Registered number: 02906593 (England and Wales)
Northern Powergrid (Northeast) plc
Annual Report and Consolidated Financial Statements
for the Year Ended 31 December 2022
Northern Powergrid (Northeast) plc
Contents
Company Information 1
Strategic Report 2 to 21
Directors' Report 22 to 26
Independent Auditor's Report 27 to 37
Consolidated Income Statement 38
Consolidated Statement of Comprehensive Income 39
Consolidated Statement of Financial Position 40 to 41
Statement of Financial Position 42 to 43
Consolidated Statement of Changes in Equity 44
Statement of Changes in Equity 45
Consolidated Statement of Cash Flows 46
Statement of Cash Flows 47
Statement of Cash Flows 48
Notes to the Financial Statements 49 to 110
Northern Powergrid (Northeast) plc
Company Information
Directors
A P Jones
A J Maclennan
A R Marshall
P A Jones
P C Taylor
T H France
Company Secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
Tyne and Wear
NE1 6AF
Registered Number
02906593 (England and Wales )
Auditors
Deloitte LLP
Senior statutory auditor
London
United Kingdom
Page 1
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022
The directors present the annual reports and financial statements for the year ended 31 December 2022 of Northern Powergrid
(Northeast) plc (the "Company"), which have been drawn up and presented in accordance with the Companies Act 2006.
BUSINESS MODEL
The Company is part of the Northern Powergrid Holdings Company and its subsidiaries group of companies (the “Northern
Powergrid Group”) and is an authorised distributor under the Electricity Act 1989 holds a Licence granted by the Secretary of
State. In addition, the Company owns all of the shares of Northern Electric Finance plc (together, the “Group”), a company
that acts as the issuer of long-term debt securities. As the Company is the largest contributor to the Group in terms of revenue,
the Strategic Report concentrates on the performance and progress of the Company throughout the reporting year.
As a distribution network operator ("DNO"), the Company is regulated by the Office of Gas and Electricity Markets
(“Ofgem”), which in turn, is governed by the Gas and Electricity Markets Authority (“GEMA”). Ofgem requires the DNOs to
operate within a regulatory framework known as a price control, the purpose of which is to protect the interests of end
consumers by setting an upper limit on the amount the DNOs can charge for the use of their networks. The completion of the
2021/22 Regulatory Year (on 31 March 2022), represented the end of year seven of the current RIIO-ED1 price control, which
became effective on 1 April 2015 and is due to end on 31 March 2023 (the “ED1 period”).
electricity distribution network (the “Network”) within its distribution services area in the northeast of England, which extends
from North Northumberland, south to York and west to the Pennines. The Network includes over 42,000 kilometres of
overhead and underground cables and over 28,000 substations. Electricity is received from National Grid's transmission system
and from generators connected directly to the Network, and then distributed at voltages of up to 132 kilovolts.
Revenue generated by the Company is primarily controlled by a distribution price control formula which is set out in the
Licence. The price control formula does not directly constrain profits from year-to-year but is a control on revenue that
operates independently of a significant portion of the Company’s costs. Allowed revenue is recovered from electricity
suppliers via the application of Distribution use of System charges. These charges account for approximately 15% of the
electricity end user’s overall electricity bill. The Company’s opening base allowed revenue (excluding the effects of incentive
schemes and any deferred revenues from the prior price control) has been set to remain constant and therefore provides the
Company with some stability in terms of its income for each Regulatory Year from 1 April 2016 through to 31 March 2023.
Nominal opening base allowed revenues will increase in line with inflation (as measured by the United Kingdom's Retail
Prices Index “RPI”).
Page 2
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
STRATEGY
In common with (the Group), the Company operates a strategy based on six core principles (the "Core Principles"), which
comprise Financial Strength, Customer Service, Operational Excellence, Employee Commitment, Environmental Respect and
Regulatory Integrity. The Core Principles (which are applied by the Northern Powergrid Group’s parent company, Berkshire
Hathaway Energy Company ("Berkshire Hathaway Energy")), set out the basis on which the Company generates shareholder
value over the longer-term and defines the standards by which the Northern Powergrid Group holds itself accountable. Each
Core Principle is defined by a strategic objective which is linked to the commitments made in the Company’s 2015 to 2023
regulatory well-justified business plan (“the Business Plan”).
Submitted to Ofgem in March 2014, the Business Plan described the long-term strategy and commitments that the Company
would achieve during the ED1 period in order to deliver sustainable growth with regard to those with whom the Company
interacted and served. Developed after a period of consultation with stakeholders, the Business Plan focused on a number of
priorities (described throughout the Strategic Report) including minimising costs, improving flood defences, enhancing
customer service, prioritising employee safety, supporting vulnerable customers, protecting the environment and transitioning
to low carbon technologies. The directors refer to the values established by the Core Principles and the commitments contained
within the Business Plan when considering the consequence of decisions they make. The 2022 financial year denotes the last
full year in which the Company operated under the Business Plan.
Following the publication of RIIO-ED2 (“ED2”) Business Planning guidance by Ofgem in August 2020, the Company
commenced the development of its regulatory business plan for the ED2 period (1 April 2023 to 31 March 2028) (the “ED2
Plan”), which was submitted to Ofgem on 1 December 2021 (a copy of which can be found on the Northern Powergrid Group
website). As part of the development of the ED2 Plan, the Company worked with the Customer Engagement Group (“CEG”),
which was established for the purpose of providing independent scrutiny and challenge to ensure that customers’ interests are
adequately reflected in the ED2 Plan. Ahead of the implementation of the ED2 Plan on 1 April 2023, the Company will
participate in open hearings with Ofgem and interested stakeholders and consultations before Ofgem publishes its final
determination in December 2022 (for further detail, see Regulatory Integrity).
During the transition into the ED2 Period and beyond, the strategy set out in the ED2 Plan will support the Company’s
evolution from DNO to Distribution System Operator (“DSO”), in order to facilitate decarbonisation and take steps to achieve
a fully integrated energy system. See Environmental Sustainability for more detail.
Many of the conditions set out in the Licence, including the way in which base allowed revenue will be determined will be
revised as a result of the stipulations set out in the ED2 final determination. However, these will not come into effect until 1
April 2023 and will therefore not be reported on until the 31 December 2023 annual report and financial statements of the
Company.
The delivery of the Business Plan is supported by an annual business plan (the “Annual Plan”) which is submitted to the
Northern Powergrid Group’s shareholder each financial year and is designed to phase progress towards the achievement of
each commitment over the ED1 period. This ensures that the deliverables in both plans can be measured effectively by using a
mix of financial and non-financial Key Performance Indicators (“KPI”).
The Strategic Report focuses on each Core Principle and the performance of the associated KPIs throughout the Regulatory
Year in order to provide a summary of the success in achieving each strategic objective, progress made against certain
Business Plan commitments and performance in relation to the Annual Plan.
Page 3
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
FINANCIAL STRENGTH
Strategic objective
: Strong finances that enable improvement and growth.
KPI 2022 2021
Operating profit (million) £161.6 £147.6
Cash from operating activities (million) £210.8 £205.6
Cash used in investing activities (million) £124.9 £163.4
Credit Score (Standard and Poor's) A A
Business Plan commitment:
To build on the efficiencies achieved to date and in doing so, reduce base costs by 3.1% in 2015
to 2023 compared to the previous price control period.
Performance during the year:
The Group continued to maintain good control in respect of both its capital and operating costs
by effectively managing the financial risks that could have had an adverse impact on its business. Seven years through the ED1
period, the Group had implemented efficiencies equivalent to a 4% reduction in base costs relative to the prior regulatory
period.
Revenue:
The Group's revenue at £441.9 million was £56.7 million higher than the prior year (2021: £385.2 million) primarily
due to higher distribution use of system revenues as the result of higher tariffs and including the recovery of payments made
under the supllier of last resort process.
Operating profit and position at the year-end:
The Group's operating profit of £161.6 million was £14.0 million higher than
the previous year (2021: £147.6 million), primarily reflecting higher gross profit (£11.7 million) and impact of storm arwen
(£4.6 million), pension deficit repair payments (£4.8 million), lower bad debts (£3.8 million) offset by higher depreciation
(£3.6 million). The statement of financial position shows that, as at 31 December 2022 the Group had total equity of £1,236.7
million (2021: £1,162.1 million). The directors consider the Group to have a strong financial position which, when coupled
with the preference of its parent Company, Berkshire Hathaway Energy, for operating with lower levels of debt than
equivalent companies in the sector, creates a stable base for continued strong performance during the ED1 period.
Finance costs and investments:
Finance costs net of investment income at £32.2 million was £5.4 million higher than the
prior year (2021: £26.8 million) mainly reflecting increased borrowings.
Cash flow:
The Company aims to collect from customers and pay suppliers within contracted terms. Any surplus cash held is
remitted to Yorkshire Electricity Group plc ("YEG"), a company in the Northern Powergrid Group, and invested accordingly,
generating a market rate of return for the Company. Movements in cash flows were as follows:
Cash flow from operating activities at £210.8 million was £5.2 million higher than the previous year, reflecting higher
operating profit before depreciation and amortisation and offset by adverse movements in working capital.
The net cash used in investing activities at £124.9 million was £38.5 million lower than the previous year, reflecting higher
receipt of customer contributions offset by lower purchases of plant, property and equipment.
The net cash inflow from financing activities at £190.3 million was £232.8 million higher than the £42.5 million cash outflow
in the previous year.
Page 4
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Pensions
: The Company is a participating employer in the Northern Powergrid Group of the Electricity Supply Pension
Scheme (the "DB Scheme"), a defined benefit scheme. Further details of the Company's commitments to the Scheme and the
associated deficit repair payments are provided in Note 25 to the financial statements. The Company also participates in the
Northern Powergrid Pension Scheme, which is a defined contribution scheme.
Insurance
: As part of its insurance and risk strategy, the Northern Powergrid Group has in place insurance policies, which
cover risks associated with employees, third party motor and public liability. The Northern Powergrid Group carries
appropriate excesses on those policies and is effectively self-insured up to the level of those excesses.
CUSTOMER SERVICE
Strategic objective
: Delivering exceptional customer service.
KPI 2022 2021
Broad Measure of Customer Satisfaction (“BMCS”)
88.3% 89.4%
BMCS Rank (Out of 14)
12 11
BMCS Power Cuts
87.8% 88.9%
BMCS General Enquiries
94% 94.4%
BMCS Connections
86.2% 87.8%
Stakeholder Engagement and Customer Vulnerability (“SECV”) rank (out of 13) (combined
with Northern Powergrid (Yorkshire) plc)
6 5
Business plan commitments
: To provide a reliable, better communicated and faster customer service offering through a range
of channels to suit stakeholder needs.
Performance during the year
: In respect of BMCS performance, an independent market research company carried out
telephone surveys with the Company’s customers to find out how satisfied they were with services related to unplanned or
planned power cuts, quotations and subsequent connections, and general enquiries.
The Company recorded a decline in overall satisfaction scores at 88.3% compared to the prior year (89.4%) which resulted in
an overall BMCS rank of 12 out of 14.
To further enhance the service provided to customers a number of initiatives from the Company’s customer service
improvement plan were implemented. This included the continued development of the customer relationship management
(“CRM”) system, including the launch of an enduring connections solution (which equips customers with greater self-serve
capabilities), the roll-out of additional communication and greater call handling capability.
Activity scheduled to take place during 2023 includes the further development of the CRM system to support a self-serve
solution for low carbon technology additional load requests, the introduction of a proactive on-site response offering to support
customers impacted by long duration power cuts and to provide out of hours delivery for certain services.
Page 5
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Connections to the network
Business Plan commitment:
To further implement customer service improvements in support of the commitment to reduce
routine, small works end-to-end connections lead times by 30% during the ED1 period, actively facilitate the development of
competition from independent connections providers ("ICPs") and deliver the major works service improvement plan as part of
the Ofgem Incentive on Connections Engagement (“ICE”).
Performance during the year:
End-to-end lead time improvement continued to be challenging due to the significant increase
in connections volumes as a result of low carbon technology uptake and additional applications post the relaxation of
Pandemic restrictions. In response the Company implemented a new quotation system which allowed customers to obtain a
quote online and increased operational delivery capacity. This was in addition to the quote on site option, single point of
contact and AutoDesign tool that were implemented in ED1.
The Company continued to comply with the processes set out in Standard Licence Condition 52 and the Competition in
Connections Code of Practice. This included the provision of dual quotations, enabling ICPs to self-determine points of
connection to the existing network and self-approve designs, and by facilitating the self-connection of new assets to the
Company’s low and high voltage networks by suitably accredited ICP operatives as a contestable activity.
In relation to the Company’s ICE commitments for the 2022/23 regulatory year, the 11 actions included in the service
improvement work plan are on track to be delivered by 31 March 2023.
Page 6
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Corporate Responsibility
Business Plan commitment:
To build effective relationships with stakeholders whilst maximising the value of contact with
customers, especially those who are vulnerable and hard to reach.
Performance during the year:
In May 2022, the Company (together with Northern Powergrid (Yorkshire) plc) put forward
its SECV submission to Ofgem in respect of work undertaken during the 2021/22 Regulatory Year. The material provided an
overview of activities and case studies in areas such as support for vulnerable customers, decarbonisation, safety, environment,
customer service, reliability and availability.
Following the review by Ofgem's panel, the Company achieved sixth place (of six) in the context of the DNOs (2020/21: fifth
place (of five)). In response, an external assessment of the approach to engagement, fuel poverty provision and the support
provided to vulnerable customers was undertaken and improvement plans were established.
During the year, the Company continued to develop its routine engagement activity with a focus on decarbonisation and
resilience. This included enhancing existing relationships with local councils, Local Enterprise Partnerships and civic leaders,
particularly during periods of severe weather and when providing support to vulnerable customers. In addition, engagement
sessions were held (and attended by the CEG) to understand stakeholders’ opinions on the commitments and proposed level of
investment in the ED2 Plan.
The ongoing energy crisis and economic uncertainty exacerbated the challenges facing vulnerable customers. As a result,
additional resource was allocated to assist those facing fuel poverty and work continued with partners who provide support
services. The Company’s fuel poverty partners resumed face to face advice where possible but also maintained online and
telephone services. In addition, the Company’s Community Partnering Fund financed nine grassroots organisations across the
region to deliver fuel poverty support to vulnerable households. Alongside, the Company and all funded partners routinely
promoted Priority Services Membership and shared energy efficiency materials and winter preparedness information to
customers.
OPERATIONAL EXCELLENCE
Strategic objective
: High-quality, efficient operators running a smart reliable energy system.
2021/22 2020/21
KPI Actual Target Actual Target
Customer minutes lost 46.33 <52.8 36.8 <55.2
Customer interruptions 49.89 <59.2 45.3 <60.0
2022 2021
Network investment (million) £157.5 £188.6
High voltage restoration time (minutes) 61.1 51.8
Page 7
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Business Plan commitment:
To enhance the reliability of the network in support of the commitment to achieve 8% fewer
unplanned power cuts and reduce the average length of unplanned power cuts by 20% during the ED1 period.
Performance during the year:
CML and CI are the KPIs set by Ofgem and used by the Company to measure the quality of
supply and system performance. Both CML and CI are measured on a regulatory year basis. CML measures the average
number of supply minutes lost for every connected customer due to both planned and unplanned power cuts that last for three
minutes or longer. CI measures the average number of supply interruptions per every 100 connected customers due to planned
and unplanned power cuts that last for three minutes or longer. Performance during the year was better than Ofgem's target for
both CML and CI.
In relation to high voltage restoration, the Company’s high-voltage restoration performance during the year averaged 61.1
minutes (2021: 51.8 minutes), after allowing for severe weather incidents and other exemptions.
In respect of the Business Plan commitments, the Company together with Northern Powergrid (Yorkshire) plc achieved 26%
fewer unplanned power cuts and a reduction of the average length of unplanned power cuts by 32% (relative to the prior
regulatory period). Progress remains on track to outperform the original targets of 8% fewer unplanned power cuts and a 20%
reduction in the number of unplanned customer minutes lost per customer.
The Company invested £157.5 million during the year through its approved Network investment strategy (2021: £188.6
million), which has been designed to deliver improvements in Network performance and increase resilience. Various major
projects were undertaken to reinforce the primary Network, refurbish transformers, rebuild overhead lines, remove and replace
oil-filled cables, change deteriorated poles, replace switchgear and install and commission new remote-control points.
Further Network enhancements included the continued roll-out of the automatic power restoration system on the high voltage
Network. At low voltage the implementation of next generation innovative low voltage technology devices continued with the
addition of low-cost Network monitoring sensors which detect developing faults so that they can be proactively managed.
Initiatives were also implemented as a result of the Reliability Improvement Plan including increasing the use of mobile
generation to restore supplies.
Page 8
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Climate Change Adaptation
Strategic objective:
Operate a highly reliable and resilient Network.
KPI
Business Plan commitment:
To adapt to the effects of climate change by establishing and maintaining flood defences at all
high-risk substations to national standards, delivering a programme of vegetation management and working collaboratively
with regional infrastructure providers and local resilience forums.
Performance during the year:
In respect of routine activity, the Company and its affiliate invested £5.0 million on flood
mitigation works and £8.6 million on the continuation of the vegetation management programme.
In parallel, activity to understand the risks and opportunities presented by climate change, as well as the development of
initiatives in response, continued to evolve.
Using the latest climate projections (UKCP18), alongside work with the Met Office and the Energy Networks Association, the
Company carried out a risk assessment to identify and prioritise key climate related risks and their impact on the Network.
