National Grid Electricity System
Operator Limited
Annual Report
and Accounts
2021/22
National Grid Electricity System Operator Limited
Number 11014226
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About Electricity System Operator
Foreword from our Chair
Who we are
What we do
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4 Strategic Report
Our people
The year in review
Key statistics and the year in review
Progress against objectives
Our business environment
Our commitment to being a Responsible Business
Internal control and risk management
Financial review
Section 172 statement
Corporate governance
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2021/22
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Directors' Report
Financial Statements
Statement of Directors' responsibilities
Independent Auditor's report
Statement of profit or loss and other comprehensive income
Statement of changes in equity
Statement of financial position
Statement of cash flow
Notes to the financial statements
Glossary and definitions
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Welcome to the Annual Report and
Accounts 2021/22 for the National Grid
Electricity System Operator (ESO).
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Firstly, all of us at the ESO are appalled by the Russian
During the last year the Covid-19 pandemic continued
invasion of Ukraine. We stand with Ukraine - doing everything
to impact how we work and live. However, as we set out
we can to support, through our work with the UK Government
in the 2022 Summer Outlook, the impact of Covid-19 on
or through our international partners in the global system
electricity consumption has reduced compared to 2020.
operator and research communities.
Earlier this year we published the initial findings from
We all know that the impacts of Russia’s unjustifiable
elements of our Net Zero Markets Reform project which
aggression are being felt beyond Ukraine and these events
examines options for how the GB electricity markets need
are challenging us all to look again at security of supply
to evolve to facilitate Net Zero while ensuring that consumers
within the British energy system. We have seen dramatically
are protected. In the next phases, alongside BEIS and
escalating wholesale gas prices which have led to significant
Ofgem, we will be undertaking further analysis to assess,
increases in the energy price cap and multiple retail supplier
among other things, the benefits of adopting a new pricing
failures. We are acutely conscious that these price increases
mechanism that will more accurately reflect the cost of
are extremely challenging for people across the country,
electricity at a local level across Great Britain.
and we are taking every opportunity to examine our own
costs and industry or market costs to ensure that they are
efficient and delivering value for consumers.
Elsewhere, I have been proud to see the delivery of
the Holistic Network Design as part of our work on the
government’s Offshore Transmission Network Review.
The future of the ESO has continued to be a point of
It is truly a first of a kind project that re-evaluates how
discussion over the last twelve months, as the government
to design future networks, both onshore and offshore,
and Ofgem look at how best to address the challenges and
to make sure we support the coordinated connection of
opportunities of reaching Net Zero. Starting with the Energy
offshore renewables, and the efficient development of the
Future System Operator consultation last summer and
network to enable Great Britain to reach its Net Zero targets.
concluding with the Secretary of State’s statement in April,
it is now clear that the ESO’s future exists outside of National
Grid Group. Whilst this is a significant step, it is one that we
approach with excitement and determination. In the coming
months we will continue to work closely with the Government,
the regulator, and National Grid plc to begin the process of
establishing the ESO as a fully independent organisation.
We refreshed our Mission and Ambition in early 2022 with
a key update to align to the UK Government mandate
to achieve a fully decarbonised power system by 2035.
Our refreshed Mission is “To drive the transformation to
a fully decarbonised electricity system by 2035 which
is reliable, affordable and fair for all”. Our revised set of
Ambition statements are now more clearly action-oriented
and highlight the critical importance of both people and
technology in achieving our Mission. They provide the context
for our ‘RIIO-2 Business Plan 2’, which will be finalised and
submitted to Ofgem in August 2022, with all activities now
explicitly aligned to our Ambitions.
Finally, we are pleased to set out in our Annual
Report and Accounts for 2021/22 expanded public
interest reporting and have included new disclosures
which set out our performance across the areas of;
Environmental, People, Community, Economy and
Governance. These new disclosures are set out in the
Strategic Report under Responsible Business.
Fintan Slye
Chair, Electricity System Operator
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National Grid Electricity System
Operator Limited
1-3 Strand, London WC2N 5EH
Registered in England and Wales
Number 11014226
What we do
i) Our Role
Electricity is the life blood of society and
the economy. When someone flicks a light
switch in their home or office, they know
the light will come on. That, in a nutshell,
sums up our primary responsibility.
We move high voltage electricity from
where it's generated, such as a wind farm,
through the energy system. We make sure
that Britain has the energy it needs by
making sure supply meets demand every
second of every day.
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FREQUENCY
D
EMA N
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VOLTAGE
To achieve this we perform three core roles:
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operation, to deliver electricity when consumers need it.
1 Control Centre Operations: reliable, secure system
2 Market development and transactions: transforming
3 System insight, planning and network development:
unlocking consumer value through competition and
driving towards a sustainable, whole energy future.
participation in smart and sustainable markets.
You can learn more about these roles, and how we
will deliver them in our RIIO-2 Business Plan, here.
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ii) Energy Future System Operator –
how we are evolving
As we set out in greater detail in our Key Events of 2021/22 section,
the ESO is changing following the decision by government that the
ESO should adopt new roles and responsibilities to support the
delivery of Net Zero.
This evolution of the ESO will see us move outside of National Grid Group to
ensure that the ESO can perform its extended functions as the future system
operator, free of any concern regarding impartiality.
To support the delivery of this new organisation we have provided an initial
outline of this transformation alongside our April 2022 draft RIIO-2 Business
Plan 2, which can be read in full here. Over the coming months we will be
working closely with government, Ofgem and National Grid plc to ensure that
this transformation is delivered at pace, whilst ensuring that our world-leading
colleagues are supported through this process, allowing them to drive forward
our existing decarbonisation ambitions.
iii) A refreshed ESO mission and ambitions
We have refreshed our mission and ambition statements.
A key update is that our mission is now strongly aligned to the
UK Government mandate to achieve a fully decarbonised power
system by 2035.
Our revised set of ambition statements are now more clearly action-oriented and
highlight the importance of both people and technology in achieving our mission.
They provide the context for our Business Plan, with all activities now aligned with
at least one of our ambitions.
To drive the transformation to a fully decarbonised electricity
system by 2035 which is reliable, affordable and fair for all.
This includes preparing Britain's electricity system to be able to run on
zero-carbon electricity by 2025.
Over the last five years, we're proud to say the amount of carbon-based
electricity in our system has reduced by an impressive 53%. But there's
still plenty more to do before we reach our zero-carbon target.
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Ensuring the electricity
system can operate
carbon free by 2025
Driving competition
for the benefit of
consumers
Being innovative,
digital and data driven
Engaging as a
trusting partner
Being the Net Zero
employer of choice
One of our ambitions is to be able to run a carbon free electricity system by
2025, which will be crucial in helping the UK meet its wider net zero target.
Achieving this will make us the first system operator to transition away from a system
dependent on fossil fuels, to one that can be operated safely using only zero-carbon
generation sources.
iv) Our Values
We know that how we deliver is as
important as what we deliver. If our
mission sets out ‘what’ we want to
achieve, our values are the ‘how’.
They help shape what guides us.
We adapt and develop our values to align
with the expectations of our customers
and communities, without losing sight
of the things that make us strong today.
Every day we find a better way by:
• delivering excellent performance for
our customers;
• sharing knowledge and implementing best
practices for continuous improvement;
• embracing opportunities to grow ourselves
and the business.
Every day we do the right thing by:
We make it happen by:
• keeping each other and the public safe,
• delivering positive outcomes and
complying with all relevant rules, regulations
achieving results;
and policies;
• respecting our colleagues, customers
and communities;
• saying what we think and challenging
constructively.
• making decisions in a timely way;
• getting things done efficiently.
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Who we are - Board
Fintan Slye
Chair of the Board
Baroness Gillian Merron
Independent Non-Executive Director
Hannah Nixon
Independent Non-Executive Director
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Fintan is the Executive Director of the ESO
and Chair of the Board, he joined in 2018.
Prior to that he was Chief Executive of
the EirGrid Group, the electricity system
and market operator in Ireland and
Northern Ireland.
He has previously worked for McKinsey
& Company and ESB Group.
Baroness Merron of Lincoln is a Life Peer
and Shadow Minister for Health and Social
Care and the Department of Digital, Culture,
Media and Sport. Formerly Chief Executive
of the Board of Deputies of British Jews,
she was the MP for Lincoln between 1997
and 2010.
During this time, she served in government
as a Minister in the Health, International
Development, and Transport departments as
well as in the Cabinet and Foreign Offices.
Hannah has extensive experience in
economic regulation across a range of
industries. She was the inaugural CEO
of the Payment Systems Regulator and a
senior partner at Ofgem, where she had
responsibility for the networks division.
She is currently Chair of the Single Source
Regulations Office, a NED of Thames
Water and a NED of the Financial Reporting
Council. She was formerly a NED of the
Jersey and Guernsey Competition and
Regulatory Authorities.
John Linwood
Independent Non-Executive Director
Paul Plummer
Independent Non-Executive Director
Regina Moran
Independent Non-Executive Director
John has held senior technology roles in
Microsoft and Yahoo and was formerly Chief
Technology Officer at several companies
including BBC and Wood Mackenzie.
He has been a NED of both FTSE and AIM
listed companies since 2012 and is currently
on the Board of Brooks Macdonald, an AIM
listed Wealth Management company where
he is also the Chair of the Remuneration
Committee. He is also Strategic Technology
Advisor to the UK Ministry of Defence.
Paul is an experienced business leader and
strategic thinker now working as Professor
of rail strategy at the University of Birmingham
and a NED in the housing sector for
Network Homes.
Until recently he was CEO of the Rail Delivery
Group and Association of Train Operating
Companies. Prior to that he was on the Board
of Network Rail where responsibilities included
the system operator activities. His early career
spanned the regulated utilities as an economist
and adviser working for governments,
companies and regulators.
Regina is an experienced CEO and NED.
She is Vice President of Strategic Projects
and Change with Fujitsu. Formerly CEO of
Fujitsu UK and Ireland, she has extensive
experience in digital transformation across a
number of different sectors. She has served
as President of Engineers Ireland and as a
NED of EirGrid.
