Registered number: 02906593 (England and Wales)
Northern Powergrid (Northeast) plc
Annual Report and Consolidated Financial Statements
for the Year Ended 31 December 2023
Northern Powergrid (Northeast) plc
Contents
Company Information 1
Strategic Report 2 to 21
Directors' Report 22 to 26
Independent Auditor's Report 27 to 35
Consolidated Income Statement 36
Consolidated Statement of Comprehensive Income 37
Consolidated Statement of Financial Position 38 to 39
Statement of Financial Position 40 to 41
Consolidated Statement of Changes in Equity 42
Statement of Changes in Equity 43
Consolidated Statement of Cash Flows 44
Statement of Cash Flows 45 to 46
Notes to the Financial Statements 47 to 105
Northern Powergrid (Northeast) plc
Company Information
Directors
A P Jones
A J Maclennan
P A Jones
A R Marshall
P C Taylor
T H France
Company Secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
Tyne and Wear
NE1 6AF
Registered Number
02906593 (England and Wales )
Auditors
Deloitte LLP
Senior statutory auditor
London
United Kingdom
Page 1
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023
The directors present the annual report and financial statements for the year ended 31 December 2023 of Northern
Powergrid (Northeast) plc (the "Company"), which have been drawn up and presented in accordance with the Companies
Act 2006.
BUSINESS MODEL
The Company is part of the Northern Powergrid Holdings Company and its subsidiaries group of companies (the
“Northern Powergrid Group”) and is an authorised distributor under the Electricity Act 1989 holds a Licence granted by
the Secretary of State. In addition, the Company owns all of the shares of Northern Electric Finance plc (together, the
“Group”), a company that acts as the issuer of long-term debt securities. As the Company is the largest contributor to the
Group in terms of revenue, the Strategic Report concentrates on the performance and progress of the Company throughout
the reporting year.
As a distribution network operator ("DNO"), the Company is regulated by the Office of Gas and Electricity Markets
(“Ofgem”), which in turn, is governed by the Gas and Electricity Markets Authority (“GEMA”). Ofgem requires the
DNOs to operate within a regulatory framework known as a price control, the purpose of which is to protect the interests
of end consumers by setting an upper limit on the amount the DNOs can charge for the use of their networks. The
completion of the 2022/23 Regulatory Year (on 31 March 2023), represented the end of year eight of the RIIO-ED1 price
control, which became effective on 1 April 2015 and ended on 31 March 2023 (the “ED1 period”). 1 April 2023 denoted
the start of the RIIO-ED2 price control, which will run for a period of five years to 31 March 2028 (the “ED2 period”).
its electricity distribution network (the “Network”) within its distribution services area in the northeast of England, which
extends from North Northumberland, south to York and west to the Pennines. The Network includes over 42,000
kilometres of overhead and underground cables and over 28,000 substations. Electricity is received from National Grid's
transmission system and from generators connected directly to the Network, and then distributed at voltages of up to 132
kilovolts.
Revenue generated by the Company is primarily controlled by a distribution price control formula which is set out in the
electricity distribution licence. The price control formula does not directly constrain profits from year-to-year but is a
control on revenue that operates independently of a significant portion of the Company’s costs. Allowed revenue is
recovered from electricity suppliers via the application of Distribution use of System charges. These charges account for
approximately 15% of the electricity end user’s overall electricity bill. The Company’s opening base allowed revenue
(excluding the effects of incentive schemes, volume or legislative driven adjustment mechanisms and any deferred
revenues from the prior price control) has been set and therefore provides the Company with some stability in terms of its
income for each Regulatory Year from 1 April 2023 through to 31 March 2028. Nominal opening base allowed revenues
increased in line with inflation (as measured by the average of the United Kingdom's Retail Prices Index and Consumer
Prices Index “CPI-H” in the month of April 2023, and as measured by CPI-H there onwards).
Page 2
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
STRATEGY
In common with Northern Powergrid Holdings Company and its subsidiaries (the “Northern Powergrid Group”), the
Company operates a strategy based on six core principles (the "Core Principles"), which comprise Financial Strength,
Customer Service, Operational Excellence, Employee Commitment, Environmental Respect and Regulatory Integrity. The
Core Principles (which are applied by the Northern Powergrid Group’s parent company, Berkshire Hathaway Energy
Company ("Berkshire Hathaway Energy")), set out the basis on which the Company generates shareholder value over the
longer-term and defines the standards by which the Northern Powergrid Group holds itself accountable. Each Core
Principle is defined by a strategic objective which is linked to the commitments made in the Company’s business plan for
the ED2 period (the “Business Plan”).
Submitted to Ofgem in December 2021, the Business Plan (available via the Northern Powergrid Group website) described
the long-term strategy that the Company would achieve during the ED2 period in order to support decarbonisation whilst
delivering sustainable growth with regard to those with whom the Company interacted and served.
Developed after a period of consultation with stakeholders, and in conjunction with the work of the Customer Engagement
Group (“CEG”), which was established for the purpose of providing independent scrutiny and challenge to ensure that
customers’ interests were adequately reflected, the Business Plan focused on a number of output areas. The output areas,
which link to the Core Principles, are described throughout the Strategic Report and include (amongst others) reliability
and availability, climate resilience, decarbonisation, safety, vulnerable customers and customer service. These areas are
supported by three enablers, being workforce resilience, innovation and data and digitalisation. The directors refer to the
values established by the Core Principles and the commitments contained within the Business Plan when considering the
consequence of decisions they make.
As the Company delivers the strategy set out in the Business Plan, it will support the evolution from DNO to Distribution
System Operator (“DSO”), to facilitate decarbonisation and take steps to achieve a fully integrated and flexible energy
system. See Environmental Sustainabilty for more detail.
The delivery of the Business Plan is supported by an annual business plan (the “Annual Plan”) which is submitted to the
Northern Powergrid Group’s shareholder each financial year and is designed to phase progress towards the achievement of
each commitment over the ED2 period. This ensures that the deliverables in both plans can be measured effectively by
using a mix of financial and non-financial Key Performance Indicators (“KPI”).
The Strategic Report focuses on each Core Principle and the performance of the associated KPIs throughout the year in
order to provide a summary of the success in achieving each strategic objective, progress made against certain Business
Plan commitments and performance in relation to the Annual Plan.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
FINANCIAL STRENGTH
Strategic objective
: Strong finances that enable improvement and growth.
KPI 2023 2022
Operating profit (million) £166.0 £161.6
Net cash from operating activities (million) £293.3 £260.0
Net cash used in investing activities (million) £187.1 £174.2
Credit Score (Standard and Poor's) A A
Business Plan commitment:
To build on the strong financial base by delivering embedded efficiencies equivalent to 11%
of forecast total expenditure during the ED2 period.
Performance during the year:
The Group continued to maintain good control in respect of both its capital and operating
costs by effectively managing the financial risks that could have had an adverse impact on its business.
Revenue:
The Group's revenue at £435.7 million was £6.2 million lower than the prior year (2022: £441.9 million)
primarily due to a fall in distribution use of system revenues (£11.5 million), partially offset by an increase in recharge to
related parties (£5.2 million).
Operating profit and position at the year-end:
The Group's operating profit of £166.0 million was £4.4 million higher
than the previous year (2022: £161.6 million), primarily reflecting higher gross margin driven by a reduction of supplier of
last resort costs (£16.6 million), partially offset by an increase of salary costs. The statement of financial position shows
that, as at 31 December 2023 the Group had total equity of £1,318.9 million (2022: £1,236.7 million). The increase in
assets was reflective of the continued capital investment being in excess of the depreciation charge. The directors consider
the Group to have a strong financial position which, when coupled with the preference of its parent Company, Berkshire
Hathaway Energy, for operating with lower levels of debt than equivalent companies in the sector, creates a stable base for
continued strong performance during the ED2 period.
Finance costs and investments:
Finance costs net of investment income at £20.4 million was £11.8 million lower than the
prior year (2022: £32.2 million) mainly reflecting higher finance income relating to the intercompany loans.
Cash flow:
The Company aims to collect from customers and pay suppliers within contracted terms. Any surplus cash
held is remitted to Yorkshire Electricity Group plc ("YEG"), a company in the Northern Powergrid Group, and invested
accordingly, generating a market rate of return for the Company. Movements in cash flows were as follows:
• Cash flow from operating activities at £293.3 million was £33.3 million higher than the previous year, reflecting higher
operating profit before depreciation and amortisation and favourable movements in working capital and an increase in
receipt of customer contributions.
• The net cash used in investing activities at £187.1 million was £12.9 million higher than the previous year, reflecting
higher purchases of plant, property and equipment.
• The net cash outflow from financing activities at £382.1 million was £572.4 million higher than the £190.3 million cash
inflow in the previous year. This is mainly down to no new issues of bonds (£346.3 million prior year) and an increase in
movement in intercompany loans of £279.8 million.
Pensions
: The Company is a participating employer in the Northern Powergrid Group of the Electricity Supply Pension
Scheme (the "DB Scheme"), a defined benefit scheme. Further details of the Company's commitments to the Scheme and
the associated deficit repair payments are provided in Note 25 to the financial statements. The Company also participates
in the Northern Powergrid Pension Scheme, which is a defined contribution scheme.
Insurance
: As part of its insurance and risk strategy, the Northern Powergrid Group has in place insurance policies, which
cover risks associated with employees, third party motor and public liability. The Northern Powergrid Group carries
appropriate excesses on those policies and is effectively self-insured up to the level of those excesses.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
CUSTOMER SERVICE
Strategic objective
: Delivering exceptional customer service.
KPI 2023 2022
Broad Measure of Customer Satisfaction (“BMCS”)
89.3% 88.3%
BMCS Rank (Out of 14)
12 12
BMCS Power Cuts
88.6% 87.8%
BMCS General Enquiries
94.2% 94%
BMCS Connections
87.7% 86.2%
Stakeholder Engagement and Customer Vulnerability (“SECV”) rank (out of 13)
(combined with Northern Powergrid (Yorkshire) plc)
6 6
Business plan commitments
: To provide a reliable, better communicated and faster customer service offering through a
range of channels to suit stakeholder needs.
Performance during the year
: In respect of BMCS performance, an independent market research company carried out
telephone surveys with the Company’s customers to find out how satisfied they were with services related to unplanned or
planned power cuts, quotations and subsequent connections, and general enquiries. The Company recorded an increase in
overall satisfaction scores at 89.3% compared to the prior year (88.3%) which resulted in an overall BMCS rank of 12 out
of 14.
To further enhance the service provided to customers, initiatives from the Company’s customer service improvement plan
were implemented. This included introducing three new methods for customers to make contact (including instant and
video messaging), the introduction of an on-site customer responder to support customers impacted by long duration
power cuts and the provision of out of hours delivery for certain services such as service alterations.
In respect of overall performance during ED1, significant progress has been made in terms of the BMCS, with an increase
in overall satisfaction of 83.3% at the start of the ED1 period to the 89.3% reported in respect of the 2023 financial year.
However, it is acknowledged that as the other DNOs also continue to invest in customer service, even making incremental
improvements in the BMCS ranking can be challenging. Regardless, the Company will strive to achieve its Business Plan
commitments during the ED2 period by continuing to focus on the ways it can improve the service it provides to its
customers.
Activity scheduled in support of this includes the refinement of the on-site support offering to extend utilisation beyond
long duration faults, continuing to embed connections management improvements across all teams and the development of
a Priority Services Membership App to support customers before and during a power cut.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Connections to the network
Business Plan commitment
: To reduce small work end-to-end connections lead times by 20% while offering more
self-service options, greater support and more flexibility over delivery, including, support for smarter solutions and an
expanded range of flexible connections.
Performance during the year
: End-to-end lead time improvement continued to be challenging due to the significant
increase in connections volumes as a result of low carbon technology uptake and additional applications. In response, the
Company implemented a new quotation system which allowed customers to obtain a quote online and increased
operational delivery capacity. This was in addition to the quote on site option, single point of contact and AutoDesign tool
that were implemented during the ED1 period.
In relation to the Company’s ICE commitments for the 2022/23 Regulatory Year, the 11 actions included in the service
improvement work plan were delivered by 31 March 2023.
From a major connection perspective, transmission network connections continued to pose a significant issue due to long
delays. Consequently, steps were taken to proactively mitigate the problem where possible, including via the introduction
of a new queue management processes and in collaboration with the electricity system operator (“ESO”) and other
network operators through the Energy Network Association’s Strategic Connections Group, revised technical delegated
limits were piloted at some of the Company’s grid supply points. This allowed interim non-firm solutions to be offered to
customers, thereby reducing connections lead times by approximately six years.
Communication was also prioritised with regular ‘Transmission System Congestion’ webinars having been hosted
alongside National Grid Electricity Transmission and National Grid ESO, to provide stakeholders with clear and
transparent updates on the Company’s approach to identifying and implementing improved solutions. In addition, the
availability and timeliness of information for customers was improved through a Project Progression portal, an online
service that allows customers to look up their project to understand the status of the project and where it is in the
connections pipeline.
Aside from transmission connections issues, the Company continued to see high volumes of connection applications,
particularly at the extra high voltage level. In support of the increased appetite, plans are in place to improve customer
service by minimising the time to quote, facilitated by introducing a new triage process which helps to prioritise
quotations.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Corporate Responsibility
Business Plan commitment
: To build effective relationships with stakeholders whilst maximising the value of contact
with customers, especially those who are vulnerable and hard to reach.
Performance during the year
: In April 2023, the Company (together with Northern Powergrid (Yorkshire) plc) put
forward its SECV submission to Ofgem in respect of work undertaken during the 2022/23 Regulatory Year. The material
provided an overview of activities and case studies in areas such as support for vulnerable customers, decarbonisation,
safety, environment, customer service, reliability and availability.
Following the review by Ofgem's panel, the Company achieved sixth place (of six) in the context of the DNOs (2021/22:
sixth place (of six)). In response, an external assessment of the approach to engagement, fuel poverty provision and the
support provided to vulnerable customers was undertaken and improvement plans were established. This was the last year
of the SECV incentive as the measurement of stakeholder engagement in future years will be via issue specific incentives
such as DSO and Consumer Vulnerability.
During the year, the Company continued to develop engagement activity with a focus on supporting the implementation of
the Business Plan. This included establishing new forums to facilitate decarbonisation and DSO engagement as well as
enhancing existing relationships with local councils, Local Enterprise Partnerships and civic leaders. In support, the
Business Plan Engagement Groups delivered tailored engagement activities and respond to on-going feedback from
customers and stakeholders.
As in recent years, the ongoing energy crisis and economic uncertainty exacerbated the challenges facing vulnerable
customers. Accordingly, investment doubled and the Company and its affiliate were able to a support over 20,000
customers who were facing fuel poverty. In addition, in conjunction with partners, work began to pilot a new service to
provide advisory services, particularly for vulnerable customers, to decarbonise their homes. This was supported by a
refresh of the Social Issues Expert Group to the Northern Inclusive Energy Group. Comprised of a number of independent
vulnerability experts from across health, housing and energy, the group aims to deliver support to vulnerable customers by
shaping the Company’s social responsibility and consumer vulnerability policy.
In terms of additional activity, the Company’s Community Partnering Fund financed nine grassroots organisations across
the region to deliver fuel poverty support to vulnerable households and the Net Zero Community Energy Fund supported
eight organisations to a share of £50,000. Alongside, the Company and all funded partners routinely promoted Priority
Services Membership and shared energy efficiency materials and winter preparedness information to customers.
OPERATIONAL EXCELLENCE
Strategic objective
: High-quality, efficient operators running a smart reliable energy system.
2022/23 2021/22
KPI Actual Target Actual Target
Customer minutes lost 44.0 <50.9 46.3 <52.8
Customer interruptions 46.9 <58.6 49.9 <59.2
2023 2022
Network investment (million) £190.2 £157.5
High voltage restoration time (minutes) 62.1 61.1
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Business Plan commitment
: To achieve 12% fewer unplanned power cuts and reduce the average length of unplanned
power cuts by 25%.
Performance during the year
: CML and CI are the KPIs set by Ofgem to measure (on a regulatory year basis) the quality
of supply and system performance. CML measures the average number of supply minutes lost for every connected
customer due to both planned and unplanned power cuts that last for three minutes or longer. CI measures the average
number of supply interruptions per every 100 connected customers due to planned and unplanned power cuts that last for
three minutes or longer. Performance during the year was better than Ofgem's target for both CML and CI.
From a high voltage restoration perspective, the Company averaged 62.1 minutes (2022: 61.2 minutes), after allowing for
severe weather incidents and other exemptions.
In respect of the ED1 business plan commitments (to achieve 8% fewer unplanned power cuts and reduce the average
length of unplanned power cuts by 20% during the ED1 period), the Company (together with Northern Powergrid
(Yorkshire) plc) outperformed the original targets by achieving 25.4% fewer unplanned power cuts and a reduction of the
average length of unplanned power cuts by 29.5% (relative to the prior regulatory period).
The Company invested £190.2 million during the year through its approved Network investment strategy (2022: £157.5
million), which has been designed to deliver improvements in Network performance and increase resilience. Various
major projects were undertaken to reinforce the primary Network, refurbish transformers, rebuild overhead lines, remove
and replace oil-filled cables, change deteriorated poles, replace switchgear and install and commission new remote-control
points.
Further Network enhancements included the continued roll-out of the automatic power restoration system on the high
voltage Network. At low voltage the implementation of next generation innovative low voltage technology devices
continued with the addition of low-cost Network monitoring sensors which detect developing faults so that they can be
proactively managed. Initiatives were also implemented as a result of the Reliability Improvement Plan including
increasing the use of mobile generation to restore supplies.
In terms of storm response and winter preparedness, the Company continued to implement and develop a range of
improvements to its website capabilities, call volume capacity, active network management and Major Incident
Management Plan (“MIMP”) response procedures.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
EMPLOYEE COMMITMENT
Strategic objective
: High-performing people doing rewarding jobs in a safe and secure workplace.
2023 2022
KPI Actual Target Actual Target
Northern Powergrid Group occupational safety and
health administration ("OSHA") 0.43 0.09 0.26 0.09
Preventable vehicle accidents (PVAs) 8 10 10 14
Lost time accidents 1 - - -
Medical treatment accidents 2 1 0 1
Operational incidents 3 3 5 3
Northern Powergrid Group absence rate 3.4% 3.3%
Health and Safety
Business Plan commitment
: To maintain industry leading safety performance and reduce the accident rate by 50% over
the ED2 period.
