Company Registration No. 02366949
Annual Report and Consolidated Financial Statements
for the year ended 31 March 2022
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
Introduction
and cables which carry electricity from both the national grid and locally connected generation to
homes and business across the North West. Our job is to keep electricity flowing safely and reliably to
our customers’ homes and businesses, keeping the power on 24 hours a day, seven days a week. As
the country moves towards net zero carbon, this dependence on our network, and the volume of
electricity that it will have to carry, will increase. We are proud of who we are, the essential role we
play for our customers, our support of the move to net zero carbon, and the investment we make
locally.
North West – We are champions for the North West and proud that it is our network that connects
communities and will support the success of the region economically.
Service – We invest in our people and train them to be experts who ensure we provide exceptional
service.
Innovation – We believe in continuous improvement and lead in energy innovation in our sector.
Move to a low-carbon economy – We are key facilitators in the UK’s drive to become carbon neutral
by 2050, working with key local stakeholders to support more ambitious regional targets.
We recognise the role that electricity, and the electricity distribution networks such as ourselves, play
in leading and facilitating the switch of the UK to a low carbon economy in an efficient and cost
effective manner.
We are pleased to present the Annual Report and Consolidated Financial Statements of the Company
and its subsidiaries (together referred to as “the Group”) to shareholders for the year ended 31 March
2022. Further information on the Company can be found by visiting our website: www.enwl.co.uk.
The Company is limited by shares and incorporated in England, the United Kingdom under the
Companies Act 2006.
Notice regarding limitations on directors’ liability under English Law
The information supplied in the Strategic Report and Directors’ Report has been drawn up and presented in accordance with English Law.
The liabilities of the Directors in connection with these reports shall be subject to the limitations and restrictions provided by such law.
Strategic Report
In preparing the Strategic Report, the Directors have complied with s414 of the Companies Act 2006. The Strategic Report has been prepared
for the Electricity North West Group as a whole comprising Electricity North West Limited (‘’the Company’’) and its non-trading subsidiaries
(together, ‘‘the Group’’).
Cautionary statement regarding forward-looking statements
The Chairman’s Statement, Chief Executive Officer’s Statement and Strategic Report sections of the Annual Report and Consolidated
Financial Statements (‘‘the Annual Report’’) have been prepared solely to provide additional information to the shareholders to assess the
Group strategies and the potential for those to succeed. These sections and other sections of the Annual Report contain certain forward
looking statements that are subject to factors associated with, amongst other matters, the economic and business circumstances occurring
within the region and country in which the Group operates. It is believed that the expectations reflected in these statements are reasonable
but they may be affected by a wide range of variables which could cause actual results to differ materially from those anticipated at the date
of the Annual Report. The Group does not undertake any obligation to update or revise these forward-looking statements, except as may
be required by law or regulation.
Regulatory reporting and regulatory audits for the year ended 31 March 2022
Certain regulatory performance data contained in this Annual Report remain subject to regulatory audit by the Office of Gas and Electricity
Markets (‘’Ofgem’’). The final regulatory reporting pack for the year ended 31 March 2022 are not due for submission to Ofgem until July
2022, and will be reviewed by Ofgem after their submission.
Website and investor relations
The Company’s website, www.enwl.co.uk, gives additional information on the Company and Group. Notwithstanding the references we
make in this Annual Report to the website, none of the information made available on the website constitutes part of this Annual Report or
shall be deemed to be incorporated by reference herein. Interested institutional debt investors can also gain access to additional financial
information by visiting our website www.enwl.co.uk/about-us/investor-relations.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
Contents
Chairman’s Statement ............................................................................................................................. 1
Chief Executive Officer’s Statement ........................................................................................................ 4
Strategic Report....................................................................................................................................... 8
- Company Background ....................................................................................................................... 8
- Corporate Social Responsibility ...................................................................................................... 19
- Key Performance Indicators ............................................................................................................ 27
- Non-financial Information Statement ............................................................................................. 31
- Financial Performance .................................................................................................................... 31
- Risk Management ........................................................................................................................... 39
Corporate Governance Report .............................................................................................................. 46
- The Board ....................................................................................................................................... 46
- Board Committees .......................................................................................................................... 53
- Report of the Audit Committee ...................................................................................................... 54
- Report of the Audit Committee ...................................................................................................... 55
- Report of the Nominations Committee .......................................................................................... 57
- Report of the Remuneration Committee ........................................................................................ 57
- Report of the Health, Safety and Environment Committee ............................................................ 60
Directors’ Report ................................................................................................................................... 61
Directors’ Responsibilities Statement .................................................................................................... 64
Independent Auditor’s Report to the Members of Electricity North West Limited............................... 65
Financial Statements ............................................................................................................................. 75
- Consolidated and Company Statement of Profit or Loss and Other Comprehensive Income ........ 75
- Consolidated Statement of Financial Position ................................................................................ 76
- Company Statement of Financial Position ...................................................................................... 77
- Consolidated Statement of Changes in Equity ................................................................................ 78
- Company Statement of Changes in Equity ...................................................................................... 79
- Consolidated and Company Statement of Cash Flows ................................................................... 80
Notes to the Financial Statements ........................................................................................................ 81
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
1
Chairman’s Statement
I am pleased to introduce the annual report
and financial statements for Electricity North
West Limited (ENWL) for the year ended 31
March 2022.
Taking pride in our role and the communities
we serve
As we move into a time where we learn to live
with Covid, we have seen our people respond
to emerging challenges with great pride in the
service we provide to our communities.
In November we saw the devastating damage
caused by Storm Arwen. We know that the
impact for our customers for extended periods
without electricity was enormously
challenging. During that period, I saw our
colleagues rallying together to deliver a whole-
company response, working tirelessly to
restore supplies, to respond to calls to our
contact centre, colleagues volunteering to
door knock in affected areas and providing
additional support to those customers in
vulnerable circumstances. I saw all our
colleagues pull together to support our
communities and then to put in place learnings
from this event when the network was further
challenged by storms Dudley, Eunice and
Franklin in February.
As we face political and economic uncertainty
during the period of Covid recovery, the energy
market being squeezed by rocketing gas prices
and the invasion in Ukraine, we are ever
mindful of the impact of our operations on
customer bills. We have ensured customers'
bills are lower than they otherwise would have
been by scaling-up innovation projects such as
Customer Load Active System Services (CLASS),
helping to manage peak consumption periods
without the need for traditional generation.
Our Board and Executive Leadership team have
made it a priority to champion our consumer
vulnerability strategy, supporting those
customers in vulnerable circumstances,
through their ongoing involvement in
engagement activities. During 2021, we
appointed our non-executive board member
Anne Baldock as a Vulnerability Champion to
work alongside our senior managers in the
business. Work by the panel has revealed deep
concerns regarding the surge in world energy
prices, and consequent effects on energy bills.
As a result, we have created a forward-looking
electricity users in vulnerable circumstances
strategy, including stretch levels of ambition
on fuel poverty support. To deliver the long-
term outcome our stakeholders value, we have
already started ramping up activity. Examples
include expanding our partnerships to ensure
scalability, sharing our ‘fuel poverty mindsets’
research with 252 organisations and upskilling
the workforce to recognise vulnerability to
make every contact count.
Meeting the net zero challenge
The fundamental challenge that the country
faces is delivering Net Zero at a price people
can afford. That means the whole energy
system, transport system and other interlinked
systems and processes as well as domestic and
business policy needs to be joined up, with
each playing its part as a cohesive whole. These
systems do not operate in isolation. There is
very evident support in the North West for Net
Zero, with Cumbria, Lancashire and Greater
Manchester all committing to Net Zero before
the UK’s 2050 target and supporting our own
plan to reach Net Zero by 2038.
To this end, in December we submitted our
ambitions business plan to Ofgem covering the
period 2023 to 2028. The plan was built from
extensive and robust stakeholder engagement
that, as a board, we saw first-hand. Our plans
have to be ambitious to meet the challenges
ahead, as well as meeting the needs of the
thousands of customers and stakeholders
whom we engaged with to develop our plans.
As a Board, we fully understand the pressures
that government and regulators face when
such huge commitments are required across so
many sectors in a coordinated way. It is
impossible to ignore the macro factors at play
as we move forwards from the COVID-19
pandemic and also see the impact from the
unprecedented rises in gas prices in the
context of a cost of living crisis.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
2
Chairman’s Statement (continued)
The desire to protect customers from excessive
bills is a fundamental requirement. As is
making sure that the right amount of
investment is taking place at the right time in
the right areas to mitigate future risks.
Efficiency and innovation are key, as well as
continued engagement. Electricity North West
was the most efficient distribution network
operator in ED1, is agile thanks to its size and
structure and has a strong record of
innovation.
It is this innovation and a laser focus on
efficiency that allowed us to propose an
ambitious plan where customers will pay less
than they currently do for the network in ED2,
while still aligned to the incredibly ambitious
plans that the region and country wants and
need on the path to Net Zero.
Good governance matters - more so in
difficult times
I am pleased to report that despite all the many
external challenges ENWL has had to cope with
in the last year the Board has continued to fulfil
its role of ensuring post event reviews and
both provide and receive constructive
criticism. The Board itself underwent a
performance review by Lintstock and partners,
and the INEDs were active participants with
Professor Cave's (the Chair of Ofgem) review of
Network companies governance. I am pleased
to report that we lead on most of the aspects
of Board governance that Ofgem deems
important but remain open to suggestions to
improve further.
The Board continues to fulfil its roles of
assessing future risks, but also to assess risks in
retrospect. I would like to thank Susan Cooklin,
one of our independent Non-Executive
Directors (INEDs), in particular for her role in
both assisting ENWL on cyber and IT risks, and
also for her refreshed approach to HSE
committee. The latter including trips by INEDs
to different locations in the region to see
health and safety at first hand - and this also
responded to a suggestion in the Lintstock
review. The Board also takes its responsibilities
seriously with regard to ' lessons learned', and
in the last year we have reviewed the
implementation of the Network Management
system (NMS), the performance of the
Company during Storm Arwen, and most
importantly the fatality in our business.
We will continue to fulfil this 'constructive
policing' role of the business and note that
future challenges may well come with regard
to independence of Distribution System
Operations (DSO) activities and structures.
Chief Executive Officer Appointment
The Board are pleased to have announced the
appointment of Ian Smyth as Chief Executive
Officer. Ian will succeed Peter Emery, who will
step down from his role later this year.
Ian brings over 25 years of experience working
within major UK and international utilities and
brings an established track record of delivering
value and customer service for all
stakeholders. The board believes that Ian is a
great fit for Electricity North West and is well
qualified to lead the business into ED2, its next
business plan phase, leading and facilitating
the switch of the North West to a low carbon
economy in an efficient and cost-effective
manner.
I would like to thank Peter again for his
outstanding contribution to Electricity North
West over the past six years. During his tenure,
Peter led Electricity North West to become a
leading DNO with significant improvements in
safety, reliability, customer satisfaction and
efficiency. The unique approach to innovation
is evidenced in the successful CLASS and Smart
Street technologies, and reflected in its ED2
business plan submission, which builds upon
the company’s commitment to stakeholder
engagement.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
3
Chairman’s Statement (continued)
Final thanks
I would like to offer my thanks to my non-
Executive Board members, the executive
leadership team and all colleagues who have
risen to the challenges that this year has given,
be that in responding to the extreme weather
events, supporting our vulnerable customers
or in working with our stakeholders to develop
our ambitious plans for ED2.
The workload associated with ED2 over 2021
and 2022 has been considerable and highly
time intensive and I would, in particular, like to
thank Rob Holden, our Chair of Audit
Committee, who has worked very closely with
the ED2 team in delivering the many layers of
assurance approvals required by Ofgem.
Finally, a comment on our major investors who
have supported the work of ENWL through this
difficult year. Our Japanese investors (led by
the second largest utility in Japan, called Kansai
Electric) have in particular brought insights into
our reliability assessments. We are very
excited by how much further this can develop
- Covid travel restrictions have only just been
lifted enough for us to physically meet with
them for the first time in two years! Our lead
financial investors, Equitix Fund Managers,
have also provided excellent macro economic
and markets advice as well as assisted on the
financial aspects of ED2. They have also
provided fresh ideas and direction for our
unregulated activities.
Alistair Buchanan CBE
Chairman
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
4
Chief Executive Officer’s Statement
I am pleased to present the Annual Report and
Consolidated Financial Statements for the year
ended 31 March 2022.
It has been a challenging year with impacts on
our operations from continued COVID-19
restrictions, significant numbers of energy
suppliers failing in response to rising energy
prices, rising inflation and supply chain
disruption. Weather presented a significant
challenge to the business this financial year,
with an unprecedented seven named storms.
The extreme winds during Storm Arwen
caused significant damage to the overhead
network and disruption to our customers.
Storm Arwen demonstrated how we can pull
together as a business to support our
customers when faced with some of the worst
damage to our network we have ever seen.
There were almost 900 individual faults which
impacted 90,000 customers across our region.
Our investment in network automation in
recent years allowed us to restore power to
over 18,000 of the 90,000 customers affected
within 3 minutes. The full restoration response
involved over 600 engineers including both our
staff and colleagues from other distribution
networks working together to carry out repairs
and volunteers from around the business
helped to contact our customers on the phone
or in person.
The extent of the damage and difficult
conditions meant a significant number of our
customers were without supply for a
prolonged period. Indeed, for the first 42 hours
after the storm hit the region, the continuing
wind meant that it was unsafe to climb. In
these circumstances, there was a real focus on
supporting our most vulnerable customers.
This support included serving over 14,000 hot
meals and making 17,000 welfare calls. The
financial impact of Storm Arwen (c£10m) is
reflected in our current year performance.
Despite the multiple challenges we have faced
we have been able to sustain high levels of
performance for network reliability, customer
satisfaction and financial performance.
In the context of the current cost of living
concerns we have also continued to focus on
cost efficiency and keeping our bills below the
GB average (ENWL at £79 compared to the
average of £95 for 2021/22).
During the year we submitted our ambitious
stakeholder led plans for the next regulatory
period, ED2. The plan was the result of the
most extensive customer engagement we have
ever carried out and it sets out a clear vision
around Net Zero with three headline
commitments in the areas of Net Zero,
Network Reliability and Customer Service. The
plan also results in the lowest proposed ED2
bill of all the network groups but it is also
important that our plan and the industry
remains sufficiently attractive to investors so
that we can deliver the investment required in
the face of the Net Zero imperative. We are
working closely with Ofgem to achieve this
balance of an affordable but financeable plan
as we currently await the draft determination.
Our vision to lead the North West to Zero
Our vision is to ‘Lead the North West to Net
Zero’. We do not say that lightly. The climate
emergency is the greatest challenge of our age
and networks are uniquely positioned to
enable the transition as the country moves
away from fossil fuels to low carbon electricity
to power our homes, businesses, transport and
heating.
Our ‘Go Net Zero’ portal on our website helps
others to embrace energy efficiency and help
them understand how to adopt low carbon
technologies.
This year we have made a number of important
steps to support delivery of this vision,
including bringing forward more than £20m of
investment for projects which will drive a
green recovery from Covid-19, all geared to
helping the region hit its net zero carbon
targets.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
5
Chief Executive Officer’s Statement
(continued)
In September, we saw our new network
management system (NMS) go live. This
significant investment in the next generation
NMS and further ongoing investment in Active
Network Management (ANM) will enable
granular real time control of the network at all
voltage levels. It will position the business for
the next stage of the transition to the low
carbon economy and facilitate the provision of
Distribution System Operator (DSO) activities,
a key enabler to a low carbon future. ANM will
enhance the flexible solutions we offer to
support customers in the low carbon
transition.
In December, we established a new DSO
Directorate, giving us plenty of time to
establish it fully in time to deliver our
commitments for the next price review, RIIO-
ED2.
This year we have seen a dramatic increase in
connections and service alterations for Low
Carbon Technologies (LCTs); we have
responded by re-organising and recruiting to
be able to handle the increased activity and the
projected growth to ensure that we do not
slow down the transition to LCTs.
At ENWL, innovation is a core strength. We
have developed two leading technologies,
CLASS and Smart Street, which go a long way
to solving the difficulty of providing more
capacity at both a reduced cost and a reduced
carbon impact, compared to traditional
methods. This year we won funding for a new
Network Innovation project, BiTraDER which
will start this year, with the aim of reducing
barriers to the connection of low carbon
generation and bring down whole system costs
by adding value to the flexibility market.
We are not only mindful of our leading role in
enabling the low carbon agenda, but also in
reducing our own carbon emissions.
We have seen a further reduction in our own
emissions reflecting energy efficiency
investment but also with the benefit of
reduced travel during the Covid restrictions.
We are working hard to permanently embed
many of these savings where this is possible.
This year we have introduced a scheme to
make it easier for our colleagues to make the
change to an electric vehicle (EV). This includes
free charging facilities at our depots/offices
and incentives for switching to an electric or
hybrid vehicle. Our significant reduction in oil
leakage that we achieved over the last few
years has also been maintained.
Maintaining one of the world’s most reliable
networks
Our customers and stakeholders make it very
clear that our fundamental role is to keep
power flowing to customers and network
users. Moving to Net Zero will only increase
our dependency on electricity in all aspects of
our lives. This year we continued to improve
network reliability, achieving our lowest ever
level of customer interruptions, with Customer
interruptions, representing the number of
interruptions our customers’ experience,
reducing from 30.8 to 25.8. Customer Minutes
Lost, representing the length of time they are
without power in the event of an interruption,
were their second lowest ever at 27.4.
Our network has to withstand the external
environment to ensure it continues to operate
reliably even under extreme circumstances,
such as severe winter storms. This year, the
seven named storms have tested the resilience
of our network.
We have worked hard to minimise the risk of
the impact of such events and also to prepare
ourselves to react quickly and effectively when
severe events do happen, particularly in
providing support to those more vulnerable
customers. We continue to learn from these
events and update our preparations and
response. Since storm Arwen, we have started
some additional innovation to install new
technology (auto reclosers) on our low voltage
circuits which feed smaller and remote
locations; this should reduce the disruption for
some customers who suffer from loss of supply
with no permanent storm damage to the
network.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
6
Chief Executive Officer’s Statement
(continued)
We are also investing more in tree cutting to
improve network resilience and proactively
investing to prevent customers ever becoming
“worst served”.
The coming financial year to 31 March 2023
will represent the final year of the current price
review, RIIO-ED1. We have carefully planned
our final year of ED1 to ensure we fulfil the
price control contract and closeout all the
deliverables we have committed to for our
customers. Next year, significant investment is
planned in reinforcement activity to help
support the growth in low carbon technology
and to ensure that network constraints are not
a barrier. We also continue our focus on public
safety with investment programmes for rising
lateral mains and blast mitigation bags for link
boxes.
Customer- Delivering high levels of customer
service and providing additional support to
electricity users in vulnerable circumstances
We were proud that our Company is the only
network operator group in the country to have
achieved green ratings from Ofgem in all
categories for each of the last five consecutive
years. We continue to strive to improve our
performance in all areas and provide the best
possible service to our customers in the North
West.
Affordability and cost efficiency remains a key
focus area, particularly against the backdrop of
significant rises in energy bills, high inflation
and the impact of failing energy suppliers. We
continue to work hard to deliver our
obligations efficiently, including a particular
focus on the use of innovation, to keep
customer bills as low as possible. We are proud
that our element of customer bills remains
below the average GB domestic bill.
In addition, we have increased support to
consumers with higher vulnerability,
supported by rolling out company-wide
training and the introduction of an app to allow
colleagues to refer customers for additional
welfare support.
We hear clearly from our customers that they
want us to do even more to help alleviate fuel
poverty and to make sure that customers who
are already economically and socially
disadvantaged are not left even further behind
as we move to a zero carbon economy. We are
continuing to find ways to enhance the support
we provide to customers in vulnerable
circumstances, including commencing a two-
year pilot project with Citizens Advice
Manchester which has helped improve and
target the support we provide and develop our
strategy in this area.
We have been able to provide more proactive
support to our Priority Service Register (PSR)
customers during the year, particularly during
the winter storms. Due to the growing
importance of this area we have also added an
additional ED1 Business Plan Commitment
which was endorsed by our Vulnerability panel
to ensure we deliver the outcomes of this
partnership with Citizens Advice Manchester.
We have continued to focus on maintaining
high levels of customer satisfaction, with
overall customer satisfaction for the year at
88.7% (2021: 90.8%). Customer satisfaction
was impacted this year during the storms, with
unusually high call volumes. We are focused on
plans to recover customer satisfaction to
above 90%.
Our culture and responsibility framework
Our purpose ‘Together we have the energy to
transform our communities’ is underpinned
through having high levels of employee
engagement. Our two colleague surveys
delivered engagement scores of 75.4% and
74.7%. Both are in line with sector peers and
with the high benchmark, set at 75%. We aim
to be recognised as an employer of choice and
to continue our development this year we have
undergone an assessment by Investor in
People.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
7
Chief Executive Officer’s Statement
(continued)
We deploy a clear management philosophy
which is embedded in our business. This is built
on fundamentals such as strong accountability
and ownership, leaders being change agents
focused on improvements. We continue to
work to embed our safety culture which is
demonstrated in our sustained low levels of
lost time incidents.
This year we have been investing in carbon
literacy training for our colleagues and have
applied for the silver accreditation for the
Carbon Literate Organisation (CLO). We were
proud to win the Greater Manchester Good
Employment Award in recognition of the work
we have done to support our colleague’s
mental well-being.
Improving our levels of diversity has been a
focus area for us this year and led to the launch
of a new diversity strategy ‘Include me’. This
focus has seen increases in females in STEM
roles from 7.4% to 8.8% and ethnic minority
representation from 4.1% to 4.5% in FY22.
Female leadership has remained at a similar
level of 31.7% whilst female representation at
the Executive Leadership level increased from
25% to 33.3%.
We have a strong track record of attracting
apprentices and over the 8 year ED1 period we
will have recruited and developed over 140
apprentices, ensuring a pipeline of talent. We
champion diversity through our programs and
have increased diversity of the apprenticeship
program by having 21% female and 26%
ethnicity, winning the Recruitment practice of
the year award at the Regions Apprenticeship
Awards. We have achieved this through
working across our communities, engaging
with schools, colleagues and local mosques.
Sadly, this year we experienced the tragic
death in service of Martin Parker, who died
through no fault of his own after being hit by a
car driven by a member of the public whilst
doing his job as a jointer. It is a reminder to us
all of the risks our colleagues take whilst
serving the public. I am proud to work with
them. Our thoughts are with Martin’s family
and friends.
Finally, I would like to thank all our employees
who have continued to work to secure our
critical infrastructure during the challenges we
have faced this year. They have each played
their part in making this a successful year for
our business.
Peter Emery
Chief Executive Officer
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
8
Strategic Report
Electricity North West Limited is a private
company limited by shares and incorporated in
England, the United Kingdom, under the
Companies Act 2066. It is ultimately owned by
investors composed of funds advised by
Equitix, a consortium led by KDM Power
Limited and Swingford Holdings Corporation
Limited, as shown in Note 29. The immediate
parent company is North West Electricity
Networks plc (“NWEN plc”), which is a
company limited by shares and incorporated in
England, the United Kingdom, under the
Companies Act 2006.
Company Background
Electricity North West Limited is the electricity
distribution network operator for the North
West of England.
The Company serves approximately 5 million
customers at 2.4 million domestic and
industrial locations, has circa 1,900 employees
and provides a safe and reliable electricity
supply, 24 hours a day, seven days a week.
We own, invest in, operate and maintain the
network of poles, wires, transformers and
cables which carry electricity from both the
national grid and locally connected generation
to homes and business across the North West,
together with the increasingly important
telecommunications network that controls the
network remotely.
The role we play in serving our communities
continues to evolve as we seek to transition to
a low carbon economy and electricity
generation becomes more distributed across
our network.
Network operators are critical to the evolution
of the electricity market and will need to play a
more sophisticated role in managing our
network in an environment of multi-directional
electricity flow, as well as allowing for the
integration of new technologies such as
electric vehicles, heat pumps and distributed
generation and storage.
How we charge customers
We charge our customers through their
electricity suppliers, in the case of domestic
and small customers, or directly for larger
customers.
The prices that we charge our customers for
distributing electricity are regulated by the Gas
and Electricity Markets Authority (GEMA)
which operates through the Office of Gas and
Electricity Markets (Ofgem), but we recognise
that ultimately it is our customers that fund the
business and its investments in the network.
ENWL’s costs were around 13% of the typical
domestic electricity bill charged by suppliers to
North West customers, equivalent to £79 per
home for the year ended 31 March 2022; this
compared to an average DNO customer bill
impact of £95 per home.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
9
Strategic Report (continued)
Regulatory framework
Charges are regulated by Ofgem through the
RIIO model, which stands for Revenue =
Incentives + Innovation + Outputs. This model
determines how much the Company is allowed
to charge its customers to fund network
investment and operating costs in the RIIO-ED1
regulatory period which runs from 2015 to
2023. The RIIO model is designed to drive real
benefits for customers through incentives for
good performance in key performance areas.
During the year we submitted our ambitious
stakeholder led plans to Ofgem for the next
regulatory period, RIIO-ED2 which will govern
the next price control period, from 2023 to
2028.
The RIIO price controls have been developed to
ensure that the revenues collected from
customers are linked to company
performance. The base income in each year is
largely fixed, being essentially a return to
investors for the capital invested in the
Company. However, income increases or
decreases depending on the Company’s
performance against the outputs set through a
number of incentive mechanisms.
These mechanisms incentivise good customer
service and network reliability, the latter based
upon minimising the number of interruptions
that customers suffer (CIs) and the average
length of those interruptions (CMLs).
Performance is assessed each year and any
positive or negative adjustments are fed
annually into a process which will modify
revenues for subsequent years.
The RIIO price control model also incentivises
cost reductions, delivering a well-maintained
and efficiently invested network for the long-
term, but at a lower cost, through innovation
as well as efficiency. These are shared
between customers and shareholders, again
after an annual review.
The Company also charges separately for new
connections to, and diversions of, the network.
This activity is also closely regulated by Ofgem.
The Company is committed to ensuring the
sustainability of the network for our customers
now and in the future. We routinely inspect
the network and these inspections inform our
maintenance and asset replacement
programmes taking electrical load and
customer numbers into account.
Investment and innovation continue to ensure
the development and availability of the
appropriate technology to meet the changing
demands of electricity supply and to meet the
challenge of a low carbon future, at a price our
customers can afford.
COVID-19
The COVID-19 pandemic has continued to
provide a challenging backdrop for the
Company, our colleagues and our customers.
As ENWL is deemed a critical service provider
by the UK Government, we have continued to
deliver essential services to all customers
throughout the pandemic, with additional
support provided to those identified as
vulnerable.
We have continued to be proactive in
monitoring the rapidly changing COVID-19
guidelines throughout the pandemic,
responding to local and national changes,
adapting our policies and procedures to ensure
the safety of our people, customers, partners
and the public. The Company has not received
any government assistance throughout the
pandemic maintaining full employment for
colleagues.
We continue to review our working practices
and policies as we move into a period of living
with COVID-19.
Supporting our colleagues
Our priorities in dealing with the exceptional
challenges posed by COVID-19 has continued
to be the safety of our colleagues with a
continued emphasis on positive mental
wellbeing, and the safety of our customers all
whilst maintaining the reliability of supply and
building resilience for the future.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
10
Strategic Report (continued)
COVID-19 (continued)
During periods of pandemic restrictions, all
colleagues, to the extent their roles permitted
were supported to work from home. As
restrictions have eased, we have continued to
adapt our ways of working to allow colleagues
the flexibility to balance home and office
working, with the introduction of an agile
working trial. To facilitate greater agile working
we have significantly increased our IT
investment over the last two years.
For our colleagues who work in the field, we
continued to implement appropriate safety
and hygiene procedures, which have been
adapted as government advice has evolved,
including social distancing measures and use of
additional personal protective equipment. For
those employees who have not been able to
work effectively from home, and to facilitate
the return of others, we have continued to
adapt measures to ensure that we keep our
colleagues safe in our offices and depots.
The commitment shown by our colleagues to
the business and our customers throughout
the pandemic has been exceptional. At the
same time, we do recognise the impact that
these unprecedented times can have on
wellbeing, especially mental wellbeing. We
continue to support colleagues through our
mental wellbeing support mechanisms,
including our Employee Assistance Programme
which is available to all employees.
Maintaining supplies
In line with our role as an essential service
provider, we have continued throughout the
pandemic with our essential maintenance of
the network, as well as responding to power
cuts when these occur.
Throughout the last two years we have worked
closely with Government and Ofgem as well as
the industry body, the Energy Networks
Association, to ensure a consistent industry-
approach.
Supporting our customers and communities
Notwithstanding the pandemic we have
continued to respond to issues across the
network 24 hours a day, 7 days a week, to keep
power flowing, including responding to power
cuts, wherever and whenever they happen.
During the pandemic the Company
commissioned independent research on the
impact of the COVID-19 pandemic on
customers with vulnerabilities to identify
emerging trends and challenges.
The report was shared with our partners, and
used to target actions by the Company, both
independently and in collaboration with
partners, to provide support and target Priority
Services registration.
Maintaining financial resilience
Like most businesses, the COVID-19 pandemic
had an initial direct effect on our cost base
such as additional investment in remote IT
access to allow colleagues to work from home.
While some expenditure has been ongoing
during the year ended 31 March 2022,
expenditure levels directly related to the
Covid-19 response have been more modest.
Our allowed revenues are set by Ofgem. While
revenues recorded in any financial year are, in
part, based on volume demand over the
network, to the extent that we do not collect
all our allowed revenues, the regulatory
framework adjusts collections in future years.
This, therefore, means that any short-term
impact on revenue collection timing does not
have a lasting economic impact on us.
Revenues returned to near pre pandemic
levels in the year ended 31 March 2022.
Our funding position continues to be strong,
through careful management of our liquidity
and working capital. As at 31 March 2022,
ENWL had £59.4m (2021: £322.4m) of
available cash and £50.0m (2021: £50.0m) of
available but undrawn bank facilities,
representing available liquidity of £109.4m
(2021: £372.4m). In July 2021, the £200m
inter-company loan was repaid with funding
raised in the prior year. There is also
headroom against all compliance ratios and
there are no re-financing obligations due in the
next 12 months that are not already covered
by the available liquidity noted above.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
11
Strategic Report (continued)
COVID-19 (continued)
Consideration has continued to be given to the
financial impacts of COVID-19, including the
disruption to supply chains, by the Directors in
making the going concern and viability
assessments and in determining any possible
impairment of the Company’s assets. The
Board continues to monitor the situation, with
flexible plans in place to support short-term
liquidity, were that to be necessary, and to
ensure the long-term stability of the Company.
Other External Factors
RIIO-ED2 Business Plan
During the year we submitted to Ofgem our
ambitious stakeholder led plans for the next
regulatory period, RIIO-ED2, covering the
period from 2023 to 2028. The plan was the
result of the most extensive customer
engagement we have ever carried out and it
sets out a clear vision around Net Zero with
three headline commitments in the areas of
Net Zero, Network Reliability and Customer
Service. The plan also results in the lowest
proposed ED2 bill of all the network groups but
it is also important that our plan is sufficiently
attractive to be able to attract the required
investment funds. It is particularly important
that the industry remains attractive to
investors so that the industry can deliver in the
face of the Net Zero imperative. We are
working closely with Ofgem to achieve this
balance of an affordable plan but one that
remains sufficiently attractive to investors and
we are currently awaiting our draft
determination.
We note that Wales and West Utilities (WWU)
has requested a Judicial Review into the
decision by the Competition and Markets
Authority (CMA) on its appeal against Ofgem's
Final Determination for the RIIO-ED2 period.
The Judicial Review, if granted by the High
Court, will consider the legal interpretation of
a number of statutory provisions made by the
CMA, including those directly related to the
financing of Energy networks, providing much
needed clarity on the financing duties set out
in statute. As detailed in our ED2 Business Plan
submission, we consider it to be vitally
important for the long-term interest of
customers that Ofgem ensures that equity
investors in all networks can make investment
decisions, confident that efficiently incurred
debt costs will be met, even in periods of rising
interest rates.
Energy prices and supplier administrations
The unprecedented rise in gas and electricity
prices over the last year has put energy
markets under severe strain. Consequently,
there were significant numbers of energy
suppliers who entered administration during
the year ended 31 March 2022.
When an energy supplier fails, the Supplier of
Last Resort (SoLR) process is triggered or,
where this is not possible, through the Special
Administration Regime (SAR). The two regimes
are overseen by Ofgem to protect customers
from significant harm.
When a SoLR takes on the customers of a failed
supplier, it has to finance the additional costs
of doing so (for example procuring the energy
it supplies to those customers, honouring any
credit balances the customers had with the
failed supplier or costs of onboarding those
customers). The SoLR process allows for the
new supplier to recover these costs through a
SoLR levy agreed between Ofgem and the new
supplier. This levy is collected through the
distribution network companies on a pass
through basis. This cost will effectively be
recovered through future energy bills.
As a result of the significant volume and value
of SoLR claims approved by Ofgem, our
allowed revenue for the financial year ending
31 March 2023 will be £79m higher that it
would otherwise have been, as this levy is
collected. However, immediately at the point
the levy becomes billable, the entire value of
the levy is paid over to suppliers, with
networks making no profit from our role in the
process, with this net position (nil) being
recognised in turnover.
In the year ended 31 March 2022, there were
bad debts recorded of £2.9m (2021: £0.8m) in
relation to failing suppliers. The costs of this
bad debt are recoverable through adjustments
to prices in future years.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
12
Strategic Report (continued)
Political and economic uncertainty
We also monitor the continuing environment
of political and economic uncertainty. Supply
chain management continues to be an area of
focus as we see the implications of the COVID-
19 recovery, Brexit and the events in Ukraine.
All of these have had a limited direct impact,
aside from a modest planned increase in stock
levels to manage supply chain risk, which has
proved helpful in managing the COVID-19
crisis.
Having considered the factors noted above
there are no material impacts on either the
going concern statement on pages 37-38, or
the period covered by the viability statement
page 38.
Purpose, principles and corporate goals
ENWL is operating in a dynamic, rapidly
changing environment. Customers in the
North West rely on the services we provide to
keep them connected with friends, family and
the wider world, keep their electric cars
running, ensure their homes are heated and
enable them to work smarter and more
flexibly. The Company aims to provide
customers with an excellent service at an
affordable price through a safe and reliable
electricity network. The Company balances
the priorities of maintaining a reliable network
in the near term, investing to ensure this is
sustainable in the long term, whilst keeping
costs as low as reasonably practicable to meet
the affordability challenge for our customers.
Our Purpose ‘Together we have the energy to
transform our communities’ articulates the
contribution we make and the ambition we
have for the communities we serve in our
region. This Purpose is embedded within our
business and helps to enable us to effectively
deliver our plan. Our Principles capture the
mindsets, hearts and skills required for us to
deliver the Purpose and they have played a
vital role in the delivery of our improved
business performance.
These principles are now a well-established
touchstone for behaviours within the Company
and will continue to be key as we seek to
consolidate and continuously improve the
progress we have made.
We report on our performance against
corporate goals that span these multiple
priorities.
Safety and Environment
Customer
Affordability
Reliability
People
Safety and Environment
The Company operates in a high hazard
industry and the safety of its people and
customers and protection of the environment
will always remain priority.
Operational safety
The Company ensures that all people are well
trained and able to operate safely, backed by
policy driven procedures and compliance
assurance, alongside a behavioural approach
that seeks to ensure that all staff and
contractors approach any task with a strong
behavioural attitude to safety.
In the year ended 31 March 2022 we have
continued to review and improve our safety
management system which is certified to the
international standard ISO 45001.