Kayte O’Neill
Executive Director of Transformation
Gregg Smith
Executive Finance Director
Zoe Morrisey
Non-board: ESO Legal Counsel
and Company Secretary
Kayte joined National Grid as a graduate in
2002. She has previously held positions as
Head of Markets in the ESO, and in Corporate
Strategy and Regulation in the US for National
Grid. Earlier this year she joined the Board of
Jersey Electricity as a NED.
Gregg joined in 2020 after 21 years with IMI
plc. He is a qualified Chartered Management
Accountant (ACMA and CGMA) and held
several senior international roles across
IMI during his career.
Zoe joined National Grid in 2012 and has
worked across various UK business units.
Prior to that she worked for Ofwat and in
private practice in the competition and
procurement team. She qualified as a
solicitor in 2008.
Who we are - Executive Team
Fintan Slye
Executive Director
Kayte O’Neill
Director of Transformation
Gregg Smith
Finance Director
Zoe Morrisey
Legal Counsel
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Craig Dyke
Acting Head of National Control
Matthew Wright
Head of Strategy
and Regulation
Julian Leslie
Head of Networks
and Chief Engineer
Craig first joined the ESO in December
2018 from National Grid Gas Transmission
where he was heading up gas network
development. He graduated in Electrical
and Electronic Engineering and has an
MSc in Power Systems & Management.
He worked in the ESO as Head of
Networks in 2019 and Head of Strategy
& Regulation in 2020. Previous roles for
National Grid include being the first Head
of International Decarbonisation, taking a
leading role at COP26. He became Chair
of the IET Power Academy in May 2022.
Matthew joined the ESO in April 2021.
He has over 30 years of experience
in the utilities sector, most recently
as Managing Director of Ørsted in
the UK. Matthew has also served as
CEO of Southern Water and EVP of
Power Delivery at US electric utility
PacifiCorp. He is a Board member
of POWERful Women, a professional
initiative to advance gender diversity
within the energy sector.
Julian joined National Grid in 1992
as a graduate. He has a degree in
Electrical and Electronic Engineering,
and is a Chartered Engineer and a
Fellow of the Institute of Engineering
and Technology. He has worked for
National Grid in the UK and the USA,
and previous roles include building a
new network planning function across
the USA and being the ESO Head of
National Control.
Huma Ali
Senior HR Business Partner
Shubhi Rajnish
Chief Information Officer
Jake Rigg
Director of Corporate Affairs
David Wildash
Acting Head of Markets
Huma joined National Grid
in 1990. Previous roles
include Senior HR Business
Partner to other Group
business units. She is a
Chartered member of the
Institute of Personnel and
Development. Huma is a
lead mentor in 'Business in
the Community' for diverse
senior leaders.
Shubhi joined the ESO in
July 2022. She joined from
British American Tobacco
where she was Head of
Digital and IT. Prior to this
she spent 15 years at BP in
senior roles leading digital
transformation.
Jake joined the ESO in
September 2021 from
Affinity Water. Starting out
as a journalist he has also
worked on sustainability
issues as a consultant to
clients including DuPont and
3M, and was an advisor to a
former Secretary of State for
Energy and Climate Change.
He has a Modern History
degree from Oxford and is
currently completing research
on quantifying political and
regulatory risk at Yale.
David has been in the energy
industry for 18 years having
developed a broad industry
perspective through multiple
roles within National Grid.
Previously in his career he
has undertaken a number
of differing management
roles covering regulation,
corporate strategy as well
as operational roles.
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Wind
Carbon intensity
Early January also saw the lowest level of carbon dioxide on the network,
with a record low of 39gCO2/kWh.
The greenest month in history is now February 2022 with a carbon
intensity of 126.5gCO2/kWh.
65.8% decrease
Carbon intensity
(gCO2/kWh)
2014
2015
2016
2017
2018
2019
2020
2021
2022
600
500
400
300
200
100
from 2013 to 2020
2013 529 gCO2 /kWh
2014 477 gCO2 /kWh
2015 443 gCO2 /kWh
2016 330 gCO2 /kWh
2017 266 gCO2 /kWh
2018 248 gCO2 /kWh
2019 215 gCO2 /kWh
2020 181 gCO2 /kWh
*2021 192 gCO2 /kWh
*year to date
Oct
Nov
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Jul
Apr
Jan
Jun
Feb
Mar
Sep
Aug
May
65.5% decrease from 2013 to 2021
2013 529 gCO2/kWh
2014 477 gCO2/kWh
2015 443 gCO2/kWh
2016 330 gCO2/kWh
2017 266 gCO2/kWh
*year to date3
2018 248 gCO2/kWh
2019 215 gCO2/kWh
2020 181 gCO2/kWh
2021 188 gCO2/kWh
2022 177 gCO2/kWh*
Despite several weeks of low winds to start 2022, high winds towards the end
of January caused by Storm Malik saw a new record for electricity generation,
with 19.5GW meeting 51% of electricity demand at the time. This record has
been exceeded following year end on 25 May 2022, when wind generation
reached 19.9GW producing 52% of electricity demand at the time.
Generation mix
Zero carbon (wind, nuclear, solar and hydro) sources continue to make up a
growing share of electricity generation.
In total, on average they contributed 45% across the year. The largest % zero
carbon share was 84.6% coming at 5am on the 3rd January 2022.
By 2025 it’s our ambition, when the market presents enough zero carbon generation,
to make it possible to be able to operate the system at 100% zero carbon.
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Gas
Wind
Nuclear
Imports
Biomass
Solar
Hydro
Coal
Storage
36.5%
23.1%
15.5%
10.1%
6.4%
4.1%
1.9%
1.7%
0.7%
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Role 1 On A Page:
Control Centre Operations
What we do
The Control Centre moves electricity around the country
second by second to ensure that the right amount of
electricity is where it’s needed, when it’s needed – always
keeping supply and demand in perfect balance. Our control
room employees move high voltage electricity from where it’s
generated, such as a wind farm, through the energy system
to ensure it can be used as required. This service continues
every day as we work tirelessly to operate a safe, reliable and
affordable electricity system. We have all sorts of engineers
and experts working in the Control Centre from people who
forecast the weather to those who monitor the frequency of
our electricity ensuring it stays at 50 Hz.
What have Control Centre Operations
achieved for consumers?
• Control Centre architecture and systems on track to deliver £305m
of consumer benefit over RIIO-2;
• Control Centre training and simulation activity on track to deliver
£35m of consumer benefit over RIIO-2;
• Restoration activity on track to deliver £115m of net benefit from
2025 to 2050;
• Implementation of the Frequency Risk & Control Report (FRCR)
has driven savings of approximately £435m in one calendar year;
• System security is vital. We developed our capabilities with new
power system modelling tools to help us detect issues such as system
oscillations observed in Scotland, as well as new inertia monitoring tools;
• We’ve continued to work closely with our counterparts in the EU under the Trade
and Cooperation Agreement. The signing of a Memorandum of Understanding
between the ESO and ENTSO-E allows us unfettered access to tools and
processes to support security of supply between GB and Europe;
• We continue to improve the transparency of the data we use to support our
stakeholders and customers and also made good progress on restoration,
both with innovation projects and driving towards the new Restoration Standard;
• Our forecast total expenditure for role 1 in BP1 is £246m, which is 18% higher
than the benchmark of £208m (both in 18/19 prices). This is largely due to the
new plans for our Balancing Mechanism Programme.
Control Centre Operations Plan Delivery in 2021/22
• Successfully operated the system under challenging conditions;
• Launched a review of the Balancing Market and produced a balancing
cost strategy. The volumes of balancing actions were lower in 2021/22
and multiple actions were taken to reduce balancing costs;
• Continued with high levels of transparency and communication through
the weekly Operational Transparency Forum;
• Refreshed our Digitalisation Strategy and Action Plan;
• Developed new power system modelling tools and innovative inertia
monitoring tools;
• Working with academia to design ESO-specific training modules;
• Conducted another successful significant long-distance system
restoration 'black start' test, and made good progress on the
electricity restoration standard.
Control Centre Operations Performance:
To view our success against performance metrics and key indicators
please see Role 1 content in the ESO End of Year Performance Report here.
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Role 2 On A Page:
Market Development and Transactions
What we do
One of our ambitions is to see competition everywhere, and
at the ESO we are continuously developing the market to
ensure we can meet the nation’s diverse needs both now and
in the future. This will deliver value for money for consumers.
We’re continually finding ways to innovate and adapt electricity
markets to keep supply flowing reliably to homes and
businesses across Great Britain. Our teams are identifying
and developing the necessary market and auction platforms
to procure the balancing services we require to operate the
system - now and in the future. The team also facilitates any
necessary changes to the existing suite of governing Grid
Codes and the network charging regime.
What have Market Development and Transactions
achieved for consumers?
• We delivered Capacity Market Auctions, Contracts for Differences
(CfD) allocation processes, an update to the Electricity Market Reform
(EMR) Portal and provided ongoing advice to BEIS and Ofgem on their
policy and regulatory change programmes;
• We launched Dynamic Containment on the EPEX platform in
September 2021. This has allowed us to introduce more granular,
and integrated day-ahead procurement to help reduce costs in the
balancing mechanism and drive consumer benefits. This resulted
in a saving of c.£20m for consumers;
• We have followed this with pre-fault services, Dynamic Moderation
and Dynamic Regulation, which have progressed through EBR
Article 18 consultation approval. The first auctions ran in April and
May 2022;
• Building future balancing services and wholesale markets on track
to deliver £106m of consumer benefit over RIIO-2;
• Transform access to the Capacity Market is on track to deliver £74m
of consumer benefit over RIIO-2;
• Working with all stakeholders to create a fully digitalised, whole system
Grid Code by 2025 is on track to deliver £10m of consumer benefit
over RIIO-2;
• Reforming Balancing Services Use of System (BSUoS) charges is
now expected to lead to an estimated saving of £68m over RIIO-2;
• Our forecast total expenditure for role 2 in BP1 is £160m, which is
within 1% of the benchmark of £159m (both in 18/19 prices).