Performance during the year
: In common with the Berkshire Hathaway Energy group, the Northern Powergrid Group
measures its safety performance using the OSHA rate, which is a measure used to capture safety incidents down to minor
levels of medical treatment. The Northern Powergrid Group failed to meet its target of 0.09 having achieved an OSHA rate
of 0.43 (2022: 0.26), which equated to 11 recordable incidents against a goal of two or fewer. Whilst the majority were
relatively minor in nature (dog bites), three incidents involved minor burn injuries, and as such, an intervention plan was
implemented. The Company had a positive year in terms of PVAs, with eight recorded against a target of 10 or fewer. In
addition, one minor lost time accident was recorded.
In respect of the Business Plan commitment, improving safety performance remains a key priority and the way in which
this is achieved is set out in the Company’s health and safety performance improvement plan (“HSPIP”). During the year,
the HSPIP focused on 58 initiatives in the areas of colleague safety, contractor safety, health and well-being and public
safety. This included the continuation of driver training, the introduction of local safety improvement groups, the
mobilisation of an assurance programme on high -risk activities and leveraging data from the vehicle telematics system to
prioritise driver training.
The mental health and wellbeing of staff continues to form an integral part of the HSPIP. Existing support includes an
independent employee assistance service, which is a confidential, self-referral counselling and information service to assist
with personal or work-related problems and access to services including counselling and physiotherapy referrals.
During the year, the Company successfully completed two external surveillance visits on its ISO 45001 accreditation for
its occupational health and safety management system.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Employees
Business Plan commitment
: To emphasise the importance of leadership and high standards of performance by engaging,
collaborating and working with employees and their trade union representatives.
Performance during the year
: Agile working has successfully allowed eligible colleagues to adopt flexible ways of
working with a renewed focus this year on collaboration and team work. It continues to evolve and is key to supporting the
retention and attraction of colleagues Health, safety and wellbeing has remained a key commitment as the initiatives are
further developed to cultivate a healthy workplace.
In relation to development, training sessions on topics which formed part of the Diversity, Equity and Inclusion plan were
provided to further promote a more inclusive culture. Routine training also continued in key areas such as customer
service, cyber security and management development. In addition, the Company’s leadership offering was refreshed in line
with the Berkshire Hathaway Energy Performance Management Framework which included a management development
programme, leadership apprenticeships and an approach to identifying and developing individual contributors.
During the year, 68 new recruits (2022: 41) joined the Company and Northern Powergrid (Yorkshire) plc’s workforce
renewal programme. At 31 December 2023, the Company had 1,384 employees (2022: 1,281).
There has been an increase in the total numbers since the prior year, specifically within Energy Systems, reflecting the
strengthening of the DSO and data and digitalisation teams to deliver Business Plan initiatives.
Further information concerning how the Northern Powergrid group is supporting gender diversity in the energy industry
can be found in the Northern Powergrid Group’s gender pay gap report via the Northern Powergrid Group’s corporate
website.
Employee engagement
The board and senior management team continue to keep employees and trade union representatives informed of and
involved as appropriate in developments that may impact them now or in the future. This approach has been chosen as the
most effective way of interacting with employees due to the combination of collectively bargained and personal contract
holders. In support of this process, the Director of People and Change routinely reports to the board and the Health and
Safety Committee to ensure that the views of employees are considered and to facilitate the discussion of and any
subsequent decision making in respect of employee related concerns or issues.
Consultation for collectively bargained employees is agreed with trade union representatives in the form of a constitutional
framework. In addition, all employees are consulted to establish their views and identify key priorities using employee
engagement surveys.
During the year, the President and Chief Executive Officer, members of the board and senior management team provided
regular updates on financial, organisational, safety and customer service performance. The executive directors continued to
engage directly with employees during operational and office-based site visits, and induction events. Communication with
employees was delivered via various channels including group wide text messages and virtual meetings to quickly
disseminate key information concerning safety and MIMPs, alongside regular briefings, line manager conversations,
meetings with trade union representatives in addition to utilising the Northern Powergrid Group's intranet.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
The Berkshire Hathaway Energy code of business conduct ("Code of Conduct")
The Northern Powergrid Group has adopted the Code of Conduct, which details the commitment to ethics and compliance
with the law, provides reporting mechanisms for known or suspected ethical or legal violations, and establishes minimum
standards of behaviour expected of all employees. In support of this, a "speaking up" process is in place enabling all
employees to raise concerns of unethical acts, malpractice or impropriety (including bribery or corruption), and an
anonymous help line operated by an independent company is also available. All colleagues complete an annual online
training programme covering the requirements of the Code of Conduct. This also requires all employees to declare any
conflicts of interest and unspent criminal convictions.
Employment of disabled persons
The Company’s policy is to provide all protected groups, including disabled people, with equality at work in respect of
employment, training, career development and promotion, having regard to their aptitudes and abilities. Should any
member of staff become disabled during their employment, the Company will make reasonable adjustments, wherever
possible.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
ENVIRONMENTAL RESPECT
Strategic objective:
Leaders in environmental respect and low carbon technologies
2023 2022
KPI Actual Target Actual Target
Total oil/fluid lost (litres) 8,823 <10,387 10,164 <11,406
SF6 gas discharges (kg) 7.45 <12.25 22.08 <12.75
Environmental incidents - <2 3 <2
Carbon footprint (tonnes) 15,222 14,376
KWh energy consumed 20,160,750 20,867,214
Business carbon footprint Tonnes Per km² Tonnes Per km²
Fleet fuel use 1,931 0.13 1,977 0.14
Other (including fugitive emissions) 321 0.02 751 0.05
Total scope 1
2,252
0.15
2,728
0.19
Building electrcity use 775 0.05 775 0.05
Substation electricity use 1,706 0.12 1,664 0.12
Total scope 2
2,481
0.17
2,439
0.17
Business fuel use 1,070 0.07 965 0.07
Contractor emissions 9,420 0.65 8,243 0.57
Total scope 3
10,490
0.72
9,208
0.64
Total carbon footprint (tonnes) 15,222 1.06 14,376 1.00
Note: KWh energy consumed relates to depot energy and fleet fuel usage.
The chosen business carbon footprint intensity ratio is based on the Company’s licence area which equals 14.394 km.
The methodology adopted to calculate energy and business carbon footprint data is aligned with international standards, those required by Defra and
BEIS and is compliant with ISO 14064-1:2006.
Business Plan commitment
: To reduce our business carbon footprint by 20% and reduce oil loss by 15% during the ED2
Period.
Performance during the year
: The volume of SF6 gas loss during the year combined with an increase in contractor
works and associated emissions, resulted in the Company’s overall carbon footprint increasing to 15,222 tonnes (2022:
14,376 tonnes). Whilst this was disappointing, significant progress has been made over the ED1 period, with the
Company’s and its affiliates’ carbon footprint having reduced by 36%, well ahead of the original 10% reduction
commitment. In terms of scope 3 emissions, the Company has committed to collect data for all applicable scope 3
emissions categories in order to enhance a more robust, multiyear baseline. This will inform the actions taken to
implement meaningful and actionable steps to further reduce emissions resulting from the Company’s operations.
In support of the target to further reduce oil and fluid loss, the 2023 annual environmental improvement plan included a
transition to a blended strategy of both asset replacement of fluid-filled cables and enhanced tracer applications to facilitate
earlier interventions. The 2023 loss of fluid reduced from the previous year of 8,823 litres (2022: 11,583).
To maintain the policy of environmental protection and legal compliance, the Company continues to assess environmental
risks and mitigate threats through programmes of work such as fluid-filled cable replacement, undergrounding overhead
lines in areas of outstanding natural beauty, installing flood defences, implementing secondary containment in high-risk
substations and removing equipment containing polychlorinated biphenyl from the network. Whilst prevention is
paramount, in the event the Company’s activity does result in a leak or spill, the services of an appointed 24-hour a day
environmental response consultancy is used to minimise the effects of any incident.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
The Company takes its environmental responsibilities seriously and has a proven track record of lowering emissions and
minimising the wider environmental impact of Network activity. Reducing the level of internal carbon footprint is a key
priority and consequently, plans have been developed to achieve the ambition to become carbon net neutral by 2040 across
the Company’s controllable emissions.
Controllable internal sources of emission are captured through Ofgem’s Regulatory Reporting Process and include
operational fleet, company car miles, other business travel and office, depot and substation energy use. The Company’s
supply chain also contributes to the overall carbon footprint as contractors are used to undertake work on the Network and
deploy generators to support customers during power cuts.
Initiatives in place to reduce internal sources of emission include increasing the number of ultra-low emission or zero
emission vehicles to 40% of the Company’s fleet of vehicles by 2028 and the adoption of science-based targets. The fleet
vehicle target was aligned to stakeholder ambition levels and was therefore designed to balance costs, technology
readiness and charging infrastructure availability.
In respect of the Company’s wider environmental impact, plans have been developed to achieve zero waste to landfill by
2035 and to divert (by re-using or recycling) 90% of waste from all of the Company’s operations by 2028. The Company’s
Network operations are the largest source of waste generation, with waste arising from excavations and other operations
representing 99% of all of the waste produced. Steps taken to enhance performance in this area include the recycling of
materials, with the Company planning to recycle and reuse 85% of total materials by 2028. This target incorporates the
increased volume of waste that will be produced as a result of delivering the Company’s Network investment plans and
decarbonisation objectives.
Issues relating to the assessment and classification (as hazardous or non-hazardous) of material arising from unplanned
utility excavations, prior to transport from site and disposal, pose a significant challenge to the Company’s objective to
reduce waste to landfill. The utilities industry is currently working with Streetworks UK and the Environment Agency to
develop and implement a new industry-wide risk-based approach to managing waste arising from excavations to combat
these issues.
From a supply chain perspective, the Company will continue to work closely with suppliers to reduce packaging and
ensure environmentally friendly alternatives are used where possible. In support, an embodied carbon model will be used
to support investment decisions including the sourcing of raw materials. At office locations, the use of waste segregation
facilities will be increased, and office supplies will wherever possible be low carbon, plastic free and fully recyclable or
reusable.
In addition to the measures outlined above, to safeguard the environment from its direct activity, the Company also
operates a habitats programme which is aimed at protecting natural habitats and increasing the variety and variability of
species and ecosystems at 200 of the Company’s and its affiliates' major sites.
At this time, the Company has no plans to use carbon offsetting to achieve its targets in the ED2 Period. Instead, the focus
remains on reducing physical carbon emissions, on the basis that additional investment in the Network to enable
decarbonisation offers much better value to customers than incremental spend on carbon off-setting the Company’s
emissions. However, at an initiative level, where ad-hoc opportunities exist, the Company may pursue these accordingly.
From an environmental compliance perspective, the Company operates a United Kingdom Accreditation Service scheme
for environmental management and is certified to the environmental management systems standard ISO 14001:2015 which
is designed to enhance environmental performance, fulfil compliance obligations and achieve environmental objectives, all
of which contribute to the achievement of the Company’s KPIs. A full recertification assessment was carried out in
October 2023 with two environmental certification standards - the ISO 14001 Environmental Management System and the
Energy and Utility Skills Competence Management Scheme (CMS) for waste management (including the transition to an
updated version of the CMS standard).
The Company’s carbon footprint reporting framework is certified under the Certified Emissions Measurement and
Reduction Scheme for compliance with ISO 14064-1:2006. A full re-certification audit commenced in November 2023,
with final re-certification to follow in early 2024 once a re-baseline and incorporation of system losses into our reporting is
complete and verified.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
To date, the Company’s performance against a number of stretching KPIs to reduce carbon usage and minimise the effects
of the Company on stakeholders and the environment has been positive. However, it is acknowledged that becoming
carbon neutral by 2040 and working with suppliers and partners in order to accomplish this, is not without its challenges
and risks. Accordingly, the Company will continue to evolve its ambitions and enhance the implementation of
environmental plans throughout the ED2 Period. The phased targets associated with waste to landfill, recycling, noise
pollution and biodiversity and additional descriptions of all key measures can be found in annex 1.4 of the Business Plan, a
copy of which can be found via the Northern Powergrid Group’s website (our business plan). Additional reporting against
these targets will be included in the 2023/2024 Regulatory Accounts, given it is the first full Regulatory Year period, for
which the KPIs have been developed.
Page 14
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Environmental Sustainability
Strategic focus:
Enable significant growth in customers connecting low carbon technologies, support all pathways to net
zero emissions and significantly reduce the Company’s carbon footprint.
Performance during the year:
As the country takes action to reduce carbon emissions in line with the net zero target by
2050, the way in which electricity is produced and used is expected to have a substantial impact on the Network over time.
Accordingly, in the year, the Company began implementing its DSO strategy in order to act as a key facilitator in the
country’s net zero transition by placing decarbonisation at the heart of its investment and actions.
As the volume and total capacity of decentralised energy generation grows and given the greater range of load and
generation technologies now connected to the Network, the Company continued to develop and action innovative solutions
that will reduce the need for traditional and potentially expensive reinforcement.
In the past year, the Company engaged with the market for flexibility by tendering for flexibility services on the Network,
successfully placing two contracts for services. At these sites, customers change their energy consumption and generation
patterns as an alternative to the Company carrying out Network reinforcements, thereby facilitating a more efficient and
greener Network. And to better understand how to prepare the Network for the future needs of its customers and the
potential pathways to net zero, the Company published its updated Distribution Future Energy Scenarios (available via the
Northern Powergrid Group’s corporate website).
From an innovation perspective, the Company runs a portfolio of projects in the priority areas of customer vulnerability,
resilience, and decarbonisation. In 2023 the Company initiated the Community DSO project, funded through £12.5 million
of Network Innovation Competition funding awarded by Ofgem. The project will deliver trials of smart local energy
systems to explore how consumer energy resources and flexibility can be utilised in communities, thereby providing more
efficient solutions to decarbonisation, resilience for rural communities and opportunities for consumers and vulnerable
customers to participate in and benefit from flexibility markets.
Decarbonisation continues to become more central to the Company’s strategy, and the way in which the Company
contributes more broadly to the evolution of the energy industry and the stakeholders with whom it interacts. The
Company has been progressive in its ambition to reduce its own business carbon footprint. However, there is greater
opportunity to contribute to decarbonisation through the Company’s key role in facilitating regional decarbonisation by
fulfilling the functions of DSO. This means investing in people, processes and systems in order to actively manage the
Network and to optimise the use of assets and generated energy in the region.
As part of the Company’s Business Plan, several strategic objectives shaped the development of the accompanying DSO
strategy. This included ‘flexibility first’, involving deploying flexible solutions as an alternative to Network reinforcement,
‘whole system collaboration’ in order to engage with the wider market on whole system energy solutions, ‘data and
digitalisation’, to facilitate solutions in areas such as open data, ‘openness and transparency’ to collaborate in joint
planning with our stakeholders and, finally, fostering a ‘workplace and workforce fit for the future', to build regional and
national skills.
Collectively, these objectives have been developed to achieve a number of outcomes and benefits. The Company is
delivering its plans for DSO to enable open energy data sharing, transform the way decisions and plans are made, support
the development of new flexible energy markets, increase customer and Network flexibility and facilitate a whole system
energy system. The Company’s Energy Systems directorate centralises responsibility for delivering DSO plans and has
progressed, growing a team responsible for these functions throughout 2023.
In conjunction with this activity, with the support of the CEG, the Company established the DSO Review Panel (“DRP”),
for the purpose of making its decisions transparent and to allow the independent members to comment on and challenge
the Company’s major investment decisions.
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Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
REGULATORY INTEGRITY
Strategic objective
: Trustworthy, fair and balanced.
KPI:
Completion of a quarterly regulatory compliance affirmation process.
Business Plan commitment:
To manage the Company's business to the highest behavioural standards and adhere to a
policy of strict compliance with all relevant standards, legislation and regulatory conditions.
Performance during the year
: In order to assure compliance with distribution licence and other regulatory obligations,
the Company operates a regulatory compliance affirmation process, under which ownership of approximately 2,400
regulatory obligations is assigned to 80 responsible managers. Those responsible managers are required to review
compliance with the relevant obligations on a quarterly basis and report on any identified non-compliances or perceived
risks which are then addressed by members of the senior management team. To minimise the risk of the Company
breaching its licence conditions and other statutory requirements (which could lead to financial penalties), the board
reviews the outcomes of each exercise. Each quarterly regulatory compliance affirmation process was completed
satisfactorily during the year.
The Company submitted its annual Data Assurance Report to Ofgem in March 2023, which included risk assessments of
the regulatory returns to be submitted during the Regulatory Year ahead (April 2023 to March 2024), together with a
report detailing the assurance work actually carried out in the Regulatory Year ended 31 March 2023 and the findings of
that work.
In March 2023, the Company and its affiliate were granted permission by the Competition and Markets Authority (the
"CMA") to appeal against the licence modifications that gave effect to Ofgem’s Final Determination in respect of the ED2
price control. The appeal related to two specific grounds:
1. the misallocation of allowances that is inconsistent with efficient costs; and
2. the approach to determining rewards for the Business Plan Incentive.
The CMA upheld the Company’s appeal on the first ground and sent that part of Ofgem’s decision back to Ofgem for
reconsideration and redetermination. The CMA dismissed the Company’s second ground of appeal.
Ofgem reconsidered its analysis of the allocation of allowances and, on 2 November 2023, issued the statutory
consultation proposing the changes to be made to the special conditions of the Company’s electricity distribution licence in
order to, in Ofgem’s view, give effect to the CMA’s decision.
The Company submitted its response to the statutory consultation on 29 November 2023 and, having considered that
response, Ofgem issued the statutory notice formally modifying the special conditions of the Company’s electricity
distribution licence on 13 February 2024. The Company confirmed to the CMA that it would not appeal Ofgem’s
redetermination. Further information concerning the outcome of the appeal process can be found via the CMA website.
Page 16
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
PRINCIPAL RISKS AND UNCERTAINTIES
The Northern Powergrid Group operates a structured and disciplined approach to the management of risk as part of its
overall risk management policy and in support of its financial reporting practices. A system is in place to facilitate the
identification of new and emerging opportunities and risks, including those associated with the achievement of the
Northern Powergrid Group’s strategic objectives and Core Principles. This includes regular reviews of the macro
environment as well as risks that arise from within functional business areas (see the non-financial and sustainability
information statement for further detail).
Once identified, key risks and their respective controls and mitigation plans are continually assessed and formally
reviewed on a quarterly basis by the Risk Advisory Board ("RAB") in order that they are managed to an acceptable level
in accordance with the Northern Powergrid Group’s risk appetite. The Northern Powergrid Group’s risk appetite is
determined by a process based on risks, issues and consequences. The level of tolerance varies in accordance with the
pursuit of objectives and with caution or acceptance adopted depending on whether risks can be influenced or mitigated
fully, partly or not at all. The RAB routinely reports its findings to the board to ensure the directors are sufficiently
appraised of the risk exposure associated with the pursuit of the Company’s long-term strategy.
