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Registration number: 02366942 (England and Wales)
Northern Electric plc
Annual Report and Consolidated Financial Statements
for the Year Ended 31 December 2023
Northern Electric plc
Contents
Company Information 1
Strategic Report 2 to 28
Directors' Report 29 to 33
Independent Auditor's Report 34 to 44
Consolidated Income Statement 45
Consolidated Statement of Comprehensive Income 46
Consolidated Statement of Financial Position 47 to 48
Statement of Financial Position 49 to 50
Consolidated Statement of Changes in Equity 51
Statement of Changes in Equity 52
Consolidated Statement of Cash Flows 53 to 54
Statement of Cash Flows 55 to 56
Notes to the Financial Statements 57 to 135
Northern Electric plc
Company Information
Directors
A P Jones
S J Lockwood
J N Reynolds
Com pany Secretary
J C Riley
Registered office
Lloyds Court
78 Grey Street
Newcastle upon Tyne
Ty ne and Wear
NE1 6AF
Registration number
02366942 (England and Wales)
Auditor
Deloitte LLP
Statutory Auditor
London
United Kingdom
Page 1
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023
The directors present their annual report and audited financial statements for the year ended 31 December 2023 of
Northern Electric plc (the "Company"), which have been drawn up and are presented in accordance with the
Companies Act 2006 (the “CA06”).
Business mo del
The Company is part of the Northern Powergrid Holdings Company and its subsidiaries group of companies (the
“Northern Pow ergrid Group”) and acts as a holding company of Northern Pow ergrid (Northeast) plc (“NPg
Northeast”), Integrated Utility Services Limited (“IUS”) and Northern Pow ergrid Metering Limited (“NPg
Metering”), alongside other smaller companies, collectively, (the “Group”).
NPg Northeast is an authorised distributor under the Electricity Act 1989 and holds a Licence granted by the Secretary
of State. As a distribution network operator (“DNO”), NPg Northeast is regulated by the office of Gas and Electricity
Markets (“Ofgem”), which in turn, is governed by the Gas and Electricity Markets Authority (“GEMA”). The
completion of the 2022/23 Regulatory Year (on 31 March 2023), represented the final year 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”).
The principal activity of NPg Northeast is the distribution of electricity to approximately 1.6 million customers
connected to 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 NPg Northeast 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 NPg Northeast’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. NPg Northeast’s opening base
allow ed revenue (excluding the effects of incentive schemes, volume or legislative driven adjustment mechanisms and
any contract liabilities (deferred revenues) from the prior price control) has been set and therefore provides NPg
Northeast 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).
IUS provides engineering contracting services and NPg Metering rents meters to energy suppliers.
Strategy
In common with the Northern Pow ergrid Group, the Group 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 (w hich are applied by the Northern Pow ergrid
Group’s parent company, Berkshire Hathaway Energy Company ("Berkshire Hathaway Energy")), set out the basis on
which the Group generates shareholder value over the longer-term and defines the standards by which the Northern
Pow ergrid Group holds itself accountable. Each Core Principle is defined by a strategic objective which is linked to
the commitments made in NPg Northeast’s business plan for the ED2 period (the “Business Plan”).
Page 2
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Submitted to Ofgem in December 2021, the Business Plan described the long-term strategy and commitments that
NPg Northeast would achieve during the ED2 period in order to support decarbonisation whilst delivering sustainable
growth to those with whom NPg Northeast interacted and served. As NPg Northeast is the largest contributor to the
Group in terms of revenue, the Strategic Report predominantly concentrates on the performance and progress of that
entity throughout the reporting year.
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 we re 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 wo rkforce 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 NPg Northeast 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 Sustainability for mo re detail.
The delivery of the Business Plan is supported by an annual business plan (the “Annual Plan”) which is submitted to
the Northern Pow ergrid Group’s shareholder each financial year and is designed to phase progress towards the
achievement of each commitment over the duration of the ED2 period. The phasing 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.
Page 3
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
FINANCIAL STRENGTH
Strategic objective:
Strong finances that enable improvement and growth.
KPI 2023
As restated
2022
Operating Profit £ 215.2 million £ 197.7 million
Cash from operating activities £ 367.4 million £ 338.7 million
Cash used in investing activities £ 242.9 million £ 220.7 million
Credit Rating (Standard & 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.
Perform ance 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 £570.5 million was £12.3 million higher than the prior year due to increased
contracting revenues partially offset low er distribution use of system revenues including low er recovery of payments
under the supplier of last resort process.
Operating profit and position at the year-end:
The Group's operating profit of £215.2 million was £17.5 million
higher than the previous year, primarily reflecting increase in revenue (£12.3m) due to the increase in contracting
revenues from IUS (£14.0m) and revenues from new smart meters deployed (£3.3m), partly offset by a decrease in
distribution use of system revenues, lower pension costs (£8.9m) and costs for exceptional we ather events (£4.5m),
higher Supplier of Last Resort recovery net of SoLR payments (£3.8m), partially offset by higher depreciation (£3.6
million). The statement of financial position shows that, as at 31 December 2023, the Group had total equity of
£1,471.4 million (2022: £1,398.0 million). The increase in net asset (£73.4m) was mainly in relation to an increase in
the value of property, plant and equipment (£104.2m), a decrease in non-current liabilitie (£28.4m) mainly in relation
to changes in net borrow ings in the year, partially offset by an increase in current liabilities (£52.2m) mainly due to an
increase in trade and other payables.The directors consider the Group to have a strong financial position which, when
coupled with the preference of 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 £37.2 million were £10.5 million low er
than the prior year mainly reflecting an increase on interest earned.
Taxation
: The effective tax rate in the year was 25%. Tax charge for the year was £44.9 million which was £10.7
million higher than prior year of £34.2 million primarily due to higher profits and the impact of the tax rate change
had on the deferred tax balance. Details of the income tax expense are provided in Note 10 to the financial statements.
Share capital:
The Company has one class of ordinary shares which carries no right to fixed income. Details of
cumulative non-equity preference shares are contained in the borrow ings Note 20. There were no changes to the
Company's share capital during the year.
Cash flow:
The Group 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 Northern Pow ergrid Group. Movements in cash flows
we re as follows:
•
Operating activities:
Net cash flow from operating activities at £367.4 million was £28.7 million higher than the
previous year due to higher profit before depreciation and amortisation, higher receipt of customer contributions,
offset by higher tax paid.
•
Investing activities:
Cash flow used in investing activities at £242.9 million was £22.2 million higher than the
previous year reflecting higher purchases of plant, property and equipment, offset by higher interest received.
Page 4
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
•
Financing activities:
Cash outflow from financing activities at £378.4 million was £486.8 million higher than the
previous year of £108.4 million inflow, mainly due to new bond issued in the prior year, movement on treasury
account, and lower dividend received.
Pensions:
The Company is a participating employer in the Group of the Electricity Supply Pension Scheme (the "DB
Scheme"), a defined benefit scheme. Further details of the Group's commitments to the DB Scheme and the associated
deficit repair payments are provided in Note 25 to the financial statements. The Group also participates in the
Northern Powergrid Pension Scheme, which is a defined contribution scheme.
Insurance:
As part of its insurance and risk strategy, the Group has in place insurance policies, which cover risks
associated with employees, third party mo tor and public liability. The Group carries appropriate excesses on those
policies and is effectively self-insured up to the level of those excesses.
CUSTOMER SERVICE
Strategic objective:
Delivering exceptional customer service.
KPI 2023 2022
Broad Measure of Customer Satisfaction ("BMCS") 89.3% 88.3%
BMCS Rank (out of 14)
12 12
BMCS Pow er 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 6)
(combined with Northern Powergrid (Yorkshire) plc)
6 6
Business Plan commitm ent:
To provide a reliable, better communicated and faster customer service offering through
a range of channels to suit stakeholder needs.
Perform ance during the year:
In respect of BMCS performance, an independent market research company carried
out telephone surveys with NPg Northeast’s customers to find out how satisfied they we re with services related to
unplanned or planned power cuts, quotations and subsequent connections, and general enquiries. NPg Northeast
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 a number of initiatives from NPg Northeast’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, NPg Northeast will strive to
achieve its Business Plan commitments during the ED2 period by continuing to focus on the wa ys 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.
Page 5
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Connections to the network
Business Plan com mitment:
To reduce small wo rk end-to-end connections lead times by 20% while offering more
self-service options, greater support and mo re flexibility over delivery, including, support for smarter solutions and an
expanded range of flexible connections.
Perform ance 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,
NPg Northeast implemented a new quotation system which allowed customers to obtain a quote online and increased
operational delivery capacity. This wa s in addition to the quote on site option, single point of contact and AutoDesign
tool that we re implemented during the ED1 period.
In relation to NPg Northeast’s ICE commitments for the 2022/23 Regulatory Year, the 11 actions included in the
service improvement wo rk plan we re 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 we re 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 NPg Northeast’s grid supply points. This allow ed 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’ we binars having been hosted
alongside National Grid Electricity Transmission and National Grid ESO, to provide stakeholders with clear and
transparent updates on NPg Northeast’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 NPg Northeast 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.
Page 6
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Corporate responsibility
Business Plan com mitment:
To build effective relationships with stakeholders whilst maximising the value of
contact with customers, especially those who are vulnerable and hard to reach.
Perform ance during the year
: In April 2023, NPg Northeast (together with Northern Powergrid (Yorkshire) plc) put
forward its SECV submission to Ofgem in respect of wo rk 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, NPg Northeast 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 wa s undertaken and improvement plans we re 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, NPg Northeast 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 NPg Northeast and its affiliate were able to a support over 20,000
customers who we re facing fuel poverty. In addition, in conjunction with partners, wo rk began to pilot a new service
to provide advisory services, particularly for vulnerable customers, to decarbonise their homes. This wa s 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 NPg Northeast’s social responsibility and consumer vulnerability policy.
In terms of additional activity, NPg Northeast’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, NPg Northeast 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 ("CML") 44.0 <50.9 46.3 <52.8
Customer interruptions ("CI") 46.9 <58.6 49.8 <59.2
KPI 2023 2022
High voltage restoration time (minutes) 62.1 61.2
Network investment (million) £185.7 £156.1
Business Plan commitment:
To achieve 12% fewer unplanned pow er cuts and reduce the average length of
unplanned power cuts by 25%.
Page 7
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Perform ance 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. NPg Northeast’s performance during the year was better than Ofgem's target
for both CML and CI.
From a high voltage restoration perspective, NPg Northeast averaged 62.1 minutes (2022: 61.2 minutes), after
allow ing for severe we ather incidents and other exemptions.
In respect of the ED1 business plan commitments (to achieve 8% fewer unplanned pow er cuts and reduce the average
length of unplanned power cuts by 20% during the ED1 period), NPg Northeast (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 pow er cuts by 29.5% (relative to the prior regulatory period).
NPg Northeast invested £185.7 million during the year through its approved Network investment strategy (2022:
£156.1 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 pow er 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 mo nitoring 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, NPg Northeast 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.
CLIMATE CHANGE ADAPTATION
Strategic objective:
Operate a highly reliable and resilient Network
Business Plan commitment:
To adapt the Network and operations to build resilience against the effects of climate
change.
Page 8
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Perform ance during the year:
The climate is changing and, despite international efforts to reduce greenhouse gas
emissions, it is expected to continue to change over the course of the century. The Northern Powergrid Group has
taken steps to understand the risks and opportunities presented by climate change and has established initiatives in
response such as for NPg Northeast, an industry leading flood mitigation programme and a robust vegetation
management programme.
In respect of performance against the KPIs established for the ED1 period, during the year, NPg Northeast and its
affiliate upgraded an additional high-risk site and installed three further substation defences. This resulted in all
planned sites being fully protected with a combined investment on flood mitigation works of £0.52 million.
From a vegetation management perspective, £1.8 million was invested by NPg Northeast and Northern Pow ergrid
(Yorkshire) plc to clear spans and make the high-voltage Network more resilient. For the latter, the wo rk entailed
creating corridors between vegetation and the Network to accommodate the falling distance of trees. The target was
reduced betw een 2022 and 2023 to provide greater capacity to focus on clearing vegetation from spans at all voltages,
given any vegetation that is near the Network can have an impact during periods of high wind. How ever, in terms of
volume of activity across both KPIs, performance was below target and accordingly, a recovery programme was
implemented to ensure the backlog of wo rk wa s expedited.
Collaboration with LRFs was positive with NPg Northeast and its affiliate attending meetings with 60 quarterly
tactical business groups for each of the seven LRFs in the operating areas.
Governance Arrangements
In respect of the management of climate-related risks and opportunities, the Northern Powergrid Group has
we ll-defined and mature governance arrangements in place, which are defined by its risk management policy and
processes and are overseen by the Risk Advisory Board (“RAB”) with the support of the Internal Audit function (see
‘Risk Management’ and ‘Internal Control’ for further details). Each subsidiary is responsible for the assessment and
management of its own risks and opportunities, with risks then being reported via the processes set out below
including being tracked and mo nitored at a Northern Pow ergrid Group level via the RAB.
As is the case for all types of risk across the Northern Pow ergrid Group, climate related risks and opportunities are
identified, assessed and managed at a variety of levels with escalation points incorporated at various stages of the
process.
Risks that are identified via NPg Northeast’s operational wo rking groups are put forward to the Asset Serviceability
Review steering group where appropriate actions and controls are mo nitored by senior management. Risks can then be
further escalated to the Asset Risk Management Executive Review Group for further oversight by a subset of the
Executive Leadership team.
When identified at a subsidiary or directorate level, risks are reviewed and mo nitored by the relevant Senior
Management team and are escalated through the quarterly risk identification process run by the Internal Audit team. In
all scenarios, where risks are identified as being above the Northern Powergrid Group’s risk appetite, they are reported
to the RAB.
The Northern Pow ergrid Group’s risk management process (including for climate related risks) takes place on a
quarterly basis and includes the Chair of the RAB reporting risks and opportunities to the board. In addition, an annual
risk submission is made to the Northern Powergrid Group’s shareholder, noting that Berkshire Hathaway Energy is
routinely made aw are of risks via regular dialogue with members of the Executive Leadership team and the board.
Given the significance upon the Northern Powergrid Group and its stakeholders, the board considers climate related
risks and opportunities via routine reporting (including scrutinising performance against KPIs) and in-focus updates
on at least a quarterly basis. Whilst always being guided by the Core Principles, the board is also cognisant of the
impact of risks and opportunities on the Northern Pow ergrid Group’s strategy and business model and, has regard to
this when making decisions such as reviewing and approving business plans and mo nitoring performance.
Page 9
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Risk Management
In terms of identification, climate related risks and opportunities are typically detected via a number of channels,
including at the operational, subsidiary and directorate level (as outlined above), as a result of detailed risk
assessments based on climate projections, by investigations into exceptional events, from reviewing the macro
environment for trends, or via shared learning from other Berkshire Hathaway Energy subsidiary companies or
collaborative wo rk with other DNOs. In relation to the latter, the DNOs typically wo rk with the ENA to establish a
sector wide perspective and have used this approach to implement various regulatory requirements such as those under
the Climate Change Act 2008 and the National Adaptation Plan.
Regardless of the source, all risks are integrated into the Northern Powergrid Group’s overall risk management
process, are recorded within a central risk register and are categorised by likelihood and impact. Supplementary to
this, all climate related risks are also recorded and tracked through the Northern Pow ergrid Group’s climate risk
register.
Once identified, all risks (including climate related) are allocated to an owner and are assessed to determine if they are
to be tolerated, influenced or mitigated. If the risk is to be mitigated, appropriate actions are developed to reduce or
eliminate the impact of the risk over an appropriate timescale. As outlined above, all risks that are above the Northern
Pow ergrid Group’s risk appetite are mo nitored by the RAB and are allocated to a member of the Executive Leadership
team to mitigate or manage. Climate related opportunities are typically reviewed by the Science and Technology
Advisory Panel in conjunction with the Executive Leadership team ahead of scoping options to maximise the benefits
and progressing to implementation as relevant.
Strategy
Following the publication by the Department for Environment, Food & Rural Affairs (“Defra”) of the supplementary
Green Book Guidance on ‘Accounting for the Effects of Climate Change’ in November 2020, a thorough assessment
of the impact of climate change and severe we ather upon NPg Northeast was undertaken in collaboration with other
gas and electricity network operators through the ENA. The results of the review and associated adaption, recovery
and transform plans we re published in the NPg Northeast and its affiliates ‘Adapting to Climate’ strategy in November
2021.
In line with Defra’s recommended approach, the assessment wa s performed at the operational and asset base level and
followed the specific guidance for projects, policies and programmes that have a lifespan that goes beyond 2035. This
included using two climate scenarios (as utilised by the Climate Change Commission) to:
- Consider options which include all adaptation measures which wo uld mitigate the known impacts of the 2°C
scenario; and
- Make decisions based on the Northern Pow ergrid Group’s risk appetite about whether to consider adaptation
measures aligned with the 4°C global wa rming scenario.
Using outputs from the wo rk that the ENA had commissioned from the Met Office, NPg Northeast wa s able to
identify potential climate related hazards including high temperatures, heavy rain, droughts, storms, sea level changes,
snow, ice, wildfires and lighting - or a combination of these. The hazards we re then reviewed against other variables
such as regional climate change considerations (known events and topography), asset configuration and
interdependencies on other national infrastructure to identify a range of impact scenarios.
The risk assessment was carried out across three timescale horizons, short term: current climate, medium term: 2050’s
and long term: 2080’s, for both the 2°C and 4°C scenario and wa s applied to each of NPg Northeast and Northern
Pow ergrid (Yorkshire) plc’s six operating zones. The three time periods are aligned with the UK Climate Projections
2018 and the most recent guidance from Defra (ARP4) This allowed the Northern Pow ergrid Group to understand
how each impact scenario affected the whole of NPg Northeast and its affiliates geographic operating locations,
including those where known vulnerabilities already exist such as in coastal areas, flood plains and exposed areas, and
over what period, so as to establish and prioritise the key areas of risk and identify relevant opportunities.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Clim ate Change Adaptation
From an overall business model and strategy resilience perspective, the risk assessments (and corroborated via the
findings from other DNOs through the wo rk of the ENA) identified that there wa s no significant divergence in the
climate projections, the impact scenarios or key risks themselves, were observed betw een the three timescales until
beyond 2050.
Whilst this provides some comfort during the short term, adapting to climate change requires an understanding of how
to better resist the challenges placed upon NPg Northeast and the Northern Powergrid Group, how to absorb the
impact to minimise it as when events do occur and how to utilise the opportunities this creates.
Accordingly, where the risk assessments identified that risks we re more likely to occur (at any point over the three
timescales) and/or that the impact was potentially greater, these we re categorised as the highest priority risk areas and
programmes covering bespoke adaptation, recovery actions and longer-term transformations we re developed
accordingly. It wa s identified that the highest priority risk areas included:
- Flooding presented by changes in precipitation rates and sea level rise; and
- Changes in growth rates and patterns of trees due to changes in temperature and precipitation.