Market Development and Transaction Plan Delivery
in 2021/22
• We have completed 49 out of the 65 milestones planned for this
12-month period. Of the 16 milestones which are not complete,
5 are ESO-related delays, 10 are outside of ESO control, and
1 is delayed in order to deliver an improved outcome for consumers;
• Set out the Net Zero Market Reform programme and set up the
Markets Advisory Council;
• Delivered the foundational release of our Single Markets Platform
to allow onboarding;
• Completed our suite of fast-acting frequency response products,
with ongoing refinements;
• Supported customers in migrating across to our new EMR Portal;
• Updated day-ahead Short Term Operating Reserve in response to
market conditions;
• Progressed and delivered numerous code changes such as GC0137;
• Engaged with key stakeholders on potential areas for SQSS change.
Market Development and Transactions Performance:
To view our Markets success against performance metrics and
key indicators please see Role 2 content in the ESO End of Year
Performance Report here.
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Role 3 On A Page:
System Insight, Planning
and Network Development
What we do
The flow of electricity in Great Britain is getting more complex.
At the ESO we annually develop plans for our future networks
to ensure we can meet Great Britain's electricity system
requirements. We’re also preparing to operate at zero-carbon
by 2025 as part of the UK’s Net Zero target for 2050.
Our System Insight, Planning and Network Development
involves looking for solutions to challenges faced by both the
ESO and other industry stakeholders in the electricity system.
Ultimately, we want to find innovative new ways to operate
the electricity system of today and tomorrow, and keep costs
down for consumers. Some projects that look for these
solutions include Voltage, Stability and Constraint Pathfinders
as well as Regional Development Programmes.
What have System Insight, Planning and Network
Development delivered for consumers?
• Network Options Assessment (NOA) enhancements are on track
to deliver £663m of consumer benefit over RIIO-2;
• Taking a whole energy system approach to promote zero carbon
operability is on track to deliver £548m of consumer benefit over RIIO-2;
• Improved network access planning on track to deliver £224m of
consumer benefit over RIIO-2;
• Stability Pathfinder Phase 2 was successfully tendered, the bids chosen
will deliver 11.55 GigaVolt Amp seconds (GVAs) of Short Circuit Level
and 6.75 GVAs of inertia worth a total of £323 million. Future savings are
£130m compared to the counterfactual of procuring these services from
a single source;
• Our forecast total expenditure for role 3 in BP1 is £141m, which is within
2% of the benchmark of £139m (both in 18/19 prices). This balance is
primarily due to the ESO taking on new roles in Offshore Co-ordination
and Early Competition (not included in the original Delivery Schedule or
cost benchmark), offset by reduced IT expenditure.
System Insight, Planning and Network Development Plan
Delivery in 2021/22
• We have completed 93 out of the 116 milestones planned for this
12-month period. Of the 23 milestones which are not complete, 10 are
ESO-related delays, 9 are outside of ESO control, and 4 are delayed
in order to deliver an improved outcome for consumers;
• Delivered network planning activities via the Network Options
Assessment and FES. NOA 2021-22 was improved to make it more
concise and easier to understand;
• The Electricity Customer Connections team grew to address significant
additional application volumes and is working with the Transmission
Owners (TOs) to find improved ways of working;
• We investigated how to better facilitate access for Distributed Energy
Resources (DER) to ESO markets;
• We collaborated with Distribution Network Operators (DNOs) to
progress regional development plans;
• We made significant progress on Constraint Management Pathfinder,
with contracts awarded under the Pennines Voltage and Stability
Phase 2 Pathfinders;
• We had a leading role in whole systems planning, engaging with BEIS
and Ofgem on their respective reviews (OTNR and ETNPR) nearing
completion of the world's first integrated offshore design as well as
moving to implementation of Early Competition.
System Insight, Planning and Networks Development Performance:
To view our Networks development success against performance metrics
and key indicators please see Role 3 content in the ESO End of Year
Performance Report here.
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Key Events
i) Energy Future System Operator
ii) Gas price security
Since the ESO’s last annual report, the work established
The interaction between gas and electricity in the Great
by Ofgem in their 2021 Review of System Operation
Britain energy system has been elevated over the 2021/22
was further developed into a joint consultation with the
winter, with the increase from October 2021 onwards in
Department for Business, Energy, and Industrial Strategy
wholesale gas prices affecting consumers directly as well
for an Energy Future System Operator which ran from
as impacting balancing prices on the electricity network.
July to September 2021.
The knock-on impact of the price increases has been
As outlined in the Government’s response to this
consultation the future of the ESO is now clearly outside
the National Grid Group, to ensure that no future claim
of market conflicts can be attributed to the ESO, as it
undertakes new roles and responsibilities to support the
delivery of Net Zero by 2050 and a low carbon energy
significant for the retail market and consumers. In the retail
market, bad debts by ESO customers increased in the year
with 26 customers going bankrupt during the year against
2 in the prior year. This cost £19m in 2021/22 compared
to bad debts in the prior year of £3m. This amount is fully
recovered through RIIO-2 revenues.
network from 2035. We warmly welcome this decision
To support industry, we facilitated the BSUoS deferral cap
and will now be working closely with the Government, the
scheme that ran from mid-January to the end of March and
regulator and National Grid plc to enable a smooth and
deferred £44m of balancing costs for customers into FY23.
successful transition.
International sanctions relating to the Russian invasion of
Since the launch of the consultation on the future of the
Ukraine have impacted the price of gas as nations seek
ESO in 2021, we have regularly engaged with colleagues
alternative sources for natural gas, resulting in a continued
to ensure that they are as well informed as possible during
spike in gas prices into the Summer of 2022.
this period of change. Working with an external consultancy
we have consulted colleagues on their views, through
interviews, surveys and focus groups and incorporated
these views into the ESO’s final consultation response
to BEIS and Ofgem. Throughout the transition process
to becoming an energy future system operator we will
continue to have open and honest conversations with our
staff, to ensure they are supported throughout this process,
to ensure we retain their world class expertise as we move
to adopt new roles and responsibilities in future.
In December 2021, we launched a Balancing Market review
as part of a wider drive to review and reform electricity
markets. The Balancing Market review has primarily
looked to understand if there are any fundamental issues
with existing market mechanisms that can be adjusted.
The full report is expected to be published imminently.
In summary the review has found that the high costs have
been driven by system tightness combined with accepted
offers of up to £4,000/MWh across a large amount of
coal and CCGT capacity. The size and inflexibility of the
An outline of this transformation was submitted alongside
relevant units meant that the ESO had to accept offers of
our RIIO-2 Business Plan 2 and can be read in full here.
up to £4,000/MWh across multiple hours just to cover peak
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demand. There was no clear evidence of behaviour that
was inconsistent with the market rules, however there are
questions around whether market rules need to be updated
to provide more clarity on what is and isn’t permitted.
Whilst it is too early to comment on the continued impact of heightened gas prices
into the 2022/23 winter, the ESO is already taking steps to prepare for high gas prices.
In September 2022 we will publish our annual Winter Outlook report to set out our
operational view at that time. Leading up to this period the ESO will be working closely
with BEIS and other Government Departments to support the new security of supply
statement and with industry participants to ensure that the most accurate data is
available on market availability and capacity over the Winter months.
iii) The Covid-19 Pandemic
Whilst Covid-19 continued to impact how electricity was used in Great Britain in
2021/22, it had a reduced effect on demand in the year as vaccination programs led to
a relaxation of public health measures and a gradual return to more normal conditions,
from a network perspective, with electricity demand returning to pre-pandemic levels.
While Covid-19 had a reduced effect on demand, the impact of earlier lockdowns
continued to play a role in the management of the network, as issues faced during the
summer of 2020 and 2021 have had a knock-on impact on the maintenance schedule
of generators across the industry. Delays to maintenance had a noticeable impact
on the operation of the network during the 2021-22 Winter period as a number of
generators remained offline due to maintenance, at the same time as network demand
trended back towards pre-pandemic levels.
These knock-on implications of Covid-19 from 2020 and 2021 have also influenced
wider sector issues, such as the production of gas and coal, increasing prices in
these areas as discussed below in more detail.
Protecting our colleagues remained a priority over the last twelve months, with our
operational colleagues in the control room continuing to observe more stringent
hygiene measures than our non-operational colleagues, to ensure that variants and
spikes in infection rates did not impact on their critical roles.
Away from our control room our non-operational colleagues have been returning
to the office as part of a hybrid approach that recognises the advantages of home
working and office collaboration.
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iv) Delivering RIIO-2
In April 2022 we submitted our draft plans for the ESO’s second RIIO-2 business plan, to cover the next
stage of the five-year RIIO-2 period. Whilst the ESO’s work is governed by our 2019 RIIO-2 Business Plan
and the funding associated with it, due to the unprecedented level of change in the energy sector, Ofgem
have allowed the ESO to break the five-year RIIO-2 period (2021-2026) into smaller planning cycles, so that
we can respond more effectively to these changes.
This draft second business plan therefore incorporates new government targets into its planning, including
the Government’s target for the delivery of a Net Zero electricity network by 2035 and outlines how the
ESO will work to deliver these targets, including through a refreshed mission and ambitions.
Alongside the publication of the draft business plan we have also set out an initial cost and plan for the
work we will now undertake to deliver the energy future system operator.
You can view the ESO's RIIO-2 Business Plan 2 and Future System Operator (FSO) documents here.
v) ESO led projects
The ESO continues to play a leading role in major transformational projects. These will deliver
significant positive impacts for consumers by promoting competition, holistic thinking, and
putting consumer interest at the heart of what we do. Five examples are set out below;
Offshore Coordination
As part of the second phase of the BEIS-led Offshore Transmission Network Review (OTNR), the ESO has
been asked to support three strategic workstreams to support the delivery of offshore wind generation to
meet Government targets for 2030. These workstreams are:
• Early Opportunities – To work with Offshore Wind
To this end a total of 50GW, with 17.5GW in
developers and other industry partners to find
Scotland will be included in the HND plan published
solutions for the connection of offshore wind
later this year. A further iteration will be published
projects already in train to deliver by 2025;
in 2023 to incorporate the ScotWind, Celtic Sea
• Pathway to 2030 – To deliver a strategic blueprint
or Holistic Network Design (HND) to provide an
and INTOG projects that are not included in the
first iteration of the HND.
outline for coordination of offshore wind projects
To support the integration of the above Phase
connecting between 2025 and 2030;
Two outcomes of the OTNR the ESO has taken
• Enduring Regime – To re-evaluate the offshore
connections model to identify reforms required to
deliver coordination as standard for connections
after 2030.