The risk management programme includes regular reviews of the crisis management, disaster recovery and major incident
plans. To determine the level of disaster preparedness and responsiveness against threats to business continuity, risk
management plans and processes are periodically tested. This self-evaluation approach is reinforced by that of the
Berkshire Hathaway Energy group, which benchmarks risk management activities across its business units and shares
significant lessons learned. The business continuity and disaster recovery plans are tested regularly to ensure that as
required, operational performance can remain resilient, and employees are able to perform their duties safely.
Principal Risks
During the year, two additional risks were added to the risk register, being transmission connection delays and the outcome
of the regulatory price control. No other notable changes have taken place. The Northern Powergrid Group’s principal
risks are not ranked or prioritised in any particular order. Given the sensitivity and ever-changing nature of risks, the board
has elected not to disclose the risk appetite associated with each risk.
Cyber and Information Security
Unauthorised access or compromise of the Information Technology or Operational Technology networks, resulting in loss
of network control and availability. Unauthorised access or loss of large volumes of data or sensitive data.
Mitigation
• Robust cyber security risk mitigation programme is in place.
• Accreditation under the ISO 27001 Information Security standard for operational, customer, employee and financial
information.
• Compliant to the Network Information Security Directive and the Basic Cyber Assessment Frameworks.
• Compliance with the Centre for Internet Security Critical Security Controls.
Regulatory and policy positioning
Decisions taken resulting in negative impacts to our business model.
Mitigation
• Ofgem ruled out an Out or Underperformance true up in respect of high inflation on the performance of the Cost of Debt.
• Innovation projects are in place to develop and demonstrate future technologies and commercial practices.
• The Company engages in a robust regulatory and stakeholder engagement programme, the latter of which is scrutinised
by the CEG.
• The Company is actively involved in consultations on the ED2 price controls.
Page 17
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Network resilience
Loss of the operational Network due to significant weather events, targeted physical attack or catastrophic asset failure
resulting in sustained or widespread loss of essential supply.
Mitigation
• Major incident and crisis management policies, plans and governance arrangements are in place.
• An industry mutual aid agreement exists.
• Grid resilience programme and audits.
• Robust procurement processes.
• Vulnerable site protocols.
Safety
Fatality or serious harm caused to an employee or a third party.
Mitigation
• Overseen by the Health and Safety Committee.
• Safety Health and Improvement Plan and associated policies and procedures.
• Health and safety training, enhanced audit programme and inspection regimes are in place.
• ISO45001 safety management system in place.
Environment and climate protection
Failure to prevent Network assets from having a significant negative impact on the environment.
Mitigation
• Programme to reduce fluid loss and the Company’s business carbon footprint and remove assets containing
polychlorinated biphenyl from the network.
• Environment improvement plan, Environment Action Plan and science-based targets.
• Path to carbon neutrality by 2040.
• Incident response, waste management and habitat protection programmes.
• ISO14001 environmental management system in place.
• Additional climate related risks are disclosed in the non-financial and sustainability information statement.
Resource availability
Access to and availability of skilled resource resulting in an inability to deliver work programmes.
Mitigation
• Mix of direct labour and contracted resource is used.
• Workforce renewal programmes in place to recruit and retain employees.
• Ongoing training and development builds internal capability.
• Employee engagement and health and well-being initiatives and a diversity, equality and inclusion plan are in place.
• Good relationships with trade unions representatives.
Transmission Related Connections Delays
Significantly delayed connection delivery timescales due to transmission constraints.
Mitigation
• Overseen by a steering group.
• Connection lead times are routinely monitored.
• Change programme in place to improve customer connection lead times and customer communication.
• Part of an industry work programme through the Energy Networks Association.
Regulatory Price Control Outcome
A regulatory settlement that is insufficient to provide fair and balanced outcomes.
Mitigation
• Optimising price control reopener mechanisms.
• Competition and Markets Authority Appeal process.
• Continued dialogue and engagement with Ofgem.
Page 18
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
• Robust budgetary and financial position.
Efficiency and output performance
Failure to maintain cost and output performance competitiveness in the industry.
Mitigation
• Robust business planning process.
• Robust financial controls in place.
• Monthly executive business performance review.
• Comprehensive “Efficient Output Delivery” programme.
Financial risks
The exposure to interest rate, tax, liquidity and treasury risks.
Mitigation
• The Group is financed by long-term borrowings at fixed rates and has access to short-term borrowing facilities at floating
rates of interest.
• As at 31 December 2023, 100% of the Group’s long-term borrowings were at fixed rates and the average maturity for
these borrowings was 27 years.
• Financial covenant monitoring is in place.
• Regulatory adjustments control the effect of taxation changes.
Internal Control
A strong internal control environment exists to support the financial reporting process, including regular reporting, a series
of operational and financial policies, investigations undertaken by internal audit and a stringent process for ensuring the
implementation of internal audit recommendations. In addition, the Company utilises comprehensive business planning
procedures, regularly reviews KPIs to assess progress towards its goals, and has a strong internal audit function to provide
independent scrutiny. Financial controls include centralised treasury operations and established procedures for the
planning, approving and monitoring of major capital expenditure.
The RAB monitors the effectiveness of internal controls and reports on its findings to the board and Berkshire Hathaway
Energy. As part of the statutory reporting process, the Company’s external auditor reviews and tests a number of internal
controls and reports their findings and recommendations for improvements to the board.
Controls which are applicable to financial decisions are governed via a schedule of delegations of authority which are
approved by the board (and applies to the Northern Powergrid Group) for the purpose of enabling the senior management
team to make decisions up to certain financial limits, above which point the decision making reverts to the directors. These
limits reflect the board’s level of risk appetite and are reviewed on an annual basis.
In accordance with Berkshire Hathaway Energy’s requirements to comply with the Sarbanes-Oxley Act, the Company
undertakes a quarterly risk control assessment confirming that the effectiveness of the system of internal controls have
been reviewed during the year. A self-certification process is in place, in support of this review, whereby certain senior
managers are required to confirm that the system of internal control in their area of the business is operating effectively.
Consequently, the directors believe that a robust system of risk assessment and management is in place.
The Northern Powergrid Group does not have a specific human rights policy. However, in accordance with the Core
Principles, it remains fully committed to operating ethically and responsibly and with fairness and integrity. This is
implemented through its policies and procedures, which are applicable to all stakeholder groups and encompasses
employees’ health, safety and welfare, dealings with customers (particularly those who are vulnerable), the impact of the
Northern Powergrid Group on the environment and the contribution to sustainability.
To ensure that the Northern Powergrid Group maintains the highest level of ethical standards in the conduct of its business,
Berkshire Hathaway Energy's Code of Conduct has been adopted (See ‘Employees’). The Northern Powergrid Group has
robust procedures in place to meet the requirements of the Bribery Act 2010. Every employee must undertake training in
respect of the Northern Powergrid Group’s anti-corruption and anti-bribery policy each year.
Page 19
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Section 172(1) statement
Decision-making at the Board
All matters which under the Company’s governance arrangements are reserved for decision by the Directors are presented
at Board meetings. Directors are briefed on any potential impacts and risks for customers, and other stakeholders and how
they are to be managed. The Directors take these factors into account before making decisions, which together they believe
are in the best interests of the Company and its member.
Long-term sustainability
As referenced throughout the Strategic Report, the Company’s business model is to make sufficient profit in order to
invest in the Network thereby, ensuring the integrity of the electricity supply for its customers. To achieve this objective,
the Company delivers its service to fulfil the needs of the stakeholders with whom it interacts and in doing so, ensures all
business relationships are conducted in an open and transparent manner. Consequently, fostering business relationships is a
prerequisite of the activity performed by the Company in the pursuit of its goals and the long-term sustainability of the
Company is at the forefront of decision-making.
The Company’s policy in respect of engaging with stakeholders is governed by the Core Principles and the Code of
Conduct. The Core Principle of ‘Regulatory Integrity’ defines the Northern Powergrid Group’s commitment to comply
with all laws wherever it does business and the expectation that all employees (including directors) manage their activities
in a manner that is compliant with all standards, regulations and corporate policies. In addition, the Code of Conduct
requires adherence to the highest level of ethical conduct and fair dealings with all customers, suppliers and competitors.
Employees
As detailed in the ‘Employee Commitment’ section, the Company works hard to ensure the health and safety of employees
and to provide them with opportunities for advancement alongside fair terms whilst remunerating appropriately. Activities
undertaken by the board in the year included reviewing health and safety performance, monitoring key appointment
changes, receiving regular updates on the Company’s Diversity, Equity and Inclusion plan, reviewing the Company’s
gender pay gap report and approving the delegations of authority.
Customers
Customers, whether they are domestic or commercial, are the primary stakeholder group served by the Company and
therefore the services offered are all tailored to provide a benefit or enhance an experience. During the year, the board
regularly reviewed performance levels, closely monitored the response in respect of Storm Arwen, including compensation
arrangements and engaged with the Chair of the CEG. Further detail of the Company’s relationship with customers and the
support programmes provided is discussed in ‘Customer Service’.
Producers and suppliers
The Company works closely with its supply chain and has measures in place to ensure the treatment of all supplies is fair
and equitable. Relations with suppliers is managed using a supplier registration system which supports a robust and
transparent procurement process and ensures strict compliance with the prevention of slavery and human trafficking. As a
consequence, the system allows the Company to make informed decisions which align with its values when awarding
contracts. When considering suppliers, the board advocates prompt payment practices, which are reviewed regularly by the
internal audit function, and the implementation of procedures to reduce the risk of modern slavery in supply chains - as set
out in the Company’s annual modern slavery statement.
Financial stakeholders
Financial information is routinely made available to financial stakeholders, including relationship banks and bondholders.
Directors participate directly with stakeholders when entering into new financial arrangements. During the year, the board
approved an interim dividend, the annual, interim and Regulatory accounts and the tax strategy and met representatives
from the Company’s external auditor.
Page 20
Northern Powergrid (Northeast) plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Community and environment
Each Director is required to take all reasonable steps to minimise any detrimental impact the Company’s operations may
have on the environment (see ‘Environmental Respect’). The Company also supports a range of charitable and community
activities to help customers with fuel poverty and safety around electricity (‘Community’ section). During the year, the
directors routinely reviewed environmental performance and made decisions pursuant to Environmental Respect.
Regulator
The Company is in regular dialogue with Ofgem concerning new policy development and emerging risks or opportunities
within the sector. As outlined in ‘Regulatory Integrity’, to meet its licence conditions, the Company and the directors
provide regular reporting to Ofgem (including the annual regulatory certificates and Regulatory Accounts), contribute to
various regulatory consultations and monitor regulatory compliance. Given the implications on the Company’s long-term
strategy, the relationship with Ofgem, the evolving ED2 framework, the transition to DSO were regular items on the board
agenda throughout the year.
Acting fairly as between the Company’s owners
The Company has one class of ordinary shares which are all held by Northern Electric plc, a company in the Northern
Powergrid Group. During the year the directors declared an interim dividend and approved the Business Plan. As outlined
in ‘Strategy’, the Northern Powergrid Group is owned by Berkshire Hathaway Energy. Further details of the shareholder
relationship is set out in the ‘Corporate Governance Statement’.
Non-financial and sustainability information statement
In accordance with Section 414CA(7) of the Companies Act 2006, the directors have elected to set out the information
required by Section 414CB (1) to (6) in the group annual report and audited consolidated financial statements of Northern
Powergrid Holdings Company, a copy of which, will be published on the Northern Powergrid Group's corporate website.
Approved by the Board on 30 April 2024 and signed on its behalf by:
.........................................
A P Jones
Director
Page 21
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2023
The directors present their report together with the auditor's report and the financial statements for the year ended 31
December 2023.
Dividends
During the year, an interim dividend of £31.4 million was paid (2022: £27.7 million). The directors recommend that no
final dividend be paid in respect of the year (2022: £nil).
An interim dividend of £300.0 million was paid on the 26 March 2024.
The Company's dividend policy is that dividends will be paid only after having due regard to available distributable
reserves, available liquid funds and the financial resources and facilities needed to enable the Company to carry on its
business for at least the next year, with the Company’s long-term prospects and viability in mind. In addition, the level of
dividends is set to maintain sufficient equity in the Company so as not to jeopardise its investment grade issuer credit
rating. These strict parameters align with the conditions set out in the distribution licence and are considered carefully by
the board so as to ensure that the payment of any dividend does not cause the Company to breach any licence obligations
in the future.
Directors of the Company
The directors, who held office during the year and up to the date of signing, were as follows:
A J Maclennan
A P Jones
A R Marshall
P A Jones
P C Taylor
T H France
During the year:
• None of the directors had an interest in any contract which was material to the business of the Company: and
• Up to the date of approval of the Report of the Directors, an indemnity contained in the Company's Articles of
Association was in force for the benefit of the directors of the Company and as directors of associated companies, which
was a qualifying indemnity provision for the purposes of the Companies Act 2006.
Future Developments
The financial position of the Company, as at 31 December 2023, is shown in the statement of financial position. There
have been no significant events since the year end. The directors intend that the Company will continue to implement the
Business Plan during the remainder the ED2 period, and by delivering the strategic objectives linked to the Core
Principles, the Company will continue to develop its business by efficiently investing in the Network and improving the
quality of supply and service provided to customers. The Company intends to continue to embrace the role of DSO by
expanding its energy systems operations in order to allow its Network to form a key part of a whole energy system, which
fosters flexibility and facilitates decarbonisation.
Research and Development
The Group supports a programme of research that is expected to contribute to higher standards of performance and a more
cost-effective operation of its business. During the year, the Company invested £2.0 million (2022: £1.6 million) (Note 5
to the financial statements) in its research and development activities.
Financial Instruments
Details of financial risks are included in the Principal Risks and Uncertainties in the Strategic Report and Note 29 to the
financial statements.
As at 31 December 2023 and during the Year it was the Group's policy not to hold any derivative financial instruments.
Page 22
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2023 (continued)
Stakeholder engagement and environmental disclosures
In accordance with Paragraphs 10, 11 and 15 of Schedule 7 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008, details concerning the employment of disabled persons, the relationship and
engagement with employees and those with whom the Company does business, in addition to information concerning
greenhouse gas emissions can be found in the Section 172 Statement and the Strategic Report (Environmental Respect and
Employee Commitment).
CORPORATE GOVERNANCE STATEMENT
In accordance with Disclosure and Transparency Rule (DTR) 7.2.9, the directors have elected to set out the information
required by DTR 7.2.1 to DTR 7.2.8AR in a separate statement, a copy of which can be found on the Northern Powergrid
Group's corporate website.
Audit Committee
The board of Northern Powergrid Holdings Company has established an audit committee for the Northern Powergrid
Group under delegated terms of reference which carries out the functions required by DTR 7.1.3 R.
Committee members:
• M Knowles - Independent member
• J Reynolds - Non-executive Director (Chair)
• A P Jones, Finance Director (appointed 20 April 2022)
Page 23
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2023 (continued)
STATEMENT OF DIRECTORS RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable
law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that
law the directors are required to prepare the group financial statements in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements also
comply with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards
Board (“IASB”). Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, International Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the entity's financial position and
financial performance; and
• make an assessment of the Group's ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' responsibility statement pursuant to DTR 4
Each of the directors as at the date of the annual reports and financial statements, whose names and functions are set out in
the Directors Report confirms that, to the best of their knowledge:
• The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole;
• The strategic report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• The annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Page 24
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2023 (continued)
Going Concern
A review of the Company's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Northern
Powergrid Group, and companies may lend within the Northern Powergrid Group. For that reason, financial health is
considered with reference to the Northern Powergrid Group. Those entities with net current liabilities position obtaining a
letter of support from Northern Powergrid Holdings Company.
When considering continuing to adopt the going concern basis in preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including the following:
• The Company's revenue derives principally from regulated electricity distribution. The regulatory regime allows for the
recovery of allowed costs in full over the long term;
• The Company is a stable electricity distribution business operating an essential public service and is regulated by GEMA.
In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to have regard to the need to
secure that distribution licence holders are able to finance the activities, which are the subject of obligations under Part 1
of the Electricity Act 1989 (including the obligations imposed by the electricity distribution licence) or by the Utilities Act
2000;
• The Company is profitable with strong underlying cash flows and holds investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 17 years and has access
to short-term committed borrowing facilities of £242 million provided by Barclays Bank plc, Lloyds Bank plc, HSBC UK
Bank plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings and has access to a range of
financing options including the capital markets. A successful bond issue by the Northern Powergrid Group in November
2023, demonstrates that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active market
with strong appetite to invest; and
• Consideration was also given to the obligations contained in the Company's and Northern Powergrid (Yorkshire) plc's
distribution licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation
that the Company and Northern Powergrid (Yorkshire) plc will have sufficient financial and operational resources
available for the continuation of business for a period of at least 12 months. The board determined any material variations
to the assumptions used when providing those certificates were unlikely.
Consequently, after making their assessment, the directors have a reasonable expectation that the Company and the
Northern Powergrid Group has adequate resources to continue in operational existence and meet its liabilities as they fall
due over the next ten-year period. Accordingly, they continue to adopt the going concern basis in preparing the annual
report and financial statements.
Disclosure of information to the auditor
Each director has taken steps that they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the Company's auditor is aware of that information. The directors confirm that there
is no relevant information that they know of and of which they know the auditor is unaware. This confirmation is given
and should be interpreted in accordance with the provisions of s418 of the companies Act 2006.
Reappointment of auditor
In accordance with the auditor rotation requirements of the Statutory Auditors and Third Country Auditors Regulations
2016, Deloitte LLP will resign from office and the directors will put a resolution to the Company’s shareholder
recommending the appointment of KPMG at the Company’s annual general meeting.
Page 25
Northern Powergrid (Northeast) plc
Directors' Report for the Year Ended 31 December 2023 (continued)
Approved by the Board on 30 April 2024 and signed on its behalf by:
.........................................
A P Jones
Director
Page 26
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Northern Powergrid (Northeast) plc (the ‘parent company’) and its subsidiaries (the ‘group’)
give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the
group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company statements of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flows;
• the related notes 1 to 31.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable
law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial
reporting framework that has been applied in the preparation of the parent company financial statements is applicable law
and United Kingdom adopted international accounting standards and as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the group and parent company for the year are disclosed in note 9 to the
financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical
Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Page 27
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Summary of our audit approach
-Key Audit Matters
The key audit matter that we identified in the current year was;
• Accounting for capital spend - overhead model; and
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 £7.3m which was determined on the basis of pre-tax
profit earned during the year.
-Scoping
Our scope provides full scope audit coverage of 99% of the Group’s revenue, 94% profit before tax as well as 98% of net
assets. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
There is only one location from which the group operates.
-Significant changes in our approach
There is judgement around the valuation modelling of each pension scheme member settlement and its impact on the
actuarial assumptions due to the change in profile of the membership of the scheme. The number of members claiming
settlements has reduced in the year and as such, the level of risk has decreased. We therefore no longer deem pension
obligations a key audit matter.