Focus was directed on two pathways. The first, in line with the 2°C global warming considered in the Paris agreement and the
second, representing an increase in global mean surface temperature of 4.3°C by 2081-2100. The risk assessment was carried
out across three timescales (current, medium term: 2050’s and long term: 2080’s) for each scenario, which resulted in the
following key risks:
• Precipitation (extreme prolonged rainfall) - leading to flooding and erosion, and creating access issues, asset damage and
reduced performance.
• Temperature (extreme heat) - high temperatures, which may reduce the performance and efficiency of assets.
• Precipitation (storms) - strong winds in conjunction with heavy rain, causing operational failure of above ground assets and
increased faults.
• Temperature / Precipitation (gradual increase in temperature and rainfall) - warmer and wetter conditions extending
vegetation growing seasons, resulting in accelerated growth and increasing management needs.
In terms of impact, sixteen asset related risks and four non-asset related risks were identified, all of which were included in the
Company’s Climate Change Adaptation report submitted to Department for Environment, Food and Rural Affairs (“Defra”) in
December 2021 and the Climate Resilience Strategy for 2023 to 2028 (both available on the Northern Powergrid Group
website).
The Company’s climate resilience framework (part of the aforementioned strategy) has been developed in line with guidance
from Defra and the National Infrastructure Commission’s approach to Climate Resilience and incorporates the recommended
aspects of resilience: Anticipate, Assess, Adapt, Recover and Transform.
Page 9
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
EMPLOYEE COMMITMENT
Strategic objective
: High-performing people doing rewarding jobs in a safe and secure workplace.
2022 2021
KPI Actual Target Actual Target
Northern Powergrid Group occupational safety and
health administration ("OSHA") 0.26 0.09 0.29 0.09
Preventable vehicle accidents 10 14 23 14
Lost time accidents 0 - 1 -
Medical treatment accidents - 1 2 1
Operational incidents 5 3 6 4
Northern Powergrid Group absence rate 3.3% 3.3%
Health and Safety
Business Plan commitment:
To deliver world class safety performance and half the accident rate during the ED1 period.
Performance during the year:
In common with the Berkshire Hathaway Energy group, the Northern Powergrid Group
measures its safety performance using the OSHA rate, which is a measure used to capture safety incidents down to minor
levels of medical treatment. The Northern Powergrid Group failed to meet its target of 0.09 having achieved an OSHA rate of
0.26 (2021: 0.29), which equated to six recordable incidents against a goal of two or fewer. Three incidents involved minor
burn injuries, and as such, an intervention plan was implemented. The Company had a positive year in terms of PVAs, with ten
recorded against a target of 14 or fewer.
In respect of the Business Plan commitment, at 31 December 2022, the Company’s accident rate had been reduced by 42%,
which is on target to achieve a 50% reduction by 31 March 2023.
Improving safety performance remains a key priority and the way in which this is achieved is set out in the Company’s safety
and health improvement plan (“SHIP”). During the year, the SHIP focused on 45 initiatives in the areas of enhanced
engagement, operational performance, risk management, road risk, occupational health and public safety. This included an
upgrade of the telematics system in all fleet vehicles, continuation of driver training, weekly driving performance analysis for
fleet vehicle drivers and the introduction of a new system for display screen equipment assessments.
The mental health and wellbeing of staff continues to form an integral part of the SHIP. Existing support includes an
independent employee assistance service, which is a confidential, self-referral counselling and information service to assist
with personal or work-related problems and access to services including counselling and physiotherapy referrals.
In terms of the Pandemic, safe working practices and procedures remained under review by members of the safety team, senior
management team, Health and Safety Committee and the Board, in conjunction with trade union representatives until measures
were relaxed.
During the year, the Company successfully retained its ISO 45001 accreditation scheme for its health and safety management
system.
Page 10
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Employees
Business Plan commitment:
To emphasise the importance of leadership and high standards of performance by engaging,
collaborating and working with employees and their trade union representatives.
Performance during the year:
As Pandemic restrictions eased, an enduring approach to agile working was launched,
allowing eligible colleagues to adopt flexible ways of working. This enhanced the Company’s ability to attract new talent
whilst fostering teamwork and collaboration. Alongside, the Company continued to develop its health and wellbeing offering
and in support, appointed a new occupational health partner.
In relation to development, training sessions on topics which formed part of the Diversity, Equality and Inclusion plan were
provided to further promote a more inclusive culture. Routine training also continued in key areas such as customer service,
cyber security and management development. In 2023, the Company’s leadership offering will be refreshed in line with the
Berkshire Hathaway Energy Performance Management Framework.
During the year, 41 new recruits (2021: 38) joined the Company and Northern Powergrid (Yorkshire) plc’s workforce renewal
programme. At 31 December 2022, the Company had 1,281 employees (2021: 1,228).
Further information concerning how the Northern Powergrid group is supporting gender diversity in the energy industry can be
found in the Northern Powergrid Group’s gender pay gap report via the Northern Powergrid Group’s corporate website.
Employee engagement
The board and senior management team keep employees and trade union representatives informed of and involved as
appropriate in developments that may impact them now or in the future. This approach has been chosen as the most effective
way of interacting with employees due to the combination of collectively bargained and personal contract holders. In support
of this process, the Director of People and Change routinely reports to the board and the Health and Safety Committee to
ensure that the views of employees are considered and to facilitate the discussion of and any subsequent decision making in
respect of employee related concerns or issues.
Consultation for collectively bargained employees is agreed with trade union representatives in the form of a constitutional
framework. In addition, all employees are consulted to establish their views and identify key priorities using employee
engagement surveys.
During the year, the President and Chief Executive Officer, members of the board and senior management team provided
regular updates on financial, organisational, safety and customer service performance. As social distancing measures eased, the
executive directors engaged directly with employees during operational and office-based site visits, and induction and
graduation events. Communication with employees was delivered via various channels including group wide text messages to
quickly disseminate key information concerning safety, the Pandemic and Major Incident Management Plans, regular
briefings, line manager conversations, meetings with trade union representatives and utilising the Northern Powergrid Group's
intranet.
The Berkshire Hathaway Energy code of business conduct ("Code of Conduct")
The Northern Powergrid Group has adopted the Code of Conduct, which details the commitment to ethics and compliance with
the law, provides reporting mechanisms for known or suspected ethical or legal violations, and establishes minimum standards
of behaviour expected of all employees. In support of this, a "speaking up" process is in place enabling all employees to raise
concerns of unethical acts, malpractice or impropriety (including bribery or corruption), and an anonymous help line operated
by an independent company is also available. All colleagues complete an annual online training programme covering the
requirements of the Code of Conduct.
Employment of disabled persons
The Company’s policy is to provide all protected groups, including disabled people, with equality at work in respect of
employment, training, career development and promotion, having regard to their aptitudes and abilities. Should any member of
staff become disabled during their employment, the Company will make reasonable adjustments, wherever possible.
Page 11
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
ENVIRONMENTAL RESPECT
Strategic objective:
Leaders in environmental respect and low carbon technologies
2022 2021
KPI Actual Target Actual Target
Total oil/fluid lost (litres) 10,164 <11,406 8,986 <11,583
SF6 gas discharges (kg) 22.08 <12.75 19.20 <13.50
Environmental incidents 3 <2 - <2
Carbon footprint (tonnes) 14,375 14,496
KWh energy consumed 20,867,214 21,241,374
Business carbon footprint Tonnes Per km² Tonnes Per km²
Scope 1
2,728
0.19
2,737
0.19
Scope 2
2,439
0.17
2,679
0.19
Scope 3
9,208
0.64
9,080
0.62
Total carbon footprint (tonnes)
14,375
1.00
14,496
1.00
Note: KWh energy consumed relates to depot energy and fleet fuel usage.
The chosen business carbon footprint intensity ratio is based on the Company’s licence area which equals 14.394 km.
The methodology adopted to calculate energy and business carbon footprint data is aligned with international standards, those required by Defra and BEIS and
is compliant with ISO 14064-1:2006.
Page 12
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Business Plan commitment:
Deliver Environmental “RESPECT” (Responsibility, Efficiency, Stewardship, Performance,
Evaluation, Communication and Training) and in doing so reduce oil and fluid loss by 15% and our business carbon footprint
by 10% during the ED1 period.
Performance during the year:
The Company operates a United Kingdom Accreditation Service scheme for environmental
management and is certified to the environmental management systems standard ISO 14001:2015. This is designed to enhance
environmental performance, fulfil compliance obligations and achieve environmental objectives, all of which contribute to the
attainment of the KPIs. A full recertification assessment was carried out in March 2020 with continued certification confirmed
following the last surveillance audit in October 2022.
The Company’s carbon footprint reporting framework is certified under the Certified Emissions Measurement and Reduction
Scheme for compliance with ISO 14064-1:2006. Certification was reconfirmed in August 2022.
Remote working and less travel has led to a further reduction in the Company’s carbon footprint to 14,375 tonnes (2021:
14,496 tonnes). This improvement (combined with Northern Powergrid (Yorkshire) plc) demonstrated a carbon footprint
reduction of 39% at 31 December 2022, well ahead of the original 10% ED1 commitment.
In support of the target to further reduce oil and fluid loss, the 2022 annual environmental improvement plan included
replacing fluid-filled cables and locating cable fluid leaks more quickly resulting in a total fluid loss of 10,164 litres (2021:
8,986). In relation to the Business Plan commitment, at 31 December 2022, the Company and its affiliate had achieved a 51%
reduction in oil and fluid loss (15% commitment).
To maintain its strict policy of environmental protection and legal compliance, the Company continued to assess
environmental risks and mitigate threats through programmes of work such as fluid-filled cable replacement, undergrounding
overhead lines in areas of outstanding natural beauty, installing flood defences, implementing secondary containment in
high-risk substations and removing equipment containing polychlorinated biphenyl from the Network. Whilst prevention is
paramount, in the event the Company’s activity does result in a leak or spill, the services of an appointed 24-hour a day
environmental response consultancy is used to minimise the effects of any incident.
The Company takes its environmental responsibilities very seriously and has a proven track record of lowering emissions and
minimising the wider environmental impact of Network activity. Reducing the level of internal carbon footprint is a key
priority and consequently, plans have been developed to become carbon net neutral by 2040. This includes initiatives such as
increasing ultra-low emission or zero emission vehicles to 40% of the Company’s fleet of vehicles by 2028 and the adoption of
science-based targets.
Science-based targets are a set of goals developed to provide a clear route to reducing greenhouse gas emissions. Emissions
reduction targets are considered science based if they are consistent with keeping global warming below 1.5°C above
pre-industrial levels. The Company’s science-based targets were verified by the Science-based Targets Initiative in December
2021.
In respect of the Company’s wider environmental impact, plans have been developed to achieve zero waste to landfill by 2035
and to divert 90% of waste from all of the Company’s operations by 2028. In addition to safeguarding the environment from
its direct activity, the Company also operates a programme which is aimed at protecting natural habitats and increasing the
variety and variability of species and ecosystems at 200 major sites.
To date, the Company’s performance against a number of stretching KPIs to reduce carbon usage and minimise the effects of
the Company on stakeholders and the environment has been positive. However, it is acknowledged that becoming carbon
neutral by 2040 and working with suppliers and partners in order to accomplish this, is not without its challenges and risks.
Accordingly, the Company will continue to evolve its ambitions and enhance the implementation of environmental plans
throughout the ED2 period.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Environmental Sustainability
Strategic focus:
Enable significant growth in customers connecting low carbon technologies, support all pathways to net zero
emissions and significantly reduce the Company’s carbon footprint.
Performance during the year:
As the country takes action to reduce carbon emissions in line with the net zero target by
2050, the way in which electricity is produced and used is expected to have a substantial impact on the Network over time.
Accordingly, in the year, the Company engaged with Ofgem to secure the funding to support its DSO strategy and therefore,
act as a key facilitator in the country’s net zero transition by placing decarbonisation at the heart of its investment and actions
for the ED2 period.
As the volume and total capacity of decentralised energy generation grows and given the greater range of load and generation
technologies now connected to the Network, the Company continued to develop and action innovative solutions that will
reduce the need for traditional and potentially expensive reinforcement.
In the past year, the Company engaged with the market for flexibility by consulting on investment solutions where there was
an option for customers to change their energy consumption and generation patterns, thereby facilitating a more efficient and
greener Network. And to better understand how to prepare the Network for the future needs of its customers and the potential
pathways to net zero, the Company published further Distribution Future Energy Scenarios in February 2022 (available via the
Northern Powergrid group corporate website).
From an innovation perspective, the Company runs a portfolio of projects in the priority areas of customer vulnerability,
resilience and decarbonisation. One ongoing energy efficiency project has the potential to deliver a 4% reduction in domestic
energy use, giving rise to an average £40 annual saving. Meanwhile, the scope of the Silent Power generators for temporary
restorations was expanded to support larger and high voltage faults. Ongoing innovation projects aim to provide support to
rural communities.
Whilst the Company transitions into the ED2 period and the role of the DSO becomes better defined, decarbonisation will
continue to become central not only to the Company’s strategy, but the way in which the Company contributes more broadly to
the evolution of the energy industry and the stakeholders with whom it interacts. The Company has been progressive in its
ambition to reduce its own business carbon footprint. However, more is required and it is acknowledged that the Company has
a key role to play in facilitating regional decarbonisation by fulfilling the functions of DSO. This means investing in people,
processes and systems in order to actively manage the Network and to optimise the use of assets and generated energy in the
region.
As part of the Company’s ED2 Plan submission, a number of strategic objectives shaped the development of the
accompanying DSO strategy. This included ‘flexibility first’, involving deploying flexible solutions as an alternative to
Network reinforcement, ‘whole system collaboration’ in order to engage with the wider market on whole system energy
solutions, ‘data and digitalisation’, to facilitate solutions in areas such as open data, ‘openness and transparency’ to collaborate
in joint planning with our stakeholders and, finally, fostering a ‘workplace and workforce fit for the future', to build regional
and national skills.
Collectively, these objectives have been developed to achieve a number of outcomes and benefits. Consequently, during ED2,
the Company will proceed with its plans for DSO to enable open energy data sharing, transform the way decisions and plans
are made throughout the Company, support the development of new flexible energy markets, increase customer and Network
flexibility and facilitate a whole system energy system. In support, the new DSO business unit was launched in 2022, and is
led by the Director of Policy & Markets.
Page 14
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
REGULATORY INTEGRITY
Strategic objective
: Trustworthy, fair and balanced.
KPI:
Completion of a quarterly regulatory compliance affirmation process.
Business Plan commitment:
To manage the Company's business to the highest behavioural standards and adhere to a policy
of strict compliance with all relevant standards, legislation and regulatory conditions.
Performance during the year
: In order to assure compliance with distribution licence and other regulatory obligations, the
Company operates a regulatory compliance affirmation process, under which ownership of approximately 1,900 regulatory
obligations is assigned to 71 responsible managers. Those responsible managers are required to review compliance with the
relevant obligations on a quarterly basis and report on any identified non-compliances or perceived risks which are then
addressed by members of the senior management team. To minimise the risk of the Company breaching its licence conditions
and other statutory requirements (which could lead to financial penalties), the board reviews the outcomes of each exercise.
Each quarterly regulatory compliance affirmation process was completed satisfactorily during the year.
The Company submitted its annual Data Assurance Report to Ofgem in February 2022, which included risk assessments of the
regulatory returns to be submitted for the Regulatory Year ahead (April 2022 to March 2023), together with a report detailing
the assurance work actually carried out in the year ended 28 February 2022 and the findings of that work.
Ofgem completed its review process to determine the network charges that DNOs will be able to levy over the ED2 period and
issued a consultation on its draft determinations for the ED2 period on 29 June 2022, to which the Company submitted a
comprehensive response. Ofgem issued its final determinations on 30 November 2022.
The main focus in the ED2 period will be on investing in supporting the move away from dependence on fossil fuels towards
cleaner, cheaper and more secure sources of energy, such as wind and solar power, to connect those sources of generation to
the network and to facilitate the anticipated significant increase in the use of low carbon technologies such as heat pumps and
electric vehicles.
On 2 March 2023 NPg Northeast and its affiliate sought permission from the Competition and Markets Authority (the "CMA")
to appeal against the licence modifications that give effect to the ED2 price control. The appeal relates to two specific areas:
1. the misallocation of allowances that is inconsistent with efficient costs; and
2. the approach to determining rewards for the Business Plan Incentive.
The permission for the appeal was granted by the CMA, the appeal is expected to conclude in the fourth quarter of 2023 in
accordance with the timetable required of the CMA. The outcome of these appeals may increase or reduce the revenue
available to the Company if the CMA amends the price control determination.
Page 15
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
PRINCIPAL RISKS AND UNCERTAINTIES
The Northern Powergrid Group operates a structured and disciplined approach to the management of risk as part of its overall
risk management policy and in support of its financial reporting practices. A system is in place to facilitate the identification of
new and emerging opportunities and risks, including those associated with the achievement of the Northern Powergrid Group’s
strategic objectives and Core Principles. This includes regular reviews of the macro environment as well as risks that arise
from within functional business areas. Once identified, key risks and their respective controls and mitigation plans are
continually assessed and formally reviewed on a quarterly basis by the Risk Advisory Board ("RAB") in order that they are
managed to an acceptable level in accordance with the Northern Powergrid Group’s risk appetite. The RAB routinely reports
its findings to the board to ensure the directors are sufficiently appraised of the risk exposure associated with the pursuit of the
Company’s long-term strategy.