The scale of this work, particularly the Pathway to
2030 and HND workstream has grown significantly
over the last twelve months following an increase
in prospective generation. This has primarily been
driven by the award of 25GW of offshore wind
leases by the ScotWind leasing round in January
2022 by Crown Estate Scotland. Given the scale of
this growth we have had to review the scope of the
HND, to ensure it remains deliverable against its
current timeline.
the decision to produce two Network Options
Assessments in 2022. Our first report was
published in January 2022 and this provides an
interim finding for Transmission Owners, allowing
them to continue consenting work for projects that
are expected to be critical to the delivery of future
offshore coordination, as well as the growth of
onshore generation. A further report later this year
will incorporate the findings of the HND, in order
to integrate offshore coordination as standard in
future network design work.
Net Zero Market Reform
In March 2022, the ESO presented the findings from
Phase 3 of its Net Zero Market Reform programme at
an industry event alongside the Energy Minister and
other energy sector leaders. The conclusions were that
the status quo market design is not fit for purpose for
Net Zero, and that dynamic locational signals are
needed to solve some key market challenges such
as rising constraint costs and inefficient dispatch in
the wholesale market. The ESO looked at options
from versions of the current national price through to
zonal and nodal pricing. The analysis suggests that
neither national nor zonal pricing would properly solve
the aforementioned challenges, but that nodal pricing
This is a world first approach and has allowed the ESO
to reduce the overall spend on frequency management,
ensuring that system security continues to be delivered,
whilst delivering additional benefits for consumers.
Dynamic Containment,
Regulation and Moderation
Alongside the Frequency Risk & Control Report
the ESO has also implemented three new frequency
management tools, with the introduction of Dynamic
Containment, Regulation and Moderation to provide
a quicker response to different frequency fluctuations,
from significant trips to second-to-second balancing
of network frequency needs.
(or locational marginal pricing) would provide strong
By drawing on a diverse mix of technologies,
incentives for supply and demand side assets to locate
including variable generation, storage, and demand-
and dispatch efficiently, minimising whole system costs
side participants these services also offer greater
and enabling low-cost, low-carbon electricity to be
competition, which alongside a move from month-ahead
harnessed when and where it is most abundant.
to day-ahead auctions contribute to both improved
This could also drive industrial growth in areas of the
security and cost efficiency for consumers.
country where older fossil fuel and energy intensive
industry is set to fall away.
Stability Pathfinder
We will now work with Ofgem, industry and policy
stakeholders to further assess the implications this
change in market design could have for consumers,
generators and suppliers, as well as assessing
what other market reforms would be necessary
to deliver the investment necessary to achieve
Net Zero.
As part of our ambition to deliver a zero-carbon capable
network by 2025, which will help pave the way for a
Net Zero electricity network by 2035, we have continued
to progress our stability Pathfinders. These Pathfinders
will bring new innovative solutions capable of delivering
inertia, voltage and short circuit infeed management
tools, without needing to produce electricity in the
process, increasing the proportion of low-carbon
Frequency Risk & Control Report
electricity in the generation mix as a result.
As part of our changing approach to managing
In March 2022 we supported the launch of a world
frequency on the national electricity network
leading inertia project in Scotland to help manage
we have worked to create a new Frequency
inertia on this part of the network in future years. As we
Risk & Control Report to analyse and assess
continue with this and similar projects we will continue
the operational requirements for managing
to understand and refine these critical tools for future
different frequency issues and the cost of
network operation.
securing the system.
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Progress against objectives
ESO has a range of metrics against which overall performance
is measured. The key metrics in this section are aligned to our
strategy and reflect a consistent set of metrics against 2020/21.
1) Health, Safety & Wellbeing
The health, safety & wellbeing of our employees is paramount. Each year we
undertake a safety survey with our employees to gauge attitudes to safety,
how effective our safety culture is and where employees believe we can
improve. We also measure safety using the Lost Time Injury Frequency Rate
metric. This industry standard approach measures the number of lost time
injuries occurring for every 100,000 hours worked.
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This year’s result was strong again, with no injuries causing lost time during
2020/21. The ESO's Health, Safety & Wellbeing team and their Safety, Health
and Wellbeing Champions in the business continue to improve our targeted
plans to address areas of concern and build on the work done to date.
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2020/21
Target:
Lost Time Injury Frequency rate
Performance:
0.0
<0.1
0.0
2) Balancing costs
Today electricity can’t be efficiently stored in large quantities in a cost-
effective way, so part of the ESO's role is to find ways to match supply with
demand. We call it balancing, and we do it minute by minute. To help us
with balancing, we buy in services from suppliers. These are “Balancing
Services” and we use them to keep the transmission system running reliably
and economically.
The target is based on a rolling average over five years (with adjustments for
significant cost drivers, such as actual wind generation).
Progress in 2021/22
Balancing costs in 2021/22 were higher than benchmark owing to a number of
factors – including the Covid-19 pandemic and the external socio-economic
factors – which created a challenging operational environment. Frequency
control and the management of voltage, stability and thermal constraints
were operational challenges and the main areas driving these costs. Several
factors influenced the cost of balancing the system in 2021/22:
The effects of the Covid-19 pandemic and the Ukraine crisis on the electricity
system were seen, affecting demand in summer 2021 and supply in spring
2022. This uncertainty meant while we took fewer actions in securing the
system, costs rose. Although balancing proved more costly than hoped in
2021/22 due to both demand and supply challenges, we foresee these costs
rising further over the coming decade due to the difficulty of balancing the
grid with a heavier renewable mix.
While higher balancing costs are also a feature of a system with higher
volumes of renewable generation, our work to transform the system,
so that it can be safely operated using only zero-carbon generation, will
give us the tools to utilise more renewables rather than pay constraint costs.
The growth of renewable generation and consequent changes to the
generation mix would normally increase the volume of balancing services
we use – the higher volume of renewable generation is less predictable and
controllable than conventional generation. Due to our new approaches this
was not the case in FY22.
Balancing Costs
2020/21
Target:
2021/22
£1,875m
£1,321m
£3,153m
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3) Financial Performance
The financial results are set out on pages 44-50.
Progress in 2021/22
The ESO delivered underlying Financial Performance largely in line with
expectations. Revenues increased in the year by £1,359m compared to FY21
largely due to increased pass through charges to balance the system as set
out on the previous page. Adjusted Operating Profit of £50m was down £12m
against FY21 of £62m due predominately to higher depreciation of intangible
IT asset investments as per the ambitious transformational RIIO-2 plans as
well as asset impairments for IT work that may no longer be required.
This was partly offset by improved Incentive performance. Capital investment
reached £108m in the year, £20m higher than prior period, primarily driven
by critical IT projects needed to deliver the RIIO-2 Business Plan. Further
information is set out within the financial review later in this report.
Adjusted Operating Profit
2020/21
Target:
2021/22
£62m
£50m
£50m
4) Employee Engagement and Enablement
Our employees are our biggest asset and the best advocates for our business
and what we aim to achieve. They are at the heart of everything we do, so it
is vital for us to be aware of their thinking on a wide range of issues about our
business: what it’s like to work for us; things we do well; things we could do
better and much more.
Progress in 2021/22
Our employee engagement and enablement scores demonstrate an
improvement on 2021/22.
2020/21
Enablement
Engagement
70%
78%
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Target:
2021/22
71%
76%
72%
80%
5) Customer Satisfaction
It is vital we understand what customers think about our business and how well
we are carrying out our operations to serve their needs. That is why we regularly
survey our customers to ask how satisfied they are with our service.
Progress in 2021/22
Both the customer and stakeholder satisfaction scores are based on responses
from more than 200 surveys. The results are below our target for the year and
highlighted a need for greater transparency and co-creation with our customers
and stakeholders. It is critically important to us that we listen and respond to this
feedback, and are engaging as a Trusted Partner with all of our customers.
Our customer strategy for 2022/23 will focus on creating a customer centric
culture, upskilling all teams to ensure we have strong relationship management
at the heart of everything we do. To support this we will embed new Customer
Impact Assessments at the start of our projects to ensure that customers
are considered consistently and at an earlier stage of engagement. From
this platform we can build engagement plans with our customers that are
collaborative and are clear, from the outset, on our decision-making processes.
Central to this is the gathering of meaningful insights the organisation can act on
- facilitating a greater understanding of customers, stakeholders and consumers,
their characteristics, and what actions the ESO can take to add value to them as
we make progress through the energy transition.
Customer
Stakeholder
2020/21
Target
2021/22
7.51
7.23
8.15
8.15
7.30
7.21
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The Directors present their Strategic Report
on the Company for the year ended 31 March
2022. This includes an overview of the ESO’s
structure, 2021/22 performance and strategic
outlook, including risks and uncertainties.
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Our people
Our people are fundamental to the ESO’s success and achieving our 2025 ambitions and beyond. To operate
the system of the future and deliver a whole energy system strategy that supports Net Zero by 2050 successfully
we have focused on delivering a blended talent sourcing strategy to ensure we have the right people with the
right capabilities at the right time. The ESO's success will be built on our sustained ability to attract, retain, train,
motivate and engage our people. We need to continue this momentum to deliver our commitments, whilst we
enhance a resilient, agile, capable and diverse workforce with the capabilities required to take us to Net Zero.
i) Diversity, Equity and Inclusion (DEI)
ESO
Gender Split
Ethnic diversity
Workforce
Executive team
Board
64/36
64/36
50/50
30%
18%
0%
We have also promoted our DEI Knowledge Hub to educate
and upskill our people on current best practice and offered
employees access to a variety of virtual courses designed to
build knowledge and confidence with conversations on DEI.
These activities have contributed to the National Grid
Group’s DEI agenda, which has seen National Grid win the
most Outstanding Employer at the 2021 Ethnicity Awards as
Our diversity metrics have continued to improve, and since
well as being featured in the 2022 Financial Times Diverse
the RIIO-2 Business Plan 1 our actual workforce diversity
Leaders listing.
has increased from 31% to 36% for women, and from 25%
to 30% for ethnicity minorities (as at 31st March 2022).