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.
The parent company is a subsidiary of the group headed by Northern Powergrid Holdings Company (the ‘Powergrid
group') and the going concern of the company is closely linked to the Powergrid group. 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 has
therefore been performed at the Powergrid group level, supplemented with procedures specific to the parent company, and
included:
• assessing financing facilities including nature of facilities, repayment terms and covenants;
• evaluating the linkage to business model and medium-term risks;
• assessing assumptions used in the forecasts and performing sensitivity analysis;
• calculating the amount of headroom in the forecasts, specifically relating to cash and covenants on borrowings;
• assessing the impact of the current macroeconomic conditions such as inflation to the business; and
• evaluating sophistication of the model used to prepare the forecasts, testing of clerical accuracy of those forecasts and our
assessment of the historical accuracy of forecasts prepared by management.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Page 28
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Accounting for capital spend - overhead model
-Key audit matter description:
Total additions to property, plant and equipment in the year in, within the parent company, Northern Powergrid
(Northeast) plc, were £195m (2022: 163m) with the majority of the additions to the Company’s electricity distribution
system, as disclosed in Note 11 to the financial statements. These additions include 49.6m capitalised overheads (2022:
£45m). A portion of overheads are capitalised to the extent that it is probable that future economic benefits associated with
the asset will flow to the group and the cost of the item can be measured reliably in accordance with IAS 16 Property,
Plant and Equipment and the group’s policies. Management use a model to allocate overheads to capital resulting from
analysis of the costs incurred and their relevant cost drivers. The allocation model is reviewed annually.
The calculation of capitalised overheads remains an area at risk of potential bias due to the level of subjectivity in the
percentage of overheads capitalised, which also creates a potential fraud risk. In particular, the key risk is that
management’s judgement in the percentage amounts capitalised are not reflective of the capital spend, as disclosed in Note
2 “Critical judgements in applying accounting policies.”
-How the scope of our audit responded to the key audit matter:
We have performed the following procedures in response to the risk identified:
• Obtained an understanding of the relevant controls surrounding accounting for capital spend and the process by which
capitalisation rates are determined;
• Tested a sample of cost centres for which we have assessed the capitalisation percentages applied ;
• Obtained and inspected breakdowns of transactions included within each cost centre and assessed the classification for a
sample of these costs;
• Tested a sample costs by obtaining documentary evidence to assess the consistency of those costs with our understanding
of the activities performed by the cost centre and the capitalisation rates applied;
• Tested the accuracy of total overheads included within the allocation model which are subsequently capitalised based on
management’s assessment of percentage allocation;
• Tested the integrity and mechanics of the cost allocation model to assess its mathematical accuracy; and
• Assessed the appropriateness of the company’s disclosures of its capitalisation policy, including the judgement involved
in assessing expenditure as capital and the judgement relating to the allocation of overhead cost.
- Key observations
Based on the work performed, and the evidence obtained, we have concluded that management’s overhead capitalisation
judgement is reasonable, with policies applied being appropriate and consistent with the requirements of IAS 16.
Page 29
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
-Materiality
Group financial statements - £7.3m (2022: £6.4m)
Parent company financial statements - £7.0m (2022: £6.4m)
-Basis for determining materiality
Group financial statements - 5% pre-tax profit earned during the year. (2022: 5% profit before tax).
Parent company financial statements - 6% pre-tax profit earned during the year. (2022: 6% of profit before tax) which is
capped at componet materiality of 95% of group materiality.
-Rationale for the benchmark applied
Group financial statements - Stakeholders are interested in the financial performance of the group. As the parent company
is the main trading entity, pre-tax profit earned during the year has been determined as an appropriate measure of financial
performance for the group.
Parent company financial statements - As a trading entity, pre-tax profit is a key driver of the value of the parent company.
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.
-Performance Materiality
Group financial statements - 50% (2022: 60%) of group materiality
Parent company financial statements - 50% (2022: 60%) of parent company materiality
-Basis and rationale for determining performance materiality
In determining performance materiality, we have considered the following:
• our risk assessment, including our assessment of the group’s overall control environment;
• we continued to identify control deficiencies and were not able to take a control reliant approach; and
• the volume and value of uncorrected misstatements in the prior period.
Page 30
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Error reporting threshold
We agreed with the Board of Directors that we would report to the Board all audit differences in excess of £0.37m (2022:
£0.32m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Board of Directors on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
-Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including internal controls
and assessing the risks of material misstatement at the group level. The operations of the group are focused within the
electricity distribution business of the United Kingdom. Audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team.
The focus of our audit work was on the main regulated business, Northern Powergrid (Northeast) Plc, which is the parent
company. The only subsidiary within the group is Northern Electric Finance Plc. This subsidiary is a financing company
within which are number of bonds, listed on the London Stock Exchange, and was subject to a full scope audit.
A component materiality was used to perform the audit work for the parent company and its subsidiary; for FY23,
component materiality for Northern Electric Finance plc was £0.25m (2022: £0.25m). At the group level, we have tested
the consolidation process. There have been no material changes in scope from prior year.
Page 31
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
-Our consideration of the control environment
With the involvement of our IT specialists we assessed relevant controls over the group’s IT landscape which contains a
number of IT systems and tools used to support business processes. These included relevant controls within the Oracle and
Durabill systems integral to relevant business cycles. We have obtained an understanding of the key manual controls of all
material business cycles through a combination of tests of inquiry, inspection and observation.. However, we continued to
identify control deficiencies and reported these to the Board of Directors and were not able to take a controls reliant
approach . We evaluated the impact of these deficiencies on our audit and revised our risk assessment as appropriate. The
directors discuss their assessment of the control environment on page 17 of the annual report.
-Our consideration of the climate related risks
We have made enquiries with management to understand the impact of climate-related risks and controls relevant to the
business, assessed the risks, and adapted our assessment of the risks of material misstatement as appropriate. We
performed our own risk assessment of the potential impact of climate change on the group’s account balances and class of
transactions and have read the annual report to consider whether they are materially consistent with the financial
statements and our knowledge obtained in the audit. Management have disclosed their climate change adaptation in the
strategic report on page 15.
As disclosed in note 2, there has been no material impact in the financial year.
We have involved our ESG (Environmental, Social and Governance specialists) to review the Powergrid group’s climate
change disclosures and evaluate the information presented in its accounts. No additional risks were identified by the group
audit engagement team.
Page 32
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Other information
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Page 33
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
-Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the directors about their own identification and assessment of
the risks of irregularities, including those that are specific to the group’s sector;
• 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, pensions, ESG
and IT specialists regarding how and where fraud might occur in the financial statements and any potential indicators of
fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for
fraud and identified the greatest potential for fraud in the accounting for capital spend- overhead model, given that this
involves key and complex judgements by management. In common with all audits under ISAs (UK), we are also required
to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures
in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act,
Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty.
These included the group’s operating licence regulated by the Gas and Electricity Markets Authority (GEMA).
-Audit response to risks identified
As a result of performing the above, we identified accounting for capital spend - overhead model 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 Board of Directors, and in-house 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 HMRC and Ofgem ; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of
business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Page 34
Northern Powergrid (Northeast) plc
Independent Auditor's Report to the Members of Northern Powergrid (Northeast) plc
(continued)
Report on other legal and regulatory requirements
-Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
-Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
-Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.
We have nothing to report in respect of this matter.
Other matters which we are required to address
-Auditor tenure
Following the recommendation of the Board of Directors, we were appointed by the Board of Northern Powergrid
Holdings Company in 1998 to audit the financial statements for the year ending 31 December 1998 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the
firm is 26 years, covering the years ending 31 December 1998 to 31 December 2023.
As set out in the Director’s report on page 25, the financial year ended 31 December 2023 is the final year of our audit
tenure.
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.
......................................
Anthony Matthews FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP, Statutory Auditor
London
United Kingdom
30 April 2024
Page 35
Northern Powergrid (Northeast) plc
Consolidated Income Statement for the Year Ended 31 December 2023
Note
2023
£ 000
2022
£ 000
Revenue
3 435,693 441,859
Cost of sales (42,503 ) (59,080 )
Gross profit
Distribution costs
(144,001 ) (143,523 )
Administrative expenses
(83,183 ) (77,637 )
Operating profit
5 166,006 161,619
Other gains
4 79 198
Finance income
6 13,282 3,622
Finance costs
6
(33,712 ) (35,781 )
Profit before tax
Income tax expense
10
(32,045 ) (27,400 )
Profit for the year
Profit/(loss) attributable to:
Owners of the Company
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 36
Northern Powergrid (Northeast) plc
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2023
2023
£ 000
2022
£ 000
Profit for the year 113,610 102,258
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 37
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Consolidated Statement of Financial Position as at 31 December 2023
Note
31 December
2023
£ 000
31 December
2022
£ 000
Assets
Non-current assets
Property, plant and equipment
11 2,944,354 2,849,504
Right of use assets
12 22,128 25,739
Intangible assets
13
Current assets
Inventories
15 29,277 25,406
Trade and other receivables
16 345,798 64,144
Cash and cash equivalents
17
Total assets
Equity and liabilities
Equity
Share capital
18 (200,000 ) (200,000 )
Retained earnings (1,118,871 ) (1,036,661 )
Equity attributable to owners of the company
(1,318,871 ) (1,236,661 )
Non-current liabilities
Long-term lease liabilities
21 (17,754 ) (21,152 )
Loans and borrowings
20 (1,057,393 ) (1,057,069 )
Provisions
22 (55 ) (55 )
Deferred revenue
24 (668,067 ) (652,476 )
Deferred tax liabilities
10
(134,271 ) (133,515 )
(1,877,540 ) (1,864,267 )
Current liabilities
Current portion of long-term lease liabilities
21 (5,055 ) (5,058 )
Trade and other payables
23 (132,082 ) (96,844 )
Loans and borrowings
20 (21,922 ) (54,263 )
Current tax liability
(5,162 ) (259 )
Deferred revenue
24 (30,039 ) (29,326 )
Provisions
22
(1,514 ) (1,597 )
(195,774 ) (187,347 )
Total liabilities (2,073,314 ) (2,051,614 )
Total equity and liabilities
(3,392,185 ) (3,288,275 )
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 38
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Consolidated Statement of Financial Position as at 31 December 2023 (continued)
Approved by the Board on 30 April 2024 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 39
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Statement of Financial Position as at 31 December 2023
Note
31 December
2023
£ 000
31 December
2022
£ 000
Assets
Non-current assets
Property, plant and equipment
11 2,944,354 2,849,504
Right of use assets
12 22,128 25,739
Intangible assets
13 50,605 47,356
Investments in subsidiaries, joint ventures and associates
14
50 50
3,017,137 2,922,649
Current assets
Inventories
15 29,277 25,406
Trade and other receivables
16 349,356 64,144
Cash and cash equivalents
17
23 274,529
378,656 364,079
Total assets
3,395,793 3,286,728
Equity and liabilities
Equity
Share capital
18 (200,000) (200,000)
Retained earnings (1,120,678) (1,038,447)
Total equity (1,320,678) (1,238,447)
Non-current liabilities
Long-term lease liabilities
21 (17,754) (21,152)
Loans and borrowings
20 (1,057,389) (1,057,064)
Provisions
22 (55) (55)
Deferred revenue
24 (668,067) (652,476)
Deferred tax liabilities
10
(134,271) (133,515)
(1,877,536) (1,864,262)
Current liabilities
Current portion of long-term lease liabilities
21 (5,055) (5,058)
Trade and other payables
23 (132,082) (96,842)
Loans and borrowings
20 (23,733) (50,949)
Income tax liability
(5,156) (247)
Deferred revenue
24 (30,039) (29,326)
Provisions
22
(1,514) (1,597)
(197,579) (184,019)
Total liabilities (2,075,115) (2,048,281)
Total equity and liabilities
(3,395,793) (3,286,728)
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 40
Northern Powergrid (Northeast) plc
(Registration number: 02906593)
Statement of Financial Position as at 31 December 2023 (continued)
The Directors have taken the exemption offered under section 408 of the Act from publishing a separate statement of profit
or loss. The Company reported a profit for the financial year ended 31 December 2023 of £113.6 million (2022: £102.2
million)
Approved by the Board on 30 April 2024 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 41
Northern Powergrid (Northeast) plc
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2023
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2023
Profit for the year - 113,610 113,610
Total comprehensive income
- 113,610 113,610
Dividends - (31,400 ) (31,400 )
At 31 December 2023
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
Profit for the year - 102,258 102,258
Total comprehensive income
- 102,258 102,258
Dividends - (27,700 ) (27,700 )
At 31 December 2022
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 42
Northern Powergrid (Northeast) plc
Statement of Changes in Equity for the Year Ended 31 December 2023
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2023
200,000 1,038,447 1,238,447
Profit for the year - 113,631 113,631
Total comprehensive income
- 113,631 113,631
Dividends - (31,400) (31,400)
At 31 December 2023
200,000 1,120,678 1,320,678
Share capital
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
200,000 963,901 1,163,901
Profit for the year - 102,246 102,246
Total comprehensive income
- 102,246 102,246
Dividends - (27,700) (27,700)
At 31 December 2022
200,000 1,038,447 1,238,447
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 43
Northern Powergrid (Northeast) plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2023
Note
2023
£ 000
2022
£ 000
Cash flows from/(used in) operating activities
Profit for the year
Depreciation and amortisation
5 110,994 106,952
Depreciation on right of use assets
Amortisation of deferred revenue
(29,963 ) (29,253 )
Profit on disposal of property plant and equipment
4 (79 ) (198 )
Finance income
6 (13,282 ) (3,622 )
Finance costs
6 33,712 35,781
Income tax expense
10
Increase in inventories
15 (3,871 ) (5,508 )
Increase in trade and other receivables
16 (2,217 ) (4,442 )
Increase in trade and other payables
23 16,486 197
Decrease in provisions
22
(83 ) (1,100 )
Cash generated from operations
Receipt of customer contributions
Income taxes paid (26,386 ) (22,214 )
Net cash flow from operating activities 293,347 260,011
Cash flows from/(used in) in investing activities
Acquisitions of property plant and equipment
(185,982 ) (168,056 )
Proceeds from sale of property plant and equipment
Acquisition of intangible assets
13 (14,444 ) (9,956 )
Interest received 13,282 3,622
Net cash flows used in investing activities
(187,065 ) (174,192 )
Cash flows from/(used in) in financing activities
Movement in intercompany loans
(279,781 ) (31,506 )
Movement in short-term borrowing
(32,289 ) 35,056
Proceeds from issue of bonds
Repayment of long-term borrowing
Repayment of lease liabilities
(5,163 ) (4,316 )
Interest expense on leases
(781 ) (641 )
Interest paid
(32,971 ) (26,905 )
Dividends paid
26
(31,400 ) (27,700 )
Net cash flow (used in)/from financing activities (382,385 ) 190,304
Net (decrease)/increase in cash and cash equivalents
(276,103 ) 276,123
Cash and cash equivalents at 1 January 276,126 3
Cash and cash equivalents at 31 December
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 44
Northern Powergrid (Northeast) plc
Statement of Cash Flows for the Year Ended 31 December 2023
Note
2023
£ 000
2022
£ 000
Cash flows from/(used in) operating activities
Profit for the year
113,631 102,246
Depreciation and amortisation
5 110,994 106,952
Depreciation on right of use assets
5,373 4,501
Amortisation of deferred revenue
(29,963) (29,253)
Profit on disposal of property plant and equipment
4 (79) (198)
Finance income
6 (13,257) (3,619)
Finance costs
6 33,688 35,816
Income tax expense 32,051 27,397
252,438 243,842
Increase in inventories
15 (3,871) (5,508)
Increase in trade and other receivables
16 (2,438) (4,442)
Increase in trade and other payables
23 16,488 200
Decrease in provisions
22
(83) (1,100)
Cash generated from operations
262,534 232,992
Receipt of customer contributions*
57,008 49,259
Income taxes paid (26,386) (22,214)
Net cash flow from operating activities 293,156 260,037
Cash flows from/(used in) investing activities
Acquisitions of property plant and equipment
(185,982) (168,056)
Proceeds from sale of property plant and equipment
79 198
Acquisition of intangible assets
13 (14,444) (9,956)
Interest received 13,257 3,619
Net cash flows used in investing activities
(187,090) (174,195)
Cash flows from/(used in) financing activities
Interest expense on leases
(781) (641)
Movement in intercompany loans
(283,091) (33,091)
Interest paid
(27,848) (26,940)
Proceeds from long term borrowing draw downs
- 346,316
Movement in short-term borrowings
(32,289) 35,056
Repayment of other borrowing
- (100,000)
Repayment of lease liabilities
(5,163) (4,316)
Dividends paid
26
(31,400) (27,700)
Net cash flows (used in)/from financing activities (380,572) 188,684
Net (decrease)/increase in cash and cash equivalents
(274,506) 274,526
Cash and cash equivalents at 1 January 274,529 3
Cash and cash equivalents at 31 December
23 274,529
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 45
Northern Powergrid (Northeast) plc
Statement of Cash Flows for the Year Ended 31 December 2023 (continued)
* Following a review of sector general practice and to align with the accounting treatment of customer contributions within
revenue these amounts have been presented within operating activities rather than investing activities with the
comparatives restated. Accordingly this has resulted in an increase in cash from operating activities and increase in cash
used in investing activities in the comparative period by £49.3 million. There has been no other impact on the financial
statements from this change.
Consolidated Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies was
authorised to settle various liabilities against the relevant intercompany accounts. The Group has disclosed the underlying
cash flows as operating, investing or financing according to their nature on the basis that, as a principal, the entity has the
right to the cash inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the cash costs of the
business.
Company Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies was
authorised to settle various liabilities against the relevant intercompany accounts. The Company has disclosed the
underlying cash flows as operating, investing or financing according to their nature on the basis that, as a principal, the
entity has the right to the cash inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the
cash costs of the business.
The notes on pages 47 to 105 form an integral part of these financial statements.
Page 46
Notes to the Financial Statements for the Year Ended 31 December 2023
1 General information
The company is a public company limited by share capital, incorporated in England and Wales and domiciled in United
The address of its registered office is:
These financial statements were authorised for issue by the Board on 29 April 2024.
2 Accounting policies
Statement of compliance
The financial statements have been prepared in accordance with United Kingdom adopted international accounts standards
as issued by the IASB.
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with adopted IFRSs and under historical cost accounting rules.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group's accounting policies.
Page 47
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Going concern
A review of the Company's business activities during the year, together with details regarding its future development,
performance and position, its objectives, policies and processes for managing its capital, its financial risk management
objectives and details of its exposures to trading risk, credit risk and liquidity risk are set out in the Strategic Report, the
Directors' Report and the appropriate notes to the financial statements.