The risk management programme includes regular reviews of the crisis management, disaster recovery and major incident
plans. To determine the level of disaster preparedness and responsiveness against threats to business continuity, risk
management plans and processes are periodically tested. This self-evaluation approach is reinforced by that of the Berkshire
Hathaway Energy group, which benchmarks risk management activities across its business units and shares significant lessons
learned. The business continuity and disaster recovery plans were fully tested as a result of the Pandemic, and whilst
adaptation and flexibility was required, operational performance remained resilient and employees continued to perform their
duties safely.
Page 16
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Principal Risks
During the year, the risk posed by leaving the European Union was removed. In addition, following the relaxation of rules, the
Pandemic no longer remains as a principal risk. No other notable changes have taken place. The Northern Powergrid Group’s
principal risks are not ranked or prioritised in any particular order.
Cyber and Information Security
Unauthorised access or compromise of the Information Technology or Operational Technology networks, resulting in loss of
network control and availability. Unauthorised access or loss of large volumes of data or sensitive data.
Mitigation
• Robust cyber security risk mitigation programme is in place.
• Accreditation under the ISO 27001 Information Security standard for operational, customer, employee and financial
information.
• Compliant to the Network Information Security Directive and the Basic Cyber Assessment Frameworks.
• Compliance with the Centre for Internet Security Critical Security Controls.
Regulatory and policy positioning
Decisions taken resulting in negative impacts to our business model.
Mitigation
• The Company's policy position supporting the expanded role of DSO was published in December 2021.
• Innovation projects are in place to develop and demonstrate future technologies and commercial practices.
• The Company engages in a robust regulatory and stakeholder engagement programme, the latter of which is scrutinised by
the CEG.
• The Company is actively involved in consultations on the ED2 price controls.
Network and climate resilience
Loss of the operational Network due to significant weather events, targeted physical attack or catastrophic asset failure
resulting in sustained or widespread loss of essential supply.
Mitigation
• Major incident and crisis management policies, plans and governance arrangements are in place.
• An industry mutual aid agreement exists.
• Grid resilience programme and audits.
• Vulnerable site protocols.
• Climate resilience strategy and framework.
Safety
Fatality or serious harm caused to an employee or a third party.
Mitigation
• Overseen by the Health and Safety Committee.
• Safety Health and Improvement plan and associated policies and procedures.
• Health and safety training, enhanced audit programme and inspection regimes are in place
• ISO45001 safety management system in place.
Page 17
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Environment and climate protection
Failure to prevent Network assets from having a significant negative impact on the climate and environment.
Mitigation
• Programme to reduce fluid loss and the Company’s business carbon footprint and remove assets containing polychlorinated
biphenyl from the network.
• Environment improvement plan and Environment Action Plan.
• Path to carbon neutrality by 2040.
• Incident response, waste management and habitat protection programmes.
• ISO14001 environmental management system in place.
Resource availability
Access to and availability of skilled resource resulting in an inability to deliver work programmes.
Mitigation
• Mix of direct labour and contracted resource is used.
• Workforce renewal programmes in place to recruit and retain employees.
• Ongoing training and development builds internal capability.
• Employee engagement and health and well-being initiatives are in place.
• Diversity, equality and inclusion plan.
Efficiency and output performance
Failure to maintain cost and output performance competitiveness in the industry.
Mitigation
• Robust business planning process.
• Robust financial controls in place.
• Monthly executive business performance review.
• Comprehensive “Efficient Output Delivery” programme.
Financial risks
The exposure to interest rate, tax, liquidity and treasury risks.
Mitigation
• The Group 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 2022, 100% of the Group’s long-term borrowings were at fixed rates and the average maturity for these
borrowings was 27 years.
• Financial covenant monitoring is in place.
• Regulatory adjustments control the effect of taxation changes.
Page 18
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Internal Control
A strong internal control environment exists to support the financial reporting process, including regular reporting, a series of
operational and financial policies, investigations undertaken by internal audit and a stringent process for ensuring the
implementation of internal audit recommendations. In addition, the Company utilises comprehensive business planning
procedures, regularly reviews KPIs to assess progress towards its goals, and has a strong internal audit function to provide
independent scrutiny. Financial controls include centralised treasury operations and established procedures for the planning,
approving and monitoring of major capital expenditure.
The RAB monitors the effectiveness of internal controls and reports on its findings to the board and Berkshire Hathaway
Energy. As part of the statutory reporting process, the Company’s external auditor reviews and tests a number of internal
controls and reports their findings and recommendations for improvements to the board.
Controls which are applicable to financial decisions are governed via a schedule of delegations of authority which are
approved by the board (and applies to the Northern Powergrid Group) for the purpose of enabling the senior management team
to make decisions up to certain financial limits, above which point the decision making reverts to the directors. These limits
reflect the board’s level of risk appetite and are reviewed on an annual basis.
In accordance with Berkshire Hathaway Energy’s requirements to comply with the Sarbanes-Oxley Act, the Company
undertakes a quarterly risk control assessment confirming that the effectiveness of the system of internal controls have been
reviewed during the year. A self-certification process is in place, in support of this review, whereby certain senior managers
are required to confirm that the system of internal control in their area of the business is operating effectively. Consequently,
the directors believe that a robust system of risk assessment and management is in place.
The Northern Powergrid Group does not have a specific human rights policy. However, in accordance with the Core
Principles, it remains fully committed to operating ethically and responsibly and with fairness and integrity. This is
implemented through its policies and procedures, which are applicable to all stakeholder groups and encompasses employees’
health, safety and welfare, dealings with customers (particularly those who are vulnerable), the impact of the Northern
Powergrid Group on the environment and the contribution to sustainability.
To ensure that the Northern Powergrid Group maintains the highest level of ethical standards in the conduct of its business,
Berkshire Hathaway Energy's Code of Conduct has been adopted (See ‘Employees’). The Northern Powergrid Group has
robust procedures in place to meet the requirements of the Bribery Act 2010. Every employee must undertake training in
respect of the Northern Powergrid Group’s anti-corruption and anti-bribery policy each year.
Page 19
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Section 172(1) statement
Decision-making at the Board
All matters which under the Company’s governance arrangements are reserved for decision by the Directors are presented at
Board meetings. Directors are briefed on any potential impacts and risks for customers, and other stakeholders and how they
are to be managed. The Directors take these factors into account before making decisions, which together they believe are in
the best interests of the Company and its member.
Long-term sustainability
As referenced throughout the Strategic Report, the Company’s business model is to make sufficient profit in order to invest in
the Network thereby, ensuring the integrity of the electricity supply for its customers. To achieve this objective, the Company
delivers its service to fulfil the needs of the stakeholders with whom it interacts and in doing so, ensures all business
relationships are conducted in an open and transparent manner. Consequently, fostering business relationships is a prerequisite
of the activity performed by the Company in the pursuit of its goals and the long-term sustainability of the Company is at the
forefront of decision-making.
The Company’s policy in respect of engaging with stakeholders is governed by the Core Principles and the Code of Conduct.
The Core Principle of ‘Regulatory Integrity’ defines the Northern Powergrid Group’s commitment to comply with all laws
wherever it does business and the expectation that all employees (including directors) manage their activities in a manner that
is compliant with all standards, regulations and corporate policies. In addition, the Code of Conduct requires adherence to the
highest level of ethical conduct and fair dealings with all customers, suppliers and competitors.
Employees
As detailed in the ‘Employee Commitment’ section, the Company works hard to ensure the health and safety of employees and
to provide them with opportunities for advancement alongside fair terms whilst remunerating appropriately. Activities
undertaken by the board in the year included reviewing health and safety performance, monitoring key appointment changes,
receiving regular updates on the Company’s Diversity, Equity and Inclusion plan, reviewing the Company’s gender pay gap
report and approving the delegations of authority.
Customers
Customers, whether they are domestic or commercial, are the primary stakeholder group served by the Company and therefore
the services offered are all tailored to provide a benefit or enhance an experience. During the year, the board regularly
reviewed performance levels, closely monitored the response in respect of Storm Arwen, including compensation
arrangements and engaged with the Chair of the CEG. Further detail of the Company’s relationship with customers and the
support programmes provided is discussed in ‘Customer Service’.
Producers and suppliers
The Company works closely with its supply chain and has measures in place to ensure the treatment of all supplies is fair and
equitable. Relations with suppliers is managed using a supplier registration system which supports a robust and transparent
procurement process and ensures strict compliance with the prevention of slavery and human trafficking. As a consequence,
the system allows the Company to make informed decisions which align with its values when awarding contracts. When
considering suppliers, the board advocates prompt payment practices, which are reviewed regularly by the internal audit
function, and the implementation of procedures to reduce the risk of modern slavery in supply chains - as set out in the
Company’s annual modern slavery statement.
Financial stakeholders
Financial information is routinely made available to financial stakeholders, including relationship banks and bondholders.
Directors participate directly with stakeholders when entering into new financial arrangements. During the year, the board
approved an interim dividend, the annual and interim accounts and the tax strategy.
Page 20
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2022 (continued)
Community and environment
Each Director is required to take all reasonable steps to minimise any detrimental impact the Company’s operations may have
on the environment (see ‘Environmental Respect’). The Company also supports a range of charitable and community activities
to help customers with fuel poverty and safety around electricity (‘Community’ section). During the year, the Company
donated £6,954,879.52 to the Northern Powergrid Foundation and the directors routinely reviewed environmental performance
and made decisions pursuant to Environmental Respect.
Regulator
The Company is in regular dialogue with Ofgem concerning new policy development and emerging risks or opportunities
within the sector. As outlined in ‘Regulatory Integrity’, to meet its licence conditions, the Company and the directors provide
regular reporting to Ofgem (including the annual regulatory certificates and Regulatory Accounts), contribute to various
regulatory consultations and monitor regulatory compliance. Given the implications on the Company’s long-term strategy, the
relationship with Ofgem, the evolving ED2 framework, the transition to DSO were regular items on the board agenda
throughout the year.
Acting fairly as between the Company’s owners
The Company has one class of ordinary shares which are all held by Northern Electric plc, a company in the Northern
Powergrid Group. During the year the directors declared an interim dividend and approved the Business Plan.
Non-financial information statement
In accordance with Section 414CA(7) of the Companies Act 2006, the directors have elected to set out the information
required by Section 414CB (1) to (6) in the group annual report and audited consolidated financial statements of Northern
Powergrid Holdings Company, a copy of which, will be published on the Northern Powergrid Group's corporate website.
Approved by the Board on 28 April 2023 and signed on its behalf by:
.........................................
A P Jones
Director
Page 21
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2022
The directors present their report together with the auditor's report and the financial statements for the year ended 31 December
2022.
Dividends
During the year, an interim dividend of £27.7 million was paid (2021: £26.0 million). The directors recommend that no final
dividend be paid in respect of the year (2021: £nil).
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 so as not to jeopardise its investment
grade issuer credit rating. These strict parameters align with the conditions set out in the Licence and are considered carefully
by the board so as to ensure that the payment of any dividend does not cause the Company to breach any Licence obligations
in the future.
Directors of the Company
The directors, who held office during the year and up to the date of signing, were as follows:
A J Maclennan
A P Jones (appointed 14 April 2022)
A R Marshall
P A Jones
P C Taylor
T H France
During the year, none of the directors had an interest in any contract which was material to the business of the Company.
During the year and up to the date of approval of the Report of the Directors, an indemnity contained in the Company's
Articles of Association was in force for the benefit of the directors of the Company and as directors of associated companies,
which was a qualifying indemnity provision for the purposes of the Companies Act 2006.
Future Developments
The financial position of the Company, as at 31 December 2022, is shown in the statement of financial position There have
been no significant events since the year end. The directors intend that the Company will continue to implement the Business
Plan during the remainder of the ED1 period, before it transitions into the ED2 period, and by delivering the strategic
objectives linked to the Core Principles, the Company will continue to develop its business by efficiently investing in the
Network and improving the quality of supply and service provided to customers. The Company intends to embrace the role of
DSO in order to allow its Network to form a key part of a whole energy system, which fosters flexibility and facilitates
decarbonisation.
Research and Development
The Group supports a programme of research that is expected to contribute to higher standards of performance and a more
cost-effective operation of its business. During the year, the Company invested £1.6 million (2021: £0.8 million) (Note 5 to the
financial statements) in its research and development activities.
Page 22
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Financial Instruments
Details of financial risks are included in the Principal Risks and Uncertainties in the Strategic Report and Note 29 to the
financial statements.
As at 31 December 2022 and during the Year it was the Group's policy not to hold any derivative financial instruments.
Stakeholder engagement and environmental disclosures
In accordance with Paragraphs 11 and 15 of Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008, details concerning the relationship and engagement with employees and those with whom the
Company does business, in addition to information concerning greenhouse gas emissions can be found in the Section 172
Statement and the Strategic Report (Environmental Respect and Employee Commitment).
Page 23
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2022 (continued)
CORPORATE GOVERNANCE STATEMENT
The directors have elected to apply the exception set out in Section 1B.1.6R of the Disclosure and Transparency Rules
("DTR").
Audit Committee
The board of Northern Powergrid Holdings Company has established an audit committee for the Northern Powergrid Group
under delegated terms of reference which carries out the functions required by DTR 7.1.3 R.
Committee members:
• M Knowles - Independent member
• J Reynolds - Non-executive Director (Chair)
• S J Lockwood - Director of Finance (Interim) (resigned 14 April 2022)
• A P Jones, Finance Director (appointed 20 April 2022)
STATEMENT OF DIRECTORS RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law
and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors are required to prepare the group financial statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements also comply with
International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these
financial statements, International Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity's financial position and financial
performance; and
• make an assessment of the Group's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Page 24
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Going Concern
A review of the Company's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Northern Powergrid
Group, and companies may lend within the Northern Powergrid Group. For that reason, financial health is considered with
reference to the Northern Powergrid Group. Those entities with net current liabilities position obtaining a letter of support from
Northern Powergrid Holdings Company.
When considering continuing to adopt the going concern basis in preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including the following:
• The Company's revenue derives principally from regulated electricity distribution. The regulatory regime allows for the
recovery of allowed costs in full over the long term;
• The Northern Powergrid Group's main subsidiaries, the Company and Northern Powergrid (Yorkshire) plc, are stable
electricity distribution businesses operating an essential public service and are 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 distribution
licence holders are able to finance the 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;
• The Company is profitable with strong underlying cash flows. Northern Powergrid Holdings Company, the Company and
Northern Powergrid (Yorkshire) plc hold investment grade credit ratings;
• The Company is financed by long-term borrowings with an average maturity of 27 years and has access to borrowing
facilities provided by Barclays Bank plc , Lloyds Bank plc, HSBC UK Bank plc and Royal Bank of Canada
• The Northern Powergrid Group benefits from strong investment-grade credit ratings and has access to a range of financing
options including the capital markets. A successful bond issue by the Northern Powergrid Group in April 2022, demonstrates
that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active market with strong appetite to
invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in trading
performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall due for at least
the 12 months from the date of these accounts. The directors have had discussions with the bank who have indicated that they
would continue to provide the short-term facilities to the Northern Powergrid Group for the foreseeable future on acceptable
terms; and
• Consideration was also given to the obligations contained in the Company's and Northern Powergrid (Yorkshire) plc's
distribution licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation that
the Company and Northern Powergrid (Yorkshire) plc will have sufficient financial and operational resources available for the
continuation of business for a period of at least 12 months. The board determined any material variations to the assumptions
used when providing those certificates were unlikely within the eight-year period or beyond.
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 financial statements.
Page 25
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2022 (continued)
Directors' responsibility statement pursuant to DTR 4
Each of the directors as at the date of the annual reports and financial statements, whose names and functions are set out on
page 23 in the Directors Report confirms that, to the best of their knowledge:
• the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
• the strategic report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face; and
• the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Disclosure of information to the auditor
Each director has taken steps that they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the Company's auditor is aware of that information. The directors confirm that there is
no relevant information that they know of and of which they know the auditor is unaware.
Reappointment of auditor
Deloitte LLP will continue in office in accordance with the provisions in Section 487 of the Companies Act 2006 and has
indicated its willingness to do so.
Approved by the Board on 28 April 2023 and signed on its behalf by:
.........................................
A P Jones
Director
Page 26
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Northern Powergrid (Northeast) plc (the ‘parent company’) and its subsidiaries (the ‘group’) give
a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s
profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company statements of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flows;
• the related notes 1 to 31.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law,
United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and United
Kingdom adopted international accounting standards and as applied in accordance with the provisions of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the group and parent company for the year are disclosed in note 9 to the
financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard
to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Page 27
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Summary of our audit approach
-Key Audit Matters
The key audit matter that we identified in the current year was;
• Accounting for capital spend - overhead model; and
• Valuation of define benefit obligations.
Within this report, key audit matters are identified as follows:
• Newly identified
• Increased level of risk
• Similar level of risk
• Decreased level of risk
-Materiality
The materiality that we used for the Group financial statements was £6.4m which was determined on the basis of pre-tax profit
earned during the year.
-Scoping
Our scope provides full scope audit coverage of 100% of the Group’s revenue, 93% profit before tax as well as 97% of net
assets. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
There is only one location from which the group operates.
-Significant changes in our approach
In the current year we revised our approach to testing controls and identified a new key audit matter relating to defined benefit
pension obligations.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
• assessing financing facilities including nature of facilities, repayment terms and covenants;
• evaluating the linkage to business model and medium-term risks;
• assessing assumptions used in the forecasts, including forecasted information relating to next price control review RIIO-ED2,
and performing sensitivity analysis;
• calculating the amount of headroom in the forecasts, specifically relating to cash and covenants on borrowings;
• assessing the impact of the current macroeconomic conditions such as inflation to the business; and
• evaluating sophistication of the model used to prepare the forecasts, testing of clerical accuracy of those forecasts and our
assessment of the historical accuracy of forecasts prepared by management.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Page 28
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. We added one key audit matters this year which was the
valuation of defined benefit obligations.