Our DEI vision is to “be more representative of the
communities we serve in all aspects of diversity”.
Several actions have contributed to this increase including
In order to achieve this vision we remain committed to:
the creation of our Belonging Forum, which exists to fulfill
three roles:
• Increasing the overall proportion of our workforce from
diverse backgrounds in order to mirror the communities
• To understand the extent to which our employees
we serve;
currently feel that they can ‘belong’ in the organisation,
and what are the barriers to belonging;
• To take (or recommend) actions to remove those
barriers and to educate our employees about DEI
and Belonging topics;
• To create a network of Belonging Champions to support
each other in making DEI and Belonging part of our
• Monitoring the number of hires from diverse backgrounds
and aiming to appoint a greater proportion;
• Monitoring the number of colleagues promoted who are
from a diverse background and aiming to promote at a
greater proportion than we have today;
• Continuing to build an inclusive company culture.
everyday conversation and embedded in our culture.
We have also played an active role with the Energy Networks
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The Belonging Group piloted a Microaggressions and
Workplace Boundaries course which is now being rolled
out across all our employees. This will increase their
understanding of microaggressions and the impact that they
have on individuals and deepen the understanding of banter
and when it crosses a line into bullying.
Association (ENA) in developing their DEI charter. This will
benefit the whole energy industry by focusing on; attracting
a diverse pipeline of talent and ensuring that our industry is
seen as a sector where everyone is welcome and can thrive.
ii) Employee engagement
iii) Training
We engage and consult regularly with employees to make
As the ESO is going through a period of significant growth
sure they are up-to-date on the Company’s performance,
linked to the expansion of our role as the Energy Future
plans and priorities and give them the opportunity to raise
System Operator and the journey to Net Zero, we are
questions or concerns.
We also conduct an annual employee engagement survey,
providing an opportunity for all our employees to share their
views on the employee experience at the ESO and providing
ensuring that we have the capabilities we need now and
into the future. In 2021/22 we focused colleagues on
prioritising their development and moving towards a more
learning-centric culture.
the Board with a barometer of the workforce’s confidence
We launched an online People and Capability hub that will
in the strategic direction, optimism for the future, overall
help colleagues on their learning journey and in thinking
engagement and pride in the organisation.
about their career aspirations within the ESO. We have
Given the impact of the Energy Future System Operator
consultation on the future working conditions of ESO
employees, we took additional steps to ensure that their
views were incorporated into the ESO’s official response,
centralised these new development resources. This hub
contains all the recommended learning material, new and
existing, to develop the required ESO capabilities, making
it easy to find upskilling resources.
as well as a supplementary report, shared with BEIS and
We also developed two new foundational e-learning modules
Ofgem, reflecting views expressed in interviews, surveys
for new starters: Introduction to Power System Operations
and focus groups over Summer 2021.
and an Introduction to the Electricity Industry to help
We’ve continued to face challenging working conditions
throughout 2021/22 due to the changing response to the
colleagues understand the wider context that we operate
in and to onboard new starters more effectively.
Covid-19 pandemic. Engagement with staff throughout this
In addition to these, we have created an engaging Career
has been paramount in importance. The Executive Team has
Map, a visually compelling representation of the diversity
continued to work with the Board to improve engagement,
of careers in the ESO. This interactive tool also shares a
remove barriers and create a positive working environment
more detailed view of what careers in engineering, data
for all. New initiatives include refreshing laptops, encouraging
and commerciality could look like and support on
discussions on returning to the office and hybrid working,
development planning so that candidates and colleagues
and introducing new development opportunities through
can get a detailed understanding of the many and varied
different mediums. Regular all employee calls, leadership
career options available at the ESO.
calls and visibility sessions have continued to have positive
impact, and will be sustained as an effective communication
iv) Rewards and benefits
channel. These actions have led to an increase across
By developing our people and providing a wider programme
all indexes in the recent 2022 Grid:Voice survey; the
engagement score increased from 78% to 80% and
of benefits, we aim to have an engaged and productive
workforce. To attract and retain employees, we make sure
enablement from 70% to 72%. Of particular note is the
our remuneration package is both fair and competitive. We
Safe to Say index, up 10% to 79% in the year demonstrating
do this in line with National Grid processes through a regular
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the positive impact these actions have had.
review of our salaries and benefits against appropriate peer
groups to make sure we remain competitive in the relevant
market. The primary focus for reward comparisons is UK
general industry and energy services companies; these peer
groups are considered appropriate for a large, complex and
predominantly regulated business.
To ensure fairness from both external and internal
We organised welcome-back initiatives focusing on bringing
perspectives, we review salaries annually and broadly target
people together again and promoting wellbeing.
mid-market total remuneration levels of our peer group.
In addition to market data, we also consider factors such
as business performance and individual contribution, the
individual’s skills and experience, scope of the role and
include any changes in responsibility.
Furthermore, while pay increases are generally aligned to
salary increases received by the wider workforce (other
Company employees) and to market movement, increases
above this may be made at the company's discretion. This
may include circumstances such as a significant change in
responsibility, progression if more recently appointed in the
Safety remains our priority therefore when government
guidelines change, we respond quickly with action and
communication. This reflects our value to do the right thing.
We have almost doubled the number of Wellbeing champions
across the ESO to help raise awareness of topics, facilitate
campaigns and cascade key messages across the business.
“Managing mental wellbeing in the workplace” training
has been assigned to all managers to provide important
knowledge on how to recognise signs and symptoms of poor
mental health and what actions to take to address issues.
role, and broad alignment to mid-market values.
vi) Employee regulation
v) Health and safety
The safety of our employees is of paramount importance.
This includes mental and physical health and wellbeing of
our employees as they work from home, in the office, work
shifts and operate in a rapidly changing and challenging
Our values, outlined on Page 9 help to guide our strategy,
decisions, processes and culture. The values are defined in
the National Grid Group ‘Code of ethical business conduct’
and outline the behaviour we expect of all our employees,
from the Board down.
industry. The ESO has been carefully tracking the direct and
The Board has adopted the National Grid standards and
indirect impact of the Covid-19 pandemic on its employees
policies for governance, human resources, finance, digital risk
as well as introducing measures and providing guidance on
and security, safety, health and environment, procurement,
a wide range of fronts to help protect and support them. This
anti-slavery and human trafficking, and anti-fraud and
includes protective measures for those critical or vulnerable
bribery. All employees undertake training to embed the
workers that cannot work from home, redeploying teams
principles into our culture and values.
to other areas of the business to support prioritised work,
helping those with caring responsibilities and allowing time
off work to support volunteering efforts.
Senior management submit an annual declaration confirming
the steps they have taken during the year to promote a
positive ethical culture in line with the requirements of the
Changes in the workplace and working practices due to
Ethics Business Management System and that all employees
the pandemic, led us to create a forum called Build Back
are aware of the ‘Code of Ethical Business Conduct’ and
Better which was made up of volunteers from each area of
complete its e-learning module.
the business. The focus has been to create interventions to
support a variety of working arrangements to support our
employees with the transition into a hybrid way of working.
If any employee wishes to highlight any potential breaches
to the Code of Conduct, they can contact the independent
whistleblowing services provider and a formal investigation
We know that flexibility is key for our employees and as
follows, with anonymous reporting to the National Grid
government guidelines changed in the year, we continued to
Audit & Risk Committee.
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be agile and adapt our support mechanisms, recognising the
importance home working brings in terms of work life balance
but also the benefits such as collaboration and creativity you
gain from being together in the office. We gather employee
insights via surveys so that we can target what will work well
for our different employees across multiple locations.
Our business environment
ESO operates in a changing environment, one that is driven by concerns over climate change and the need to
achieve Net Zero by 2050. That is why our business plans are designed to enable the transition to a flexible, low
carbon energy system. Our operating environment is regulated, with our business plans developed in collaboration
with stakeholders and reviewed by Ofgem.
21/22 H1
21/22 H2
22/23 H1
22/23 H2
Define future system
architecture and design
Engage with academia
on new courses
Start data platform
foundation work
Data platform requirements
and design work
Deliver first new balancing
application components
Develop foundational
architecture
Deliver data platform
foundation
Integrate data platform with
digital engagement platform
and single markets platform
Commence build of
restoration decision
support tool
Establish proof of concept
for Distributed Restart
Trial day-ahead frequency
response market. Delivered
week ahead Frequency
Response auction trial
Day-ahead response market
integrated with foundational
single markets platform
Deliver new core situational awareness tool
Run new university modules in system operation
Deliver full capability of new situational
awareness tool
Further iterations based on priority needs
Training integrated with new situational
Fully integrated training and
awareness capability
simulation capability
Integrate data platform with
enhanced balancing tool
Integrate data platform with new situational
awareness tool
Continued data platform expansion
Deliver restoration decision support tool
Distributed resources able to fully
provide restoration services
Single day-ahead response and reserve market
Single integrated platform for ESO markets
Design and implement reformed reserve products
Reserve products integrated with foundational
single markets platform
Enhanced balancing
capability delivered
Ability to schedule and dispatch
all parties 1MW and above
Training integrated with new
balancing capability
ESO facilitating annual
assurance process against
new restoration standard
Start balancing and wholesale
market review
Communication next steps
to reactive procurement
Stakeholder engagement
and consultation on the
process to amend our codes
Create and consult with
stakeholders on plan to deliver
the transformed codes process
Licence changes to support
transforming the process to
amend our codes
Transform the process to
amend our codes - go-live
Minimum Viable Product delivery of platform
Implement change to codes required
to create whole system Grid Code.