The Northern Powergrid Group is financed both in its operating companies and in other entities within the Northern
Powergrid Group, and companies may lend within the Northern Powergrid Group. For that reason, financial health is
considered with reference to the Northern Powergrid Group. Those entities with net current liabilities position obtaining a
letter of support from Northern Powergrid Holdings Company.
When considering continuing to adopt the going concern basis in preparing the annual reports and financial statements, the
directors have taken into account a number of factors, including the following:
• The Company's revenue derives principally from regulated electricity distribution. The regulatory regime allows for the
recovery of allowed costs in full over the long term;
• The Northern Powergrid Group's main subsidiaries, the Company and Northern Powergrid (Yorkshire) plc, are stable
electricity distribution businesses operating an essential public service and are regulated by GEMA. In carrying out its
functions, GEMA has a statutory duty under the Electricity Act 1989 to have regard to the need to secure that distribution
licence holders are able to finance the activities, which are the subject of obligations under Part 1 of the Electricity Act
1989 (including the obligations imposed by the electricity distribution licence) or by the Utilities Act 2000;
• The Company is profitable with strong underlying cash flows. Northern Powergrid Holdings Company, the Company
and Northern Powergrid (Yorkshire) plc hold investment grade credit ratings
• The Northern Powergrid Group is financed by long-term borrowings with an average maturity of 17 years and has access
to short-term committed borrowing facilities of £242 million provided by Barclays Bank plc, Lloyds Bank plc, HSBC UK
Bank plc and Royal Bank of Canada;
• The Northern Powergrid Group benefits from strong investment-grade credit ratings and has access to a range of
financing options including the capital markets. A successful bond issue by the Northern Powergrid Group in November
2023, demonstrates that the Northern Powergrid Group’s bonds remain attractive to investors and there is an active market
with strong appetite to invest;
• The Northern Powergrid Group has prepared forecasts which taking into account reasonable possible changes in trading
performance, show that the Northern Powergrid Group has sufficient resources to settle its liabilities as they fall due for at
least the 12 months from the date of these accounts. The directors have had discussions with the bank who have indicated
that they would continue to provide the short-term facilities to the Northern Powergrid Group for the foreseeable future on
acceptable terms; and
• Consideration was also given to the obligations contained in the Company's and Northern Powergrid (Yorkshire) plc's
distribution licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation
that the Company and Northern Powergrid (Yorkshire) plc will have sufficient financial and operational resources
available for the continuation of business for a period of at least 12 months. The board determined any material variations
to the assumptions used when providing those certificates were unlikely within the eight-year period or beyond.
Consequently, after making their assessment, the directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the annual report and financial statements.
Page 48
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Critical Judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the directors have made in the
process of applying the Northern Powergrid Group's accounting policies and that have the most significant effect on
amounts recognised in the consolidated financial statements:
Split of operating and capital expenditure and the allocation of overheads to property, plant and equipment
The allocation of overheads to property, plant and equipment which results in higher capital expenditure and a reduction in
operating costs. Costs are capitalised where it is probable that future economic benefits associated with the asset will flow
to the enterprise; and the cost of the item can be reliably measured.
The allocation of overheads to capital is derived from a detailed analysis of the costs and their relevant cost drivers, which
is reviewed on an annual basis. There has been no change in the methodology since the prior year.
The amounts of overheads capitalised in the year was £49.6 million (2022: £45.0 million), this was a decrease from 62.4%
to 61.0% of the total overheads.
Key sources of estimation uncertainty
In the preparation of financial statements in conformity with IFRS the Directors did not identify any key assumptions
concerning the future and other key sources of estimation uncertainty at the end of the reporting period that may have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year.
Page 49
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Changes in accounting policy
New standards, interpretations and amendments effective
Effective for periods beginning on or after 1 January 2023:
- Amendments to IFRS 17: Insurance Contracts
- Amendments to IAS 1: Presentation of Financial Statements
- Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates
Effective for periods beginning on 23 May 2023:
- Amendments to IAS 12: Income Taxes
The accounting policies have been updated to reflect the Amendments to IAS 1 and IAS 8.
The other amendments have had no material impact on the financial statements including the comparatives.
New standards issued that are not yet applicable
Effective for periods beginning on 1 January 2024:
- Amendments to IAS 1: Classification of Liabilities as Current or Non-current
- Amendments to IFRS 16: Lease Liability on a Sale and Leaseback
- Amenements to IAS 7 and IFRS 7: Supplier Finance Agreements
The Directors have considered the above accounting standards issued that are not yet applicable and have noted no
material changes are likely to arise.
Revenue recognition
Recognition
The group earns revenue from the provision of services relating to Revenue from a contract to provide services is
recognised by the following means:
- Distribution use of system income is primarily recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and
fixed (per 'customer' per day) basis;
- Customer contributions for connections are amortised over the life of the corresponding asset;
- Meter asset provision are recognised over time;
- Intercompany recharges for services provided are based on costs incurred; and
- Other revenue includes assessment and design fees and disconnections from the network, these are recognised by
reference to the proportion of total costs of providing the service.
This revenue is recognised in the accounting period when the services are rendered at an amount that reflects the
consideration to which the entity expects to be entitled in exchange for fulfilling its performance obligations to customers.
The principles in IFRS are applied to revenue recognition criteria using the following 5 step model:
1. Identify the contracts with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies its performance obligations
Page 50
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Fee arrangements
Below are details of fee arrangements and how these are measured and recognised, for revenue from the provision of
services:
• For regulated fees the revenue for the service is recognised on the basis of agreed charging methodologies on a per
GWh basis.
• For fixed fee for connection the revenue is recognised over the life of the corresponding asset.
• For fixed fee arrangements from services revenue is recognised based on the stage of completion and performance
obligations met for actual services provided as a proportion of the total fixed fee agreed in the contract.
• For fee for service (time) revenue is recognised by time performed on the contract to the year end date using
contractual rates specified in the contract.
The main performance obligations in contracts consist of the provision of a distribution network to electricity suppliers.
For these contracts, through the distribution and connection use of system agreement (DCUSA) the delivery of
performance obligations are measured at the balance sheet date, primarily recognised on a per unit (volumetric i.e. kWh
and capacity (kVA)) and fixed (per 'customer' per day) basis;
Finance income and costs policy
Finance income from a financial asset is recognised when it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use.
All other borrowing costs are recognised in profit or loss in the period which they are incurred.
Tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a change
attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively
enacted by the reporting date in the countries where the group operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements and on unused tax losses or tax credits in the group. Deferred
income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered
based on current or future taxable profit.
Page 51
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and
installation.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional
fees, and, for qualifying assets, borrowing costs capitalised in accordance with the Company's accounting policy. Such
assets are classified to the appropriate categories of property, plant and equipment when completed and ready for intended
use. Depreciation on these assets, on the same basis as other assets, commences when the assets are commissioned. Assets
are derecognised when they are disposed of profit or loss on disposal is recognised in other gains on the statement of profit
or loss.
Depreciation
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their
estimated useful lives. Depreciation is recognised on a straight line basis as follows:
Asset Class Depreciation Rate
Distribution system;
- Generation assets 15 years
- Metering equipment up to 5 years
- Information Technology equipment up to 10 years
- Land not depreciated
- Other system assets 45 years
Buildings;
- Freehold up to 60 years
- Leasehold lower of lease period or 60 years
Non-operational land not depreciated
Furniture, fittings and equipment up to 10 years
Intangible assets
An internally generated intangible asset arising from development is recognised if the conditions set out in IAS 38 relating
to the recognition of intangible assets are met. The amount initially recognised for internally-generated intangible asset is
the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria.
Amortisation
Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their
expected useful economic life as follows:
Asset class Amortisation method and rate
Software development costs up to 10 years
Derecognition
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset, are recognised in the profit or loss when the asset is derecognised.
Page 52
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Investments
Investments in securities are classified on initial recognition as available-for-sale and are carried at fair value, except
where their fair value cannot be measured reliably, in which case they are carried at cost, less any impairment.
Unrealised holding gains and losses other than impairments are recognised in other comprehensive income. On maturity or
disposal, net gains and losses previously deferred in accumulated other comprehensive income are recognised in income.
Investments in subsidiaries
Investments in subsidiaries are account for at cost less impairment. Where the recoverable amount is estimated to be less
than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of
business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using
the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is
established when there is objective evidence that the group will not be able to collect all amounts due according to the
original terms of the receivables.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using an average price basis.
The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their present location and condition. At each
reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its
selling price less costs to complete and sell; the impairment loss is recognised immediately in profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the
effective interest method.
Page 53
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are
subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount
due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Intercompany Short-term loans (Current Accounts)
The Northern Powergrid group operates a central treasury function operated through its subsidiary Yorkshire Electricity
Group plc. As a result, every company within the Northern Powergrid group has a relationship with Yorkshire Electricity
Group plc as either an intercompany debtor or creditor.
Interest periods are for a duration of one month, and the interest is applied to an intercompany debtor balance on the last
day of the preceding month at the compounded reference rate (currently SONIA) applicable under the most recent
revolving facility agreement to which Northern Powergrid Holdings Company is a party.
Monthly interest is applied to an intercompany creditor balance on the last day of the preceding month at the aggregate of
the compounded reference rate (currently SONIA) and the margin (currently 0.2%) applicable under the most recent
revolving facility agreement to which Northern Powergrid Holdings Company is a party.
The Intercompany debtor or creditor balance will be repaid at the end of each month, or if still required will be rolled over
for a further period of one month.
Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the group will be required to settle that obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting
date and are discounted to present value where the effect is material.
Page 54
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Leases
For lessees, all leases will be recorded on the balance sheet as liabilities, at the present value of the future lease payments,
along with an asset reflecting the right to use the asset over the lease term. Short-term leases ( a lease that, at the
commencement date has a lease term of 12 months or less) and low value leases will be excluded.
The Group applies IFRS 16 to all leases (except as noted below) which include buildings, land and fleet vehicles. The
right-of-use assets are initially measured at the amount of the lease liability plus any initial direct costs incurred by the
lessee, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily
determined, the lessee shall use their incremental borrowing rate. These values can be found in the Statement of Financial
Position.
The Group has taken practical expedients as per below:
- For short-term leases (lease term of 12 months or less) and leases of low-value assets less than £5k (which includes
personal computers, small items of office furniture and telephones), the Company has opted to recognise a lease expense
on a straight-line basis as permitted by IFRS 16. This expense is presented within ‘administrative expenses’ in the
Statement of Profit or Loss.
- Applies the implicit rate in the lease, and uses the IBR when this isn't readily available;
- Uses hindsight to determine the lease term when contract contains options to extend or terminate the lease; and
- Adjusts right of use asset by provision for onerous leases as an alternative to performing an impairment review.
The implict rate applied to determine the present value of the lease liabilities during the current period was 5.5% in
comparison to the incrimental borrowing rate used in 2022 of 2.33%.
The Group recognises deprecation of right-of-use assets (within administration expenses) and interest on lease liabilities
(within finance costs) in the Statement of Profit and Loss. Within the Statement of cash flow, the Company separates the
total amount of cash paid between the principal portion and the interest, both of which are presented within financing
activities.
Right-of-use assets are depreciated over the shorter of the useful life of the asset or the lease term. For information
regarding the depreciation charge per class of asset and carrying value, please refer to Note 12 Right of use assets.
Impairment of non-financial assets
At the balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an
indication that the asset may be impaired.
Where the recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources
received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of
money is material, the initial measurement is on a present value basis.
Dividends
Dividend distribution to the company’s shareholders is recognised as a liability in the company’s financial statements in
the period in which the dividends are approved by the company’s shareholders.
Page 55
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Defined benefit pension obligation
The Group contributes to the Northern Powergrid Group of the Electricity Supply Pension Scheme (the "DB Scheme"), a
defined benefit scheme that shares risk between various entities under common control. There is no contractual agreement
or stated policy for charging the net defined benefit cost for the plan as a whole to individual group entities and
accordingly the Company financial statements account for the Northern Powergrid Group of the ESPS as if it were a
defined contribution scheme.
Contributions to the Northern Powergrid Group of the ESPS are charged to the statement of profit or loss or capitalised as
part of property, plant and equipment/ intangibles. The capital costs of ex-gratia and supplementary pensions are normally
charged to the statement of profit or loss in the period in which they are granted.
The Group also participates in a defined contribution scheme. Contributions payable to the defined contribution scheme
are charged to the statement of profit or loss in the year. Differences between contributions payable in the year and
contributions actually paid are shown as either accruals or prepayments in the statement of financial position.
Financial instruments
Initial recognition
Financial assets and financial liabilities comprise all assets and liabilities reflected in the statement of financial position,
although excluding property, plant and equipment, investment properties, intangible assets, deferred tax assets,
prepayments, deferred tax liabilities and employee benefits plan.
The group recognises financial assets and financial liabilities in the statement of financial position when, and only when,
the group becomes party to the contractual provisions of the financial instrument.
Financial assets are initially recognised at fair value. Financial liabilities are initially recognised at fair value, representing
the proceeds received net of premiums, discounts and transaction costs that are directly attributable to the financial
liability.
All regular way purchases and sales of financial assets and financial liabilities classified as fair value through profit or loss
(“FVTPL”) are recognised on the trade date, i.e. the date on which the group commits to purchase or sell the financial
assets or financial liabilities. All regular way purchases and sales of other financial assets and financial liabilities are
recognised on the settlement date, i.e. the date on which the asset or liability is received from or delivered to the
counterparty. Regular way purchases or sales are purchases or sales of financial assets that require delivery within the time
frame generally established by regulation or convention in the market place.
Subsequent to initial measurement, financial assets and financial liabilities are measured at either amortised cost or fair
value.
Classification and measurement
Financial instruments are classified at inception into one of the following categories, which then determine the subsequent
measurement methodology:-
Financial assets are classified into one of the following three categories:-
· financial assets at amortised cost;
· financial assets at fair value through other comprehensive income (FVTOCI); or
· financial assets at fair value through the profit or loss (FVTPL).
Financial liabilities are classified into one of the following two categories:-
· financial liabilities at amortised cost; or
· financial liabilities at fair value through the profit or loss (FVTPL).
The classification and the basis for measurement are subject to the group’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets, as detailed below:-
Page 56
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:-
· the assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows;
and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial assets are classified and measured at fair value through the profit
or loss (FVTPL).
If a financial asset meets the amortised cost criteria, the group may choose to designate the financial asset at FVTPL. Such
an election is irrevocable and applicable only if the FVTPL classification significantly reduces a measurement or
recognition inconsistency.
Financial assets at fair value through other comprehensive income (FVTOCI)
A financial asset is measured at FVTOCI only if it meets both of the following conditions and is not designated as at
FVPTL:-
· the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held for trading, the group may irrevocably elect to present
subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
If an equity investment is designated as FVTOCI, all gains and losses, except for dividend income, are recognised in other
comprehensive income and are not subsequently included in the statement of income.
Financial assets at fair value through the profit or loss (FVTPL)
Financial assets not otherwise classified above are classified and measured as FVTPL.
Financial liabilities at amortised cost
All financial liabilities, other than those classified as financial liabilities at FVTPL, are measured at amortised cost using
the effective interest rate method.
Financial liabilities at fair value through the profit or loss
Financial liabilities not measured at amortised cost are classified and measured at FVTPL. This classification includes
derivative liabilities.
Page 57
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Derecognition
Financial assets
The Group derecognises a financial asset when;
- the contractual rights to the cash flows from the financial asset expire,
- it transfers the right to receive the contractual cash flows in a transaction in which substantially all of the risks and
rewards of ownership of the financial asset are transferred; or
- the group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control
of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of the
consideration received is recognised as a gain or loss in the profit or loss.
Any cumulative gain or loss recognised in OCI in respect of equity investment securities designated as FVTOCI is not
recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for
derecognition that is created or retained by the group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains
either all or substantially all of risks and rewards of the transferred assets or a portion of them. In such cases, the
transferred assets are not derecognised.
When the Group derecognises transferred financial assets in their entirety, but has continuing involvement in them then the
entity should disclose for each type of continuing involvement at the reporting date:
(a) The carrying amount of the assets and liabilities that are recognised in the entity’s statement of financial position and
represent the entity’s continuing involvement in the derecognised financial assets, and the line items in which those assets
and liabilities are recognised.
(b) The fair value of the assets and liabilities that represent the entity’s continuing involvement in the derecognised
financial assets;
(c) The amount that best represents the entity’s maximum exposure to loss from its continuing involvement in the
derecognised financial assets, and how the maximum exposure to loss is determined
(d) The undiscounted cash outflows that would or may be required to repurchase the derecognised financial assets or other
amounts payable to the transferee for the transferred assets
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.
Modification of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual rights to the cash flows from the
original financial asset are deemed to expire. In this case the original financial asset is derecognised and a new financial
asset is recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial asset.
In this case, the group recalculates the gross carrying amount of the financial asset and recognises the amount arising from
adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Page 58
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Financial liabilities
If the terms of a financial liabilities are modified, the Group evaluates whether the cash flows of the modified asset are
substantially different. If the cash flows are substantially different, then the contractual obligations from the cash flows
from the original financial liabilities are deemed to expire. In this case the original financial liabilities are derecognised
and new financial liabilities are recognised at either amortised cost or fair value.
If the cash flows are not substantially different, then the modification does not result in derecognition of the financial
liabilities. In this case, the group recalculates the gross carrying amount of the financial liabilities and recognises the
amount arising from adjusting the gross carrying amount as a modification gain or loss in the statement of income.
Impairment of financial assets
Measurement of Expected Credit Losses
The Group recognises loss allowances for expected credit losses (ECL) on financial instruments that are not measured at
FVPTL, namely:
- Financial assets that are debt instruments
- Accounts and other receivables
- Financial guarantee contracts issued; and
- Loan commitments issued.
The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment
methodology, as described below:
Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and
that are not credit-impaired on origination, the group recognises an allowance based on the 12-month ECL.
Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they
are not credit-impaired, the group recognises an allowance for the lifetime ECL.
Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL.
The Group measures loss allowances at an amount equal to the lifetime ECL, except for the following, for which they are
measured as a 12-month ECL:
- debt securities that are determined to have a low credit risk (equivalent to investment grade rating) at the reporting date;
and
- other financial instruments on which the credit risk has not increased significantly since their initial recognition.
The Group considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally
understood definition of ‘investment grade’.
A 12-month ECL is the portion of the ECL that results from default events on a financial instrument that are probable
within 12 months from the reporting date.
Provisions for credit-impairment are recognised in the statement of income and are reflected in accumulated provision
balances against each relevant financial instruments balance.