As referenced in ‘further information’ below, the impact of climate related issues upon the Northern Powergrid Group,
particularly NPg Northeast are incorporated into the five-year regulatory Business Plan. This includes an assessment
of the impact of investing in mitigation programmes and undertaking innovation projects with climate change acting
as a key driver, particularly in network investment decisions. These plans are fully incorporated into the Northern
Pow ergrid Group’s financial planning process (including with consideration of the impact on areas such as the
Northern Powergrid Group’s supply chain) and the impact of climate related issues will continue to be included in
regulatory business plans for the relevant time periods in question. Climate related risk assessment scenarios that feed
into financial and strategic planning are included in the NPg Northeast and Northern Pow ergrid (Yorkshire) plc’s
Adapting to Climate Change report and its supporting annex (available via the Northern Pow ergrid Group’s we bsite).
Principal climate-related opportunities and risks arising in connection with the Group’s operations
1. Physical risk (long term - acute/chronic)
: Precipitation (extreme prolonged rainfall) - long periods of above
average precipitation or intense rainfall events resulting in flooding and erosion.
Assessment assumptions: data was used concerning the accumulation of rainfall over a mo nth and where it exceeds the
90th and 95th percentile of today’s climate, the Soil Moisture Deficit and for heavy daily rainfall events, the
percentage changes in the 99th percentile of seasonal daily mean precipitation.
Findings: There was a large regional variation in how the frequency of climate related hazards were expected to
change in future periods. However, in autumn and winter months, instances of prolonged rainfall, heavy daily rainfall
events and heavy hourly precipitation we re projected to increase across most of the UK. Assets located in coastal areas
we re more vulnerable to changes in sea level, notably in the Humber Estuary and Seal Sands.
Impact: Access issues, asset damage and reduced performance, predominantly as a result of Grid and Primary
Substations being adversely affected.
Serious flooding in particular wa s likely to result in the mo st severe consequences, including the loss of electricity
supply to thousands of people, as well as to other types of infrastructure. This in turn had the potential to lead to
additional costs as a result of replacing or repairing damaged equipment, as we ll as increasing the number of customer
interruptions, thereby having a negative effect on service and performance levels.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
As set out in ‘Operational Excellence’, Network reliability is recorded via Ofgem’s Interruptions Incentive Scheme
(“IIS”) through targets in relation to CML and CI. If IIS targets are exceeded, there is a reward. Conversely, in the
event targets are missed, there is a penalty. In addition, if Guaranteed Standards or service levels that are agreed by
Ofgem are failed, payments must be made to those customers affected. Therefore, unless there is an exemption applied
for an extreme we ather event, NPg Northeast is susceptible to an increase in costs if service and performance levels
reduce.
Mitigation: Flood defences programme - designed to comply with national guidance on how to improve the resilience
of electricity substations to flooding.
Mitigation activity:
- Improve and maintain flood resilience through targeted adaptations in civil defences and install additional substation
defences.
- Improve flood resilience at distribution substations, either by mo ving them out of the line of flooding risk or by
implementing mitigation measures.
2. Physical risk (long term - acute/chronic): Temperature
(extreme heat) - high temperatures that may reduce the
performance and efficiency of assets.
Assessment assumptions: Thresholds to understand the frequency of days which constitute ‘extreme temperatures’
across the UK and how these may change under future climate projections we re used. This included the frequency
with which the daily maximum temperature exceeded 28°C, 30°C and 35°C and the frequency with which the daily
maximum temperature exceeded 28°C for 3 consecutive days.
Findings: Trends in observational records confirmed that the UK climate is wa rming with high temperature thresholds
being exceeded each year and expected to increase in line with Representative Concentration Pathw ay 8.5 (being the
wo rst-case climate change scenario). Met Office climate projections identified that the frequency of hot summer
periods is becoming increasingly common.
The rate of change for extreme heat wa s expected to be slower for cooler regions of the UK such as the North of
England. However, by the 2060s the frequency with which extreme heat occurred in the North of England wo uld be
the equivalent to that of the warmest areas of the UK at the time of the assessment.
Impact: A reduction in the performance and efficiency of assets. This in turn has the potential to increase fault
volumes, leading to additional costs being incurred as a result of repairs and maintenance, reduce service levels and
customer satisfaction, and could cause delays to other wo rk planned for delivery.
Whilst the likelihood of global temperature rise is accepted, the impacts on DNOs has not yet begun to be realised.
Because of this, networks do not currently see any drivers to invest ahead of the need to offset risks.
Mitigation activity:
- Network and asset performance will continue to be mo nitored and will be mo dified once climate change begins to
have a direct and longer-term impact.
- Standards and specifications will be updated to include projected changes in temperatures and ground mo vements.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
3. Physical risk (long term - acute/chronic): Precipitation
(storms) - Strong winds are a significant hazard,
especially when experienced in conjunction with heavy rain.
Assumptions: As for Precipitation (extreme prolonged rainfall)
Findings: There was no clear evidence within climate projections that there wo uld be a change in the frequency or
pow er of storms. Accordingly, the risk of strong winds was assessed in line with the climate conditions at that time. It
wa s also recognised that research into the effects of wind had been carried out between 2011 and 2015 under the
Resilient Electricity Networks for Great Britain project and learnings had been incorporated into the NPg Northeast’s
specifications.
Impact: A number of storms have affected the Network since the initial risk assessment, notably storm Arwen. It is
therefore recognised that storms can lead to operational failure of above ground assets, resulting in increased faults
and loss of supply to customers, which in turn affects customer service. The potential for damage to
telecommunications infrastructure, leading to the inability to communicate with staff in the field or control
technology, can also impact repair efforts further.
Mitigation: Resilience programme - Maintain operational resilience and embed long-term resilience across the asset
programmes, wo rking with others to better understand future risks.
Mitigation activity:
- Utilise drones for storm damage assessments.
- Undertake collaborative exercises to test operational response.
- Major Incident procedures in place.
- Embed resilience across asset programme designs and specifications to deliver long-term synergistic resilience.
- Vegetation management programme (see below).
4. Physical risk (long term - chronic): Temperature / Precipitation
(gradual increase in temperature and rainfall) -
wa rmer and we tter conditions may extend vegetation grow ing seasons, resulting in increased or accelerated grow th of
vegetation.
Assumptions: The length of the growing season was calculated using mean daily temperatures beginning at the start of
a period of five successive days where the daily-average temperature was greater than 5°C and ending on the day
before a period of five successive days when the daily-average temperature was less than 5°C.
Findings: The average grow ing season length had increased by approximately 30 days per year over the course of the
last 60 years and was reported as being largely due to an earlier onset of spring. As a result, the combined effect of
temperature and precipitation was likely to lead to increased vegetation growth.
Impact: Interference to overhead lines could cause a variety of pow er supply issues ranging from transient
interruptions, due to vegetation touching the line, through to severe damage from trees, or parts of trees, falling onto
the lines. This may result in increased levels of investment being required in order to maintain Network resilience,
additional costs associated with maintenance and cutting cycles and performance and customer service related issues.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Under abnormal we ather conditions there is also the potential for large scale power outages with some supply
restorations taking many days.
Mitigation: Vegetation management programme - improving the resilience of the overhead Network under abnormal
we ather conditions using a risk-based methodology.
Mitigation activity:
- Undertake enhanced resilience cuts in line industry standards on the overhead network to comply with enhanced
resilience requirements.
- Establish and maintain clearance corridors.
- Assess and tackle the issues anticipated from ash tree dieback through the management of affected spans.
- Undertake a vegetation clearance programme for substations and tower bases.
- Utilise Light Detection and Ratings (“LiDAR”) technology to ensure efficient targeting for vegetation management.
5. Transition risk: Transm ission Related Connections Delays - see Principal Risks and Uncertainties
6. Opportunity: Innovation
- participating in and leading innovation projects as a way of developing creative
solutions to mitigate the risks of climate change and enhance responsiveness in the event an incident does occur.
A number of projects are planned for the ED2 period including:
- Optimising the use of LiDAR data in order to carry out more effective and efficient clearance and vegetation
management by prioritising cutting responses;
- Reviewing the link between rainfall and underground cable faults to understand and quantify the risk;
- Research into substation design specifications and innovative materials to mitigate risks associated with
high-temperatures and assets;
- Investigations to understand the performance limitations of outdoor control equipment during periods of extreme
heat; and
- Estimate the extent of Ash tree dieback and its impacts on the Network.
Further detail of innovation supporting decarbonisation can be found in the ‘Environmental Sustainability’ section of
the Strategic Report.
7. Opportunity: Decarbonisation
- adapting and evolving the Network to facilitate the UK’s net zero strategy.
There are many benefits associated with decarbonisation, not just for the Northern Powergrid Group, but for the areas
the Northern Powergrid Group serves and the people who live and work there. This includes developing the Network
to accommodate additional connections to enable mo re electric vehicle chargers to be installed, to allow greener
heating solutions, to provide a mechanism for local electricity production and to facilitate the growth of renewable
energy sources by offering greater flexibility.
Further detail of the initiatives underway to facilitate decarbonisation can be found in the ‘Environmental
Sustainability’ section of the Strategic Report.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
8. Opportunity: Collaboration
- working with stakeholders including industry partners and energy networks to find
solutions to mitigate the risk of climate change and improve resilience through collaborative work on
interdependencies to reduce the risk of cascade failures across systems.
The Northern Pow ergrid Group wo rks closely with its stakeholders and partners to share best practice, evolve new
protocols, develop industry guidance and adopt measures to prevent or manage the impact of climate change. This
includes wo rking with Local Authorities and regional bodies to evolve their climate resilience and decarbonisation
plans and collaborating on specific issues to generate practical solutions - such as with the ENA as outline above.
Initiatives planned in this area include collaboration with:
- Other regional infrastructure operators to identify and mitigate interdependencies.
- The Environment Agency and local authorities on the implementation of their regional flood risk management plans
and establish support for these where appropriate.
Further information
Given the likely impact of climate related opportunities and risks on NPg Northeast and its Network, the Northern
Pow ergrid Group’s various mitigation programmes (including KPIs and the methodology for determining these) we re
fully scoped and costed as part of the Business Plan submission to Ofgem for the ED2 Period, details of which can be
found via the Northern Pow ergrid Group’s website.
In addition to the information contained above, the Northern Pow ergrid Group has published a ‘Climate Resilience
Strategy’ and an ‘Adapting to Climate Change Report’, the latter having been submitted to Defra in line with the
requirements of the Climate Change Act (2008). The Northern Powergrid Group’s mo st recent report wa s published as
part of the third round in 2021 and included full details of the risk assessment in a supporting annex. A further update
(w hich will coincide with a review of the Northern Pow ergrid Group’s climate risks and opportunities) is due to be
published in 2024. Copies of both reports can be found on the Northern Pow ergrid Group’s website.
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Northern Electric 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 wo rkplace
2023 2022
KPI Actual Target Actual Target
Northern Powergrid Group occupational safety
and health administration ("OSHA") rate 0.43 0.09 0.26 0.09
Preventable vehicle accidents (PVAs) 8 14 10 14
Lost time accidents 1 0 0 0
Medical treatment accidents 2 1 0 1
Operational incidents 3 4 5 3
Absence rate 3.35% 3.3%
Health and safety
Business Plan commitment
: To maintain industry leading safety performance and reduce the accident rate by 50%.
Perform ance during the year
: In common with the Berkshire Hathaway Energy group, the Northern Pow ergrid
Group measures its safety performance using the OSHA rate, which is a measure used to capture safety incidents
dow n 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 eight 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 wa s implemented. NPg Northeast 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 NPg Northeast’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
we ll-being and public safety. This included the continuation of driver training, the introduction of local safety
improvement groups, the mo bilisation 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 wo rk-related problems and access to services including counselling and physiotherapy referrals.
During the year, NPg Northeast successfully completed two external surveillance visits on its ISO 45001 accreditation
for its occupational health and safety management system.
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.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Perform ance during the year
: Agile wo rking has successfully allowed eligible colleagues to adopt flexible wa ys of
wo rking with a renewed focus this year on collaboration and team wo rk. It continues to evolve and is key to
supporting the retention and attraction of colleagues. Health, safety and we llbeing has remained a key commitment as
the initiatives are further developed to cultivate a healthy wo rkplace.
In relation to development, training sessions on topics which formed part of the Diversity, Equity and Inclusion plan
we re 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, NPg Northeast’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 NPg Northeast’s and Northern Powergrid (Yorkshire) plc’s
wo rkforce renewal programme. At 31 December 2023, NPg Northeast 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 Pow ergrid 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 Pow ergrid Group’s
corporate we bsite.
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 wa y 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 wa s 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 Pow ergrid
Group's intranet.
The Berkshire Hathaway Energy code of business conduct ("Code of Conduct")
The Northern Pow ergrid Group has adopted the Code of Conduct, which details the commitment to ethics and
compliance with the law, provides reporting mechanisms for known or suspected ethical or legal violations, and
establishes minimum standards of behaviour expected of all employees. In support of this, a "speaking up" process is
in place enabling all employees to raise concerns of unethical acts, malpractice or impropriety (including bribery or
corruption), and an anonymous help line operated by an independent company is also available. All colleagues
complete an annual online training programme covering the requirements of the Code of Conduct.
Employment of disabled persons
The Group’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 Group will make reasonable adjustments, wherever
possible.
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Northern Electric 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 <11,406 10,164 <11,406
SF6 gas discharges (kg) 7.45 <12.75 22.08 <12.75
Environmental incidents 0 <2 3 <2
KPI 2023 2022
Carbon footprint (tonnes) 15,222 14,375
KWh Energy Consumed 20,160,750 20,867,214
Business carbon footprint Tonnes Per km² Tonnes Per km²
Scope 1 2,252 0.15 2,728 0.19
Scope 2 2,481 0.17 2,439 0.17
Scope 3 10,490 0.72 9,208 0.64
Total carbon footprint (tonnes) 15,222 1.06 14,375 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 based on science-based targets which are aligned with
international standards, those required by Defra and BEIS and is compliant with ISO 14064-1:2006 which is consistent with the GHG Protocol
Corporate Standard Scope 3 reporting includes contractor operational transport fleet - diesel, operational transport fleet - petrol and fuel
consumption from plant, aviation and mobile generation only.
Business Plan commitment:
To reduce our business carbon footprint by 20% and reduce oil loss by 15% during the
ED2 Period.
Perform ance during the year:
The volume of SF6 gas loss during the year combined with an increase in contractor
wo rks and associated emissions, resulted in NPg Northeast’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
NPg Northeast’s and its affiliates’ carbon footprint having reduced by 36%, well ahead of the original 10% reduction
commitment. In terms of scope 3 emissions, NPg Northeast has committed to collect data for all applicable scope 3
emissions categories in order to enhance a mo re robust, multiyear baseline. This will inform the actions taken to
implement meaningful and actionable steps to further reduce emissions resulting from NPg Northeast’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).
The remuneration of a number of the Group’s employees, including certain members of the Executive Leadership
team and Executive directors are directly linked to performance against KPIs including those concerning climate
change adaptation. The Group has not set any internal carbon prices or any climate-related opportunity metrics.
To maintain the policy of environmental protection and legal compliance, NPg Northeast continues to assess
environmental risks and mitigate threats through programmes of wo rk 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 NPg Northeast’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 Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
NPg Northeast takes its environmental responsibilities seriously and has a proven track record of low ering 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 NPg Northeast’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. NPg Northeast’s supply chain also contributes to the overall carbon footprint
as contractors are used to undertake wo rk 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 NPg Northeast’s fleet of vehicles by 2028 and the adoption of science-based targets. The
fleet vehicle target wa s aligned to stakeholder ambition levels and wa s therefore designed to balance costs, technology
readiness and charging infrastructure availability.
In respect of NPg Northeast’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 wa ste from all of NPg Northeast’s operations by 2028.
NPg Northeast’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 NPg Northeast planning to recycle and reuse 85% of total materials by 2028.
This target incorporates the increased volume of wa ste that will be produced as a result of delivering NPg Northeast’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 NPg
Northeast’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 wa ste
arising from excavations to combat these issues.
From a supply chain perspective, NPg Northeast will continue to wo rk 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, NPg Northeast 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 NPg Northeast and its affiliates' major sites.
At this time, NPg Northeast 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 NPg Northeast’s
emissions. How ever, at an initiative level, where ad-hoc opportunities exist, NPg Northeast may pursue these
accordingly.
From an environmental compliance perspective, NPg Northeast 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 NPg Northeast’s KPIs. A full recertification
assessment wa s 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
wa ste management (including the transition to an updated version of the CMS standard).
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
NPg Northeast’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.
To date, NPg Northeast’s performance against a number of stretching KPIs to reduce carbon usage and minimise the
effects of NPg Northeast 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, NPg Northeast will continue to evolve its ambitions and enhance the
implementation of environmental plans throughout the ED2 Period. The phased targets associated with wa ste 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 Pow ergrid 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.
Environm ental Sustainability
Strategic focus:
Enable significant grow th in customers connecting low carbon technologies, support all pathways to
net zero emissions and significantly reduce NPg Northeast’s carbon footprint.
Perform ance during the year:
As the country takes action to reduce carbon emissions in line with the net zero target
by 2050, the wa y in which electricity is produced and used is expected to have a substantial impact on the Network
over time. Accordingly, in the year, NPg Northeast 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, NPg Northeast continued to develop and action innovative
solutions that will reduce the need for traditional and potentially expensive reinforcement.
In the past year, NPg Northeast 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 NPg Northeast 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, NPg Northeast published its updated Distribution Future Energy
Scenarios (available via the Northern Pow ergrid Group’s corporate we bsite).
From an innovation perspective, NPg Northeast runs a portfolio of projects in the priority areas of customer
vulnerability, resilience, and decarbonisation. In 2023 NPg Northeast initiated the Community DSO project, funded
through £12.5 million of Network Innovation Competition funding aw arded 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 mo re central to NPg Northeast’s strategy, and the way in which NPg Northeast
contributes mo re broadly to the evolution of the energy industry and the stakeholders with whom it interacts. NPg
Northeast has been progressive in its ambition to reduce its ow n business carbon footprint. How ever, there is greater
opportunity to contribute to decarbonisation through NPg Northeast’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.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
As part of NPg Northeast’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. NPg Northeast 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. NPg Northeast’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, NPg Northeast 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 NPg Northeast’s major investment decisions.
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Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
REGULATORY INTEGRITY
Strategic objective:
Trustw orthy, fair and balanced.
KPI:
Completion of a quarterly regulatory compliance affirmation process.
Business Plan com mi tment:
To manage the Group's business to the highest behavioural standards and adhere to a
policy of strict compliance with all relevant standards, legislation and regulatory conditions.
Perform ance during the year:
In order to assure compliance with distribution licence and other regulatory
obligations, NPg Northeast 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 NPg Northeast breaching its licence conditions and other statutory requirements (w hich 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.
NPg Northeast 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 wo rk actually carried out in the Regulatory Year ended 31 March 2023 and the
findings of that wo rk.