We finished the year ended 31 March 2022
with a lost time injury frequency rate 0.058
(2021: 0.012) having had five lost time injuries
in the year.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
13
Strategic Report (continued)
Safety and Environment (continued)
While an increase on prior year, this relatively
low incident rate reflects the sustained
improvement since we embarked on a
company-wide initiative to create an enhanced
safety culture. The total recordable injury rate
was 0.175 (2021: 0.178).
We are never complacent about safety and in
the year to 31 March 2023 we will embed an
updated plan to further improve our safety
record, including working closely with our
contract partners.
As our safety journey continues, we are
increasingly focused on the quality of, and
learning from, safety observations and positive
challenges, rather than focusing on the volume
of these. Safety observations in the year were
recorded at 9,438 (2021: 9,286), plus 2,447
positive challenges (2021: 1,878).
Asset safety
The safety of the Company’s employees,
contractors and the public from the inherent
risks of electrical assets is assured through the
Company’s ongoing asset investment
programme and the associated asset risk
management policies which define the
programme scope. Safety related investments
are reported quarterly to the Board.
During the year ended 31 March 2022 the
Company made further progress in our ED1
programmes of work designed to reduce
further the risks associated with link box failure
and rising and lateral mains (RLM) in multi
occupancy properties.
Our link box inspection programme assesses
the risk of the asset and then where necessary
an intervention such as blast mitigation
protection, replacement or removal of the
asset is undertaken.
We continue to use innovation to target the
potential risks associated with electricity
supplies in multi occupancy properties,
(referred to as RLMs). We have installed
innovative monitoring equipment which helps
identify abnormalities and inform replacement
prioritisation.
Environmental performance
The Company is dedicated to achieving the
highest standards of environmental
performance, not only by minimising the risks
created by our activities, but also through
targeted investment in outputs that deliver a
positive environmental impact. To achieve our
environmental objectives, we monitor
environmental related investments to ensure
we are on track.
In terms of our own direct operational impact
on the environment, our principal
performance indicator is the level of carbon
dioxide emissions equivalent (tCO2e).
This measure covers the environmental impact
both from the use of fossil fuels in vehicles and
generators and of energy in buildings, as well
as the impact of Sulphur Hexafluoride (SF6),
which is a strong greenhouse gas historically
used as insulation in electrical equipment.
At the start of the current regulatory period we
made a commitment to our customers to
reduce carbon emissions, in tCO2e, by 10%
from a 2014/15 base year, by 2020. Through
targeted investment in the efficiency of our
buildings and other efficiency measures, the
level of emissions reduction has exceeded this
level, having been reduced by 45% from
2014/15 levels to 13,398 tCO2e in the year
ended 31 March 2022. Emissions in the year
reflect the benefits of energy efficiency
measures but also some benefit from reduced
business travel during the pandemic. However,
we are working hard to embed some of the
savings as permanent benefits. In addition to
this reduction, our CLASS innovation has
reduced carbon-based generation in the
economy, by avoiding the need for traditional
generation, saving approximately 4,500 tCO2e.
As the move to a low-carbon economy
continues to gather pace, local authorities in
the North West region are setting more
challenging targets than the UK as a whole.
This regional acceleration presents both
challenges and opportunities for the business
and has become central to our strategic
thinking.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
14
Strategic Report (continued)
Safety and Environment (continued)
Our “Leading the North West to zero carbon
plan” sets out some of the actions that we are
taking to decarbonise our operations but also
provides exemplars, research evidence and
business case information to inform the
investment decisions that stakeholders need
to take to decarbonise. We have been working
closely with key stakeholders across the region
and have produced decarbonisation pathways
for Greater Manchester, Cumbria and
Lancashire.
Our recently published electric vehicle strategy
sets out our plans to lead and support
stakeholders on the journey to decarbonise
the region’s transport. Our role is to facilitate
this journey by preparing the electricity
network for the rapid uptake of electric
vehicles (EVs) and the associated charging
infrastructure needed to support this.
Recognising our role in leading
decarbonisation, we have made two of our
depots and two substations carbon neutral
using a range of low carbon technologies.
These modifications have the dual benefit of
reducing our own carbon emissions and to use
as exemplars to other businesses across the
region, sharing our learnings. Our goal for ED2
is to decarbonise one of our twelve depots a
year.
We have rolled out electric vehicle (EV)
charging points at all of our depots and we are
incentivising colleagues to change to electric
vehicles. We have also engaged with local
authorities and businesses across the region to
support them with this transition, promoting
the mass adoption of EV technology.
Because the transition to carbon neutrality is
as much about behavioural change as it is
about technologies, we became the first
bronze accredited carbon literate Distribution
Network Operator and are now eligible for the
silver accreditation. This involves providing
carbon literacy training to all of our leadership
team to ensure our people understand how
they can reduce their own carbon emissions
both at work and at home. We have a goal to
achieve Gold during ED2.
Our website ‘GoNetZero’ which brings
together research with businesses across the
region looking at what different business types
can do to decarbonise, barriers they face when
adopting low carbon technologies such as EV
charging and PV Solar panels. The information
is available on our website and will be
reviewed regularly ensuring the accuracy and
relevance of the information that we provide.
Reliability
Our customers consistently say that “keeping
the lights on” remains one of their top
priorities. This becomes ever more important
as customer dependence upon electricity
continues to grow as we move to a low carbon
future.
Reliability of electricity supply is achieved by
strategic investment in the network both to
target a reduction of faults but also to quickly
restore and limit the number of customers
affected by those faults that do occur.
Performance is tracked using a variety of
metrics including: delivery of the capital
programme outputs, delivery against
guaranteed standards of performance and
network reliability measures, including
customer interruptions (CIs), customer
minutes lost (CMLs) and average supply
interruption duration (ASID).
In the year ended 31 March 2022, the average
number of interruptions per 100 customers
(CIs) at 25.8 (2021: 30.7) was our best year
(previously 2020) and significantly
outperformed the target of 46.0 set by Ofgem.
The average number of minutes for which
customers were without supply during the
year (CMLs) to 31 March 2022 was 27.4 (2021:
28.2), which is our second-best ever
performance and significantly outperformed
the target of 39.7 set by Ofgem.
These performance improvements have been
driven through a combination of investment in
automation and network resilience, as well as
improved processes and management of
operational response when faults do occur.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
15
Strategic Report (continued)
Reliability (continued)
The interruptions numbers quoted reflect the
exclusion of the two qualifying exceptional
event claims during the year that have been
submitted to Ofgem (relating to storms Arwen
and Franklin).
This year saw the challenges of transitioning to
our new network management system whilst
managing seven named storms, one of which
(Arwen) causing the biggest customer impact
in 10 years. These events have created a
challenging year for restoration performance.
The new network management system
provides a strong platform for enhanced
performance moving forward.
Network reliability continued to be high with a
network availability of 99.995% excluding the
impact of exceptional events.
This year we continued to invest in vegetation
management and installation of further
automation devices to support rapid
restoration of customer’ supply. This is a
continued part of our strategy and ensures
that interruption is kept to a minimum. It was
as a result of this investment that we were able
to restore power to over 18,000 of the 90,000
customers affected during Storm Arwen within
3 minutes.
We have further exercised and strengthened
our approach to preparing and managing the
network during significant events and utilising
benefits within the new network management
system. We continue to invest significant
funds in flood defences and interconnectivity
to provide protection to a 1 in 1000-year flood
risk at key sites.
Most customers enjoy excellent levels of
reliability, but we recognise that there is
variability in the level of service experienced by
some. A few customers experience a level of
service significantly worse than average,
usually by virtue of their location or due to
localised network issues. During the year we
have continued to invest in schemes to aim to
reduce long term the numbers of worst served
customers, with the number of customers
meeting this Ofgem definition decreasing in
the year to 711 in the year ended 31 March
2022 (2021: 774) of which 179 were directly
attributable to Storm Arwen.
Through continuing to proactively target areas
experiencing poorer performance, we expect
to be close to achieving our target of having no
customers meeting this definition of ‘worst
served’ by 2023, noting there can be some year
on year variability caused as much by the
probability of any given circuits having issues
as by weather events.
In order to achieve this ambition, we are
focusing on understanding customers’
experience of multiple interruptions which, in
turn, will allow us to identify proactively
customers/circuits for early intervention. We
are strengthening in this regard our capability
to monitor and actively respond to multiple
interruptions.
Investment in an affordable and sustainable
network
In the year ended 31 March 2022, a total
network investment programme of £81.4m
was delivered (2021: £74.6m). In addition to
the investment to improve the automation of
the network and increase capacity, we
continue to invest to maintain the relative
health of the network. The current network
has been installed over many decades and a
significant proportion of the programme
relates to replacing existing equipment at, or
approaching, the end of its life with modern
equivalents.
Innovation is essential to maintain network
performance and reliability levels and to meet
the increasing demands on electricity from the
decarbonisation of energy, at an affordable
cost. Innovation is a core competence of ENWL
and we deploy the latest innovative solutions
to develop an optimised investment
programme and to deliver considerable cost
benefits and efficiencies that are then shared
with customers. Our innovative projects
Customer Load Active Services (CLASS) and
Smart Street are examples of our work to
support decarbonisation whilst ensuring
customer bills are still affordable.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
16
Strategic Report (continued)
Customer
Supporting customers in vulnerable
circumstances is core to our customer strategy.
We have continued to increase our spend to
support customers in vulnerable
circumstances and to develop our partnership
with Citizens Advice Manchester (CAM)
introduced in 2021. CAM act as our Strategic
Partner to support fuel poverty, energy
efficiency and other conditions which may
leave consumers vulnerable in the region as
the result of a power cut.
Our “Electricity Users in Vulnerable
Circumstances Strategy” is the framework we
use to ensure that the support we are giving
customers in our region is focused
appropriately. It helps us respond to the
complexities of the challenge of supporting
those most in need in our region.
Our strategy is informed by our Advisory Panel
and supported by external specialist support
agencies. A good example of our work in this
area is the creation of the first DNO Emergency
Credit Voucher scheme to support those
customers who were unable to top up their
prepayment meters during the COVID-19
pandemic which is now business as usual and
has been adopted by other DNO’s.
We maintain a Priority Service Register (PSR) to
identify those customers who are most
dependent on our services. In the year ended
31 March 2022, we have continued to promote
our PSR and have developed our strategy to
offer more targeted services to higher risk
customers, for example those who are
medically dependant on electricity.
Investment in staff training has also been a
focus in order to help facilitate this.
We have just over one million customers on
our PSR. This tells us that almost 20% of our
customer base consider that they need extra
support during a power cut. Support is
provided through our dedicated Customer
Welfare Team, over 20 external specialist
support agencies, multiple partners and all our
customer facing teams.
In delivering for our priority customers we
have managed to reach out to over 526,499
customers this year (2021: 544,517) and
contacted a further 1.4 million properties to
ensure they are aware of the Priority Service
Register. These communications were carried
out through multiple channels including
letters, email and telephony.
We recognise our role in helping to tackle fuel
poverty and the particular challenges this
brings in our region. During the year we have
engaged with a variety of partners in a bid to
offer extra support to the customers in our
region who are impacted by fuel poverty.
Through the introduction of referral
partnerships this year the volume of support
increased to the highest level to date of 11,000
homes benefiting from the service. We are
now helping to provide our customers with
advice on issues such as energy saving and
income maximisation, as well as offering debt
advice, replacement white goods, free energy
efficiency measures and referral to other
relevant services.
Delivering excellent customer service is
important to us. Customer satisfaction levels
have improved throughout the ED1 period.
However, this year there was a slight reduction
in performance driven by the impacts of the
seven named storms experienced across the
region. These events caused a significant
increase in customer contacts during the
storms and with queries related to guaranteed
standards compensation payments. We have
also seen significant increases in contacts
regarding interventions to support the
connection of low carbon technology. The
performance still delivered an overall score of
88.7% in 2022 (2021: 90.8%). The relative
ranking among the DNOs was 12th (2021:
12th) with all DNOs showing performance at
similar levels.
The Company is committed to improve further
customer satisfaction levels, with clear actions
in place that are monitored regularly by the
Executive Leadership team. The actions focus
around simplification, compliance with the
customer journey, improvement in systems
and resourcing strategies.
The number of complaints we receive has
increased in the year, with complaint volumes
up 35% compared to the prior year.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
17
Strategic Report (continued)
Customer (continued)
The increase is attributed to the high number
of severe weather incidents experienced this
year, notably Storm Arwen at the end of
November 2021.
We also track the time taken to resolve
complaints when we do receive them. The
overall complaints performance within the
year continued to outperform the Ofgem
penalty incentive and reflects a significant year
on year reduction, with a complaint metric of
3.45 (2021: 1.76), with 80.1% of complaints
resolved in 24 hours (2021: 85.7%). This
complaint metric reflects the percentage of
complaints resolved within 24 hours,
combined with the percentage of complaints
resolved within 31 days.
We continue to focus on Guaranteed
Standards of Performance for Connections.
While an increase in GSoP failures occurred
this year due to the significant volumes in work
mainly associated to Low Carbon connections
such as EV’s requiring network interventions.
Plans are in place to improve and enhance the
level of service that we want to give to our
customers and will be continuing to focus on
making more improvements to simplify the
process.
People
The Company is a major employer in the North
West of England and employs circa 2,000
people in the region. The Company also works
with carefully selected local contract partners
to support fluctuating work demands,
providing even wider levels of employment for
the region. We are committed to building
careers for our people providing secure, long-
term employment in an inclusive environment
where everyone feels a sense of belonging.
We strive to balance the right skills and people
resources to support the business now and in
the long term, supported by our workforce
resilience strategy, diversity and inclusion
strategy and overarching people strategy to
attract, develop and retain the best talent into
the sector.
Our purpose and principles are underpinned by
a continued commitment to our management
philosophy encompassing fundamentals of
leadership, ethical standards and securing
competitive advantage. Together, the Purpose
and Principles and ‘Management Philosophy’
support our corporate culture.
Climate is the measure the Company uses to
quantify ‘how it feels to work here’ and, in
turn, makes the link between this ‘feeling’ and
how the Company performs. Half yearly
colleague climate surveys are undertaken to
measure engagement and levels of agreement
with the Company’s identified climate
priorities. Leadership teams are responsible
for reflecting and identifying areas for
improvement between each survey to
continue to drive engagement and
performance.
Colleague engagement scores are high, with a
survey response rate of 70.1%. The latest
survey in October 2021 had an overall
employee agreement rate of 74.7% which is in
line with our target of 75% agreement. Our
colleagues rated pride, customer focus and
health and safety highest.
The Company continues to make significant
investment for all employees in training and
development. Facilitating three successful
leadership talent development programs in
2021, commencing work on emotional
intelligence for leaders and providing a
learning and development portfolio to boost
all employees’ competencies.
We have been commended for our work on
mental wellbeing though our partner Mates In
Mind and we won an award for ‘Best for
supporting Mental Wellbeing’ in February
2022 through the Greater Manchester Good
Employment Awards.
The Company launched its first diversity &
inclusion strategy in March 2022, the vision is
to ‘create a sense of belonging for our
colleagues and truly reflect the communities
we serve’. More information can be found on
our website. Our revised people policies
promote inclusion, reflecting the diverse
communities we serve which act as a platform
of our developing culture.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
18
Strategic Report (continued)
People (continued)
We are committed to creating a great place to
work and influencing diversity and inclusion in
the Energy sector. It is crucial to integrate
equality, diversity and inclusion in everything
the Company does.
We have continued to take positive action on
our diversity and inclusion journey, to ensure
our workforce is more representative of the
communities we serve, with a particular
emphasis on attracting female and
underrepresented groups into the business.
We have achieved 32% female representation
in leadership roles and 8.8% representation of
females in engineering roles. While we are
continuing to make good progress there is still
more to be done.
Working with our local communities, including
successful partnerships with local mosques,
schools, colleges and universities we have seen
a rise in minority ethnic candidates joining the
business. Overall the percentage of minority
ethnic colleagues has risen from 2% to 4.5% in
the last two years. Our apprenticeship
appointments in 2021 delivered a 50% split of
diverse candidates into roles. We won the
Recruitment Excellence Award at the National
Apprentice of The Year Awards in 2021 in
recognition of our program.
The Company is committed to fulfilling its
obligations in accordance with the Equality Act
2010. As an equal opportunities employer,
equal and fair consideration is given to all
applicants regardless of their diverse
backgrounds.
If necessary, the business will modify
equipment and practices wherever it is safe
and practical to do so, both for new and
existing employees, to assist all colleagues
work successfully with us.
We are committed to rewarding our colleagues
equally, regardless of gender. More
information on our gender pay gap reporting is
available at www.enwl.co.uk.
We have been an accredited Real Living Wage
Employer since 2019 and contract with our
supply chain to honour the real living wage
commitments for their people.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
19
Corporate Social Responsibility
Our Responsibility Framework
Our Responsibility Framework has been
embedded in the business, since its launch in
2019. It articulates the Company’s Corporate
Social Responsibility Strategy. The Framework
demonstrates that we consider the social,
environmental and economic impact in our
decision-making and that our activity delivers a
wide, positive, societal impact.
Aligned to our Purpose ‘Together we have the
energy to transform our communities’, the
framework is structured to deliver responsible
business practices for our people and partners,
our communities and our environment. Over
recent years, despite the impact of the
coronavirus pandemic, teams across the
business have made significant progress across
all areas of the framework. This year we have
continued to drive forward our commitment to
Lead the North West to net zero and
developed our approach to diversity and
inclusion and wellbeing along with significant
investment in responding to consumer
vulnerability.
Highlights from the strategy include:
In our people and partners section, this year
we have continued to deliver essential services
and serve our communities despite the
ongoing restrictions from the coronavirus
pandemic. We have prioritised our customers
and our colleagues health and safety
throughout, updating our approach in line with
the changing legislation and industry best
practice. This prudent approach led to the
Company operating with minimal implications
throughout the pandemic developing and
promoting our colleague wellbeing
programme.
This year the Company has made significant
progress launching its first Diversity and
Inclusion (D&I) strategy, with stretching goals
to drive significant change in colleague
demographics. Our inclusion vision ‘We are
committed to creating a sense of belonging for
our colleagues and truly reflecting the
communities we serve’, is driven by our newly
appointed D&I Manager, leaders and
colleagues across the business. We have
developed the functionality for ‘blind’ CVs and
used this approach for our 2022 apprentice
recruitment to reduce unconscious bias. In
2022 ethnic diversity increased (4.1% to 4.5%)
and throughout the last two years, 12% of new
colleagues were from ethnic diverse
backgrounds. Female leaders remain high at
32% and females in engineering roles rose to
8.8%. To support D&I and drive change, six
colleague resource groups have been
established (Women in STEM, menopause,
LGBT, ethnicity, disability, armed forces).
The Company is proud to be a Real Living Wage
employer, a member of the Greater
Manchester Combined Authority Good
Employer Charter and a founding partner of
the Utilities National Work Group on Modern
Slavery. Throughout the year we have worked
with our supply chain to promote good
practice and will develop further opportunities
to achieve our net zero science-based targets
in the coming years.
In our communities’ section, our colleague-led
approach to fundraising has continued to be
impacted by reduced fundraising events during
the pandemic. However, we have continued to
support our colleagues and communities with
all funds distributed by our eleven local teams.
This year we made over 60 donations of more
than £19,800. Supporting and identifying 46
individual charities. Colleagues across the
Company volunteered more than 200 hours
with partner organisations.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
20
Strategic Report (continued)
Our Responsibility Framework (continued)
This year, with the developing cost of living
crisis, has been a critical time for our partners
supporting people in vulnerable
circumstances. Our ongoing financial support
for projects and links with over 100 partners
has provided crucial support and over 12,400
families receiving energy efficiency advice and
11,163 fuel-poor customers supported.
Our in-school education programme continued
to be impacted by the pandemic. However, we
were able to continue to promote our on-line
resources and we were able to attend a
number of science fairs over the summer.
In our environment section, the Company has
progressed with its ambitious plan to tackle
our operational carbon footprint. We are
proud to have continued our Carbon Literacy
journey and now eligible for the silver
accreditation. The creation of zero carbon
buildings has seen the installation of energy
saving and low carbon technologies at several
sites and 103 electric vehicle chargers have
been installed at our depots. Additionally,
colleague schemes have been introduced to
transition company and personal cars to
electric vehicles, with 114 already taken up.
This year we have continued to develop our
biodiversity and net zero commitments with
the approval of our Biodiversity Action Plan. In
addition, a further two tree planting sites
identified for the 2021/22 season and a further
eight sites completed for our successful
Transforming our Spaces, wildflower and
biodiversity programme.
Responsibility Benchmarks
We have benchmarked our Responsibility
approach against the Business in the
Community (BITC) Corporate Responsibility
Index and Tracker for a number of years.
The new Tracker score (77%) showed that the
Company is scored significantly higher than the
cohort average (45%). The Company scored
particularly highly in the core areas of purpose,
governance and transparency and stakeholder
engagement. It also performed well in climate
action strategy, health and wellbeing action,
plus nature stewardship and inclusive
employment and good work. We will continue
to work with BITC to assess further areas of our
framework and ensure alignment to the UN
Sustainability Goals.
Stakeholder engagement
ENWL is committed to ongoing stakeholder
engagement and recognises the proven value
and insight that stakeholder relationships bring
to our decision making, risk management and
reputation.
This year we continued to develop our ongoing
discussion and challenge with our stakeholders
and advisory panels around our current
activities, performance and RIIO-ED1 business
commitments along with continued
engagement around refinement of our RIIO-
ED2 business plan and associated strategies,
including the Stakeholder Engagement and
Awareness Strategy.
We committed to giving stakeholders and
customers a strong voice in shaping our ED2
business plan. Over the last two years we
engaged with more than 18,500 customers,
consumers and stakeholders as part of our six-
stage engagement plan. In the first year the
focus was understanding priorities and
customer and stakeholder willingness to pay
for services.
In April 2021 we published an early draft of our
plan for consultation, before developing our
official draft business plan that we sent to
Ofgem in July, followed by further consultation
and engagement and our final submission in
December 2021.
During the year we completed two ‘Powering
up the North’ (PUN) events engaging with over
200 stakeholders. Since September 2020 we’ve
hosted nine PUN events engaging a total of 527
stakeholders including MP’s, regulators and
regional stakeholders. Our stakeholder
engagement work is independently reviewed
by our Customer Engagement Group (CEG) and
in doing so has access to the Board and the
Executive Leadership Team.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
21
Strategic Report (continued)
Stakeholder engagement (continued)
Throughout the year, the CEG met monthly
until production of its final report in January
2022.The CEG has provided rigorous scrutiny
of our RIIO-ED2 Business Plan throughout its
development. The CEG will continue to meet
on a regular basis throughout the Ofgem Open
Hearings and Draft and Final Determinations
processes.
Our independently-chaired Consumer
Vulnerability and Sustainability Advisory
Panels alongside our strategic Chief Executive
Advisory Panel have continued to present
robust challenge and insight into our current
activities whilst also providing valuable input
into key ED2 strategies, particularly the
Electricity Users in Vulnerable Circumstances
Strategy and the Environmental Action Plan.
The panels have met ‘virtually’ 18 times this
year giving 35 hours of engagement to the
Company.
This year our three annual regional advisory
panels, were co-hosted by the regional
authorities in Greater Manchester, Lancashire
and Cumbria enabling us to present a regional
perspective and demonstrate the benefits of
joint engagement and strategic regional
understanding of key issues such as net zero,
electricity users in vulnerable circumstances
and regional economic development.
In addition to our advisory panels and
comprehensive programme of market
research, we deliver a multitude of topic
specific events and webinars (connections,
flexibility services, net zero etc), strategic
bilateral meetings with key stakeholders and
participation in key local and regional forums
and strategic groups. This approach helps to
ensure that we actively participate with
stakeholders and help to shape and inform our
collective strategies.
The benefit of our stakeholder engagement
was demonstrated during Storm Arwen in late
2021, when our pre-existing relationships and
communication channels enabled key strategic
stakeholders and MPs to work proactively with
us to share details of customers in vulnerable
circumstances, identify areas of concern and
relay updates to constituents.
This year our stakeholder satisfaction survey
continued to show high levels of overall
satisfaction (82%). Over 120 participants
responded achieving excellent representation
across our mapped stakeholder community.
The survey measured overall satisfaction,
attitudes towards the relationship held, future
engagement preferences and improvement
areas. The results continued to indicate a
strong correlation between the frequency of
engagement, stakeholders’ familiarity with our
business and overall satisfaction.
To support adherence to these initiatives, we
are required to submit annually to Ofgem a
‘Stakeholder Engagement and Customer
Vulnerability’ submission. The company has
engaged auditors for a non-financial assurance
of its commitment to Accountability Principles
for Sustainable Development (AA1000APS).
The assurance review involves an assessment
of our performance against each of the best
practice performance pillars resulting in a
score against AccountAbility’s Stakeholder
Engagement Maturity Ladder. This year we
demonstrated advanced performance across
the pillars and achieved an ‘accomplished’
maturity level. In its management report
AccountAbility conclude:
“This year, Electricity North West has
demonstrated an enhanced stakeholder
engagement ‘culture’ within the organisation
and greater involvement from senior and
executive management, with the noteworthy
addition of a stakeholder engagement
performance metric into its business scorecard.
Year-over-year, Electricity North West
implements improvements to its stakeholder
processes and practices to ensure these are
embedded across the organisation and that
decision-making is informed by stakeholder
needs.”
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
22
Strategic Report (continued)
Section 172 Statement
Introduction
Throughout this Annual Report, we discuss
how we take into account the likely
consequences of long-term decisions;
understand the importance of engaging with
our employees; the need to foster
relationships with stakeholders; understand
the impact of our operations on the
communities in our region and the
environment we depend upon; attribute
importance to behaving as a responsible
business and the desirability of maintaining a
reputation for high standards of business
conduct; and the need to act fairly as between
members of the company.
The impact of Storm Arwen and the ongoing
impact of the COVID-19 pandemic on the
operations and finances of the business, along
with the actions taken to support our
employees and communities through these
unprecedented times is discussed on pages 9
to 11 of the Strategic Report.
Statement by the directors in performance of
their statutory duties in accordance with
s172(1) Companies Act 2006
The Board of Directors of Electricity North
West Limited consider, both individually and
together, that they have acted in a way they
consider to be in good faith and would be most
likely to promote the success of the Company
for the benefit of its members as a whole
(having regard to the stakeholders and matters
set out in s172(1)(a-f) of the Act) in decisions
taken during the year ended 31 March 2022. In
particular, this can be demonstrated by
reference to our RIIO-ED1 ‘Well Justified
Business Plan’ for the period 2015-2023 and
‘Our plan to lead the North West to Net Zero
2023-2028’ for RIIO-ED2:
Our RIIO-ED1 plan was designed to have a
long-term beneficial impact on the
Company to contribute to its success in
delivering a first-class service and
ensuring the network is more reliable for
customers in the North West of England
to 2023 and beyond.
We will continue to operate our business
in line with our regulatory targets. Our
plan is centred around four key themes:
customer service, reliability, affordability
and sustainability.
Our ‘Well Justified Business Plan’ for
2015-2023 is available on our website
https://www.enwl.co.uk/about-
us/regulatory-information/business-
plan/
As noted on page 11, during the year
ended 31 March 2022 we submitted our
RIIO-ED2 business plan to Ofgem
following extensive stakeholder
engagement. In the year ending 31 March
2023 we will work with Ofgem in response
to their draft determination and
subsequent final determination of our
RIIO-ED2 business plan.
‘Our plan to lead the North West to Net
Zero 2023-2028’ draft business plan is
available on our website at
https://www.enwl.co.uk/about-
us/regulatory-information/our-business-
plan-2023-2028/businessplan2023-2028/
The Directors continue to monitor and approve
key strategic decisions to deliver our plans for
RIIO-ED1, and to support the longer-term
ambitions in the draft RIIO-ED2 plans, including
supporting the transition to a low carbon
economy.
Employee engagement and reward
Our employees are fundamental to the
delivery of our plan. We aim to be a
responsible employer and are proud that we
were one of the original six employers selected
to move from being a supporter to members of
the Greater Manchester Good Employment
Charter. Our values resonate with those of the
Charter and the membership recognises our
efforts in providing good workplace practices
and commitment to continually improving
employment standards within our organisation
and helping others to do the same.
Our business model is to employ over 90% of
our workforce directly with clear and
consistent terms and conditions so our
colleagues understand their rights and benefits
whilst in employment with us.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
23
Strategic Report (continued)
Section 172 Statement (continued)
We do not use zero-hour contracts as we
recognise the value to our people of ensuring
that they have security of income and are able
to manage non-work commitments.
In turn, we are dedicated to using our influence
to help and support our contractors and
suppliers and other employers in the North
West to become Living Wage employers.
Safety is a key priority: it is embedded in
everything we do as a business. Our Safety
Output delivers absolute compliance with all
relevant legislation and regulation - see further
information in the safety section of the
Strategic Report. We have dedicated
Occupational Health partners, health
surveillance, health checks and both company-
funded and voluntary medical plans,
discounted gym memberships and dental care
to help our employees stay physically healthy
and support them if they become unwell. In
2018 the Company launched a new approach
to mental well-being and we were recognised
as a Time to Change employer, with a focus on
tackling discrimination and stigma in respect of
mental health in our workplace. Guidance and
support for managers was rolled out and we
had 50 volunteers step forward to become
Wellbeing Champions.
We have bought in the use of Cognitive
Behavioural Therapy and we are developing
partnerships with mental health charities who
can support the work we want to do. Our
Mental Health Steering Group is led by one of
our Executive Team and drives the continual
improvement for mental health that we wish
to achieve as an organisation for our people.
We are proud to win the Greater
Manchester Good Employment Award in
recognition of the cumulative effect of this
work to support our colleagues mental health
well-being.
We work closely with our four recognised
Trade Unions; Unite, Prospect, Unison and
GMB, and consult and engage with them in
partnership. They are a key means of engaging
with our people, but we also undertake
employment surveys twice a year, where
individuals anonymously rate our performance
on a wider range of issues. In turn this informs
and influences the work we do.
Each year our Chief Executive and members of
the Executive Leadership team undertake a
series of employee roadshows, either in
person or virtually, where they visit every
depot and office to deliver updates on the
company performance, our plan for the year
ahead and invite questions and engagement
direct from our employees.
Recognition and reward are also fundamental
to how we engage with our people,
highlighting our purpose and principles.
Through our spotlight awards we recognise
three individuals and one team every month
that have gone above and beyond for their
colleagues and for our communities.
We also make significant investment in training
and development of employees and in
developing managers into leaders.
We have a dedicated Steering Group, led by a
member of the Executive Team, which focuses
on addressing the diversity challenges we have
as a business and as a sector. We have
established partnerships with six local schools
and two local mosques to raise awareness of
what we do.
We are a Forces Friendly employer, a disability
confident employer and have signed the social
mobility pledge. We are working hard to
encourage those from a diverse range of
backgrounds to consider us as a potential
future employer and for us to become
representative of the communities we serve.
Engagement with suppliers and customers
Our plan was informed by extensive
engagement with customers, enabling us to
gain an understanding of their views and
priorities. We have created an independent
Customer Engagement Group to ensure our
future business plans address the needs and
preferences of our customers and puts
stakeholder needs at the heart of our decision-
making.
We also aim to act responsibly in how we
engage with our suppliers and regulators
which are integral to the successful delivery of
our plan.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
24
Strategic Report (continued)
Section 172 Statement (continued)
We operate with openness and transparency
to develop a first-class supply chain; one that is
high performing, ethical and safe, whilst
ensuring human rights are adhered to and
supporting a sustainable environment. We aim
to conduct all of our business relationships
with integrity and expect the same from our
suppliers. We work closely with a range of
suppliers and contractors from many different
countries, all of whom are required to adhere
to our supply chain charter that is available at
https://www.enwl.co.uk/about-us/working-
here/information-for-colleagues/our-supply-
chain-charter/
Low carbon initiatives
Our plan takes into account the impact of the
Company's operations on the community and
environment and our wider societal
responsibilities, and in particular how we
impact the regions we serve in the North West
of England. We are determined to make a
positive contribution to our environment and
our ‘Leading the North West to Zero Carbon’
plan sets out how we are investing over £60m
between 2019-2023 to drive down our carbon
emissions and to help business, our customers
and our colleagues to do the same. Some of
the work delivered so far is summarised below.
In 2019 we became the region’s first company
to purchase two state-of-the-art electric mini
diggers which have zero exhaust emissions.
Each vehicle reduces our carbon emissions by
64 tonnes CO₂ equivalent (tCO₂e) a year. Since
2019 we have purchased additional diggers
and will continue to do so. As well as the
environmental advantages associated with
reduced carbon emissions, they are also five
times quieter than traditional diesel vehicles
which both reduces noise disturbance for
customers and allows for better
communication between our engineers whilst
they work; this is safer for them and the public.
We are able to charge these vehicles at our
depots using electricity generated from
renewable sources.
To support and encourage colleagues to make
the change to electric vehicles (EVs), we are
investing in charging infrastructure and
incentivising colleagues to adopt EVs.
We are continuing the roll out of 118 EV
charging points for colleagues and visitors to
our sites. We are also working with the
landlords of the sites we lease to make EV
charging available there.
Electricity for our operational substations and
most of our offices and depots is 100%
renewable and is generated locally at Walney
Wind Farm, off the coast of Cumbria.
However, our aim is to achieve ‘net zero
carbon’ by transforming our estate to be as
energy efficient as possible, and to install
onsite generation to meet most of our own
energy demand. Starting with the completion
of two zero carbon exemplar depots in 2020,
we will test and demonstrate a number of
solutions to assess their suitability and relative
benefits, which will help other businesses in
the North West understand what is achievable.
More information can be found at
https://www.enwl.co.uk/go-net-zero/
Responsible business
As a Board of Directors, our intention is to
behave responsibly and ensure that
management operate the business in a
responsible manner, operating within the high
standards of business conduct and good
governance expected for a business such as
ours (see Corporate Governance Report). In
doing so, this will contribute to the delivery of
our plan. The intention is to grow and maintain
our reputation, through both the construction
and delivery of our plan, in a way that reflects
our responsible behaviour.
As the Board of Directors, our intention is to
behave responsibly toward our shareholders
and treat them fairly and equally, so they too
may benefit from the successful delivery of our
plan.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
25
Strategic Report (continued)
Anti-corruption and anti-bribery
At ENWL we are proud of our strong
commitment to high ethical standards in the
way that we work. The business takes a zero-
tolerance approach to bribery and corruption,
and is committed to acting professionally,
fairly and with integrity in all our business
dealings and relationships wherever we
operate, implementing and enforcing effective
systems to counter bribery. It is important that
our regulator and other stakeholders have
confidence in the arrangements and integrity
of the organisation.
The Company operates a number of policies
governing the anti-bribery and anti-corruption
matters: Anti-Corruption and Bribery Policy,
Disclosure (Whistleblowing) Policy, Ethics
Policy and Conflict of Interest Policy.
These policies apply to all employees and
officers of ENWL and form part of the
employee Code of Conduct. Other individuals
performing functions for the Company, such as
agency workers and contractors, are also
required to adhere to our anti-bribery and anti-
corruption policies.
To support our whistleblowing policy, we have
in place a confidential independent reporting
line called Safecall.
Gender diversity
Information on the composition of the
workforce at the year-end is summarised
below:
Turnover
2022 – 185 leavers (2021: 156 leavers)
Training courses delivered
2022 – 402* (2021: 266*)
Training course attendee sessions
2022 – 16,240 (2021: 7,630)
*These figures include e-learning courses,
operational and non-operational training.
Workforce composition at the year-end 31
March:
2022
Males
2022
Females
2021
Males
2021
Females
Total
employees
1,462
75%
500
25%
1,440
75%
482
25%
Senior
managers
32
70%
14
30%
32
71%
13
29%
Executive
leadership
team*
6
62%
3
38%
6
75%
2
25%
Non-
Executive
Directors
7
78%
2
22%
7
78%
2
22%
* The Executive leadership team figure includes two
Executive Directors.