Page 59
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Evidence that the financial asset is credit-impaired include the following;
- Significant financial difficulties of the borrower or issuer;
- A breach of contract such as default or past due event;
- The restructuring of the loan or advance by the group on terms that the group would not consider otherwise;
- It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
- The disappearance of an active market for the security because of financial difficulties; or
- There is other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or
issuers in the Group, or economic conditions that correlate with defaults in the Group.
For trade receivables, the Group applies the simplified approach, which requires expected lifetime losses to be recognised
from initial recognition of the receivables.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the
same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that
the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of sales over a period of 36 month before 31 December 2022 and
the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the
receivables. The group has identified the GDP and the unemployment rate of the countries in which it sells its goods and
services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these
factors.
Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as
historical experience indicates that financial assets that meet either of the following criteria are not recoverable:
• when there is a breach of financial covenants by the debtor; and
• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its
creditors, including the Group, in full.
Accounting estimates and assumptions
The preparation of the financial statements requires management to make estimates and assumptions that affect the
reported amounts of certain financial assets, liabilities, income and expenses.
The use of estimates and assumptions is principally limited to the determination of provisions for impairment, the
valuation of financial instruments and as explained in more detail below:-
Provisions for impairment
In determining impairment of financial assets, judgement is required in the estimation of the amount and timing of future
cash flows as well as an assessment of whether the credit risk on the financial asset has increased significantly since initial
recognition and incorporation of forward-looking information in the measurement of ECL.
Fair value of financial assets and liabilities
Where the fair value of financial assets and liabilities cannot be derived from active markets, they are determined using a
variety of valuation techniques that include the use of mathematical models. The input to these models is derived from
observable markets where available, but where this is not feasible, a degree of judgement is required in determining
assumptions used in the models. Changes in assumptions used in the models could affect the reported fair value of
financial assets and liabilities.
Page 60
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
3 Revenue
The analysis of the Group's revenue for the year from continuing operations is as follows:
2023
£ 000
2022
£ 000
Distribution use of system revenue
365,988 377,481
Work for related parties
31,316 26,081
Deferred revenue amortisation
29,963 29,253
Other revenue 8,426 9,044
435,693 441,859
Other revenue includes assessment and design fees and disconnections from the network.
Segmental Analysis
IFRS 8 - Operating Segments requires operating segments to be identified on the basis of internal reports about
components of the Company that are regularly reviewed by the President and Chief Executive Officer of the Northern
Powergrid Group in order to allocate resources to these segments and to assess their performance.
In practice, the President and Chief Executive Officer allocates resources and assesses performance based upon the
aggregate results of the Company and Northern Powergrid (Yorkshire) plc, another distribution network operator in the
Northern Powergrid Group. As there is only one operating segment, this constructs the segmental reporting note in full.
Revenue, profit before tax and net assets are attributable to electricity distribution. Revenue is all in respect of sales to
United Kingdom customers and all Non-Current assets are held in the United Kingdom.
4 Other gains and losses
The analysis of the Group's other gains and losses for the year is as follows:
2023
£ 000
2022
£ 000
Gain on disposal of property, plant and equipment
79 198
Page 61
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
5 Operating profit
Arrived at after charging/(crediting)
2023
£ 000
2022
£ 000
Depreciation expense
99,799 95,465
Depreciation on right of use assets
5,373 4,501
Amortisation expense
11,195 11,487
Research and development expenses
2,031 1,598
Amortisation of deferred revenue
(29,963) (29,253)
Loss allowance on trade and other receivables
675 (3)
Amortisation expense is included within administration costs in the consolidated income statement on page 36.
6 Finance income and costs
2023
£ 000
2022
£ 000
Finance income
Interest income on financial assets measured at amortised cost
877 199
Other finance income measured at amortised cost 12,405 3,423
Total finance income 13,282 3,622
Finance costs
Interest on bank overdrafts and borrowings
(33,235) (30,054)
Interest paid to group undertakings
(99) (5,692)
Interest expense on leases
(781) (641)
Borrowing costs included in cost of qualifying asset 403 606
Total finance costs
(33,712) (35,781)
Net finance costs
(20,430) (32,159)
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are
calculated by applying a capitalisation rate of 3.02% (2022: 3.14%) to expenditure on such assets.
Page 62
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
7 Staff costs
The aggregate payroll costs for the Group and Company (including directors' remuneration) were as follows:
2023
£ 000
2022
£ 000
Salaries
67,670 61,083
Social security costs
7,423 7,214
Defined benefit pension costs
5,929 6,867
Defined contribution pension costs
5,048 4,292
86,070 79,456
Less capitalised to plant, property and equipment (49,029) (46,318)
37,041 33,138
A proportion of the Company's employees are members of the DB Scheme, most of the remaining employees are members
of The Northern Powergrid Scheme (a defined contribution pension scheme), details of both are given in the employee
benefits Note 25.
The monthly average number of persons employed by the Group and Company (including directors) during the year,
analysed by category was as follows:
2023
No.
2022
No.
Technical
393 369
Industrial
478 463
Administration
320 282
Other departments 152 134
1,343 1,248
Page 63
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
8 Directors' remuneration
The directors remuneration for the year was paid by a related party company, Northern Electric plc, and recharged.
The directors' remuneration for the year was as follows:
2023
£ 000
2022
£ 000
Short-term employee benefits
590 521
Post-retirement benefits - defined contribution
9 9
Other long-term benefits 283 394
882 924
During the year the number of directors who were receiving benefits and share incentives was as follows:
2023
No.
2022
No.
Accruing benefits under defined benefit pension scheme
- -
Accruing benefits under money purchase pension scheme
4 6
In respect of the highest paid director:
2023
£ 000
2022
£ 000
Short-term employee benefits
287 287
Long-term benefits 195 304
482 591
The directors and key personnel are remunerated for the services to the Northern Powergrid Group. The figures above
represent the share of the costs borne by the Group.
In respect of key personnel:
2023
£ 000
2022
£ 000
Short-term employee benefits
580 523
Post-retirement benefits - defined benefit
23 32
Post-retirement benefits - defined contribution
108 68
Other long-term benefits 131 153
842 776
Page 64
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
9 Auditors' remuneration
2023
£ 000
2022
£ 000
Fees payable to the auditor for audit of the Company's annual accounts
198 181
Fees payable to the auditor for audit of the Company's subsidiaries
21 23
Other audit services 69 59
288 263
Other services relate to non-statutory audit services including regulatory reporting and bond issuance.
Page 65
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
10 Income tax
Tax charged/(credited) in the income statement
2023
£ 000
2022
£ 000
Current taxation
UK corporation tax
32,550 25,313
UK corporation tax adjustment to prior periods (1,261) (676)
31,289 24,637
Deferred taxation
Arising from origination and reversal of temporary differences
1,236 2,047
Deferred tax adjustment to prior periods (480) 716
Total deferred taxation 756 2,763
Tax expense in the income statement
32,045 27,400
The tax on profit before tax for the year is higher than the standard rate of corporation tax in the UK (2022 - higher than
the standard rate of corporation tax in the UK) of 25% from 1 April 2023 (2022 - 19%)
The differences are reconciled below:
2023
£ 000
2022
£ 000
Profit before tax
145,655 129,658
Corporation tax at standard rate
34,259 24,635
Decrease in current tax from adjustment for prior periods
(1,261) (676)
(Decrease)/increase from effect of expenses not deductible in determining (tax
loss)/taxable profit
(893) 1,066
Deferred tax (credit)/expense from unrecognised temporary difference from a prior
period
(480) 716
Deferred tax expense relating to changes in tax rates or laws
369 1,723
Other tax effects for reconciliation between accounting profit and tax
expense/(income) 51 (64)
Total tax charge
32,045 27,400
The Autumn Statement 2023, confirmed that the corporation tax rate will remain at 25% from 1 April 2023 as previously
enacted. Deferred tax balances are therefore measured at 25% at 31 December 2023.
There is no uncertainty over the acceptable income tax treatment. Should any uncertainties arise the Company will apply
adopted amendments to IFRIC 23.
Increases in the tax adjustments are largely to do with enhanced capital allowances.
Page 66
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
10 Income tax (continued)
Deferred tax
Group
Deferred tax movement during the year:
At 1 January
2023
£ 000
Recognised in
income
£ 000
At
31 December
2023
£ 000
Accelerated tax depreciation 134,965 868 135,833
Other items (1,450) (112) (1,562)
Net tax liabilities
133,515 756 134,271
Deferred tax movement during the prior year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation 132,292 2,673 134,965
Other items (1,540) 90 (1,450)
Net tax liabilities
130,752 2,763 133,515
Other items comprises provisions and employee expenses deductible for tax on a paid basis and claims for hold over relief.
Company
Deferred tax movement during the year:
At 1 January
2023
£ 000
Recognised in
income
£ 000
At
31 December
2023
£ 000
Accelerated tax depreciation 134,965 868 135,833
Other (1,450) (112) (1,562)
Net tax liabilities
133,515 756 134,271
Deferred tax movement during the prior year:
At 1 January
2022
£ 000
Recognised in
income
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation 132,292 2,673 134,965
Other (1,540) 90 (1,450)
Net tax liabilities
130,752 2,763 133,515
Other comprises provisions and employee expenses deductible for tax on a paid basis and claims for hold over relief.
Page 67
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
11 Property, plant and equipment
Group and Company
Non -
Operational
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022
4,191 3,700,310 51,802 3,756,303
Additions
- 157,530 5,316 162,846
Disposals - (6,266) - (6,266)
At 31 December 2022 4,191 3,851,574 57,118 3,912,883
At 1 January 2023
4,191 3,851,574 57,118 3,912,883
Additions
- 190,186 4,463 194,649
Disposals - (8,184) (116) (8,300)
At 31 December 2023 4,191 4,033,576 61,465 4,099,232
Depreciation
At 1 January 2022
3,423 925,067 45,690 974,180
Charge for year
235 92,537 2,693 95,465
Eliminated on disposal - (6,266) - (6,266)
At 31 December 2022 3,658 1,011,338 48,383 1,063,379
At 1 January 2023
3,658 1,011,338 48,383 1,063,379
Charge for the year
246 96,532 3,021 99,799
Eliminated on disposal - (8,184) (116) (8,300)
At 31 December 2023 3,904 1,099,686 51,288 1,154,878
Carrying amount
At 31 December 2023
287 2,933,890 10,177 2,944,354
At 31 December 2022
533 2,840,236 8,735 2,849,504
Page 68
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
11 Property, plant and equipment (continued)
Expenditure recognised in the carrying amount of property, plant and equipment in the course of construction
31 December
2023
£ 000
31 December
2022
£ 000
Distribution system 184,298 167,998
Contractual commitments for the acquisition of property, plant and equipment
31 December
2023
£ 000
31 December
2022
£ 000
Distribution system 33,834 20,757
Page 69
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
12 Right of use assets
Group and Company
Fleet
£ 000
Property
£ 000
Land
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022
14,960 1,337 1,923 18,220
Additions
1,903 - 16,685 18,588
Disposals (1,253) - - (1,253)
At 31 December 2022 15,610 1,337 18,608 35,555
At 1 January 2023
15,610 1,337 18,608 35,555
Additions
1,762 - - 1,762
Disposals (864) - - (864)
At 31 December 2023 16,508 1,337 18,608 36,453
Depreciation
At 1 January 2022
5,884 593 91 6,568
Charge for year
2,848 199 1,454 4,501
Eliminated on disposal (1,253) - - (1,253)
At 31 December 2022 7,479 792 1,545 9,816
At 1 January 2023
7,479 792 1,545 9,816
Charge for the year
2,726 199 2,448 5,373
Eliminated on disposal (864) - - (864)
At 31 December 2023 9,341 991 3,993 14,325
Carrying amount
At 31 December 2023
7,167 346 14,615 22,128
At 31 December 2022
8,131 545 17,063 25,739
Page 70
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
13 Intangible assets
Group and Company
Internally
generated
software
development
costs
£ 000
Cost or valuation
At 1 January 2022
129,841
Additions 9,956
At 31 December 2022 139,797
At 1 January 2023
139,797
Additions 14,444
At 31 December 2023 154,241
Amortisation
At 1 January 2022
80,954
Amortisation charge 11,487
At 31 December 2022 92,441
At 1 January 2023
92,441
Amortisation charge 11,195
At 31 December 2023 103,636
Carrying amount
At 31 December 2023
50,605
At 31 December 2022
47,356
During the year the amount of contractual commitments for the acquisition of intangible assets amounted to £4.1 million
(2022: £2.3 million).
Page 71
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments
Summary of the Company investments
31 December
2023
£ 000
31 December
2022
£ 000
Investments in subsidiaries
50 50
Subsidiaries £ 000
Cost or valuation
At 1 January 2022 50
At 31 December 2022
50
At 1 January 2023 50
At 31 December 2023
50
Provision
Carrying amount
At 31 December 2023
50
At 1 January 2022
50
Group subsidiaries
Details of the Group subsidiaries as at 31 December 2023 are as follows:
Name of subsidiary Principal activity Registered office
Proportion of
ownership interest
and voting rights
held
2023 2022
Northern Electric Finance plc Finance company Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1
6AF
England and Wales
100% 100%
All subsidiaries are included within consolidation.
All above investments are held as ordinary shares
+ indicates accounted for using the consolidation method.
Page 72
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Group associates
Details of the Group associates as at 31 December 2023 are as follows:
Name of associate Principal activity Registered office
Proportion of
ownership interest
and voting rights
held
2023 2022
ElectraLink Limited Data transfer network
operator
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
6.2% 6.2%
MRA Service Company Limited Governance of the
electricity industry's
Master Registration
Agreement
8 Fenchurch Place, London,
EC3M 4AJ, England and
Wales
0% 0.36%
DCUSA Limited Governance of
Distribution Connection
and Use of System
Agreement
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
1.69% 1.69%
Smart Energy Code Company Ltd Governance of smart
metering energy
agreement
8 Fenchurch Place, London,
EC3M 4AJ
0.32% 0.32%
Page 73
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
15 Inventories
Group Company
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Inventory
28,670 24,976 28,670 24,976
Work in progress 607 430 607 430
29,277 25,406 29,277 25,406
16 Trade and other receivables
Group Company
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Distribution use of system receivables and
accrued income *
59,298 57,273 59,298 57,273
Trade receivables
8,113 7,364 8,113 7,364
Provision for impairment of trade
receivables (6,174) (5,619) (6,174) (5,619)
Net trade receivables
61,237 59,018 61,237 59,018
Receivables from related parties
279,533 - 283,091 -
Prepayments 5,028 5,126 5,028 5,126
345,798 64,144 349,356 64,144
Page 74
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
* Unbilled revenue in 2023 was £32.4m (2022: £27.4m).
More information on receivables from related parties can be found within the accounting policies section under
intercompany short-term loans as well as Note 30.
The average credit period on receivables is 30 days. Interest is charged on overdue distribution use of system receivables.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default
experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current
as well as the forecast direction of conditions at the reporting date. The loss allowance has not been split out into detailed
analysis.
There has been no change in the estimation techniques or significant assumptions made during the current reporting
period.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings, or when the trade receivables are over two years past due, whichever occurs earlier. None of the
trade receivables that have been written off is subject to enforcement activities.
As the Group’s historical credit loss experience shows significantly different loss patterns for different customer segments,
the provision for loss allowance based on past due status is distinguished between Distribution Use of System ("DUoS")
receivables, damages receivables, and non-damages receivables.
Movement in the loss allowance
31 December
2023
£ 000
31 December
2022
£ 000
At 1 January
5,619 5,754
Amounts utilised/written off in the year
(120) (132)
Amounts recognised in the statement of profit or loss 675 (3)
At 31 December
6,174 5,619
The loss allowance is made on amount due net of VAT which would be recoverable from His Majesty's Revenue and
Customs when the debt is written off. Subject to certain conditions mentioned below, losses arising in relation to
distribution use of system debts will be recovered through an increase in future allowed income.
Included in the allowance for doubtful debts are specific trade receivables, with a balance of £4.6 million (2022: £3.7
million), which have been placed in administration. The impairment represents the difference between the carrying amount
of the specific trade receivable and the present value of the expected liquidation dividend.
Page 75
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
Distribution Use of System Receivables
The customers served by the Group’s distribution network are supplied predominantly by a number of electricity supply
businesses (circa 110) with the E.ON group accounting for approximately 18.1% of distribution revenues in 2023 (2022:
20.2%) and British Gas plc accounting for approximately 14.5% of distribution revenues in 2023 (2022: 14.1%). Ofgem
under Code Governance arrangements, set out a framework known as Credit Cover within the Distribution Connection and
Use of System Agreement (DCUSA), which sets credit limits for each supply business based on its credit rating (taken
from a credit agency). If no score is available, then they can build up their credit limit through good payment history. In
addition, suppliers can provide other forms of collateral to cover their value at risk (measured as being equivalent to 45
days usage) or if their credit rating alone is not sufficient to cover their value at risk. Acceptable collateral typically is
provided in the form of a parent company guarantee, letter of credit, cash or an escrow account. Included within other
payables are customer cash deposits of which there was £7.1m as at 31st December 2023 (2022: £3.2m), due to an increase
in the deposit held of £3.5m relating to Octopus Energy Ltd.
Provided the Group has implemented credit control, billing and collection processes in line with Ofgem’s best practice
guidelines and can demonstrate compliance with the guidelines or is able to satisfactorily explain departure from the
guidelines, any bad debt losses arising from supplier default will be recovered through an increase in future years allowed
income. Included in the Group's use of system (“UoS”) receivables are 39 debtors with a carrying value of £3.0m, which
have been placed into administration and have therefore been provided in full at the year-end (2022: £3.0m).
The following table details the age of DUoS receivables and accrued income:
2023
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
32,447 23,886 12 2,953
Less specific provisions
- - - (2,930)
Balance on which ECL made
32,447 23,886 12 23
Lifetime ECL
0% 2% 2% 2%
Expected credit loss
- 590 1
2022
Not due
£ 000
Current
£ 000
1-3 months
£ 000
3-6 months
£ 000
Total balance
27,388 26,865 7 2,965
Less specific provisions
- - (3) (2,962)
Balance on which ECL made
27,388 26,865 4 3
Lifetime ECL
0% 2.64% 2.64% 2.64%
Expected credit loss
- 709
Page 76
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
Other Trade Receivables
In determining the recoverability of the trade and other receivables, the Company considers any change in the credit
quality of the trade and other receivable from the date credit was initially granted up to the reporting date. The
concentration of credit risk, other than in relation to DUoS receivables, is limited due to the customer base being large and
unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for
doubtful debts.