In March 2023, NPg Northeast and its affiliate were granted permission from the Competition and Markets Authority
(the "CMA") to appeal against the licence mo difications that gave effect to 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 rew ards for the Business Plan Incentive.
The CMA upheld NPg Northeast’s appeal on the first ground and sent that part of Ofgem’s decision back to Ofgem
for reconsideration and redetermination. The CMA dismissed NPg Northeast’s second ground of appeal.
Ofgem reconsidered its analysis of the allocation of allow ances and, on 2 November 2023, issued the statutory
consultation proposing the changes to be made to the special conditions of NPg Northeast’s electricity distribution
licence in order to, in Ofgem’s view, give effect to the CMA’s decision.
NPg Northeast submitted its response to the statutory consultation on 29 November 2023 and, having considered that
response, Ofgem issued the statutory notice formally mo difying the special conditions of NPg Northeast’s electricity
distribution licence on 13 February 2024. NPg Northeast confirmed to the CMA that it wo uld not appeal Ofgem’s
redetermination. Further information concerning the outcome of the appeal process can be found via the CMA
we bsite.
Page 22
Northern Electric 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 Pow ergrid 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 Pow ergrid 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 Group’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 we re 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.
Mitigations:
•
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 mo del.
Mitigations:
• 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.
• NPg Northeast engages in a robust regulatory and stakeholder engagement programme the latter of which is
scrutinised by the CEG.
• NPg Northeast is actively involved in consultations on price controls.
Page 23
Northern Electric 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.
Mitigations:
•
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.
Mitigations:
•
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.
Environm ent and climate protection
Failure to prevent network assets from having a significant negative impact on the environment.
Mitigations:
• Programme to reduce fluid loss and NPg Northeast’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, wa ste management and habitat protection programmes.
• Additional climate related risks are disclosed in the non-financial and sustainability information statement.
•
ISO14001 environmental management system in place.
Resource availability
Access to and availability of skilled resource resulting in an inability to deliver wo rk programmes.
Mitigations:
•
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.
Page 24
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Transm ission Related Connections Delays
Significantly delayed connection delivery timescales due to transmission constraints.
Mitigations:
•
Overseen by a steering group.
•
Connection lead times are routinely mo nitored.
•
Change programme in place to improve customer connection lead times and customer communication.
•
Part of an industry wo rk programme through the Energy Networks Association.
Regulatory Price Control Outcome
A regulatory settlement that is insufficient to provide fair and balanced outcomes.
Mitigations:
•
Optimising price control reopener mechanisms.
•
Competition and Markets Authority Appeal process.
•
Continued dialogue and engagement with Ofgem.
•
Robust budgetary and financial position.
Efficiency and output performance
Failure to maintain cost and output performance competitiveness in the industry.
Mitigations:
•
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.
Mitigations:
•
Monitored by the Treasury department.
• The Group is financed by long-term borrow ings at fixed rates has access to short-term borrow ing facilities at
floating rates of interest.
• As at 31 December 2023, 98% of the Group's long-term borrow ings we re at fixed rates and the average maturity
for the long-term borrowings wa s 23 years.
•
Financial covenant mo nitoring 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 Group 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 mo nitoring of major capital expenditure.
The RAB mo nitors 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 Group’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.
Page 25
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
In accordance with Berkshire Hathaway Energy’s requirements to comply with the Sarbanes-Oxley Act, the Group
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 Pow ergrid 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 we lfare, dealings with customers (particularly those who are vulnerable), the impact of
the Northern Pow ergrid 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
Pow ergrid 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.
Section 172(1) statement
Decision-m aking 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, NPg Northeast’s business mo del 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 and Group 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 Group in the pursuit of its goals and
the long-term sustainability of the Group is at the forefront of decision-making.
The Group’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 Pow ergrid 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 Group wo rks 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 Northern Powergrid Group’s Diversity, Equity
and Inclusion plan, reviewing the Northern Powergrid Group’s gender pay gap report and approving the delegations of
authority.
Custom ers
Customers, whether they are dom estic 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 major storms and associated
network resilience and engaged with the Chairs of the CEG and the DRP. Further detail of the Company’s relationship
with customers and the support programmes provided is discussed in ‘Customer Service’.
Page 26
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Producers and suppliers
The Group 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 Group to make informed decisions which align with its values when
aw arding contracts. When considering suppliers, the board advocates prom pt payment practices, which are reviewed
regularly by the internal audit function, and the implementation of procedures to reduce the risk of mo dern slavery in
supply chains - as set out in the Northern Powergrid Group’s annual mo dern 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.
Com munity and environment
Each Director is required to take all reasonable steps to minimise any detrimental impact the Group’s operations may
have on the environment (see ‘Environmental Respect’). NPg Northeast 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
NPg Northeast 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, NPg Northeast
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 NPg Northeast’s long-term strategy, the relationship with Ofgem, the evolving ED2 framework, the transition to
DSO we re 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 Pow ergrid Limited, a company owned
by Northern Pow ergrid UK Holdings. The Company also has one class of preference shares, further details of which
can be found in Note 20. 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 CA06, the directors have set out the information required by Section
414CB (1) to (6) in Strategic Report.
Page 27
Northern Electric plc
Strategic Report for the Year Ended 31 December 2023 (continued)
Statem ent pursuant to Listing Rule 14.3.27R Task Force on Climate-related Financial Disclosures (“TCFD”)
The non-financial reporting information pursuant to Section 414CA of the Companies Act 2006 has been reported
throughout the Strategic Report and principal risks and uncertainties. The climate-related financial disclosures
pursuant to Section 414CB (2A) can be found in the ‘Adapting to Climate Change’ and ‘Environmental Respect’
sections of the Strategic Report.
The Company has complied with all of the requirements of LR 14.3.27R by including climate related financial
disclosures consistent with the TCFD recommendations and recommended disclosures, with the exception of the
scope 3 greenhouse emissions disclosures relating Metrics and Targets (b). The Company has reported scope 3
emissions in relation to certain categories (being those required by Ofgem’s reporting framework). How ever, it is
accepted that further work is required to develop the disclosures.
The steps the Company plans to take in order to be able to make the relevant disclosures in the future, and the
timeframe within which it expects to be able to make those disclosures, is set out in Ofgem’s ‘Environmental
Reporting Guidance’, sections 3.8 to 3.13, a copy of which can be found via Ofgem’s we bsite. This includes a
recommendation for the energy industry to work collaboratively to develop an appropriate methodology for reporting
scope 3 emissions during the remainder of the ED2 period.
Approved by the Board on 30 April 2024 and signed on its behalf by:
A P Jones
Director
Page 28
Northern Electric plc
Directors' Report for the Year Ended 31 December 2023
The directors present their annual report and the audited consolidated financial statements for the year ended 31
December 2023.
Dividends
During the year, an interim dividend of £48.0 million was paid (2022: £114.9 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 from NPg Northeast to the Company.
The Group'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 and Group to
carry on its business for at least the next year. In addition, the level of dividends is set to maintain sufficient equity so
as not to jeopardise the Company’s and NPg Northeast’s investment grade issuer credit ratings.
Directors of the Company
The directors who held office during the year under review and to the date of signing this report we re:
A P Jones
S J Lockwood
J N Reynolds
During the year, none of the directors had an interest in any contract which wa s material to the business of the
Company or Group. During the year and up to the date of approval of the Directors' Report, an indemnity contained in
the Company's (and each company within the Northern Powergrid Group’s) Articles of Association was in force for
the benefit of the directors of the Company and as directors of associated companies, which wa s a qualifying
indemnity provision for the purposes of the Companies Act 2006.
Future developments and future outlook
The financial position of the Group, as at 31 December 2023, is shown in the consolidated statement of financial
position. There have been no significant events since the year end and the directors intend that:
• NPg Northeast will continue to implement the Business Plan during the remainder the ED2 period, and by
delivering the strategic objectives linked to the Core Principles, NPg Northeast will continue to develop its
business by efficiently investing in the Network and improving the quality of supply and service provided to
customers. NPg Northeast 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.
• IUS will develop its business by concentrating on its core skills of engineering contracting thereby delivering a
high standard of service to its existing clients and pursuing opportunities to increase its portfolio of clients.
• NPg Metering will retain its focus on pursuing opportunities in the market for meter asset provision as the smart
meter roll-out programme develops.
There are no plans to change the existing business model of the Company, or any of the companies within the Group.
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 Group invested £5.6 million (2022: £1.6 million)
(Note 5 to the financial statements) in its research and development activities.
Financial instruments
Financial risk management
Details of financial risks are included in the Principal Risks and Uncertainties, found in the Strategic Report and in
Note 29 to the financial statements.
Financial derivatives
As at 31 December 2023 the Group held one derivative financial instrument (2022: one) to mitigate the interest rate
risk on a floating interest rate loan. More details on derivative financial instruments are available in Note 30 to the
financial statements.
Page 29
Northern Electric 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).
Vote holder and issuer notification
There have been no disclosures to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer
Notification Rules).
Directors' biographies
Alex P Jones
Mr Jones joined the Northern Powergrid Group in January 2015 and became Finance Director in March 2022. He is a
Chartered Accountant having completed his training with KPMG, spending seven years in their Restructuring
practice. Prior to becoming Finance Director, Mr Jones was the Director of Performance and Planning, leading on the
development of the Northern Pow ergrid Group’s Business Plan. He has also spent time leading the Northern
Pow ergrid Group’s engineering and major projects operations teams.
Stephen J Lockwood
Appointed in April 2022, Mr Lockwood joined the Northern Powergrid Group in 1983 and became Group Financial
Controller in 2016 before taking on the role of Head of Technical Accounting & Quality in 2023. Prior to this he held
a number of finance roles in the Northern Pow ergrid Group. Mr Lockwood is a qualified Chartered Management
Accountant and Chartered Tax Advisor.
John N Reynolds OBE
Mr. Reynolds wa s appointed in January 2011 as a director of Northern Pow ergrid Holdings Company and in October
2017 as Chairman of the audit committee and a director of the Company. Mr Reynolds is the Chief Executive Officer
of Castle Water. He is a Fellow of the Institution of Engineering & Technology, a Fellow of the Energy Institute and is
a former commission member of the Water Industry Commission for Scotland. Mr Reynolds chaired the Church of
England Ethical Investment Advisory Group, and is a former council member of the Central Finance Board of the
Methodist Church. He is the author of a number of books and articles on business ethics. Mr. Reynolds previously
held senior management roles at HSBC and Houlihan Lokey.
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 7.2.7 R in a separate statement, a copy of which can be found on the
Northern Powergrid Group's corporate we bsite.
Audit com mittee
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.
Composition:
• J N Reynolds, non-executive Director (Chair)
• A P Jones, Finance Director (appointed 14 April 2022)
• M Knowles, independent member - Northern Powergrid Holdings Company
Page 30
Northern Electric 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 the Group and of the profit or
loss of the Group and Company for that period.
In preparing these financial statements, International Accounting Standard 1 requires the directors to:
•
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 Company's and the
Group's financial position and financial performance; and
• Make an assessment of the Company's and 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 and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and the Group 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 the Group 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 Group's we bsite. 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 applicable UK law and in conformity with IFRS, give a true
and fair view of the assets, liabilities, financial position and profit 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 it faces; 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 and Group’s position and performance, business
model and strategy.
Page 31
Northern Electric plc
Directors' Report for the Year Ended 31 December 2023 (continued)
Going Concern
A review of the Group'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,
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 Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Pow ergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial
statements, the directors have taken into account a number of factors, including the following:
• The Northern Pow ergrid Group's main subsidiaries, NPg Northeast and NPg Yorkshire are stable electricity
distribution businesses operating an essential public service and are regulated by the Gas and Electricity Markets
Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty under the Electricity Act 1989 to
have regard to the need to secure that licence holders are able to finance 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 Northern Pow ergrid Group is profitable with strong underlying cash flows. The Northern Pow ergrid Group,
NPg Northeast and NPg Yorkshire hold investment grade credit ratings;
• The Northern Powergrid Group is financed by long-term borrow ings 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 Pow ergrid Group benefits from strong investment-grade credit ratings which allow access to a range
of financing options including the capital markets. A successful bond issue by the Northern Pow ergrid 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;
Consideration wa s also given to the obligations contained in NPg Northeast and Northern Powergrid (Yorkshire) plc’s
licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable expectation that the
Group will have sufficient financial and operational resources available for the continuation of business for a period of
at least 12 mo nths. The board determined any material variations to the assumptions used when providing those
certificates we re unlikely.
Consequently, after making their assessment, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the annual report and financial statements.
Page 32
Northern Electric plc
Directors' Report for the Year Ended 31 December 2023 (continued)
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 group'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
Resignation and appointment 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.
Approved by the Board on 30 April 2024 and signed on its behalf by:
A P Jones
Director
Page 33
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Northern Electric 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 (IFRSs) 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 statement of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated and parent company statement of cash flows; and
• the related notes 1 to 34.
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 34
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Summary of our audit approach
Key audit ma tters
The key audit matters that we identified in the current year we re:
- Accounting for capital spend - overhead allocation mo del
Within this report, key audit matters are identified as follows:
- Similar level of risk
Materiality
The materiality that we used for the group financial statements was £9.5m which wa s determined on the basis of 5%
of profit before tax.
Scoping
Our scope provides full scope audit coverage of 91% of the group’s revenue, 98% of profit before tax as we ll as 99%
of net assets. Our scoping has been performaed for each entity included within the group.
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.
Page 35
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
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;
• 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;
• performing sensitivity analysis;
• evaluating sophistication of the mo del used to prepare the forecasts, testing of clerical accuracy of those forecasts
and our assessment of the historical accuracy of forecasts prepared by management; and
• assessing the appropriateness of the going concern disclosures in the financial statements.
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.
Key audit ma tters
Key audit matters are those matters that, in our professional judgement, were of mo st significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(w hether 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 we re 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.
Page 36
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Accounting for capital spend - overhead allocation model and Storm Arwen costs
Key audit matter description
Total additions to property, plant and equipment in the year in, within the main trading subsidiary of the group,
Northern Powergrid (Northeast) plc we re £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 mo del 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 judgements in the percentage amounts capitalised are not reflective of the capital spend and as such
property, plant and equipment could be materially misstated as a consequence. This is as disclosed in note 2 to the
financial statements related to critical judgements in applying accounting policies.
How the scope of our audit responded to the key audit matter
We have perfromaed the following procedures in response to the risk identified:
• We have obtained an understanding of 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 mo del which are subsequently capitalised based
on management’s assessment of percentage allocation;
• Tested the integrity and mechanics of the cost allocation mo del 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 37
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Our application of ma teriality
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 wo uld be changed or influenced. We use materiality both
in planning the scope of our audit wo rk and in evaluating the results of our wo rk.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statem ents
Materiality
£9.5m (2022: £8.0m)
Basis for determining materiality
5.3% of income before tax (2022: 5.0% of income before tax)
Rationale for the benchmark applied
The group contains large trading entities. The industry revenue is highly regulated, therefore, there is a focus on profit
before tax.
Parent company financial statements
Materiality
£5.0m (2022: £3.76m)
Basis for determining materiality
Parent company materiality equates to 1% of net assets (2022: 1%), which is capped at 54.0% of group materiality
(2022: 52.5%).
Rationale for the benchmark applied
Total equity shows how much of the value of shareholdings are in the company and as such investor value. The
company is not trading and as such incurs no revenue.
Page 38
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Perform ance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statem ents
Performance materiality
50% (2022: 60%) of group materiality
Parent company financial statements
Performance materiality
50% (2022: 60%) of parent company materiality
Basis and rationale for determining
In determining performance materiality, we considered the following factors which led to a reduction in the
performance materiality:
• our risk assessment, including our assessment of the group’s overall control environment;
• we continued to identify control deficiencies and we re not able to take a controls reliant approach; and
• the volume and value of uncorrected misstatements in the prior period.
Error reporting threshold
We agreed with the Board of Directors that we would report to the Board all audit differences in excess of £0.5m
(2022: £0.4m), as we ll as differences below that threshold that, in our view, wa rranted 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 mainly
focused on the United Kingdom in the electricity distribution business, with some overseas assets in the oil and gas
industry.
The focus of our audit wo rk was on the main regulated business, Northern Pow ergrid (Northeast) plc, including wo rk
performed in the North East and Yorkshire regions, Other sizeable companies within the group include Integrated
Utility Services Limited, which provides contracting and maintenance services to the electricity, rail and water
industries, and Northern Pow ergrid Metering Limited which leases smart meters to energy providers. Our audit scope
provides full scope audit coverage 91% of the group’s revenue (2022: 94%), 98% of profit before tax (2022: 94%) as
we ll as 99% of net assets (2022: 99%). For three components we performed full scope audit and one component wa s
subject to an audit of specified audit procedures.
A component materiality was used to perform the audit wo rk for significant components for FY23, which ranged from
£4.7m to £5.0m (2022: £4.0m to £6.4m).
At the group level, we have tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there wa s no risk of material misstatement of the aggregated financial information of the remaining
components not subject to full scope audit or audit of specified account balances.
Audit wo rk to respond to the risks of material misstatement was performed directly by the audit engagement team.
Page 39
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Our consideration of the control environm ent
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..
How ever, 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 32 of the annual
report.
Our consideration of 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 10.
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 we re identified
by the group audit engagement team.
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 otherw ise
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.
Page 40
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Responsibilities of directors
As explained mo re 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 we bsite 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 41
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and
non-compliance with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the
group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Board of Directors about their own identification and
assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures
relating to:
o identifying, evaluating and complying with laws and regulations and whether they we re aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
o the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the audit engagement team and relevant internal specialists, including tax, 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 mo del, 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).
Page 42
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Audit response to risks identified
As a result of performing the above, we identified accounting for capital spend - overhead allocation model and Storm
Arwen costs,and valuation of defined benefit obligations as key audit matters related to the potential risk of fraud. The
key audit matters section of our report explains the matters in more detail and also describes the specific procedures
we performed in response to those key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Board and 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.
Report on other legal and regulatory requirements
Opinions on other ma tters 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.
Page 43
Northern Electric plc
Independent Auditor's Report to the Members of Northern Electric plc (continued)
Other ma tters which we are required to address
Auditor tenure
Following the recommendation of the Board of Directors, we we re appointed by the Board of Northern Pow ergrid
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 40, the financial year ended 31 December 2023 is the final year of our audit
tenure.
Consistency of the audit report with the additional report to the audit com mittee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in
accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit wo rk 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 wo rk, 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 44
Northern Electric plc
Consolidated Income Statement for the Year Ended 31 December 2023
Note
2023
£ 000
(As restated)
2022
£ 000
Revenue
3 570,484 558,190
Cost of sales (78,420) (81,809)
Gross profit
492,064 476,381
Distribution costs
(146,220) (145,511)
Administrative expenses (130,660) (133,135)
Operating profit
5 215,184 197,735
Other gains
4 1,538 1,078
Finance income
6 16,704 5,450
Finance costs
6
(53,916) (53,161)
Profit before tax
179,510 151,102
Income tax expense
10
(44,890) (34,179)
Profit for the year
134,620 116,923
Profit attributable to:
Owners of the Company
134,620 116,923
The above results we re derived from continuing operations.