Environment
Environmental protection continues to be one
of our core values, and we remain committed
to achieving the highest possible standards of
environmental performance. The year ended
31 March 2022 saw the lowest ever level of
carbon emissions, in part due to the
operational changes the business has adopted
through the COVID pandemic. Some of these
business changes will continue due to the long-
term carbon footprint benefit highlighted
during the COVID pandemic. Other
opportunities to reduce our carbon footprint
will be implemented to continue a carbon
reduction trajectory.
We minimise emissions and spills, and are
investing to remove potentially damaging
equipment, and enhance the environment by
undergrounding overhead cables. As examples
of what we are doing, during the year:
Overall leakage of oil from cables was
13,266 litres which is a significant
improvement over the previous year’s
performance of 16,998 litres. This is a 22%
reduction on the previous year’s
performance and meets our business plan
commitment target.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
26
Strategic Report (continued)
Environment (continued)
Overhead lines in the National Parks and
Areas of Outstanding Natural Beauty were
replaced with 5.7km of underground
cable.
We continue to deliver our ‘Leading the
North West to Zero Carbon’ plan,
decarbonising our own operations, and
helping businesses, customers and
colleagues across the region to do the
same.
Zero breaches were recorded by the
Environment Agency against our
Environmental Permits for the storage and
treatment of electrical insulating oil,
resulting in Band A ratings against all sites
(Central Oil Reprocessing Department
(CORD) Whitebirk, Kendal, Oldham,
Workington).
Business carbon footprint
1
The reported electrical losses figure is a snapshot of received
data as of the date of this report and will change as further
settlement reconciliation runs are carried out (up to 28 months
after each relevant settlement date).
The Company’s business carbon footprint
(excluding losses) for the year was 14,649
tCO2e, which is a small increase of 3.9% from
the previous year (2021: 14,095 tCO2e), which
was a reduction on the previous year (2020:
18,051 tCO2e). Included in these figures is the
impact of increased generator usage because
of the winter storms and the impact of a
decrease of 40% in emissions of SF6.
During the year the Company continued to
implement energy efficiency measures,
through the refurbishment of its buildings, and
the replacement of fleet vehicles and company
cars with more efficient vehicles.
A total of 17,084,835 kWh of electricity, equal
to 3,628 tCO2e, was purchased by the
Company for its own use, including for the
purposes of transportation. The tCO2e was
calculated by multiplying the total
consumption in kWh by the UK Government
Conversion Factors for greenhouse gas
emissions.
There was 26,046,936 kWh of energy
consumed from the combustion of gas and
consumption of fuel for operational transport.
This is calculated by multiplying the litres of
gas oil and diesel consumed by the conversion
factor provided in the UK Government
Conversion Factors for greenhouse gas
emissions.
The Company’s annual emissions are
equivalent to 6.53 tCO2e per employee, a
reduction of 0.36 tCO2e per employee against
last year’s consumption.
Electricity losses are measured as the
difference between energy entering the
network (generation) and energy exiting the
network (demand). Whilst it is impossible to
eliminate these losses, we do take steps to
minimise them and we will be taking measures
to reduce losses as part of our commitment to
decarbonise our operations. This is done
through installing more efficient assets in our
network, particularly low loss transformers
and cables and through our revenue
protection activities, addressing the issue of
electricity theft. However, as electricity
demand continues to increase, maintaining
losses at current levels will be difficult to
achieve.
202
2
tCO
2
e
202
1
tCO
2
e
Scope 1
Operational transport
6,056
5,697
Business transport
-
road
787
925
Fugitive emissions
893
1,504
Fuel combustion
3,275
1,972
11,012
10,098
Scope 2
Buildings energy usage
3,628
3,995
Scope 3
Business
transport
-
rail
1.
6
0.4
Business transport
-
air
7.
2
1.6
8.
7
2.0
Business Carbon
Footprint (excl. losses)
14,649
14,095
Electrical losses
1
268,340
283,209
Business Carbon
Footprint (incl. losses)
282,989
297,304
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
27
Strategic Report (continued)
Key Performance Indicators
KPI Definition and comment Performance
Safety
Lost time
incident
frequency
rate
Definition
: The total number of reportable
incidents in the period divided by the number of
hours worked in that period by employees and
contractors’ employees, multiplied by 100,000
hours.
Performance: Although levels remain low, during
the year the Company saw an increase in lost time
incidents, with three employee lost time incidents
and two involving contractor employees (2021:
none). The corresponding lost time incident
frequency rate was 0.058 (2021: 0.012).
0.0
58
Safety
observation
reporting
Definition
:
Safety observations
,
including n
ear miss
reports, are collected to provide valuable
information on hazards and behavioural attitude.
Safety observations reporting is actively
encouraged to promote a safety culture.
Performance: In the year, the number of safety
observations reported was 9,438 (2021: 9,286),
well above the target of 8,000. During the year we
have continued to place greater emphasis on
improving the quality and level of ‘behavioural
challenge’, rather than simply overall volumes.
9,
438
safety observations
Customer
Overall
customer
satisfaction
Definition
: The overall customer satisfaction score
is a composite score from Ofgem surveys that
assesses levels of customer satisfaction for
connections quotations and delivery, interruptions
and general enquiries.
Performance: Overall satisfaction fell to 88.7% for
the year, down from 90.8% in the prior year.
However, the score for the year was the second
highest in five years following an all-time high in
2021 and reflects the ongoing focus on
improvement.
88
.7
%
People
Colleague
engagement
Definition
:
Colleague
engagement
is measured
via
an employee survey which, through a series of
questions, provides details of overall colleague
engagement and how colleagues feel about the
‘working climate’.
Performance: Overall colleague engagement
achieved 74.7% for the year, a slight decrease from
75.5% in the prior year.
7
4.7
%
Climate score
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
28
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
Reliability
Customer
interruptions
(CIs)
1
Definition
:
CIs
represent the number of
interruptions our customers’ experience. It is
calculated by taking the total number of
customers affected divided by the total number
of customers connected to the network,
multiplied by 100. It excludes exceptional
events.
Performance: The result of 25.8 for the year
significantly outperforms the Ofgem target of
46.0 and represents the company’s best ever
performance.
25.8
CIs
Customer
minutes lost
(CMLs)
1
Definition
:
CMLs
represent the time customers
are without power in the event of an
interruption. It is calculated by taking the sum of
the customer minutes lost for all restoration
stages for all incidents, excluding exceptional
events, and dividing by the number of connected
customers.
Performance: The result of 27.4 for the year
significantly outperforms the Ofgem target of
39.7 and improved from 28.2 in the prior year.
2
7.
4
CMLs
Sustainability
Carbon
footprint
(excluding
electrical
losses)
Definition
:
Carbon footprint measures the
impact of our operations on the environment
and is calculated in line with Ofgem guidance.
The calculation excludes electrical losses arising
from the operation of the network which cannot
be directly controlled or accurately measured.
Performance: As a result of increased generator
usage during the winter storms our carbon
footprint increased slightly compared to the
previous year. 2022 has seen the second best
overall environmental performance to date due
to energy efficiency initiatives and the
operational changes the business continued to
adopt through the COVID pandemic.
14,649
tCO
2
e
1
The year ended 31 March 2022 figure includes assumptions for exclusion of exceptional events and is yet to be audited by Ofgem.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
29
Strategic Report (continued)
Key Performance Indicators (continued)
KPI
Definition and comment
Performance
Affordability
Total
Expenditure
2
Definition
: Totex is a key financial measure for the
business. It is a regulatory abbreviation which stands
for total expenditure. It includes the money we spend
on running our business day-to-day, and the amount
we invest in new assets through our network
investment programme. We aim to deliver
efficiencies in Totex which we share with our
customers and that helps reduce customers’ bills.
Performance: Totex for the year ending 31 March
2022 was £269.8m compared to an Ofgem allowance
of £306.4m in outturn prices. Expenditure was higher
than the previous year due to increased operational
and support costs largely due to Storm Arwen and the
return to pre COVID-19 investment levels.
£
2
69.8
m
Financial KPIs
Revenue
D
efinition
: Revenue is largely fixed over time but can
vary in any year as demand varies against the
forecasts used to set tariffs. Revenue is determined
by Ofgem to allow recovery of efficient costs to
maintain the network. Additional revenue is
generated through charges for new connections to
the network, along with an opportunity to earn
incentive revenue for delivering improved
performance.
Performance: Revenues have increased from the
prior year, mainly reflecting the increase in electricity
demand as we move out of the COVID-19 pandemic.
The revenue over-recovery for the year was £3.6m
(2021: £21.7m under-recovery). This will be
corrected through adjustments in pricing in future
periods.
£
4
7
2.8
m
Profit before
tax and fair
value
movements
(PBTFV)
Definition
: PBTFV is the profit before tax of
£
2
6.0
m
(2021: £64.8m) adding back the £76.5m FV loss (2021:
£57.9m loss), per Note 9.
Performance: PBTFV has decreased to £102.5m
(2021: £122.7m), mainly a result of costs associated
with Storm Arwen and higher interest expense.
PBTFV excludes the significant capital investment that
we make in the network each year. Financial
performance is better understood through the Totex
measure comparison with allowances.
£
1
0
2.5
m
2
Totex is calculated on a regulatory basis and reported to Ofgem annually on 31 July. For management reporting purposes an
approximate calculation of Totex is prepared to track performance. The final regulatory Totex figure will differ from this approximation
when detailed cost allocations are performed. The number for 2020 has been updated to reflect the Ofgem annual submission.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
30
Strategic Report (continued)
Key Performance Indicators (continued)
KPI Definition and comment Performance
Financial KPIs
Net debt
Definition
: Net debt includes the total borrowings
of £1,286.1m (2021: £1,472.3m) per Note 19, net
of cash and cash equivalents and money market
deposits of £59.4m (2021: £322.4m) per Note 17.
Performance: The £76.8m increase in net debt is
due to the combined effect of RPI indexation on
debt (£25.2m) and the reduction in cash, including
the impact of dividends paid in the year.
£
1,
226.7
m
RAV gearing
Definition
: RAV gearing is measured as
borrowings at nominal value, plus inflation-linked
debt accretion where applicable, net of cash and
short-term deposits divided by the estimated RAV
of £2,159m at March 2022 (2021: £1,948m), as
defined by the Financing Agreements.
Performance: The RAV gearing is in line with
target and under the Ofgem guided level of 65%.
6
0
%
Interest
cover
Definition
: Interest cover is the number of times
the net interest expense, adjusted for indexation
and capitalisation of borrowing costs, is covered
by operating profit from continuing operations, as
defined by the Financing Agreements.
Performance: Interest cover has increased due to
the increased revenue collected in the year as
electricity demand returned towards pre COVID-
19 levels. This is despite the £19.1m increase in
interest expense, reflecting the increased
indexation of index-linked debt as a result of the
significant increase in RPI over the year.
3
.
7
times
Capital
expenditure
Definition
: This represents investment in the
network to maintain its reliability and resilience
for future customers. The figure includes total
additions to property, plant and equipment and
software.
Performance: We continue to invest to improve
the quality and reliability of the network. The
increase in spend compared to the prior year
reflects the lessening impact from COVID-19.
£
2
13.0
m
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
31
Strategic Report (continued)
Non-financial Information Statement
A description of the principal risks relating to
the following non-financial information is
contained elsewhere in the Strategic Report, as
indicated below;
Environmental matters – see pages 12-14
and pages 25-26,
Employees – see pages 17-18,
Social matters – see pages 19-21,
Respect for human rights – see page 24, and
Anti-corruption and bribery matters – see
page 25.
Financial Performance
Overall performance reporting
Base revenue is fixed at the start of a price
review period. It is set at a level that should
meet our efficient operating costs and
expenses over that period, as well as funding
efficient investment, interest on necessary
loan funding and taxes. In order to encourage
investment, it allows for a return to
shareholders at a level that rewards past
investment and encourages future investment.
This return level has been set by Ofgem at 6%
p.a. real for the current regulatory period.
Actual expenditures, both capital and
operating (referred to by Ofgem as Totex), vary
in any given year from the original regulatory
settlement agreed to be funded by Ofgem, as
changes in customer needs, new innovations,
and changes in network investment delivery
priorities change over time. Allowed revenues
are a function of the original allowance and
expenditure plans, adjusted for under or
overspend against allowances in earlier years,
including incentives or penalties earned for
performance. Actual revenues in any given
year reflect these adjusted allowed revenues,
although as these are collected based upon
forecasts of demand over the network set two
years earlier, demand experience means actual
revenues vary from adjusted allowed revenues
based upon demand in the year, as well as the
impact of forecast variations arising from
earlier years.
Actual revenues are allowed by Ofgem, not on
the profiles of costs in the period, but based on
the long-term cash requirements of the
business. Revenues are therefore the cash
funding mechanism for the business, including
current investment requirements as well as the
repayment of past investments, rather than
the reflection of income resulting from
activities that financial statements usually
reflect.
In these financial statements, operating profit
is, therefore, the combination of revenues that
are only partly related to actual activity during
the year, less those operating costs actually
incurred, but excluding capital expenditure.
Consequently, the profit earned in any given
period does not reflect the return to
shareholders, which is more accurately
represented by the Return on Regulated Equity
(RoRE) (see section below).
Whilst the statutory measure that is most
closely aligned to the return to shareholders is
cash flow before financing activities (see the
Statement of Cash Flows), this has a limited
correlation to actual returns, as a result of the
factors noted above.
Return on Regulated Equity
Ofgem presents the results of the networks as
a Return on Regulated Equity (RoRE), a
measure developed to report performance
measures that more accurately reflect the
return from regulated networks to investors.
The Regulated Equity is a percentage of the
Regulated Asset Value (RAV) which is
essentially equivalent to the net book value of
the fixed assets of the business, calculated in
regulatory terms. Ofgem assumes that this
RAV is financed 65% by debt and 35% by
equity, hence they calculate the return to
shareholders based upon 35% of the RAV. The
Company operates at a lower gearing ratio
than this notional level, so returns based upon
actual gearing levels are also shown.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
32
Strategic Report (continued)
Financial Performance (continued)
Return on Regulated Equity (continued)
The Company is allowed to make a return of
6.0% p.a. real (i.e. before RPI inflation) across
the RIIO-ED1 period, on this element.
Returns above this rate are delivered through
above target performance, in line with the
incentive structure set out within the RIIO
framework. This may be, for example, through
efficiencies in the delivery of our services
which result in lower Totex (which savings are
shared at a rate of 42% with customers).
After taking into account the timing of
expenditures against the timing of allowances
and outputs (referred to as an enduring value
calculation), our average post-financing RoRE
for the first seven years of RIIO-ED1 is at an
annual rate of 7.9% on an actual equity basis.
In broad terms, this figure reflects the 6.0%
allowed return, with incentives for improved
performance adding an additional 2.2% and
1.9% through Totex cost efficiencies.
However, the costs of servicing our debt are
higher than Ofgem allow us, with these actual
debt service costs reflecting the prices in the
debt markets at the time our debt was issued.
This is the principal element reducing our
performance to the overall 7.9% per annum,
real, after tax and interest.
R
o
RE Components
Expressed on notional and actual
equity basis
ED1 to
2022
£m
Notional
equity returns
Allowed Equity Return
6.0%
Totex outperformance
1.9
%
Incentive performance
2.2%
RoRE
-
Operational performance
(notional)
10.
1
%
Debt performance
(1.
5
)%
Tax performance
0.
0
%
RoRE (Notional regulatory equity)
8.
7
%
Adjustment to
actual equity
(0.8
)%
RoRE (Actual equity)
7.
9
%
202
2
*
£m
20
21
£m
2020
£m
201
9
£m
201
8
£m
(Loss)/p
rofit after tax
(
29.5
)
53.4
102.1
71.8
116.3
Adjustments:
RAV
(14.0)
(21.4)
(32.8)
(57.2)
(55.8)
Deferred Taxation
38.6
(11.7)
12.4
(6.9)
5.9
Indexation and Fair Value Movements
127.0
67.4
32.6
70.0
6.0
Movement in Other Regulatory Balances
(
3
7.
2
)
(33.7)
(64.9)
(14.7)
(24.2)
Post
-
financing return
84.9
54.0
53.0
63.0
48.2
Average return
for the RIIO
-
ED1 period
52.1
Average RAV balance
1,811.3
Average debt balance
1,097.8
RoRE (actual regulatory equity)
7.
9
%
*A prior year comparative of RoRE is not provided in the table above as 2022 represents a seven-year
trailing average (7.9%).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
33
Strategic Report (continued)
Financial Performance (continued)
Reconciliation of statutory profit to
regulatory performance
The calculation used to derive RoRE provides a
measure of the performance of operations
within the price control, including the impacts
of interest and taxation, but excludes
operations outside the price control. It adjusts
reported profit under IFRS to reflect the impact
of the regulatory framework, outlined above,
when presenting financial performance. The
post-financing return generated reflects the
actual regulatory return made in each year and
is used to derive RoRE.
Adjustments in calculating regulatory
financial performance
The principal adjustments
3
from reported
profit after tax to regulated financial
performance are:
RAV: The regulatory composition of costs
incurred is split between in-year revenue
allowances (fast money) and the creation of
additional RAV (slow money). This does not
align with the classification of costs as
operating costs and fixed asset additions under
IFRS accounting principles. This adjustment
reflects the impact of the fast and slow money
concept in the regulatory settlement and the
impact of regulatory depreciation which does
not form part of the statutory profit.
Deferred taxation: Future revenues are
expected to recover cash taxation costs,
including the unwinding of deferred taxation
balances created in the current year (Note 10).
Indexation and fair value movements: Fair
value movements on debt and derivative
financial instruments included within statutory
profit are excluded from the regulatory
performance calculation and an adjustment
made to remove the inflation component of
actual interest costs.
3
Regulatory adjustments for the year ended 31 March 2022 have
been presented on a draft basis. Regulatory performance is
reported to Ofgem on 31 July and final reported figures may
differ from the reconciliation as detailed cost allocations are
prepared.
Movement in other regulatory balances:
Regulatory performance reflects performance
on an earned basis, with revenue being
adjusted for this performance in future years.
IFRS recognises these revenues when they flow
through bills to customers and not in the
period to which they relate. The principal
adjustments are for incentive revenues earned
in the year, under or over recoveries of allowed
revenue in the period, differences in timing of
the funding of pension deficit repair payments
and the adjustments for enduring value.
Enduring value adjusts regulatory performance
for the impact of timing differences between
the receipt of allowed revenue and actual
expenditure incurred, i.e. timing differences
that will unwind over the regulatory period.
The enduring value adjustment has been
calculated by considering the cumulative
expenditure variance by regulatory category
and uses approved Company business plans to
assess the extent to which these timing
differences will unwind. The enduring value
adjustment requires a high level of
management judgement. Methodologies for
calculating enduring value are evolving as we
work with Ofgem and other network operators
to develop a standardised approach.
Equity component:
RoRE performance has been presented on a
real equity basis, representing the balance of
the RAV that is not debt funded. Average
equity for the period is 39%, higher than the
assumed 35% notional equity funding. The
difference between the actual and notional
equity has the effect of reducing the allowed
equity return from 8.7% to an actual equity
return of 7.9%.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
34
Strategic Report (continued)
Financial Performance (continued)
Financial reporting measures
Revenue
Revenue has increased to £472.8m (2021:
£449.8m) during the year, as a result of the
return to pre COVID-19 levels of demand for
electricity and also reflecting the allowed
Distribution Use of System (DUoS) revenue
under the RIIO-ED1 price control.
The allowed revenue is recovered against an
estimated level of electricity demand across
the network. Given the difficulty of predicting
this demand each year we end up with either
an over or an under recovery against planned
revenue. These over or under recoveries are
reflected in the Consolidated Income
Statement for the period and will be corrected
in future periods through the Ofgem price
setting mechanism.
For the year-ended 31 March 2022 there was
an over recovery of DUoS revenue of £3.6m
against plan before adjustment for RPI
indexation (2021: £21.7m under-recovery),
reflecting variability against forecast in
consumption volumes year on year, the over
recovery being affected by the return of
consumption to pre COVID-19 levels. This over
recovery will be corrected through
adjustments in revenues to be received in two
years’ time, in accordance with Ofgem’s
methodology.
Operating profit
Operating profit has decreased slightly to
£175.6m (2021: £176.1m) primarily as a result
of the increase in revenue detailed above,
offset by higher operational costs in the year,
largely as a result of Storm Arwen.
Profit before tax and fair value movements
Profit before tax and fair value movements has
decreased to £102.5m (2021: £122.7m),
mainly as a result of higher costs of finance
during the year.
Taxation
Corporation tax is calculated at 19% (2021:
19%) of the estimated assessable profit for the
period. The tax charge in future periods will be
affected by the announcement on 3 March
2021 that the corporation tax rate will be
increased to 25% from 1 April 2023. This was
substantively enacted on 24 May 2021.
Deferred tax is calculated using the rate at
which it is expected to reverse. Accordingly,
the deferred tax has been calculated on the
basis that it will reverse in future at the 25%
(2021: 19%) rate, except where it is known that
it will reverse before 1 April 2023 when the
19% rate has been used.
The overall taxation charge for the year has
increased from £11.4m in 2021 to £59.1m in
2022, mainly as a result of the additional
deferred tax charges arising from the future
increase in tax rate.
Dividends and dividend policy
The Group’s dividend policy is to distribute the
maximum amount of available cash, whilst
maintaining its targeted gearing level, in each
financial year at semi-annual intervals, with
reference to the forecast business needs, the
Group’s treasury policy on liquidity, financing
restrictions, applicable law in any given
financial year and the Company’s licence
obligations.
During the year ended 31 March 2022, the
Company declared final dividends for the year-
ended 31 March 2021 of £15.9m, paid in June
2021 (2021: nil), and interim dividends for the
current year of £81.2m, paid in December 2021
(2021: £30.7m).
At the Board meeting in May 2022, the
Directors proposed a final dividend of £23.0m
for the year ended 31 March 2022 (Note 11).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
35
Strategic Report (continued)
Financial Performance (continued)
Property, plant and equipment and software
The Group’s business is asset-intensive. The
Group allocates significant financial resources
to the renewal of its network in order to
maintain services, improve reliability and
customer service, and to meet the changing
demands of the UK energy sector.
The total original cost of the Group’s property,
plant and equipment at 31 March 2022 was
£5,608m (2021: £5,410m), with a net book
value of £3,512m (2021: £3,432m). In the year
ended 31 March 2022, the Group invested
£200.8m (2021: £193.0m) in property, plant
and equipment in a large number of projects to
reinforce and improve the network, and
£12.2m (2021: £8.5m) in IT systems.
New investment is financed through a
combination of operating cash flows and
increased borrowing capacity against the RAV.
Pension obligations
The Group’s pension scheme under IAS 19, has
a net surplus at 31 March 2022 of £18.4m
(2021: £68.6m deficit). The main reasons for
the movement are market movements,
specifically an increase of 40 basis points to the
future expectation of inflation and an increase
of 65 basis points in the discount rate
assumption.
The most recent triennial funding valuation of
the scheme was carried out as at 31 March
2019 and identified a shortfall of £69.5m
against the Trustee Board’s statutory funding
objective. In addition to the timing of the two
valuations, the contributions made in the
period and the return on assets, the main
difference is due to the different assumptions
used by the IAS 19 and the funding valuation.
In the event of underfunding, the Group must
agree a deficit recovery plan with the Trustee
Board within statutory deadlines. As part of
the 2019 actuarial valuation, the Group agreed
to eliminate the shortfall by paying additional
annual contributions in the period to March
2023, as set out in Note 22.
Cash flow before financing activities
Net cash inflow before financing activities in
the year was £40.7m (2021: £30.6m inflow),
reflecting the higher cash generated from
operations.
Treasury policy and operations
The Group’s treasury function operates with
the delegated authority of, and under policies
approved by, the Board. The treasury function
does not act as a profit centre and does not
undertake any speculative trading activity. It
seeks to ensure that sufficient funding is
available in line with the treasury policy and to
maintain the agreed targeted headroom on
key financial ratios.
Long-term borrowings are mainly at fixed rates
that provide certainty or are indexed to
inflation to match the Group’s inflation-linked
(RPI) accretion to the RAV and to cash flows.
The Group’s use of derivative instruments
relates directly to the Group’s debt, largely
converting the fixed rates of interest on this
debt to RPI-linked cashflows, in order to better
match the Ofgem debt allowance structure.
The proportion of borrowings at effective fixed
rates of interest for a period greater than one
year is set in conjunction with the level of
floating rate borrowings and projected
regulatory revenues that are exposed to
inflationary adjustments (index-linked).
Cash flows are in sterling, other than sundry
purchases of plant denominated in foreign
currencies and some assets of the defined
benefit pension scheme which are managed by
the pension scheme investment managers.
The Group has no other material exposure to
foreign currency exchange movements.
Liquidity
The Group’s primary sources of liquidity are
operating cash flows, cash balances and
funding raised through external borrowings.
Group budgets for the year-ending 31 March
2023, forecasts to the end of the next price
review in 2028 and longer-term forecasts to
2048 are used to assess the liquidity needs of
the Group.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
36
Strategic Report (continued)
Financial Performance (continued)
Short-term liquidity
Short-term liquidity requirements are met
from the Group’s operating cash flows, cash
balances, short-term deposits and unutilised
committed borrowing facilities.
As at 31 March 2022, the unutilised committed
facilities were £50.0m (2021: £50.0m) and,
together with £59.4m (2021: £322.4m) of cash
and short-term deposits, provide short-term
liquidity for the Group.
Utilisation of undrawn facilities is with
reference to Regulatory Asset Value (RAV)
gearing restrictions for the Group. Actual and
forecast RAV gearing is monitored by the
Board.
Long-term liquidity
Where a liquidity need cannot be met by
existing resources as outlined above, for
example the refinancing of existing debt or a
demand for additional borrowing, the Group
treasury function starts the process of raising
the required debt at least 12 months ahead of
the requirement.
The Group’s long-term debt is comprised of a
combination of fixed, floating and index-linked
debt, taking derivatives into account, with a
range of maturities and interest rates reflective
of prevailing market rates at issue.
The Group issues debt in the public bond
markets and maintains credit ratings with a
number of leading credit rating agencies.
During the period, the Group’s credit ratings
have been formally reviewed and affirmed.
Fitch changed the outlook for ENWL to
negative from stable, citing financial pressure
from the upcoming price control.
Currently the Group is rated BBB+ with stable
outlook by Standard and Poor’s, Baa1 with
stable outlook by Moody’s Investors Service
and BBB+ with negative outlook by Fitch
Ratings.
Our short-term debt ratings are A-2 and F2
with Standard and Poor’s and Fitch Ratings
respectively.
Further details are available to credit investors
in the Financial Investor Relations section of
the Company’s website www.enwl.co.uk.
Net debt
During the year, the net debt increased by
£76.8m, due to the combined effect of the
reduction in both the cash and debt balances.
Of the £263.0m reduction in cash, £206.6m
reduction was due to net repayments of debt,
£97.1m reduction due to dividend payments,
net of £40.7m increase from activities before
financing. Of the £186.2m reduction in debt,
£206.6m reduction was due to the net
repayments, net of £25.2m increase due to RPI
indexation, plus £4.8m net decrease due to the
movement in transaction costs and non-cash
movements on lease liabilities.
Included in debt is an £84.2m loan from the
parent company North West Electricity
Networks plc (NWEN plc), due to mature in
March 2023 (2021: £82.2m), a £298.6m loan
from an affiliated company ENW Finance plc,
maturing in July 2030 (2021: £298.5m, and
£199.3m maturing in July 2021).
Of the external debt, £7.6m (2021: £7.1m) is
due to be repaid within the next year,
comprising European Investment Bank (EIB)
loans that have an amortising repayment
profile. £1.4m of leases are due to be repaid
within the year (2021: £1.3m).
All other borrowings are repayable after more
than one year and include bonds with long-
term maturities of £632.5m (2021: £631.9m),
bank loans of £259.5m (2021: £248.2m) and
leases of £2.3m (2021: £3.3m).
Note 19 provides more details on the
borrowings.
Net Debt
202
2
£m
202
1
£m
Cash and deposits
59
.4
322
.4
Borrowings
(1,
286
.1
)
(1,472
.3
)
Net debt
(1,
22
6.7
)
(1,
1
49.9
)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
37
Strategic Report (continued)
Financial Performance (continued)
Derivatives
The Group uses two main groups of derivatives
to economically hedge exposure to
fluctuations in market rates over the medium
to long term; interest rates swaps to manage
interest rate risk and inflation swaps to convert
fixed rate debt to index-linked borrowing. All
derivatives relate directly to underlying debt.
At 31 March 2022 there were no formal
hedging relationships in the Group (2021:
same).
The proportion of post-hedging borrowings at
fixed, floating and index-linked rates of
interest is maintained in line with target levels
set in the Treasury Policy and is monitored by
the Board, with reference to the projected
regulatory revenues that are exposed to
inflationary adjustments (index-linked).
Fair values
The derivatives are accounted for at fair value
through profit or loss (“FVTPL”), with fair value
movements going through the income
statement.
These fair value movements are non-cash and
will reverse over the life of the financial
instrument, but can be significant and result in
material volatility in the income statement.
In the current year, net fair value losses
totalling £76.5m have been recognised in the
income statement (2021: losses of £57.9m),
which relates entirely to non-cash movements.
The fair value movements in the year were
primarily driven by the significant changes in
market expectations of future interest rate and
inflation rates.
Additionally, the re-measurement of the
defined benefit pension scheme under IAS 19
has resulted in a £68.8m gain (2021: £48.9m
loss) booked directly to other comprehensive
income.
Going concern
When considering whether to continue to
adopt the going concern basis in preparing the
Annual Report and Consolidated Financial
Statements, the Directors have taken into
account a number of factors, including the
following:
The Company’s electricity distribution
licence includes the obligation in standard
licence condition 40 to maintain an
investment grade issuer credit rating,
which has been met.
Under section 3A of the Electricity Act
1989, the Gas and Electricity Markets
Authority has a duty, in carrying out its
functions, to have regard to the need to
secure that licence holders are able to
finance their activities, which are the
subject of obligations imposed by or
under Part 1 of the Electricity Act 1989 or
the Utilities Act 2000.
Management has prepared, and the
Directors have reviewed and approved
Group budgets for the year ending 31
March 2023. These budgets include profit
projections and cash flow forecasts,
including covenant compliance
considerations. Inherent in forecasting is
an element of uncertainty and key
sensitivities are considered when budgets
are approved, including possible changes
RPI and under recoveries of allowed
revenue.
Management have prepared forecasts
covering the next regulatory period to
2028, based on the business plan
submission for RIIO-ED2. Forecasts
demonstrate that there is sufficient
headroom on key covenants and that
there are sufficient resources available to
the Group within the forecast period.
Assessment of the significance and
developments of the COVID-19 pandemic.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
38
Strategic Report (continued)
Going concern (continued)
Short-term liquidity requirements are
forecast to be met from the Group’s
operating cash flows and short-term
deposit balances. A further £50m of
committed undrawn bank facilities are
available from lenders; these have a
maturity of greater than one year.
Whilst the utilisation of these facilities is
subject to gearing covenant restrictions,
12-month projections to 30 June 2023
indicate there is sufficient headroom on
these covenants.
After making appropriate enquiries, the
Directors have a reasonable expectation that
the Company and Group have 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 Consolidated
Financial Statements.
The going concern basis has been adopted by
the Directors, with consideration of the
guidance published by the Financial Reporting
Council.
Viability statement
In accordance with provision 31 of the 2018 UK
Corporate Governance Code the Directors
have assessed viability over a period longer
than that required for going concern and have
chosen the period to the end of March 2025.
Whilst the Board has no reason to believe the
Group will not be viable over a longer period,
the period over which the Board considers it
possible to form a reasonable expectation as to
the Group’s longer-term viability, based on the
risk and sensitivity analysis undertaken, is the
period to 31 March 2025.
The Board has considered whether it is aware
of any specific relevant factors and notes, in
particular, Ofgem’s RIIO-ED2 consultation
document, which indicates lower equity
returns and possibly a changed incentive
environment for RIIO-ED2.
The Board has considered the impact of
COVID-19, the current economic environment
including rising inflation and supply chain
disruption, the political environment, including
impacts from the invasion in Ukraine and
potential changes in future government policy
as well as the impact from Brexit, in making the
viability assessment.
In reaching its conclusion, the Board has taken
into account Ofgem’s statutory duty to secure
that companies can finance their functions and
has assumed that there will be no changes to
the regulatory framework or Government
policy that will affect the Company’s viability.
The Directors have conducted a robust
assessment of the principal risks facing the
Company and believe that the Company is in a
position to manage these risks.
In arriving at their conclusion, the Directors
have considered the Company’s forecast
financial performance and cash flow over the
viability period to 2025. Headroom to
compliance ratios over the viability period is
considered and the extent to which deviations
in financial performance from the business
plan may impact that headroom. The Directors
have considered this headroom in assessing
the Company’s long-term viability.
On the basis of this assessment, and assuming
that the principal risks are managed or
mitigated as expected, the Directors have a
reasonable expectation that the Company will
be able to continue in operation and meet its
liabilities as they fall due over the three-year
period of their assessment.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
39
Strategic Report (continued)
Fair, balanced & understandable
The Directors have reviewed the thorough
assurance process in place within the Group
with regards to the preparation, verification
and approval of financial reports. This process
includes:
Detailed review and appropriate
challenge from key internal Group
functions, such as Risk, Control and
Assurance, senior managers and the Chief
Financial Officer;
Formal sign-offs from the business area
senior managers, the finance managers
and Chief Financial Officer;
Group Audit Committee oversight,
involving a review of key financial
reporting judgements, review and
appropriate challenge on matters such as
any changes to significant accounting
policies and practices during the year,
significant adjustments and the going
concern assumption;
The involvement of qualified, professional
employees with an appropriate level of
expertise and experience throughout the
business; and
Engagement of a professional and
experienced external auditor, a
framework for full transparent disclosure
of information during the audit process
and post audit evaluation.
As a result of these processes together with
the information and assurance provided by
the day-to-day internal control processes, the
information provided by the Executive
Leadership Team of ENWL and the in-depth
reporting required by Ofgem, both the Audit
Committee of ENWL and the Board are
satisfied that the Annual Report and
Consolidated Financial Statements taken as a
whole, provide a fair, balanced and
understandable assessment of the Group’s
position at 31 March 2022.
Risk Management
The Board is responsible for the alignment of
strategy and risk, and for maintaining a sound
system of risk management and internal
controls. Our processes and systems are
always evolving with the needs of our business
and have been developed in accordance with
the Financial Reporting Council’s (FRC’s)
Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting.
Our Corporate Risk Register currently details a
wide range of risks. These risks are considered
in the context of the corporate goals – Safety,
Customer, Affordability, Reliability,
Sustainability and People and monitored by a
business wide network of Risk Champions and
Co-ordinators.
The Company's approach to risk appetite goes
to the heart of achieving our company goals.
The electricity industry is embarking on a
journey of unprecedented change. As with any
business, the achievement of our goals
necessitates a certain level of risk being taken.
The key is ensuring that such a scale of change
is managed with a good understanding of the
risks involved, in a manner consistent with our
strategy, and importantly making sure that
these risks are managed within our agreed risk
appetite. Risks are only accepted when within
the risk appetite criteria, and when further
mitigation of the risk is not considered cost
effective (or is not possible).