Damages
2023
1-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 years
£ 000
Total balance
892 481 505 1,126 81
Less specific provisions
(293) (85) (127) (991) -
Balance on which ECL made
599 396 378 135 81
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
120 99 113 54 65
2022
1-6 months
£ 000
6-12 months
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 years
£ 000
Total balance
943 1,180 546 113 261
Less specific provisions
(97) (68) (232) - (226)
Balance on which ECL made
846 1,112 314 113 35
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
169 278 94 45 28
Non Damages
2023
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
167 423 635 336 620
Less specific provisions
(2) - - - (42)
Balance on which ECL made
165 423 635 336 578
Lifetime ECL
0% 0% 0% 50% 85%
Expected credit loss
- - - 168 491
2022
Not due
£ 000
Current
£ 000
1-6 months
£ 000
6-12 months
£ 000
Over 1 year
£ 000
Total balance
313 315 1,224 222 319
Less specific provisions
- - - - -
Balance on which ECL made
313 315 1,224 222 319
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 111 278
Page 77
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
There has been no significant change in the gross amounts of trade receivables that has affected the estimation of loss
allowance.
Significant Increase in Credit Risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group
compares the risk of a default occurring on a financial instrument at the reporting date with the risk of a default occurring
on the financial instrument at the date of initial recognition. In making this assessment the Group considers historical
experience as well as forward-looking information that is available without undue cost or effort. Forward-looking
information includes the future prospects of the industries in which the Group's debtors operate obtained from economic
expert reports, financial analysts, government bodies, relevant think-tanks and other similar organisations. In particular the
following information is taken into account when assessing whether credit risk has increased significantly since initial
recognition:
• existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant
decrease in the debtor's ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor; and
• an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor
that results in a significant decrease in the debtor's ability to meet its debt obligations.
Sales of goods and services comprise all income streams which are not classified as DUoS income. Examples of
non-DUoS income streams would be service alterations/disconnections, assessment and design fees, and recovery of
amounts for damage caused by third parties to the distribution system. The average credit period on sales of goods and
services is 30 days. Interest is not generally charged on the trade receivables paid after the due date.
Page 78
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
17 Cash and cash equivalents
Group Company
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Cash at bank
23 1,697 23 1,697
Other cash and cash equivalents - 274,429 - 272,832
23 276,126 23 274,529
Other cash and cash equivalents at 31 December 2022 relate to demand deposits held with the Group’s treasury company
Yorkshire Electricity Group plc and treated as cash and cash equivalents. Yorkshire Electricity Group plc is authorised to
settle amounts against intercompany balances as set out in the Cash Flow Statement. During 2023 the Group has
completed a refinancing and [paid dividends/the company has subsequently declared a dividend post year end as set out in
note 26]. The amounts held are not considered demand deposits and accordingly the amounts are disclosed as an
intercompany receivable and included in trade and other receivables in note 16".
18 Share capital
Allotted, called up and fully paid shares
31 December
2023
31 December
2022
No. 000 £ 000 No. 000 £ 000
Ordinary Share Capital of £1 each
200,000 200,000 200,000 200,000
The Company has 300 million shares authorised for issue. The Company has one class of ordinary shares which carries no
right to fixed income.
Page 79
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
19 Reserves
Group
Retained
earnings
£ 000
At 1 January 2023
1,036,661
Profit for the year 113,610
Total comprehensive income
113,610
Dividends (31,400)
At 31 December 2023
1,118,871
Retained
earnings
£ 000
At 1 January 2022
962,103
Profit for the year
102,258
Total comprehensive income
102,258
Dividends (27,700)
At 31 December 2022
1,036,661
Company
Retained
earnings
£ 000
At 1 January 2023
1,038,447
Profit for the year 113,631
Total comprehensive income
113,631
Dividends (31,400)
At 31 December 2023
1,120,678
Page 80
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
19 Reserves (continued)
Retained
earnings
£ 000
At 1 January 2022
963,901
Profit for the year 102,246
Total comprehensive income
102,246
Dividends (27,700)
At 31 December 2022
1,038,447
20 Loans and borrowings
Group Company
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Non-current loans and borrowings
1,057,393 1,057,069 1,057,389 1,057,064
Current loans and borrowings
21,922 54,263 23,733 50,949
1,079,315 1,111,332 1,081,122 1,108,013
Group
Book value Fair value
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Short-term loan
2,716 35,058 2,716 35,058
European Investment Bank 2027 – 2.564%
120,128 120,128 111,677 103,252
Northern Electric Finance plc 2035 – 5.125%
153,550 153,457 158,526 150,066
Northern Electric Finance plc 2049 – 2.75%
150,161 150,098 106,192 100,507
Northern Powergrid (Northeast) plc 2052 - 3.25%
355,018 354,942 272,362 259,793
Northern Powergrid (Northeast) plc 2062 - 1.875% 297,742 297,649 159,538 154,267
1,079,315 1,111,332 811,011 802,943
Page 81
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
20 Loans and borrowings (continued)
Company
Book value Fair value
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Short-term loan
2,716 35,058 2,716 35,058
European Investment Bank 2027 - 2.564%
120,128 120,128 111,677 103,252
Northern Electric Finance plc 2035 – 5.125%
50,302 50,208 52,885 50,065
Northern Electric Finance plc 2037 - 5.125%
105,009 99,884 105,784 95,341
Northern Electric Finance plc 2049 - 2.75%
150,207 150,144 107,300 101,617
Northern Powergrid (Northeast) plc 2052 3.25%
355,018 354,942 272,362 259,793
Northern Powergrid (Northeast) plc 2062 1.875% 297,742 297,649 159,538 154,267
1,081,122 1,108,013 812,262 799,393
The fair value of liabilities held at amortised cost, is set out above and based on Level 1 inputs.
In April 2022, the Group issued a £350 million bond at 3.25% maturing in 2051, the funds were used for general corporate
purposes including the repayment of debt maturities in 2022.
Page 82
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
21 Lease Liabilities
Group and Company
Lease commitments
Leases primarily relate to the hire of fleet vehicles from Vehicle Lease and Service Ltd and the rental of operational and
non operational land and buildings. The vehicle leases have terms between 2 and 7 years. The company does not have the
option to purchase the vehicles at the end of the lease term.
Maturity analysis - contractual undiscounted cash flows:
31 December
2023
£ 000
31 December
2022
£ 000
Within one year
5,741 5,812
In two to five years
16,250 17,243
In over five years
3,287
6,101
Total lease payment 25,278
29,156
Unearned interest (2,468) (2,946)
Total lease liability
22,809 26,210
Unearned interest is future interest on leases not yet earned at the balance sheet date.
The total cash outflow for leases during the year was £5.9m (2022: £5.0m), of which £0.7m (2022: £0.7m) relates to
interest and £5.2m (2022: £4.3m) relates to the repayment of principal.
22 Provisions
Group and Company
Legal
proceedings
£ 000
Other
provisions
£ 000
Total
£ 000
At 1 January 2023
1,145 507 1,652
Additional provisions
1,516 210 1,726
Provisions used (1,604) (205) (1,809)
At 31 December 2023
1,057 512 1,569
Non-current liabilities
- 55 55
Current liabilities
1,057 457 1,514
Legal proceedings: Provision has been made to cover costs arising from utility damages, public liability, and motoring
legal proceedings. Settlement is expected substantially within 12 months.
Other: Primarily consists of a provision for future safe disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs), and for an amount to cover claims made under Section 74 of the New Road and Street
Works Act 1991. Costs are expected to be incurred over the next 15 years for PCB claims and in the next year for all
others.
Page 83
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
22 Provisions (continued)
23 Trade and other payables
Group Company
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Trade payables
4,749 2,978 4,749 2,978
Accrued expenses
11,224 8,973 11,224 8,971
Social security and other taxes
8,165 10,735 8,165 10,735
Other payables
4,340 2,949 4,340 2,949
Payments on account
78,300 54,169 78,300 54,169
Capital Accruals 25,304 17,040 25,304 17,040
132,082 96,844 132,082 96,842
Payments on account are primarily advanced customer contributions.
The Group's and Company's exposure to market and liquidity risks, including maturity analysis, related to trade and other
payables is disclosed in Note 29 "Financial Risk Review".
There are various costs and services shared between, or performed on behalf of, one distribution company for the other.
These are borne initially through creditors and recharged to the other distribution company through revenue as disclosed in
note 3.
Page 84
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
24 Deferred Revenue
Group and Company
31 December
2023
£ 000
31 December
2022
£ 000
Opening balance
681,802 677,658
Additions
46,267 33,397
Amortisation (29,963) (29,253)
Closing balance
698,106 681,802
31 December
2023
£ 000
31 December
2022
£ 000
Current
30,039 29,326
Non-current 668,067 652,476
698,106 681,802
Deferred revenue relates to customer contributions towards distribution system assets. The Group's policy is to credit the
customer contribution to revenue on a straight-line basis, in line with the useful life of the distribution system assets.
Page 85
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes
Defined benefit pension schemes
Northern Powergrid Group of the ESPS
The Group contributes to two pension schemes, which it operates on behalf of the participating companies within the
Group. All below disclosures are that of the group scheme to which the Company contributes but the assets and liabilities
are reflected in Northern Electric plc.
Those pension schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme"); and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new employees of the Group from July 1997 and is a money
purchase arrangement accounted for as a defined contribution scheme.
The DB Scheme is a defined benefit scheme for directors and employees, which provides pension and other related
retirement benefits based on final pensionable pay. The DB Scheme closed to staff commencing employment with the
Group on or after 23 July 1997. Members who joined before this date, including some Protected Persons under The
Electricity (Protected Persons) (England and Wales) Pension Regulations 1990, continue to build up future pension
benefits.
Under the DB Scheme, employees are typically entitled to annual pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such as withdrawing from active service.
No other post-retirement benefits are provided to members of the DB Scheme.
Pension Regulation
The UK pensions market is regulated by the Pensions Regulator whose key statutory objectives in relation to UK defined
benefit plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund
("PPF"); and
- minimise any adverse impact on the sustainable growth of an employer.
The Pensions Regulator has various powers including the power to:
- wind up a scheme where winding up is necessary to protect members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions where trustees and company fail to agree on appropriate contributions; and
- impose contributions where there has been a detrimental action against the scheme.
Page 86
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Role of Trustees
The DB Scheme is administered by a board of Trustees which is legally separate from the Company. The assets of the DB
Scheme are held in a separate trustee-administered fund. The board of Trustees is made up of Trustees appointed by the
Company, as the Principal Employer of the DB Scheme, Trustees elected by the membership and an independent trustee.
The Trustees are required by law to act in the interests of all relevant beneficiaries and are responsible in particular for the
asset investment strategy plus the day-to-day administration of the benefits payable. They also are responsible for jointly
agreeing with the Principal Employer the level of contributions due to the DB Scheme.
Funding Requirements
UK legislation requires that pension schemes are funded prudently (i.e. to a level in excess of the current expected cost of
providing benefits). The next actuarial valuation of the DB Scheme will be carried out by the Trustee’s actuarial advisors,
Aon, at a date no later than 31 March 2025. Such valuations are required by law to take place at intervals of no more than
three years. Following each valuation, the Trustees and the Northern Powergrid Group must agree the contributions
required (if any) such that the DB Scheme is fully funded over time on the basis of suitably prudent assumptions.
At the latest funding valuation as at 31 March 2022, the funding surplus was assessed to be £2.9 million. In light of this
and subsequent changes in the funding position, the Group are not currently paying any deficit repair contributions. The
next actuarial valuation will be at 31 March 2025 and is expected to be completed by 30 June 2026, by which time a new
contribution schedule will be agreed.
The contributions payable by the Group to the DB Scheme in respect of future benefits which are accruing is 46.1%
(49.1% to 30 June 2023). These contributions were determined as part of the 31 March 2022 actuarial valuation and will
remain in place until such a time as a new schedule of contributions is agreed between the Trustees and the Group as part
of the 31 March 2025 valuation.
The Northern Powergrid Group’s total contribution to the DB Scheme for the next financial year are expected to be £8.8m.
The Trust Deed provides the Group with an unconditional right to a refund of surplus assets assuming the gradual
settlement of plan liabilities over time. Furthermore, in the ordinary course of business the Trustees have no right to
unilaterally wind up, or otherwise augment the benefits due to members of the DB scheme. Based on these rights, any net
surplus in the plan is recognised in full.
Profile of the scheme
The defined benefit obligation ("DBO") includes benefits for current employees, former employees and current pensioners.
The overall duration of the DB Scheme's obligation was assessed to be about 17 years based on the results of the 31 March
2022 funding valuation. This is the weighted-average time over which benefit payments are expected to be made.
As at 31 March 2022, broadly about 23% of the liabilities are attributable to current employees (duration about 24 years),
7% to former employees (duration about 22 years) and 70% to current pensioners (duration about 13 years).
We anticipate that the overall duration of the Scheme’s obligation will have reduced to around 13 years at 31 December
2023.
Page 87
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Investment objectives for the DB Scheme
The Trustees aim to achieve the Scheme's investment objectives through investing partly in a diversified mix of growth
assets which, over the long term, are expected to grow in value by more than low risk assets like cash and gilts. This is
done with a broad liability driven investing framework that uses cash, gilts and other hedging instruments like swaps in a
capital efficient way. In combination this efficiently captures the Trustees' risk tolerances and return objectives relative to
the Scheme's liabilities.
The Company and Trustees have agreed a long-term strategy for reducing investment risk as and when appropriate. This
includes the use of Liability Driven Investment (LDI) from October 2016 to more closely match the nature and duration of
the DB Scheme's liabilities through the use of derivatives such as swaps and repurchase agreements. The portfolio is
designed to hedge a proportion of the interest rate and inflation risk inherent in the Scheme's liabilities. The target hedging
level is currently 99% (2022: 99%) of the DB Scheme's liabilities as measured on the basis used for the funding valuation.
The trustees insure certain benefits which are payable on death before retirement.
Page 88
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Risks
Volatile asset returns
The DBO is calculated using a discount rate set with reference to corporate bond yields. If assets underperform this
discount rate, this will create an element of deficit. The DB Scheme aims to hold a significant proportion (27%) of its
assets in return-seeking assets (such as equities) which, although expected to outperform corporate bonds in the long-term,
create
volatility and risk in the short-term.
Mitigation
The allocation to return-seeking assets is monitored to ensure it remains appropriate given the DB Scheme's long-term
objectives. The Trustees regularly review the strategy from return-seeking assets and have diversified some return-seeking
assets from equities into Reinsurance and Listed Infrastructure to reduce overall risk. To avoid concentration risk, the
allocation to UK equity is restricted to 35% of the total equity allocation.
Changes in bond yields
A decrease in corporate bond yields will increase the value placed on the DBO for accounting purposes, although this will
be partially offset by an increase in the value of the DB Scheme's bond holdings.
Mitigation
The DB Scheme aims to hold a substantial proportion of its assets (73%) as bonds and Liability Driven Investments (LDI),
which provide a significant hedge against falling bond yields (falling yields which increase the DBO will also increase the
value of the bond assets). There are some differences in the credit quality of bonds held by the DB Scheme and the bonds
analysed to decide the DBO discount rate, such that there remains some risk should yields on different quality bond/swap
assets diverge.
Inflation risk
A significant proportion of the DBO is indexed in line with price inflation (specifically in line with RPI) and higher
inflation will leads to a higher DBO.
Mitigation
The DB Scheme invests around 42% in LDI (included in the 73% above) which provides a hedge against
higher-than-expected inflation increases on the DBO (rising inflation will increase both the DBO and the value of the LDI
portfolio).
Life expectancy risk
The majority of the DB Scheme's obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the liabilities.
Mitigation
The DB Scheme regularly reviews actual experience of its membership against the actuarial assumptions underlying the
future benefit projections and carries out detailed analysis when setting an appropriate scheme specific mortality
assumption.
Currency risk
To increase diversification, the DB Scheme invests in overseas assets. This leads to a risk that foreign currency movements
negatively impact the value of assets in Sterling terms.
Mitigation
The DB Scheme hedges a proportion of the overseas investments currency risk for those overseas currencies that can be
hedged efficiently. The DB Scheme's currency hedging ratio is currently 50% in respect of overseas developed market
currencies.
Other risks
There are a number of other risks associated with the DB Scheme including operational risks (such as paying out the
wrong benefits), legislative risks (such as the government increasing the burden on pension schemes through new
legislation) and other demographic risks (such as a higher proportion of members dying than assumed with a dependant
eligible to receive a survivor's pension from the DB Scheme).
Page 89
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Reporting at 31 December 2023
For the purposes of this disclosure, the current and future pension costs of the Northern Powergrid Group have been
assessed by Aon, a qualified independent actuary, using the assumptions set out below, which the actuary has confirmed
represent a reasonable best estimate of those costs. The review has been based on the same membership and other data as
at 31 March 2022. The board of Northern Powergrid Holdings Company has accepted the advice of the actuary and
formally approved the use of these assumptions for the purpose of calculating the pension cost of the Northern Powergrid
Group.
The results of the latest funding valuation at 31 March 2022 have been adjusted 31 December 2023. Those adjustments
take account of experience over the period since 31 March 2022, changes in market conditions, and differences in the
financial and demographic assumptions. The present value of the DBO and the related current service cost were measured
using the Projected Unit Credit Method.
For schemes closed to new members, such as the DB Scheme, the current service cost calculated under the Projected Unit
Credit Method is expected to increase as the members of the DB Scheme approach retirement.
Principal actuarial assumptions
The significant actuarial assumptions used to determine the present value of the defined benefit obligation at the statement
of financial position date are as follows:
31 December
2023
%
31 December
2022
%
Discount rate
4.55 4.80
Future salary increases
3.00 3.20
Future pension increases
2.65 2.75
Inflation - CPI
2.35 2.95
Inflation - RPI
2.75 2.95
Proportion of pension exhcanged for additional cash at retirement
10.00 10.00
Post retirement mortality assumptions
31 December
2023
Years
31 December
2022
Years
Current UK pensioners at retirement age - male
26.70 26.70
Current UK pensioners at retirement age - female
28.90 28.60
Future UK pensioners at retirement age - male
27.40 27.40
Future UK pensioners at retirement age - female
30.10 29.70
Page 90
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Reconciliation of scheme assets and liabilities to assets and liabilities recognised
The amounts recognised in the statement of financial position are as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Fair value of scheme assets
1,098,300 1,117,000
Present value of scheme liabilities (949,700) (965,500)
Defined benefit pension scheme surplus
148,600 151,500
Scheme assets
Changes in the fair value of scheme assets are as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Fair value at start of year
1,117,000 1,742,600
Interest income
52,700 33,600
Remeasurement gains on scheme assets
(3,000) (582,000)
Employer contributions
10,500 12,100
Contributions by scheme participants
400 400
Benefits paid
(77,900) (88,300)
Administrative expenses paid (1,400) (1,400)
Fair value at end of year
1,098,300 1,117,000
Analysis of assets
The major categories of scheme assets are as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Developed market equity
71,700 78,400
Emerging market equity
2,100 4,400
Property
103,300 169,400
Reinsurance
93,800 80,800
Listed infrastructure
53,500 62,800
Investment grade corporate bonds
49,700 15,900
Other debt (non-investment grade)
191,400 32,800
Fixed interest gilts
37,500 6,500
Liability driven investments
454,500 584,300
Cash and cash equivalents including derivatives 40,800 81,700
1,098,300 1,117,000
The pension scheme has not invested in any of the company's own financial instruments or in properties or other assets
used by the company.