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 45

Northern Electric plc
Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2023
Note
2023
£ 000
(As restated)
2022
£ 000
Profit for the year
134,620 116,923
Item s that will not be reclassified subsequently to profit or loss
Remeasurements of post employment benefit obligations (net)
25 (7,995) (85,657)
Item s that may be reclassified subsequently to profit or loss
Gain on cash flow hedges (net)
10
(5,261) 15,419
Total comprehensive income for the year
121,364 46,685
Total comprehensive income attributable to:
Owners of the Company
121,364 46,685
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 46

Northern Electric plc
(Registration number: 02366942)
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 3,163,391 3,059,199
Right of use assets
12 11,229 12,787
Intangible assets
50,606 47,357
Equity accounted investments
14 3,633 3,982
Retirement benefit obligations
25 148,600 151,500
Trade and other receivables
16 6,463 4,087
Other non-current financial assets
30
8,831 18,926
3,392,753 3,297,838
Current assets
Inventories
15 29,904 25,740
Trade and other receivables
16 342,948 94,320
Tax receivable
- 1,054
Cash and cash equivalents
17 14,760 268,661
Contract assets
7,052 5,824
Other current financial assets
30
5,861 2,781
400,525 398,380
Total assets
3,793,278 3,696,218
Equity and liabilities
Equity
Share capital
18 (72,173) (72,173)
Share premium
(158,748) (158,748)
Capital redemption reserve
(6,185) (6,185)
Cash flow hedging reserve
19 (11,019) (16,280)
Retained earnings (1,223,235) (1,144,610)
Equity attributable to owners of the Company (1,471,360) (1,397,996)
Non-current liabilities
Lease liabilities
21 (8,395) (9,791)
Loans and borrowings
20 (1,153,068) (1,193,131)
Provisions
22 (1,641) (1,921)
Deferred revenue
24 (668,067) (652,476)
Deferred tax liabilities
10
(160,882) (163,218)
(1,992,053) (2,020,537)
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 47
Northern Electric plc
(Registration number: 02366942)
Consolidated Statement of Financial Position as at 31 December 2023 (continued)
Note
31 December
2023
£ 000
31 December
2022
£ 000
Current liabilities
Lease liabilities
21 (3,231) (3,402)
Trade and other payables
23 (155,769) (117,404)
Loans and borrowings
20 (135,284) (125,040)
Income tax liability
10 (3,245) -
Deferred revenue
24 (30,039) (29,326)
Provisions
22
(2,297) (2,513)
(329,865) (277,685)
Total liabilities (2,321,918) (2,298,222)
Total equity and liabilities
(3,793,278) (3,696,218)
Approved by the board on 30 April 2024 and signed on its behalf by:
.........................................
A P Jones
Director
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 48

Northern Electric plc
(Registration number: 02366942)
Company Statement of Financial Position as at 31 December 2023
Note
31 December
2023
£ 000
(As restated)
31 December
2022
£ 000
(As restated)
31 December
2021
£ 000
Assets
Non-current assets
Property, plant and equipment
11 1,541 1,548 1,555
Right of use assets
12 879 1,016 1,153
Investments in subsidiaries, joint ventures and
associates
14 242,902 242,902 242,902
Retirement benefit obligations 148,600 151,500 262,200
393,922 396,966 507,810
Current assets
Trade and other receivables
16 11,416 1,035 3,866
Income tax asset
10 4,367 1,400 158
Cash and cash equivalents
17
- 18,090 29,036
15,783 20,525 33,060
Total assets
409,705 417,491 540,870
Equity and liabilities
Equity
Share capital
18 (72,173) (72,173) (72,173)
Share premium
(158,748) (158,748) (158,748)
Capital redemption reserve
(6,185) (6,185) (6,185)
Retained earnings (119,570) (126,897) (215,919)
Total equity (356,676) (364,003) (453,025)
Non-current liabilities
Lease liabilities
21 (850) (914) (1,062)
Loans and borrowings
20 (1,117) (1,117) (1,117)
Provisions
22 (956) (1,610) (1,850)
Deferred tax liabilities
10
(36,802) (37,353) (65,047)
(39,725) (40,994) (69,076)
Current liabilities
Lease liabilities
21 (64) (148) (144)
Trade and other payables
23 (6,557) (4,252) (4,515)
Loans and borrowings
20 (6,368) (7,831) (13,861)
Provisions
22
(315) (263) (249)
(13,304) (12,494) (18,769)
Total liabilities (53,029) (53,488) (87,845)
Total equity and liabilities
(409,705) (417,491) (540,870)
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 49
Northern Electric plc
(Registration number: 02366942)
Company 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 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 £51.3 million (2022:
£112.5million).
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 50
Northern Electric plc
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2023
Share capital
£ 000
Share
prem ium
£ 000
Capital
redem ption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2023
72,173 158,748 6,185 16,280 1,144,610 1,397,996
Profit for the year
- - - - 134,620 134,620
Other comprehensive income/(expense) - - - (5,261) (7,995) (13,256)
Total comprehensive income
- - - (5,261) 126,625 121,364
Dividends (note 27) - - - - (48,000) (48,000)
At 31 December 2023
72,173 158,748 6,185 11,019 1,223,235 1,471,360
Share capital
£ 000
Share
prem ium
£ 000
Capital
redem ption
reserve
£ 000
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022
72,173 158,748 6,185 861 1,228,290 1,466,257
Profit for the year (As restated)
- - - - 116,923 116,923
Other comprehensive income/(expense) (As restated) - - - 15,419 (85,657) (70,238)
Total comprehensive income
- - - 15,419 31,266 46,685
Dividends (note 27) - - - - (114,946) (114,946)
At 31 December 2022
72,173 158,748 6,185 16,280 1,144,610 1,397,996
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 51

Northern Electric plc
Company Statement of Changes in Equity for the Year Ended 31 December 2023
Share capital
£ 000
Share
prem ium
£ 000
Capital
redem ption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2023 72,173 158,748 6,185 126,897 364,003
Profit for the year
- - - 51,323 51,323
Other comprehensive income - - - (10,650) (10,650)
Total comprehensive income
- - - 40,673 40,673
Dividends - - - (48,000) (48,000)
At 31 December 2023
72,173 158,748 6,185 119,570 356,676
Share capital
£ 000
Share
prem ium
£ 000
Capital
redem ption
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
At 1 January 2022 (As restated) 72,173 158,748 6,185 215,919 453,025
Profit for the year (As restated)
- - - 112,474 112,474
Other comprehensive income (As restated) - - - (86,550) (86,550)
Total comprehensive income (As restated)
- - - 25,924 25,924
Dividends - - - (114,946) (114,946)
At 31 December 2022 (As restated)
72,173 158,748 6,185 126,897 364,003
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 52
Northern Electric plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2023
Note
2023
£ 000
(As restated)
2022
£ 000
Cash flows from/(used in) operating activities
Profit for the year
134,620 116,923
Depreciation and amortisation
5 161,540 158,265
Depreciation on right of use assets
3,503 3,687
Amortisation of deferred revenue
5 (29,963) (29,253)
Profit on disposal of property plant and equipment
4 (1,538) (1,078)
Retirement benefit obligation
(6,800) (3,262)
Finance income
6 (16,704) (5,450)
Finance costs
6 53,916 53,161
Income tax expense
10
44,890 34,179
343,464 327,172
Increase in inventories
15 (4,164) (5,358)
Increase in trade and other receivables
16 (8,271) (6,415)
Increase in trade and other payables
23 12,288 542
(Increase)/decrease in contract assets
(1,228) 1,769
Receipt of customer contributions*
60,768 50,423
Decrease in provisions
22
(496) (1,416)
Cash generated from operations
402,361 366,717
Income taxes paid (34,968) (27,970)
Net cash flow from operating activities 367,393 338,747
Cash flows from/(used in) in investing activities
Acquisitions of property plant and equipment
(248,021) (219,444)
Proceeds from sale of property plant and equipment
2,501 3,376
Acquisition of intangible assets
(14,444) (9,956)
Interest received
16,438 4,439
Dividend income
6
615 927
Net cash flows used in investing activities (242,911) (220,658)
Cash flows from/(used in) in financing activities
Proceeds from long-term borrow ing draw downs
- 348,320
Transaction costs relating to loans and borrowings
- (2,105)
Repayment of long-term borrowing
(41,001) (138,758)
Movement in short-term borrowing
9,330 -
Repayment of lease liabilities
(3,511) (3,660)
Movement in intercompany treasury account
(242,733) 63,115
Interest expense on leases
(316) (372)
Interest paid
(52,152) (43,162)
Dividends paid
26
(48,000) (114,946)
Net cash flows from/(used in) financing activities (378,383) 108,432
Net (decrease)/increase in cash and cash equivalents
(253,901) 226,521
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 53
Northern Electric plc
Consolidated Statement of Cash Flows for the Year Ended 31 December 2023 (continued)
Note
2023
£ 000
(As restated)
2022
£ 000
Cash and cash equivalents at 1 January 268,661 42,140
Cash and cash equivalents at 31 December
14,760 268,661
*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 £50.4m. There has been no other impact on the financial
statements from this change.
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 54

Northern Electric plc
Company Statement of Cash Flows for the Year Ended 31 December 2023
Note
2023
£ 000
(As restated)
2022
£ 000
51,323 112,474
7 7
137 137
(11,300) (4,700)
(49,579) (116,243)
9,085 9,034
3,848 1,584
3,521 2,293
16 (504) 2,831
23 2,306 (263)
22
(602) (226)
4,721 4,635
(3,817) (1,670)
904 2,965
964 370
48,615 115,873
49,579 116,243
(9,877)
(6,030)
(24) (28)
(14) (2)
(148) (143)
(9,001) (9,001)
26 (48,000) (114,946)
(46) (4)
(68,573) (130,154)
(18,090) (10,946)
18,090 29,036
Cash flows from/(used in) operating activities
Profit for the year
Adjustments to cash flows from non-cash items
Depreciation and amortisation
Depreciation on right of use assets
Retirement benefit obligations
Finance income
Finance costs
Income tax expense
Working capital adjustments
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Cash generated from operations
Income taxes paid
Net cash flow from /(used in) operating activities
Cash flows from/(used in) investing activities
Interest received
Dividend income
Net cash flows from/(used in) investing activities
Cash flows from/(used in) financing activities
Movement in intercompany treasury account
Movement in short-term loans
Interest expense on leases
Interest paid
Repayment of lease liabilities
Interest on preference shares
Dividends paid
Foreign exchange gains/(losses)
Net cash flows from/(used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
- 18,090
The notes on pages 57 to 135 form an integral part of these financial statements.
Page 55
(1,463)
-
Northern Electric plc
Company Statement of Cash Flows for the Year Ended 31 December 2023 (continued)
Consolidated / Com pany Statement of Cash Flows
Yorkshire Electricity Group plc, a Northern Powergrid Group company, acting on behalf of other group companies
wa s authorised to settle various liabilities against the relevant intercompany accounts. The Group / 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 57 to 135 form an integral part of these financial statements.
Page 56
Northern Electric plc
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 the
United Kingdom and is part of the Northern Pow ergrid Holdings Company and its subsidiaries group of companies
(the "Northern Powergrid Group").
The principal activities of the Group is split between the following three areas:
- NPg Northeast is the distribution of electricity to approximately 1.6 million customers connected to its electricity
distribution network.
- IUS provides engineering contracting services.
- NPg Metering rents meters to energy suppliers.
The address of its registered office is:
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, Tyne and Wear, NE1 6AF, United Kingdom.
2 Accounting policies
Statem ent of compliance
The Group financial statements have been prepared in accordance with International Financial Reporting Standards
and its interpretations adopted by the IASB ("adopted IFRS's").
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 otherw ise stated.
Basis of preparation
The financial statements have been prepared in accordance with UK-adopted international accounting standards and, if
relevant, with International Financial Reporting Standards as issued by the IASB.
Clim ate change
No material impact from climate change within the accounts.
Principal activity
The nature of the Company's business model, strategic objectives, operations and activities are set out in the Strategic
Report.
Going Concern
A review of the Group'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 Group, and
companies may lend within the Group. For that reason, financial health is considered with reference to the Northern
Pow ergrid Group.
When considering if to continue to adopt the going concern basis in preparing the annual report and financial
statements, the directors have taken into account a number of factors, including the following:
Page 57
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
• NPg Northeast is a stable electricity distribution business operating an essential public service and are regulated by
the Gas and Electricity Markets Authority (“GEMA”). In carrying out its functions, GEMA has a statutory duty
under the Electricity Act 1989 to have regard to the need to secure that licence holders are able to finance 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;
• NPg Northeast is profitable with strong underlying cash flows and holds investment grade credit ratings.
• The Northern Powergrid Group is financed by long-term borrow ings with an average maturity of 17 years and has
access to short-term committed borrowing facilities of £242 million provided by Barclays Banks plc, Lloyds Bank
plc, HSBC UK Banks plc and Royal Bank of Canada; and
• The Northern Pow ergrid Group benefits from strong investment-grade credit ratings which allow access to a range
of financing options including the capital markets. A successful bond issue by the Northern Pow ergrid 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 Pow ergrid Group has prepared forecasts which taking into account reasonable possible changes in
trading performance, show that the Northern Pow ergrid Group has sufficient resources to settle its liabilities as
they fall due for at least the 12 mo nths 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 NPg Northeast's and Northern Pow ergrid (Yorkshire)
plc’s licences to provide Ofgem with annual certificates, confirming that the directors have a reasonable
expectation that the Group will have sufficient financial and operational resources available for the continuation of
business for a period of at least 12 mo nths. The board determined any material variations to the assumptions used
when providing those certificates we re unlikely.
Consequently, after making their assessment, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the annual report and financial statements.
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 Group's accounting policies and that have the most significant effect on amounts recognised in
the consolidated financial statements:
• The split of operating and capital expenditure and the allocation of overheads to property, plant and equipment:
The allocation of overheads to capital is derived from a detailed analysis of the costs and their cost drivers which is
reviewed on annual basis. The percentage allocation of overheads across the wo rkstream categories are obtained
from section managers who are asked to provide reasoning and supporting evidence for the allocation. Finance
then undertake a financial impact assessment review and the rationale to ensure it complies with IFRS. The amount
of overheads capitalised in the year wa s £49.6 million (2022: £45.0 million), this was a decrease from 45.6% to
45.4%.
Key sources of estimation uncertainty
The following are the 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:
• Assumptions used when evaluating long-term pension plans - these assumptions and their possible impacts are
disclosed in Note 25.
Page 58
Northern Electric 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 amendm ents 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 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.
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 (below £5,000) will be
excluded.
The Group applies IFRS 16 to all leases 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 borrow ing 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 mo nths or less) and leases of low-value assets (w hich 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.
- Uses current expectations 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.
Page 59
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
The implict rate applied to determine the present value of the lease liabilities during the current period was 5.5% in
comparison to the incremental borrowing rate used in 2022 of 2.33%.
The Group recognises deprecation of right-of-use assets (w ithin administration expenses) and interest on lease
liabilities (w ithin 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.
Revenue recognition
Recognition
The Group earns revenue from the provision of services which are recognised by the following means:
- Distribution use of system income is 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;
- Contracting revenue is recognised in line with expenditure;
- Meter asset provision income is accounted for under lease accounting;
- Intercompany recharges for services provided are based on costs incurred; and
- Other revenue includes assessment and design fees and disconnections from the network and 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 mo del:
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
Fee arrangements
Below are details of fee arrangements and how these are measured and recognised, for revenue from the provision of
services:
• For regulated use of system income the revenue for the service is recognised on the basis of agreed charging
methodologies which is recognised on a per unit (volumetric i.e. kWh and capacity (kVA)) and fixed (per 'customer'
per day) basis.
• For fixed price for contracted service 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 stage payment on long-term contracts revenue is recognised by reference to stage of manufacture at the year end
date using contractual rates specified in the contract. Revenue on materials is measured at the actual amount of the
material used on the contract at the price specified in the contract.
The performance obligations involved in engineering contracting wo rk are accounted for as follows:
• Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the
stage of completion of the contract activity at the end of the reporting period, based on the proportion of contract
costs incurred for wo rk performed to date relative to the estimated total contract costs, except where this wo uld not
be representative of the stage of completion.
Page 60
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
• Variations in contract wo rk, claims and incentive payments are included to the extent that they have been agreed
with the customer.
• Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of the
costs incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period
in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the
expected loss is recognised as an expense immediately.
• When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the
surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed
contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts
due to customers for contract work. Amounts received before the related wo rk is performed are included in the
consolidated statement of financial position, as a liability, as advances received. Amounts billed for work
performed but not yet paid by the customer are included in the consolidated statement of financial position under
trade and other receivables.
Other performance obligations include but are not limited to:
- Provision of vehicles over a specified period accounted for under lease accounting; and
- Passage of milestones and completion of installation of equipment for engineering contracting.
Contract modifications
The Group’s contracts are often amended for changes in contract specifications and requirements. Contract
modification exists when the amendment either creates new or changes the existing enforceable rights and obligations.
The effect of a contract mo dification on the transaction price and the Group’s measure of progress for the performance
obligation to which it relates, is recognised as an adjustment to revenue in one of the following ways:
a. Prospectively as an additional separate contract:
b. Prospectively as a termination of the existing contract and creation of a new contract;
c. As part of the original contract using a cumulative catch up; or
d. As a combination of b) and c).
The facts and circumstances of any contract modification are considered individually as the types of modifications
will vary contract by contract and may result in different accounting outcomes. Judgement is applied in relation to the
accounting for such modifications where the final terms or legal contracts have not been agreed prior to the period end
as management need to determine if a mo dification has been approved and if it either creates new or changes existing
enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and
amount of revenue recognised may be different in the relevant accounting periods. Modification and amendments to
contracts are undertaken via an agreed formal process. For example, if a change in scope has been approved but the
corresponding change in price is still being negotiated, management use their judgement to estimate the change to the
total transaction price.
Investm ents in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or joint control over those
policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have the
rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties
sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial
statements using the equity method of accounting except when classified as held for sale. Investments in associates or
joint venture entities are initially recognised at cost and adjusted thereafter to recognise the Group's share of profit or
loss and other comprehensive income of the associate or joint venture. When the Group's share of losses of an
associate or a joint venture exceeds the Group's interest in that associate or joint venture, the Group discontinues
recognising its share of future losses.
Page 61
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the
investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture,
any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and
liabilities of the investee is recognised as goodw ill, which is included within the carrying amount of the investment.
Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the
investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is
acquired.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to
the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous
consent of the parties sharing control.
Fixed asset investments are stated at cost less provision or amounts written off for impairment in value.
Investm ents 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.