Our appetite for risk is measured using a
framework which is reviewed annually by the
Board. The framework enables our Board to
demonstrate its risk appetite for the overall
strategic direction of the business, and maps
appetite for risk taking in the pursuit of each of
our company goals at a tactical and operational
level.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
40
Strategic Report (continued)
Risk Management (continued)
Risk appetite varies in these areas, but in line
with the framework, the Company generally
operates within a 'cautious' to 'very cautious'
risk range, given that the achievement of the
stretching business plan would not be possible
without a level of measured risk taking. In
Sustainability, a 'very cautious' risk appetite is
adopted, given our desire to ensure that the
company maintains its reputation for
compliance and an ethical way of doing
business, as well as the role the Company has
in the low carbon transition. Similarly, in
relation to People, the Company recognises
the value of its people and the organisational
climate in order to deliver effectively for our
customers so a cautious to very cautious
approach is adopted. In relation to Safety, the
Company adopts a risk averse position on the
basis that sound working practices that protect
our employees and the general public are a key
priority for the business and an important part
of ensuring that we undertake our activities
safely.
The Board has also added a new category
within the framework for Systems and Data,
recognising the strategic impact associated
with these as we increase the automation and
control of our network and introduce more
sophisticated systems to deliver for our
customers and stakeholders. It was agreed
that the Company should adopt a ‘very
cautious’ position for this category. This
recognised that the introduction of new
approaches is essential to enable the business
to respond to the challenges of facilitating the
Net Zero transition in the North West and the
risks associated with these need appropriate
management and controls.
The key features of the risk management
system include:
Clear risk management strategy approved
by the Board.
Risk appetite framework, approved
annually by the Board, in place that forms
a key driver of the strategic business plan.
Board oversight in identifying and
understanding significant risks (and
opportunities) to the Group in achieving
strategic objectives.
Dedicated Board and Executive
Committees to oversee the management
of risks for the Group.
Appropriate operational and non-
operational risks being managed within a
corporate risk system.
Target risk scores are in place for
corporate risks, forming the basis for the
production of work plans by risk owners
to show how the target risk scores will be
achieved.
The underpinning of the corporate
register by a number of local risk registers
across the business with a network of Risk
Co-ordinators which enhance the local
monitoring process.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
41
Strategic Report (continued)
Risk Management (continued)
Principal risks and uncertainties
In addition to the normal operating risks such as our failure to meet customer expectations, wider
global events, the cyber security threat and potential changes to the regulatory regime are considered
the most significant risks that we face currently.
Whilst we continue to monitor the risk associated with a future widespread outbreak of Covid-19, this
risk has evolved over the course of the last year. Our focus is increasingly on the consequential
impacts from the pandemic such as the disruption to the supply chain, which has been further
compounded by the restricted availability of key materials and components. Recent months have also
highlighted the potential for certain aspects of our activities to be disrupted by other Global Events,
such as the conflict in Ukraine. These events do pose a risk to our operations and are being monitored
to minimise this as far as is possible.
Climate change has the potential to increase risks and uncertainties for us in relation to our business
resilience and our ability to meet the expectations of our customers. We are actively engaged in
considering what this might mean for our own activities, as well as supporting our customers to
consider their own plans to mitigate the risks this may present.
Risk Mitigations
Global Events
Global Events
:
Certain aspects of ENWL’s
activities are affected by the
impact of wider global events,
including the conflict in Ukraine,
disruption in the wider supply
chain, Brexit and the
consequences of the Coronavirus
/COVID-19 pandemic, along with
the measures put in place by the
UK Government in response to
these. There have also been
some exceptional impacts to the
supply chain arising from these
events, including inflation and
economic disruption, that also
present challenges for the
business.
ENWL is recognised as a Critical National Infrastructure
provider and is in regular dialogue with both the UK
Government and the Regulator to minimise the effect of
the mitigation measures on its abilities to provide an
essential service to its customers.
ENWL has a series of existing Business Continuity and
Emergency plans. These have been further developed in
response to the events that have unfurled in recent
years.
Control measures have been implemented to the extent
possible to minimise the potential impact of the
situation on ENWL’s activities and are monitored by
members of the ELT.
Analysis and monitoring of supply chain risk was
strengthened during the COVID-19 pandemic and
continues to be used to understand particular
challenges facing the business in light of events such as
the post COVID-19 recovery period, disruption from the
invasion in Ukraine, and challenges facing key
components such as microchips.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
42
Strategic Report (continued)
Risk Management (continued)
Risk
Mitigations
Safety
Health, Safety and the
Environment:
Risk associated with unsafe
working practices, man-made
or naturally occurring hazards
that could cause harm to
people or the environment.
Board Health, Safety and Environment Committee
oversee this area.
Extensive policy and procedures to ensure a safe system
of work and environmental management.
Behavioural safety training programme across all areas
of the organisation.
Simple ‘Golden Rules’ to ensure strong safety approach
throughout the Company’s operations.
Robust ‘lessons learned’ exercises conducted to identify
root causes when safety or environmental issues occur.
Robust authorisation process to control who works on
the network and the activities that they can perform.
Annual programme of audits and an inspection regime.
Well-established hazard and safety observation
(including near miss) reporting in place.
Customer
Meeting our customers’
expectations:
Failure to meet the required
level of customer satisfaction
performance and to achieve
output deliverables, costs and
efficiencies against the
commitments made to our
customers in the RIIO-ED1
period.
A programme of improvement activities described in
more detail on pages 16-17 is being co-ordinated by the
Executive Leadership Team to optimise the Company’s
position against all elements of the customer
satisfaction measure.
Robust plans in place to achieve other commitment
targets, or outperform where possible.
Controls in place regarding the ongoing reporting of
performance against targets.
People
Developing our people:
Having an inadequately skilled
and experienced workforce to
deliver business objectives.
Resource and succession plans are in place, which are
subject to periodic Executive and Board level review.
Training delivered throughout the Company to ensure
employees are equipped to do their roles competently
and effectively.
Ethical Behaviour:
Inappropriate behaviour by
Board members, executive or
senior management bringing
the company into disrepute
Extensive policies in place regarding ethical conduct
within the business, including Anti-Bribery and
Corruption; Conflict of Interests; Ethics; Equality;
Internal Control & Governance; Modern Slavery and
Speak Up (Whistleblowing).
We continue to review and enhance the mitigations in
this area in line with emerging best practice. We are
corporate members of the Institute of Business Ethics.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
43
Strategic Report (continued)
Risk Management (continued)
Risk
Mitigations
Reliability
Cyber and physical security
threat:
Breach of our security regime
and access to key network
security systems by an
internal/external party.
Dedicated qualified personnel allocated to Cyber and
IT security.
A training programme in place to inform all users of the
risks of email and social engineering attacks.
A cyber risk assessment methodology implemented
within the Group.
Pre-employment screening for critical roles such as
System Administrators.
A strong governance and inspection regime to protect
infrastructure assets and operational capacity.
Physical and technological security measures, including
encryption of key laptops, preventing the loss of data.
Data Centre infrastructure providing enhanced security
monitoring and management tools, ‘next generation’
firewalls and network traffic analysis.
Ongoing security patching of critical systems.
Ongoing renewal and replacement programmes to
ensure hardware and software is refreshed on
appropriate timescales.
Periodic internal and external security reviews.
Key systems IT disaster recovery testing.
Physical security measures are in place to limit access
to sites.
Use of e-learning to promote awareness of Cyber
issues for all employees.
Personal
data:
Breach of regulations relating
to data protection and privacy
We continue to review and enhance the mitigations in
this area, in particular to do with the General Data
Protection Regulation (GDPR) requirements.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
44
Strategic Report (continued)
Risk Management (continued)
Risk
Mitigations
Sustainability
Government and regulator
policy:
The Company is subject to a
high degree of political,
regulatory and legislative
intervention, which can impact
both the current RIIO-ED1
period, and the settlement for
RIIO-ED2. The legal and
compliance framework can
change, leading to additional
compliance obligations, market
conditions, and reporting
requirements. A changing
political focus on the sector can
have a significant effect on
profitability.
The Company has dedicated Regulation and Legal
departments that provide advice and guidance
regarding the interpretation of political, regulatory and
legislative change.
There is ongoing engagement by the Company with the
Regulator and Government.
Parliament, in framing the Electricity Act, imposed
certain duties on Ofgem/GEMA to ensure that the
networks remain financeable for the long-term benefit
of customers.
There is regular engagement with the Board on political
and regulatory developments which may impact the
Company.
Business resilience:
Events outside of our control,
for example extreme weather
or medical emergencies,
affecting large areas, may
negatively impact the business.
The Company has comprehensive contingency plans for
network emergencies, including key contract resources
such as mobile generators and overhead line teams.
Business continuity testing on a regular basis.
Reciprocal arrangements with other network
operators.
Regulation and
c
ompliance
risk:
Compliance failure leading to
an adverse effect on the
business.
Overall governance and control framework in place,
including established compliance routines and
accountabilities, owned by the Executive Leadership
Team and ultimately the Board.
Specialist teams in place to ensure compliance and
assurance is carried out.
An internal audit programme focusing on the Group’s
key risk areas, including fraud, regulatory compliance
and business processes.
Established controls in place, including segregation of
duties and restricted access to systems.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
45
Strategic Report (continued)
Risk Management (continued)
Risk
Mitigations
Affordability
Financial risks:
The business is subject to
treasury, tax and liquidity risk
exposures, and under
performance of the pension
scheme investments, market
impacts and/or an increase in
the scheme liabilities which
would give rise to higher
contributions.
A formal treasury policy is in place to manage exposure
to counterparty, liquidity and market risk, overseen by
the Audit Committee.
A well-established monthly banking covenant
monitoring process.
Tax risk scoring.
Active monitoring of the pension scheme’s investments
carried out on a quarterly basis.
The pension scheme Trustee engages professional legal,
actuarial and investment advice for all decisions taken
and regularly consults with the Company, who also
engage professional advisors.
Programme delivery including
change programmes:
Delays in the investment
programme or major business
change activity leading to an
adverse impact on the
Company, particularly relating
to customer interruptions (CIs)
and customer minutes lost
performance (CMLs).
Established governance controls in place to oversee the
delivery of business change.
Processes in place to support delivery of change
programmes, management of risks and achievement of
business benefits.
For activity impacting CIs and CMLs performance, the
following mitigation measures are in place:
o Fault response times and team performance
are closely monitored.
o Supply interruptions planned to minimise
customer impact.
o Network automation to minimise the effect of
faults.
o Significant expenditure on routine
maintenance to reduce the causes of network
interruption.
o Initiatives to improve dispatch and
mobilisation of response teams.
Macro
-
economic
factors:
Factors, such as Retail Price
Index (RPI), may impact
negatively on the business.
Monitoring the potential exposure to fluctuating factors
through forecasts from a range of financial institutions.
Inflation sensitivities reported quarterly through the
business valuation process.
A significant proportion of our Group debt is RPI-linked
to provide an economic hedge between allowed
revenues and some of our financing costs.
The Strategic Report, outlined on pages 8 to 45, has been approved by the Board of Directors and
signed on behalf of the Board on 24 June 2022.
David Brocksom
Director
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
46
Corporate Governance Report
As is required by the Company’s regulator,
Ofgem, the Company reports on how the
principles and provisions of the UK Corporate
Governance Code (“the Code”) have been
applied during the year. There are some limited
areas of non-compliance, all of which are
considered appropriate to the privately owned
status of the Company and are explained on
page 52 to 53.
The Board
Board Members at 31 March 2022
Alistair Buchanan, CBE
Independent Non-Executive Director
Appointed on 25 July 2018
Alistair Buchanan has over 25 years’ experience
in the energy industry, including 10 years as
Chief Executive of Ofgem. In 2013 he joined
KPMG as Partner and UK Chairman of Power &
Utilities, returning to the firm where he trained
as a Chartered Accountant. During his career,
Alistair became an award-winning energy sector
analyst and head of research for banks in New
York and London. With experience at Board
level on various companies, he currently also
serves as an Independent Non-Executive on the
Board of Storegga Geotechnologies Limited.
Anne Baldock
Independent Non-Executive Director
Appointed on 26 September 2018
Anne Baldock was previously a partner for 22
years and global head of the Projects, Energy
and Infrastructure Group at the international
law firm Allen & Overy LLP. She has extensive
experience in advising energy companies,
charities and governmental boards on
significant contracts and projects. Now retired
as a solicitor, Anne has a portfolio of Non-
Executive Director positions which currently
include Pantheon Infrastructure PLC, East West
Rail Limited and Restoration and Renewal
Delivery Authority Limited.
Susan Cooklin
Independent Non-Executive Director
Appointed on 25 July 2018
Susan Cooklin retired as the Managing Director
of Route Services at Network Rail running a
portfolio of 60 services and leading a directorate
of 5,000 staff in March 2022. Over the last 15
years she has held senior executive roles in both
IT and business operations within FTSE top 20
companies in the UK, specialising in
transformational change. She has worked at
Board level for over 8 years with Non-Executive
Director positions on the Board of Leeds Beckett
University and Leeds Building Society. From
2013 - 2017 she ran the Could IT Be You
campaign to raise awareness of IT as a career for
young women. Susan currently serves as an
Independent Non-Executive Director on the
Board of Netcompany Group A/S which is listed
on the Nasdaq Copenhagen and the Spanish
company, Nortegas Energia Grupo S.L.U.
Rob Holden CBE
Independent Non-Executive Director
Appointed on 1 January 2016
Rob Holden combines a portfolio of Non-
Executive Directorships with consultancy roles.
As well as his Board role with NNB Generation
Company (SZC) Limited, he is currently Chairman
of London City Airport. His advisory assignments
in the UK have included work on HS2, Thames
Tideway Tunnel, the Type 26 Global Combat Ship
and the QE Carrier programmes. Overseas he
has worked in the USA and Singapore on High
Speed Rail projects and in Australia on a regional
rail project. Rob is a Chartered Accountant who
qualified with Arthur Young & Co (now Ernst &
Young LLP).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
47
Corporate Governance Report
(continued)
The Board (continued)
Peter O’Flaherty
Non-Executive Director
Appointed on 17 September 2019
Peter O’Flaherty is an asset management
Director at Equitix. Peter oversees the
management of a number of Equitix’s
investment funds with a combined investment
total of £1.4bn across 77 assets and a variety of
sectors such as network utilities, renewable
power, environmental services and social
infrastructure. He is also a Director on the Board
of Firmus Energy, a regulated gas distribution
network and gas supply business located in
Northern Ireland. He has over 20 years’
investment experience gained working in
banking, project finance and infrastructure
equity. Prior to joining Equitix Peter spent 13
years at NIBC Bank as a founding partner of its
European Infrastructure Fund. Peter was a
Board Director on a number of the fund’s
investments focusing on operationally intensive
investments and large corporates such as the
motorway service operator Welcome Break. In
2018 he led the divestment of the entire NIBC
fund. Peter has a BEng in Civil Engineering and
an MSc in Property Development and Planning.
Sion Jones
Non-Executive Director
Appointed on 20 August 2019
Sion Jones is employed by Equitix Limited as
Chief Operating Officer. He is approved by the
Financial Conduct Authority and oversees the
portfolio of managed funds. Prior to joining
Equitix, Sion was a partner at King Sturge where
he was responsible for asset and project
company management. There he established
the Corporate Finance division of King Sturge
with responsibility for creating institutional and
private equity real estate investment vehicles.
Sion has a BSc Honours in Chemistry from the
University of Southampton. He is a CFA charter
holder and holds an Investment Management
Certificate and a Certificate in Securities from
the Chartered Institute for Securities &
Investment.
Genping Pan
Non-Executive Director
Appointed 12 December 2019
Genping Pan is the Chief Investment Officer
at CNIC. He has been actively involved in
overseas investment projects and business
operations and management for over 10
years, and has gained extensive experience
in investment management, capital
operation and financial management.
Positions previously held by Pan include
Finance Manager of Oasis Oil Co. Ltd, Chief
Accountant of PetroChina (Venezuela) and
Financial Director of China Huaming
International Investment Corporation.
Shinichiro Sumitomo
Non-Executive Director
Appointed 8 January 2020
Shinichiro Sumitomo is employed by the Kansai
Electric Power Company which is one of the
leading electric utility companies based in
Osaka, Japan. He is the General Manager for
Asset Management of European and American
Assets. Since he joined Kansai Electric 25 years
ago, he has gained 15 years’ experience in
overseas investment in power assets including a
hydropower project in the Philippines, fossil
power projects in the south-east Asia region and
in the United States, and renewable power
projects in Europe.
Takeshi Tanaka
Non-Executive Director
Appointed on 25 June 2020
Takeshi Tanaka is employed by the Kansai
Transmission and Distribution, Inc. which build,
operate and maintain transmission and
distribution facilities throughout the Kansai area
in Japan. He is the General Manager for
International Business and Cooperation Group.
Tanaka has more than 20 years’ experience in
the field of power distribution such as serving as
a manager for several distribution offices
including 7 years’ experience technically
assisting with some distribution projects in
South East Asia.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
48
Corporate Governance Report
(continued)
The Board (continued)
Peter Emery
Chief Executive Officer
Appointed on 27 May 2016
Peter is a graduate engineer with 35 years’
experience in the Energy Sector. He spent
twenty years with Esso and ExxonMobil
specialising in strategic planning and operational
management, culminating in the appointment
to the position of Operations Manager at Fawley
Refinery, with full operational responsibility for
the UK’s largest refinery (330k barrels per day)
and a member of ExxonMobil’s European
Leadership Team for Refining and Supply.
In 2004 he joined the Board of Drax Power
Limited, the owner of the largest power station
in the UK (4,000 MW), as Production Director.
He was a member of the executive team which
completed the successful IPO (Initial Public
Offering) on the London Stock Exchange in
December 2005. After the flotation, Peter
played a leading role in converting Drax into a
major renewable generator and was Chairman
of Capture Power, the joint venture vehicle
responsible for the development of the White
Rose Carbon Capture and Storage Project.
In 2016 he was appointed as Chief Executive
Officer of Electricity North West Limited. The
focus of his work is to improve customer service
and the operational performance of the
business, whilst reducing the cost to serve. He is
also leading the change to a Distribution System
Operator (DSO) enabling the transition to a low
carbon economy in the North West. He is a
member of the Greater Manchester Green City
Region Partnership and the Greater Manchester
Strategic Infrastructure Board which are helping
the City region secure carbon neutrality by 2038.
In September 2012, Peter was appointed as a
Non-Executive Director of N.G. Bailey Group
Limited, a privately owned major electrical and
mechanical contractor based at Denton near
Ilkley, West Yorkshire. In 2014 he was appointed
to the Board of The York, North Yorkshire and
East Riding Local Enterprise Partnership (LEP)
where he is currently the Vice Chair. He is a
Fellow of the Institute of Materials, Minerals and
Mining.
David Brocksom
Chief Finance Officer
Appointed on 5 October 2015
David Brocksom joined the Company as interim
Chief Financial Officer in September 2013 and
has, with a short break at the start of 2015, been
with the Company since then, becoming a
Director in October 2015. Previously he has held
a number of Chief Financial Officer roles
including at UK Coal plc and Pace plc. He
qualified as a Chartered Accountant with Price
Waterhouse (now PricewaterhouseCoopers LLP
‘PwC’) and is also a member of the Institute for
Turnaround.
Shareholder appointed directors
Sion Jones, Takeshi Tanaka, Shinichiro
Sumitomo and Genping Pan are shareholder
appointed directors and have appointed
alternate directors during their time as Board
members. Sion Jones’s alternate is Achal
Bhuwania. Takeshi Tanaka’s alternate is Fukashi
Kumara and Kaoru Fukushima is the alternate to
Shinichiro Sumitomo. Genping Pan’s alternate is
Hailin Yu. Peter O’Flaherty is a shareholder
appointed director and has no alternate director
appointed. Alternate directors attend board
meetings where the principal director would be
otherwise unable to attend.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
49
Corporate Governance Report (continued)
The Board (continued)
Attendance at Board meetings
The Company Secretary attended all Board meetings during the year.
At the discretion of the Board, senior management were invited to attend meetings when appropriate
specific items were subject to discussions.
Where a Director was unable to attend a Board meeting, their views were canvassed by the Chairman
prior to the meeting.
The table below shows Board and Board Committee attendance during the year, for committee
members only. Informal meetings to discuss board member replacements are not included nor are
attendances by Directors at committee meetings where they are not formal members.
Board Member
Attended / Scheduled
ENWL
Board
Audit
Committee
Remuneration
Committee
Nominations
Committee
Health,
Safety and
Environment
Committee
Alistair Buchanan
9/9
-
3/3
1/1
-
Anne Baldock
9/9
6/6
-
-
3/3
Susan Cooklin
9/9
5/6
-
-
2/3
Rob Holden
9/9
6/6
-
-
-
Peter O’Flaherty
9/9
-
3/3
1/1
3/3
Sion Jones*
9/9 - 3/3 1/1 -
Genping Pan**
9/9
-
3/3
1/1
3/3
Shinichiro Sumitomo
9/9 - 3/3 1/1
Takeshi Tanaka
9/9
-
3/3
1/1
-
Peter Emery
9/9
-
-
-
-
David Brocksom
9/9
-
-
-
-
Alistair Buchanan
9/9
-
3/3
1/1
-
*At the 3 June 2021 Remuneration Committee meeting Peter O’Flaherty attended as alternate
director in place of Sion Jones. At two Board meetings Peter O’Flaherty attended as alternate director
in place of Sion Jones.
**At all the Health, Safety and Environment Committee meetings Zechao Liu attended as an alternate
Director in place of Genping Pan. Zechao Liu attended the 8 October 2021 Board meeting as an
alternate director in place of Genping Pan. At two Board meetings Hailin Yu attended as alternate
director in place of Genping Pan.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
50
Corporate Governance Report
(continued)
The Board (continued)
Diversity
The Board supports diversity in its broadest
sense and accordingly aims to ensure that its
number is made up of a diverse range of
experience, independence and expertise
appropriate to the industry in which it operates,
its operational business model and the extensive
financial, governance, regulatory risk
management and legal expertise required.
Diversity of the Board continues to be assessed
on a case by case basis as vacancies arise. This
is principally a matter for the Nominations
Committee.
Composition
The Board comprises four Non-Executive
Directors considered under the Code to be
independent, one of whom is the Chairman, and
five Non-Executive Directors representing the
four shareholders, together with two Executive
Directors. The Directors’ biographies are on
pages 46 to 48.
Two of the Independent Non-Executive
Directors, Susan Cooklin and Anne Baldock have
been named to Ofgem as fulfilling the role of
Sufficiently Independent Directors as required
by Ofgem. The role of the Sufficiently
Independent Director was introduced from 1
April 2014 as part of a range of enhancements
made to the ring-fence conditions in the
Company’s licence to protect consumers, should
a distribution operator experience financial
distress.
Leadership
The Board provides leadership of the Company,
ensuring it continues to balance the needs of
stakeholders while delivering the Company’s
strategy. Individually the Directors act in a way
that they consider will promote the long-term
success of the Company.
The role of the Chairman and the Chief Executive
Officer is separate, defined by clear role
descriptions set out in writing and agreed by the
Board.
The Chairman is responsible for the leadership
and governance of the Board, and the Chief
Executive Officer for the operational
management of the Company and
implementation of the strategy on the Board’s
behalf. The Chief Executive Officer is assisted by
his Executive Leadership Team that comprises
the operational unit directors.
Advice
All Directors are able to consult with the
Company Secretary, and the appointment and
removal of the Company Secretary is a matter
reserved for the Board.
Any individual Director, or the Board as a whole,
may take independent professional advice
relating to any aspect of their duties at the
Company’s expense. This is clearly stated in the
Terms of Reference of the Board and of its
Committees.
How the Board operates
The Board’s role is to promote the long-term
success of the Company and provide leadership
within a framework of effective controls. The
Board is responsible for approving the strategy
and for ensuring that there are suitable
resources to achieve it. In doing so, the Board
takes into account all stakeholders, including its
shareholders, employees, suppliers and the
communities in which it operates.
The Board has Terms of Reference that detail
matters specifically reserved for its decision,
including the approval of budgets and financial
results, assessment of new Board appointments,
dividend decisions, litigation which is material to
the Group, and Directors’ remuneration.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
51
Corporate Governance Report
(continued)
The Board (continued)
Evaluation
During March 2018, an externally facilitated
evaluation was undertaken by Lintstock Ltd,
who had no previous connection with the
Company. Following the completion of the sale
of the shares by the Shareholders to new
shareholders, Lintstock Ltd conducted a second
evaluation in June 2021. This constituted the
first evaluation of the Board and its composition
under the new ownership.
Training
The Chairman is responsible for ensuring that all
Directors update their skills, knowledge and
familiarity of the Company.
Directors regularly receive reports facilitating
greater awareness and understanding of the
Company, its regulatory environment and the
industry. The Board held five workshops and
two strategy meetings during the year aimed at
developing a greater understanding of the
Company’s operations and to explore strategic
matters in detail.
Committee members received detailed
presentations at meetings focusing on areas of
relevance to the Committee and Board
members are invited to workshops with
shareholder representatives which are able to
delve into areas of interest in greater detail.
The Chairman is also responsible for ensuring
that all new Directors receive a tailored
induction programme that reflects their
experience and position as either an Executive
or Non-Executive Director. This involves
meetings with the Board, the Company
Secretary, other members of the Executive and
Senior Leadership Teams and site visits.
Additional documentation is provided as
appropriate.
Appointments
The four independent Non-Executive Directors
are provided with a detailed letter of
appointment and are appointed for an initial
three-year term, to be reviewed every three
years thereafter, if they are reappointed.
The five other Non-Executive Directors are
appointed by the Company’s shareholders as
their representatives. The expected time
commitment required from Non-Executive
Directors is (minimum) fifteen to twenty days
per year and is detailed in their letter of
appointment.
On his appointment, Peter Emery was a Non-
Executive Director of NG Bailey Group Limited,
the Board agreed to his remaining a Non-
Executive Director with the proviso that when
he is due for re-election, this will be discussed
again with the ENWL Board.
Conflicts of interest
The Board has appropriate processes in place to
assess and manage any potential conflicts of
interest. As part of these procedures the Board:
Considers conflicts of interest as part of
the agenda for all meetings.
Asks Directors annually if there are any
changes to their conflict of interest
declarations, including appointments to
the Boards of other entities.
Keeps records and Board minutes
regarding any decisions made.
Maintains a company-wide conflicts of
interest register.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
52
Corporate Governance Report
(continued)
The Board (continued)
Areas of non-compliance with the UK
Corporate Governance Code
There are some areas where the Company does
not comply with the UK Corporate Governance
Code, all of which are due to its privately-owned
status and are discussed below. The Company
has endeavoured to comply with the spirit of the
Code throughout the accounts; there are areas
where compliance with the provision is either
impractical or inappropriate, outlined below.
Senior Independent Director
The Board has not appointed a Non-Executive
Director as a Senior Independent Director under
the Code. The Board meets the objectives
behind this requirement through its shareholder
representation on the Board.
Constitution of the Board
The Code states that half the Board should be
Independent Non-Executive Directors. As the
Company is privately-owned and all
shareholders are represented on the Board, it is
felt that the needs of shareholders are met
through their presence on the Board.
In addition to the two Sufficiently Independent
Directors required by Ofgem, there are two
further Independent Non-Executive Directors.
The Board considers that the four Independent
Non-Executive Directors offer an appropriate
perspective, allowing for the refreshment of its
Committees, meaningful individual participation
and effective collective decision making.
Annual election of Directors
The Board does not subject its Directors to
annual elections as the shareholder
representation on the Board allows the
opportunity to challenge a Director’s
performance directly rather than at an Annual
General Meeting.
Publication of the terms and conditions of Non-
Executive Directors
As a privately-owned company, the Company is
not required to provide a remuneration report
in line with the Large and Medium Sized
Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013
The purpose of the remuneration report is to
enable shareholders to exercise judgement over
directors’ remuneration. With the presence of
shareholder representatives on the
Remuneration Committee, this purpose is met
directly.
Engagement with stakeholders
As a privately-owned company, the Company
does not have a large or dispersed shareholder
base with which to communicate formally, nor
are there any minority shareholders. Therefore,
Annual General Meetings are not held.
Shareholders:
In addition to formal Board meetings and
workshop sessions, the meeting cycle includes
quarterly valuation workshops to focus on
financial and treasury matters and detailed
periodic workshops to meet the requirements of
strategic planning and more detailed
performance reviews. Board members are
invited to attend these meetings.
The Company works closely with its
shareholders and all shareholders endorse the
UK Stewardship Code and see their stewardship
commitments as a key feature of their
investment philosophy. They are committed to
maintaining the integrity and quality of the
markets in which they operate and allocate
investment capital to productive purposes,
while protecting and enhancing their clients’
capital over the longer term.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
53
Corporate Governance Report
(continued)
Areas of non-compliance with the UK
Corporate Governance Code (continued)
Workforce:
The Board has not utilised the methods in the
code for engagement with the workforce.
However, the workforce has a strong Trade
Union representation and regular meetings of
engagement take place both with
representatives and directly through workforce
meeting with the leadership team. The Board
has however appointed Susan Cooklin as our
NED employee representative. Susan is able to
facilitate a two-way flow of communication and
information between the Board and the
workforce.
Stakeholders:
The Company has strong and open relationships
with stakeholders, including Ofgem, local
government, schools, emergency services, MPs
and central government. There are a number of
key relationships and a vast range of public
sector stakeholders. The Company also engages
across the industry with electricity suppliers,
employees, contractors and other utilities, along
with research of customers’ opinions.
Our stakeholder engagement strategy is
outlined on pages 20-21.
Our stakeholder engagement work is
independently reviewed by our Customer
Engagement Group (CEG) and in doing so has
access to the Board and the Executive
Leadership Team. Throughout the year, the CEG
met monthly until production of its final report
in January 2022. The CEG has provided rigorous
scrutiny of our RIIO-ED2 Business Plan
throughout its development and gave its
support to the submitted RIIO-ED2 Business
Plan. The CEG will continue to meet on a regular
basis throughout the Ofgem Open Hearings and
Draft and Final Determinations processes.
Board Committees
The Board has an extensive workload and,
therefore, has delegated the detailed oversight
of certain items to five standing Committees and
one ad-hoc Committee:
Standard Committees meeting on a regular
pre-planned cycle
Audit Committee
*
Remuneration Committee
*
Nominations Committee
*
Health, Safety and Environment Committee
*
Use of Systems Pricing Committee
Ad hoc Committees meeting as required to
deal with their specific areas of business
Banking Committee
Financing Committee
The minutes of each Committee are made
available to the Board.
The Use of Systems Pricing Committee and the
Financing Committee meet annually (or more
frequently as necessary) to approve detail about
system pricing contained in Licence Condition 14
and financing transactions respectively.
*The terms of reference and membership of all
these Committees were reviewed and amended
during the year to ensure effective operation.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
54
Corporate Governance Report
(continued)
Report of the Audit Committee
The role and responsibilities of the Committee
are set out in its Terms of Reference which are
reviewed by the Committee and approved by
the Board annually. The Terms of Reference are
available on the Electricity North West Limited
website.
Membership and meetings
The Committee members are all Non-Executive
Directors. The Board is satisfied that the
Committee Chair, Rob Holden, as a Chartered
Accountant, has relevant financial experience.
Attendance by individual members is detailed in
the table on page 49.
There were a number of regular attendees, by
invitation, at appropriate Committee meetings
in whole or in part, including the Chief Executive
Officer, the Chief Financial Officer, the Head of
Risk, Control and Assurance and the external
auditor.
Over the course of the year, the Committee
Chair held separate meetings with both the lead
external audit partner at Deloitte LLP and with
the Head of Risk, Control and Assurance.
The Committee also met as a whole with the
external auditor without management present.
The Committee has also conducted a series of
meetings focussed on the Company’s ED2
Business Plan process.
The role of the Committee
The key responsibilities of the Audit Committee
are to:
Monitor the integrity of the financial
statements, including its annual and half-
yearly reports and to report to the Board
significant financial reporting issues and
judgements which they contain.
Monitor the independence, effectiveness
and remuneration of the external auditor.
Review the adequacy and effectiveness of
the Company’s internal financial controls
and internal control and risk management
systems and compliance with the UK
Corporate Governance Code.
Monitor the effectiveness of the Company’s
internal audit function.
Ensure that the Group’s treasury function is
effective and approve treasury transactions
in line with banking activity.
The significant matters considered by the
Committee during the year included:
Review of the 31 March 2021 Annual
Report and Consolidated Financial
Statements and the September 2021 half-
year report.
Evaluation of the effectiveness and scope of
the internal audit plan including
management response to audit reports.
Review of the scope and methodology of
the audit work to be undertaken by the
external auditor, their terms of
engagement and fees.
Overseeing the tender process for the
provision of external audit services to the
NWEN (Jersey) Group, resulting in a
recommendation to the Board on 31 March
2022 to appoint PriceWaterhouseCoopers
LLP for the audit services from the year
ending 31 March 2023.
Factors emerging from the COVID-19
pandemic, including the impact on the
internal control framework, including the
potential for enhanced cyber risk, and a
review of the going concern and viability
disclosures in this context.
During the year ended 31 March 2022, the
Committee revised its terms of reference and its
membership to reflect the changing
requirements of the Corporate Governance
Code and to ensure that the membership of the
Committee consists of independent non-
executive directors, and that the Chair of the
Board was not a member of the Committee.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
55
Corporate Governance Report
(continued)
Report of the Audit Committee
(continued)
The significant issues considered by the
Committee during the approval of the financial
statements to 31 March 2022 were:
Treasury accounting, particularly fair value
calculations and ensuring appropriate
disclosures. There is a risk, due to the
complexity of the financial instruments that
they are incorrectly valued, accounted for or
disclosed, resulting in a material error in the
financial statements or a material disclosure
deficiency. The Committee noted the
specialist advice received in this area and
compliance with appropriate accounting
standards in valuation and disclosure,
particularly with respect to the refinancing
during the year.
Management override of controls (In
accordance with ISA 240) with particular
consideration of controls surrounding journal
entries, accounting estimates for bias of
material misstatement and fraud,
adjustments made in the preparation of the
Group financial statements and the potential
manipulation of any incentive or
performance targets.
The risk of misstatement in revenue
recognition where considerations included
the calculation of unbilled revenue income.
Capital and revenue allocations and ensuring
the appropriate treatment of fixed asset
expenditure. The Committee considered the
management’s key controls and assumptions
applied to the capitalisation of overhead
costs. The assumptions, policies and
procedures in this area were considered
reasonable.
The level of estimation in assessing the
balance disclosed for group pension scheme
assets, the valuation of which was negatively
impacted by COVID-19 effect on asset prices
immediately prior to the balance sheet date.
External audit
The external auditor is engaged to express an
opinion on the Company and Group financial
statements. The audit includes the review and
testing of the data contained in the financial
statements to the extent necessary for
expressing an audit opinion on the truth and
fairness of the financial statements. This year’s
audit is the twentieth conducted by Deloitte LLP.
In accordance with UK regulations, the
Company’s auditor adheres to a mandatory
rotation policy and a new Group lead
engagement partner is appointed once their
predecessors have completed a term of five
years. A new lead engagement partner was
appointed in the year ended 31 March 2018 due
to his predecessor completing her five-year
term.
A tender process was completed in the year with
the award of the auditing services being made to
PricewaterhouseCoopers (PwC) with effect for
the audit for the financial year ending 31 March
2023.
To assess the effectiveness of the previous
year’s external audit, the Committee reviewed
the audit approach and strategy and the final
Deloitte LLP report to the Committee, as well as
receiving verbal feedback from the Board.
Auditor independence and the provision of
non-audit services
The Company has a formal policy on the use of
the auditor for non-audit work and the awarding
of such work is managed in order to ensure that
the auditor is able to conduct an independent
audit and is perceived to be independent by our
stakeholders.
In keeping with professional ethical standards,
Deloitte LLP also confirmed their independence
to the Committee and set out the supporting
evidence in their report to the Committee prior
to the publication of the Annual Report and
Consolidated Financial Statements.