Accounting for capital spend - overhead model
-Key audit matter description:
Total additions to property, plant and equipment in the year in Northern Powergrid (Northeast) Plc were £163m (2021: £191m)
with the majority of the additions to the Company’s electricity distribution system, as disclosed in Note 11 to the financial
statements. These additions include £45m capitalised overheads (2021: £38m). A portion of overheads are capitalised to the
extent that it is probable that future economic benefits associated with the asset will flow to the Company and the cost of the
item can be measured reliably in accordance with IAS 16 and the Company’s policies. The allocation model is reviewed
annually.
The calculation of capitalised overheads remains an area at risk of potential bias due to the level of subjectivity in the
percentage of overheads capitalised, which also creates a potential fraud risk. In particular, the key risk is that management's
judgement in the percentage amounts capitalised are not reflective of the capital spend, as disclosed in Note 2 "Critical
judgements in applying accounting policies."
How the scope of our audit responded to the key audit matter:
• We have obtained an understanding of relevant controls surrounding accounting for capital spend;
• We have analysed the capital spend and the overhead allocation percentages in the year and compared these to prior years to
identify any unusual and relevant fluctuations. We have also analysed current policies in place and assessed their suitability in
line with IAS 16, along with reviewing the approach management takes towards assessing capitalised overheads and any
change introduced in the current year; and
• We have performed testing of the total overheads including within the allocation model which are subsequently capitalised
based on management’s assessment of percentage allocation.
- Key observations
Based on the work performed, and the evidence obtained, we have concluded that management’s overhead capitalisation
judgement is reasonable, with policies applied being appropriate and consistent with the requirements of IAS 16.
Page 29
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Valuation of defined benefit obligations
-Key audit matter description
The group operates a defined pension scheme, for which key judgement relates to the determination of the present value of the
defined benefit obligation. In the current year, management have made dull disclousers in accordance with IAS 19 Employee
Benefits; in previous periods, the financial statements referred to disclosures made in the financial statements of the
Company's immediate parent, Northern Powergrid Holdings Company.
In accordance with management's actuary, the present value of the funding surplus is £151.5m (2021: £262.2m), with
underlying obligation of £965.5m (2021: £1,480.4m). The present value of the defined benefit obligation is derived and
is subject to judgement in the assumption setting.
Due to the continued high number of scheme members requesting lump sum settlements in the year, there continues to be an
additional risk around the valuation modelling of each settlement and the impact to the actuarial assumptions due to the change
in the profile of the membership of the scheme. The accounting policy is found in Note 2 to the financial statements and the
disclosures in Note 25 to the financial statements.
-How the scope of our audit responded to the key audit matter
We have involved our internal specialists in performing the following work to assess that the disclosures and the valuation of
the defined benefit obligations are in line with IAS 19 Employee Benefits:
• We have obtained an understanding of the relevant controls involved in the review of the actuary report at the year-end;
• We have obtained and tested the underlying data and assumptions utilised by management's actuary in the calculation of the
pension obligations;
• We have tested the underlying data used in the settlement model to derecognise the obligations; and
• We have considered the estimates of management's actuary and challenged management's assumptions and judgements by
comparing the assumptions and results to benchmarked figures.
-Key observations
Based on the work performed above, and the evidence obtained, we conclude that each of the relevant assumptions used by
management to estimate the defined benefit obligation are consistent with the requirement of IAS 19. We have also concluded
that these assumptions are within a reasonable range when compared to comparable schemes and our internal benchmarks.
Page 30
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
-Materiality
Group financial statements - £6.422m (2021: £6.21m)
Parent company financial statements - £6.421m (2021: £6.20m)
-Basis for determining materiality
Group financial statements - 5% pre-tax profit earned during the year. This is consistent with the methodology applied in 2021.
Parent company financial statements - 5% pre-tax profit earned during the year. This is consistent with the methodology
applied in 2021.
-Rationale for the benchmark applied
Group financial statements - Stakeholders are interested in the financial performance of the Group. As the material subsidiaries
of the Group are trading entities, pre-tax profit earned during the year has been determined as an appropriate measure of
financial performance for the Group.
Parent company financial statements - As a trading entity, profit is a key driver of the value of the Company.
Performance materiality
Page 31
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
-Performance Materiality
Group financial statements - 60% (2021: 60%) of group materiality
Parent company financial statements - 60% (2021: 60%) of parent company materiality
-Basis and rationale for determining performance materiality
In determining performance materiality, we have considered the following:
• our risk assessment, including our assessment of the group’s overall control environment; and
• the volume of uncorrected misstatements in the prior period and control deficiencies identified.
Page 32
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Error reporting threshold
We agreed with the Board of Directors that we would report to the Board all audit differences in excess of £0.32m (2021:
£0.31m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Board of Directors on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
-Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including internal controls and
assessing the risks of material misstatement at the Group level. The operations of the Group are focused within the electricity
distribution business of the United Kingdom.
The focus of our audit work was on the main regulated business, Northern Powergrid (Northeast) Plc, which is the Parent
Company. The only subsidiary within the Group is Northern Electric Finance Plc. This subsidiary is a financing company
within which are number of bonds, listed on the London Stock Exchange, and was subject to a full scope audit.
A component materiality was used to perform the audit work for all component entities and for FY22, component materiality
for Northern Electric Finance plc was £0.249m (2021: £0.168m)
At the Group level, we have tested the consolidation process.
The audit work to respond to the risks of material misstatement was performed directly by the Group audit engagement team.
There have been no material changes in scope from prior year except for adopting a no reliance on controls approach for the
testing of revenue.
-Our consideration of the control environment
We have involved our IT specialists to assess relevant controls over the Group’s IT landscape which contains a number of IT
systems and tools used to support business processes. These include controls within the Oracle and Durabill systems integral to
relevant business cycles. However, we identified control deficiencies and reported these to the Board of Directors. We
evaluated the impact of these deficiencies on our audit and revised our risk assessment as appropriate. The directors discuss
their assessment of the control environment on page 19 of the annual report.
We have performed testing of key manual controls of all material business cycles through a combination of tests of inquiry,
inspection, observation, and re-performance.
-Our consideration of the climate related risks
We have made enquiries with management to understand the impact of climate-related risks and controls relevant to the
business, assessed the risks, and adapted our assessment of the risks of material misstatement as appropriate. This included
reviewing the provisions in place and obtaining legal confirmation to ascertain if there should be any additional environmental
provisions recognised. As disclosed in Note 2, the impact on the financial statements has been increased expenses and capital
expenditures to make the network resilient to extreme weather events. Management have disclosed their climate change
adaption in the strategic report.
We have involved our ESG (Enviromental, Social and Governance specialists) to review Northern Powergrid's climate change
disclousres and evaluate the information presented in its accounts. No additional risks were identified by the group audit
engagement team.
Page 33
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Other information
The other information comprises the information included in the annual report other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
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, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to
which our procedures are capable of detecting irregularities, including fraud is detailed below.
Page 34
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
-Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Board about their own identification and assessment of the
risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating
to
o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
and
o the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team and relevant internal specialists, including tax, IT and industry
specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas: accounting for capital spend-overhead model and Storm
Arwen costs, given that this involves key and complex judgement by management. In common with all audits under ISAs
(UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules,
pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included
the group’s operating license by the Gas and Electricity Markets Authority (GEMA).
-Audit response to risks identified
As a result of performing the above, we identified Accounting for capital spend - overhead model and valuation of defined
benefit obligation as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains
the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Board and legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC and Ofgem; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias;
and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Page 35
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
Report on other legal and regulatory requirements
-Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
-Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
-Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made.
We have nothing to report in respect of this matter.
Other matters which we are required to address
-Auditor tenure
Following the recommendation of the Board of Directors, we were appointed by the Board of Northern Powergrid Holdings
Company in 1998 to audit the financial statements for the year ending 31 December 1998 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 25 years, covering
the years ending 31 December 1998 to 31 December 2022.
-Consistency of the audit report with the additional report to the Board of Directors
Our audit opinion is consistent with the additional report to the Board we are required to provide in accordance with ISAs
(UK).
Use of our report
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 auditor’s 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.
Page 36
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc (continued)
......................................
Anthony Matthews FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP, Statutory Auditor
London
United Kingdom
28 April 2023
Page 37
Northern Powergrid (Northeast) plc
Consolidated Income Statement for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Revenue
3 441,859 385,215
Cost of sales (59,080 ) (14,152 )
Gross profit
Distribution costs
(143,523 ) (134,167 )
Administrative expenses
(77,637 ) (89,261 )
Operating profit
5 161,619 147,635
Other gains
4 198 410
Finance income
6 3,622 210
Finance costs
6
(35,781 ) (27,061 )
Profit before tax
Income tax expense
10
(27,400 ) (52,678 )
Profit for the year
Profit/(loss) attributable to:
Owners of the Company
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 38
Northern Powergrid (Northeast) plc
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2022
2022
£ 000
2021
£ 000
Profit for the year 102,258 68,516
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 39
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Consolidated Statement of Financial Position as at 31 December 2022
Note
31 December
2022
£ 000
31 December
2021
£ 000
Assets
Non-current assets
Property, plant and equipment
11 2,849,504 2,782,123
Right of use assets
12 25,739 11,652
Intangible assets
13
Current assets
Inventories
15 25,406 19,898
Trade and other receivables
16 64,144 59,782
Income tax asset
10 - 2,164
Cash and cash equivalents
17
Total assets
Equity and liabilities
Equity
Share capital
18 (200,000 ) (200,000 )
Retained earnings (1,036,661 ) (962,103 )
Equity attributable to owners of the company (1,236,661 ) (1,162,103 )
Non-current liabilities
Long-term lease liabilities
21 (21,152 ) (9,062 )
Loans and borrowings
20 (1,057,069 ) (810,454 )
Provisions
22 (55 ) (55 )
Deferred revenue
24 (652,476 ) (649,013 )
Deferred tax liabilities
10
(133,515 ) (130,752 )
(1,864,267 ) (1,599,336 )
Current liabilities
Current portion of long-term lease liabilities
21 (5,058 ) (2,876 )
Trade and other payables
23 (96,844 ) (86,694 )
Loans and borrowings
20 (54,263 ) (42,159 )
Income tax liability
10 (259 ) -
Deferred revenue
24 (29,326 ) (28,645 )
Provisions
22
(1,597 ) (2,697 )
(187,347 ) (163,071 )
Total liabilities (2,051,614 ) (1,762,407 )
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 40
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Consolidated Statement of Financial Position as at 31 December 2022 (continued)
Note
31 December
2022
£ 000
31 December
2021
£ 000
(3,288,275 ) (2,924,510 )
Total equity and liabilities
Approved by the Board on 28 April 2023 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 41
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Statement of Financial Position as at 31 December 2022
Note
31 December
2022
£ 000
31 December
2021
£ 000
Assets
Non-current assets
Property, plant and equipment
11 2,849,504 2,782,123
Right of use assets
12 25,739 11,652
Intangible assets
13 47,356 48,888
Investments in subsidiaries, joint ventures and associates
14
50 50
2,922,649 2,842,713
Current assets
Inventories
15 25,406 19,898
Trade and other receivables
16 64,144 59,782
Income tax asset
10 - 2,173
Cash and cash equivalents
17
274,529 3
364,079 81,856
Total assets
3,286,728 2,924,569
Equity and liabilities
Equity
Share capital
18 (200,000) (200,000)
Retained earnings (1,038,447) (963,901)
Total equity (1,238,447) (1,163,901)
Non-current liabilities
Long-term lease liabilities
21 (21,152) (9,062)
Loans and borrowings
20 (1,057,064) (810,449)
Provisions
22 (55) (55)
Deferred revenue
24 (652,476) (649,013)
Deferred tax liabilities
10
(133,515) (130,752)
(1,864,262) (1,599,331)
Current liabilities
Current portion of long-term lease liabilities
21 (5,058) (2,876)
Trade and other payables
23 (96,842) (86,689)
Loans and borrowings
20 (50,949) (40,430)
Income tax liability
10 (247) -
Deferred revenue
24 (29,326) (28,645)
Provisions
22
(1,597) (2,697)
(185,875) (161,337)
Total liabilities (2,048,281) (1,760,668)
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 42
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Statement of Financial Position as at 31 December 2022 (continued)
Note
31 December
2022
£ 000
31 December
2021
£ 000
Total equity and liabilities
(3,286,728) (2,924,569)
The Directors have taken the exemption offered under section 408 of the Act from publishing a separate statement of profit or
loss. The Company reported a profit for the financial year ended 31 December 2022 of £102.2 million (2021: £68.5 million)
Approved by the Board on 28 April 2023 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 43
Northern Powergrid (Northeast) plc
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2022
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
Profit for the year - 102,258 102,258
Total comprehensive income
- 102,258 102,258
Dividends - (27,700 ) (27,700 )
At 31 December 2022
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021
Profit for the year - 68,516 68,516
Total comprehensive income
- 68,516 68,516
Dividends - (26,000 ) (26,000 )
At 31 December 2021
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 44
Northern Powergrid (Northeast) plc
Statement of Changes in Equity for the Year Ended 31 December 2022
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
200,000 963,901 1,163,901
Profit for the year - 102,246 102,246
Total comprehensive income
- 102,246 102,246
Dividends - (27,700) (27,700)
At 31 December 2022
200,000 1,038,447 1,038,447
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2021
200,000 921,424 1,121,424
Profit for the year - 68,477 68,477
Total comprehensive income
- 68,477 68,477
Dividends - (26,000) (26,000)
At 31 December 2021
200,000 963,901 1,163,901
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 45
Northern Powergrid (Northeast) plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Cash flows from/(used in) operating activities
Profit for the year
Depreciation and amortisation
5 106,952 103,345
Depreciation on right of use assets
Amortisation of deferred revenue
(29,253 ) (27,945 )
Profit on disposal of property plant and equipment
4 (198 ) (410 )
Finance income
6 (3,622 ) (210 )
Finance costs
6 35,781 27,061
Income tax expense
10
Increase in inventories
15 (5,508 ) (1,740 )
Increase in trade and other receivables
16 (4,442 ) (7,186 )
Increase in trade and other payables
23 197 7,680
(Decrease)/increase in provisions
22
(1,100 ) 1,693
Cash generated from operations
Income taxes paid (22,214 ) (22,580 )
Net cash flow from operating activities 210,752 205,621
Cash flows from/(used in) in investing activities
Acquisitions of property plant and equipment
(168,056 ) (192,106 )
Proceeds from sale of property plant and equipment
Acquisition of intangible assets
13 (9,956 ) (9,544 )
Receipt of customer contributions
Interest received 3,622 210
Net cash flows used in investing activities (124,933 ) (163,372 )
Cash flows from/(used in) in financing activities
Movement in intercompany loans
(31,506 ) 15,930
Movement in short-term borrowing
Proceeds from issue of bonds
Repayment of long-term borrowing
(100,000 ) -
Payments to finance lease creditors
(4,316 ) (4,700 )
Interest expense on leases
(641 ) (358 )
Interest paid
(26,905 ) (27,365 )
Dividends paid
26
(27,700 ) (26,000 )
Net cash flow (used in)/from financing activities 190,304 (42,497 )
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January 3 251
Cash and cash equivalents at 31 December
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 46
Northern Powergrid (Northeast) plc
Statement of Cash Flows for the Year Ended 31 December 2022
Note
2022
£ 000
2021
£ 000
Cash flows from/(used in) operating activities
Profit for the year
102,246 68,477
Depreciation and amortisation
5 106,952 103,345
Depreciation on right of use assets
4,501 4,719
Amortisation of deferred revenue
(29,253) (27,945)
Profit on disposal of property plant and equipment
4 (198) (410)
Finance income
6 (3,619) (210)
Finance costs
6 35,816 27,131
Income tax expense 27,397 52,669
243,842 227,776
Increase in inventories
15 (5,508) (1,740)
Increase in trade and other receivables
16 (4,442) (7,186)
Increase in trade and other payables
23 200 7,680
(Decrease)/increase in provisions
22
(1,100) 1,693
Cash generated from operations
232,992 228,223
Income taxes paid (22,214) (22,570)
Net cash flow from operating activities 210,778 205,653
Cash flows from/(used in) investing activities
Acquisitions of property plant and equipment
(168,056) (192,106)
Proceeds from sale of property plant and equipment
198 410
Acquisition of intangible assets
13 (9,956) (9,544)
Receipt of customer contributions
49,259 37,658
Interest received 3,619 210
Net cash flows used in investing activities (124,936) (163,372)
Cash flows from/(used in) financing activities
Interest expense on leases
(641) (358)
Movement in intercompany loans
(33,091) 15,968
Interest paid
(26,940) (27,435)
Proceeds from long term borrowing draw downs
346,316 -
Movement in short-term borrowings
35,056 (4)
Repayment of other borrowing
(100,000) -
Payments to finance lease creditors
(4,316) (4,700)
Dividends paid
26
(27,700) (26,000)
Net cash flows (used in)/from financing activities 188,684 (42,529)
Net increase/(decrease) in cash and cash equivalents
274,526 (248)
Cash and cash equivalents at 1 January 3 251
Cash and cash equivalents at 31 December
274,529 3
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 47
Northern Powergrid (Northeast) plc
Statement of Cash Flows for the Year Ended 31 December 2022 (continued)
Consolidated Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies was
authorised to settle various liabilities against the relevant intercompany accounts. The Group has disclosed the underlying cash
flows as operating, investing or financing according to their nature on the basis that, as a principal, the entity has the right to
the cash inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the cash costs of the business.
