2009 was GBPnil (2008: GBP0.4m). The total interest included in finance costs in the income statement for the year ended 31 December 2009 was GBP4.1m (2008: GBP8.5m). Included within borrowings is GBP184.4m as at 31 December 2009 (2008: GBP150.2m) in respect of these loans. Interest on loans from CE Group companies is charged at a commercial rate. The Company entered into transactions, in the ordinary course of business, with affiliated companies. Transactions entered into and trading balances outstanding at the year end were as follows: +------------------------------+---------+----------+-----------+----------+----------+----------+ | | | |Purchases | | | | | | Sales | | from | | | Amounts | | | to | | Related | | | Owed to | | Related Party |Related | | Party | | | Related | | | Party | | | | | Party | +------------------------------+---------+----------+-----------+----------+----------+----------+ | | | | | | | (Note | | | | | | | | 16) | +------------------------------+---------+----------+-----------+----------+----------+----------+ | | GBPm | | GBPm | | | GBPm | +------------------------------+---------+----------+-----------+----------+----------+----------+ | | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | 2009: | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | CE Insurance Services | - | | 1.0 | | | - | | Limited | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Northern Electric plc | - | | 4.1 | | | - | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Northern Electric | 7.9 | | 12.7 | | | - | | Distribution Limited | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Vehicle Lease and Service | - | | 3.5 | | | 0.4 | | Limited | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | 2008: | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | CE Insurance Services | - | | 1.0 | | | - | | Limited | | | | | | | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Northern Electric plc | - | | 3.6 | | | - | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Northern Electric | 6.1 | | | | | | | Distribution Limited | | | 9.8 | | | - | +------------------------------+---------+----------+-----------+----------+----------+----------+ | Vehicle Lease and Service | | | | | | | | Limited | - | | 3.0 | | | 0.2 | +------------------------------+---------+----------+-----------+----------+----------+----------+ Sales and purchases from related parties were made at commercial prices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of amounts owed by related parties. YORKSHIRE ELECTRICITY DISTRIBUTION plc REGISTERED NUMBER 4112320 NOTES TO THE ACCOUNTS - 31 DECEMBER 2009 (CONTINUED) 26 IMMEDIATE PARENT UNDERTAKING AND CONTROLLING PARTY The immediate parent undertaking of Yorkshire Electricity Distribution plc is Yorkshire Electricity Group plc. The ultimate controlling party and ultimate parent undertaking of Yorkshire Electricity Group plc is Berkshire Hathaway, Inc., a company incorporated in the United States of America. Copies of the group accounts of Berkshire Hathaway, Inc (the parent undertaking of the largest group preparing group accounts) which include Yorkshire Electricity Distribution plc and the group accounts of CE Electric UK Funding Company, the smallest parent undertaking to prepare group accounts in the UK, can both be obtained from the Company Secretary, CE Electric UK Funding Company, Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF. This information is provided by RNS The company news service from the London Stock Exchange END FR SEAFWLFSSESD
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