Page 91
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Scheme liabilities
Changes in the present value of scheme liabilities are as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Present value at start of year
965,500 1,480,400
Current service cost
5,100 11,100
Past service cost
4,700 16,500
Actuarial gains/(losses) arising from changes in demographic assumptions
(34,400) (900)
Actuarial gains/(losses) arising from changes in financial assumptions
18,300 (530,100)
Actuarial gains/(losses) arising from experience adjustments
27,300 64,400
Interest cost
45,400 28,500
Benefits paid
(77,900) (88,300)
Contributions by scheme participants 400 400
Present value at end of year
949,700 965,500
Amounts recognised in the income statement
31 December
2023
£ 000
31 December
2022
£ 000
Amounts recognised in operating profit
Current service cost
5,100 11,100
Past service cost
4,700 16,500
Losses (gains) on curtailments and settlements
1,400 1,490
Net interest (7,300) (5,100)
Recognised in arriving at operating profit (800) 7,490
Amounts recognised in finance income or costs
Costs included in cost of qualifying assets (2,500) (6,800)
Total recognised in the income statement
(3,300) 690
Page 92
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Amounts taken to the Statement of Comprehensive Income
31 December
2023
£ 000
31 December
2022
£ 000
Actuarial gains and losses arising from changes in demographic assumptions
(34,400) (900)
Actuarial gains and losses arising from changes in financial assumptions
18,300 (530,100)
Actuarial gains and losses arising from experience adjustments
27,300 64,400
Return on plan assets, excluding amounts included in interest income/(expense) 3,000 582,000
Amounts recognised in the Statement of Comprehensive Income
14,200 115,400
Sensitivity analysis
Significant actuarial assumptions for determination of the defined benefit obligation are discount rate, inflation, and
mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective
assumptions occurring at the end of the reporting period, while holding all other assumptions constant:
31 December
2023
31 December
2022
Adjustment to discount rate
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
937,100 957,600 962,500 952,700 965,500 979,300
31 December
2023
31 December
2022
Adjustment to rate of inflation
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
+ 0.1%
£ 000
0.0%
£ 000
- 0.1%
£ 000
Present value of total obligation
958,800 957,600 938,700 978,700 965,500 933,300
31 December
2023
31 December
2022
Adjustment to mortality age rating
assumption
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
Present value of total obligation
985,900 957,600 912,700 995,300 965,500 934,900
The sensitivity analysis presented above may not be representative of the actual change in defined benefit obligation as it
is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be
correlated.
Page 93
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
26 Dividends
31 December
2023
31 December
2022
£ 000 £ 000
Interim dividend of 15.7 p (2022 - 13.9 p) per ordinary share
31,400 27,700
An interim dividend of £300.0 million was paid on the 26 March 2024.
Page 94
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
27 Reconciliation of liabilities arising from financing activities
Group
Non-cash
changes
At 1 January
2023
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2023
£ 000
Borrowings
1,111,332 (32,289) - 272 1,079,315
Lease liabilities 26,210 (5,944) 2,543 - 22,809
1,137,542 (38,233) 2,543 272 1,102,124
Non-cash
changes
At 1 January
2022
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2022
£ 000
Borrowings
852,613 249,922 - 8,797 1,111,332
Lease liabilities 11,938 (4,957) 19,229 - 26,210
864,551 244,965 19,229 8,797 1,137,542
Company
Non-cash
changes
At 1 January
2023
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2023
£ 000
Borrowings
1,108,013 (32,289) - 5,398 1,081,122
Lease liabilities 26,210 (5,944) 2,543 - 22,809
1,134,223 (38,233) 2,543 5,398 1,103,931
Non-cash
changes
At 1 January
2022
£ 000
Financing
cash flows
£ 000
New finance
leases
£ 000
Other
changes
£ 000
At 31
December
2022
£ 000
Borrowings
850,879 248,337 - 8,797 1,108,013
Lease liabilities 11,938 (4,957) 19,229 - 26,210
862,817 243,380 19,229 8,797 1,134,223
Other charges relate to amortisation of financing fees, discounts and new leases entered into.
Page 95
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities
Group
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31
December 2023 was as follows:
Financial assets
at amortised
cost
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - 2,944,354
Right of use assets
- - 22,128
Intangible assets - - 50,605
- - 3,017,087
Current assets
Inventories
- - 29,277
Trade and other receivables
345,787 - 11
Cash and cash equivalents 23 - -
345,810 - 29,288
Total assets
345,810 - 3,046,375
Liabilities
Non-current liabilities
Long term lease liabilities
- (17,754) -
Loans and borrowings
- (1,057,393) -
Provisions
- - (55)
Deferred revenue
- (668,067) -
Deferred tax liabilities - - (134,271)
- (1,743,214) (134,326)
Current liabilities
Current portion of long term lease liabilities
- (5,055) -
Trade and other payables
- (123,916) (8,166)
Loans and borrowings
- (21,922) -
Income tax liability
- - (5,162)
Deferred revenue
- (30,039) -
Provisions - - (1,514)
- (180,932) (14,842)
Total liabilities
- (1,924,146) (149,168)
Page 96
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31
December 2022 was as follows:
Financial assets
at amortised
cost
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - 2,849,504
Right of use assets
- - 25,739
Intangible assets - - 47,356
- - 2,922,599
Current assets
Inventories
- - 25,406
Trade and other receivables
64,126 - 18
Cash and cash equivalents
276,126 - -
340,252 - 25,424
Total assets
340,252 - 2,948,023
Liabilities
Non-current liabilities
Long term lease liabilities
- (21,152) -
Loans and borrowings
- (1,057,069) -
Provisions
- - (55)
Deferred revenue
- (652,476) -
Deferred tax liabilities - - (133,515)
- (1,730,697) (133,570)
Current liabilities
Current portion of long term lease liabilities
- (5,058)
-
Trade and other payables
(96,844)
-
Loans and borrowings
(54,263)
-
Income tax liability
(259)
-
-
Deferred revenue
- (29,326)
-
Provisions
- -
(1,597)
(259)
(185,491)
(1,597)
Total liabilities
(259)
(1,916,188) (135,167)
Fair values are derived from level 1 inputs.
Company
Page 97
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31
December 2023 was as follows:
Financial assets
at amortised
cost
£ 000
Financial assets
& liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 2,944,354
Right of use assets
- - - 22,128
Intangible assets
- - - 50,605
Investments in subsidiaries, joint ventures
and associates - 50 - -
- 50 - 3,017,087
Current assets
Inventories
- - - 29,277
Trade and other receivables
349,345 - - 11
Cash and cash equivalents 23 - - -
349,368 - - 29,288
Total assets
349,368 50 - 3,046,375
Liabilities
Non-current liabilities
Long term lease liabilities
- - (17,754) -
Loans and borrowings
- - (1,057,389) -
Provisions
- - - (55)
Deferred revenue
- - (668,067) -
Deferred tax liabilities - - - (134,271)
- - (1,743,210) (134,326)
Current liabilities
Current portion of long term lease
liabilities
- - (5,055) -
Trade and other payables
- - (123,916) (8,166)
Loans and borrowings
- - (23,733) -
Income tax liability
- - - (5,156)
Deferred revenue
- - (30,039) -
Provisions - - - (1,514)
- - (182,743) (14,836)
Total liabilities
- - (1,925,953) (149,162)
Page 98
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
28 Classification of financial and non-financial assets and financial and non-financial liabilities (continued)
The classification of financial assets and financial liabilities by accounting categorisation for the period ended 31
December 2022 was as follows:
Financial assets
at amortised
cost
£ 000
Financial assets
& liabilities at
FVTPL
£ 000
Financial
liabilities at
amortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - 2,849,504
Right of use assets
- - - 25,739
Intangible assets
- - - 47,356
Investments in subsidiaries, joint ventures
and associates - 50 - -
- 50 - 2,922,599
Current assets
Inventories
-
-
-
25,406
Trade and other receivables
64,126 - - 18
Cash and cash equivalents
274,529 - - -
338,655 - - 25,424
Total assets
338,655 50 - 2,948,023
Liabilities
Non-current liabilities
Long term lease liabilities
- - (21,152) -
Loans and borrowings
- - (1,057,064) -
Provisions
- - - (55)
Deferred revenue
-
-
(652,476) -
Deferred tax liabilities - - - (133,515)
- - (1,730,692) (133,570)
Current liabilities
Current portion of long term lease
liabilities
- - (5,058) -
Trade and other payables
- - (96,842)
Loans and borrowings
- - (50,949) -
Income tax liability
- -
(247)
Deferred revenue
- - (29,326) -
Provisions - - - (1,597)
- (182,175) (1,597)
Total liabilities
- (1,912,867) (135,167)
29 Financial risk review
Page 99
(247)
(247)
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
This note presents information about the Group’s exposure to financial risks and the Group’s management of capital.
Capital Management
The Northern Powergrid Group manages its capital centrally to ensure that entities in the Northern Powergrid Group will
be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and
equity balance. The Northern Powergrid Group’s overall strategy remains unchanged from 2022.
The capital structure of the Group consists of net debt (borrowings as detailed in Note 20) offset by equity of the Group
(comprising issued capital, reserves and retained earnings as detailed in Notes 18 and 19).
The Group has no externally imposed capital requirements.
The covenants associated with the 2035 bonds issued by Northern Electric Finance plc, a wholly-owned subsidiary of the
Company, include restrictions on the issuance of new indebtedness and the making of distributions dependent on the scale
of the ratio of Senior Total Net Debt to Regulatory Asset Value (“RAV”). The Senior Total Net Debt to RAV restriction is
65% and 75% respectively. The definition of Senior Total Net Debt excludes any subordinated debt and any debt incurred
on a non-recourse basis. In addition, it excludes interest payable, any fair value adjustments and unamortised issue costs.
The Company's Senior Total Net Debt as of 31 December 2023 totalled £1,072.7m. Using the RAV value as of March
2024, as outlined by Ofgem in its ED2 price control financial model published in January 2024, and adjusting for the
effects of movements in the value of the CPIH Index gives an approximation for the RAV value as at 31 March 2024 of
£1,980.7m. The Senior Total Net Debt to RAV ratio for the Company is therefore estimated at 54.2% (2022: 46.2%).
During the year all obligations under the various debt convents have been complied with.
Credit risk
The Group's definition of credit risk is Credit risk refers to the risk that a counterparty will default on its contractual
obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy
counterparties. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst approved counterparties. The carrying amount of financial
assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to
credit risk as no collateral or other credit enhancements are held.
The risk is mitigated by the group by The Group's income is primarily generated from use of system revenue from
electricity suppliers; suppliers are credit checked by independent ratings agencies. Impaired income from DUoS will be
recovered in future periods through system charges and is therefore of no material risk to the Group.
Group
2023 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16
351,972 (6,174) 345,798
2022
Trade and other receivables
16
69,763 (5,619) 64,144
Company
Page 100
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
2023 Notes
Gross carrying
amount
£ 000
Loss allowance
£ 000
Net carrying
amount
£ 000
Trade and other receivables
16 355,530 (6,174) 349,356
Equity investments at FVTPL
50 - 50
2022
Trade and other receivables
16 69,763 (5,619) 64,144
Equity investments at FVTPL
50 - 50
For trade receivables the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime
ECL. The Group determines the expected credit losses on these items by using a provision matrix, estimated based on
historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current
conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented
based on their past due status in terms of the provision matrix. Note 16 includes further details on the loss allowance for
these assets.
The carrying amount of the Group's financial assets at FVTPL as disclosed in Note 28 best represents their respective
maximum exposure to credit risk. The Group holds no collateral over any of these balances.
Liquidity risk
Ultimate responsibility of liquidity risk management rests with the board of directors, which has established an appropriate
liquidity risk management framework for the management of the Group's short, medium, and long-term funding and
liquidity management requirements. The Group manages liquidity by maintaining adequate reserves, banking facilities and
reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity
profiles of financial assets and liabilities
The Company has access to a £100 million revolving credit facility provided by Barclays Bank plc, Lloyds Bank plc,
HSBC UK Bank plc and Royal Bank of Canada. The Company entered into a new Facility Agreement in December 2021
for a period of three years, with two 1 year extension options. During the year the Company exercised the second
extension option which extended the termination date to December 2026. In addition, the Company has access to further
short-term borrowing facilities provided by YEG and to a £19 million overdraft facility provided by Lloyds Bank plc,
which is reviewed annually, these borrowings are repayable on demand.
At 31 December 2023, the Group had available £116.3m (2022: £85.8m) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
Page 101
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
Maturity analysis for financial liabilities and financial assets
The following table sets out the remaining contractual maturities of the group’s financial liabilities and financial assets by
type.
Group
2023
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
87,389 - - - 87,389
Variable Interest Rate Liabilities
2,717 - - - 2,717
Fixed Interest Rate Liabilities - 31,889 244,480 1,554,688 1,831,057
Total
90,106 31,889 244,480 1,554,688 1,921,163
2022
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
60,127 - - - 60,127
Variable Interest Rate Liabilities
35,058 - - - 35,058
Fixed Interest Rate Liabilities
- 31,889 247,557 1,583,500 1,862,946
Total
95,185 31,889 247,557 1,583,500 1,958,131
Company
2023
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
87,389 - - - 87,389
Variable interest rate liabilities
2,717 - - - 2,717
Fixed interest rate liabilities 5,125 31,964 244,780 1,566,513 1,848,382
Total
95,231 31,964 244,780 1,566,513 1,938,488
Page 102
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
2022
Non-derivative liabilities
Less than 3
month
£ 000
3 months - 1
year
£ 000
1-5 years
£ 000
More than 5
years
£ 000
Total
£ 000
Non-interest bearing
60,127 - - - 60,127
Variable interest rate liabilities
35,058 - - - 35,058
Fixed interest rate liabilities - 31,964 247,857 1,595,400 1,875,221
Total
95,185 31,964 247,857 1,595,400 1,970,406
Market risk
The Group's definition of market risk is Market risk is the risk of loss arising from movements in market variables such as
interest rates, exchange rates and commodity prices. Risks are mitigated by utilising appropriate risk management
products. The group manage this by The Group's policy on interest rate risk is designed to limit the Group's exposure to
floating interest rates. Consistent with this policy, at 31 December 2023 the Group had 99% (2022: 99%) of net debt at
fixed rates. Short-term loans and inter-company short term loans is charged at a floating rate of interest based on Sonia
plus a margin of 0.20% plus a credit adjustment spread, thus exposing the Group to cash flow interest rate risk. A 1%
movement in interest rates would subject the Group to an approximate change in interest costs of £0.1m per year. This is
considered an acceptable level of risk. All other loans are at fixed interest rates and expose the Group to fair value interest
rate risk. .
30 Related party transactions
Summary of transactions with joint ventures
Vehicle Lease and Service Limited is a joint venture of Northern Electric plc and provides vehicle fleet and servicing for
the Northern Powergrid Group. Income constitutes recharges for use of management personnel and purchases are lease and
servicing payments for fleet vehicles.
Summary of transactions with other related parties
Other subsidiaries of the Northern Powergrid Group. Included within these amounts are:
- Integrated Utility Services and Integrated Utility Services (Eire) that provide engineering contracting resource;
- Northern Powergrid (Yorkshire) plc that provides and receives mutual support through use of staff and resources which
are then recharged;
- Northern Powergrid Metering that is recharged for the use of staff;
- Northern Electric Finance Limited that provides loan financing;
- Northern Powergrid Holdings Company that provides loan financing; and
- Yorkshire Electricity Group plc that operates the group intercompany treasury account.
Page 103
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
30 Related party transactions (continued)
Income and receivables from related parties - Group and Company
2023
Sales to related
parties
£ 000
Purchases from
related party
£ 000
Amounts owed
from related
party
£ 000
Amounts owed
to related party
£ 000
Northern Powergrid (Yorkshire) Plc
31,153 14,415 - -
Northern Powergrid Metering Limited
37 - - -
Integrated Utility Services Limtied
(registered in Eire)
- 2,159 636 -
Integrated Utility Services Limited
274 6,953 - 847
Northern Electric Plc
12 5,010 - -
Vehicle Lease and Service Limited
37 5,132 - -
CE Gas Limited 4 - - -
31,517 33,669 636 847
2022
Sales to related
parties
£ 000
Purchases from
related party
£ 000
Northern Powergrid (Yorkshire) Plc
25,984 9,635
Northern Powergrid Metering Limited
29 -
Integrated Utility Services Limtied (registered in Eire)
4 1,832
Integrated Utility Services Limited
269 7,225
Northern Electric Plc
6 4,793
Vehicle and Lease Services Limited
28 5,175
CE Gas Limited 54 -
26,374 28,660
Loans (to)/from related parties - Group
2023
Other related
parties
£ 000
At start of period
(274,429)
Net movement (5,104)
At end of period
(279,533)
2022
Other related
parties
£ 000
At start of period
131,522
Net movement (405,951)
At end of period
(274,429)
Page 104
Northern Powergrid (Northeast) plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
30 Related party transactions (continued)
Loans (to)/from related parties - Company
2023
Subsidiary
£ 000
Other related
parties
£ 000
At start of period
300,230 133,107
Net movement
- (416,198)
Net Interest
17,030 -
Interest paid (16,952) -
At end of period
300,308 (283,091)
More information on the intercompany balances can be found in the accounting policies note under the intercompany
short-term loans section.
2022
Subsidiary
£ 000
Other related
parties
£ 000
At start of period
300,084 117,143
Net movement 146 15,964
At end of period
300,230 133,107
31 Parent and ultimate parent undertaking
The Company's immediate parent is Northern Electric plc.
The ultimate parent is Berkshire Hathaway, Inc. These financial statements are available upon request from 3555 Farnam
Street, Omaha, Nebraska 68131
The ultimate controlling party is Berkshire Hathaway, Inc.
Relationship between entity and parents
The parent of the largest group in which these financial statements are consolidated is Berkshire Hathaway, Inc,
incorporated in United States.
The address of Berkshire Hathaway, Inc is:
3555 Farnam Street, Omaha, Nebraska 68131
The parent of the smallest group in which these financial statements are consolidated is Northern Electric plc, incorporated
in United Kingdom.
The address of Northern Electric plc is:
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF
Page 105