Company Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies was
authorised to settle various liabilities against the relevant intercompany accounts. The Company has disclosed the underlying
cash flows as operating, investing or financing according to their nature on the basis that, as a principal, the entity has the right
to the cash inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the cash costs of the business.
The notes on pages 49 to 110 form an integral part of these financial statements.
Page 48
Notes to the Financial Statements for the Year Ended 31 December 2022
1 General information
The company is a public company limited by share capital, incorporated in England and Wales and domiciled in United
The address of its registered office is:
These financial statements were authorised for issue by the Board on 28 April 2023.
2 Accounting policies
Statement of compliance
The financial statements have been prepared in accordance with United Kingdom adopted international accounts standards as
issued by the IASB.
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with adopted IFRSs and under historical cost accounting rules.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group's accounting policies.
Page 49
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Going concern
A review of the Company's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Northern Powergrid
Group, and companies may lend within the Northern Powergrid Group. For that reason, financial health is considered with
reference to the Northern Powergrid Group. Those entities with net current liabilities position obtaining a letter of support from
Northern Powergrid Holdings Company.
When considering continuing to adopt the going concern basis in preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including the following:
• The Company's revenue derives principally from regulated electricity distribution. The regulatory regime allows for the
recovery of allowed costs in full over the long term;
• The Northern Powergrid Group's main subsidiaries, the Company and Northern Powergrid (Yorkshire) plc, are stable
electricity distribution businesses operating an essential public service and are 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 distribution
licence holders are able to finance the 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;
• The Company is profitable with strong underlying cash flows. Northern Powergrid Holdings Company, the Company and
Northern Powergrid (Yorkshire) plc hold investment grade credit ratings
• The Company is financed by long-term borrowings with an average maturity of 27 years and has access to borrowing
facilities provided by Barclays Bank plc , Lloyds Bank plc, HSBC UK Bank plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings and has access to a range of financing
options including the capital markets. A successful bond issue by the Northern Powergrid Group in April 2022, demonstrates
that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active market with strong appetite to
invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in trading
performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall due for at least
the 12 months from the date of these accounts. The directors have had discussions with the bank who have indicated that they
would continue to provide the short-term facilities to the Northern Powergrid Group for the foreseeable future on acceptable
terms; and
• Consideration was also given to the obligations contained in the Company's and Northern Powergrid (Yorkshire) plc's
distribution licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation that
the Company and Northern Powergrid (Yorkshire) plc will have sufficient financial and operational resources available for the
continuation of business for a period of at least 12 months. The board determined any material variations to the assumptions
used when providing those certificates were unlikely within the eight-year period or beyond.
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 financial statements.
Page 50
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Critical Judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the directors have made in the process
of applying the Northern Powergrid Group's accounting policies and that have the most significant effect on amounts
recognised in the consolidated financial statements:
Split of operating and capital expenditure and the allocation of overheads to property, plant and equipment
The allocation of overheads to property, plant and equipment which results in higher capital expenditure and a reduction in
operating costs. Costs are capitalised where it is probable that future economic benefits associated with the asset will flow to
the enterprise; and the cost of the item can be reliably measured.
The allocation of overheads to capital is derived from a detailed analysis of the costs and their relevant cost drivers, which is
reviewed on an annual basis. There has been no change in the methodology since the prior year.
The amounts of overheads capitalised in the year was £45.0 million (2021: £38.4 million), this was an increase from 53.2% to
54.3%.
Key sources of estimation uncertainty
In the preparation of financial statements in conformity with IFRS the Directors did not identify any key assumptions
concerning the future and other key sources of estimation uncertainty at the end of the reporting period that may have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Page 51
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Changes in accounting policy
New standards, interpretations and amendments effective
Effective for periods beginning on or after 1 January 2022
- Amendments to IFRS 3: Reference to the Conceptual Framework
- Amendments to IAS 16: Property, Plant & Equipment - Proceeds before Intended Use
- Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract
- Annual Improvments to IFRS Standards 2018-2020
These amendments did not have a material impact on the financial statements.
The other amendments have had no material impact on the financial statements including the comparitives.
The directors have considered new accounting standards issued that are not yet applicable and have noted no material changes
are likely to arise.
Revenue recognition
Recognition
The group earns revenue from the provision of services relating to Revenue from a contract to provide services is recognised
by the following means:
- Distribution use of system income is primarily recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed
(per 'customer' per day) basis;
- Customer contributions for connections are amortised over the life of the corresponding asset;
- Meter asset provision are recognised over time;
- Intercompany recharges for services provided are based on costs incurred; and
- Other revenue includes assessment and design fees and disconnections from the network, these are recognised by reference to
the proportion of total costs of providing the service.
This revenue is recognised in the accounting period when the services are rendered at an amount that reflects the consideration
to which the entity expects to be entitled in exchange for fulfilling its performance obligations to customers.
The principles in IFRS are applied to revenue recognition criteria using the following 5 step model:
1. Identify the contracts with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies its performance obligations
Page 52
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Fee arrangements
Below are details of fee arrangements and how these are measured and recognised, for revenue from the provision of services:
• For regulated fees the revenue for the service is recognised on the basis of agreed charging methodologies on a per GWh
basis.
• For fixed fee for connection the revenue is recognised over the life of the corresponding asset.
• For fixed fee arrangements from services revenue is recognised based on the stage of completion and performance
obligations met for actual services provided as a proportion of the total fixed fee agreed in the contract.
• For fee for service (time) revenue is recognised by time performed on the contract to the year end date using contractual
rates specified in the contract.
The main performance obligations in contracts consist of the provision of a distribution network to electricity suppliers. For
these contracts, through the distribution and connection use of system agreement (DCUSA) the delivery of performance
obligations are measured at the balance sheet date, primarily recognised on a per unit (volumetric i.e. kWh and capacity
(kVA)) and fixed (per 'customer' per day) basis;
Finance income and costs policy
Finance income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company
and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until such
time as the assets are substantially ready for their intended use.
All other borrowing costs are recognised in profit or loss in the period which they are incurred.
Tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted
by the reporting date in the countries where the group operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements and on unused tax losses or tax credits in the group. Deferred income
tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered based
on current or future taxable profit.
Page 53
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and
installation.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional fees,
and, for qualifying assets, borrowing costs capitalised in accordance with the Company's accounting policy. Such assets are
classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.
Depreciation on these assets, on the same basis as other assets, commences when the assets are commissioned. Assets are
derecognised when they are disposed of profit or loss on disposal is recognised in other gains on the statement of profit or loss.
Depreciation
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their
estimated useful lives. Depreciation is recognised on a straight line basis as follows:
Asset Class Depreciation Rate
Distribution system;
- Generation assets 15 years
- Metering equipment up to 5 years
- Information Technology equipment up to 10 years
- Land not depreciated
- Other system assets 45 years
Buildings;
- Freehold up to 60 years
- Leasehold lower of lease period or 60 years
Non-operational land not depreciated
Furniture, fittings and equipment up to 10 years
Intangible assets
An internally generated intangible asset arising from development is recognised if the conditions set out in IAS 38 relating to
the recognition of intangible assets are met. The amount initially recognised for internally-generated intangible asset is the sum
of expenditure incurred from the date when the intangible asset first meets the recognition criteria.
Amortisation
Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their expected
useful economic life as follows:
Asset class Amortisation method and rate
Software development costs up to 10 years
Derecognition
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in the profit or loss when the asset is derecognised.
Page 54
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Investments
Investments in securities are classified on initial recognition as available-for-sale and are carried at fair value, except where
their fair value cannot be measured reliably, in which case they are carried at cost, less any impairment.
Unrealised holding gains and losses other than impairments are recognised in other comprehensive income. On maturity or
disposal, net gains and losses previously deferred in accumulated other comprehensive income are recognised in income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of
business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the
effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established
when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the
receivables.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using an average price basis.
The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present location and condition. At each reporting date,
inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its selling price less costs
to complete and sell; the impairment loss is recognised immediately in profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective
interest method.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently
carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption
being recognised as a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for
at least 12 months after the reporting date.
Page 55
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the group will be required to settle that obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting date
and are discounted to present value where the effect is material.
Leases
For lessees, all leases will be recorded on the balance sheet as liabilities, at the present value of the future lease payments,
along with an asset reflecting the right to use the asset over the lease term. Short-term leases ( a lease that, at the
commencement date has a lease term of 12 months or less) and low value leases will be excluded.
The Group applies IFRS 16 to all leases (except as noted below) which include buildings, land and fleet vehicles. The
right-of-use assets are initially measured at the amount of the lease liability plus any initial direct costs incurred by the lessee.
Subsequently, the assets are measured under the fair value method. The corresponding lease liability is initially measured at
present value of all lease payments over the lease term and can be restated if the terms or other criteria of the contract change.
These values can be found in the Statement of Financial Position.
The Group has taken practical expedients as per below:
- For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes personal computers,
small items of office furniture and telephones), the Company has opted to recognise a lease expense on a straight-line basis as
permitted by IFRS 16. This expense is presented within ‘administrative expenses’ in the Statement of Profit or Loss.
- Applies single discount rate to a portfolio of leases;
- Uses hindsight to determine the lease term when contract contains options to extend or terminate the lease; and
- Adjusts right of use asset by provision for onerous leases as an alternative to performing an impairment review.
The weighted average lessee’s incremental borrowing rate applied to determine the present value of the lease liabilities during
the current period was 2.33% (2021: 1.753%)
The Group recognises deprecation of right-of-use assets (within administration expenses) and interest on lease liabilities
(within finance costs) in the Statement of Profit and Loss. Within the Statement of cash flow, the Company separates the total
amount of cash paid between the principal portion and the interest, both of which are presented within financing activities.
Right-of-use assets are depreciated over the shorter of the useful life of the asset or the lease term. For information regarding
the depreciation charge per class of asset and carrying value, please refer to Note 12 Right of use assets.
Page 56
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Impairment of non-financial assets
At the balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the
asset belongs.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication
that the asset may be impaired.
Where the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to
its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources
received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of
money is material, the initial measurement is on a present value basis.
Dividends
Dividend distribution to the company’s shareholders is recognised as a liability in the company’s financial statements in the
period in which the dividends are approved by the company’s shareholders.
Defined benefit pension obligation
The Group contributes to the Northern Powergrid Group of the Electricity Supply Pension Scheme (the "DB Scheme"), a
defined benefit scheme 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 financial statements account for the Northern Powergrid Group of the ESPS as if it were a defined contribution
scheme.
Contributions to the Northern Powergrid Group of the ESPS are charged to the statement of profit or loss or capitalised as part
of property, plant and equipment/ intangibles. The capital costs of ex-gratia and supplementary pensions are normally charged
to the statement of profit or loss in the period in which they are granted.
The Group also participates in a defined contribution scheme. Contributions payable to the defined contribution scheme are
charged to the statement of profit or loss in the year. Differences between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the statement of financial position.
Page 57
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Financial instruments
Initial recognition
Financial assets and financial liabilities comprise all assets and liabilities reflected in the statement of financial position,
although excluding property, plant and equipment, investment properties, intangible assets, deferred tax assets, prepayments,
deferred tax liabilities and employee benefits plan.
The group recognises financial assets and financial liabilities in the statement of financial position when, and only when, the
group becomes party to the contractual provisions of the financial instrument.
Financial assets are initially recognised at fair value. Financial liabilities are initially recognised at fair value, representing the
proceeds received net of premiums, discounts and transaction costs that are directly attributable to the financial liability.
All regular way purchases and sales of financial assets and financial liabilities classified as fair value through profit or loss
(“FVTPL”) are recognised on the trade date, i.e. the date on which the group commits to purchase or sell the financial assets or
financial liabilities. All regular way purchases and sales of other financial assets and financial liabilities are recognised on the
settlement date, i.e. the date on which the asset or liability is received from or delivered to the counterparty. Regular way
purchases or sales are purchases or sales of financial assets that require delivery within the time frame generally established by
regulation or convention in the market place.
Subsequent to initial measurement, financial assets and financial liabilities are measured at either amortised cost or fair value.
Classification and measurement
Financial instruments are classified at inception into one of the following categories, which then determine the subsequent
measurement methodology:-
Financial assets are classified into one of the following three categories:-
· financial assets at amortised cost;
· financial assets at fair value through other comprehensive income (FVTOCI); or
· financial assets at fair value through the profit or loss (FVTPL).
Financial liabilities are classified into one of the following two categories:-
· financial liabilities at amortised cost; or
· financial liabilities at fair value through the profit or loss (FVTPL).
The classification and the basis for measurement are subject to the group’s business model for managing the financial assets
and the contractual cash flow characteristics of the financial assets, as detailed below:-
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:-
· the assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial assets are classified and measured at fair value through the profit or
loss (FVTPL).
If a financial asset meets the amortised cost criteria, the group may choose to designate the financial asset at FVTPL. Such an
election is irrevocable and applicable only if the FVTPL classification significantly reduces a measurement or recognition
inconsistency.
Page 58
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Financial assets at fair value through other comprehensive income (FVTOCI)
A financial asset is measured at FVTOCI only if it meets both of the following conditions and is not designated as at FVPTL:-
· the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held for trading, the group may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
If an equity investment is designated as FVTOCI, all gains and losses, except for dividend income, are recognised in other
comprehensive income and are not subsequently included in the statement of income.
Financial assets at fair value through the profit or loss (FVTPL)
Financial assets not otherwise classified above are classified and measured as FVTPL.
Financial liabilities at amortised cost
All financial liabilities, other than those classified as financial liabilities at FVTPL, are measured at amortised cost using the
effective interest rate method.
Financial liabilities at fair value through the profit or loss
Financial liabilities not measured at amortised cost are classified and measured at FVTPL. This classification includes
derivative liabilities.
Page 59
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Derecognition
Financial assets
The Group derecognises a financial asset when;
- the contractual rights to the cash flows from the financial asset expire,
- it transfers the right to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred; or
- the group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of
the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of the consideration
received is recognised as a gain or loss in the profit or loss.
Any cumulative gain or loss recognised in OCI in respect of equity investment securities designated as FVTOCI is not
recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for
derecognition that is created or retained by the group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains
either all or substantially all of risks and rewards of the transferred assets or a portion of them. In such cases, the transferred
assets are not derecognised.
When the Group derecognises transferred financial assets in their entirety, but has continuing involvement in them then the
entity should disclose for each type of continuing involvement at the reporting date:
(a) The carrying amount of the assets and liabilities that are recognised in the entity’s statement of financial position and
represent the entity’s continuing involvement in the derecognised financial assets, and the line items in which those assets and
liabilities are recognised.
(b) The fair value of the assets and liabilities that represent the entity’s continuing involvement in the derecognised financial
assets;
(c) The amount that best represents the entity’s maximum exposure to loss from its continuing involvement in the
derecognised financial assets, and how the maximum exposure to loss is determined
(d) The undiscounted cash outflows that would or may be required to repurchase the derecognised financial assets or other
amounts payable to the transferee for the transferred assets
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.
Page 60
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual rights to the cash flows from the
original financial asset are deemed to expire. In this case the original financial asset is derecognised and a new financial asset
is recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial asset. In
this case, the group recalculates the gross carrying amount of the financial asset and recognises the amount arising from
adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Financial liabilities
If the terms of a financial liabilities are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual obligations from the cash flows from
the original financial liabilities are deemed to expire. In this case the original financial liabilities are derecognised and new
financial liabilities are recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial
liabilities. In this case, the group recalculates the gross carrying amount of the financial liabilities and recognises the amount
arising from adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Page 61
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
Impairment of financial assets
Measurement of Expected Credit Losses
The Group recognises loss allowances for expected credit losses (ECL) on financial instruments that are not measured at
FVPTL, namely:
- Financial assets that are debt instruments
- Accounts and other receivables
- Financial guarantee contracts issued; and
- Loan commitments issued.
The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment methodology,
as described below:
Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and that
are not credit-impaired on origination, the group recognises an allowance based on the 12-month ECL.
Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they are
not credit-impaired, the group recognises an allowance for the lifetime ECL.
Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL.
The Group measures loss allowances at an amount equal to the lifetime ECL, except for the following, for which they are
measured as a 12-month ECL:
- debt securities that are determined to have a low credit risk (equivalent to investment grade rating) at the reporting date; and
- other financial instruments on which the credit risk has not increased significantly since their initial recognition.
The Group considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally
understood definition of ‘investment grade’.
A 12-month ECL is the portion of the ECL that results from default events on a financial instrument that are probable within
12 months from the reporting date.
Provisions for credit-impairment are recognised in the statement of income and are reflected in accumulated provision
balances against each relevant financial instruments balance.
Evidence that the financial asset is credit-impaired include the following;
- Significant financial difficulties of the borrower or issuer;
- A breach of contract such as default or past due event;
- The restructuring of the loan or advance by the group on terms that the group would not consider otherwise;
- It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
- The disappearance of an active market for the security because of financial difficulties; or
- There is other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or
issuers in the Group, or economic conditions that correlate with defaults in the Group.
Page 62
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
2 Accounting policies (continued)
For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised from
initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same
risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the
expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2021 and the
corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and
forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The
group has identified the GDP and the unemployment rate of the countries in which it sells its goods and services to be the most
relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors.
Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as
historical experience indicates that financial assets that meet either of the following criteria are not recoverable:
• when there is a breach of financial covenants by the debtor; and
• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors,
including the Group, in full.