Prior Year Restatement
Pensions company only
Following a review of the accounting for The Northern Pow ergrid Group of the ESPS (“the DB Scheme”) in the
company only accounts of Northern Electric plc it has been identified that the DB scheme should have been included
in the balance sheet reflecting its obligation as sponsoring employer for the plan, some of which it then recharges to
other group companies. This has led to the recognition of a defined benefit pension scheme asset of £151.5 million and
associated deferred tax liability of £37.9 million in the comparatives as restated in the balance sheet. The profit for the
prior year has also been restated to include a credit of £4.7 million and a charge of £1.1 million deferred tax. Other
comprehensive income within the statement of changes in equity has been restated to include a charge of £86.6 million
net of tax. The net impact on reserves brought forward at 1 January 2022 wa s £196.6 million. These amounts also take
account of the impact of the ‘Pensions consolidation only’ restatement described below. Given the retrospective
restatement has a material effect on the information in the statement of financial position at the beginning of the
preceding period, a third statement of financial position has been presented in accordance with IAS 1: 40. The impact
of the restatement on the 2021 statement of financial position is the recognition of a pension surplus asset of £262.2
million with an associated deferred tax liability of £65.6 million
Pensions consolidation only
During the preparation of the 2023 financial statements the treatment of pension increases over 5% was identified as
incorrectly being treated as a past service cost through the income statement when it should have been included as an
actuarial mo vement in the Statement of Comprehensive Income. In the comparative period the restatement has
reduced the income statement cost by £16.5 million before tax with an associated increase in tax of £5.0 million and a
corresponding increase in the charge and tax shown in the statement of comprehensive income. There has been no
other impact on the financial statements arising from this change.
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.
Page 62
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
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 transaction price
less provision for impairment.The Group always recognises lifetime expected credit losses (ECL) for trade
receivables, contract assets and lease receivables. The expected credit losses on these financial assets are estimated
using a provision matrix based on the group’s historical credit loss experience, adjusted for factors that are specific to
the debtors, general economic conditions and an assessment of both the current as we ll as the forecast direction of
conditions at the reporting date, including time value of mo ney where appropriate.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the average cost method.
The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs
and those overheads that have been incurred in bringing the inventories to their present location and condition. At each
reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its
selling price less costs to complete and sell; the impairment loss is recognised immediately in profit or loss.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the
effective interest method.
Borrowings
All borrow ings 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
borrow ing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrow ings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Page 63
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Intercom pany Short-term loans (Current Accounts)
The Northern Powergrid group operates a central treasury function operated through it’s 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 mo st 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 mo st
recent revolving facility agreement to which Northern Pow ergrid 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 mo nth.
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.
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 mo ney 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.
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.
Page 64
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
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 mo re likely than not to be
recovered based on current or future taxable profit.
Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings
draw n up to 31 December 2023.
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the
effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are
made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the
Group.
The purchase method of accounting is used to account for business combinations that result in the acquisition of
subsidiaries by the Group. The cost of a business combination is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. Any excess of the cost of the business
combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities recognised is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between the Company and its subsidiaries,
which are related parties, are eliminated in full.
Intra-group losses are also eliminated but may indicate an impairment that requires recognition in the consolidated
financial statements.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the Group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the
original business combination and the non-controlling shareholder’s share of changes in equity since the date of the
combination. Total comprehensive income is attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Page 65
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Financial instruments
Initial recognition
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 wa y purchases or sales are purchases or sales of financial assets that require
delivery within the timeframe generally established by regulation or convention in the marketplace.
Subsequent to initial measurement, financial assets and financial liabilities are measured at either amortised cost or
fair value.
Classification and me asurement
Financial instruments are classified at inception into one of the following categories, which then determine the
subsequent measurement methodology:
Financial assets are classified into one of the following three categories:
· financial assets at amortised cost;
· financial assets at fair value through other comprehensive income (FVTOCI); or
· financial assets at fair value through the profit or loss (FVTPL).
Financial liabilities are classified into one of the following two categories:
· financial liabilities at amortised cost; or
· financial liabilities at fair value through the profit or loss (FVTPL).
The classification and the basis for measurement are subject to the Group’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets, as detailed below:
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:
· the assets are held within a business model whose objective is to hold assets in order to collect contractual cash
flows; and
· the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
If either of the above two criteria is not met, the financial assets are classified and measured at fair value through the
profit or loss (FVTPL).
If a financial asset meets the amortised cost criteria, the Group may choose to designate the financial asset at FVTPL.
Such an election is irrevocable and applicable only if the FVTPL classification significantly reduces a measurement or
recognition inconsistency.
Page 66
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Financial assets at fair value through other comprehensive income
A financial asset is measured at FVTOCI only if it meets both of the following conditions and is not designated as at
FVTPL:
· the asset is held within a business mo del 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
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 67
Northern Electric 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
rew ards of ownership of the financial asset are transferred; or
- the Group neither transfers nor retains substantially all of the risks and rewards of ow nership and it does not retain
control of the financial asset.
On derecognition of a financial asset, the difference betw een 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; and
(d) The undiscounted cash outflows that wo uld 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 mo dification 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 mo dification gain or loss in the statement of income.
Page 68
Northern Electric 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 mo dified, the Group evaluates whether the cash flows of the mo dified 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 mo dification 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 mo dification 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 FVTPL, 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 allow ances 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 mo nths 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 69
Northern Electric 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 borrow er 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;
- There is other observable data relating to a Group of assets such as adverse changes in the payment status of
borrow ers 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 wo rk 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 months before 31 December
2021 and the corresponding historical credit losses experienced within this period. The historical loss rates are
adjusted to reflect current and forw ard-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 mo st relevant factors, and accordingly adjusts the historical loss rates
based on expected changes in these factors.
Derivative financial instruments
Derivative financial instruments are contracts, the value of which is derived from one or more underlying financial
instruments or indices, and include futures, forwards, swaps and options in the interest rate, foreign exchange, equity
and credit markets.
Derivative financial instruments are recognised in the statement of financial position at fair value. Fair values are
derived from prevailing market prices, discounted cash flow mo dels or option pricing mo dels as appropriate.
In statement of financial position, derivative financial instruments with positive fair values (unrealised gains) are
included as assets and derivative financial instruments with negative fair values (unrealised losses) are included as
liabilities.
The changes in the fair values of derivative financial instruments entered into for trading purposes are included in
trading income.
Hedge accounting
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as
trading assets and liabilities.
The Group designates certain derivatives held for risk management as we ll as certain non-derivative financial
instruments as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group
formally documents the relationship between the hedging instruments and hedge items, including the risk management
objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness
of the hedging relationship. The Group makes an assessment, both at inception of the hedge relationship and on an
ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting that changes in the
fair value or cash flows of the respective hedged items during the period for which the hedge is designated.
These hedging relationships are discussed below.
Page 70
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
Cash flow hedges
The Group makes an assessment for a cash flow hedge of a forecast transaction, of whether the forecast transaction is
highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognised asset or liability that could affect profit or loss, then the effective portion
of changes in the fair value of the derivative is recognised in OCI and presented in the hedging reserve within equity.
Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The
amount recognised in OCI is reclassified to profit or loss as a reclassification adjustment in the same period as the
hedged cash flows affect profit or loss, and in the same line item in the statement of profit or loss and OCI.
If the hedging derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for cash
flow hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively.
How ever, if the derivative is novated to a central clearing counterparty by both parties as a consequence of laws or
regulations without changes in its terms except for those that are necessary for the novation, then the derivative is not
considered expired or terminated.
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 and the
valuation of financial instruments as explained in mo re detail below.
Provisions for impairm ent
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 mo dels. 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.
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.
Page 71
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
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, as follows:
Asset class Depreciation me thod and rate
Distribution system:
- Generation assets 15 years
- Conventional metering equipment up to 5 years
- Information technology equipment up to 10 years
- Land not depreciated
- Other system assets 45 years
Land and buildings:
- Freehold buildings up to 60 years
- Leasehold buildings low er of lease period or 60 years
- Non-operational land not depreciated
Furniture, fittings and equipment up to 10 years
Metering equipment up to 15 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period,
with the effect of any material changes in those estimates accounted for on a prospective basis. Due to the significance
of the Group's investment in property, plant and equipment, variations in estimates could impact operating results both
positively and negatively although, historically, few changes have been required.
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 Group'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.
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 is recognised on a straight-line basis over their estimated useful lives.
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 Am ortisation me thod and rate
Software development 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 72
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
2 Accounting policies (continued)
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.
3 Revenue & Segmental Analysis
The analysis of the Group's revenue for the year from continuing operations is as follows:
2023
£ 000
2022
£ 000
Distribution revenue
405,307 412,147
Amortisation of deferred revenue
29,963 29,253
Contracting revenue
41,445 22,609
Meter asset rental
89,679 86,334
Other revenue
4,090 7,847
570,484 558,190
Other revenue includes assessment and design fees and disconnections from the network.
The tables below represent the internal information provided to the President and Chief Executive Officer of the
Group for the purposes of resource allocation and segmental performance appraisal. The Group operates in four
principal areas of activity, those of the distribution of electricity, engineering contracting, gas exploration and smart
meter rental in the United Kingdom.
Reportable segments are those that meet two or mo re of the following criteria under IFRS 8:
- Its reported revenue is 10% or mo re of the combined revenue of all segments;
- The absolute measure of its profit or loss is 10% or mo re of the combined reported profit; and
- Its assets are 10% or mo re of the combined assets of all segments.
The Group is separated into the following segments:
Distribution: Northern Powergrid (Northeast) plc
Contracting: Integrated Utility Services Limited
Metering: Northern Powergrid Metering Services Limited
Other: Includes support activities
Page 73
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
3 Revenue & Segmental Analysis (continued)
2023
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
435,270 36,620 89,679 8,915 570,484
Inter-segment sales 416 11,474 - (11,890) -
Total revenue
435,686 48,094 89,679 (2,975) 570,484
Operating profit
166,056 2,103 37,760 9,265 215,184
Other gains
1,538
Finance costs
(53,916)
Finance income 16,704
Profit before tax
179,510
Capital additions
204,630 507 65,772 965 269,944
Depreciation and amortisation
116,367 687 52,059 4,070 165,043
Amortisation of deferred revenue
29,963 - - - 29,963
Segment assets
2,810,945 14,693 310,076 409,353 3,545,067
Unallocated corporate assets
248,211
Total assets
3,793,278
Segment liabilities
(554,741) (8,771) (193,820) (313,097) (1,070,429)
Unallocated corporate liabilities (1,251,489)
Total liabilities
(2,321,918)
Segment net assets
2,256,204 5,922 116,256 96,255 2,474,637
Unallocated net corporate liabilities
(1,003,277)
Total net assets
1,471,360
Page 74
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
3 Revenue & Segmental Analysis (continued)
2022 (As restated)
Distribution
£ 000
Contracting
£ 000
Metering
£ 000
Other
£ 000
Total
£ 000
Revenue
441,400 22,609 86,334 7,847 558,190
Inter-segment sales
412 11,535 - (11,947) -
Total revenue
441,812 34,144 86,334 (4,100) 558,190
Operating profit
158,227 771 29,097 (6,861) 197,735
Other gains
1,078
Finance costs
(53,161)
Finance income
5,450
Profit before tax
151,102
Capital additions
167,486 495 53,266 3,744 224,991
Depreciation and amortisation
111,695 245 54,648 (4,635) 161,952
Amortisation of deferred revenue
29,253 - - - 29,253
Segment assets
2,708,141 14,699 318,528 375,910 3,417,278
Unallocated corporate assets
278,940
Total assets
3,696,218
Segment liabilities
(540,677) (10,418) (208,745) (265,233) (1,025,063)
Unallocated corporate liabilities
(1,273,159)
Total liabilities
(2,298,222)
Segment net assets
2,167,464 4,281 109,783 110,687 2,392,215
Unallocated net corporate liabilities
(994,219)
Total net assets
1,397,996
Page 75
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
3 Revenue & Segmental Analysis (continued)
Sales to the E.ON group in 2023 of £79.8 million (2022: £75.7 million) and to British Gas plc in 2023 of £58.8million (2022: £48.6 million) are included within the Distribution
segment.
Contract assets arise where goods or services are transferred to the customer before the customer pays consideration, or before payment is due. All contract assets relate to
engineering contracting wo rk within Integrated Utility Services. Contracts in progress at statement of financial position date:
Assets recognised from costs to fulfil a contract with customers
31 December
2023
£ 000
31 December
2022
£ 000
Contract costs incurred plus recognised profit less recognised losses to date
56,873 50,918
Less: progress billings (49,821) (45,094)
7,052 5,824
At 31 December 2023, no retentions are held by customers for contract wo rk (2022: £nil).
Advances received from customers for contract wo rk relate to IUS customers contribution only which amounted to £nil (2022: £nil).
The Company had no contract assets at 31 December 2023 (2022: £nil).
Page 76
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
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
1,538 1,078
5 Operating profit
Arrived at after charging/(crediting)
2023
£ 000
2022
£ 000
Depreciation expense
150,345 146,778
Depreciation of right-of-use assets
3,503 3,687
Amortisation expense
11,195 11,487
Research and development
2,031 1,598
Trade and other receivables loss allowance
1,132 966
Amortisation of deferred revenue
(29,963) (29,253)
Amortisation expense is included in administration costs within the consolidated income statement on page 45.
6 Finance income and costs
2023
£ 000
2022
£ 000
Finance income
Other finance income
16,704 5,450
Finance costs
Interest on borrowings at amortised cost
(54,003) (53,395)
Interest expense on leases
(316) (372)
Borrow ing costs included in cost of qualifying asset 403 606
Total finance costs (53,916) (53,161)
Net finance costs
(37,212) (47,711)
Borrow ing costs included in the costs 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 77
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
7 Staff costs
Group
2023
£ 000
(As restated)
2022
£ 000
Salaries
74,948 70,853
Social security costs
9,031 8,775
Defined benefit pension cost
230 4,357
Defined contribution pension cost 5,999 5,102
90,208 89,087
Less capitalised to property plant and equipment (49,029) (46,318)
41,179 42,769
A proportion of the Group's employees are members of the DB Scheme, details of which are given in the Employee
Benefit Obligations Note 25.
The average mo nthly number of persons employed by the Group (including directors) during the year, analysed by
category wa s as follows:
2023
No.
2022
No.
Distribution
1,344 1,248
Engineering contracting
165 155
Other 13 14
1,522 1,417
The Company had an average mo nthly number of 13 employees during the year ended 31 December 2023 (2022:11).
Page 78
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
8 Directors' remuneration
The directors' remuneration for the year wa s as follows:
2023
£
2022
£
Highest paid
Short-term employee benefits
110,663 94,578
Post retirement benefits - defined contribution
3,488 -
Other long-term benefits
33,953 100,193
148,104 194,771
Total
Short-term employee benefits
185,594 244,542
Post retirement benefits - defined benefit
29,744 21,582
Post retirement benefits - defined contribution
3,488 6,001
Other long-term benefits 44,613 159,137
263,439 431,262
Post retirement benefits
No. of Directors who were members of a defined contribution scheme in the
year
1 4
No. of Directors who were members of a defined benefit scheme in the year
1 1
2023
£
2022
£
Key personnel remuneration
Short-term employee benefits
1,206,990 1,070,859
Post retirement benefits - defined benefit
- 33,482
Post retirement benefits - defined contribution
129,883 81,910
Other long-term benefits 460,360 515,380
1,797,233 1,701,631
Other key personnel includes a number of senior functional managers who, whilst not board directors, have authority
and responsibility for planning, directing and controlling activities of the Group.
Page 79
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
9 Auditor's remuneration
The auditor's remuneration for the year was as follows:
2023
£ 000
2022
£ 000
Fees payable to the auditor for audit of the Company's annual accounts
71 43
Fees payable to the auditor for audit of the Company's subsidiaries pursuant to
legislation 368 383
Total audit fees
439 426
Audit of regulatory reporting
69 59
Other services 7 8
Total auditor's remuneration
515 493
Other services relate to non-statutory audit services including pensions.
10 Income tax
Tax charged in the income statement
2023
£ 000
(As restated)
2022
£ 000
Current taxation
UK corporation tax
43,247 30,767
UK corporation tax adjustment to prior periods (1,333) (664)
41,914 30,103
Deferred taxation
Arising from origination and reversal of temporary differences
2,987 1,321
Deferred tax expense/(credit) from unrecognised temporary difference from
prior period
(380) 705
Deferred tax credit relating to changes in tax rates or laws 369 2,050
Total deferred taxation 2,976 4,076
Tax expense in the income statement
44,890 34,179
Page 80
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
10 Income tax (continued)
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 19.0% to 31 March 2023 and 25% thereafter (2022 - 19.0%).
The differences are reconciled below:
2023
£ 000
2022
£ 000
Profit before tax
179,510 151,102
Corporation tax at standard rate
42,221 28,709
Increase in deferred tax due to changes in tax rates or laws
369 2,050
Tax effect of result of joint venture entities
(54) (192)
Decrease in current tax from adjustment for prior periods
(1,333) (664)
Permanent differences (including non-taxable dividends)
(929) 1,069
Pension contributions recognised in other comprehensive income
2,655 893
Increase/(decrease) in deferred tax from adjustment for prior periods
(380) 705
Non-deductible interest
2,117 1,710
Release of deferred tax in respect of prior year holdover relief claim
- (33)
Other tax effects for reconciliation between accounting profit and tax
expense/(income) 224 (68)
Total tax charge
44,890 34,179
Finance Act 2024 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 (after taking into account the estimated
effect of timing differences which will reverse at the 19% rate prior to 1 April 2023).
There is no uncertainty over the acceptable income tax treatment. Should any uncertainties arise the Company will
apply adopted amendments to IFRIC 23
Amounts recognised in other comprehensive income
2023
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Loss on cash flow hedges
(7,015) 1,754 (5,261)
Remeasurement of post employment benefit obligations (14,200) 6,205 (7,995)
(21,215) 7,959 (13,256)
2022
Before tax
£ 000
Tax (expense)
benefit
£ 000
Net of tax
£ 000
Loss on cash flow hedges
20,559 (5,140) 15,419
Remeasurement of post employment benefit obligations
(As restated) (115,400) 29,743 (85,657)
(94,841) 24,603 (70,238)
Page 81
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
10 Income tax (continued)
Deferred tax
Group
Deferred tax mo vement during the year:
At 1 January
2023
£ 000
Recognised in
incom e
£ 000
Recognised in
other
com prehensive
incom e
£ 000
At
31 December
2023
£ 000
Accelerated tax depreciation
131,624 906 - 132,530
Pension benefit obligations
27,734 2,130 (3,558) 26,306
Other items
3,835 (38) (1,754) 2,043
Holdover relief 25 (23) - 3
163,218 2,975 (5,312) 160,882
At 1 January
2022
£ 000
Recognised in
incom e
£ 000
Recognised in
other
com prehensive
incom e
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation
128,826 2,798 - 131,624
Pension benefit obligations (As
restated)
55,431 1,153 (28,850) 27,734
Other items
(1,463) 158 5,140 3,835
Holdover relief 58 (33) - 25
182,852 4,076 (23,710) 163,218
The other items of £2.0m (2022: £3.8m liability) includes the deferred tax impact of cash flow hedges, provisions and
employee benefits which are deductible on a paid basis. Within pension benefit obligations the movement in the year
represents pension costs on the mo vement in retirement benefit obligation/asset. A proportion of the movement has
been capitalised in property, plant and equipment.