Implement digitalised grid code -
dependent on external stakeholder
Digitalised Whole System Grid code
Further development and
testing of the hub with
customers
Implementation of phase 1
of the
connections hub
WPD & SSE-N
‘N-3’ Intertrip RDP
NOA 2024 makes
recommendations on future
end of life asset replacement
Generation Export Management Scheme
(GEMS) RDP
South East (UKPN) MW dispatch RDP
Publication of roadmap for national roll-out
Midlands Storage (WPD) MW dispatch RDP
South West (WPD) MW dispatch RDP
Connection wider works trials, in selected
geographic regions, in NOA
Implement stability assessment tool
Constraint management
pathfinder phase 1
progressed
Implement improved tender approaches that
enable more participants to enter the market
Share FES building
block data
Develop and share data
reports and insights (with
DNOs) to develop regional
assumptions
Implement new energy demand model
Support framework change
to reduce barriers to entry
Support framework change
to reduce barriers to entry
Improve tender processes
and identify new areas of
system need
Engage with DNOs on their
ED-2 plans and with the
Open Networks project
Engage with DNOs on their
ED-2 plans and with the
Open Networks project
Phase 2 of the connections hub
Further RDP (to be determined) finished
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i) Our business plans
We are regulated by Ofgem, and in December 2020 Ofgem delivered their final determination on our next price
control period (known as RIIO-2). The table below provides a high-level summary of our future RIIO-2 business
plans, and you can read the full detail here.
23/24 H1
Enhanced balancing
capability delivered
Ability to schedule and dispatch
all parties 1MW and above
Training integrated with new
balancing capability
23/24 H2
24/25
25/26
Deliver full capability of new situational
awareness tool
Further iterations based on priority needs
Training integrated with new situational
awareness capability
Fully integrated training and
simulation capability
Start data platform
foundation work
Data platform requirements
and design work
Integrate data platform with
enhanced balancing tool
Integrate data platform with new situational
awareness tool
Continued data platform expansion
ESO facilitating annual
assurance process against
new restoration standard
Start balancing and wholesale
market review
Implement change to codes required
to create whole system Grid Code.
Implement digitalised grid code -
dependent on external stakeholder
Deliver restoration decision support tool
Distributed resources able to fully
provide restoration services
Digitalised Whole System Grid code
Phase 2 of the connections hub
Further RDP (to be determined) finished
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In April 2022 we submitted our draft updated plan for the ESO RIIO-2 Business Plan 2, to cover the next stage of the
five-year RIIO-2 period. Whilst the ESO’s work is governed by our 2019 RIIO-2 Business Plan and the funding
associated with it, due to the unprecedented level of change in the energy sector, Ofgem have allowed the ESO to
break the five-year RIIO-2 period (2021-2026) into smaller planning cycles, so that we can respond more effectively
to these changes.
This draft RIIO-2 Business Plan 2 incorporates new government targets into its planning, including the government’s
target for the delivery of a Net Zero electricity network by 2035 and implementing Early Competition, and outlines
how the ESO will work to deliver these targets, including through our refreshed mission and ambitions.
Alongside the publication of the draft updated plan we have also set out an initial cost and plan for the work we
Implement new energy demand model
will now undertake to deliver the Energy Future System Operator. You can view the ESO RIIO-2 Business Plan 2
and Energy Future System Operator (Annex 5) documents here.
Define future system
architecture and design
Engage with academia
on new courses
Deliver new core situational awareness tool
Run new university modules in system operation
Deliver first new balancing
application components
Develop foundational
architecture
Deliver data platform
foundation
Integrate data platform with
digital engagement platform
and single markets platform
Commence build of
restoration decision
support tool
Establish proof of concept
for Distributed Restart
Trial day-ahead frequency
response market. Delivered
week ahead Frequency
Response auction trial
Day-ahead response market
integrated with foundational
single markets platform
Single day-ahead response and reserve market
Single integrated platform for ESO markets
Design and implement reformed reserve products
Reserve products integrated with foundational
single markets platform
Communication next steps
to reactive procurement
Stakeholder engagement
and consultation on the
Create and consult with
stakeholders on plan to deliver
Licence changes to support
transforming the process to
process to amend our codes
the transformed codes process
amend our codes
Transform the process to
amend our codes - go-live
Minimum Viable Product delivery of platform
Further development and
Implementation of phase 1
testing of the hub with
of the
customers
connections hub
WPD & SSE-N
‘N-3’ Intertrip RDP
NOA 2024 makes
recommendations on future
end of life asset replacement
Generation Export Management Scheme
(GEMS) RDP
South East (UKPN) MW dispatch RDP
Publication of roadmap for national roll-out
Midlands Storage (WPD) MW dispatch RDP
South West (WPD) MW dispatch RDP
Connection wider works trials, in selected
geographic regions, in NOA
Implement stability assessment tool
Constraint management
pathfinder phase 1
progressed
Implement improved tender approaches that
enable more participants to enter the market
Support framework change
to reduce barriers to entry
Support framework change
to reduce barriers to entry
Improve tender processes
and identify new areas of
system need
Engage with DNOs on their
Engage with DNOs on their
ED-2 plans and with the
Open Networks project
ED-2 plans and with the
Open Networks project
Share FES building
block data
Develop and share data
reports and insights (with
DNOs) to develop regional
assumptions
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ZERO
CARBON
Our commitment to being
a Responsible Business
In today’s world, Business needs to be a positive force for good.
This belief is central to the way we work and why we do what we
do. Businesses are a key part of their communities, and we believe
they should leave a positive legacy for future generations. At the
ESO, we work hard to exceed the expectations of our customers,
shareholders and communities. We are passionate about
operating our business in an environmentally responsible way.
It is the right thing to do – for society and for us. Sustainability
shapes our thinking and decision-making. It means we aim
to run our business as efficiently as we can, provide value for
our customers, and protect the environment. For us, being a
Responsible Business means being a good citizen and driving
social change, which covers every aspect of our work. What we
do helps to underpin the prosperity of our communities.
In October 2020 the ESO adopted the National Grid Group
Responsible Business Charter and this year we are including new
metrics in our Annual Report and Accounts below, to enhance the
visibility of our progress across our five areas of focus:
1. The environment
We will enable a fair and affordable transition to a clean energy
economy and reduce our own emissions.
Our biggest impact in this area is our ambition to be able to
operate carbon free by 2025. This year we saw ground-breaking
projects come forward to move us along this path. These include
Dynamic Containment, the first in a suite of new fast-acting
electricity market products, which is boosting the network’s ability
to respond rapidly to disturbances in the flow of energy around
the grid, and the Regional Development programme, where we are
working with regional networks to help the generators connected
to them access the network and provide a wider range
of services.
In 2018 we developed an internal Environmental Sustainability
Business Management Standard (BMS) that brings together the
commitments from our Responsible Business ambitions and our
Environmental Policy. This gives clarity to all our employees and
puts sustainability at the heart of our environmental management
systems. Since then we have been hard at work each year to drive
down waste in our offices and take excellent care of our land.
We are working with the global electricity community on
Reducing greenhouse gas emissions is very important for
the path to Net Zero. Last year we set up the Global Power
us. We have committed to implementing the Task Force on
System Transformation consortium (G-PST) to work with
Climate-related Financial Disclosures’ recommendations,
other system operators on decarbonising power grids. We
demonstrating how climate change risk and opportunities are
shared this with the world at COP26 and have also been
central to our thinking, with clear targets to measure progress.
supporting international efforts through Mission Innovation
to demonstrate that by 2030 power systems in different
geographies and climates are able to effectively integrate up
to 100% variable renewable energies in their generation mix.
The ESO are tracking our emissions and will be working year
on year to reduce these. The data for FY22 is set out below
against the FY21 comparator. Whilst this comparator is
heavily affected by the impact of the coronavirus pandemic,
Alongside those activities, we have established the
our emissions are still down versus long-term benchmarks.
Engineering Advisory Council, containing members from
We will continue to work hard to be a more sustainable
academia and European Transmission System Operators
organisation as we work toward the zero carbon operation
with the aim to direct research into the engineering challenge
of Great Britain’s electricity transmission network.
of zero carbon grid operation.
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Data explaining our Responsible Business approach to the environment:
Metric
FY21
FY22
ESO energy consumption (Gas & Elec)
11.6 GWh
11.2 GWh
Energy consumption (Gas & Elec) per person
0.01 GWh pp
0.01 GWh /pp
Scope 1 – Building heat & Business vehicles
348 tonnes CO2e
208 tonnes CO2e
Scope 2 – Electricity
1,065 tonnes CO2e
1,121 tonnes CO2e
Scope 3 – Purchased services, Flights & Other travel
57,262 tonnes CO2e
207,934 tonnes CO2e
Total ESO employee miles travelled by air
11,560 miles
68,237 miles
ESO employee miles travelled by air per person
14 miles pp
77 miles pp
% of electric mgmt. vehicles (Mgmt. company car fleet)
60%
65%
Total office waste
Office waste per person
68.3 tonnes
90.7 tonnes
0.08 tonnes pp
0.10 tonnes pp
Waste diverted from landfill
100%
98%
denotes FY22 metric included within PwC's limited assurance scope, see note on page 40.
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Case Study
Earlier this year the Science Based Targets initiative (SBTi) provided official validation of the ESO’s
emissions reductions target, finding that they aligned to the most ambitious targets of keeping
global warming to 1.5°C above pre-industrial levels for Scope 1 and Scope 2 emissions reductions.
This places the ESO in a strong position to continue to advocate for emissions reductions across
the energy industry and demonstrates our commitment to delivering a Net Zero future.
2. Our communities
We will deliver sustainable energy safely, reliably
and affordably. The ESO is part of the fabric of the
communities we serve – we keep the lights on, we keep
homes powered, we help economies to thrive. We are an
operator, an employer, and we use local suppliers. We
support our communities with the time and expertise of
our people, and through corporate giving programmes.
Two years ago we introduced a community fund to help
local communities during the pandemic. In 2020 we
donated £85,000 and in May 2021 we donated £100,000
Data explaining our Responsible Business
approach to our communities:
Metric
No. of young people given access
to skills training
Volunteering hours
ESO contribution to UK consumer
electricity bills
Service Quality – Number of
Voltage & Frequency Excursions
FY21
0
0
FY22
100
63
£1.61
(0.14% on
average)
£1.80
(0.15% on
average)
0
0
to fund projects close to our employees' communities,
Lost time injury frequency rate
0.0%
0.0%
predominantly surrounding the Warwick and Wokingham
sites such as a food bank, a children’s hospital, a
community centre and other care services. In May 2022
we ran a third funding round and allocated a further
£100,000 to support local projects.