Accounting estimates and assumptions
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported
amounts of certain financial assets, liabilities, income and expenses.
The use of estimates and assumptions is principally limited to the determination of provisions for impairment, the valuation of
financial instruments and as explained in more detail below:-
Provisions for impairment
In determining impairment of financial assets, judgement is required in the estimation of the amount and timing of future cash
flows as well as an assessment of whether the credit risk on the financial asset has increased significantly since initial
recognition and incorporation of forward-looking information in the measurement of ECL.
Fair value of financial assets and liabilities
Where the fair value of financial assets and liabilities cannot be derived from active markets, they are determined using a
variety of valuation techniques that include the use of mathematical models. The input to these models is derived from
observable markets where available, but where this is not feasible, a degree of judgement is required in determining
assumptions used in the models. Changes in assumptions used in the models could affect the reported fair value of financial
assets and liabilities.
Page 63
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
3 Revenue
The analysis of the Group's revenue for the year from continuing operations is as follows:
2022
£ 000
2021
£ 000
Distribution use of system revenue
377,481 325,208
Work for related parties
26,081 24,784
Deferred revenue amortisation
29,253 27,945
Other revenue 9,044 7,278
441,859 385,215
Segmental Analysis
IFRS 8 - Operating Segments 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 Executive Officer of the Northern Powergrid Group in
order to allocate resources to these segments and to assess their performance.
In practice, the President and Chief Executive Officer allocates resources and assesses performance based upon the aggregate
results of the Company and Northern Powergrid (Yorkshire) plc, another distribution network operator in the Northern
Powergrid Group. As there is only one operating segement, this constructs the segmental reporting note in full.
Revenue, profit before tax and net assets are attributable to electricity distribution. Revenue is all in respect of sales to United
Kingdom customers and all Non-Current assets are held in the United Kingdom.
4 Other gains and losses
The analysis of the Group's other gains and losses for the year is as follows:
2022
£ 000
2021
£ 000
Gain on disposal of property, plant and equipment
198 410
Page 64
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
5 Operating profit
Arrived at after charging/(crediting)
2022
£ 000
2021
£ 000
Depreciation expense
95,465 91,470
Depreciation on right of use asset
4,501 4,719
Amortisation expense
11,487 11,875
Research and development
1,598 826
Amortisation of deferred revenue
(29,253) (27,945)
Loss allowance on trade and other receivables
(3) 3,839
Amortisation expense is included within administration costs in the consolidated income statement on page 38.
6 Finance income and costs
2022
£ 000
2021
£ 000
Finance income
Interest income on financial assets measured at amortised cost
199 203
Other finance income measured at amortised cost 3,423 7
Total finance income 3,622 210
Finance costs
Interest on bank overdrafts and borrowings
(30,054) (21,452)
Interest paid to group undertakings
(5,692) (5,917)
Interest expense on leases
(641) (358)
Borrowing costs included in cost of qualifying asset 606 666
Total finance costs
(35,781) (27,061)
Net finance costs
(32,159) (26,851)
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are
calculated by applying a capitalisation rate of 3.14% (2021: 3.28%) to expenditure on such assets.
Page 65
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
7 Staff costs
The aggregate payroll costs for the Group and Company (including directors' remuneration) were as follows:
2022
£ 000
2021
£ 000
Salaries
61,083 59,100
Social security costs
7,214 6,586
Defined benefit pension costs
6,867 12,103
Defined contribution pension costs
4,292 3,918
79,456 81,707
Less charged to plant, property and equipment (46,318) (43,804)
33,138 37,903
A large proportion of the Company's employees are members of the DB Scheme, most of the remaining employees are
members of the Northern Powergrid Scheme, details of both are given in the employee benefits note 25.
The monthly average number of persons employed by the Group and Company (including directors) during the year, analysed
by category was as follows:
2022
No.
2021
No.
Technical
369 364
Industrial
463 465
Administration
282 291
Other departments 134 127
1,248 1,247
Page 66
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
8 Directors' remuneration
The directors' remuneration for the year was as follows:
2022
£ 000
2021
£ 000
Short-term employee benefits
521 527
Post-retirement benefits - defined contribution
9 9
Other long-term benefits 394 461
924 997
During the year the number of directors who were receiving benefits and share incentives was as follows:
2022
No.
2021
No.
Accruing benefits under defined benefit pension scheme
- -
Accruing benefits under money purchase pension scheme
6 3
In respect of the highest paid director:
2021
£ 000
2020
£ 000
Short-term employee benefits
287 353
Long-term benefits 304 387
591 740
In respect of key personnel:
2022
£ 000
2021
£ 000
Short-term employee benefits
523 466
Post-retirement benefits - defined benefit
32 22
Post-retirement benefits - defined contribution
68 80
Other long-term benefits 153 196
776 764
Page 67
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
9 Auditors' remuneration
2022
£ 000
2021
£ 000
Fees payable to the auditor for audit of the Company's annual accounts
181 159
Fees payable to the auditor for audit of the Company's subsidiaries
23 20
Other audit services 59 96
263 275
Other services relate to non-statutory audit services including regulatory reporting and bond issuance.
Page 68
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax
Tax charged/(credited) in the income statement
2022
£ 000
2021
£ 000
Current taxation
UK corporation tax
25,313 24,143
UK corporation tax adjustment to prior periods (676) (843)
24,637 23,300
Deferred taxation
Arising from origination and reversal of temporary differences
2,047 28,804
Deferred tax adjustment to prior periods 716 574
Total deferred taxation 2,763 29,378
Tax expense in the income statement
27,400 52,678
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2021 - higher than the
standard rate of corporation tax in the UK) of 19% (2021 - 19%)
The differences are reconciled below:
2022
£ 000
2021
£ 000
Profit before tax
129,658 121,194
Corporation tax at standard rate
24,635 23,027
Decrease in current tax from adjustment for prior periods
(676) (843)
Increase/(decrease) from effect of expenses not deductible in determining taxable
profit/(tax loss)
1,066 (173)
Deferred tax expense from unrecognised temporary difference from a prior period
716 574
Deferred tax expense relating to changes in tax rates or laws
1,723 30,031
Other tax effects for reconciliation between accounting profit and tax (income)/expense (64) 62
Total tax charge
27,400 52,678
The Autumn Budget 2022, confirmed that the corporation tax rate will increase to 25% from 1 April 2023 as previously
enacted. Deferred tax balances are therefore measured at 25% at 31 December 2022 (2021 - 25%) after taking into account the
estimated effect of timing differences which will reverse at the 19% rate prior to 1 April 2023.
There is no uncertainty over the acceptable income tax treatment. Should any uncertainties arise the Company will apply
adopted amendments to IFRIC 23.
Page 69
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax (continued)
Deferred tax
Group
Deferred tax movement during the year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation 132,292 2,673 134,965
Other items (1,540) 90 (1,450)
Net tax liabilities
130,752 2,763 133,515
Deferred tax movement during the prior year:
At 1 January
2021
£ 000
Recognised in
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation 102,416 29,876 132,292
Other items (1,042) (498) (1,540)
Net tax liabilities
101,374 29,378 130,752
Other comprises provisions and employee expenses deductible for tax on a paid basis and claims for hold over relief.
Company
Deferred tax movement during the year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation 132,292 2,673 134,965
Other (1,540) 90 (1,450)
Net tax liabilities
130,752 2,763 133,515
Deferred tax movement during the prior year:
Page 7070
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
10 Income tax (continued)
At 1 January
2021
£ 000
Recognised in
income
£ 000
At
31 December
2021
£ 000
Accelerated tax depreciation 102,416 29,876 132,292
Other (1,042) (498) (1,540)
Net tax liabilities
101,374 29,378 130,752
Other comprises provisions and employee expenses deductible for tax on a paid basis and claims for hold over relief.
11 Property, plant and equipment
Group and Company
Non -
Operational
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021
4,191 3,520,710 49,360 3,574,261
Additions
- 188,605 2,443 191,048
Disposals - (9,005) (1) (9,006)
At 31 December 2021 4,191 3,700,310 51,802 3,756,303
Sample
At 1 January 2022
4,191 3,700,310 51,802 3,756,303
Additions
- 157,530 5,316 162,846
Disposals - (6,266) - (6,266)
At 31 December 2022 4,191 3,851,574 57,118 3,912,883
Depreciation
At 1 January 2021
3,171 845,352 43,193 891,716
Charge for year
252 88,720 2,498 91,470
Eliminated on disposal
- (9,005) (1) (9,006)
At 31 December 2021 3,423 925,067 45,690 974,180
Sample
At 1 January 2022
3,423 925,067 45,690 974,180
Charge for the year
235 92,537 2,693 95,465
Eliminated on disposal - (6,266) - (6,266)
At 31 December 2022 3,658 1,011,338 48,383 1,063,379
Carrying amount
Page 71
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
11 Property, plant and equipment (continued)
Non -
Operational
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
At 31 December 2022
533 2,840,236 8,735 2,849,504
At 31 December 2021
768 2,775,243 6,112 2,782,123
Expenditure recognised in the carrying amount of property, plant and equipment in the course of construction
31 December
2022
£ 000
31 December
2021
£ 000
Distribution system 167,998 187,697
Contractual commitments for the acquisition of property, plant and equipment
31 December
2022
£ 000
31 December
2021
£ 000
Distribution system 20,757 21,104
Page 72
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
12 Right of use assets
Group and Company
Fleet
£ 000
Property
£ 000
Land
£ 000
Total
£ 000
Cost or valuation
At 1 January 2021
12,117 1,383 8,324 21,824
Additions
3,344 - - 3,344
Disposals (501) (46) (6,401) (6,948)
At 31 December 2021 14,960 1,337 1,923 18,220
s
At 1 January 2022
14,960 1,337 1,923 18,220
Additions
1,903 - 16,685 18,588
Disposals (1,253) - - (1,253)
At 31 December 2022 15,610 1,337 18,608 35,555
Depreciation
At 1 January 2021
3,663 409 4,725 8,797
Charge for year
2,722 230 1,767 4,719
Eliminated on disposal (501) (46) (6,401) (6,948)
At 31 December 2021 5,884 593 91 6,568
s
At 1 January 2022
5,884 593 91 6,568
Charge for the year
2,848 199 1,454 4,501
Eliminated on disposal (1,253) - - (1,253)
At 31 December 2022 7,479 792 1,545 9,816
Carrying amount
At 31 December 2022
8,131 545 17,063 25,739
At 31 December 2021
9,076 744 1,832 11,652
Page 73
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
13 Intangible assets
Group and Company
Internally
generated
software
development
costs
£ 000
Cost or valuation
At 1 January 2021
121,011
Additions
9,544
Disposals (714)
At 31 December 2021 129,841
sample
At 1 January 2022
129,841
Additions 9,956
At 31 December 2022 139,797
Amortisation
At 1 January 2021
69,792
Amortisation charge
11,875
Amortisation eliminated on disposals (714)
At 31 December 2021 80,953
sample
At 1 January 2022
80,954
Amortisation charge 11,487
At 31 December 2022 92,441
Carrying amount
At 31 December 2022
47,356
At 31 December 2021
48,888
During the year the amount of contractual commitments for the acquisition of intangible assets amounted to £2.3 million
(2021: £2.9 million).
Page 74
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments
Summary of the Company investments
31 December
2022
£ 000
31 December
2021
£ 000
Investments in subsidiaries
50 50
Subsidiaries £ 000
Cost or valuation
At 1 January 2021 50
At 31 December 2021
50
At 1 January 2022 50
At 31 December 2022
50
Provision
Carrying amount
At 31 December 2022
50
At 1 January 2021
50
Group subsidiaries
Details of the Group subsidiaries as at 31 December 2022 are as follows:
Name of subsidiary Principal activity Registered office
Proportion of
ownership interest
and voting rights
held
2022 2021
Northern Electric Finance plc + Finance company Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1
6AF
England and Wales
100% 100%
All subsidiaries are included within consolidation.
All above investments are held as ordinary shares
+ indicates accounted for using the equity method
Page 75
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
14 Investments (continued)
Group associates
Details of the Group associates as at 31 December 2022 are as follows:
Name of associate Principal activity Registered office
Proportion of
ownership interest
and voting rights
held
2022 2021
ElectraLink Limited + Data transfer network
operator
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
6.2% 6.2%
MRA Service Company Limited + Governance of the
electricity industry's
Master Registration
Agreement
8 Fenchurch Place, London,
EC3M 4AJ, England and
Wales
0.36% 0.36%
DCUSA Limited + Governance of
Distribution Connection
and Use of System
Agreement
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
1.69% 1.69%
Smart Energy Code Company Ltd + Governance of smart
metering energy
agreement
8 Fenchurch Place, London,
EC3M 4AJ
0.32% 0.32%
Page 76
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
15 Inventories
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Inventory
24,976 19,637 24,976 19,637
Work in progress 430 261 430 261
25,406 19,898 25,406 19,898
16 Trade and other receivables
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Distribution use of system receivables and
accrued income
57,273 56,769 57,273 56,769
Trade receivables
7,364 5,509 7,364 5,509
Provision for impairment of trade receivables (5,619) (5,754) (5,619) (5,754)
Net trade receivables
59,018 56,524 59,018 56,524
Accrued income
- 93 - 93
Prepayments 5,126 3,165 5,126 3,165
64,144 59,782 64,144 59,782
The average credit period on receivables is 30 days. Interest is charged on overdue distribution use of system receivables.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss. The
expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the
debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general
economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast
direction of conditions at the reporting date. The loss allowance has not been split out into detailed analysis.
There has been no change in the estimation techniques or significant assumptions made during the current reporting period.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy
proceedings, or when the trade receivables are over two years past due, whichever occurs earlier. None of the trade receivables
that have been written off is subject to enforcement activities.
As the Group’s historical credit loss experience shows significantly different loss patterns for different customer segments, the
provision for loss allowance based on past due status is distinguished between Distribution Use of System ("DUoS")
receivables, damages receivables, and non-damages receivables.
Page 77
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Movement in the loss allowance
31 December
2022
£ 000
31 December
2021
£ 000
At 1 January
5,754 3,123
Amounts utilised/written off in the year
(132) (1,208)
Amounts recognised in the statement of profit or loss
(3) 3,839
At 31 December
5,619 5,754
The loss allowance is made on amount due net of VAT which would be recoverable from Her Majesty's Revenue and Customs
when the debt is written off. The decrease in the amount recognised in the year follows the failure of a number of electricity
supply companies in 2021. Subject to certain conditions mentioned below, losses arising in relation to distribution use of
system debts will be recovered through an increase in future allowed income.
Included in the allowance for doubtful debts are specific trade receivables, with a balance of £3.7 million (2021: £4.0 million),
which have been placed in administration. The impairment represents the difference between the carrying amount of the
specific trade receivable and the present value of the expected liquidation dividend.
Page 78
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Distribution Use of System Receivables
The customers served by the Group’s distribution network are supplied predominantly by a number of electricity supply
businesses (circa 110) with the E.ON group accounting for approximately 20.2% of distribution revenues in 2022 (2021:
21.5%) and British Gas plc accounting for approximately 14.1% of distribution revenues in 2022 (2021: 11.4%). Ofgem under
Code Governance arrangements, set out a framework known as Credit Cover within the Distribution Connection and Use of
System Agreement (DCUSA), which sets credit limits for each supply business based on its credit rating (taken from a credit
agency). If no score is available, then they can build up their credit limit through good payment history. In addition, suppliers
can provide other forms of collateral to cover their value at risk (measured as being equivalent to 45 days usage) or if their
credit rating alone is not sufficient to cover their value at risk. Acceptable collateral typically is provided in the form of a
parent company guarantee, letter of credit, cash or an escrow account. Included within other payables are customer cash
deposits of which there was £3.2m as at 31st December 2022 (2021: £1.9m).
Provided the Group has implemented credit control, billing and collection processes in line with Ofgem’s 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 years allowed
income. Losses incurred in 2022 have been material due to the unprecedented number of suppliers falling into administration
over the course of the year. Included in the Group's use of system (“UoS”) receivables are 39 debtors with a carrying value of
£3.0m, which have been placed into administration and have therefore been provided in full at the year-end (2021: £2.5m).
The following table details the age of DUoS receivables:
2022
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
27,388 26,865 7 2,965
Less specific provisions
- - (3) (2,962)
Balance on which ECL made
27,388 26,865 4 3
Expected credit loss
- - - -
2021
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
31,375 22,590 1,703 1,100
Less specific provisions
- (255) (1,696) (844)
Balance on which ECL made
31,375 22,335 7 256
Expected credit loss
- - - -
Page 79
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
Other Trade Receivables
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 DUoS 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.
Damages
2022
1-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 years
£ 000
Total balance
943 1,180 546 113 261
Less specific provisions
(97) (68) (232) - (226)
Balance on which ECL made
846 1,112 314 113 35
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
169 278 94 45 28
2021
1-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 years
£ 000
Total balance
1,785 373 237 424 53
Less specific provisions
(165) (114) (24) (363) (22)
Balance on which ECL made
1,620 259 213 61 31
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
324 65 64 24 25
Non Damages
2022
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
313 315 1,224 222 319
Less specific provisions
- - - - -
Balance on which ECL made
313 315 1,224 222 319
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 111 278
Page 80
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
16 Trade and other receivables (continued)
2021
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
259 393 480 121 234
Less specific provisions
- - - - -
Balance on which ECL made
259 393 480 121 234
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 61 204
There has been no significant change in the gross amounts of trade receivables that has affected the estimation of loss
allowance.