Page 82
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
10 Income tax (continued)
Com pany
Deferred tax mo vement during the year:
At 1 January
2023
£ 000
Recognised in
incom e
£ 000
Recognised in
other
com prehensive
incom e
£ 000
At
31 December
2023
£ 000
Accelerated tax depreciation
(8) 1 - (7)
Pension benefit obligations 37,361 2,998 (3,550) 36,809
37,353 2,999 (3,550) 36,802
Deferred tax mo vement during the prior year:
At 1 January
2022
£ 000
Recognised in
incom e
£ 000
Recognised in
other
com prehensive
incom e
£ 000
At
31 December
2022
£ 000
Accelerated tax depreciation
(10) 2 - (8)
Pension benefit obligations (As
restated) 65,057 1,154 (28,850) 37,361
65,047 1,156 (28,850) 37,353
Page 83
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
11 Property, plant and equipment
Group
Land and
buildings
£ 000
Distribution
system
£ 000
Metering
equipment
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022
6,534 3,941,237 489,662 84,443 4,521,876
Additions
- 156,104 53,266 5,665 215,035
Disposals - (9,612) (35,845) - (45,457)
As at 31 December 2022
6,534 4,087,729 507,083 90,108 4,691,454
At 1 January 2023
6,534 4,087,729 507,083 90,108 4,691,454
Additions
- 185,654 65,772 4,074 255,500
Disposals - (8,184) (25,530) (116) (33,830)
At 31 December 2023
6,534 4,265,199 547,325 94,066 4,913,124
Depreciation
At 1 January 2022
6,534 1,214,211 230,018 77,873 1,528,636
Charge for year
- 90,958 52,843 2,977 146,778
Eliminated on disposal - (9,612) (33,547) - (43,159)
As at 31 December 2022
6,534 1,295,557 249,314 80,850 1,632,255
At 1 January 2023
6,534 1,295,557 249,314 80,850 1,632,255
Charge for the year
- 94,990 52,027 3,328 150,345
Eliminated on disposal - (8,184) (24,567) (116) (32,867)
At 31 December 2023 6,534 1,382,363 276,774 84,062 1,749,733
Carrying am ount
At 1 January 2022
- 2,727,026 259,644 6,570 2,993,240
At 31 December 2022
- 2,792,172 257,769 9,258 3,059,199
At 31 December 2023
- 2,882,836 270,551 10,004 3,163,391
Page 84
Northern Electric 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 was as
follows:
31
Decem ber
2023
£ 000
31
Decem ber
2022
£ 000
Distribution system 184,298 167,998
Contractual commitments for the acquisition of property, plant and equipment we re as follows:
31
Decem ber
2023
£ 000
31
Decem ber
2022
£ 000
Distribution system 33,834 20,757
Com pany
Land and
buildings
£ 000
Distribution
system
£ 000
Furniture,
fittings and
equipment
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022 280 1,259 3,634 5,173
At 31 December 2022 280 1,259 3,634 5,173
At 1 January 2023 280 1,259 3,634 5,173
At 31 December 2023 280 1,259 3,634 5,173
Depreciation
At 1 January 2022
70 - 3,548 3,618
Charge for year 7 - - 7
At 31 December 2022 77 - 3,548 3,625
At 1 January 2023
77 - 3,548 3,625
Charge for the year 7 - - 7
At 31 December 2023 84 - 3,548 3,632
Carrying am ount
At 31 December 2023
196 1,259 86 1,541
At 31 December 2022
203 1,259 86 1,548
At 1 January 2022
210 1,259 86 1,555
Page 85
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
12 Right of use assets
Group
Fleet
£ 000
Property
£ 000
Land
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022
16,118 4,020 1,923 22,061
Additions
2,062 - - 2,062
Disposals (1,482) - - (1,482)
At 31 December 2022 16,698 4,020 1,923 22,641
At 1 January 2023
16,676 4,019 1,923 22,618
Additions
1,967 - - 1,967
Disposals (1,026) (181) - (1,207)
At 31 December 2023 17,617 3,838 1,923 23,378
Depreciation
At 1 January 2022
6,398 1,161 91 7,650
Charge for year
3,095 527 64 3,686
Eliminated on disposal (1,482) - - (1,482)
At 31 December 2022 8,011 1,688 155 9,854
At 1 January 2023
8,011 1,688 155 9,854
Charge for the year
2,911 527 64 3,502
Eliminated on disposal (1,026) (181) - (1,207)
At 31 December 2023 9,896 2,034 219 12,149
Carrying am ount
At 31 December 2023
7,721 1,804 1,704 11,229
At 31 December 2022
8,687 2,332 1,768 12,787
Page 86
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
12 Right of use assets (continued)
Com pany
Property
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022 1,366 1,366
At 31 December 2022 1,366 1,366
At 1 January 2023
1,366 1,366
At 31 December 2023 1,366 1,366
Depreciation
At 1 January 2022
213 213
Charge for year 137 137
At 31 December 2022 350 350
At 1 January 2023
350 350
Charge for the year
137 137
At 31 December 2023 487 487
Carrying am ount
At 31 December 2023
879 879
At 31 December 2022
1,016 1,016
Page 87
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
13 Intangible assets
Group
Software
developm ent
£ 000
Total
£ 000
Cost or valuation
At 1 January 2022
139,641 139,641
Additions 9,956 9,956
At 31 December 2022 149,597 149,597
At 1 January 2023
149,597 149,597
Additions 14,444 14,444
At 31 December 2023 164,041 164,041
Am ortisation
At 1 January 2022
90,753 90,753
Amortisation charge 11,487 11,487
At 31 December 2022
102,240 102,240
At 1 January 2023
102,240 102,240
Amortisation charge 11,195 11,195
At 31 December 2023 113,435 113,435
Carrying am ount
At 31 December 2023
50,606 50,606
At 31 December 2022
47,357 47,357
As at year-end, the amount of contractual commitments for the acquisition of intangible assets amounted to £4.1
million (2022: £2.3m).
Page 88
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments
Investm ent in
joint ventures
£ 000
Investm ent in
associate
£ 000
Share in other
undertakings
£ 000
Total
£ 000
At 1 January 2022
3,877 - 21 3,898
Profit from investments
1,011 - - 1,011
Dividends paid by investments (927) - - (927)
At 31 December 2022
3,961 - 21 3,982
Profit from investments
266 - - 266
Dividends paid by investments (615) - - (615)
At 31 December 2023
3,612 - 21 3,633
More information on JV can be found on Page 106.
Page 89
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Summary of the Company investments
31 December
2023
£ 000
31 December
2022
£ 000
Investments in subsidiaries
242,902 242,902
Group subsidiaries
Details of the Group subsidiaries as at 31 December 2023 are as follows:
Nam e of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2023 2022
CE Electric Services Limited Dormant
England and Wales
100% 100%
Central PowerGrid Limited Dormant
England and Wales
100% 100%
East PowerGrid Limited Dormant
England and Wales
100% 100%
Eastern PowerGrid Limited Dormant
England and Wales
100% 100%
Infrastructure North Limited Dormant
England and Wales
100% 100%
Integrated Utility Services
Limited
Engineering contracting
England and Wales
100% 100%
IUS Limited Dormant
England and Wales
100% 100%
Midlands PowerGrid Limited Dormant
England and Wales
100% 100%
NEDL Limited Dormant
England and Wales
100% 100%
North East PowerGrid
Limited
Dormant
England and Wales
100% 100%
North Eastern PowerGrid
Limited
Dormant
England and Wales
100% 100%
North Pow erGrid Limited Dormant
England and Wales
100% 100%
North West PowerGrid
Limited
Dormant
England and Wales
100% 100%
North Western PowerGrid
Limited
Dormant
England and Wales
100% 100%
Northern Electric Distribution
Limited
Dormant
England and Wales
100% 100%
Northern Electric Properties
Limited (02522939)*
Property holdings &
management company
England and Wales
100% 100%
Northern Electric Share
Scheme Trustee Limited
Dormant
England and Wales
100% 100%
Northern Electricity (North
East) Limited
Dormant
England and Wales
100% 100%
Page 90
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Nam e of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2023 2022
Northern Electricity
(Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Electricity Limited Dormant
England and Wales
100% 100%
Northern Electricity
Networks Company (North
East) Limited
Dormant
England and Wales
100% 100%
Northern Electricity
Networks Company
(Yorkshire) Limited
Dormant
England and Wales
100% 100%
Northern Electricity
Networks Company Limited
Dormant
England and Wales
100% 100%
Northern Electrics Limited Dormant
England and Wales
100% 100%
Northern Energy Funding
Company Limited
Dormant
England and Wales
100% 100%
Northern Powergrid Metering
Limited
Meter asset provider
England and Wales
100% 100%
Northern Powergrid
(Northeast) plc
Distribution of
electricity
England and Wales
100% 100%
Northern Powergrid (North
West) Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (North East)
Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company (Yorkshire)
Limited
Dormant
England and Wales
100% 100%
Northern Power Networks
Company Limited
Dormant
England and Wales
100% 100%
Northern Transport Finance
Limited
Car finance company
England and Wales
100% 100%
Northern Utility Services
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (Central) Limited Dormant
England and Wales
100% 100%
Pow erGrid (East) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Eastern) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Midlands)
Limited
Dormant
England and Wales
100% 100%
Page 91
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Nam e of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2023 2022
Pow erGrid (North East)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (North Eastern)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (North West)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (North Western)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (North) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Northern)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (South East)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (South Eastern)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (South West)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (South Western)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (South) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Southern)
Limited
Dormant
England and Wales
100% 100%
Pow erGrid (West) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Western) Limited Dormant
England and Wales
100% 100%
Pow erGrid (Yorkshire)
Limited
Dormant
England and Wales
100% 100%
South East PowerGrid
Limited
Dormant
England and Wales
100% 100%
South Eastern Pow erGrid
Limited
Dormant
England and Wales
100% 100%
South PowerGrid Limited Dormant
England and Wales
100% 100%
South West PowerGrid
Limited
Dormant
England and Wales
100% 100%
South Western Pow ergrid Dormant
England and Wales
100% 100%
Southern Pow erGrid Limited Dormant
England and Wales
100% 100%
West PowerGrid Limited Dormant
England and Wales
100% 100%
Page 92
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Nam e of subsidiary Principal activity
Registered office and country
of incorporation
Proportion of
ownership interest
and voting rights
held
2023 2022
Western Pow erGrid Limited Dormant
England and Wales
100% 100%
YEDL Limited Dormant
England and Wales
100% 100%
Yorkshire Electricity
Distribution Limited
Dormant
England and Wales
100% 100%
Yorkshire PowerGrid Limited Dormant
England and Wales
100% 100%
Northern Electric Finance
plc**
Finance company
England and Wales
100% 100%
*T hese companies have taken advantage of s479A Companies Act exemption from audit.
**T hese companies are indirectly owned subsidiaries, with the rest of the above being directly ow ned.
The class of shares related to the above companies are ordinary shares.
Unless otherwise stated the registered office of the above companies is: Lloyds Court, 78 Grey Street, Newcastle upon
Ty ne, Tyne and Wear, NE1 6AF.
Page 93
Northern Electric 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:
Nam e of associate Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2023 2022
DCUSA Limited* Goverance of
Distribution Connection
and Use of System
Agreement
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
1.69% 1.69%
Electralink Limited* Data transfer network
operator
Northumberland House,
303-306 Holborn, WC1V 7JZ,
England and Wales
6.2% 6.2%
MRA Service Company
Limited* (Dissolved in Sep
2023)
Goverance of the
electricty industry's
Master Registrauion
Agreement
8 Fenchurch Place, London,
EC3M 4AJ, England and
Wales
0.36% 0.36%
Selectusonline Limited Procurement vehicle Hawaswater House, Lingley
Mere Business Park, Lingley
Green Avenue, Great Sankey,
Warrington, WA5 3LP,
England and Wales
16.67% 16.67%
Electricity Pensions Trustee
Limited
Scheme Trustee of the
Electricity Supply
Pension Scheme
Highdown House, Yeoman
Way, Worthing, West Sussex,
United Kingdom, BN99 3HH
3.3% 3.2%
Smart Energy Code Company
Limited*
Goverance of
multi-Party agreement
in management of smart
metering
77 Gracechurch Street,
London, England, EC3V 0AS
0.64% 0.64%
EATL Group Covenantors
Limited**
Principal Employer of
the EA Technology
Group
Highdown House, Yeoman
Way, Worthing, West Sussex,
England, BN99 3HH
3.92% 3.92%
*T hese companies are indirectly owned subsidiaries, with the rest of the above being directly owned.
The class of shares related to the above companies are ordinary shares except EATL.
**EAT L Group Covenantors Limited is a private company limited by guarantee without a share capital, so no shares
are held in this company.
Page 94
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
14 Investments (continued)
Group joint ventures
Details of the Group joint ventures as at 31 December 2023 are as follows:
Nam e of Joint-ventures Principal activity Registered office
Proportion of
ownership interest and
voting rights held by
the Group
2023 2022
Vehicle Lease and Service
Limited *
Transport services Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
VLS Limited Dormant Centre for Advanced Industry,
3rd Floor, Coble Dene, North
Shields, NE29 6DE
England and Wales
50% 50%
* indicates direct investment of Northern Powergrid Limited
The class of shares related to the joint ventures above are ordinary shares.
Summarised financial information in respect of the Group's joint venture is set out below:
Joint ventures and associates are not strategic to the Group’s activities.
31 December
2023
£ 000
31 December
2022
£ 000
Current assets
27,878 15,481
Non-current assets
9,475 22,031
Current liabilities
(12,501) (12,464)
Non-current liabilities
(17,699) (17,198)
Net assets
7,152 7,850
Groups share of net assets
3,576 3,925
Revenue
19,512 20,615
Profit for the year
532 2,022
Groups share of profit for the year
266 1,011
15 Inventories
Group Com pany
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Raw materials and consumables
28,662 24,968 - -
Work in progress
607 441 - -
Vehicle inventory 635 331 - -
29,904 25,740 - -
Page 95
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables
Group Com pany
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 - -
Trade receivables
30,552 26,267 50 2
Lease receivable
3,858 3,968 - -
Loss allowance (8,150) (9,579) - -
Net trade receivables
85,558 77,929 50 2
Receivables from related parties
242,733 - 9,876 -
Social security and other taxes
- - 1,199 850
Prepayments
7,934 8,467 291 183
Other receivables 6,723 7,924 - -
342,948 94,320 11,416 1,035
Non-current lease receivables 6,463 4,087 - -
349,411 98,407 11,416 1,035
The average credit period on receivables is 30 days. No interest is charged on outstanding trade receivables.
Within Distribution use of system receivables and accrued income above is £32.4m of accrued income (2022:
£27.4m).
More information on receivables from related parties can be found within Note 2 and Note 31.
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 we ll as the forecast direction of conditions at the reporting date.
There has been no change in the estimation techniques or significant assumptions made during the current reporting
period.
As the Company’s historical credit loss experience does shows significantly different loss patterns for different
customer segments, the provision for loss allowance based on past due status is distinguished as follows:
• Distribution businesses: DUoS receivables, damages receivables, and other receivables;
• Metering: contracted meters, contracted churn, and non-contracted churn; and
• Engineering contracting.
31 December
2023
£ 000
31 December
2022
£ 000
At 1 January
9,579 8,757
Amounts utilised/written off in the year
(2,561) (144)
Amounts recognised in the income statement 1,132 966
At 31 December
8,150 9,579
Page 96
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
The loss allow ance is made on amount due net of VAT which wo uld be recoverable from His Majesty's Revenue and
Customs when the debt is wr itten off.
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the
Company 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 Company
considers historical experience as we ll as forward-looking information that is available without undue cost or effort.
Forw ard-looking information includes the future prospects of the industries in which the Company'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.
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: 21.7%) 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.
Provided the Group has implemented credit control, billing and collection processes in line with best practice
guidelines and can demonstrate compliance with the guidelines or is able to satisfactorily explain departure from the
guidelines, any losses arising from supplier default will be recovered through an increase in future allowed income.
Losses incurred to date have not been material therefore no ECL has been made on DUoS balances.
The following is the expected credit loss for receivables and accrued income past due:
2023
Not due
£ 000
Current
£ 000
1-3 mo nths
£ 000
Over 3 mo nths
£ 000
Total balance
32,447 23,886 11,515 2,953
Less specific provisions
- - - (2,930)
Balance eligible for ECL 32,447 23,886 11,515 23
Lifetime ECL
0% 2% 2% 2%
Expected credit loss
- 590 -
1
Page 97
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
2022
Not due
£ 000
Current
£ 000
1-3 mo nths
£ 000
Over 3 mo nths
£ 000
Total balance
35,177 26,865 7 2,965
Less specific provisions - - (3) (2,962)
Balance eligible for ECL 35,177 26,865 4 3
Lifetime ECL
0% 0% 0% 0%
Expected credit loss
- - - -
Other distribution trade receivables
Sales of goods and services comprise all income streams which are not classified as DUoS income. Examples of
non-DUoS income streams wo uld 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.
The following is the expected credit loss for receivables past due:
Dam ages receivables
2023
0-6 mo nths
£ 000
6-12 mo nths
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
892 481 505 1,126 81
Less specific provisions (293) (85) (127) (991) -
Balance eligible for ECL 599 396 378 135 81
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
120 99 113 54 65
2022
0-6 mo nths
£ 000
6-12 mo nths
£ 000
1-2 years
£ 000
2-3 years
£ 000
Over 3 year
£ 000
Total balance
943 1,180 546 113 261
Less specific provisions (97) (68) (232) - (226)
Balance eligible for ECL 846 1,112 314 113 35
Lifetime ECL
20% 25% 30% 40% 80%
Expected credit loss
169 278 94 45 28
Non-dam ages receivables
2023
Not due
£ 000
Current
£ 000
1-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
167 423 645 336 620
Less specific provisions (2) - - - (42)
Balance eligible for ECL 165 423 645 336 578
Lifetime ECL
0% 0% 0% 50% 85%
Expected credit loss
- - - 168 491
Page 98
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
2022
Not due
£ 000
Current
£ 000
1-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
313 315 1,224 222 319
Less specific provisions - - - - -
Balance eligible for ECL 313 315 1,224 222 319
Lifetime ECL
0% 0% 0% 50% 87%
Expected credit loss
- - - 111 278
Meter asset provision
Included in trade receivables are balances relating to the provision of meters through Northern Pow ergrid Metering
Limited. The average credit period on these receivables is 30 days. Interest is not generally charged on receivables
paid after the due date.