The non-audit services provided by Deloitte LLP
during the year were in connection to Ofgem
regulatory requirements and financial covenant
compliance.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
56
Corporate Governance Report
(continued)
Internal control framework
The Committee, on behalf of the Board, is
responsible for reviewing the Company’s
internal control framework. This review is
consistent with the Code and covers all material
areas of the Group, including risk management
and compliance with controls. Further details of
risk management and internal controls are set
out on pages 39 to 45.
Whistleblowing arrangements
The Committee is responsible for reviewing the
Company’s Disclosure (Whistleblowing) policy
and any concerns raised through these channels
and management actions taken in response. A
revised policy was approved by the Committee
in January 2019 and ratified again in January
2021. In addition, a new Speak Up policy was
approved in December 2021. A confidential
service is provided by an external company
whereby employees can raise concerns by email
or telephone in confidence. Any matters
reported are investigated and escalated as
appropriate.
Committee effectiveness
The Committee formally reviewed its Terms of
Reference and its membership during the year
to ensure both remain fit for purpose and were
considered effective by the Board.
Fair, balanced and understandable
The Audit Committee was requested to assist
the Board in confirming that the Annual Report
is fair, balanced and understandable. As part of
its review, the Audit Committee took into
account the preparation process for the Annual
Report and Consolidated Financial Statements:
Detailed review and appropriate challenge
from key internal Group functions, such as
Risk, Control and Assurance, senior
managers and the Chief Financial Officer;
Formal sign-offs from the business area
senior managers, the finance managers and
Chief Financial Officer;
Group Audit Committee oversight,
involving a review of key financial reporting
judgements, review and appropriate
challenge on matters such as any changes
to significant accounting policies and
practices during the year, significant
adjustments and the going concern
assumption;
The involvement of qualified, professional
employees with an appropriate level of
expertise and experience throughout the
business; and
Engagement of a professional and
experienced external auditor, a framework
for full transparent disclosure of
information during the audit process and
post audit evaluation.
The Directors’ statement on a fair, balanced and
understandable Annual Report and
Consolidated Financial Statements is set out on
page 64.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
57
Corporate Governance Report
(continued)
Report of the Nominations Committee
The role and responsibilities of the Committee
are set out in its Terms of Reference and these
are available on the Company website. The
Committee’s responsibilities include keeping
under review the composition of the Board and
senior executives, identifying and nominating
candidates for approval by the Board to fill any
vacancies and succession planning for Directors
and other senior executives.
Membership and meetings
The Committee Chair is Alistair Buchanan,
Independent Non-Executive Director.
Composition of the Committee and attendance
by individual members at meetings is detailed
on page 49.
The Chief Executive Officer and external advisors
attend meetings at the invitation of the
Chairman of the Committee.
Diversity
As described in the Corporate Governance
report on page 50, the Board is committed to
diversity in its broadest sense and the
Nominations Committee ensures this remains
central to recruitment and succession planning.
Progress is reviewed periodically by the Board.
Report of the Remuneration
Committee
The Committee’s role is to determine the
remuneration structure for the Executive
Directors to ensure that it balances appropriate
reward with the creation of long-term value and
sustainability of the network. The Terms of
Reference for the Committee are available on
the Electricity North West Limited website.
It is also responsible for the review of the
remuneration of other members of the
Executive Leadership Team to ensure the
structure and levels of remuneration
appropriately incentivise these individuals to
achieve the Company’s strategic objectives.
The Committee has been joined by invitation
during the year by the Chief Executive Officer
and the Chief Financial Officer. They do not
attend for any discussions in which they are
individually discussed.
Membership and meetings
The Committee Chair is Sion Jones, Non-
Executive Director. Composition of the
Committee and attendance by individual
members is detailed on page 49.
Role of the Committee
The Committee reviews and approves the
overall remuneration levels of employees below
senior management level, but does not set
remuneration for these individuals. This
oversight role allows the Committee to take into
account pay policies and employment
conditions across the Group.
The Committee is of the opinion that the
remuneration structure, designed for the RIIO-
ED1 period, reflects the strategic direction of the
business and will promote the long-term success
of the Company.
Share options are not offered as an incentive to
either Executive or Non-Executive Directors as
the Company is privately-owned.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
58
Corporate Governance Report (continued)
The table below sets out the nature of the remuneration of the Executive Directors:
Element Purpose and link to strategy Framework
Basic Salary Basic salary provides the core reward
for the role. Salaries are set at a
sufficient level to attract and retain
high calibre individuals who can deliver
the Group’s strategic objectives.
External advice is taken on all
remuneration to ensure that it remains
effective and appropriate. Levels of
basic salary are benchmarked and will
also reflect the Director’s experience
and time at Director level.
Benefits Other benefits provided are designed,
as with basic salary, to provide a
competitive but not excessive reward
package.
In addition to basic salary, Directors are
provided with a car allowance and
private medical insurance.
Executive
Incentive Plan
(EIP)
Executive Directors are members of
the Executive Incentive Plan which was
introduced in April 2015 to reward
both in-year performance and
incentivise strategic and innovative
behaviours over the longer-term,
aligned to shareholder objectives.
The EIP works on a balanced scorecard
approach, containing short-term
metrics to evaluate in-year
performance and longer-term
measures promoting a strategic focus
and sustainable performance.
Partial payments are made each year
based on achievement against the
balanced scorecard, with additional
payments made following years 4 and 8
of the regulatory period to ensure the
balance of short and long-term
incentivisation is retained.
Following Health & Safety best
practice, Safety is considered to be an
essential part of any role and Directors,
therefore, receive no Health & Safety
related incentives. However, a range of
safety performance measures act as a
gateway to the earning of bonuses.
Pension Directors are offered the same level of
defined contribution benefits as all
other employees, or a taxable payment
in lieu.
No Director is a member of the defined
benefit scheme which is now closed to
new members.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
59
Corporate Governance Report
(continued)
CEO pay ratio
Further to recent regulation changes, effective
for financial years commencing on or after 1
January 2019, companies with more than 250
employees and which are quoted on the UK
Official List are required to publish information
on their CEO pay ratio. The requirement is to
publish total CEO remuneration compared to
the 25
th
, 50
th
and 75
th
percentile total
remuneration of full-time equivalent UK
employees.
There are three methodologies that companies
can choose to report their pay ratio, known as
Option A, B and C. The government preference,
and most accurate reporting method, is Option
A. ENWL have elected to use this method,
consistent with previous years, which enables
us to compare total remuneration for the
financial year ended 31 March 2022, in line
with the pay gap requirements.
The following tables set out this information
for total remuneration
4
(which is inclusive of
bonus, long term executive incentive
payments, additional allowances or payments,
benefit in kind and employer pension
contributions).
Bonus payments are linked closely to Company
performance and the timing of maturity of long
term incentive arrangements, so may fluctuate
year on year. We have, therefore, also included
a comparison of total remuneration excluding
bonus and long-term incentive awards.
The pay gap, excluding bonus, has remained
static from last year. There has been a slight
increase in total remuneration from the
previous year, but our Executive Pay Gap is
well below the national average in comparison.
Employee remuneration amounts for each
percentile are shown in table 2 on the right.
4
The remuneration of employees who did not receive a
full year’s pay have been excluded to ensure the
comparison is fair and equitable. For example, employees
25
th
percentile
50
th
percentile
75
th
percentile
2022 Pay
excluding
bonus
1:13 1:9 1:7
2022 Total
remuneration
including
bonus
1:23 1:17 1:12
2021 Pay
excluding
bonus
1:13 1:9 1:7
2021 Total
remuneration
including
bonus
1:20 1:14 1:10
Employee total remuneration is shown in the
table below.
25
th
percentile
50
th
percentile
75
th
percentile
2022 Pay
excluding
bonus
£39,172 £53,838 £72,193
2022 Total
remuneration
£40,849 £56,407 £76,193
2021 Pay
excluding
bonus
£36,781 £52,542 £71,031
2021 Total
remuneration
£38,296 £54,753 £74,364
on reduced pay due to statutory absence, those with part
year service have been excluded.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
60
Corporate Governance Report
(continued)
Report of the Health, Safety and
Environment Committee
The Committee continues to develop the
Company’s health, safety and environment
strategies, agrees targets and monitors
Company performance in these areas. It
regularly challenges the executive and the
health, safety and environment team to look at
new initiatives and work with other
organisations.
Membership and meetings
The Committee Chair is Susan Cooklin,
Independent Non-Executive Director.
Composition of the Committee and attendance
by individual members is detailed on page 49.
Meetings are also attended by executives in
charge of operationally focused directorates.
The role of the Committee
The Committee has designated authority from
the Board set out in its Terms of Reference
which are published on the Company website.
The primary purpose of the Committee is to:
Set the corporate health, safety and
environment strategy, objectives, targets
and programmes.
Monitor performance in these areas with a
view to:
- minimising risk;
- ensuring legal compliance;
- responding to significant events; and
- ensuring significant resources are
allocated for the control of health,
safety and environmental risks.
Report to the Board developments, trends
and/or forthcoming legislation in relation
to the health, safety and environmental
matters which may be relevant to the
Company’s operations, assets or
employees.
Review the Company’s external reporting
in this area and regulatory disclosures.
At every meeting, the Committee receives and
discusses in detail a Health, Safety and
Environment performance report for the
preceding period, prepared and presented by
the Head of Safety and Policy who attends
every meeting.
The Health and Safety committee has reviewed
the Company’s COVID-19 health and safety
strategy at each meeting. The Board continue
to be regularly updated on the situation.
At each meeting the Committee reviews
Health and Safety risks recorded on the
Company’s risk register.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
61
Directors’ Report
The Directors present their Annual Report and
Consolidated Financial Statements of
Electricity North West Limited (“the
Company”) and its subsidiaries (together
referred to as “the Group”) for the year ended
31 March 2022.
Information contained in Strategic Report
As permitted by section 414C of the
Companies Act 2006, certain information
required to be included in the Directors’
Report has been included in the Strategic
Report. Specifically, this relates to:
• information in respect of employee matters
(including actions taken to introduce, maintain
or develop arrangements aimed at employees,
details on how the directors have engaged with
employees and had regard to employee
interests, our approach to investing in and
rewarding the workforce, employee diversity
and the employment, training and
advancement of disabled persons)
• likely future developments
• risk management
• details on how the directors have had regard
to the need to foster business relationships
with stakeholders
• greenhouse gas emissions
Dividends
During the year ended 31 March 2022, the
Company declared an interim dividend of
£81m, paid in December 2021 (2021: £31m).
There Company declared a final dividend for
the year ended 31 March 2021 of £16m that
was paid in June 2021; the Company did not
declare a final dividend for the year ended 31
March 2020.
The Directors have proposed a final dividend of
£23.0m for the year ended 31 March 2022.
Details of the Group’s dividend policy can be
found in the Strategic Report.
Ultimate parent undertaking and controlling
party
The immediate parent undertaking is NWEN
plc, a company incorporated and registered in
the United Kingdom. The ultimate parent
undertaking is North West Electricity Networks
(Jersey) Limited (“NWEN (Jersey)”), a company
incorporated and registered in Jersey.
The ownership of the shares in NWEN (Jersey)
and, therefore, the ultimate controlling parties
of the Company are:
KDM Power Limited (40.0%);
Equitix ENW 6 Limited (25.0%);
Equitix MA North HoldCo Limited (15.0%);
and
Swingford Holdings Corporation Limited
(20.0%).
Directors
The Directors of the Company during the year
ended 31 March 2022 and to date are set out
below. Directors served for the whole year,
and to the date of this report, except where
otherwise indicated.
Executive Directors
D Brocksom
P Emery
Non-executive Directors
A E Baldock
A Buchanan
S Cooklin
R D Holden
S Jones
G Pan
S Sumitomo
P O’Flaherty
T Tanaka
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
62
Directors’ Report (continued)
Alternate Directors during the year were:
A Bhuwania
K Fukushima
F Kumura
H Yu
Sion Jones, Takeshi Tanaka, Shinichiro
Sumitomo and Genping Pan are shareholder
appointed directors and have appointed
alternate Directors during their time as Board
members. Sion Jones’s alternate is Achal
Bhuwania. Takeshi Tanaka’s alternate is
Fukashi Kumara and Shinichiro Sumitomo’s
alternate is Kaoru Fukushima. Hailin Yu is the
alternate to Genping Pan.
At no time during the year did any Director
have a material interest in any contract or
arrangement which was significant in relation
to the Group’s business.
Directors’ and Officers’ insurance
The Group maintains an appropriate level of
directors’ and officers’ insurance whereby
directors are indemnified against liabilities to
third parties to the extent permitted by the
Companies Act.
The insurance is a group policy, held in the
name of the ultimate parent North West
Electricity Networks (Jersey) Ltd (“NWEN
(Jersey)”) and is for the benefit of that
company and all its subsidiaries.
People
The Group’s policies on employee consultation
and involvement, the treatment of disabled
employees and on equality and diversity across
all areas of the business are contained within
the People section of the Strategic Report.
Engagement with employees
Details of Director engagement with
employees can be found within the Strategic
Report.
Engagement with suppliers, customers and
others
Details of the Directors’ approach to fostering
the Company’s business relationships with
suppliers, customers and others can be found
within the Strategic Report.
Corporate Social Responsibility
Details of the Group’s approach to Corporate
Social Responsibility can be found in the
Strategic Report.
Research and development
The Group is committed to developing
innovative and cost-effective solutions for
providing high quality services and reliability to
our customers, and for the benefit of the wider
community and the development of the
network, as further detailed in the Strategic
Report. During the year ended 31 March 2022
the Group incurred £2.5m of expenditure on
research and development (2020: £2.3m), see
Note 5.
Greenhouse gas emissions
Further details on greenhouse gas emissions
are provided in the Business Carbon Footprint
section of the Strategic Report.
Financial instruments
The risk management objectives and policies of
the Group in relation to the use of financial
instruments can be found in the Strategic
Report and in Note 21.
Capital structure
The Company’s capital structure is set out in
Note 28.
Events after the Balance Sheet date
There are no events after the balance sheet
date that require disclosure.
Future developments
Details of the future developments of the
Group can be found in the Chief Executive
Officer’s Statement and Strategic Report.
There are no planned changes to the business
activities of the Company.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
63
Directors’ Report (continued)
Information given to the auditor
Each of the persons who are a Director at the
date of approval of this Annual Report
confirms that:
(1) so far as the Director is aware, there is
no relevant audit information of which
the Company's auditor is unaware; and
(2) each Director has taken all the 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.
This confirmation is given and should be
interpreted in accordance with the provisions
of s418 of the Companies Act 2006.
Independent auditor
Deloitte LLP, Statutory Auditor, Manchester,
United Kingdom has been the auditor of the
Group since 2002, and in accordance with legal
and regulatory requirements, will be resigning
as auditor following completion of the audit for
the year ended 31 March 2022. Following a
tender process in early 2022, the Audit
Committee recommended to the Board that
PricewaterhouseCoopers LLP (PwC) be
appointed as the Group’s auditor for the
financial year beginning on 1 April 2022.
Registered address
The Company is registered in England, the
United Kingdom, at the following address:
Registered number: 02366949
Approved by the Board on 24 June 2022 and
signed on its behalf by:
David Brocksom
Director
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
64
Directors’ Responsibilities Statement
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 have elected to
prepare the financial statements in accordance
with United Kingdom adopted international
accounting standards and 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 of the financial reporting
framework 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 company'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.
Responsibility statement
We confirm that to the best of our knowledge:
the financial statements, prepared in
accordance with International Financial
Reporting Standards as adopted by the
relevant financial reporting framework,
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.
This responsibility statement was approved by
the Board of Directors on 24 June 2022 and is
signed on its behalf by:
David Brocksom
Director
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
65
Independent Auditor’s Report to the Members of Electricity North West Limited
Report on the audit of the financial statements
1. Opinion
In our opinion:
the financial statements of Electricity North West Limited (the ‘parent company’, ‘ENWL’) 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 March 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;
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 statements of profit or loss;
the consolidated and company statements of comprehensive income;
the consolidated and parent company statements of financial position;
the consolidated and parent company statements of changes in equity;
the consolidated and parent company cash flow statements;
the statement of accounting policies; and
the related Notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and
United Kingdom adopted international accounting standards and, as regards the parent company
financial statements, as applied in accordance with the provisions of the Companies Act 2006.
2. 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 5 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.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
66
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
1. Treasury accounting
2. Inappropriate capitalisation of costs
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 £4.5m which
was determined on the basis of 4.3% of adjusted profit before tax.
Scoping All audit work for the Group was performed directly by the Group engagement
team.
Significant changes in
our approach
There have been no significant changes in our audit approach in the current year.
4. 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:
reviewed management’s forecasts for the management’s going concern period review
covering to the end of 2025;
assessed the significance and ongoing development of the COVID-19 pandemic;
assessed the significance of energy supplier failures in FY22 and the Supplier of Last Resort
regime;
considered short-term liquidity and the financing facilities available;
considered linkage to business model and medium-term risks, including the forthcoming RIIO
ED-2 regulatory period;
performed sensitivity analysis; and
considered the 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.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
67
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
5. 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.
5.1. Treasury accounting
Key audit matter
description
Treasury is a complex area and includes the accounting for material financial
instruments including index-linked swaps and the application of the credit risk
under IFRS13. Due to the complexity of the accounting, there is a risk that these
instruments are incorrectly valued, accounted for or disclosed in the financial
statements which may result in a material error. The areas of focus are the
assumptions in management’s derivative valuation model and the fair value of the
index-linked swap portfolio, including any credit adjustment made under IFRS 13.
As at 31 March 2022 ENWL held derivative financial instruments, being a portfolio
of index-linked swaps liabilities, with a fair value of £551.4m (2021: £475.8m) as
disclosed in Note 21 to the financial statements. Total fair value movements in the
year were £76.5m loss (2021: £57.9m loss) as per Note 9 to the financial statements.
See also the Audit Committee’s Report on page 55 where treasury accounting is
discussed as a significant risk, the accounting policy on financial instruments in Note
2 to the financial statements and the associated critical accounting judgement and
key sources of estimation uncertainty in Note 3 to the financial statements.
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of the relevant controls over the inputs used within
the calculation of the fair value of derivatives.
In performing the procedures below, we involved our financial instrument
specialists due to the complexity of the financial instruments held in the Group.
We performed work on management’s derivative valuation model and the
assumptions employed, and performed a recalculation of fair value of the index-
linked swap portfolio, including an assessment of the application of credit risk under
IFRS 13. We also evaluated the disclosures in the financial statements.
Key observations From the work performed we are satisfied that the valuation, accounting and
disclosures of the Group’s portfolio index-linked swaps is appropriately stated as at
31 March 2022.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
68
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
5.2. Inappropriate capitalisation of costs
Key audit matter
description
This key audit matter relates to the judgmental overhead absorption percentage
rates applied to costs initially recorded as overhead expenditure and subsequently
capitalised into fixed assets. In particular we focused on those judgmental areas of
overhead absorption, for example employee costs and fault costs, where the split
between capital projects and repair and maintenance is judgemental.
Given the significant level of judgement involved, we considered this a potential
fraud risk area. The effect of inappropriate capitalisation of costs from a financial
statement perspective is that items which are capital in nature are expensed, whilst
items which are expenditure in nature are, conversely, capitalised. Given the
magnitude of overheads capitalised in the business the impact could be material.
Total employee costs are £134.1m in the year (2021: £133.7m), of which £73.2m
(2021: £74.6m) has been capitalised directly to fixed assets. Fault costs totalled
£40.9m (2021: £33.4m) of which £23.6m (2021: £22.1m) had been capitalised.
See also the Audit Committee’s Report on page 55 where overhead absorption is
discussed as a significant issue, the accounting policy for tangible fixed assets in
Note 2 to the financial statements and the associated critical accounting judgement
and key sources of estimation uncertainty in Note 3.
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of the relevant controls over the inputs used within
the calculation of overhead absorption rates for employee costs and judgemental
areas such as fault costs.
We have reviewed the Company’s assumptions, policies and procedures with
regards to overhead absorption and compared these to the balances capitalised. In
respect of overhead absorption we have considered the relative percentage
capitalisation by function/operational area in the business and reviewed the key
assumptions made by management including testing on a sample basis to
appropriate support.
As part of our audit of tangible fixed assets we tested a sample of additions to
consider whether those items are capital in nature. A sample of capital projects
were reviewed in detail, with discussions and supporting documentation obtained
from project managers in order to better understand those projects and determine
the specific nature of the spend and method of overhead absorption.
Key observations From the work performed we are satisfied that the assumptions made in respect of
the rates of overhead absorption applied in the business are reasonable as at 31
March 2022.
6. Our application of materiality
6.1. 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.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
69
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
Based on our professional judgement, we determined materiality for the financial statements as a
whole as follows:
Group financial statements Parent company financial statements
Materiality
£4.5m (2021: £4.1m) £4.49m (2021: £4.09m)
Basis for
determining
materiality
4.3% of adjusted pre-tax profit, being
profit pre-tax and fair value movements.
Parent company materiality equates to
99% of net assets, which is capped at
99% of Group materiality.
Rationale for
the benchmark
applied
Adjusted pre-tax profit is deemed
suitable as this removes the volatile fair
value movements of the financial
derivatives held, for which no formal
hedge accounting is applied, and
therefore creates a stable basis for the
determination or our materiality.
Adjusted pre-tax profit is further
determined to be a key metric used by
the users of the financial statements of
regulated utilities.
As the parent company contains almost
all of the group’s net assets, this is
deemed a suitable benchmark for the
determination of materiality.
6.2. Performance materiality
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.
Group financial statements Parent company financial statements
Performance
materiality
70% (2021: 70%) of group materiality
70% (2021: 70%) of parent company
materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we considered the following factors:
our risk assessment, including our assessment of the group’s overall control
environment; and
our past experience of the audit, which has indicated a low number of
corrected and uncorrected misstatements identified in prior periods.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
70
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in
excess of £0.1m (2021: £0.1m), as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
The scope of our audit work was determined by obtaining an understanding of the group and its
environment, and assessing the risks of material misstatement at the group level. Audit work to
respond to the risks of material misstatement was performed directly by the group audit engagement
team.
Given the nature of the Group’s corporate structure where all evidence relating to each entity is
compiled at the Group’s head office and statutory audits are required for the non-dormant entities
within the Group, we performed a full scope audit covering 100% (PY: 100%) of the Group’s companies
and accordingly our audit work achieved coverage of 100% of the Group’s total assets, revenue and
profit.
Component materiality level was capped at £4.49m (2021:£4.09m).
We have also tested the consolidation process.
8. 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.
9. 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.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
71
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
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.
10. 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.
11. 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.
11.1. 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 audit committee 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;
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, valuations, pensions, IT and financial instrument specialists regarding how and
where fraud might occur in the financial statements and any potential indicators of fraud.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
72
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
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 inappropriate
capitalisation of costs. 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 frameworks 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, 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 licence.
11.2. Audit response to risks identified
As a result of performing the above, we identified inappropriate capitalisation of costs as a key audit
matter 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 audit committee and external 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 the licensing authority 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.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
73
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
Report on other legal and regulatory requirements
12. 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.
13. Matters on which we are required to report by exception
13.1. 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.
13.2. 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.
14. Other matters which we are required to address
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders in
2002 to audit the financial statements for the year ending 31 March 2003 and subsequent financial
periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 20 years, covering the years ending 31 March 2003 to 31 March 2022.
14.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to
provide in accordance with ISAs (UK).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
74
Independent Auditor’s Report to the Members of Electricity North West Limited
(continued)
15. 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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule
(DTR) 4.1.14R, these financial statements form part of the European Single Electronic Format (ESEF)
prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in
accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides
no assurance over whether the annual financial report has been prepared using the single electronic
format specified in the ESEF RTS.
Christopher Robertson (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Manchester, United Kingdom
24 June 2022
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
75
Financial Statements
Consolidated and Company Statement of Profit or Loss and Other Comprehensive
Income
for the year ended 31 March 2022
Group and
Company
2022
Group and
Company
2021
Note
£m
£m
Revenue
4
Employee costs
5,6
(60.9 )
(59.1 )
Depreciation and amortisation expense
5
(
)
(125.9 )
Other operating costs
(103.6 )
(88.7 )
Total operating expenses
(
)
(273.7 )
Operating profit
5
Investment income
8
Finance expense
9
(
)
(112.2 )
Profit before taxation
Taxation
10
(
)
(11.4 )
(Loss)/ p
rofit for the year attributable to equity
shareholders of the Company (33.1 )
Other comprehensive income/ (expense):
Items that will not be reclassified subsequently to profit or
loss:
Re
-
measurement of net defined benefit scheme
22
(55.7 )
Deferred tax on re
-
measurement of defined benefit
scheme
2
4
(
)
Adjustment of brought forward deferred tax
on re
-
measurement of defined benefit scheme
due to change
in future tax rates
2
4
Other comprehensive
income
/ (expense)
for the year
(45.1 )
Total comprehensive
income for the year attributable to
shareholders of the Company 31.4
The results for the current and prior year are derived from continuing operations.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
76
Consolidated Statement of Financial Position
as at 31 March 2022 Restated*
Restated*
1 April
202
2
202
1
202
0
Note
£m
£m
£m
ASSETS
Non
-
current assets
Intangible assets and goodwill
12
Property, plant
and equipment
13
Inter
-
company derivative asset
21
Retirement benefit surplus
22
Current assets
Inventories
15
Trade and other receivables
16
Cash and cash equivalents
17,21
Total assets
LIABILITIES
Current liabilities
Trade and other payables
18
(164.2 )
(142.7 )
(
)
Current income tax liabilities
(
)
(9.0 )
(
)
Borrowings
19
(
)
(208.2 )
(
)
Provisions
2
5
(0.6 )
(0.4 )
(0.1 )
(
)
(360.3 )
(140.0 )
Net current
(liabilities)/
assets
(
)
(9.6 )
Non
-
current liabilities
Borrowings
19
(1,192.9 )
(1,264.1 )
(1,196.7 )
Derivative
liabilities
21
(
)
(
)
(
)
Retirement benefit deficit
22
(68.6 )
(
)
Customer contributions
23
(686.5 )
(667.8 )
(
)
Deferred tax
24
(
)
(135.8 )
(155.8 )
Provisions
25
(1.0 )
(1.3 )
(1.7 )
(
)
(2,980.1 ) (2,794.8 )
Total liabilities
(
)
(
)
(
)
Total net assets
EQUITY
Called up share capital
2
6
,2
7
Share premium account
2
7
Revaluation reserve
2
7
Capital redemption reserve
2
7
Retained
earnings
2
7
Total equity
*The comparative information has been restated; for more details see Note 1.
The financial statements of Electricity North West Limited (registered number 02366949) were
approved and authorised for issue by the Board of Directors on 24 June 2022 signed on its behalf by:
David Brocksom,
Director
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
77
Company Statement of Financial Position
as at 31 March 2022 Restated*
Restated*
1 April
202
2
202
1
202
0
Note
£m
£m
£m
ASSETS
Non
-
current assets
Intangible assets and goodwill
12
58.9
59.5
53.8
Property, plant and equipment
13
3,
5
12
.
1
3,431.5
3,361.6
Inter
-
company
derivative asset
21
408.8
367.6
341.3
Investment
in subsidiarie
s
14
15.4
15.4
15.4
Retirement benefit surplus
22
18.4
-
-
4,
013
.
6
3,
874.0
3,
772
.
1
Current assets
Inventories
15
18.1
14.0
10.8
Trade and other receivables
16
80.0
75.3
63.4
Cash and cash equivalents
17,21
59
.4
322.4
56.2
157.5
411.7
130.4
Total assets
4,
171
.
1
4,285.7
3,902.5
LIABILITIES
Current liabilities
Trade and other payables
18
(
179.9
)
(158.4)
(
141.9
)
Current income tax liabilities
(
6.2
)
(
9.0
)
(4.8)
Borrowings
19
(
93
.2)
(208.2)
(8.9)
Provisions
2
5
(0.
6
)
(0.4)
(0.1)
(
279.9
)
(
376.0
)
(
155.7
)
Net current
(liabilities)/
assets
(
122.4)
35.7
(
25.3
)
Non
-
current liabilities
Borrowings
19
(1,
192.9
)
(1,264.1)
(1,196.7)
Derivative
liabilities
21
(
960.2
)
(
842.5
)
(758.2)
Retirement benefit deficit
22
-
(68.6)
(26.3)
Customer contributions
23
(686.5)
(667.8)
(656.1)
Deferred tax
24
(
186.7
)
(
135.8
)
(155.8)
Provisions
25
(1.0)
(1.3)
(1.7)
(
3,027.3
)
(2,
980.1
)
(2,794.8)
Total liabilities
(
3,307.2
)
(
3,356.1
)
(
2,950.5
)
Total net assets
863.9
929.6
952.0
EQUITY
Called up share capital
2
6
,2
7
238.4
238.4
238.4
Share premium account
2
7
4.4
4.4
4.4
Revaluation reserve
2
7
74.1
81.9
84.1
Capital redemption reserve
2
7
8.6
8.6
8.6
Retained
earnings
2
7
538.4
596.3
616.
5
Total equity
863.9
929.6
952.
0
*The comparative information has been restated; for more details see Note 1.
The financial statements of Electricity North West Limited (registered number 02366949) were
approved and authorised for issue by the Board of Directors on 24 June 2022 signed on its behalf by:
David Brocksom,
Director
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
78
Consolidated Statement of Changes in Equity
for the year ended 31 March 2022
Called up share
capital
Share premium
account
Revaluation reserve
Capital redemption
reserve
Retained earnings
Total Equity
£m
£m
£m
£m
£m
£m
At 1 April 20
20
Profit for the year
Other comprehensive expense for the year
(45.1 )
(45.1 )
Transfer from revaluation reserve
(2.2 )
Total comprehensive
(expense)/
income for the
year - - (2.2 ) - 10.5 8.3
Transactions with owners recorded directly in
equity
D
ividends (Note 11)
(30.7 )
(30.7 )
At 31 March 2021 238.4 4.4 81.9 8.6 596.6 929.9
Loss
for the year
(
)
(
)
Other comprehensive
income
for the year
Transfer from revaluation reserve
(7.8 ) - 7.8
Total comprehensive
(expense)/
income for the
year - - (7.8 ) - 39.2
Transactions with owners recorded directly in
equity
D
ividends (Note 11)
(
)
(
)
At 31 March 202
2
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
79
Company Statement of Changes in Equity
for the year ended 31 March 2022
Called up share
capital
Share premium
account
Revaluation reserve
Capital redemption
reserve
Retained earnings
Total Equity
£m
£m
£m
£m
£m
£m
At 1 April 20
20
238.4
4.4
84.1
8.6
616.5
952.0
Profit for the year
-
-
-
-
53.4
53.4
Other comprehensive
expens
e
for the year
-
-
-
-
(45.1)
(45.1)
Transfer from revaluation reserve
-
-
(2.2)
-
2.2
-
Total comprehensive
(expense)/
income for the
year
-
-
(2.2)
-
10.5
8.3
Transactions with owners recorded directly in
equity
D
ividends (Note 11)
-
-
-
-
(30.7)
(30.7)
At 31 March 202
1
238.4
4.4
81.9
8.6
596.3
929.6
Loss
for the year
-
-
-
-
(
33.1
)
(
33.1
)
Other comprehensive
income
for the year
-
-
-
-
64.5
64.5
Transfer from revaluation reserve
-
-
(
7
.8
)
-
7
.8
-
Total comprehensive
(expense)/
income for the
year
-
-
(
7
.8
)
-
39.2
31.4
Transactions with owners recorded directly in
equity
D
ividends (Note 11)
-
-
-
-
(
97.1
)
(
97.1
)
At 31 March 202
2
238.4
4.4
7
4
.1
8.6
538.4
863.9
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
80
Consolidated and Company Statement of Cash Flows
for the year ended 31 March 2022
Group and
Company
Group and
Company
Note
20
2
2
£m
20
2
1
£m
Operating activities
Cash
generated from operations
3
1
Interest paid
(54.1 )
(51.2 )
Interest portion of lease liabilities
20
(0.2 )
(0.2 )
Tax paid
(
)
(16.6 )
Net cash generated from operating activities
Investing activities
Interest
received and similar income
Purchase of property, plant and equipment
(196.5 )
(185.3 )
Purchase of intangible assets
(
)
(8.6 )
Customer contributions received
Proceeds from sale of property, plant and equipment
Net
cash used in investing activities
(156.0 )
(158.0 )
Net cash flow before financing activities
Financing activities
Proceeds from external borrowings
19
Repayment of external borrowings
19
(37.4 )
(37.0 )
Repayment of lease
liabilities
19
(1.2 ) (1.3 )
Increase in
inter
-
company loan from parent
19
(Decrease)/increase in
inter
-
company loan from
group
19
(200.0 )
Dividends paid
11
(
)
(30.7 )
Net cash
(
used in)
/
generated from
financing activities
(303.7 ) 235.8
Net
(decrease)
/
increase
in cash and cash equivalents
(263.0 )
Cash and cash equivalents at the beginning of the year
17
Cash and cash equivalents at the end of the year
17
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
81
Notes to the Financial Statements
Electricity North West Limited is a company incorporated in the United Kingdom and registered in
England and Wales under the Companies Act 2006.
The financial statements are presented in sterling, which is the functional currency of the Company
and Group. All values are stated in million pounds (£’m) unless otherwise indicated.
The financial statements are prepared on the going concern basis. Further detail on the going concern
assessment is contained in the Strategic Report.
1. Adoption of new and revised Standards
New and amended IFRS Standards that are effective for the current year
In the current year, the Group has applied the following amendments to IFRS Standards issued by the
International Accounting Standards Board (IASB) for an accounting period that begins on or after 1
January 2021:
Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments: Recognition and
Measurement’, IFRS 7 ‘Financial Instruments: Disclosures’, IFRS 4 ‘Insurance Contracts’ and
IFRS 16 ‘Leases’ – Interest Rate Benchmark Reform (Phase 2).
Impact of the initial application of Interest Rate Benchmark Reform
In the prior year, the Phase 1 amendments ‘Interest Rate Benchmark Reform – Amendments to IFRS
9, IAS 39 and IFRS 7’ were effective. These amendments modify specific hedge accounting
requirements to allow hedge accounting to continue for affected hedges during the period of
uncertainty before the hedged items or hedging instruments are amended as a result of the interest
rate benchmark reform. The Group has no formal hedging relationships in place; as such, Phase 1 was
not relevant to the Group.
In the current year, the Group adopted the Phase 2 amendments ‘Interest Rate Benchmark Reform –
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16’. Adopting these amendments enables the
Group to reflect the effects of transitioning from interbank offered rates (IBOR) to alternative
benchmark interest rates (also referred to as ‘risk free rates’ or RFRs) without giving rise to accounting
impacts that would not provide useful information to users of financial statements. The Group has
not restated the prior period but applied the amendments retrospectively with any adjustments
recognised in equity as at 1 April 2021. No such adjustments have been recognised.
The amendments are relevant for the following types of financial instruments of the Group, all of
which extend beyond 31 December 2021:
Derivatives;
o External index-linked swaps, where the receive leg is GBP LIBOR-linked,
o External interest rate swap, where the receive leg is GBP LIBOR-linked,
o Inter-company index-linked swap, where the pay leg is GBP LIBOR-linked, and
o Inter-company hybrid liability, where the receive leg of the embedded derivative is
GBP LIBOR-linked, and
Bank borrowings;
o Revolving credit facility.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
82
Notes to the Financial Statements
1. Adoption of new and revised Standards (continued)
Derivatives
None of the contractual terms of the Group’s derivatives affected by the interest rate benchmark
reform have been amended, rather the Group has adhered to the ISDA 2020 IBOR Fallbacks Protocol
(‘ISDA Protocol’). Where the contractual terms reference GBP LIBOR, they have transitioned to the
nominated replacement, GBP SONIA, plus a credit adjustment spread (CAS) based on the historical
difference between the relevant LIBOR and SONIA and fixed by the ISDA Protocol.