ESO are tracking the impact on its communities.
The data for FY22 is set out below against the
FY21 comparator.
denotes FY22 metric included within PwC's limited assurance scope, see note on page 40.
Case Study
In 2021 we again supported our local
communities through the ESO Community
Fund, with a particular focus this year on
supporting efforts to combat food poverty,
with 8 of the 18 organizations supported
focused on these efforts.
Food is something that so many of us take
for granted but the UK’s food poverty rate is
among the highest in Europe. Nearly six million
adults and 1.7 million children were struggling
to get enough food between September 2020
and February 2021.
3. Our people
Case Study
We will develop the right skills to enable and accelerate the
energy transition and strive to build a diverse work force and
inclusive culture. To make sure we have the right skills to
meet the challenges of the future and deliver on our ambitious
RIIO-2 business plan, we will be recruiting c150 roles across
Warwick and Wokingham in the next year. You can read more
about our commitment to our people on pages 29-31.
Data explaining our Responsible Business
approach to our people:
Metric
FY21
FY22
Ethnic diversity of senior leadership
20% 18%
Gender diversity of senior leadership
(% female)
50% 36%
Ethnic diversity of workforce
30% 30%
Gender diversity of workforce (% female)
35% 36%
Managers completing mental health
support training
91% 100%
Living Wage Paid
100% 100%
Employee engagement score (Grid:Voice)
78% 80%
Employee enablement score (Grid:Voice)
70% 72%
Mean ‘base’ gender pay gap
12.6% 12.0%
Mean ‘incentive’ gender pay gap
(5.9)% 20.3%
ESO CEO to Median remuneration ratio
10:1
9:1
Bright Green Future (BGF) is an environmental
leadership & empowerment programme for
young people, aged 16 to 19, across the UK.
It is provided at no cost to ensure it is accessible
and inclusive, enabling us to bring together
a diverse cross section of society. In 2021/22
the ESO’s partnership with BGF has enabled
c.100 students to develop their skills and
ambition to pursue environmental careers.
Six ESO employees participated in delivery
of the programme.
BGF is centred around a carefully curated
programme of in-person and online activities
giving students the skills, confidence, and
connections for their journey towards a
meaningful energy or environmental career
and enabling them to bring a sustainability
perspective to every job. By partnering with
the Centre for Sustainable Energy in the
delivery of BGF we will contribute to the ESO’s
Responsible Business targets and support our
ambitions including:
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• Increase employee volunteering hours.
Through volunteering, our people will help
equip the next and future generations to
participate in the clean energy transition.
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• Develop skills for the future, with a focus on
lower income communities, providing access
to skills development for young people.
• Achieve greater diversity in all ESO new
talent programmes.
4. The economy
Case Study
Our economic contribution to society comes primarily
through delivering secure and reliable electricity. We power
businesses and homes, and partner with regulators, our
business partners, suppliers and other key stakeholders.
We make sure energy reaches homes and businesses safely,
reliably and efficiently. But our contribution as a responsible,
purpose-led business also comes as an employer, a tax
contributor, a business partner, a community partner and a
member of the B Team movement. Commitments include:
• Maintain reinvestment in our infrastructure and show the
consumer benefits of our delivery plans;
• Continue to invest in developing technologies and
innovations that benefit the industry and society;
• Meet or exceed the B Team Responsible Tax Principles;
• Work across our supply chains to ensure that, together,
we reflect the diversity of the communities we serve;
• Continue to influence our supply chain to operate as
Responsible Businesses.
Data explaining our Responsible Business
approach to the economy:
In November the ESO announced innovation
plans to create a Virtual Energy System to
support future industry collaboration through
shared data to best support the transition to
Net Zero.
The Virtual Energy System will combine
a series of digital twins, replicas of existing
physical components that are capable of
accurately recreating in real time the conditions
we face in managing the electricity transmission
network and the electricity markets connected
to the network.
By constructing and sharing this resource
across the industry the Virtual Energy System
will create a world leading tool to support
decision making, energy forecasting and
investment across the energy sector. Which
will help to deliver Net Zero and will create
long-term value for consumers and the industry.
Metric
Supplier payments made
to contractual terms
FY21
81%
Suppliers with a carbon
reduction target
Data
unavailable
Corporation tax (received)/paid
£(10)m
FY22
84%
74%
£17m
£7m
Other taxes paid
VAT collected
Innovation spend
Employment (jobs at 31 March)
£7m
£669m
£763m
£7m
818
£8m
884
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5. Our governance
We will make sure our governance mechanisms reflect
our values and commitments, and that the principle of
responsibility guides us in everything we do. This approach
covers nine areas of focus and is common across National
Data explaining our Responsible Business
approach to anti-bribery and corruption:
Metric
Employees completed anti-fraud
and bribery training
FY21
99%
FY22
100%
Grid Group.
Human rights
Governance and oversight
Respect for human rights is incorporated into our
We regularly review our framework to be sure procedures
employment practices and our values, which are integral to
remain proportionate to the principal risks. The National Grid
our Code of Ethical Business Conduct.
Our Global Supplier Code of Conduct (GSCoC) makes sure
our suppliers comply with all legislation relating to their
business, as well as the principles of the United Nations
Global Compact, the International Labour Organisation
Minimum Standards, the Ethical Trading Initiative Base Code,
and the UK Modern Slavery Act 2015. For UK suppliers we
also include the requirements of the Living Wage Foundation.
Group Ethics and Compliance Committee (ECC) oversees
the Code of Ethical Business Conduct and awareness
programmes. Cases alleging bribery are referred to the
ECC so its members can make sure cases are investigated
promptly and acted on. Lessons learnt are communicated
across the business.
Data explaining our Responsible Business
approach to Governance:
Preventing modern slavery
Metric
We expect our suppliers to be compliant with the Modern
Gender diversity of the Board
Slavery Act and to publish a Modern Slavery Statement
if required. Each year National Grid updates the Group's
Modern Slavery statement and publishes this online here.
The Statement is independently reviewed by the Business
Ethnic diversity of the Board
Anti-bribery policy
FY21
50%
0%
FY22
50%
0%
and Human Rights Resource Centre.
The National Grid Group Policy Statement ‘Anti-Fraud and
National Grid is a member of the United Nations Global
Compact Working Group, focusing on Modern Slavery,
and is working with Achilles to develop a community
approach to the issue and review our procurement process,
so that modern slavery criteria and identifying risks, forms
part of our sourcing process.
Anti-bribery and corruption
In National Grid there is a company-wide framework of
controls to prevent and detect bribery. We thoroughly
investigate all allegations of ethical misconduct and, where
appropriate, take corrective action and share learnings.
We record trends and metrics – only a small percentage of
these relate to bribery or corrupt practices, so we do not
consider them to be material for reporting purposes.
Bribery’ sets out our zero-tolerance approach. It applies
to all permanent employees, temporary agency staff and
contractors. To make sure of compliance with the UK
Bribery Act 2010, we conduct annual fraud and bribery risk
assessments. We have an e-learning course for all employees
setting out our zero-tolerance approach.
Whistleblowing
Confidential external whistleblowing helplines are available
24/7 to all employees so concern can be reported
anonymously. This helpline is publicised internally and on
the external website. Our policies make it clear that we will
support and protect whistle-blowers and any retaliation
will not be tolerated. This process is a shared service
within National Grid Group and there is also an independent
mechanism for reporting System Operator Financial
Information concerns, for issues arising due to
legal separation.
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Ethical business conduct
Our Code of Ethical Business Conduct sets out the standards and behaviours
we expect from all employees. It is issued to all employees and is supported by
a communication and training programme to promote a strong ethical culture.
Data explaining our Responsible Business approach to ethical
business conduct:
Metric
Employees completed ethics training and
compliance statement
FY21
94%
FY22
99%
Suppliers
Our Supplier Code of Conduct sets out our requirements that have procedures
in place to prevent and detect bribery and corruption, in accordance with all
applicable local, state, federal or national laws or regulations, including the
UK Bribery Act 2010. We provide guidance and briefings for high-risk areas,
so contractors, agents and others acting on behalf of ESO do not engage in any
illegal or improper conduct. The National Grid Group Procurement team carries
out regular supplier screening to identify any requirements for prosecutions or
sanctions within our supplier base.
Compliance framework
All business areas in the ESO and across National Grid Group support functions
are required to consider their specific risks and maintain a compliance framework,
setting out their controls to detect and prevent bribery. As part of our compliance
procedure, the ESO assesses its controls and provides evidence that supports
its compliance.
Assurance
We engaged PricewaterhouseCoopers LLP (PwC) to undertake a limited assurance
engagement using the International Standard on Assurance Engagements
(ISAE) 3000 (Revised): ‘Assurance Engagements Other Than Audits or Reviews
of Historical Financial Information’ and ISAE 3410: ‘Assurance Engagements on
Greenhouse Gas Statements’. PwC have provided an unqualified opinion in relation
to the KPIs that are identified with the symbol and featured on page 35-36.
A limited assurance engagement is substantially less in scope than a reasonable
assurance engagement in terms of the risk assessment procedures which include
an understanding of internal control, as well as the procedures performed in
response to the assessed risks. Non-financial performance and, in particular,
greenhouse gas quantification is subject to more inherent limitations than
financial information. It is important to read the Responsible Business information
in this report in the context of PwC’s full limited assurance opinion and the
ESO Responsible Business Reporting Methodology document, which can be
found here.
For reference, the National Grid Responsible Business Report can be found here.
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Internal control and risk management
The Board is committed to protecting and enhancing the ESO’s reputation and
assets, while safeguarding the interests of our stakeholders. The ESO is exposed
to threats, opportunities and uncertainties that could impact its financial situation,
its operational results, and its reputation. The ESO’s risk management and control
framework is in place to identify, assess, manage, monitor and escalate risks and
ensure internal controls are implemented to provide mitigation. The Board sets and
monitors the amount of risk the ESO is prepared to seek or accept in pursuing its
strategic objectives through the implementation of its risk appetite.