The Group wr ites 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 debtor is over 1 year past due. None of the trade receivables that
have been wr itten off are subject to enforcement activities.
For receivables where there is no specific provisions, a provision is made for debts past their due date based on
lifetime expected credit loss determined by reference to past default experience. The following is the expected credit
loss for receivables past due:
Contracted
2023
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance 7,604 1,833 10 - -
Balance eligible for ECL 7,604 1,833 10 - -
Lifetime ECL
0% 10% 50% 100% 100%
Expected credit loss
- 183 5 - -
2022
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
6,774 2,145 27 4 58
Less specific provisions - (2,145) (27) (4) (58)
Balance eligible for ECL 6,774 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
Contracted churn
2023
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
1,289 4,812 321 6 11
Balance eligible for ECL 1,289 4,812 321 6 11
Lifetime ECL
0% 20% 50% 100% 100%
Expected credit loss
- 976 163 6 11
Page 99
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
2022
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
4,164 1,128 270 117 1,053
Less specific provisions - (1,128) (270) (117) (1,053)
Balance eligible for ECL 4,164 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
Non-contracted churn
2023
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance 116 40 1 - -
Balance eligible for ECL 116 40 1 - -
Lifetime ECL
0% 40% 100% 100% 100%
Expected credit loss
- 16 1 - -
2022
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
374 36 1 33 660
Less specific provisions - (36) (1) (33) (660)
Balance eligible for ECL 374 - - - -
Lifetime ECL
0% 100% 100% 100% 100%
Expected credit loss
- - - - -
Engineering contracting receivables
The average credit period on Engineering contracting receivables is 30 days. Interest is not generally charged on
receivables paid after due date. Included in the Group’s construction contracts balance are debtors with a carrying
amount of £4.2 million (2022: £1.9 million), which are past due at the reporting date for which the Group has provided
for an irrecoverable amount of £0.5 million (2022: £0.1 million) based on past experience. The Group does not hold
and collateral over these balances. The average age of these receivables is 60 days (2022: 50 days).
Included in the Group's construction contracts balance are debtors with a carrying amount of £nil (2022: £nil) which
are past due at the reporting date for which the Group has not provided as there has not been a significant change in
credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these
balances.
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.
2023
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
1,892 1,087 181 74 549
Less specific provisions - - - - (549)
Balance eligible for ECL 1,892 1,087 181 74 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 11 18 37 -
Page 100
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
2022
Current
£ 000
1-3 mo nths
£ 000
3-6 mo nths
£ 000
6-12 mo nths
£ 000
Over 1 year
£ 000
Total balance
2,174 1,891 135 44 104
Less specific provisions - - - - (104)
Balance eligible for ECL 2,174 1,891 135 44 -
Lifetime ECL
0% 1% 10% 50% 100%
Expected credit loss
- 19 14 22 -
Lease receivables
Northern Transport Finance Limited ("NTFL"), a wholly ow ned subsidiary, enters into credit finance arrangements for
motor vehicles with employees in the Group. All agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. The
average effective interest rate contracted is approximately 6.5% (2022: 6.5%) per annum. None of these debts are past
due and there are no indicators of impairment.
The interest rate inherent in the agreements is fixed at the contract date for all of the term of the agreement. None of
these debts are past due and there are no indicators of impairment.
The directors consider the carrying value of lease receivables approximates their fair value. The maximum risk
exposure is the book value of these receivables, less the residual value of the leased assets.
2023
Minim um
lease
paym ents
£ 000
Interest
£ 000
Present value
£ 000
Within one year
3,903 (45) 3,858
In two to five years 7,067 (604) 6,463
10,970 (649) 10,321
2022
Minim um
lease
paym ents
£ 000
Interest
£ 000
Present value
£ 000
Within one year
4,027 (109) 3,918
In two to five years 4,624 (537) 4,087
8,651 (646) 8,005
Page 101
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
16 Trade and other receivables (continued)
Operating lease receivables
Operating leases relate to the metering assets ow ned by the Group with lease terms of 10 years, these are disclosed in
Note 11. The lessee does not have an option to purchase the meters at the expiry of the lease period.
The total future value of minimum lease payments is as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Within one year
85,848 79,519
In two to five years
236,459 262,627
Over five years 177,401 145,932
499,708 488,078
The Group's exposure to credit and market risks, including maturity analysis, relating to trade and other receivables is
disclosed in Note 29 "Financial risk review".
17 Cash and cash equivalents
Group Com pany
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Cash at bank
810 15,324 - -
Other cash and cash equivalents 13,950 253,337 - 18,090
14,760 268,661 - 18,090
The 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 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
Page 102
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
18 Share capital
Allotted, issued, and fully paid:
The Company has one class of ordinary shares which carries no right to fixed income. Details of cumulative
non-equity preference shares are contained in the borrow ings Note 20.
Share value No. of shares
2023
£ 000
2022
£ 000
Ordinary shares 56 12/13p 127,689,809
72,173 72,173
19 Reserves
Group
The changes to each component of equity resulting from items of other comprehensive income for the current year
we re as follows:
Cash flow
hedging
reserve
£ 000
Retained
earnings
£ 000
Total
£ 000
Loss on cash flow hedge (net)
(5,261) - (5,261)
Remeasurements of post employment benefit obligations
(net) - (7,995) (7,995)
(5,261) (7,995) (13,256)
There had been no mo vement on share premium and capital redemption reserve.
Prior period
The changes to each component of equity resulting from items of other comprehensive income for the prior year were
as follows:
Cash flow
hedging
reserve
£ 000
(As restated)
Retained
earnings
£ 000
Total
£ 000
Loss on cash flow hedge (net)
15,419 - 15,419
Remeasurements of post employment benefit obligations - (85,657) (85,657)
15,419 (85,657) (70,238)
Page 103
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
19 Reserves (continued)
Com pany
The changes to each component of equity resulting from items of other comprehensive income for the current year
we re as follows:
Retained
earnings
£ 000
Total
£ 000
Remeasurements of post employment benefit obligations
(10,650) (10,650)
The changes to each component of equity resulting from items of other comprehensive income for the prior year were
as follows:
Retained
earnings
£ 000
Total
£ 000
Remeasurements of post employment benefit obligations
(86,550) (86,550)
20 Loans and borrowings
Group Com pany
2023
£ 000
2022
£ 000
2023
£ 000
2022
£ 000
Non-current loans and borrowings
1,153,068 1,193,131 1,117 1,117
Current loans and borrow ings
135,284 125,040 6,368 7,831
1,288,352 1,318,171 7,485 8,948
Page 104
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
20 Loans and borrowings (continued)
Group
Carrying value Fair value
2023
£ 000
2022
£ 000
2023
£ 000
2022
£ 000
Short-term loans
72,883 63,614 72,883 63,614
Amortising loan 2026 - 2.3012%*
135,502 174,915 137,476 173,480
Bond 2035 - 5.125%
153,550 153,457 158,526 150,066
Bond 2049- 2.75%
150,161 150,098 106,192 100,507
Bond 2052 - 3.25%
355,018 354,942 272,362 259,793
Bond 2062 - 1.875%
297,742 297,649 159,538 154,267
European Investment Bank 2027 -
2.564%
120,128 120,128 111,677 103,252
Cumulative preference shares 3,368 3,368 133,454 139,037
1,288,352 1,318,171 1,152,108 1,144,016
The group's exposure to market and liquidity risks, including maturity analysis, relating to loans and borrow ings is
disclosed in Note 29 "Financial risk review".
*2026 £218m Amortising Loan is 80% swapped at a fixed rate of 2.4455%, with the remaining 20% floating at
SONIA plus 1.55%.
Com pany
Carrying value Fair value
2023
£ 000
2022
£ 000
2023
£ 000
2022
£ 000
Short-term loans
4,118 5,580 4,118 5,580
Cumulative preference shares 3,368 3,368 133,454 139,037
7,486 8,948 137,572 144,617
Of the total financial liabilities of £1,288.4 million, £1,215.5 million (2022: £1,254.6 million) relates to external
borrow ings and preference shares (111,662,378 shares) whose fair value is determined with reference to quoted
market prices. The directors' estimates of the fair value of internal borrow ings are determined in accordance with
generally accepted pricing mo dels based on discounted cash flow analysis using prices from observable current market
transactions or dealer quotes for similar instruments. The valuation of liabilities set out above is based on Level 1
inputs.
The terms of the cumulative preference shares:
• entitle holders, in priority to holders of all other classes of shares, to a fixed cumulative preferential dividend of
8.061p (net) per share per annum payable half-yearly in equal amounts on 31 March and 30 September;
• on a return of capital on a winding up, or otherw ise, will carry the right to repayment of capital together with a
premium of 99p per share and a sum equal to any arrears or accruals of dividend. This right is in priority to the
rights of ordinary shareholders;
• carry the right to attend a general meeting of Northern Electric plc and vote if, at the date of the notice convening
the meeting, payment of the dividend to which they are entitled is six mo nths or mo re in arrears, or if a resolution
is to be considered at the meeting for the winding-up of Northern Electric plc or abrogating, varying or mo difying
any of the special rights attaching to them; and
Page 105
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
20 Loans and borrowings (continued)
• are redeemable in the event of the revocation by the Secretary of State of Northern Electric plc's Public Electricity
Supply Licence at the value given above.
During the year ended 31 December 2001, under the terms of the Northern Electric plc's transfer scheme, as approved
by the Secretary of State in accordance with the provisions of the Utilities Act 2000, the Northern Electric plc's Public
Electricity Supply Licence was converted into an Electricity Distribution Licence and an Electricity Supply Licence.
21 Obligations under leases
Group
Lease liability
Lease commitments relate to fleet vehicles from Vehicle Lease and Service Limited, a joint venture, with terms of up
to 7 years and land and buildings with terms of up to 50 years.
The total future value of minimum lease payments is as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Within one year
3,524 3,690
In two to five years
6,996 8,014
In over five years 2,381 2,755
Total lease payment
12,901 14,459
Unearned interest
(1,275) (1,266)
Total lease liability
11,626 13,193
The discounted amount due within one year totalled £3,231k (2022: £3,402k).
Unearned interest is future interest on leases not yet earned at the balance sheet date.
Page 106
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
21 Obligations under leases (continued)
Com pany
Operating leases
The Company holds one single lease relating to the main office building within New castle upon Tyne.
The total future value of minimum lease payments is as follows:
31 December
2023
£ 000
31 December
2022
£ 000
Within one year
86 172
In two to five years
687 601
In over five years 219 391
Total lease payment
992 1,164
Unearned interest
(78) (102)
Total lease liability
914 1,062
22 Provisions
Group
Claim s
£ 000
Other
£ 000
Total
£ 000
At 1 January 2023
1,095 3,339 4,434
Additional provisions
1,515 (105) 1,410
Provisions used (1,609) (297) (1,906)
At 31 December 2023
1,001 2,937 3,938
Non-current liabilities
- 1,641 1,641
Current liabilities
1,001 1,296 2,297
Claims: Provision has been made to cover costs arising from utility damage, public liability, and mo toring third party
claims, which are not externally insured. Settlement is expected substantially within 12 mo nths.
Other: Relates primarily to environmental liabilities, wayleave disputes, provision for future safe disposal of
transformers which contain oil contaminated with Polychlorinated Biphenyls (PCBs) and unfunded pension
arrangements. Settlement is expected substantially after the next 12 mo nths.
Also included within 'other' are pension provisions which relate to the Group's share of expected settlements of
liabilities relating to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected
to be settled over a period of approximately two years. As at 31 December 2023 the provision relating to EATL is
£0.3m (2022: £0.6m).
Page 107
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
22 Provisions (continued)
Com pany
Other
provisions
£ 000
Total
£ 000
At 1 January 2023
2,265 2,265
Increase (decrease) in existing provisions
(315) (315)
Provisions used (679) (679)
At 31 December 2023
1,271 1,271
The Company's provisions relate to the actuarial assessment of the costs of unfunded pension arrangements in respect
of former employees. This is expected to be realised over the next 20 years.
Also included above are pension provisions which releate to the Group's share of expected settlements of liabilities
relating to pension deficit repair of Electricity Association Technology Limited ("EATL") and are expected to be
settled over a period of approximately two years. As at 31 December 2023 the provision relating to EATL is £0.3m
(2022: £0.6m).
23 Trade and other payables
Group Com pany
31 December
2023
£ 000
31 Decem ber
2022
£ 000
31 Decem ber
2023
£ 000
31 Decem ber
2022
£ 000
Payments on account
68,670 54,169 - -
Trade payables
4,842 4,838 2,234 1,550
Capital creditors
32,330 20,754 2,348 -
Accrued expenses
16,697 14,353 1,643 2,291
Social security and other taxes
5,334 8,498 143 94
Other payables 27,896 14,792 189 317
155,769 117,404 6,557 4,252
Payments on accounts is primarily advanced customer contributions.
The Group's exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is
disclosed in the financial risk review Note 29.
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 of
£31.2m (2023 £26.0m).
The directors consider that the carrying amount of other financial liabilities approximates their fair value, calculated
by discounting future cash flows at market rate at the statement of financial position date. The valuation is based on
Level 1 inputs. Trade creditors and accruals principally comprise amounts outstanding for trade purchases and
on-going costs. Invoices are paid at the end of the month following the date of the invoice. The Group has financial
risk management policies in place to ensure that all payables are paid within the credit timeframe. The standard
payment term for trade payables is net monthly.
Page 108
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
24 Deferred revenue
Group Com pany
31 December
2023
£ 000
31 December
2022
£ 000
31 December
2023
£ 000
31 December
2022
£ 000
Opening balance
681,802 677,658 - -
Additions
46,267 33,397 - -
Amortisation
(29,963) (29,253) - -
698,106 681,802 - -
Group Com pany
31 December
2023
£ 000
31 December
2022
£ 000
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 tow ards 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 109
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes
Defined benefit pension schemes
Electricity Supply Pension Scheme
The Group contributes to two pension schemes, which it operates on behalf of the participating companies within the
Group. 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 wa s 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 grow th 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 110
Northern Electric 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 contributions. The
next actuarial valuation is underway as 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) of pensionable pay with effect from 1 July 2023. These contributions we re determined as part
of the 31 March 2022 actuarial valuation. These rates will remain in place until such a time as a new schedule of
contributions is agreed between the Trustees and the Group as part of the 31 March 2025 valuation.
The Northern Pow ergrid Group’s total contributions 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.
Investm ent 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 mo re 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.
Page 111
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
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.
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 mo nitored 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 lead to higher liabilities
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.
Page 112
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
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
wr ong benefits), legislative risks (such as the government increasing the burden on pension schemes through new
legislation) and other demographic risks (such as a higher proportion of members dying than assumed with a
dependant eligible to receive a survivor's pension from the DB Scheme).
Reporting at 31 December 2023
For the purposes of this disclosure, the current and future pension costs of the Northern Pow ergrid 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 Pow ergrid 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 to 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 we re 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:
Post retirement mortality assumptions
31 December
2023
Years
31 December
2022
Years
Life expectancy for male currently aged 60
26.70 26.70
Life expectancy for female currently aged 60
28.90 26.60
Life expectancy at 60 for male currently aged 45
27.40 27.40
Life expectancy at 60 for female currently aged 45
30.10 29.70
Page 113
Northern Electric 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
Re-measurement (loss)/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
Page 114
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
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.
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)
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)
Page 115
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
Amounts recognised in the income statement
31 December
2023
£ 000
(As restated)
31 December
2022
£ 000
Current service cost
5,100 11,100
Losses (gains) on curtailments and settlements
1,400 1,490
Net interest
(7,300) (5,100)
Amounts recognised (800) 7,490
Costs included in cost of qualifying assets (2,500) (6,800)
Total recognised in the income statement
(3,300) 690
Amounts taken to the Statement of Comprehensive Income
31 December
2023
£ 000
31 December
2022
£ 000
Actuarial gains arising from changes in demographic assumptions
(34,400) (900)
Actuarial losses and (gains) arising from changes in financial assumptions
18,300 (530,100)
Actuarial losses arising from experience adjustments
27,300 64,400
Return on plan assets in excess of that recognised in net interest 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
Adjustm ent 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
945,000 957,600 970,400 952,700 965,500 979,300
31 December
2023
31 December
2022
Adjustm ent 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
966,700 957,600 946,600 978,700 965,500 953,300
31 December
2023
31 December
2022
Adjustm ent to mo rtality age
rating assumption
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
+ 1 Year
£ 000
None
£ 000
- 1 Year
£ 000
Present value of total obligation
993,800 957,600 920,600 995,300 965,500 934,900
Page 116
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
25 Pension and other schemes (continued)
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 wo uld occur in isolation of one another as some of the assumptions
may be correlated.
26 Dividends
31 December
2023
31 December
2022
£ 000 £ 000
Dividend of £0.38 (2022 - £0.90) per ordinary share
48,000 114,946
An interim dividend of £400 million was paid on the 26th March 2024.
Page 117
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
27 Net debt reconciliation
Group
At 1 January
2023
£ 000
Cash flows
£ 000
New leases
£ 000
Other changes
£ 000
At 31
Decem ber
2023
£ 000
Cash and cash equivalents
268,661 (253,901) - - 14,760
Lease liabilities
(13,193) 3,827 (2,260) - (11,626)
Borrow ings (1,318,171) 31,671 - (1,852) (1,288,352)
(1,062,703) (218,403) (2,260) (1,852) (1,285,218)
At 1 January
2022
£ 000
Cash flows
£ 000
New leases
£ 000
Other changes
£ 000
At 31
Decem ber
2022
£ 000
Cash and cash equivalents
42,140 226,521 - - 268,661
Lease liabilities
(14,790) 4,032 (2,435) - (13,193)
Borrow ings (1,037,367) (270,518) - (10,286) (1,318,171)
(1,010,017) (39,965) (2,435) (10,286) (1,062,703)
Other changes include accrued interest mo vement and amortisation of borrowings.