As the Group has adhered to the ISDA Protocol, this has ensured a common benchmark replacement
across all swaps and that there has been no transfer of economic value as a result of the transition.
Bank borrowings
The contractual terms of the GBP LIBOR-linked revolving credit facility in the Company were amended
in December 2021, ahead of the transition. This was replaced with a GBP SONIA-linked revolving credit
facility.
Amendments to other standards:
Amendments to other IFRS Standards and interpretations issued by the International Accounting
Standards Board (IASB) that are effective in the year are listed below; their adoption has not had any
material impact on the disclosures or the amounts reported in these financial statements:
Amendments to IFRS 16 Leases – Covid-19-Related Rent Concessions beyond 30 June 2021.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following
new and revised IFRS Standards that have been issued but are not yet effective:
IFRS 17 Insurance Contracts, effective year-ending 31 March 2024 but is not applicable to the
Group,
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture, effective date not yet set,
Amendments to IAS 1: Classification of Liabilities as Current or Non-current, effective and will
be applied by the Group from year-ending 31 March 2024,
Amendments to IFRS 3: Reference to the Conceptual Framework, effective and will be applied
by the Group from year-ending 31 March 2023,
Amendments to IAS 16: Property, Plant and Equipment—Proceeds before Intended Use,
effective and will be applied by the Group from year-ending 31 March 2023,
Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract, effective and will be
applied by the Group from year-ending 31 March 2023,
Annual Improvements to IFRS Standards 2018-2020 Cycle, effective and will be applied by the
Group from year-ending 31 March 2023,
Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies,
effective date not yet set,
Amendments to IAS 8: Definition of Accounting Estimates, effective and will be applied by the
Group from year-ending 31 March 2024,
Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single
Transaction, effective and will be applied by the Group from year-ending 31 March 2024.
The Directors do not expect that the adoption of the Standards listed above will have a material impact
on the financial statements of the Group in future periods.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
83
Notes to the Financial Statements (continued)
1. Adoption of new and revised Standards (continued)
Prior period restatement
In the year ended 31 March 2022, there has been a presentational change to the derivative assets and
liabilities balances reported on as at 31 March 2021.
There has been a reclassification adjustment to gross up an inter-company embedded derivative and
an inter-company back-to-back derivative agreement between Electricity North West Limited and
ENW Finance plc. which were previously presented on a net basis. Whilst in practice the arrangements
are net settled, there exists no legal right to offset.
The comparative information in the statement of financial position has been restated, recognising an
inter-company derivative asset of £367.6m and a corresponding increase to the derivative liabilities
of £367.6m, with a net nil impact on total net assets. This derivative asset of £367.6m was offset
against a derivative liability of £366.7m.
The comparative fair value movement in the finance expense note (Note 5) has been restated to show
the movement on the inter-company derivative asset, inter-company derivative liability and derivative
liabilities separately, with a net nil impact on the total finance expense recognised in the income
statement.
The restatement has had a net nil impact on the prior year income statement and the prior year
opening and closing retained earnings. As the prior year adjustment would affect the statement of
financial position at the beginning of the preceding period an additional statement of financial position
has been presented as at 1 April 2020. The impact on the opening financial position similarly grosses
up the derivative financial assets and liabilities with no impact on opening net assets.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out
below. These policies have been applied consistently in the current year and the prior year.
Basis of accounting
The financial statements have been prepared in accordance with United Kingdom adopted
international accounting standards and with International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standards Board (IASB).
The financial statements have been prepared on the historical cost basis, except for certain financial
instruments that are measured at fair value, and certain property, plant and equipment that were
revalued in 1997. Historical cost is generally based on the fair value of the consideration given in
exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, regardless of whether that price
is directly observable or estimated using another valuation technique. More details on the fair value
measurements of financial instruments are given in Note 21.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
84
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that
the Group has adequate resources to continue in operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis of accounting in preparing the financial
statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and
entities controlled by the Company (its subsidiaries), made up to 31 March each year.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases
when the Company loses control of the subsidiary. There have been no acquisitions or disposals of
subsidiaries in the current or prior year.
Accounting policies are consistent in all Group companies.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between Group members are eliminated on consolidation.
Business combinations and goodwill
Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum of the
acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the
former owners of the acquiree and the equity interest issued by the Group in exchange for control of
the acquiree. Acquisition related costs are recognised in profit or loss as incurred.
Goodwill is measured as the excess of the consideration transferred over the net of the acquisition-
date amounts of the identifiable assets acquired and liabilities assumed and is recognised as an asset.
If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and
liabilities assumed exceeds the consideration transferred, the excess is recognised immediately in
profit or loss.
Goodwill is allocated to cash-generating units and is not amortised, but is reviewed for impairment
annually, or more frequently when there is an indication that it may be impaired.
Investment in subsidiaries (Company only)
Investments in subsidiary undertakings are stated at cost less any provisions for permanent diminution
in value. Dividends received and receivable are credited to the Company’s income statement to the
extent that they represent a realised profit for the Company.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
85
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable primarily for the
distribution of electricity in the normal course of business, net of VAT.
Revenue from the distribution of electricity
The recognition of revenue from the distribution of electricity includes an assessment of the volume
of unbilled energy distributed as at the year end. Non-distribution sales relate to the invoice value of
other goods and services provided which also relate to the electricity network.
Where turnover received or receivable in the year exceeds the maximum amount permitted by
regulatory agreement, adjustments will be made to future prices to reflect this over-recovery; no
liability is recognised, as such an adjustment to future prices relates to the provision of future services.
Similarly, no asset is recognised where a regulatory agreement permits adjustments to be made to
future prices in respect of an under-recovery.
Incentive income earned or adjustments for under or over-spend on Totex, or over or under delivery
of outputs, all in the financial year are not adjusted as adjustments to revenues in the period. These
are adjusted through the regulatory mechanism in revenues two years later. Similarly, adjustments in
respect of comparable performance measures are reflected in the current year’s financial statements.
The Group recognises revenue generally at the time of delivery and when collection of the resulting
receivable is reasonably assured. Payments received in advance of revenue recognition are recorded
as deferred revenue.
Customer contributions
The current accounting treatment for customer contributions towards distribution system assets is to
defer revenue and release over the life of the asset. The income is released to the statement of profit
or loss on a straight-line basis, in line with the useful economic life of the distribution system assets.
This amortisation of contributions received is recognised in revenue.
Under IFRS 15, revenue is recognised as each performance obligation within the contract is satisfied.
If performance obligations are not satisfied over time, revenue will not be recognised.
Identification of contract with customer: The written quotation provided by ENWL and accepted by
the customer (the Agreement), has commercial substance in that ENWL’s future cash flows are
expected to change as a result, and it is considered probable that ENWL will collect the consideration
to which it is entitled under the Agreement in exchange for completion of the connection.
Identification of performance obligation: As the performance obligation relating to the ongoing
maintenance is not covered by the Agreement, in relation to the revenue arising from the customer
contribution, there is only one performance obligation. This obligation is considered to be distinct
because the following criteria are met:
the customer can benefit from the good or service either on its own or together with other
resources that are readily available to the customer; and readily available other resources
being the existing network
the entity’s promise to transfer the good or service to the customer is separately identifiable
from other promises in the contract. The connection is separately identifiable from
maintenance as maintenance is not covered by the Agreement.
The existing distribution network is considered to be a readily available resource.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
86
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Determination of transaction price: Ordinarily the expected transaction price will be that of the quoted
price in the Agreement. Generally, the price is fixed by Ofgem regulations. Variations may arise when
the customer has certain specifications and changes are reviewed on a contract by contract basis to
establish whether they should be treated as variable consideration. Variable consideration is
accounted for based on the best estimate of the transaction price if it is highly probable that the
revenue will be received. Given the variations on contracts are relating to a single performance
obligation and do not constitute distinct services, these should be accounted for as a continuation of
the original contract resulting in additional or reduced revenue.
Allocation of transaction price: For the Agreements being considered there is only one performance
obligation to allocate the transaction price to. The transaction price is stated within the Agreement.
Recognition of revenue when performance obligation is satisfied: The performance obligation is
regarded as satisfied over time as ENWL creates a bespoke asset for which they have no alternative
use other than to provide electricity to the customer’s premises. ENWL has an enforceable right to
payment for the performance completed to date. Revenue is, therefore, recognised over the life of
the asset.
Refundable customer deposits
Refundable customer deposits received in respect of property, plant and equipment are held as a
liability until repayment conditions come into effect and the amounts are repaid to the customer or
otherwise credited to customer contributions.
Government levies
Where the Company is directed to collect or pay levies by the Regulator, Ofgem, those levies are
accounted for under IFRIC21 levies.
In accordance with IFRIC 21, levies such as Supplier of Last Resort (SoLR) payment levies, are
recognised progressively when an obligating event takes place. SoLR levies are directed from time to
time by Ofgem, with specified payment and collection periods. In accordance with IFRIC 21 the liability
associated with the levy is triggered progressively as the associated income becomes billable, being
the defined obligating event.
Revenue from SoLR levies, net of the associated costs are therefore recognised proportionately over
time in the income statement.
Dividend income
Dividend income is recognised when the Company’s right to receive payment is established.
Investment income
Interest income is accrued on a time basis, by reference to the principal outstanding and the effective
interest rate.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
87
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Leases
The Company assesses whether a contract is or contains a lease, at inception of the contract. The
Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term leases and leases of low value assets. For
these leases, the Group recognises the lease payments as an operating expense on a straight-line basis
over the term of the lease unless another systematic basis is more representative of the time pattern
in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at
the commencement date, discounted by using either the rate implicit in the lease, or our incremental
borrowing rate.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on
the lease liability and by reducing the carrying amount to reflect the lease payments made.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease
payments made at or before the commencement day, less any lease incentives received and any initial
direct costs. They are subsequently measured at cost less accumulated depreciation and impairment
losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.
The Company applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for
any identified impairment loss as described in the ‘Property, Plant and Equipment’ policy.
Borrowing costs
Borrowing 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 or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Retirement benefit costs
Payments to the defined contribution retirement benefit scheme are recognised as an expense when
employees have rendered service entitling them to the contributions.
The defined benefit retirement benefit scheme is provided through a division of the Electricity Supply
Pension Scheme (ESPS). The most recent actuarial valuation for the scheme for funding purposes was
carried out at 31 March 2019; agreed actuarial valuations are carried out thereafter at intervals of not
more than three years.
Results are affected by the actuarial assumptions used, which are disclosed in Note 22. Actual
experience may differ from the assumptions made, for example, due to changing market and
economic conditions and longer or shorter lives of participants.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
88
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Retirement benefit costs (continued)
Defined benefit costs are split into three categories:
current service cost, past service cost and gains and losses on curtailments and settlements,
recognised in employee costs (see Note 6) in the income statement;
net interest expense or income, recognised within finance costs (see Note 9) in the income
statement; and
re-measurement comprising actuarial gains and losses and the return on scheme assets
(excluding interest) are recognised immediately in the statement of financial position with a
charge or credit to other comprehensive income in the period in which they occur.
Defined benefit assets are measured at fair value while liabilities are measured at present value. The
difference between the two amounts is recognised as a surplus or obligation in the Statement of
Financial Position.
IFRIC14: ‘The limit on a defined benefit asset, minimum funding requirements and their interaction’
was published by the interpretations committee of the International Accounting Standards Board in
July 2007 and was adopted during the year ended 31 March 2008. IFRIC14 provides guidance on the
extent to which a pension scheme surplus should be recognised as an asset and may also require
additional liabilities to be recognised where minimum funding requirements exist. Legal opinion was
obtained that a pension surplus could be recovered on wind up of the scheme and could, therefore,
be recognised, along with associated liabilities.
The Group has concluded that, when a defined benefit asset exists, it can recognise the full amount of
this surplus on the grounds that it could gain sufficient economic benefit from the refund of the surplus
assets that would be available to it following the final payment to the last beneficiary of the Scheme.
Taxation
The tax expense represents the sum of current and deferred tax charges for the financial year,
adjusted for prior year items.
Current taxation
Current tax is based on taxable profit for the year and is calculated using tax rates and laws that have
been enacted or substantively enacted by the balance sheet date. Taxable profit differs from the net
profit as reported in the Income Statement because it excludes items of income or expense that are
taxable or deductible in other years, and it further excludes items that are never taxable or deductible.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
89
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Deferred Taxation (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries, except where the Group is able to control the reversal of the temporary difference and
it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled, or the asset is realised based on tax rates and laws that have been enacted or substantively
enacted at the balance sheet date.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the asset to be recovered. Deferred tax is charged or credited in the Income Statement, except
when it relates to items charged or credited in other comprehensive income, in which case the
deferred tax is also dealt with in other comprehensive income.
Intangible assets
Intangible assets with finite useful economic lives are measured initially at cost and are amortised on
a straight-line basis over their estimated useful lives. The carrying amount is reduced by any provision
for impairment where necessary.
Amortisation periods for categories of intangible assets are:
Computer software 1-12 years
Intangible assets under construction are not amortised. Amortisation commences from the date the
intangible asset is available for use.
The Licence has an indefinite useful economic life and, therefore, is tested annually for impairment.
Property, plant and equipment
Property, plant and equipment comprise operational structures, non-operational land and buildings,
fixtures and equipment, vehicles and other assets.
Operational structures
Infrastructure assets are depreciated by writing off their deemed cost, less the estimated residual
value, evenly over their useful lives, which range from 5 to 80 years. Employee costs incurred in
implementing the capital schemes of the Group are capitalised within operational structure assets.
In 1997 the Company undertook a revaluation of certain assets due to a business combination. This
resulted in the creation of a revaluation reserve of £234.9m. The additional depreciation, as a result
of the revaluation, it is transferred from the revaluation reserve to retained earnings on an annual
basis.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
90
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Assets other than operational structures
All other property, plant and equipment is stated at historical cost less accumulated depreciation and
accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
are charged to the income statement during the financial year in which they are incurred.
Freehold land and assets in the course of construction are not depreciated until the asset is available
for use.
Depreciation is provided on other assets on a straight-line basis over its expected useful life as follows:
Buildings 30-60 years
Fixtures and equipment, vehicles and other 2-40 years
Depreciation methods and useful lives are re-assessed annually and, if necessary, changes are
accounted for prospectively.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference
between the sale proceeds and the carrying amount of the asset and is recognised in the income
statement.
Impairment of tangible and intangible assets
Tangible and intangible assets are reviewed for impairment at each balance sheet date 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 life is tested for impairment at least annually and whenever
there is an indication of impairment.
The recoverable amount is the higher of fair value less costs of disposal, and value in use. Value in use
represents the net present value of expected future cash flows, discounted on a pre-tax basis using a
rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the reversal is recognised immediately in the
income statement and the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but not so as to exceed the carrying amount that would have been determined
had no impairment loss been recognised in prior years.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
91
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Research and development
Research costs are recognised in the income statement as incurred. Development expenditure on an
individual project is recognised as an intangible asset when the Group can demonstrate: the technical
feasibility of completing the intangible asset so that it will be available for use, its intention to
complete and its ability to use the asset, how the asset will generate future economic benefits, the
availability of resources to complete the asset and the ability to reliably measure the expenditure
incurred during development.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on weighted average
cost and includes expenditure incurred in acquiring the inventories, conversion costs and other costs
in bringing them to their present location and condition. Net realisable value represents the estimated
selling price, net of estimated costs of selling.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added or deducted from
the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs, directly attributable to the acquisition of financial assets or financial liabilities at fair
value through profit or loss, are recognised immediately in profit or loss.
If the transaction price differs from fair value at initial recognition, the Group will account for such
difference as follows:
if fair value is evidenced by a quoted price in an active market for an identical asset or liability
or based on a valuation technique that uses only data from observable markets, then the
difference is recognised as a gain or loss on initial recognition (i.e. day 1 profit or loss);
in all other cases, the fair value will be adjusted to bring it in line with the transaction price
(i.e. day 1 profit or loss will be deferred by including it in the initial carrying amount of the
asset or liability).
After initial recognition, the deferred gain or loss will be released to profit or loss such that it reaches
a value of zero at the time when the contract can be valued using active market quotes or verifiable
objective market information. The Group policy for the amortisation of day 1 gain or loss is to release
it in a reasonable fashion based on the facts and circumstances (e.g. using a straight-line amortisation).
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery
of assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are measured subsequently in their entirety at either amortised cost or
fair value, depending on the classification of the financial assets.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
92
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Classification of financial assets
Financial assets that meet the following conditions are measured subsequently at amortised cost:
the financial asset is held within a business model whose objective is to hold financial assets
in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
Financial assets that meet the following conditions are measured subsequently at fair value through
other comprehensive income (FVTOCI):
the financial asset is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or loss
(FVTPL).
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts (including
all fees and points paid or received that form an integral part of the effective interest rate, transaction
costs and other premiums or discounts) excluding expected credit losses, through the expected life of
the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt
instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial
recognition minus the principal repayments, plus the cumulative amortisation using the effective
interest method of any difference between that initial amount and the maturity amount, adjusted for
any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial
asset before adjusting for any loss allowance.
Income is recognised using the effective interest method for debt instruments measured subsequently
at amortised cost and at FVTOCI. For financial assets other than purchased or originated credit-
impaired financial assets, interest income is calculated by applying the effective interest rate to the
gross carrying amount of a financial asset, except for financial assets that have subsequently become
credit-impaired. The Group has no financial assets purchased or originated credit-impaired, or that
have subsequently become credit-impaired.
Interest income is recognised in profit or loss and is included in the ‘Investment income’ line item.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are
measured at FVTPL. Specifically, the financial assets held by the Group classified as at FVTPL are
derivatives and are stated at fair value, with any fair value gains or losses recognised in profit or loss
to the extent they are not part of a designated hedging relationship. Fair value is determined in the
manner described in Note 21.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
93
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on investments in debt instruments
that are measured at amortised cost or at FVTOCI, trade receivables and contract assets; the Group
holds no lease receivables or financial guarantee contracts. The amount of expected credit losses is
updated at each reporting date to reflect changes in credit risk since initial recognition of the
respective financial instrument.
The Group always recognises lifetime expected credit losses (ECL) for trade receivables and contract
assets. The expected credit losses on these financial assets are estimated using a provision matrix
based on the Group’s historical credit loss experience, adjusted for factors that are specific to the
debtors, general economic conditions and an assessment of both the current as well as the forecast
direction of conditions at the reporting date, including time value of money where appropriate.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant
increase in credit risk since initial recognition. However, if the credit risk on the financial instrument
has not increased significantly since initial recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over
the life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that
is expected to result from default events on a financial instrument that are possible within 12 months
after the reporting date.
a) 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 the 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 both quantitative and qualitative
information that is reasonable and supportable, including historical experience and forward-looking
information that is available without undue cost or effort.
Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a
financial asset has increased significantly since initial recognition when contractual payments are
more than 30 days past due, unless the Group has reasonable and supportable information that
demonstrates otherwise.
Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not
increased significantly since initial recognition if the financial instrument is determined to have low
credit risk at the reporting date. A financial instrument is determined to have low credit risk if the
financial instrument has a low risk of default and the debtor has a strong capacity to meet its
contractual cash flow obligations in the near term.
The Group regularly monitors the effectiveness of the criteria used to identify whether there has been
a significant increase in credit risk and revises them as appropriate to ensure that the criteria are
capable of identifying a significant increase in credit risk before the amount becomes past due.
b) Definition of default
The Group considers that default has occurred when a financial asset is more than 90 days past due,
unless the Group has reasonable and supportable information to demonstrate that a more lagging
default criterion is more appropriate.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
94
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
c) Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the
estimated future cash flows of that financial asset have occurred.
d) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default
and the exposure at default. The assessment of the probability of default and loss given default is
based on historical data adjusted by forward-looking information. The exposure at default is
represented by the assets’ gross carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference between all contractual
cash flows that are due to the Group in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at the original effective interest rate.
If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime
ECL in the previous reporting period but determines at the current reporting date that the conditions
for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12-
month ECL at the current reporting date, except for assets for which the simplified approach was used.
The Group recognises an impairment gain or loss in profit or loss for all financial instruments with a
corresponding adjustment to their carrying amount through a loss allowance account.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable is recognised in profit or
loss.
Cash and cash equivalents
Cash and cash equivalents includes cash at bank and in hand, deposits, other short-term highly liquid
investments which are readily convertible into known amounts of cash and have a maturity of three
months or less and which are subject to an insignificant risk of change in value.
Money market deposits
Money market deposits with terms to maturity in excess of three months are not included as cash or
cash equivalents and are separately disclosed on the face of the Statement of Financial Position.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
95
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds
received, net of direct issue costs.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest
method or at FVTPL.
Financial liabilities measured subsequently at FVTPL
Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in
fair value recognised in profit or loss to the extent that they are not part of a designated hedging
relationship. The Group has no financial liabilities designated at FVTPL. Fair value is determined in
the manner described in Note 21.
Financial liabilities measured subsequently at amortised cost
Financial liabilities that are not at FVTPL are measured subsequently at amortised cost using the
effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums and
discounts) through the expected life of the financial liability, or (where appropriate) a shorter period,
to the amortised cost of a financial liability.
Trade payables
Trade payables are initially recorded at fair value and subsequently at amortised cost.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or have expired. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is recognised in profit or loss.
When the Group exchanges with the existing lender one debt instrument into another one with the
substantially different terms, such exchange is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. Similarly, the Group accounts for
substantial modification of terms of an existing liability, or part of it, as an extinguishment of the
original financial liability and the recognition of a new liability. It is assumed that the terms are
substantially different if the discounted present value of the cash flows under the new terms, including
any fees paid net of any fees received and discounted using the original effective rate is at least 10%
different from the discounted present value of the remaining cash flows of the original financial
liability.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
96
Notes to the Financial Statements (continued)
2. Significant accounting policies (continued)
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest
rate and inflation risk. Further details of derivative financial instruments are disclosed in Note 21.
Derivatives are recognised initially at fair value at the date a derivative contract is entered into and
are subsequently re-measured to their fair value at each reporting date. The resulting gain or loss is
recognised in profit or loss immediately unless the derivative is designated in a hedging relationship.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a
negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset
or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is
not expected to be realised or settled within 12 months. Other derivatives are presented as current
assets or current liabilities.
Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host,
with the effect that some of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative.
Derivatives embedded in hybrid contracts with a financial asset host within the scope of IFRS 9 are not
separated. The entire hybrid contract is classified and subsequently measured as either amortised
cost or fair value as appropriate.
Derivatives embedded in hybrid contracts with hosts that are not financial assets within the scope of
IFRS 9 are treated as separate derivatives when they meet the definition of a derivative, their risks
and characteristics are not closely related to those of the host contracts and the host contracts are
not measured at FVTPL.
An embedded derivative is presented as a non-current asset or non-current liability if the remaining
maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months
and is not expected to be realised or settled within 12 months.
Hedge accounting
The Group considers hedge accounting when entering any new derivative, however, there are
currently no formal hedging relationships in the Group.
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.
The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at the reporting date, taking into account the risks and uncertainties surrounding
the obligation. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows (when the effect of the time
value of money is material).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
97
Notes to the Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, the directors are
required to make judgements (other than those involving estimations) that have a significant impact
on the amounts recognised and to make estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period; or in the period of the revision and future periods if the revision affects both current and future
periods.
Critical judgements in applying the group’s accounting policies
The following are the critical judgements, apart from those involving estimations (which are presented
separately below), that the directors have made in applying the Group’s accounting policies and that
have the most significant effect on the amounts recognised in the financial statements.
Property, Plant and Equipment
The Group recognises infrastructure assets where the expenditures incurred enhance or increase the
capacity of the network, whereas any expenditure classed as maintenance is expensed in the period
it is incurred. Capital projects often contain a combination of enhancement and maintenance activity
which are not distinct and, therefore, the allocation of costs between capital and operating
expenditure is inherently judgemental. The costs capitalised include an allocation of overhead costs,
relating to the proportion of time spent by support function staff, which is also inherently
judgemental. See Note 6 for details on value of employee costs capitalised in the year.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are outlined below.
Impairment of tangible and intangible assets (including goodwill)
Management assesses the recoverability of tangible and intangible assets on an annual basis.
Determining whether any of those assets are impaired requires an estimation of the value in use of
the asset to the Group. This value in use calculation requires the Group to estimate the future cash
flows expected to arise from the asset and a suitable discount rate in order to calculate present value
for the asset and compare that to its carrying value. This concluded that no impairment loss is required
against those assets. Details of the impairment loss testing is set out in Note 13.
Fair values of derivative financial instruments
In estimating the fair value of derivative financial instruments, the Group uses market-observable data
(Level 1 and 2 inputs) to the extent it is available. Where such data is not available, certain estimates
(Level 3 inputs) regarding inputs to the valuation are required to be made. Level 3 inputs form a
significant part of the fair value of the financial instruments held by the Group. Information about the
valuation techniques, inputs used and sensitivities are disclosed in Note 21.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
98
Notes to the Financial Statements (continued)
3. Critical accounting judgements and key sources of estimation uncertainty (continued)
Retirement benefit schemes
The Group’s defined benefit obligation is derived using various assumptions, as disclosed in Note 22.
Results can be affected significantly by the assumptions used, which management decide based on
advice by a firm of actuaries.
Where available, market data is used to value assets, however for some less liquid assets, up-to-date
data is not available, certain estimates regarding inputs to the valuation are required to be made, as
disclosed in Note 22, along with sensitivities of certain key inputs.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
99
Notes to the Financial Statements (continued)
4. Revenue
202
2
£m
202
1
£m
Group and Company
Revenue 472.8 449.8
Predominantly all Group revenues arise from electricity distribution in the North West of England and
associated activities. Only one operating segment is, therefore, regularly reviewed by the Chief
Executive Officer and Executive Leadership Team. Included within the above are revenues from three
customers (2021: three), each of which represented more than 10% of the total revenue. Revenue
from these customers totalled £174.3m (2021: £158.8m). No other customer represented more than
10% of revenues either this year or in the prior year.
In the current year £19.5m (2021: £18.9m) of customer contributions amortisation has been
amortised through revenue in line with IFRS 15 (Note 23 & 31).
5. Operating profit
The following items have been included in arriving at the Group’s operating profit:
202
2
£m
202
1
£m
Group and Company
Employee costs
(Note 6)
60.9
59.1
Depreciation and amortisation expense
Depreciation of property, plant and equipment
(Note 13
& 31
)
*
119.9
119.8
Amortisation of
intangible assets
(Note 12
& 31
)
12.8
6.1
132.7
125.9
Loss allowance on trade receivables
written off
(Note 16)
(
1.0
)
(0.
1
)
Loss allowance
on trade receivables (Note 16)
2.9
1
.3
Profit on disposal of property, plant and equipment
(0.1)
(0.1)
Provision (credit)/charge
(Note 2
5
)
(0.2)
0.1
Research and development
2.
5
2.3
*Includes depreciation on Right of Use assets of £1.5m (2021: £1.4m).
Analysis of the auditor’s remuneration is as follows:
202
2
£m
202
1
£m
Group and Company
Fees
payable to the Company’s auditor and their associates for the
audit of the Company’s annual financial statements* 0.2 0.2
Audit
-
related assurance services
0.1
0.1
Total fees
0.
3
0.3
*All these fees relate to the audit of the Company; no fees are payable in relation to the subsidiaries
of the Company as they are dormant.
There are no non-audit related services in either the current or prior year.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
100
Notes to the Financial Statements (continued)
6. Employee costs
202
2
£m
202
1
£m
Group and
Company
Wages and salaries
108.6
102.5
Social security costs
11.5
11.0
Pension costs (Note 22)
14.0
20.2
Employee costs (including Directors’ remuneration)
134.1
133.7
Costs transferred directly to fixed assets
(
73.2
)
(74.6)
Charged to
operating expenses
60.9
59.1
All employees and employee costs relate to the Company.
The average monthly number of employees during the year (including Executive Directors):
202
2
Number
202
1
Number
Group and Company
Electricity distribution
1,9
35
1,918
7. Directors’ remuneration
202
2
£m
202
1
£m
Group and Company
Salaries and other short
-
term employee benefits
1.2
1.3
Accrued bonus
0.5
0.5
Amounts receivable under long
-
term incentive schemes
0.5
0.5
Total fees
2.2
2.3
The aggregate emoluments of the Directors in 2022 amounted to £2,219,000 (2021: £2,360,000).
Emoluments comprise salaries, fees, taxable benefits, and the value of short-term and long-term
incentive awards. The aggregated emoluments of the highest paid Director in 2022 in respect of
services to the Group amounted to £1,145,000 (2021: £1,150,000). Under the Executive Incentive
Plan bonuses are awarded and either paid in the following financial year (accrued bonus) or paid in
subsequent years (amounts receivable under long-term incentive schemes). There were no amounts
payable for compensation for loss of office in the year (2021: £nil).
The pension contributions for the highest paid Director for the year-ended 31 March 2022 were £nil
(2021: £nil). The accrued pension at 31 March 2022 for the highest paid Director was £nil (2021: £nil).
As at 31 March 2022 the Directors have no interests in the ordinary shares of the Company (2021:
same).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
101
Notes to the Financial Statements (continued)
8. Investment income
202
2
£m
20
2
1
£m
Group
and Company
Interest receivable on short
-
term bank deposits
0.
4
0.
9
9. Finance expense
2022
£m
*
Restated
2021
£m Group and Company
Interest payable
:
Interest on
g
roup borrowings
at amortised cost
(Note 3
0
)
10.2
17.5
Interest on borrowings at amortised cost
40.
6
40.9
Net interest settlements on derivatives
at FVTPL
(
3.1
)
(9.5)
Indexation of index
-
linked debt (Note 19)
25.2
5.7
Reimbursement of inter
-
company loan
impairment
0.3
0.1
Interest on leases
0.2
0.2
Interest cost on pension plan obligations (Note 22)
1
.
1
0.3
Capitalisation of borrowing costs under IAS 23
(
1.0
)
(0.9)
Total interest expense
73
.
5
54.3
Fair value movements on financial instruments:
Fair value movement on
inter
-
company
derivative
asset
(41.
2
)
(26.3)
Fair value movement on
inter
-
company
derivative
liability
42.
1
28.2
Fair value movement on derivative
liabilitie
s
75.
6
56.0
Total fair value movement
76.5
57.9
Total finance expense
150.0
112.2
*The comparative fair value movement has been restated to show the movement on the inter-
company derivative asset, inter-company derivative liability and external derivative liabilities
separately, with a net nil impact on the total fair value movement and total finance expense
recognised in the income statement.
Borrowing costs capitalised in the year under IAS 23 were £1.0m (2021: £0.9m), using an average
annual capitalisation rate of 3.99% (2021: 4.19%), derived from the total general borrowing costs for
the year divided by the average total general borrowings outstanding for the year.
The fair value movements on the derivatives are derived using a discounted cash flow technique using
both market expectations of future interest rates and future inflation levels, obtained from
Bloomberg, and calibrations to observable market transactions evidencing fair value; these are Level
2 inputs and Level 3 inputs under IFRS 13. Note 21 provides more detail on this.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
102
Notes to the Financial Statements (continued)
9. Finance expense (continued)
There has been £nil (2021: £nil) accretion payments on the index-linked swaps in the year; these are
scheduled five-yearly, seven-yearly and ten-yearly with the next payment due in July 2022. The
amount of accretion accrued over the year was £29.8m (2021: £4.7m), split as follows:
PAYG 5
PAYG 7
PAYG 10
Total
£m
£m
£m
£m
Accumulated Accretion
1 April 2020 6.7
35.5
12.7
54.9
Accrued in Year
1.1
2.2
1.4
4.7
Paid in Year
-
-
-
-
Accumulated Accretion
31 March 2021 7.8
37.7
14.1
59.6
Accrued in Year
7.0
14.2
8.6
29.8
Paid in Year
-
-
-
-
Accumulated Accretion
31 March 2022 14.8
51.9
22.7
89.4
No new derivatives were entered during the year; in the prior year, a £200m interest rate swap,
effective date July 2021, maturity date July 2030, was entered. No swaps were closed out during the
year (2021: none).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
103
Notes to the Financial Statements (continued)
10. Taxation
20
2
2
£m
20
2
1
£m
Group
and Company
Current tax
Current year
12.3
21.6
Adjustment in respect of
prior year
0.2
(0.9)
12.5
20.8
Deferred tax
(Note 2
4
)
Current year
46.4
(10.2)
Adjustments in respect of prior year
0.2
0.8
46.6
(9.4)
Tax charge for the year
59.1
11.4
Corporation tax is calculated at 19% (2021: 19%) of the estimated assessable profit for the year.
The tax charge in future periods will be affected by the announcement on 3 March 2021 that the
corporation tax rate will be increased to 25% from 1 April 2023. This was substantively enacted on 24
May 2021.
Deferred tax is calculated using the rate at which it is expected to reverse. Accordingly, the deferred
tax has been calculated on the basis that it will reverse in future at the 25% (2021: 19%) rate, except
where it is known that it will reverse before 1 April 2023 when the 19% rate has been used. There is
no unrecognised deferred tax in the Group.
The table below reconciles the notional tax charge at the UK corporation tax rate to the effective tax
rate for the year:
20
2
2
£m
20
2
1
£m
Group
and Company
Profit before tax
26.0
64.8
Tax at the UK corporation tax rate of 19% (202
1
: 19%)
4.9
12.3
Non
-
taxable income
(0.
5
)
(0.8)
Prior year tax adjustments
0.4
(0.1)
Increase in deferred tax due to rate change
54.3
-
Tax
charge for the year
59.1
11.4
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
104
Notes to the Financial Statements (continued)
11. Dividends
Amounts recognised as distributions to equity holders in the year comprise:
20
2
2
£m
20
2
1
£m
Group and Company
Final dividends for the year ended 31 March 2021 of 3.33 pence (31
March 2020 of nil pence per share)
15.9 -
Interim dividends for the year ended 31 March 2022 of 17.03 pence
per share (31 March 2021: 6.44 pence)
81.2 30.7
97.1
30.7
In the year ended 31 March 2022, the Company declared interim dividends of £81.2m, which were
paid in December 2021 (2021: £30.7m). The Company declared a final dividend for the year ended 31
March 2021 of £15.9m that was paid in June 2021; the Company did not declare a final dividend for
the year ended 31 March 2020.
At the Board meeting in May 2022, the Directors proposed a final dividend of £23.0m for the year
ended 31 March 2022, subject to approval by equity holders of the Company, that is not a liability in
the financial statements at 31 March 2022.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
105
Notes to the Financial Statements (continued)
12. Intangible assets and goodwill
Goodwill
Software
Assets under
the course of
construction
Total
Group and Company
£m
£m
£m
£m
Cost
At 1 April 20
20
10.1
90.2
28.2
128.5
Additions
-
1.8
6.7
8.5
Transfers
-
3.7
(3.7)
-
Reclassification from tangible to
intangible - 3.3
- 3.3
At 31 March 202
1
10.1
99.0
31.2
140.3
Additions
6.6
5.
6
12.
2
Transfers
-
31.8
(
31.8
)
-
At 31 March 20
2
2
10.1
137.4
5.0
152.5
Amortisation
At 1 April 20
20
-
74.7
-
74.7
Charge for the year
-
5.9
-
5.9
Reclassification from tangible to
intangible - 0.2
- 0.2
At 31 March 202
1
-
80.8
-
80.8
Charge for the year
-
12.8
-
12.8
At 31 March 20
2
2
-
93.6
-
93.6
Net book value
At 31 March
202
2
10.