Significant Increase in Credit Risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group
compares the risk of a default occurring on a financial instrument at the reporting date with the risk of a default occurring on
the financial instrument at the date of initial recognition. In making this assessment the Group considers historical experience
as well as forward-looking information that is available without undue cost or effort. Forward-looking information includes the
future prospects of the industries in which the Group's debtors operate obtained from economic expert reports, financial
analysts, government bodies, relevant think-tanks and other similar organisations. In particular the following information is
taken into account when assessing whether credit risk has increased significantly since initial recognition:
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant
decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor; and
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that
results in a significant decrease in the debtor's ability to meet its debt obligations.
Sales of goods and services comprise all income streams which are not classified as DUoS income. Examples of non-DUoS
income streams would be service alterations/disconnections, assessment and design fees, 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.
Page 81
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
17 Cash and cash equivalents
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Cash at bank
1,697 3 1,697 3
Other cash and cash equivalents 274,429 - 272,832 -
276,126 3 274,529 3
18 Share capital
Allotted, called up and fully paid shares
31 December
2022
31 December
2021
No. 000 £ 000 No. 000 £ 000
Ordinary Share Capital of £1 each
200,000 200,000 200,000 200,000
The Company has 300 million shares authorised for issue. The Company has one class of ordinary shares which carries no
right to fixed income.
Page 82
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
19 Reserves
Group
Retained
earnings
£ 000
At 1 January 2022
962,103
Profit for the year 102,258
Total comprehensive income
102,258
Dividends (27,700)
At 31 December 2022
1,036,661
Retained
earnings
£ 000
At 1 January 2021
919,587
Profit for the year
68,516
Total comprehensive income
68,516
Dividends (26,000)
At 31 December 2021
962,103
Company
Retained
earnings
£ 000
At 1 January 2022
963,901
Profit for the year 102,246
Total comprehensive income
102,246
Dividends (27,700)
At 31 December 2022
1,038,447
Page 83
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
19 Reserves (continued)
Retained
earnings
£ 000
At 1 January 2021
921,424
Profit for the year 68,477
Total comprehensive income
68,477
Dividends (26,000)
At 31 December 2021
963,901
20 Loans and borrowings
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Non-current loans and borrowings
1,057,069 810,454 1,057,064 810,449
Current loans and borrowings
54,263 42,159 50,949 40,430
1,111,332 852,613 1,108,013 850,879
Group
Book value Fair value
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Short-term loan
35,058 2 35,058 2
Intercompany short-term loan
- 31,506 - 31,506
European Investment Bank 2027 – 2.564%
120,128 120,128 103,252 126,098
Northern Electric Finance plc 2035 – 5.125%
153,457 153,366 150,066 204,175
Northern Powergrid Holdings Company 2037 – 5.9%
- 100,016 - 148,285
Northern Electric Finance plc 2049 – 2.75%
150,098 150,037 100,507 172,211
Northern Powergrid (Northeast) plc 2052 - 3.25%
354,942 - 259,793 -
Northern Powergrid (Northeast) plc 2062 - 1.875% 297,649 297,558 154,267 289,945
1,111,332 852,613 802,943 972,222
Page 84
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
20 Loans and borrowings (continued)
Company
Book value Fair value
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Short-term loan
35,058 2 35,058 2
Intercompany short-term loan - Yorkshire Electricity
Group plc
- 33,091 - 33,091
European Investment Bank 2027 - 2.564%
120,128 120,128 103,252 126,098
Northern Electric Finance plc 2035 – 5.125%
50,208 50,117 50,065 68,101
Northern Powergrid Holdings Company 2037 - 5.9%
- 100,016 - 148,285
Northern Electric Finance plc 2037 - 5.125%
99,884 99,884 95,341 137,852
Northern Electric Finance plc 2049 - 2.8%
150,144 150,083 101,617 173,804
Northern Powergrid (Northeast) plc 2052 3.25%
354,942 - 259,793 -
Northern Powergrid (Northeast) plc 2062 1.875% 297,649 297,558 154,267 289,945
1,108,013 850,879 799,393 977,178
The fair value of liabilities held at amortised cost, is set out above and based on Level 1 inputs.
In April 2022, the Group issued a £350 million bond at 3.25% maturing in 2051, the funds will be used for general corporate
purposes including the repayment of debt maturities in 2022.
Page 85
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
21 Lease Liabilities
Group and Company
Lease commitments
Leases primarily relate to the hire of fleet vehicles from Vehicle Lease and Service Ltd and the rental of operational and non
operational land and buildings. The vehicle leases have terms between 2 and 7 years. The company does not have the option to
purchase the vehicles at the end of the lease term.
Maturity analysis - contractual undiscounted cash flows:
31 December
2022
£ 000
31 December
2021
£ 000
Within one year
5,812 3,147
In two to five years
17,243 7,335
In over five years
6,101
2,699
Total lease payment 29,156
13,181
Unearned interest (2,946) (1,244)
Total lease liability
26,210 11,938
The total cash outflow for leases during the year was £5m (2021: £5.0m). Within the cash outflow is lease expense of £4.3m
(2021: £4.6m).
22 Provisions
Group and Company
Legal
proceedings
£ 000
Other
provisions
£ 000
Total
£ 000
At 1 January 2022
773 1,979 2,752
Additional provisions
1,951 335 2,286
Provisions used (1,579) (1,807) (3,386)
At 31 December 2022
1,145 507 1,652
Non-current liabilities
- 55 55
Current liabilities
1,145 452 1,597
Page 86
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
22 Provisions (continued)
Claims: Provision has been made to cover costs arising from utility damages, public liability, and motoring legal proceedings,
which are not externally insured. Settlement is expected substantially within 12 months.
Other: Primarily consists of; Storm Arwen customer compensated costs, 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 15 years for PCB
claims and in the next year for all others.
23 Trade and other payables
Group Company
31 December
2022
£ 000
31 December
2021
£ 000
31 December
2022
£ 000
31 December
2021
£ 000
Trade payables
2,978 3,756 2,978 3,756
Accrued expenses
8,973 10,307 8,971 10,302
Social security and other taxes
10,735 9,218 10,735 9,218
Other payables
2,949 3,414 2,949 3,414
Payments on Account
54,169 37,143 54,169 37,143
Capital Accruals 17,040 22,856 17,040 22,856
96,844 86,694 96,842 86,689
The Group's and Company's exposure to market and liquidity risks, including maturity analysis, related to trade and other
payables is disclosed in Note 29 "Financial Risk Review".
Page 87
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
24 Deferred Revenue
Group and Company
31 December
2022
£ 000
31 December
2021
£ 000
Opening balance
677,658 669,356
Additions
33,397 36,247
Amortisation (29,253) (27,945)
Closing balance
681,802 677,658
31 December
2022
£ 000
31 December
2021
£ 000
Current
29,326 28,645
Non-current 652,476 649,013
681,802 677,658
Deferred revenue relates to customer contributions towards distribution system assets. The Group's policy is to credit the
customer contribution to revenue on a straight-line basis, in line with the useful life of the distribution system assets.
Page 88
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes
Defined benefit pension schemes
Northern Powergrid Group of the ESPS
The Group contributes to two pension schemes, which it operates on behalf of the participating companies within the Group.
All below disclosures are that of the group scheme to which the Company contributes but the assets and liabilities are reflected
in Northern Electric plc.
Those pension schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme"); and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new employees of the Group from July 1997 and is a money
purchase arrangement accounted for as a defined contribution scheme.
The DB Scheme is a defined benefit scheme for directors and employees, which provides pension and other related retirement
benefits based on final pensionable pay. The DB Scheme closed to staff commencing employment with the Group on or after
23 July 1997. Members who joined before this date, including some Protected Persons under The Electricity (Protected
Persons) (England and Wales) Pension Regulations 1990, continue to build up future pension benefits.
Under the DB Scheme, employees are typically entitled to annual pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such as withdrawing from active service.
No other post-retirement benefits are provided to members of the DB Scheme.
Pension Regulation
The UK pensions market is regulated by the Pensions Regulator whose key statutory objectives in relation to UK defined
benefit plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund
("PPF"); and
- minimise any adverse impact on the sustainable growth of an employer.
The Pensions Regulator has various powers including the power to:
- wind up a scheme where winding up is necessary to protect members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions where trustees and company fail to agree on appropriate contributions; and
- impose contributions where there has been a detrimental action against the scheme.
Page 89
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Role of Trustees
The DB Scheme is administered by a board of Trustees which is legally separate from the Company. The assets of the DB
Scheme are held in a separate trustee-administered fund. The board of Trustees is made up of Trustees appointed by the
Company, as the Principal Employer of the DB Scheme, Trustees elected by the membership and an independent trustee. The
Trustees are required by law to act in the interests of all relevant beneficiaries and are responsible in particular for the asset
investment strategy plus the day-to-day administration of the benefits payable. They also are responsible for jointly agreeing
with the Principal Employer the level of contributions due to the DB Scheme.
Funding Requirements
UK legislation requires that pension schemes are funded prudently (i.e. to a level in excess of the current expected cost of
providing benefits). The last actuarial valuation of the DB Scheme was carried out by the Trustee's actuarial advisors, Aon, as
at 31 March 2022. Such valuations are required by law to take place at intervals of no more than three years. Following each
valuation, the Trustees and the Northern Powergrid Group must agree the contributions required (if any) such that the DB
Scheme is fully funded over time on the basis of suitably prudent assumptions.
At the latest funding valuation as at 31 March 2019, the funding deficit was assessed to be £116.3 million. In light of this and
subsequent changes in the funding position, the Group agreed with the Trustees in September 2020 to pay £2.44 million per
month from 1 April 2019 to 31 March 2021. A further £29.3 million will be paid on 30 November 2021 and 30 November
2022 and £14.1 million on 30 November 2023 and 30 November 2024. These amounts are in 2019/20 prices and will be
updated on 1 April 2020 and on each 1 April thereafter in line with annual changes in RPI inflation. If the actuarial
assumptions are borne out in practice then the funding deficit is expected to be removed by 31 March 2025. The amounts due
each November may be reduced by up to 100% depending on the updated funding position. Due to a significantly improved
funding position, the November 2021 and 2022 deficit contributions were suspended. The next actuarial valuation is underway
as at 31 March 2022 and is expected to be completed by 30 June 2023.
The contributions payable by the Group to the DB Scheme in respect of future benefits which are accruing is 49.1% of
pensionable pay. These contributions were determined as part of the 31 March 2019 actuarial valuation and are payable in
addition to the deficit repair contributions mentioned above. These rates will remain in place until such a time as a new
schedule of contributions is agreed between the Trustees and the Group as part of the 31 March 2022 valuation.
In addition, the Group pays contributions to cover the expenses of running the DB Scheme are 6.3% of pensionable pay from 1
October 2020.
The Northern Powergrid Group’s total contribution to the DB Scheme for the next financial year are expected to be £11.2m
(subject to a new contribution schedule being put in place).
The Trust Deed provides the Group with an unconditional right to a refund of surplus assets assuming the gradual settlement of
plan liabilities over time. Furthermore, in the ordinary course of business the Trustees have no right to unilaterally wind up, or
otherwise augment the benefits due to members of the DB scheme. Based on these rights, any net surplus in the plan is
recognised in full.
Page 90
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Profile of the scheme
The defined benefit obligation ("DBO") includes benefits for current employees, former employees and current pensioners.
The overall duration of the DB Scheme's obligation was assessed to be about 17 years based on the results of the 31 March
2019 funding valuation. This is the weighted-average time over which benefit payments are expected to be made.
As at 31 March 2019, broadly about 30% of the liabilities are attributable to current employees (duration about 24 years), 10%
to former employees (duration about 23 years) and 60% to current pensioners (duration about 13 years). Given increases in
yields, we anticipate that the overall duration of the Scheme’s obligation will have reduced to around 14 years at 31 December
2022.
Investment objectives for the DB Scheme
The Trustees aim to achieve the Scheme's investment objectives through investing partly in a diversified mix of growth assets
which, over the long term, are expected to grow in value by more than low risk assets like cash and gilts. This is done with a
broad liability driven investing framework that uses cash, gilts and other hedging instruments like swaps in a capital efficient
way. In combination this efficiently captures the Trustees' risk tolerances and return objectives relative to the Scheme's
liabilities.
The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This
includes the use of Liability Driven Investment (LDI) from October 2016 to more closely match the nature and duration of the
DB Scheme's liabilities through the use of derivatives such as swaps and repurchase agreements. The portfolio is designed to
hedge a proportion of the interest rate and inflation risk inherent in the Scheme's liabilities. The target hedging level is
currently 99% (2021: 99%) of the DB Scheme's liabilities as measured on the basis used for the funding valuation.
The trustees insure certain benefits which are payable on death before retirement.
Page 91
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Risks
Volatile asset returns
The DBO is calculated using a discount rate set with reference to corporate bond yields. If assets underperform this discount
rate, this will create an element of deficit. The DB Scheme aims to hold a significant proportion (27%) of its assets in
return-seeking assets (such as equities) which, although expected to outperform corporate bonds in the long-term, create
volatility and risk in the short-term.
Mitigation
The allocation to return-seeking assets is monitored to ensure it remains appropriate given the DB Scheme's long-term
objectives. The Trustees regularly review the strategy from return-seeking assets and have diversified some return-seeking
assets from equities into Reinsurance and Listed Infrastructure to reduce overall risk. To avoid concentration risk, the
allocation to UK equity is restricted to 35% of the total equity allocation.
Changes in bond yields
A decrease in corporate bond yields will increase the value placed on the DBO for accounting purposes, although this will be
partially offset by an increase in the value of the DB Scheme's bond holdings.
Mitigation
The DB Scheme aims to hold a substantial proportion of its assets (73%) as bonds and Liability Driven Investments (LDI),
which provide a significant hedge against falling bond yields (falling yields which increase the DBO will also increase the
value of the bond assets). There are some differences in the credit quality of bonds held by the DB Scheme and the bonds
analysed to decide the DBO discount rate, such that there remains some risk should yields on different quality bond/swap
assets diverge.
Inflation risk
A significant proportion of the DBO is indexed in line with price inflation (specifically in line with RPI) and higher inflation
will leads to a higher DBO.
Mitigation
The DB Scheme invests around 42% in LDI (included in the 73% above) which provides a hedge against higher-than-expected
inflation increases on the DBO (rising inflation will increase both the DBO and the value of the LDI portfolio).
Life expectancy risk
The majority of the DB Scheme's obligations are to provide benefits for the life of the member, so increases in life expectancy
will result in an increase in the liabilities.
Mitigation
The DB Scheme regularly reviews actual experience of its membership against the actuarial assumptions underlying the future
benefit projections and carries out detailed analysis when setting an appropriate scheme specific mortality assumption.
Currency risk
To increase diversification, the DB Scheme invests in overseas assets. This leads to a risk that foreign currency movements
negatively impact the value of assets in Sterling terms.
Mitigation
The DB Scheme hedges a proportion of the overseas investments currency risk for those overseas currencies that can be
hedged efficiently. The DB Scheme's currency hedging ratio is currently 50% in respect of overseas developed market
currencies.
Page 92
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Other risks
There are a number of other risks associated with the DB Scheme including operational risks (such as paying out the wrong
benefits), legislative risks (such as the government increasing the burden on pension schemes through new legislation) and
other demographic risks (such as a higher proportion of members dying than assumed with a dependant eligible to receive a
survivor's pension from the DB Scheme).
Reporting at 31 December 2022
For the purposes of this disclosure, the current and future pension costs of the Northern Powergrid Group have been assessed
by Aon, a qualified independent actuary, using the assumptions set out below, which the actuary has confirmed represent a
reasonable best estimate of those costs. The review has been based on the same membership and other data as at 31 March
2019. The board of Northern Powergrid Holdings Company has accepted the advice of the actuary and formally approved the
use of these assumptions for the purpose of calculating the pension cost of the Northern Powergrid Group.
The results of the latest funding valuation at 31 March 2019 have been adjusted 31 December 2020. Those adjustments take
account of experience over the period since 31 March 2019, changes in market conditions, and differences in the financial and
demographic assumptions. The present value of the DBO and the related current service cost were measured using the
Projected Unit Credit Method.
For schemes closed to new members, such as the DB Scheme, the current service cost calculated under the Projected Unit
Credit Method is expected to increase as the members of the DB Scheme approach retirement.
Principal actuarial assumptions
The significant actuarial assumptions used to determine the present value of the defined benefit obligation at the statement of
financial position date are as follows:
31 December
2022
%
31 December
2021
%
Discount rate
4.80 1.95
Future salary increases
3.20 3.45
Future pension increases
2.75 2.85
Inflation - CPI
2.95 2.95
Post retirement mortality assumptions
31 December
2022
Years
31 December
2021
Years
Current UK pensioners at retirement age - male
26.70 26.70
Current UK pensioners at retirement age - female
28.60 28.60
Future UK pensioners at retirement age - male
27.40 27.40
Future UK pensioners at retirement age - female
29.70 29.60
Page 93
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Reconciliation of scheme assets and liabilities to assets and liabilities recognised
The amounts recognised in the statement of financial position are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Fair value of scheme assets
1,117,000 1,742,600
Present value of scheme liabilities (965,500) (1,480,400)
Defined benefit pension scheme surplus
151,500 262,200
Scheme assets
Changes in the fair value of scheme assets are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Fair value at start of year
1,742,600 1,700,700
Interest income
33,600 23,800
Remeasurement gains on scheme assets
(582,000) 87,900
Employer contributions
12,100 20,800
Contributions by scheme participants
400 400
Benefits paid
(88,300) (89,700)
Administrative expenses paid (1,400) (1,300)
Fair value at end of year
1,117,000 1,742,600
Analysis of assets
The major categories of scheme assets are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Developed market equity
78,400 124,000
Emerging market equity
4,400 3,200
Property
169,400 194,300
Reinsurance
80,800 80,200
Listed infrastructure
62,800 95,300
Investment grade corporate bonds
15,900 201,300
Other debt (non-investment grade)
32,800 133,100
Fixed interest gilts
6,500 46,400
Index-linked gilts
- 3,800
Liability driven investments
584,300 703,200
Cash and cash equivalents including derivatives 81,700 157,800
1,117,000 1,742,600
Page 94
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
The pension scheme has not invested in any of the company's own financial instruments or in properties or other assets used by
the company.