Page 118
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
27 Net debt reconciliation (continued)
Com pany
At 1 January
2023
£ 000
Cash flows
£ 000
New leases
£ 000
At 31
Decem ber
2023
£ 000
Cash and cash equivalents
18,090 (18,090) - -
Lease liabilities
(1,062) 172 (24) (914)
Borrow ings (8,948) 1,463 - (7,485)
8,080 (16,455) (24) (8,399)
At 1 January
2022
£ 000
Cash flows
£ 000
New leases
£ 000
At 31
Decem ber
2022
£ 000
Cash and cash equivalents
29,036 (10,946) - 18,090
Lease liabilities
(1,206) 171 (27) (1,062)
Borrow ings (14,978) 6,030 - (8,948)
12,852 (4,745) (27) 8,080
Page 119
Northern Electric 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 year ended 31 December 2023 wa s as follows:
Non-current assets
Financial
assets at
am ortised cost
£ 000
Financial
assets at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Property, plant and equipment
- - - - 3,163,391
Right of use assets
- - - - 11,229
Intangible assets
- - - - 50,606
Investments in subsidiaries, joint ventures and associates
- 3,633 - - -
Retirement benefit obligations
- - 148,600 - -
Trade and other receivables
6,463 - - - -
Other non-current financial assets (Note 30) - - 8,831 - -
6,463 3,633 157,431 - 3,225,226
Current assets
Inventories
- - - - 29,904
Trade and other receivables
342,948 - - - -
Cash and cash equivalents
14,760 - - - -
Contract assets
7,052 - - - -
Other current financial assets (Note 30) - - 5,861 - -
364,760 - 5,861 - 29,904
Total assets
371,223 3,633 163,292 - 3,255,130
Page 120
Northern Electric 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)
Non-current assets
Financial
assets at
am ortised cost
£ 000
Financial
assets at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Non-current liabilities
Long term lease liabilities
- - - (8,395) -
Loans and borrowings
- - - (1,153,068) -
Provisions
- - - (1,641) -
Deferred revenue
- - - (668,067) -
Deferred tax liabilities
- - - - (160,882)
- - - (1,831,171) (160,882)
Current liabilities
Current portion of long term lease liabilities
- - - (3,231) -
Trade and other payables
- - - (150,435) (5,334)
Loans and borrowings
- - - (135,284) -
Income tax liability
- - - - (3,245)
Deferred revenue
- - - (30,039) -
Provisions
- - - (2,297) -
- - - (321,286) (8,579)
Total liabilities
- - - (2,152,457) (169,461)
Page 121
Northern Electric 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 ending 31 December 2022 wa s as follows:
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - - 3,059,199
Right of use assets
- - - - 12,787
Intangible assets
- - - - 47,357
Investments in subsidiaries, joint ventures and associates
- 3,982 - - -
Retirement benefit obligations
- - 151,500 - -
Trade and other receivables
4,087 - - - -
Other non-current financial assets (Note 30) - - 18,926 - -
4,087 3,982 170,426 - 3,119,343
Current assets
Inventories
- - - - 25,740
Trade and other receivables
94,320 - - - -
Income tax asset
- - - - 1,054
Cash and cash equivalents
268,661 - - - -
Contract assets
5,824 - - - -
Other current financial assets (Note 30) - - 2,781 - -
368,805 - 2,781 - 26,794
Total assets
372,892 3,982 173,207 - 3,146,137
Page 122
Northern Electric 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)
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets &
liabilities at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Liabilities
Non-current liabilities
Long term lease liabilities
- - - (9,791) -
Loans and borrowings
- - - (1,193,131) -
Provisions
- - - (1,921) -
Deferred revenue
- - - (652,476) -
Deferred tax liabilities - - - - (163,218)
- - - (1,857,319) (163,218)
Current liabilities
Current portion of long term lease liabilities
- - - (3,402) -
Trade and other payables
- - - (108,906) (8,498)
Loans and borrowings
- - - (125,040) -
Deferred revenue
- - - (29,326) -
Provisions - - - (2,513) -
- - - (269,187) (8,498)
Total liabilities
- - - (2,126,506) (171,716)
Fair values are derived from level 1 inputs.
Page 123
Northern Electric 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)
Com pany
The classification of financial assets and financial liabilities by accounting categorisation for the year ended 31 December 2023 wa s as follows:
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - - 1,541
Right of use assets
- - - - 879
Retirement benefit obligations
- - 148,600 - -
Investments in subsidiaries, joint ventures and associates
- 242,902 - - -
- 242,902 148,600 - 2,420
Current assets
Trade and other receivables
10,217 - - - 1,199
Income tax asset - - - - 4,367
10,217 - - - 5,566
Total assets
10,217 242,902 148,600 - 7,986
Liabilities
Page 124
Northern Electric 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)
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Non-current liabilities
Long term lease liabilities
- - - (850) -
Loans and borrowings
- - - (1,117) -
Provisions
- - - (956) -
Deferred tax liabilities - - - - (36,802)
- - - (2,923) (36,802)
Current liabilities
Current portion of long term lease liabilities
- - - (64) -
Trade and other payables
- - - (6,414) (143)
Loans and borrowings
- - - (6,368) -
Provisions - - - (315) -
- - - (13,161) (143)
Total liabilities
- - - (16,084) (36,945)
Page 125
Northern Electric 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 year ended 31 December 2022 wa s as follows:
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
(As restated)
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Assets
Non-current assets
Property, plant and equipment
- - - - 1,548
Right of use assets
- - - - 1,016
Retirement benefit obligations
- - 151,500 - -
Investments in subsidiaries, joint ventures and associates - 242,902 - - -
- 242,902 151,500 - 2,564
Current assets
Trade and other receivables
185 - - - 850
Income tax asset
- - - - 1,400
Cash and cash equivalents 18,090 - - - -
18,275 - - - 2,250
Total assets
18,275 242,902 151,500 - 4,814
Liabilities
Page 126
Northern Electric 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)
Financial
assets at
am ortised cost
£ 000
Financial
assets &
liabilities at
FVTPL
£ 000
Financial
assets at
FVTOCI
£ 000
(As restated)
Financial
liabilities at
am ortised cost
£ 000
Non-financial
assets &
liabilities
£ 000
Non-current liabilities
Long term lease liabilities
- - - (914) -
Loans and borrowings
- - - (1,117) -
Provisions
- - - (1,610) -
Deferred tax liabilities - - - - (37,353)
- - - (3,641) (37,353)
Current liabilities
Current portion of long term lease liabilities
- - - (148) -
Trade and other payables
- - - (4,158) (94)
Loans and borrowings
- - - (7,831) -
Provisions - - - (263) -
- - - (12,400) (94)
Total liabilities
- - - (16,041) (37,447)
Page 127
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review
Capital ma nagem ent
The Group manages its capital centrally to ensure that entities in the 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 Group’s
overall strategy remains unchanged from 2022.
The capital structure of the Group consists of net debt (borrow ings as detailed in Note 20 offset by equity of the
Company (comprising issued capital, reserves and retained earnings as detailed in Notes 18 and 19).
At 31 December 2023, 98% of the Group's long-term borrowings we re at fixed rates (2022: 97%) and the average
maturity for these borrow ings wa s 23 years (2022: 23 years).
During the year all obligations under the various debt covenants have been complied with.
Credit risk
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 mo nitored 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 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. The Company's receivables are subject to expected
credit loss calculations disclosed further within the trade receivables (Note 16). The Group's credit risk exposure is
shown below:
Group
2023 Notes
Gross carrying
am ount
£ 000
Loss allowance
£ 000
Net carrying
am ount
£ 000
Trade and other receivables
16 357,561 (8,150) 349,411
Cash and short-term deposits
17 14,760 - 14,760
Contract assets
16
7,052 - 7,052
16
379,373 (8,150) 371,223
2022 Notes
Gross carrying
am ount
£ 000
Loss allowance
£ 000
Net carrying
am ount
£ 000
Trade and other receivables
16 107,986 (9,579) 98,407
Income tax asset
1,054 - 1,054
Cash and short-term deposits
17 268,661 - 268,661
Contract assets
16
5,824 - 5,824
16
383,525 (9,579) 373,946
Page 128
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
For trade receivables the Group has applied the simplified approach in IFRS 9 to measure the loss allow ance 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
allow ance 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.
Com pany
2023 Notes
Gross carrying
am ount
£ 000
Loss allowance
£ 000
Net carrying
am ount
£ 000
Trade and other receivables
16 11,416 - 11,416
Cash and cash equivalents
17 - - -
Income tax asset
4,367 - 4,367
2022 Notes
Gross carrying
am ount
£ 000
Loss allowance
£ 000
Net carrying
am ount
£ 000
Trade and other receivables
16 1,035 - 1,035
Cash and cash equivalents
17 18,090 - 18,090
Income tax asset
- - -
Amounts due from Group undertakings are regarded as low credit risk as the Group has a strong capacity to meet its
contractual cash flow obligations and maintains an investment grade credit rating.
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 mo nitoring forecast and actual cash flows, and by
matching the maturity profiles of financial assets and liabilities.
The Group 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 facility wa s executed in December 2021 for a period of three
years, with two 1-year extensions. During 2023, the second 1-year extension option wa s exercised, extending the
expiry date to December 2026. In addition, the Group has access to further short-term borrow ing facilities provided by
YEG and to a £22 million overdraft facility provided by Lloyds Bank plc, which is reviewed annually, these
borrow ings are repayable on demand.
At 31 December 2023, the Group had available £119.3m (2022: £88.8m) of undrawn committed borrowing facilities
in respect of which all conditions precedent had been met.
Maturity analysis for financial liabilities
The following table sets out the remaining contractual maturities of financial liabilities by type.
Page 129
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
Group
2023
Less than 3
mo nths
£ 000
3 mo nths -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
101,426 - - - 101,426
66,338 - - 73,382
Short-term interest bearing
7,044
Long-term interest bearing - 77,895 345,867 1,554,688 1,978,450
108,470 144,233 345,867 1,554,688 2,153,258
2022
Less than 3
mo nths
£ 000
3 mo nths -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
73,854 - - - 73,854
Short-term interest bearing
63,592 3,717 30,386 - 97,695
Long-term interest bearing - 102,786 363,611 1,583,500 2,049,897
137,446 106,503 393,997 1,583,500 2,221,446
Com pany
2023
Less than 3
mo nths
£ 000
3 mo nths -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
2,424 - - - 2,424
Short-term interest bearing
4,096 - - - 4,096
Long-term interest bearing - 9,001 36,004 226,144 271,149
6,520 9,001 36,004 226,144 277,669
2022
Less than 3
mo nths
£ 000
3 mo nths -
1 year
£ 000
1-5 years
£ 000
More than
5 years
£ 000
Total
£ 000
Non-interest bearing
1,889 - - - 1,889
Short-term interest bearing
5,558 - - - 5,558
Long-term interest bearing - 9,001 36,004 226,144 271,149
7,447 9,001 36,004 226,144 278,596
Market risk
Market risk is the risk of loss arising from mo vements in market variables such as interest rates, exchange rates and
commodity prices. Risks are mitigated by utilising appropriate risk management products.
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 98%(2022: 97%) of long term debt at fixed rates. Short-term
loans under the multicurrency revolving credit facility are charged at a floating rate of interest at SONIA plus 0.20%
plus a credit adjustment spread. In aggregate, 20% of the amortising long-term loan and the capital expenditure facility
loans are at a floating rate of interest at SONIA plus 1.55% and 1.60% respectively, thus exposing the Group to cash
flow interest rate risk. A 1% mo vement in interest rates wo uld subject the Group to an approximate change in interest
costs of £0.4m 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.
More information on the use of cash flow hedges to manage interest rate risk on is available in Note 30.
Page 130
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
29 Financial risk review (continued)
Financial risk
The Group is not subject to significant risk relating to foreign exchange.
30 Derivatives held for risk ma nagement and hedge accounting
Derivatives held for risk ma nagement
Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates,
foreign exchange rates, credit spreads, commodities, equity or other indices. In accordance with Board approved
policies, derivatives are transacted to manage our exposure to fluctuations in interest rate. The Group uses derivatives
to manage these risks from our financing portfolio to optimise the overall cost of accessing the debt capital markets.
The following table provides a reconciliation by risk category of components of equity and analysis of other
comprehensive income items (net of tax) resulting from hedge accounting. All derivative financial instruments relate
to cash flow hedges.
2023 2022
Assets
£ 000
Liabilities
£ 000
Assets
£ 000
Liabilities
£ 000
Non-current
8,831 - 18,926 -
Current 5,861 - 2,781 -
14,692 - 21,707 -
The maturity of financial instruments wa s as follows:
3 mo nths to 1
year
£ 000
1 to 5 years
£ 000
More than 5
years
£ 000
Total
£ 000
2023
Notional principal
33,403 129,880 - 163,283
Cash flow hedge
2,171 12,521 - 14,692
35,574 142,401 - 177,975
2022
Notional principal
32,801 145,179 - 177,980
Cash flow hedge
2,781 18,926 - 21,707
35,582 164,105 - 199,687
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated
as cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rate borrowings. The
interest rate swaps and interest payments on the underlying loan occur simultaneously and the amount accumulated in
equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or
loss.
The interest rate swaps are settled on a quarterly basis and are based on receiving a floating rate of interest based on
SONIA and paying a fixed rate of 0.8955% on the amortising long-term loans and 0.8505% on the capital expenditure
facility loans. The Group will settle the difference between the fixed and floating interest rate on a net basis.
Page 131
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
30 Derivatives held for risk ma nagement and hedge accounting (continued)
Effectiveness testing
The Group is using regression analysis to assess the effectiveness of the interest rate swap on a retrospective and
prospective basis throughout the term of the hedging relationship. The dollar offset method was also performed at
inception, showing zero ineffectiveness.
Nature of the risk being hedged
The Group is hedging the risk of variability in cash flows indexed to SONIA. Further details of the Group's risk
management is available in the strategic report, pages 23 to 28, and in financial risk review, Note 29.
31 Related party transactions
Directors' advances, credits and guarantees
During the year, 1 directors (2022: 3) and 4 key personnel (2022: 3) utilised the services provided by Northern
Transport Finance Limited. The amounts included in lease receivables owed by these directors and key personnel we re
£65,888 (2022: £90,000).
Group
2023
Sales to
£ 000
Purchases
from
£ 000
Am ounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,235 (2,932) - - -
CE Gas Limited
658 - - - -
Northern Powergrid (Yorkshire)
plc
37,535 (15,359) - - -
Vehicle Lease and Service
Limited
37 (5,132) - 231 -
Yorkshire Electricity Group - - - 614 242,733
40,465 (23,423) - 845 242,733
2022
Sales to
£ 000
Purchases
from
£ 000
Am ounts
owed
from/(to)
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
Integrated Utility Services (Eire)
2,414 (3,015) - - -
CE Gas Limited
215 - - - -
Northern Powergrid (Yorkshire)
plc
32,346 (10,591) - - -
Vehicle Lease and Service
Limited
28 (5,175) - 1,011 -
Yorkshire Electricity Group - - - 2,948 253,337
35,003 (18,781) - 3,959 253,337
Page 132
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
31 Related party transactions (continued)
Com pany
2023
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Limited
658 - - -
Northern Powergrid Limited
- - (3,111) -
Northern Powergrid (Northeast) plc
5,010 (12) 31,400 -
Northern Powergrid (Yorkshire) plc
2,310 - - -
Northern Transport Finance Limited
51 - - -
Vehicle Lease and Service Limited
- - 231 -
Yorkshire Electricity Group
- - 973 11,271
Northern Powergrid Metering Limited - - 16,600 -
8,029 (12) 46,093 11,271
2022
Sales to
£ 000
Purchases
from
£ 000
Finance
income/(costs)
£ 000
Borrowings
to/(from)
£ 000
CE Gas Limited
215 - - -
Northern Powergrid (Northeast) plc
4,193 (6) 27,700 -
Northern Powergrid (Yorkshire) plc
2,092 - - -
Northern Transport Finance Limited
7 - 3,249 -
Vehicle Lease and Service Limited
- - 1,011 -
Yorkshire Electricity Group
- - 370 18,090
Northern Powergrid Metering Limited
- - 75,000 -
Northern Electric Properties Limtied - - 8,997 -
6,507 (6) 116,327 18,090
Intercompany balances with Yorkshire Electricity Group relate to intercompany current account transactions. Further
details can be found on Note 2 and Note 17.
Page 133
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
32 Parent and ultim ate parent undertaking
The Company's immediate parent is Northern Powergrid Limited.
The ultimate parent and controlling party is Berkshire Hathaway Inc.. These financial statements are available upon
request from 3555 Farnam Street, Omaha, Nebraska 68131.
Relationship between entity and parents
The parent of the largest group in which these financial statements are consolidated is Berkshire Hathaway Inc.,
incorporated in United States of America.
The registered 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 Pow ergrid Holdings
Company, incorporated in England and Wales.
The registered address of Northern Powergrid Holdings Company is::
Lloyds Court, 78 Grey Street, Newcastle upon Tyne, Tyne and Wear, NE1 6AF
33 Other reserves
At the Company's Annual General Meeting in August 1994, the shareholders gave approval to on-market purchases of
up to 10% of its shares and this wa s given effect on 21 September 1994 when 12,370,400 shares we re purchased. This
transaction resulted in the creation of a capital redemption reserve of £6.2m. Under section 831(4) of the Companies
Act 2006 this reserve is treated as an un-distributable reserve.
34 Notice of annual general me eting
Notice is hereby given that the Annual General Meeting of Northern Electric plc will be held by Team s on Wednesday
26 June 2024 at 11.00 am.
WebEx joining instructions
For shareholders wishing to join the Annual General Meeting of Northern Electric plc please visit
https://www.microsoft.com/microsoft-teams/join-a-meeting and when prompted, enter ‘meeting ID’: 220 376 670 685
and ‘passcode’: NAZcEs.
The following resolutions will be proposed as ordinary resolutions:
Annual Report and Accounts
1 To receive and consider the strategic, directors' and auditor's reports and the Group accounts for the year ended
31 December 2023.
Dividend
2 To declare that no final dividend be paid for the year ended 31 December 2023.
Re-election of Directors
3 To re-elect Mr J N Reynolds as a director.
The Auditors
4 To appoint KPMG as auditor of the Company to hold office with effect 26 June 2024 to the conclusion of the
accounts meeting next following their appointment, remuneration to be determined by the directors.
Page 134
Northern Electric plc
Notes to the Financial Statements for the Year Ended 31 December 2023 (continued)
34 Notice of annual general me eting (continued)
By order of the board
J C Riley
Company Secretary
# April 2024
Registered office:
Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF
Registered in England No 2366942
Notes:
1 All the issued ordinary shares in the Company are held by or on behalf of Northern Pow ergrid Limited.
2 Holders of preference shares have the right to receive notice of, attend and speak at the Annual General
Meeting but are only entitled to vote if, at the date of the notice of the meeting, payment of the dividend to
which they are entitled is six mo nths or mo re in arrears, or if a resolution is to be considered at the meeting for
the winding up of the Company or abrogating, varying or modifying any of the special rights attaching to the
preference shares. As none of these circumstances apply to this Annual General Meeting, preference
shareholders should note that they do not have the right to vote on any of the business to be considered.
3 Members are entitled to appoint a proxy to exercise all or any of their rights on their behalf at the meeting. A
shareholder may appoint mo re than one proxy in relation to the Annual General Meeting provided that each
proxy is appointed to exercise the rights attached to a different share or shares held by the shareholder. A proxy
need not be a shareholder of the Company.
4 Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act
2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the
shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed)
as a proxy for the Annual General Meeting. If a Nominated person does not have such a right or does not wish
to exercise it, he/she may have a right under such an agreement to give instructions to the member as to the
exercise of voting rights.
5 Any corporation which is a member can appoint one or mo re corporate representatives who may exercise on its
behalf all of its powers as a member provided that they do not do so in relation to the same shares.
6 The current price of the Company’s preference shares can be obtained from the website of the London Stock
Exchange at www.londonstockexchange.com.
Page 135