1
43.8
5.0
58.9
At 31 March 202
1
10.1
18.2
31.2
59.5
In the Company, goodwill arose on the acquisition of assets and liabilities of Electricity North West
Number 1 Company Ltd in the year ended 31 March 2011. This value reflects the excess of the
investment over the book value of the trade and assets at the date of acquisition.
At 31 March 2022, the Group and Company had entered into contractual commitments for the
acquisition of software amounting to £5.2m (2021: £12.5m).
At each balance sheet date the Group reviews the carrying amounts of its goodwill and intangible
assets to determine whether there is any indication that those assets have suffered an impairment
loss (Note 13).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
106
Notes to the Financial Statements (continued)
13. Property, plant and equipment
Operational
Structures
Non
-
operational
land and
buildings
Fixtures
,
equipment,
vehicles and
other
Assets
under the
course of
construction
Right of use
assets (Note
20)
Total
Group and Company
£m
£m
£m
£m
£m
£m
Cost or valuation
At 1 April 20
20
4,915.5
34.2
149.6
120.3
6.3
5,225.9
Additions
151.
2
1.2
10.
7
29.3
0.6
193.0
Transfers
12.1
0.5
18.1
(30.7)
-
-
Disposals
(3.2)
-
(
2.
0
)
-
(0.3)
(
5.
5
)
Reclassification from
tangible to
intangible - - (3.3)
- -
(3.3)
At 31 March 202
1
5,075.
6
35.9
173.1
118.9
6.6
5,
410.1
Additions
131.2
0.2
5.7
63.0
0.
7
200.8
Transfers
37.9
0.5
1.1
(39.5)
-
-
Disposals
(2.5)
-
(0.2)
-
(0.6)
(
3.3
)
At 31 March 202
2
5,
242.
2
36.6
179.
7
142.4
6.7
5,607.
6
Accumulated
depreciation and
impairment
At 1 April 20
20
1,746.9
11.4
104.8
-
1.2
1,864.3
Charge for the year
103.
0
1.0
14.
6
-
1.4
120.0
Disposals
(3.2)
-
(2.0)
-
(0.3)
(5.5)
Reclassification from
tangible to
intangible - - (0.2)
- -
(0.2)
At 31 March 202
1
1,846.
7
12.4
117.
2
-
2.3
1,978.
6
Charge for the year
103.9
1.0
13.5
-
1.
5
119.
9
Disposals
(2.1)
-
(0.2)
-
(0.
7
)
(
3.0
)
At 31 March 202
2
1,948.
5
13.4
130.
5
-
3.1
2,095.
5
Net book value
At 31 March 202
2
3,2
93.7
23.2
49.2
142.4
3.6
3,
5
12
.
1
At 31 March 2021
3,228.9
23.5
55.9
118.9
4.3
3,431.5
At 31 March 2022, the Group and Company had entered into contractual commitments for the
acquisition of property, plant and equipment amounting to £108.7m (2021: £97.2m).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
107
Notes to the Financial Statements (continued)
13. Property, plant and equipment (continued)
At 31 March 2022, had the property, plant and equipment of the Group been carried at historical cost
less accumulated depreciation and accumulated impairment losses, the carrying amount would have
been £3,407.6m (2021: £3,325.9m). The revaluation reserve is disclosed in Note 27, net of deferred
tax. The revaluation reserve arose following North West Water’s acquisition of Norweb, in 1997.
Impairment testing of intangible assets and property plant and equipment
At each 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. 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.
An assets recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
the value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted. The pre-tax
discount rate is calculated at the year-end solely from external sources of information.
For the purposes of impairment testing the Group have determined that there is only one cash
generating unit (CGU). The key assumptions for the value in use calculations are those regarding
discount rates and the outcomes of future Ofgem price control settlements.
The Group has prepared cash flow forecasts for a 26-year period, including a terminal value, which
represents the planning horizon used for management purposes, being aligned to the end of a RIIO
regulatory period. No real growth rate is assumed in projecting cash flows beyond the period covered
by most recent budgets/forecast, however, the impact of inflation is considered.
Based on the impairment testing performed, management believe that sufficient headroom exists
between the value in use and the carrying value of the assets such that no impairment loss is required
to be booked.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
108
Notes to the Financial Statements (continued)
14. Investment in subsidiaries
Company
2022
£m
2021
£m
Cost and net book value
15.4
15.4
Investments in subsidiary undertakings are stated at cost less any provisions for permanent diminution
in value. Cost of investment relates wholly to the shareholding in the Company’s direct subsidiary,
Electricity North West Number 1 Company Limited.
Details of the investments as at 31 March 2022, all of which were incorporated in the UK and have a
principal place of business of the UK, are as follows.
Company Description of holding
Proportion
held
Nature of
business
Subsidiary undertakings
Electricity North West
Number 1
Company Ltd
Ordinary shares of £1 each
100%
Dormant
ENW (ESPS) Pensions Trustees
Ltd
Ordinary shares of £1 each
100%
Dormant
Joint venture
Nor.Web DPL Ltd
(dissolved in year)
Ordinary shares of £1 each
50%
Dormant
There have been no changes to these shareholdings during the year, with the exception of Nor.Web
DPL Ltd that was dissolved in February 2022; there was no gain or loss on dissolution. The address of
the registered office of the investments above is Borron Street, Stockport, Cheshire, SK1 2JD, with the
exception of Nor.Web DPL Ltd whose registered office was 304 Bridgewater Place, Birchwood Park,
Warrington, WA3 6XG.
15. Inventories
202
2
£m
202
1
£m
Group and Company
Raw material and consumables 18.1
14.0
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
109
Notes to the Financial Statements (continued)
16. Trade and other receivables
202
2
£m
20
2
1
£m
Group and Company
Trade receivables
7.
8
7.7
Amounts owed by
affiliated undertakings (Note 3
0
)
4.8
6.1
Prepayments and accrued income
67.4
61.5
Total trade and other receivables
80.0
75.3
The average credit period taken on sales is 14 days (2021: 14 days). Trade receivables do not carry
interest and are stated net of allowances for doubtful receivables of £4.4m (2021: £2.5m) estimated
by management based on known specific circumstances, past default experience and their assessment
of the current economic environment.
At 31 March 2022, 59% of the Group trade receivables are past due but not impaired (2021: 81%). A
balance of £2.2m (2021: £3.1m) is less than 30 days past due, against which an allowance for doubtful
debt of £nil (2021: £0.4m) has been made; a balance of £6.9m is greater than 30 days past due (2021:
£5.7m), against which an allowance for doubtful debt of £4.4m (2021: £2.1m) has been made.
The movement on the provision for impairment of trade receivables is as follows:
202
2
202
1
Group and
Company
£m
£m
A
t 1 April
2.5
1.3
Amounts written off in the year
(
1.0
)
(0.1)
Amounts recognised in the income statement
2.9
1.3
A
t 31 March
4.4
2.5
The Group is required by Ofgem to accept any company as a counterparty that has obtained a trading
licence regardless of their credit status. To mitigate the risk posed by this, all transactions with
customers are governed by a contract which all customers are required by Ofgem to sign and adhere
to.
Under the terms of the contract, the maximum unsecured credit that the Group may be required to
give is 2% of the Regulatory Asset Value (RAV) of the Company. In addition the contract makes
provisions for the credit quality of customers and adjusts the credit value available to them based on
credit ratings and payment history. Where a customer exceeds their agreed credit level, under the
contract, the customer must provide collateral to mitigate the increased risk posed. As at 31 March
2022 £3.4m (2021: £2.6m) of cash had been received as security.
The RAV is calculated using the methodology set by Ofgem for each year of RIIO-ED1 (1 April 2015 to
31 March 2023) and for the year ended 31 March 2022 is £2,159m (2021: £1,948m) based on the
actual retail price index (RPI) for March.
At 31 March 2022, £162.0m (2021: £143.0m) of unsecured credit limits had been granted to customers
and the highest unsecured credit limit given to any single customer was £7.6m (2021: £7.4m). All of
the customers granted credit of this level must have a credit rating of at least BBB+ from Standard and
Poor’s and Baa1 from Moody’s Investor Services or a guarantee from a parent company of an
equivalent rating. Alternatively, the customer must be able to prove their creditworthiness on an
ongoing basis.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
110
Notes to the Financial Statements (continued)
16. Trade and other receivables (continued)
The Directors consider that the carrying amount of trade and other receivables approximates to their
fair value.
17. Cash and cash equivalents and money market deposits
202
2
20
2
1
Group and Company
£m
£m
Cash in bank accounts
19.7
10.8
Cash in liquidity funds
39.6
60.9
Cash in
short
-
term deposit accounts
0.1
250.7
Cash and cash equivalents
59
.4
322.4
Cash and cash equivalents comprise cash at bank and in hand, deposits and other short-term highly
liquid investments which are readily convertible into known amounts of cash and have a maturity of
three months or less, net of any bank overdrafts which are payable on demand. Money market
deposits with terms to maturity in excess of three months are not included as cash or cash equivalents
and are separately disclosed on the face of the Statement of Financial Position.
The effective interest rate on all short-term deposits was a weighted average of 0.51% (2021: 0.33%)
and these deposits had an average maturity of 1.1 day (2021: 1.0 day).
18. Trade and other payables
Group
Company
Group
Company
202
2
202
2
202
1
202
1
£m
£m
£m
£m
Trade payables
13.4
13.4
26.3
26.3
Amounts owed to affiliated undertakings (Note 3
0
)
5.2
5.2
7.0
7.0
Amounts owed to subsidiary undertakings (Note 3
0
)
-
15.5
-
15.5
Other taxation and social security
13.4
13.4
11.1
11.1
Customer contributions (Note 2
3
)
38.3
38.3
24.7
24.7
Refundable customer deposits
3.4
3.4
2.6
2.6
Accruals and deferred income
90.
5
90.7
71.0
71.2
Total trade and other payables
164.
2
179.9
142.7
158.4
Trade payables and accruals principally comprise amounts outstanding for capital purchases and
ongoing costs. The average credit period in the year was 20.2 days from receipt of invoice (2021: 19.7
days).
Refundable customer deposits are those customer contributions which may be partly refundable,
dependent on contractual obligations.
The Directors consider that the carrying amount of trade and other payables approximates to their
fair value.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
111
Notes to the Financial Statements (continued)
19. Borrowings
This note provides information about the contractual terms of the Group’s loans and borrowings. For
more information about the Group’s financial risk management and exposure to credit risk, liquidity
risk and market risk see Note 21.
202
2
£m
20
2
1
£m
Group and Company
Current liabilities
Bank and other term borrowings
7.
6
7.1
Lease liabilities (Note 20)
1.
4
1.3
Amounts owed to
parent
undertaking (Note 3
0
)
84.2
-
Amounts owed to affiliated undertaking (Note 3
0
)
-
199.8
93
.2
208.2
Non
-
current liabilities
Bonds
632.5
631.9
Bank and other term borrowings
259.5
248.2
Lease liabilities (Note 20)
2
.3
3.3
Amounts owed to parent undertaking (Note 3
0
)
-
82.2
Amounts owed to affiliated undertaking (Note 3
0
)
298.
6
298.5
1,
192.9
1,264.1
Total borrowings
1,
286.1
1,472.3
Carrying value by category
The carrying values by category of financial instruments were as follows:
202
2
202
1
Nominal
value
Interest rate
Maturity
Carrying
value
Carrying
value
Group and Company
£m
%
year
£m
£m
Borrowings measured at amortised cost:
Bond
200.0
8.875%
2026
198.2
197.8
Bond
250.0
8.875%
2026
275.7
281.3
Index
-
linked bond
100.0
1.4746%+RPI
2046
158.6
152.8
Index
-
linked loan
135.0
1.5911%+RPI
2024
187.7
174.6
Index
-
linked loan
50.0
0.38% +RPI
2032
38.
1
38.8
Index
-
linked loan
50.0
0%+RPI
2033
41.
4
41.9
Revolving credit facility
50.0
Libor+0.35%
202
2
-
-
Revolving credit facility
50.0
Sonia+0.35%
2024
(0.1)
-
Lease liabilities (Note 20)
3.7
4.6
Amounts
owed to parent undertaking
125.0
2.53%
2023
8
4
.2
82.2
Amounts owed to affiliated undertaking
200.0
6.125%
2021
-
199.8
Amounts owed to affiliated undertaking
300.0
1.415%
2030
298.
6
298.5
Total borrowings
1,
286.1
1,472.3
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
112
Notes to the Financial Statements (continued)
19. Borrowings (continued)
The following table provides a reconciliation of the opening and closing debt amounts.
202
2
£m
202
1
£m
Group and Company
At 1 April
1,
472.3
1,205.6
Proceeds from external borrowings
30.0
-
Repayment
s
of external borrowings
(37.
4
)
(37.0)
Repayment
s
of lease liabilities
-
capital
(1.
2
)
(1.
3
)
Repayments
of
lease liabilities
-
interest
(0.2)
(0.2)
Lease liabilities reclassified
to provisions
(Note 25
)
(0.3)
-
New lease liabilities
0.
8
0.5
Increase in
inter
-
company loan from parent
2.0
4.8
(Decrease)/increase in
inter
-
company loan from
group
company
(200.0)
300.0
Indexation (Note 9)
25.2
5.7
Transaction costs on new
RCF
(
0.1
)
(1.6)
Amortisation of transaction costs, bond
discounts and premiums
(
5.0
)
(4.2)
At 31 March
1,
286.1
1,472.3
As at 31 March 2022 all loans and borrowings are unsecured and are in sterling (2021: same). There
were no formal bank overdraft facilities in place (2021: same). The fair values of the Group’s financial
instruments are shown in Note 21.
Borrowing facilities
The Group and Company had £50.0m (2021: £50.0m) unutilised committed bank facilities at 31 March
2022; nil (2021: £50.0m) expires within one year, nil (2021: nil) expires after one year but less than
two years and £50.0m (2021: £nil) expires in more than two years.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
113
Notes to the Financial Statements (continued)
20. Leases
Group
2022
£m
Company
2022
£m
Group
2021
£m
Company
2021
£m
Lease assets:
Land and buildings
2.0
2.0
2.3
2.3
Telecoms
0.1
0.1
0.1
0.1
Vehicles
1.
5
1.
5
1.9
1.9
Total assets
(Note 13)
3.
6
3.
6
4.3
4.3
Lease liabilities:
Land and buildings
1.9
1.9
2.6
2.6
Telecoms
0.1
0.1
0.1
0.1
Vehicles
1.
7
1.
7
1.9
1.9
Total liabilities
(Note 19)
3.7
3.7
4.6
4.6
The Company’s leasing activities include land and buildings used for office space and substations,
telecoms fibre-optic cables for technical equipment communications, and vehicles including trucks
and cars for the use of employees.
The lease liabilities have been discounted at 5% for land and buildings, and telecoms; and at 6% for
vehicles (2021: same).
The following is an analysis of the maturity profile of the lease liabilities.
<1
year
1
–
2
years
2
–
3
years
3
–
4
years
>4
years
Total
Group and
Company
£m
£m
£m
£m
£m
£m
At 31 March 2022:
1.4
0.9
0.4
0.2
0.8
3.7
At 31 March 2021:
1.3
1.3
0.3
0.4
1.3
4.6
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
114
Notes to the Financial Statements (continued)
21. Financial instruments
The Group uses financial instruments to invest liquid asset balances, raise funding and manage the
risks arising from its operations.
The principal risks to which the Group is exposed and which arise in the normal course of business
include credit risk, liquidity risk and market risk, in particular interest rate risk and inflation risk.
Derivative financial instruments are used to change the basis of interest cash flows from fixed to either
inflation-linked or an alternative fixed profile to more accurately match the revenue profile.
The Board has authorised the use of derivatives by the Group to reduce the risk of loss arising from
changes in market risks, and for economic hedging reasons.
The accounting policy for derivatives is provided in Note 2.
Categories of financial instruments
Restated
Restated
Group
Company
Group
Company
202
2
202
2
202
1
202
1
£m
£m
£m
£m
Financial assets:
Inter
-
company d
erivative asset
408.8
408.8
367.6
367.6
Cash and cash equivalents (Note 17)
59
.4
59
.4
322.4
322.4
Trade receivables (Note 16)
7.
8
7.
8
7.7
7.7
Amounts owed by
g
roup undertakings (Note 16)
4.8
4.8
6.1
6.1
Financial liabilities:
Inter
-
company d
erivative
liabilit
y
(
408.8
)
(
408.8
)
(
366.7
)
(
366.7
)
Derivative
liabilities
(
551.4
)
(
551.4
)
(
475.8
)
(
475.8
)
Financial liabilities at amortised cost (Note 19)
(1,286.1)
(1,286.1)
(1,472.3)
(1,472.3)
Trade and other payables (exc. accruals) (Note 18)
(73.7)
(89.2)
(60.6)
(76.1)
Control over financial instruments
The Group has a formal risk management structure, which includes the use of risk limits, reporting
and monitoring requirements, mandates, and other control procedures. It is currently the
responsibility of the Board to set and approve the risk management procedures and controls.
Risk management
All of the Group’s activities involve analysis, acceptance and management of some degree of risk or
combination of risks. The most significant types of financial risk are credit risk, liquidity risk and market
risk. Market risk includes foreign exchange, interest rate, inflation and equity price risks.
The only material exposure the Group has to foreign exchange risk or equity price risk relates to the
assets of the defined benefit pension scheme, that are managed by the pension scheme investment
managers.
The Group’s risk management policies are designed to identify and analyse these risks, to set
appropriate risk limits and controls and to monitor the risks and limits continually by means of reliable
and up to date systems. The Group modifies and enhances its risk management policies and systems
to reflect changes in markets and products.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
115
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
The Audit Committee is responsible for independently overseeing the activities in relation to Group
risk management. The Group’s treasury function, which is authorised to conduct the day-to-day
treasury activities of the Group, reports on a regular basis to the Committee.
The Group’s processes for managing risk and the methods used to measure risk have not changed
since the prior year. In the year, the Group’s policies in relation to the management of credit risk, risk
limits and minimum credit ratings of counterparties have been reviewed and updated as appropriate
to reflect changes to market conditions and the associated level of perceived risks.
Credit risk
The Group takes on exposure to credit risk, which is the risk that financial loss arises from the failure
of a customer or counterparty to meet its obligations under a contract as they fall due. Credit risk
arises principally from trade finance and treasury activities. The Group has dedicated standards,
policies and procedures to control and monitor credit risk.
Treasury activities
The counterparties under treasury activities consist of financial institutions. In accordance with IFRS,
the Directors have considered and quantified the exposure of the Group to counterparty credit risk
and a credit risk adjustment is made where required (see the section on Fair Values below). The
exposure to counterparty credit risk is updated at each reporting date. Although the Group is
potentially exposed to credit loss in the event of non-performance by counterparties, such credit risk
is controlled through regular credit rating reviews of the counterparties and by limiting the total
amount of exposure to any one party. Management does not anticipate any counterparty will fail to
meet its obligations.
The Directors do not believe that the Group is exposed to any material concentrations of credit risk in
relation to treasury investments, including amounts on deposit with counterparties. As at 31 March
2022, none (2021: none) of the Group’s treasury portfolio exposure was either past due or impaired,
and no terms had been re-negotiated with any counterparty. The Group has limits in place to ensure
counterparties have a certain minimum credit rating, and individual exposure limits to ensure there is
no concentration of credit risk.
The table below provides details of the ratings of the Group’s treasury portfolio, including cash and
cash equivalents, money market deposits and derivative asset positions (prior to IFRS 13 credit risk
adjustment):
202
2
202
2
202
1
202
1
Group and Company
£m
%
£m
%
AAA
39.6
64.7
60.9
17.9
AA
-
-
-
-
AA
-
-
-
-
-
A+
21.5
35.2
159.3
46.8
A
0.1
0.1
120.4
35.3
61.2
100.0
340.6
100.0
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
116
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Trade receivables
Significant changes in the economy or in the utilities sector could result in losses not necessarily
provided for at the statement of financial position date. Credit risk in relation to trade receivables is
considered to be relatively low, due to the small number of principal customers; there are only three
(2021: three) principal customers, see Note 4. Each of these customers has a contract in place with
the Group, and is required to provide collateral in the form of a cash deposit subject to the amounts
due and their credit rating. Whilst the loss of one of the principal customers could have a significant
impact on the Group, due to the small number of these, the exposure to such credit losses would be
mitigated in most cases by the protection the regulator provides to cover such losses. Nonetheless,
the credit management process must be closely adhered to, to avoid such circumstances, and the
Group’s management, therefore, closely monitor adherence to this process, including closely
monitoring the credit worthiness of each of these customers.
At 31 March 2022 there was £9.1m receivables past due (2021: £8.8m) against which an allowance for
doubtful debts of £4.4m has been made (2021: £2.5m).
Exposure to credit risk
The table below shows the maximum exposure to credit risk, represented by the carrying value of
each financial asset in the statement of financial position. For trade receivables, the value is net of
any collateral held in cash deposits (see Note 16 for further details).
Restated
202
2
202
1
Group and Company
£m
£m
Inter
-
company d
erivative asset
408.8
367.6
Trade receivables (Note 16)
7.
8
7.7
Amounts owed by
g
roup undertakings (Note 16)
4.8
6.1
Cash and cash equivalents (Note 17)
59
.4
322.4
Balance at 31 March
480.8
703.8
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
117
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet the obligations or
commitments resulting from its business operations or associated with its financial instruments, as
they fall due. The Group manages the liquidity profile of its assets, liabilities and commitments so that
cash flows are appropriately balanced and all funding obligations are met when due. This is achieved
through maintaining a prudent level of liquid assets, and arranging funding facilities.
The Board is responsible for monitoring the maturity of liquidity and deposit funding balances and
taking any action as appropriate. A long-term view of liquidity is provided by Group financial models
which currently project cash flows out 26 years ahead, to the end of the Regulatory Period ending 31
March 2048. A medium-term view is provided by the Group business plan covering the remainder of
the current Regulatory Period ending 31 March 2023, which is updated and approved annually by the
Board. The Board has approved a liquidity framework within which the business operates, including
the maintenance of a minimum of 18 months liquidity, subject to excluding any ENWL and ENW
Finance plc debt maturing between 12 and 18 months whilst maintaining appropriate credit ratings.
Available liquidity at 31 March was as follows:
202
2
202
1
Group and Company
£m
£m
Cash and cash equivalents
(Note 17)
59
.4
322.4
Committed undrawn bank facilities
50.0
50.0
Balance at 31 March
109
.4
372.4
Cash and cash equivalents comprise cash at bank and in hand, deposits and other short-term highly
liquid investments which are readily convertible into known amounts of cash and have a maturity of
less than three months, net of any unpresented cheques. There was no formal bank overdraft facility
in place during the year (2021: none).
At 31 March 2022, the Group and Company had committed undrawn bank facilities of £50.0m (2021:
£50.0m), including nil (2021: £50.0m) expiring within one year, nil (2021: nil) expiring after one year
but less than two years and £50.0m (2021: nil) expiring in more than two years.
The Group gives consideration to the timing of scheduled payments to avoid the risks associated with
the concentration of large cash flows within particular time periods. The Group uses economic hedges
to ensure that certain cash flows can be matched.
The following is an analysis of the maturity profile of contractual cash flows of financial liabilities,
including principal and interest payable under financial liabilities and derivative financial instruments
on an undiscounted basis. Derivative cash flows have been shown net; all other cash flows are shown
gross.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
118
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
<1
year
1
–
2
years
2
–
3
years
3
–
4
years
>4
years
Total
Group and Company
£m
£m
£m
£m
£m
£m
At 31 March 20
2
2
:
Trade payables
(
13.4
)
-
-
-
-
(
13.4
)
Refundable customer deposits
(
3.4
)
-
-
-
-
(
3.4
)
Amounts owed to parent
undertaking
(
86.9
)
-
-
-
-
(
8
6.9
)
Amounts owed to affiliated
companies
(
4.2
)
(
4.
2
)
(4.
2
)
(4.
2
)
(
321
.
2
)
(
338.
0
)
Bonds
(42.
3
)
(42.
4
)
(42.
4
)
(4
9
2.
4
)
(
216.5
)
(
8
36
.
0
)
Borrowings and overdrafts
(
10.
8
)
(
200.0
)
(
7.8
)
(
7.
7
)
(
49.9
)
(
276
.
2
)
Derivative financial
instruments
(23.1)
(
67.0
)
(
12.0
)
(
12.0
)
(
363
.3
)
(
477.4
)
(
184.1
)
(
313.
6
)
(
66.4
)
(
5
1
6.
3
)
(
950.9
)
(
2,031.3
)
At 31 March
202
1
:
Trade payables
(26.3)
-
-
-
-
(26.3)
Refundable customer deposits
(2.6)
-
-
-
-
(2.6)
Amounts owed to parent
undertaking
(2.0)
(84.9)
-
-
-
(86.9)
Amounts owed to affiliated
companies
(210.3)
(4.3)
(4.3)
(4.3)
(325.5)
(548.7)
Bonds
(42.2)
(42.2)
(42.2)
(42.2)
(692.3)
(861.1)
Borrowings and overdrafts
(10.0)
(9.9)
(184.9)
(7.2)
(53.3)
(265.3)
Derivative financial
instruments
3.2
(11.4)
(45.5)
(2.7)
(366.3)
(422.7)
(290.2)
(152.7)
(276.9)
(56.4)
(1,437.4)
(2,213.6)
Market risk
Market risk is the risk that future cash flows of a financial instrument, or the fair value of a financial
instrument, will fluctuate because of changes in market prices. Market prices include foreign
exchange rates, interest rates, inflation, equity and commodity prices. The main types of market risk
to which the Group is exposed are interest rate risk and inflation risk, and these are explained below.
The Board is required to review and approve policies for managing these risks on an annual basis. The
Board approves all new interest rate swaps and index-linked swaps entered into. The management
of market risk is undertaken by reference to risk limits, approved by the Chief Financial Officer or
Treasurer under delegated authority from the Board.
The Group has no significant foreign exchange, equity or commodity exposure.
The Group borrows in the major global debt markets at fixed, index-linked and floating rates of
interest, using derivatives, where appropriate, to generate the desired effective interest basis.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
119
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Interest rate risk
Interest rate risk is the risk that either future cash flows of a financial instrument, or the fair value of
a financial instrument, will fluctuate because of changes in market interest rates. The Group’s floating
rate borrowings and derivatives are exposed to a risk of change in cash flows due to changes in interest
rates. The Group’s fixed rate borrowings and derivatives are exposed to a risk of change in their fair
value due to changes in interest rates. Investments in short-term receivables and payables are not
exposed to interest rate risk due to their short-term nature.
The Group uses derivative financial instruments to change the basis of interest cash flows from fixed
to either inflation-linked or an alternative fixed profile to more accurately match the revenue profile.
The cash flows exchanged under the derivatives are calculated by reference to a notional principal
amount. The notional principal reflects the extent of the Group’s involvement in the instruments, but
does not represent its exposure to credit risk, which is assessed by reference to the fair value.
Sensitivity analysis on interest
The following sensitivity analysis is used by Group management to monitor interest rate risk and
shows the amount by which the fair value of items recorded on the statement of financial position at
fair value would be adjusted for a given interest rate movement. As fair value movements are taken
to the income statement, there would be a corresponding adjustment to profit in these scenarios
(figures in brackets represent a reduction to profit). However, there would be no direct cash flow
impact arising from these adjustments.
The sensitivity figures are calculated based on a downward parallel shift of 0.5% and upward parallel
shifts of 0.5% and 1% in the yield curve, a range in outcomes that management deem reasonably
possible within the next financial year.
Restated
-0.5%
£m
+0.5%
£m
202
2
+1%
£m
-0.5%
£m
+0.5%
£m
202
1
+1%
£m
Group and Company
Change in interest rates
In
ter
-
company derivative
asset
31.5
(33.6)
(57.0)
33.2
(30.9)
(61.1)
In
ter
-
company derivative liability
(
31.5
)
33.6
57.0
(
33.2
)
30.9
61.1
Inflation
-
linked swaps
(54.3)
47.9
97.3
(39.8)
52.7
93.3
Interest rate swaps
(
17.2
)
(28.
8
)
(3
8
.7)
8.2
(7.7)
(15.0)
Total finance expense impact
(
71.5
)
1
9
.1
58.6
(31.6)
45.0
78.3
The Group’s floating rate borrowings and derivatives are exposed to a risk of change in cash flows due
to changes in interest rates. The analysis below shows the impact on profit for the year if interest
rates over the course of the year had been different from the actual rates; in the prior year.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
120
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Restated
-0.5%
£m
+0.5%
£m
202
2
+1%
£m
-0.5%
£m
+0.5%
£m
202
1
+1%
£m
Group and Company
Change in
interest rates
Inter
-
company derivative asset **
(
0.5
)
0.5
1.0
-
-
-
Inter
-
company derivative liability **
0.5
(0.5)
(1.0)
-
-
-
Inflation
-
linked swaps
**
0.5
(0.5)
(1.0)
-
-
-
Interest rate swaps
*
(0.5)
0.5
1.0
-
-
-
Floating rate
borrowing
s
***
-
-
0.1
-
-
-
Total cash flow impact
-
-
0.1
-
-
-
* effective date 21 July 2021
** receive leg was a fixed rate until 21 July 2021
*** no floating rate borrowings in prior year
Although the above measures provide an indication of the Group’s exposure to market risk, such
measures are limited due to the long-term nature of many of the financial instruments and the
uncertainty over future market rates.
Index-linked debt is carried at amortised cost and as such the Statement of Financial Position in
relation to this debt is not exposed to movements in interest rates.
Inflation risk
The Group’s revenues are linked to movements in inflation, as measured by the Retail Prices Index
(RPI). To economically hedge exposure to RPI, the Company links a portion of its funding costs to RPI
by either issuing RPI linked bonds or by using derivative financial instruments. The Group’s index-
linked swaps are exposed to a risk of change in their fair value and future cash flows due to changes
in inflation rates. The Group’s revenues are linked to RPI via returns on the Regulated Asset Value
(RAV) and an increase in RPI would increase revenues, mitigating any increase in finance expense.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
121
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Sensitivity analysis on inflation
The Group’s inflation-linked derivatives are exposed to a risk of change in their fair value due to
changes in inflation rates. The following sensitivity analysis is used by Group management to monitor
inflation rate risk. The analysis below shows forward-looking projections of market risk assuming
certain market conditions occur. The sensitivity figures are calculated based on a downward parallel
shift of 0.5% and upward parallel shifts of 0.5% and 1% in the yield curve, a range in outcomes that
management deem reasonably possible within the next financial year.
Restated
-0.5%
£m
+0.5%
£m
202
2
+1%
£m
-0.5%
£m
+0.5%
£m
202
1
+1%
£m
Group and Company
Change in inflation rates
Inter
-
company derivative asset
(35.9)
40.3
82.4
(38.3)
42.5
87.6
Inter
-
company derivative liability
35.9
(
40.3
)
(
82.4
)
38.3
(
42.5
)
(
87.6
)
Inflation
-
linked swaps
6
6
.
2
(
69.6
)
(
144.8
)
67.0
(73.2)
(153.2)
Total finance expense impact
66.2
(69.6)
(144.8)
67.0
(73.2)
(153.2)
The sensitivity analysis above shows the amount by which the fair value of items recorded on the
statement of financial position at fair value would be adjusted for a given inflation rate movement.
As fair value movements are taken to the Income Statement, there would be a corresponding
adjustment to profit in these scenarios (figures in brackets represent a reduction to profit). However,
there would be no direct cash flow impact arising from these adjustments.
The Group’s inflation-linked borrowings and derivatives are exposed to a risk of change in cash flows
due to changes in inflation rates. The analysis below shows the impact on profit for the year if inflation
rates over the course of the year had been different from the actual rates. The change in indexation
has a corresponding impact on the carrying value of the inflation-linked debt.
Restated
-0.5%
£m
+0.5%
£m
202
2
+1%
£m
-0.5%
£m
+0.5%
£m
202
1
+1%
£m
Group and Company
Change in inflation rates
Inflation
-
linked borrowings
–
indexation charge 2.1
(2.1)
(4.3)
2.0
(2.0)
(4.1)
Inflation
-
linked borrowings
–
interest charge -
-
(0.1)
-
-
(0.1)
Inter
-
company derivative asset
–
interest charge (0.1)
0.1
0.2
(0.1)
0.1
0.1
Inter
-
company derivative liability
–
interest charge 0.1
(0.1)
(0.2)
0.1
(0.1)
(0.1)
Inflation
-
linked swaps
–
interest charge 0.1
(0.1)
(0.2)
0.1
(0.1)
(0.1)
Total finance expense impact
2.2
(2.2)
(4.6)
2.1
(2.1)
(4.3)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
122
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Capital risk management
The Group manages it’s capital to ensure that entities in the Group will be able to continue as going
concerns while maximising the return to shareholders through the optimisation of the debt and equity
balance (see the Dividend Policy page 34).
The capital structure of the Group consists of net debt (borrowings net of cash, Notes 18 and 20), and
equity of the Group (share capital and reserves, see the Statement of Changes in Equity).
The Group is subject to externally imposed capital requirements, by both Ofgem and financial lenders
and investors. These capital requirements are based on gearing levels, being the ratio of net debt (as
above) to the regulatory asset value (RAV). The forecast gearing position is closely monitored by the
Board against the external capital requirements (see page 36).
The RAV (2012/13 prices) is taken from the most recent Price Control Financial Model (PCFM)
published by Ofgem on its website and is calculated in accordance with the RIIO-ED1 methodology (1
April 2015 to 31 March 2023). For the year-ended 31 March 2022, the nominal RAV is £2,159m (2021:
£1,948m) and has been indexed using the retail price index (RPI) for March 2022.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
123
Notes to the Financial Statements (continued)
Change in liabilities arising from financing activities
The table below shows changes in the Group’s liabilities arising from financing activities, including
both cash and non-cash changes. Liabilities arising from financing activities are those for which cash
flows were, or future cash flows will be, classified in the Group’s consolidated cash flow statement as
cash flows from financing activities.
Non
-
cash changes
Group and
Company
At 31
March 2021
Financing
cash flows
Fair value
movement
Indexation
Other
changes
At 31
March 2022
£m
£m
£m
£m
£m
£m
Bonds
631.9
-
-
5.9
(
5.3
)
632.5
Bank borrowings
255.3
(7.
4
)
-
19
.3
(0.1)
267.1
Lease liabilities
4.6
(1.
4
)
-
-
0.
5
3.7
Amounts owed
to parent 82.2 2.0
- - - 84.2
Amount owed to
affiliate 498.3 (200.0)
- - 0.3
298.6
Inter
-
company
derivative
liability 366.7 - 42.1 - - 408.8
Derivative
liabilities 475.8 - 75.6 - - 551.4
2,31
4
.
8
(
20
6
.
8
)
117.7
25.2
(4
.
6
)
2,
246.3
Non
-
cash changes
Restated
Restated
Group and
Company
At 1 April
2020
Financing
cash flows
Fair value
movement
Indexation
Other
changes
At 31 March
2021
£m
£m
£m
£m
£m
£m
Bonds
634.4
-
-
2.4
(4.9)
631.9
Bank borrowings
289.0
(37.0)
-
3.3
-
255.3
Lease liabilities
5.5
(1.5)
-
-
0.6
4.6
Amounts owed
to parent 77.4 4.8
- - - 82.2
Amount owed to
affiliate 199.3 300.0
- - (1.0)
498.3
Inter
-
company
derivative
liability 338.5 - 28.2 - - 366.7
Derivative
liabilities 419.8 - 56.0 - - 475.8
1,96
3
.
9
266.3
8
4
.2
5.7
(5.3)
2,314.8
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
124
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Derivative financial instruments
The Group uses derivative financial instruments to change the basis of interest cash flows from fixed
to inflation-linked to more accurately match the revenue profile. The table below summarises the
various external derivatives held by the Group at 31 March 2022; each category includes multiple
instruments and the rates stated are the aggregate rate for that category. The table excludes the
inter-company derivate asset and the inter-company derivative liability as the cash flows on these
instruments net to nil.