Scheme liabilities
Changes in the present value of scheme liabilities are as follows:
31 December
2022
£ 000
31 December
2021
£ 000
Present value at start of year
1,480,400 1,612,600
Current service cost
11,100 12,000
Past service cost
16,500 -
Actuarial gains and losses arising from changes in demographic assumptions
(900) (2,900)
Actuarial gains and losses arising from changes in financial assumptions
(530,100) (55,100)
Actuarial gains and losses arising from experience adjustments
47,900 (19,200)
Interest cost
28,500 22,300
Benefits paid
(88,300) (89,700)
Contributions by scheme participants 400 400
Present value at end of year
965,500 1,480,400
Amounts recognised in the income statement
31 December
2022
£ 000
31 December
2021
£ 000
Amounts recognised in operating profit
Current service cost
11,100 12,000
Past service cost
16,500 -
Losses (gains) on curtailments and settlements
1,490 1,300
Net interest (5,100) (1,500)
Recognised in arriving at operating profit 23,990 11,800
Amounts recognised in finance income or costs
Recognised in other finance costs (6,800) (8,000)
Total recognised in the income statement
17,190 3,800
Page 95
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
25 Pension and other schemes (continued)
Amounts taken to the Statement of Comprehensive Income
31 December
2022
£ 000
31 December
2021
£ 000
Actuarial gains and losses arising from changes in demographic assumptions
(900) (2,900)
Actuarial gains and losses arising from changes in financial assumptions
(530,100) (55,100)
Actuarial gains and losses arising from experience adjustments
47,900 (19,200)
Return on plan assets, excluding amounts included in interest income/(expense) 582,000 (87,900)
Amounts recognised in the Statement of Comprehensive Income
98,900 (165,100)
Sensitivity analysis
Significant actuarial assumptions for determination of the defined benefit obligation are discount rate, inflation, and mortality.
The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions
occurring at the end of the reporting period, while holding all other assumptions constant:
31 December
2022
31 December
2021
Adjustment to discount rate
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
952,700 965,500 979,300 1,455,600 1,480,400 1,505,600
31 December
2022
31 December
2021
Adjustment to rate of inflation
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
978,700 965,500 933,300 1,503,900 1,480,400 1,466,300
31 December
2022
31 December
2021
Adjustment to mortality age rating
assumption
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
Present value of total obligation
995,300 965,500 934,900 1,545,600 1,480,400 1,415,600
The sensitivity analysis presented above may not be representative of the actual change in defined benefit obligation as it is
unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be
correlated.
Page 96
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
26 Dividends
31 December
2022
31 December
2021
£ 000 £ 000
Interim dividend of 13.9 p (2021 - 13.0 p) per ordinary share
27,700 26,000
Page 97
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
27 Reconciliation of liabilities arising from financing activities
Group
Non-cash
changes
At 1 January
2022
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2022
£ 000
Borrowings
852,613 249,922 - 8,797 1,111,332
Lease liabilities 11,938 (4,957) 19,229 - 26,210
864,551 244,965 19,229 8,797 1,137,542
Non-cash
changes
At 1 January
2021
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2021
£ 000
Borrowings
836,456 15,926 - 231 852,613
Lease liabilities 13,294 (5,058) 3,702 - 11,938
849,750 10,868 3,702 231 864,551
Company
Non-cash
changes
At 1 January
2022
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2022
£ 000
Borrowings
850,879 248,337 - 8,797 1,108,013
Lease liabilities 11,938 (4,957) 19,229 - 26,210
862,817 243,380 19,229 8,797 1,134,223
Non-cash
changes
At 1 January
2021
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2021
£ 000
Borrowings
834,684 15,964 - 231 850,879
Lease liabilities 13,294 (5,058) 3,702 - 11,938
847,978 10,906 3,702 231 862,817
Other charges relate to amortisation of financing fees, discounts and new leases entered into.
Page 98
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities
Group
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31 December
2022 was as follows:
Financial assets
at amortised
cost
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - 2,849,504
Right of use assets
- - 25,739
Intangible assets - - 47,356
- - 2,922,599
Current assets
Inventories
- - 25,406
Trade and other receivables
64,126 - 18
Cash and cash equivalents 276,126 - -
340,252 - 25,424
Total assets
340,252 - 2,948,023
Liabilities
Non-current liabilities
Long term lease liabilities
- (21,152) -
Loans and borrowings
- (1,057,069) -
Provisions
- - (55)
Deferred revenue
- (652,476) -
Deferred tax liabilities - - (133,515)
- (1,730,697) (133,570)
Page 99
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Financial assets
at amortised
cost
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Current liabilities
Current portion of long term lease liabilities
- (5,058) -
Trade and other payables
- (96,844) -
Loans and borrowings
- (54,263) -
Income tax liability
(259) - -
Deferred revenue
- (29,326) -
Provisions - - (1,597)
(259) (185,491) (1,597)
Total liabilities
(259) (1,916,188) (135,167)
Page 100
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31 December
2021 was as follows:
Financial assets
at amortised
cost
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - 2,782,123
Right of use assets
- - 11,652
Intangible assets - - 48,888
- - 2,842,663
Current assets
Inventories
- - 19,898
Trade and other receivables
59,356 - 426
Income tax asset
2,164 - -
Cash and cash equivalents 3 - -
61,523 - 20,324
Total assets
61,523 - 2,862,987
Liabilities
Non-current liabilities
Long term lease liabilities
- (9,062) -
Loans and borrowings
- (810,454) -
Provisions
- - (55)
Deferred revenue
- (649,013) -
Deferred tax liabilities - - (130,752)
- (1,468,529) (130,807)
Current liabilities
Current portion of long term lease liabilities
- (2,876) -
Trade and other payables
- (86,694) -
Loans and borrowings
- (42,159) -
Deferred revenue
- (28,645) -
Provisions - - (2,697)
- (160,374) (2,697)
Total liabilities
- (1,628,903) (133,504)
Fair values are derived from level 1 inputs.
Page 101
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Company
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31 December
2022 was as follows:
Financial assets
at amortised
cost
£ 000
Financial assets
& liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 2,849,504
Right of use assets
- - - 25,739
Intangible assets
- - - 47,356
Investments in subsidiaries, joint ventures and
associates - 50 - -
- 50 - 2,922,599
Current assets
Inventories
- - - 25,406
Trade and other receivables
64,126 - - 18
Cash and cash equivalents 274,529 -
338,655
- -
- 25,424
Total assets
338,655 50 - 2,948,023
Liabilities
Non-current liabilities
Long term lease liabilities
- - (21,152) -
Loans and borrowings
- - (1,057,064) -
Provisions
- - - (55)
Deferred revenue
- - (652,476) -
Deferred tax liabilities - - - (133,515)
- - (1,730,692) (133,570)
Current liabilities
Current portion of long term lease liabilities
- - (5,058) -
Trade and other payables
- - (96,842) -
Loans and borrowings
- - (50,949) -
Income tax liability
(247) - - -
Deferred revenue
- - (29,326) -
Provisions - - - (1,597)
(247) - (182,175) (1,597)
Page 102
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
Financial assets
at amortised
cost
£ 000
Financial assets
& liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Total liabilities
(247) - (1,912,867) (135,167)
Page 103
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31 December
2021 was as follows:
Financial assets
at amortised
cost
£ 000
Financial assets
& liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 2,782,123
Right of use assets
- - - 11,652
Intangible assets
- - - 48,888
Investments in subsidiaries, joint ventures and
associates - 50 - -
- 50 - 2,842,663
Current assets
Inventories
- - - 19,898
Trade and other receivables
59,356 - - 426
Income tax asset
2,173 - - -
Cash and cash equivalents 3 - - -
61,532 - - 20,324
Total assets
61,532 50 - 2,862,987
Liabilities
Non-current liabilities
Long term lease liabilities
- - (9,062) -
Loans and borrowings
- - (810,449) -
Provisions
- - - (55)
Deferred revenue
- - (649,013) -
Deferred tax liabilities - - - (130,752)
- - (1,468,524) (130,807)
Current liabilities
Current portion of long term lease liabilities
- - (2,876) -
Trade and other payables
- - (86,689) -
Loans and borrowings
- - (40,430) -
Deferred revenue
- - (28,645) -
Provisions - - - (2,697)
- - (158,640) (2,697)
Total liabilities
- - (1,627,164) (133,504)
Page 104
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review
This note presents information about the Group’s exposure to financial risks and the Group’s management of capital.
Capital Management
The Northern Powergrid Group manages its capital centrally to ensure that entities in the Northern Powergrid Group will be
able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity
balance. The Northern Powergrid Group’s overall strategy remains unchanged from 2021.
The capital structure of the Group consists of net debt (borrowings as detailed in Note 20) offset by equity of the Group
(comprising issued capital, reserves and retained earnings as detailed in Notes 18 and 19).
The Group has no externally imposed capital requirements.
The covenants associated with the 2035 bonds issued by Northern Electric Finance plc, a wholly-owned subsidiary of 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.
The Company's Senior Total Net Debt as of 31 December 2022 totalled £828.9m. Using the RAV value as of March 2023, as
outlined by Ofgem in its ED2 price control financial model published in February 2023, and adjusting for the effects of
movements in the value of the Retail Price Index gives an approximation for the RAV value as at 31 March 2023 of
£1,793.1m. The Senior Total Net Debt to RAV ratio for the Company is therefore estimated at 46.2% (2021: 53.7%).
During the year all obligations under the various debt convents have been complied with.
Credit risk
The Group's definition of credit risk is Credit risk refers to the risk that a counterparty will default on its contractual
obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy
counterparties. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate
value of transactions concluded is spread amongst approved counterparties. The carrying amount of financial assets recorded
in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk as no
collateral or other credit enhancements are held.
The risk is mitigated by the group by The Group's income is primarily generated from use of system revenue from electricity
suppliers; suppliers are credit checked by independent ratings agencies. Impaired income from DUoS will be recovered in
future periods through system charges and is therefore of no material risk to the Group.
Group
2022 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16
69,763 (5,619) 64,144
2021
Trade and other receivables
16
65,536 (5,754) 59,782
Page 105
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
Company
2022 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 69,763 (5,619) 64,144
Equity investments at FVTPL
50 - 50
2021
Trade and other receivables
16 65,536 (5,754) 59,782
Equity investments at FVTPL
50 - 50
For trade receivables the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL.
The Group determines the expected credit losses on these items by using a provision matrix, estimated based on historical
credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and
estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented based on their past due
status in terms of the provision matrix. Note 16 includes further details on the loss allowance for these assets.
The carrying amount of the Group's financial assets at FVTPL as disclosed in Note 28 best represents their respective
maximum exposure to credit risk. The Group holds no collateral over any of these balances.
Liquidity risk
Ultimate responsibility of liquidity risk management rests with the board of directors, which has established an appropriate
liquidity risk management framework for the management of the Group's short, medium, and long-term funding and liquidity
management requirements. The Group manages liquidity by maintaining adequate reserves, banking facilities and reserve
borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of
financial assets and liabilities
The Company has access to a £100 million revolving credit facility provided by Barclays Bank plc, Lloyds Bank plc, HSBC
UK Bank plc and Royal Bank of Canada. The Company entered into a new Facility Agreement in December 2021 for a period
of three years, with two 1 year extension options. During the year the Company exercised the first extension option which
extended the termination date to December 2025. In addition, the Company has access to further short-term borrowing
facilities provided by YEG and to a £19 million overdraft facility provided by Lloyds Bank plc, which is reviewed annually,
these borrowings are repayable on demand.
At 31 December 2022, the Group had available £85.5m (2021: £119.0m) of undrawn committed borrowing facilities in respect
of which all conditions precedent had been met.
Page 106
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
Maturity analysis for financial liabilities and financial assets
The following table sets out the remaining contractual maturities of the group’s financial liabilities and financial assets by type.
Group
2022
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
60,127 - - - 60,127
Variable Interest Rate
Liabilities
35,058 - - - 35,058
Fixed Interest Rate Liabilities - 31,889 247,557 1,583,500 1,862,946
Total
95,185 31,889 247,557 1,583,500 1,958,131
2021
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
44,314 - - - 44,314
Variable Interest Rate
Liabilities
35,668 - - - 35,668
Fixed Interest Rate Liabilities - 26,414 105,657 1,254,540 1,386,611
Total
79,982 26,414 105,657 1,254,540 1,466,593
Company
2022
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
60,127 - - - 60,127
Variable interest rate liabilities
35,058 - - - 35,058
Fixed interest rate liabilities - 31,964 247,857 1,595,400 1,875,221
Total
95,185 31,964 247,857 1,595,400 1,970,406
Page 107
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
29 Financial risk review (continued)
2021
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
44,314 - - - 44,314
Variable interest rate liabilities
37,253 - - - 37,253
Fixed interest rate liabilities - 26,489 105,957 1,266,515 1,398,961
Total
81,567 26,489 105,957 1,266,515 1,480,528
Market risk
The Group's definition of market risk is Market risk is the risk of loss arising from movements in market variables such as
interest rates, exchange rates and commodity prices. Risks are mitigated by utilising appropriate risk management products.
The group manage this by The Group's policy on interest rate risk is designed to limit the Group's exposure to floating interest
rates. Consistent with this policy, at 31 December 2022 the Group had 99% (2021: 99%) of net debt at fixed rates. Short-term
loans and inter-company short term loans is charged at a floating rate of interest based on Sonia plus a margin of 0.20% plus a
credit adjustment spread, thus exposing the Group to cash flow interest rate risk. A 1% movement in interest rates would
subject the Group to an approximate change in interest costs of £0.1m per year. This is considered an acceptable level of risk.
All other loans are at fixed interest rates and expose the Group to fair value interest rate risk. .
30 Related party transactions
Summary of transactions with joint ventures
Vehicle Lease and Service Limited is a joint venture of Northern Electric plc and provides vehicle fleet and servicing for the
Northern Powergrid Group. Income constitutes recharges for use of management personnel and purchases are lease and
servicing payments for fleet vehicles.
Summary of transactions with other related parties
Other subsidiaries of the Northern Powergrid Group. Included within these amounts are:
- Integrated Utility Services and Integrated Utility Services (Eire) that provide engineering contracting resource;
- Northern Powergrid (Yorkshire) plc that provides and receives mutual support through use of staff and resources which are
then recharged;
- Northern Powergrid Metering that is recharged for the use of staff;
- Northern Electric Finance plc that provides loan financing; and
- Yorkshire Electricity Group plc that operates the group intercompany treasury account.
Page 108
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
30 Related party transactions (continued)
Income and receivables from related parties - Group and Company
2022
Sales to related
parties
£ 000
Purchases from
£ 000
Northern Powergrid (Yorkshire) Plc
25,984 9,635
Northern Powergrid Metering Limited
29 -
Integrated Utility Services Limtied (registered in Eire)
4 1,832
Integrated Utility Services Limited
269 7,225
Northern Electric Plc
6 4,793
Vehicle Lease and Service Limited
28 5,175
CE Gas Limited 54 -
26,374 28,660
2021
Sales to related
parties
£ 000
Purchases from
£ 000
Northern Powergrid (Yorkshire) Plc
24,358 10,548
Northern Powergrid Metering Limited
92 -
Integrated Utility Services Limtied (registered in Eire)
9 1,982
Integrated Utility Services Limited
277 7,616
Northern Electric Plc
7 4,552
Vehicle and Lease Services Limited
37 4,951
CE Gas Limited 4 -
24,784 29,649
Loans (to)/from related parties - Group
2022
Other related
parties
£ 000
At start of period
131,522
Net movement (405,951)
At end of period
(274,429)
2021
Other related
parties
£ 000
At start of period
115,596
Net movement 15,926
At end of period
131,522
Page 109
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2022 (continued)
30 Related party transactions (continued)
Loans (to)/from related parties - Company
2022
Subsidiary
£ 000
Other related
parties
£ 000
At start of period
300,084 133,107
Net movement 282 (405,939)
At end of period
300,366 (272,832)
2021
Subsidiary
£ 000
Other related
parties
£ 000
At start of period
299,938 117,143
Net movement 146 15,964
At end of period
300,084 133,107
The loans with the parent are part of a group cashpooling arrangement presented within cash and cash equivalents (Note 17).
31 Parent and ultimate parent undertaking
The Company's immediate parent is Northern Electric plc.
The ultimate parent is Berkshire Hathaway, Inc. These financial statements are available upon request from 3555 Farnam
Street, Omaha, Nebraska 68131
Relationship between entity and parents
The parent of the largest group in which these financial statements are consolidated is Berkshire Hathaway, Inc, incorporated
in United States.
The address of Berkshire Hathaway, Inc is:
3555 Farnam Street, Omaha, Nebraska 68131
The parent of the smallest group in which these financial statements are consolidated is Northern Electric plc, incorporated in
United Kingdom.
The address of Northern Electric plc is:
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF
Page 110