Notional
Number
Type
Maturity
Pay Leg
Receive Leg
Accretion
£200m
1
14
Index
-
linked
2038
3.56% + RPI,
semi-annual
6
m Sonia
,
semi
-annual
5
-
yearly,
next due July 2022
7-yearly,
next due July 2023
£100m
2
4
Index
-
linked
2050
1.51%+RPI,
semi-annual
8.875%,
annual
10
-
yearly,
next due Sept 2030
£
2
00m
3
1
Fix/ float
20
3
0
6m Sonia
,
semi-annual
0.283
%,
Semi
-annual
N
one
1
6.125% up to and including the 21 July 2021 settlement date, then changes to 6m Sonia for the
remaining term of the instruments. The original contract references Libor, but transitioned to Sonia
under the ISDA Protocol during the year (see Note 1).
2
8.875% up to and including the 26 March 2026 settlement date, then changes to 6m Sonia for the
remaining term of the instruments. The original contract references Libor, but transitioned to Sonia
under the ISDA Protocol during the year (See Note 1).
3
Entered in prior year, effective date 21 July 2021. The original contract references Libor, but
transitioned to Sonia under the ISDA Protocol during the year (see Note 1).
The Company entered a £200m notional interest rate swap during the prior year. This swap has an
effective date of July 2021 and a maturity date of July 2030. It has been entered to hedge the Sonia
exposure on the above £200m index-linked swaps, from July 2021.
The Company also has two inter-company swaps with ENW Finance plc. The first is a back-to-back
swap, mirroring the terms of the £200m notional external swaps. The second is a mirror of that back-
to-back swap, the terms of which are defined in the £200m inter-company loan between the two
entities; this is an embedded derivative that is bifurcated from the host contract and recorded as a
separate instrument in the Company.
Hedging
The Group does not use derivative financial instruments for speculative purposes, and has not pledged
collateral in relation to any of its derivative instruments. At 31 March 2022, the Group’s derivatives
are not designated in formal hedging relationships (2021: same), and instead are measured at fair
value through the income statement.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
125
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Fair values
The tables below provide a comparison of the book values and fair values of the Group’s financial
instruments by category as at the statement of financial position date. Cash and cash equivalents,
trade and other receivables and trade and other payables are excluded as the book values
approximate to the fair values because of their short-term nature.
2022
Carrying
value
£m
2022
Fair
value
£m
Restated
2021
Carrying
value
£m
Restated
2021
Fair
value
£m
Group and Company
Non
-
current assets
:
Inter
-
company derivative assets
408.8
408.8
367.6
367.6
Current liabilities:
Borrowings measured at amortised cost (Note 19)
(7.6)
(7.6)
(7.1)
(7.1)
Amounts due to
parent company
(Note 19)
(84.2)
(84.2)
-
-
Amounts due to affiliated companies (Note 19)
-
-
(199.8)
(203.3)
Lease liabilities (Note 19)
(1.4)
(1.4)
(1.3)
(1.3)
Non
-
current liabilities:
Borrowings measured at amortised cost (Note 19)
(892.0)
(1,072.6)
(880.1)
(1,107.7)
Amounts due to parent undertaking (Note 19)
-
-
(82.2)
(82.2)
Amounts due to affiliated companies (Note 19)
(298.6)
(271.3)
(298.5)
(290.2)
Lease liabilities (Note 19)
(2.3)
(2.3)
(3.3)
(3.3)
Inter
-
company derivative liability
(408.8)
(408.8)
(
366.7
)
(
366.7
)
Derivative
liabilities
(
551.4
)
(
551.4
)
(
475.8
)
(
475.8
)
(1,
837.5
)
(1,975.0)
(1,947.2)
(2,170.0)
The value of derivatives is disclosed gross of any collateral held. At 31 March 2022, the group held
£nil (2021: £nil) as collateral in relation to derivative financial instruments, included within current
liabilities (see Note 18). The cash collateral does not meet the offsetting criteria in IAS 32:42, but it
can be set off against the net amount of the derivatives in the case of default and insolvency or
bankruptcy, in accordance with associated collateral arrangements.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
126
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
Fair value measurements recognised in the Statement of Financial Position
Financial instruments that are measured subsequent to initial recognition at fair value are grouped
into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
Where available, market values have been used to determine fair values (see Level 1 in the fair value
hierarchy above).
Where market values are not available, fair values have been calculated by discounting future cash
flows at prevailing interest and RPI rates sourced from market data (Level 2 inputs). In accordance
with IFRS 13, an adjustment for non-performance risk has then been made to give the fair value.
The non-performance risk has been quantified by calculating either a credit valuation adjustment
(CVA) based on the credit risk profile of the counterparty, or a debit valuation adjustment (DVA) based
on the credit risk profile of the relevant group entity, using market-available data. A funding valuation
adjustment (FVA) has also been made.
Whilst the majority of the inputs to the CVA, DVA and FVA calculations meet the criteria for Level 2
inputs, certain inputs regarding the Group’s credit risk are deemed to be Level 3 inputs, due to the
lack of market-available data. The credit risk profile of the Group has been built using the few market-
available data points, e.g. credit spreads on the listed bonds, and then extrapolated over the term of
the derivatives. It is this extrapolation that is deemed to be Level 3. The estimation of the funding
cost in the FVA calculation is also a Level 3 input. All other inputs to both the underlying valuation and
the CVA, DVA and FVA calculations are Level 2 inputs.
For certain derivatives, the Level 3 inputs form an insignificant part of the fair value and, as such, these
derivatives are disclosed as Level 2. Otherwise, the derivatives are disclosed as Level 3.
The adjustment for non-performance risk, as at 31 March 2022, is £121.2m (2021: £76.4m), of which
£120.3m (2021: £73.4m) is classed as Level 3.
On entering certain derivatives, the valuation technique used resulted in a fair value loss. As this,
however, was neither evidenced by a quoted price nor based on a valuation technique using only data
from observable markets, this loss on initial recognition was not recognised. This was supported by
the transaction price of nil. This difference is being recognised in profit or loss on a straight-line basis
over the life of the derivatives. The aggregate difference yet to be recognised in profit or loss is £49.7m
(2021: £53.0m). The movement in the period all relates to the straight-line release to profit or loss.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
127
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
The following table provides an analysis of the component parts of the fair values for the derivative
assets and derivative liabilities.
Restated
2022
£m
2021
£m
Group
and Company
FV of derivatives pre IFRS 13 adjustment
487.3
427.5
CVA/DVA
adjustment
(47.2)
(36.7)
FVA adjustment
(9.5)
-
Day 1 adjustment
(21.8)
(23.2)
IFRS 13 FV of
inter
-
company
derivative
asset
408.8
367.6
FV of derivatives pre IFRS 13 adjustment
(
487.3
)
(
426.6
)
CVA/DVA adjustment
47.2
36.7
FVA adjustment
9.5
-
Day 1 adjustment
21.
8
23.2
IFRS 13 FV of
inter
-
company
derivative liabilit
y
(
408.8
)
(
366.7
)
FV of derivatives pre IFRS 13 adjustment
(722.3)
(
605.2
)
CVA/DVA adjustment
101.3
76.4
FVA adjustment
19.8
-
Day 1 adjustment
49.7
53.0
IFRS 13
FV of derivative
liabilities
(551.4)
(475.8)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
128
Notes to the Financial Statements (continued)
21. Financial instruments (continued)
The following table provides an analysis of financial instruments that are measured subsequent to
initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value
is observable:
Level 1
£m
Level 2
£m
Level 3
£m
To
tal
£m
Group and Company
At 31 March 202
2
:
Inter
-
company derivative asset
-
-
408.8
408.8
Inter
-
company derivative liability
-
-
(408.8)
(408.8)
Derivative liabilities:
-
£300m notional inflation
-
linked swaps
-
(
10.2
)
(
517.1
)
(5
27.3
)
-
£200m notional interest rate swaps
-
(2
4.1
)
-
(2
4.1
)
-
(34.3)
(517.1)
(551.4)
A
t 31 March 202
1
restated
:
Inter
-
company derivative asset
-
-
367.6
367.6
Inter
-
company derivative liability
-
-
(
366.7
)
(
366.7
)
Derivative liabilities:
-
£300m notional inflation
-
linked swaps
-
(47.6)
(
415.9
)
(
463.5
)
-
£200m notional interest rate swaps
-
(12.3)
-
(12.3)
-
(59.9)
(415.0)
(474.9)
The following table provides a reconciliation of the fair value amounts disclosed as Level 3.
202
2
£m
202
1
£m
Group and Company
At 1 April
(415.0)
(404.3)
Transfers into Level 3 from Level 2
(
35.6
)
-
Transfers from Level 3 into Level 2
5.1
33.1
Total gains or losses in profit or loss;
-
On transfers into Level 3 from Level 2
5.5
-
-
On instruments carried forward in Level 3
(
77.1
)
(43.8)
At 31 March
(
517.1
)
(415.0)
The movement in the fair values of the derivative portfolio was largely due to fair value movements.
No additional swaps were entered during the year, and no swaps were closed out during the year.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
129
Notes to the Financial Statements (continued)
The following table shows the sensitivity of the fair values of derivatives disclosed as Level 3 to the
Level 3 inputs, determined by applying a 10bps shift to the credit curve used to calculate the DVA.
202
2
-10bps
£m
202
2
+10bps
£m
202
1
-10bps
£m
202
1
+10bps
£m
Group and Company
Inflation
-
linked swaps
(5.
9
)
5.
6
(2.1)
2.0
Fair value measurements disclosed but not recognised in the Statement of Financial Position
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Group and Company
At 31 March 202
2
:
Borrowings measured at amortised cost
(1,080.2)
-
-
(1,080.2)
Amounts due to affiliated companies
(271.3)
-
-
(271.3)
(1,351.5)
-
-
(1,351.5)
At 31 March 202
1
:
Borrowings measured at amortised cost
(1,118.1)
-
-
(1,118.1)
Amounts due to affiliated companies
(493.5)
-
-
(493.5)
(1,
61
1.
6
)
-
-
(1,
611
.
6
)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
130
Notes to the Financial Statements (continued)
22. Retirement benefit schemes
Group and Company
Nature of Scheme
The Group’s retirement benefit arrangement is the Electricity North West Group of the ESPS (“the
Scheme”) and forms part of the Electricity Supply Pension Scheme (ESPS). The Scheme contains both
a defined benefit section and a defined contribution section. The defined benefit section of the
Scheme closed to new entrants on 1 September 2006, with new employees of the Group subsequently
provided with access to the defined contribution section.
The defined benefit section is a UK funded final salary arrangement providing pensions and lump sums
to members and dependants. The defined benefit section is a separate fund that is legally separated
from the entity. The Trustee board of the Scheme is composed of representatives from both the
employer and members of the Scheme. Under the Pensions Act 2004 at least one third of the Trustee
Board must be member nominated and the Trustee Board has made the necessary arrangements to
fulfil this obligation. The Trustee Board of the Scheme is required by law to act in the interest of the
Scheme and all relevant stakeholders of the Scheme, i.e. active employees, retirees and employers.
The Trustee Board is responsible for the operation, funding and investment strategy of the Scheme.
During the year the Group made contributions of £28.1m (2021: £28.5m) to the defined benefit
section of the Scheme. This includes £19.4m (2021: £18.9m) of deficit contributions. The Group
estimates that contributions for the year ending 31 March 2023 will amount to around £30.0m which
includes £20.0m of expected deficit contribution payments. The total defined benefit pension
expense for the year was £9.9m (2021: £15.1m). No Executive Directors were part of the defined
benefit scheme.
As at 31 March 2022 contributions of £2.5m (2021: £2.4m) relating to the current reporting period
had not been paid over to the defined benefit Scheme.
Defined benefit assets are measured at fair value while liabilities are measured at present value. The
difference between the two amounts is recognised as a surplus or obligation in the Statement of
Financial Position.
The most recent triennial funding valuation of the scheme was carried out as at 31 March 2019 and
identified a shortfall of £69.5m against the Trustee Board’s statutory funding objective. In addition to
the timing of the two valuations, the contributions made in the period and the return on assets, the
main difference is due to the different assumptions used by the IAS 19 and the funding valuation. In
the event of underfunding, the Group must agree a deficit recovery plan with the Trustee Board within
statutory deadlines. As part of the 2019 actuarial valuation, the Group agreed to eliminate the
shortfall by paying additional annual contributions in the period to March 2023.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
131
Notes to the Financial Statements (continued)
22. Retirement benefit schemes (continued)
Funding the liabilities
UK legislation requires the Trustee Board to carry out valuations at least every three years and to
target full funding against a basis that prudently reflects the Scheme’s risk exposure. The most recent
valuation was carried out as at 31 March 2019 and identified a shortfall of £69.5m against the Trustee
Board’s statutory funding objective. In the event of underfunding the Group must agree a deficit
recovery plan with the Trustee Board within statutory deadlines. As part of the 2019 actuarial
valuation the Group agreed to remove the shortfall by paying annual contributions to 2023.
The results of the 2019 funding valuation have been projected forward by an independent actuary to
take account of the requirements of revised IAS 19 ‘Employee Benefits’ in order to assess the position
as at 31 March 2022 for the purpose of these financial statements. The present value of the defined
benefit obligation, the related current service cost and the past service cost were measured using the
projected unit credit method. A pension surplus under IAS 19 (revised 2011) of £18.4m is included in
the statement of financial position at 31 March 2022 (2021: deficit of £68.6m).
The weighted average duration of the defined benefit obligation is approximately 16 years (2021: 18
years).
Investment risks
The Scheme has an investment strategy to aim to match pensioner and other liabilities with lower risk
cash flow investments and to invest liabilities in respect of active members into return seeking assets.
As active members retire, then a switch of investments would be carried out.
The Company recognises that the interests of customers, who ultimately fund pension costs, should
be given full recognition in determining the investment strategy. The Company works in collaboration
with the Scheme Trustee to ensure these interests are considered alongside those of the members of
the pension scheme.
Other risks
In addition to investment risk, the Scheme exposes the Group to other risks, such as longevity risk,
inflation risk and interest rate risk. As the Scheme’s obligation is to provide lifetime pension benefits
to members upon retirement, increases in life expectancy will result in an increase in the Scheme’s
liabilities. Other assumptions used to value the defined benefit obligation are also uncertain.
These risks are managed through de-risking and hedging strategies and are measured and reported at
Board level. In particular, in October 2019 the Scheme completed a pensioner buy-in with Scottish
Widows for around 80% of the Scheme’s pensioner liabilities. This had the effect of removing
longevity and investment risks for this part of the membership.
Winding up
Although currently there are no plans to do so, the Scheme could be wound up in which case the
benefits would have to be bought out with an insurance company. The cost of buying-out benefits
would be significantly more than the defined benefit obligation calculated in accordance with IAS 19
(revised 2011).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
132
Notes to the Financial Statements (continued)
22. Retirement benefit schemes (continued)
Defined Contribution arrangements
All assets within the defined contribution section of the Scheme are held independently from the
Group.
The total cost charged to the income statement in relation to the defined contribution section for the
year ended 31 March 2022 was £6.7m (2021: £6.3m) and represents contributions payable to the
Scheme at rates specified in the rules of the Scheme. As at 31 March 2022 contributions of £nil (2021:
£nil) due in respect of the current reporting period had not been paid over to the defined contribution
Scheme.
Defined Benefits employee benefits
The reconciliation of the opening and closing statement of financial position is as follows:
202
2
£m
202
1
£m
Group and Company
At 1 April
(
68.6
)
(26.3)
Expense recognised in the
i
ncome
s
tatement
(
9.
9
)
(15.1)
Contributions paid
28.
1
28.5
Total re
-
measurement included in
other comprehensive income
68.8
(55.7)
At 31 March
18.4
(68.6)
The balance recognised in the statement of financial position is as follows:
2022
£m
2021
£m
Group and Company
Present value of defined benefit obligations
(1,2
59
.
3
)
(1,434.9)
Fair value of plan assets
1,2
77
.
7
1,366.3
Net surplus/ (
deficit
) arising from defined benefit obligation
18.4
(68.6)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
133
Notes to the Financial Statements (continued)
22. Retirement benefit schemes (continued)
Movements in the fair value of the defined benefit obligations are as follows:
2022
£m
2021
£m
Group and Company
At 1 April
1,434.9
1,317.9
Current service cost
15.
7
13.9
Interest expense
27.9
28.3
Member
contributions
1.
4
1.5
Past service
credit
(8.
4
)
-
Re
-
measurement:
Effect of changes in demographic assumptions
(
73.1
)
(1.2)
Effect of changes in financial assumptions
(
50.5
)
144.1
Effect of experience adjustments
(10.2)
-
Benefits paid
(
78.
4
)
(69.6)
At 31 March
1,2
59
.
3
1,434.9
The liability value as at 31 March is made up of the following approximate splits:
2022
£m
2021
£m
Group and Company
Liabilities owing to active members
4
48.8
490.2
Liabilities owing to deferred members
68.2
76.7
Liabilities owing to pensioner members
742.3
868.0
Total liability at 31 March
1,2
59
.
3
1,434.9
Movements in the fair value of the Pension Scheme assets were as follows:
2022
£m
2021
£m
Group and Company
At 1 April
1,366.3
1,291.7
Interest income
26.8
28.0
Return on plan assets (net of interest income)
(
65.0
)
87.1
Employer contributions
28.
1
28.5
Member contributions
1.
4
1.5
Benefits paid
(
78.
4
)
(69.6)
A
dministration expenses
(
1.5
)
(0.9)
At 31 March
1,
2
77
.
7
1,366.3
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
134
Notes to the Financial Statements (continued)
22. Retirement benefit schemes (continued)
The net pension expense before taxation recognised in the income statement, before capitalisation,
in respect of the Scheme is summarised as follows:
202
2
£m
202
1
£m
Group and Company
Current service cost
(
15.
7
)
(13.9)
Past service
credit
8.
4
-
Interest income on plan assets
26.8
28.0
Interest expense on Scheme obligations
(
27.9
)
(28.3)
A
dministration expenses
(
1.5
)
(0.9)
Net pension expense before
taxation
(
9.
9
)
(15.1)
The above amounts are recognised in arriving at operating profit except for the interest on Scheme
assets and interest on Scheme obligations which have been recognised within finance expense (Note
9).
The £8.4m past service credit has arisen in the Group due to the £1.5m past service cost from the
Guaranteed Minimum Pension (GMP) conversion exercise for pensioner and dependant members net
of the £9.9m past service credit from the Pension Increase Exchange (PIE) exercise for the year-ended
31 March 2022 (2021: nil).
The amount recognised in other comprehensive income is as follows:
202
2
£m
202
1
£m
Group and Company
Return on scheme assets excluding interest income
(
65.0
)
87.1
Actuarial gain arising from changes in
demographic assumptions
73.1
1.2
Actuarial
gain/
(loss) arising from changes in financial assumptions
50.5
(144.1)
Experience gain on liabilities
10.2
-
Total
gain/(
loss
)
recognised in
o
ther
c
omprehensive
i
ncome
68.8
(55.7)
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
135
Notes to the Financial Statements (continued)
22. Retirement benefit schemes (continued)
The main financial assumptions used by the actuary (in determining the deficit) were as follows:
202
2
%
202
1
%
Group and Company
Discount rate
2.
65
2.00
Pensionable salary
increases
3.
8
0
3.40
Pension increases
(RPI)
3.
65
3.20
Price inflation (RPI)
3.
8
0
3.40
Price inflation (CPI)
3.30
2.90
The mortality rates utilised in the valuation are based on the standard actuarial tables S2PA (birth
year) tables with a loading of 110% for male pensioners (2021: 100%), 105% for female pensioners
(2021: 95%), 110% for male non-pensioners/future pensioners (2021: 110%) and 105% for female non-
pensioners/future pensioners (2021: 105%). These loading factors allow for differences in expected
mortality between the Scheme population and the population used in the standard tables. A long-
term improvement rate of 1.25% p.a. is assumed within the underlying CMI 2021 model (2021: 1.50%
CMI 2020 model). The A factor for mortality was 0.25%.
The current life expectancies underlying the value of the accrued liabilities for the Scheme are:
Group and Company
Life expectancy
202
2
Years
202
1
Years
Male
-
Non
-
retired member (current age 45)
26.
6
27.7
Male
-
Retired member
(current age 60)
25.
6
27.1
Female
-
Non
-
retired member (current age 45)
29.4
30.3
Female
-
Retired member
(current age 60)
28.2
29.7
The following table presents a sensitivity analysis for each significant actuarial assumption, showing
how the defined benefit obligation would have been affected by changes in the relevant actuarial
assumption that were reasonably possible at the Statement of Financial Position date. This sensitivity
analysis applies to the defined benefit obligation only and not to the net defined benefit pension
deficit, the measurement of which depends on a number of factors including the fair value of Scheme
assets. The calculations alter the relevant assumption by the amount specified, whilst assuming that
all other variables remained the same. This approach is not necessarily realistic, since some
assumptions are related: for example, if the scenario is to show the effect if inflation is higher than
expected, it might be reasonable to expect that nominal yields on corporate bonds will also increase.
Group and Company
Increase in Defined Benefit Obligation
2022
£m
2021
£m
Discount rate: decrease by 25 basis
points
48.3
65.9
Price inflation: increase by 25 basis points
27.7
43.7
Life expectancy: increase longevity by 1 year
57.
2
64.2
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
136
Notes to the Financial Statements (continued)
As at 31 March 2022, the fair value of the Scheme’s assets and liabilities recognised in the statement
of financial position were as follows:
Group and
Company
Scheme
assets
Quoted
Unquoted
Total
Value
Scheme
assets
Quoted
Unquoted
Total
Value
2022 2021
At 31 March
%
£m
£m
£m
%
£m
£m
£m
Cash
3.
6
45.7
-
45.7
3.2
43.9
-
43.9
Equity instruments
4.3
54.8
-
54.8
3.6
48.7
-
48.7
Debt instruments
33.
3
33
7
.
7
88.2
425.9
30.6
333.0
84.8
417.8
Real estate
11.
1
-
141.
6
141.
6
9.4
-
128.0
128.0
Distressed debt
0.
4
-
5.1
5.1
0.9
-
11.9
11.9
Pensioner buy
-
in
47.3
-
604.6
604.6
52.3
-
716.0
716.0
F
air value of assets
100.0
438.2
839.5
1,
2
77
.
7
100.0
425.6
940.7
1,366.3
Present value of
liabilities
(1,
2
59
.
3
)
(1,434.9)
Net retirement
benefit surplus/
(obligation)
18.4
(68.6)
The fair values of the assets set out above are as per the quoted market prices in active markets.
23. Customer Contributions
Customer contributions are amounts received from a customer in respect of the provision of a new
connection to the network. Customer contributions are amortised through the Income Statement
over the expected lifetime of the relevant asset.
Group and Com
pany
202
2
£m
202
1
£m
At 1 April
692.5
676.4
Additions during the year
51.8
35.0
Amortised through revenue (Note 4 & 31)
(
19.5
)
(18.9)
At 31 March
724.8
692.5
Split:
Amounts due in less than one year (see Note 18)
38.3
24.7
Amounts
due after more than one year
686.5
667.8
At 31 March
724.8
692.5
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
137
Notes to the Financial Statements (continued)
24. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and Company,
and the movements thereon, during the current and prior years.
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Other
£m
Total
£m
Group and Company
At 1 April 2020
219.3
(5.2)
(58.3)
155.8
(C
redited)
/c
harged
to
i
ncome
statement (Note 10)
(0.1)
2.5
(11.8)
(9.4)
Deferred tax on re
-
measurement of
defined benefit pension scheme
-
(10.6)
-
(10.6)
Adjustment due to change in future
tax rates brought forward deferred
tax in OCI
-
-
-
-
At 31 March 2021
219.2
(13.3)
(70.1)
135.8
Charged/(credited) to
i
ncome
statement (Note 10)
69.8
13.3
(
36.5
)
46.6
Deferred tax on re
-
measurement of
defined benefit pension scheme
-
17.2
-
17.2
Adjustment due to change in future
tax rates brought forward deferred
tax in OCI
-
(12.9)
-
(12.9)
At 31 March 202
2
289.0
4.3
(
106.6
)
186.7
There are no significant unrecognised deferred tax assets or liabilities for either the Group or Company
in either the current or prior year.
Other timing differences relates primarily to derivative instruments, but also includes general
provision, pension contributions not paid, rollover relief, IFRS9 and IFRS16 transitional adjustments.
The tax charge in future periods will be affected by the announcement on 3 March 2021 that the
corporation tax rate will be increased to 25% from 1 April 2023. This was substantively enacted on 24
May 2021.
Deferred tax is calculated using the rate at which it is expected to reverse. Accordingly, the deferred
tax has been calculated on the basis that it will reverse in future at the 25% (2021: 19%) rate, except
where it is known that it will reverse before 1 April 2023 when the 19% rate has been used.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
138
Notes to the Financial Statements (continued)
25. Provisions
202
2
£m
20
2
1
£m
Group and Company
At 1 April
1.7
1.8
Amounts (released)/charged to the income statement (Note 5)
(0.2)
0.1
Lease liabilities under IFRS 16 reclassified as
provision
0.
3
-
Utilisation of provision
(0.2)
(0.2)
At 31 March
1.
6
1.7
202
2
£m
20
2
1
£m
Group and Company
Current
0.
6
0.4
Non
-
current
1.0
1.3
At 31 March
1.
6
1.7
ENWL is part of a Covenanter Group (CG) which is party to a Deed of Covenant under which certain
guarantees over the benefits of members of the EATL Group of the Electricity Supply Pension Scheme
have been given. The closing provision at 31 March 2022 of £1.2m (2021: £1.5m) on a discounted
basis relates to the Company’s 6.7% share of the liabilities. £1.0m of this balance is due after more
than one year and £0.2m of it is due in less than one year.
The remainder of the provision relates to onerous lease provisions and is all due in less than one year.
26. Called up share capital
Group and Company
202
2
£
202
1
£
Authorised:
569,999,996 ordinary shares of 50 pence each
284,999,998
284,999,998
4 ‘A’ ordinary shares of 50 pence each
2
2
Special rights
redeemable preference share of £1
1
1
At 31 March
285,000,001
285,000,001
Group and Company
202
2
£
202
1
£
Allotted, called up and fully paid:
476,821,341 ordinary shares of 50 pence each
238,410,671
238,410,671
4 ‘A’ ordinary shares of 50 pence
each
2
2
At 31 March
238,410,673
238,410,673
The ‘A’ ordinary shares and the ordinary shares rank pari passu in all respects, save that dividends may
be declared on one class of shares without being declared on the other.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
139
Notes to the Financial Statements (continued)
27. Shareholders’ Equity
Called up share
capital
Share premium
account
Revaluation reserve
Capital redemption
reserve
Retained earnings
Total equity
£m
£m
£m
£m
£m
£m
Group:
At 1 April 202
1
238.4
4.4
81.9
8.6
596.6
929.9
Loss
for the year
-
-
-
-
(
33.1
)
(
33.1
)
Other comprehensive
income
for the year
-
-
-
-
64.5
64.5
Transfer from revaluation reserve
-
-
(
7
.8
)
-
7
.8
-
-
-
(
7
.8
)
-
39.2
31.4
Transactions with owners recorded directly
in equity
Equity dividends
(Note 11)
-
-
-
-
(
97.1
)
(
97.1
)
At 31 March
202
2
238.4
4.4
7
4
.1
8.6
538.7
864.2
Company:
At 1 April 202
1
238.4
4.4
81.9
8.6
596.3
929.6
Loss
for the year
-
-
-
-
(
33.1
)
(
33.1
)
Other comprehensive
income
for the year
-
-
-
-
64.5
64.5
Transfer from revaluation reserve
-
-
(
7
.8
)
-
7
.8
-
-
-
(
7
.8
)
-
39.2
31.4
Transactions with owners recorded directly
in equity
Equity dividends
(Note 11)
-
-
-
-
(
97.1
)
(
97.1
)
At 31 March
202
2
238.4
4.4
7
4
.1
8.6
538.4
863.9
In 1997 the Company undertook a revaluation of certain assets, following North West Water’s
acquisition of Norweb. This resulted in the creation of a revaluation reserve of £234.9m. The
additional depreciation created as a result of the revaluation is transferred from the revaluation
reserve to retained earnings on an annual basis.
The capital redemption reserve is a non-distributable reserve specifically for the purchase of own
shares.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
140
Notes to the Financial Statements (continued)
28. Capital structure
Details of the authorised and allotted share capital, together with details of the movements in the
Company’s issued share capital during the year are shown in Note 27. The Company has Ordinary
shares, which carry no right to fixed income. Each share carries the right to one vote at general
meetings of the Company. The Company also has ‘A’ ordinary shares which rank pari passu in all
respects, save that dividends may be declared on one class of shares without being declared on the
other.
There exists an unissued special rights redeemable preference share which does not carry any voting
rights and can only be held by one of Her Majesty’s Secretaries of State, another Minister of the Crown,
the Solicitor for the affairs of her Majesty’s Treasury or any other person acting on behalf of the Crown.
This share is a legacy from the privatisation of the Company and was issued on 19 November 1990
and redeemed on 31 March 1995.
There are no specific restrictions on the size of a holding or on the transfer of shares which are both
governed by the general provisions of the Articles of Association and prevailing legislation. The
Directors are not aware of any agreements between holders of the Company’s shares that may result
in restrictions in the transfer of securities or on voting rights.
No person has any special rights of control over the Company’s share capital and all issued shares are
fully paid up.
With regard to the appointment and replacement of Directors, the Company is governed by its Articles
of Association, the Companies Act 2006 and related legislation. The Articles themselves may be
amended by special resolution of the shareholders. The powers of Directors are described in the
Articles of Association, copies of which are available on request; and in the Corporate Governance
Report on pages 46 to 60.
29. Ultimate parent undertaking and controlling party
The immediate parent undertaking is NWEN plc , a company incorporated and registered in the United
Kingdom. The registered address of the immediate parent undertaking is Borron Street, Stockport,
Cheshire, SK1 2JD. This is the smallest group in which the results of the Company are consolidated
and these consolidated accounts can be obtained from the above address.
The ultimate parent undertaking is NWEN (Jersey) , a company incorporated and registered in Jersey.
The address of the ultimate parent company is: 44 Esplanade, St Helier, Jersey, Channel Islands, JE4
9WG. This is the largest group in which the results of the Company are consolidated.
The ownership of the shares in NWEN (Jersey) and, therefore, the ultimate controlling parties of the
Company are:
KDM Power Limited (40.0%);
Equitix ENW 6 Limited (25.0%);
Equitix MA North HoldCo Limited (15.0%); and
Swingford Holdings Corporation Limited (20.0%).
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
141
Notes to the Financial Statements (continued)
30. Related party transactions
During the year the following transactions with related parties were entered into:
Group
2022
£m
Company
2022
£m
Group
2021
£m
Company
2021
£m
Recharges to:
Electricity North West (Construction and
Maintenance) Ltd
0.1
0.1
1.7
1.7
Electricity North West Services Ltd
0.9
0.9
1.2
1.2
Recharges from:
Electricity North West (Construction and
Maintenance) Ltd
-
-
(0.4)
(0.4)
Electricity North West Services Ltd
(
7.3
)
(
7.3
)
(5.0)
(5.0)
Interest payable to:
North West Electricity Networks plc
(2.
1
)
(2.
1
)
(2.0)
(2.0)
ENW Finance plc
(
8.1
)
(
8.1
)
(15.5)
(15.5)
Total interest payable
to Group
(Note 9)
(
10.2
)
(
10.2
)
(17.5)
(17.5)
Fair value movement on inter
-
company derivative
asset with ENW Finance plc (Note 9)
(41.1)
(41.1)
(26.3)
(26.3)
Fair value movement on inter
-
company derivative
liability with ENW Finance plc (Note 9)
42.1
42.1
28.2
28.2
Dividends paid to North West Electricity Networks
plc (Note 11)
(
97.1
)
(
97.1
)
(30.7)
(30.7)
Directors’ remuneration (Note 7)
(2.2)
(2.2)
(2.3)
(2.3)
For disclosure relating to executive directors’ remuneration see Note 7. The Company’s key
management personnel comprise solely of its directors.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
142
Notes to the Financial Statements (continued)
30. Related party transactions (continued)
Amounts outstanding with related parties are as follows:
Group
2022
£m
Company
2022
£m
Group
2021
£m
Company
2021
£m
Amounts owed by:
North West Electricity Networks plc
3.
5
3.
5
3.4
3.4
Electricity North West (Construction and
Maintenance) Ltd
0.6
0.6
1.1
1.1
Electricity North West Services Ltd
0.
3
0.
3
0.4
0.4
Electricity North West Property Ltd
0.1
0.1
0.1
0.1
North West Electricity Networks (Jersey) Ltd
0.
1
0.
1
0.9
0.9
North West Electricity Networks (Holdings) Ltd
0.2
0.2
0.2
0.2
Total
amounts owed
by Group
(Note 16)
4.8
4.8
6.1
6.1
Amounts owed to subsidiaries:
Electricity North West Number 1 Company Ltd
(Note 18)
-
(15.5)
-
(15.5)
Interest payable to Group:
North West Electricity Networks plc
(0.6)
(0.6)
(0.6)
(0.6)
ENW
Finance plc
(
3.4
)
(
3.4
)
(5.5)
(5.5)
Other amounts payable to Group:
Electricity North West Services Ltd
(0.
9
)
(0.
9
)
(0.7)
(0.7)
North West Electricity Networks (Holdings) Ltd
(0.
2
)
(0.
2
)
(0.1)
(0.1)
North West Electricity Networks (Jersey)
Ltd
(0.1)
(0.1)
(0.1)
(0.1)
Total amounts owed to Group
(Note 18)
(
5.2
)
(
5.2
)
(7.0)
(7.0)
Borrowings payable to:
North West Electricity Networks plc (Note 19)
(8
4
.2)
(8
4
.2)
(82.2)
(82.2)
ENW Finance plc (Note 19)
(
2
98
.
6
)
(
2
98
.
6
)
(498.3)
(498.3)
Group tax relief to:
North West Electricity Networks plc
(
10.2
)
(
10.2
)
(8.7)
(8.7)
Inter
-
company derivative asset with ENW Finance
plc (Note 21)
408.8
408.8
367.6
367.6
Inter
-
company derivative liability with ENW
Finance plc (Note 21)
(408.8)
(408.8)
(366.7)
(366.7)
The loan from NWEN plc accrues weighted average interest at 2.47% (2021: 2.53%) and is repayable
in March 2023. Of the loans from ENW Finance plc, £300m accrues interest at 1.415% (2021: £200m
at 6.125%; £300m at 1.415%). The £200m at 6.125% was repaid in July 2021.
Electricity North West Limited
Annual Report and Consolidated Financial Statements for the year ended 31 March 2022
143
Notes to the Financial Statements (continued)
31. Cash generated from operations
Group and Company
202
2
£m
202
1
£m
Operating profit
175.6
176.1
Adjustments for:
Depreciation
of property, plant and equipment
(Note
5
& 13)
119.9
119.8
Amortisation of intangible asset
(Note
5
& 12)
s
12.8
6.1
Amortisation of customer contributions (Note
4
& 2
3
)
(
19.5
)
(18.9)
Profit on disposal of property, plant and equipment
(0.1)
(0.1)
Cash
contributions in excess of pension charge to operating profit
(
23.7
)
(20.7)
Operating cash flows before movements in working capital
265.0
262.3
Changes in working capital:
Increase in inventories
(
4.1
)
(3.2)
Increase in trade and other
receivables
(
4.7
)
(11.8)
Increase in payables
10.
0
9.1
Cash generated from operations
266.
2
256.4