The Audit and Risk Committee is responsible for overseeing the effectiveness
of ESO’s risk management framework and the Board is responsible for the
appropriate identification of our principal risks and the effective implementation
of mitigating activities for these.
i) Risk management process
The ESO accepts that it is not possible to identify, anticipate or eliminate every risk
and that taking appropriate risks is an inherent part of doing business. However,
the risk management process provides assurance that we understand, monitor
and manage the key risks and uncertainties we face in delivering our objectives.
The ESO has an approved Risk Management Framework in place which is
supported by risk champions who aid the business in its application. The ESO
identifies appropriate risk owners to be accountable for controlling and mitigating
their respective risks.
Our risk profile contains the risks that cover the enterprise activities of our
business, of which the ESO had identified 9 Principal risks in April 2021 reducing to
7 by the end of March 2022. These Principal risks are agreed through discussions
with the Executive Team and the Board. The risks are reported and debated with
the Executive Team and the Board on a regular basis. We report on our enterprise
risk landscape quarterly to the Audit and Risk Committee and conduct at least
monthly dashboard reporting.
ii) Risk appetite
The ESO operates a 3-point appetite framework for which there have been no changes
through the year. As a result of our risk framework review in 2021/22 (more details in
iv) we are moving to a five point scale (Averse through to Risk taking) from April 2022
and taking the opportunity to lift appetite up to the highest level. The Board’s appetite
continues to be used by the business to help assess risks.
iii) Top down, bottom-up assessment
The ESO has a ‘top-down, bottom-up’ approach where all key business areas
identify key risks. Each risk is assessed by considering the financial, operational and
reputational impacts, and how likely the risk is to materialise. The risk owner identifies
and implements mitigation, to manage and monitor the risks. The most significant
risks are highlighted in our executive risk profile and reported to the Audit and Risk
Committee and the Board.
iv) Changes during the year
The Board undertook a detailed horizon scanning, emerging risk and current risks
landscape workshop in July 2021, the outputs of which were used to validate and
enhance the existing principal risks and control frameworks. In addition, the Board
approved a review of the risk framework focusing on the risk taxonomy, principal risks,
Board appetite and supporting risk tolerance ranges. This review was completed in
March 2022 and will be implemented in April 2022 and does not introduce any material
change in appetite allocation. From April 2022 we will move to 14 Principal risks (from
7) with a further 2 under development and 13 appetite categories (from the equivalent
of 11 in 2021/22).
The ESO has built a risk reporting tool, which is fed from the enterprise risk
management system. The reporting tool enables risk and control owners to
select from various risk indicators and performance measures to help inform
decision making.
While our principal risks continue to evolve, the underlying focus of these risks
have remained static through the year. We have introduced a new Trusted Partner
risk and evolved our previous ‘RIIO-2 Readiness’ risk into the current ‘Delivering
RIIO2 Commitments’ risk. The risk and control material provided in this report is
as at year end 2021-2022. The ESO Board approved a new risk framework, including
new principal risks with effect from April 2022 which will be provided in next
year’s report.
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Principle Risk
Description
Mitigation
ESO Critical
National
Infrastructure
(CNI) systems
Significant Energy
Disruption
Ensuring our CNI systems remain
available and resilient to malicious
or other threats. Maintaining and
transforming these systems to
facilitate the needs of our customers
now and in the future
The ability for the ESO to predict
and respond to significant
disruption of electricity energy
that adversely impacts our
customers and/or the public
ESO Cashflow
Power Systems
Transition
Our role in undertaking industry
revenue management could
negatively affect ESO cashflow
in the short to medium term
Failure to adapt as the power
system transitions to be more
sustainable leads to high costs
and or system security issues
• Established cyber security monitoring and testing;
• Active system health monitoring;
• Tactical upgrade programmes;
• Strategic system change programmes are in flight.
• Long and short-term energy forecasting and market
information provision;
• Network design and analysis;
• Codes and obligation management;
• Emergency exercises and industry testing.
• Governance and testing;
• Strong credit management process;
• Significant credit facilities;
• Bad debt management and recovery;
• Sox controls.
• Strategic programmes have been set up to focus
on the following:
- Whole System
- Zero Carbon Operation
- Competition Everywhere
• Proactive engagement to shape policies and public
debate to ensure stakeholders understand the role of the
ESO in a decarbonsied system.
Trusted Partner
Failure to identify, develop and
engage our differing stakeholders
in a way that is tailored to them
Delivering RIIO2
Commitments
Ensuring we meet our commitments
set out within our ambitious RIIO2
business plan
• Public affairs & Policy strategy;
• Strategic engagement strategy;
• Customer experience strategy;
• Trusted partner road map.
• Annual Business Plan;
• ESO Programme Review Board;
• Portfolio Assurance Programme;
• ESO Design Authority.
Business
Resilience
Inability to respond to an event
outside the ESO’s initial control
(Excludes CNI)
• Compliance with ISO22301 and internal Business
Management Standards for data management and
business continuity management;
• Regular testing;
• IT support contracts and monitoring for key systems;
• Provision of equipment and systems to enable
remote working.
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v) Assurance
Corporate Audit provide independent assurance to the Audit and
Risk Committee as to the effectiveness of controls put in place to
mitigate risks. Internal Assurance is in place to support the first line
improve the maturity of their risk and control landscape.
Financial review
Revenue for the year 2021/22 was £3,486m (2021: £2,127m) with an adjusted
operating profit of £50m and operating profit of £21m (2021: adjusted operating
profit £62m and operating profit £41m). The reduction in adjusted operating
profit of £12m reflects an increase in intangible asset impairments of £8m
and a £7m cumulative adjustment against intangible assets for previously
capitalised customisation and configuration of cloud computing arrangements.
Further details relating to the collection of revenues can be found in Note 2
of the financial statements.
As a result of high gas prices, we saw increased balancing costs in the Autumn and Winter period. This is reflected
in increased Balancing Service Use of System (‘BSUoS’) costs in 2021/22, which are pass-through in nature, with
Revenue up by £1,359m in 2021/22.
We worked with industry and Ofgem on a financial support
RIIO Price Control
As we operate as a monopoly, our business is regulated by
Ofgem. The regulator puts in place an incentive regime that
ensures our interests are aligned with those of customers
and society.
Ofgem’s regulatory regime for the energy industry is titled
RIIO, which stands for Revenue = Incentives + Innovation
+ Outputs. It is designed to encourage companies to invest
in efficiency and innovation.
package relating to BSUoS charges. We provided temporary
support to Suppliers and Generators to defer the payment
of an element of the Winter excess BSUoS costs because
of high gas prices. This cost £44m and will be recovered
in the coming financial year 2022/23.
Bad debts increased in the year because of the
unprecedented increase in gas prices in the Autumn.
26 customers went bankrupt during the period against
2 in the prior year. This cost £19m in 2021/22 compared
to bad debts in the prior year of £3m. This amount is fully
recovered through RIIO-2 revenues.
Our funding position continues to be strong and we are
carefully monitoring our liquidity and working capital.
Our balance sheet at 31 March 2022 showed cash, cash
equivalents and financial investments of £269m up from
£216m at 31 March 2021 and we had undrawn external
facilities amounting to £550m.
Our position and that of the market will continue to be
monitored closely throughout the duration of the current
high gas prices and geopolitical situation.
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RIIO-2
The RIIO-2 price control period started on 1st April 2021 and
introduced a new bespoke funding framework for the ESO.
The framework builds on the existing regulatory funding
arrangements already in place for network companies,
whereby licensees earn an allowed return on their Regulated
Asset Value (RAV), but also provides additional funding for
risks and activities that do not have an associated RAV.
Additionally, the ESO funding framework has been designed
to encourage the ESO to be agile and adapt quickly to market
In the year, RAV grew by 23% driven by slow money
expenditure (capital expenditure) and inflation adjustments in-
line with CPIH offset partly by regulatory depreciation. 2022
Opening RAV was adjusted for the inclusion of the Electricity
National Control Centre from the start of the RIIO-2 period,
following refreshed guidance. This accounts for the full
variance to the closing balance of £222m in 2021.
evolution through the introduction of a passthrough funding
Opening Regulated Asset Value (RAV)
approach for efficiently incurred expenditure. Finally, the
Asset additions (slow money) (actual)
framework incentivises the ESO to deliver on its ambitions
and to provide value for money for consumers through the
inclusion of incentive scheme.
Performance RAV or assets created
Inflation adjustment (CPIH)
Depreciation
Closing RAV
Every year allowed revenue to fund an efficient level of
expected costs ("totex") is split between RIIO "fast" and
"slow" money categories using specified ratios that are
fixed for the duration of the price control period. Fast money
represents the amount of totex we can recover in the year of
expenditure. Slow money is added to our Regulatory Asset
Value ("RAV"). In each year we can recover a portion of the
RAV (regulatory depreciation) and a return on the outstanding
RAV balance.
2022
£m
240
2021
£m
211
97
–
15
58
1
3
(56)
(51)
296 222
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Brexit
Brexit has not posed a key risk for the ESO. Mitigating action
during the Brexit transition phase regarding our access
to energy markets supported our ongoing activities, and
negotiations around shared technology and platforms will
continue to be monitored with the risks and uncertainties
managed through our existing risk processes, particularly
regarding access to exchange replacement reserves.
Use of adjusted profit measures
In considering the financial performance of our business,
we analyse each of our primary financial measures of
operating profit, profit before tax and profit for the year
Reconciliation of adjusted profit measures
Reconciliation of adjusted operating profit to
total operating profit:
Years ended 31 March
Operating profit
Timing in respect of BSUoS revenues
Adjusted operating profit
2022
£m
21
2021
£m
41
29
50
21
62
attributable to equity shareholders, into two components.
There were no exceptional items or remeasurements included
The first of these components is referred to as an
adjusted profit measure, also known as ‘underlying’
or a ‘business-performance’ measure. This is used by
management and forms part of the incentive target set
annually for remunerating employees and Executive
within operating profit and adjusted operating profit for the
year ended 31 March 2022 (2021: nil).
Under the regulatory arrangements the level of actual
revenues collected from customers can differ to the allowed
regulatory revenues. This can give rise to timing differences.
Directors. The adjusted profit measure excludes exceptional
items, re-measurements and timing differences. These
are reported collectively as the second component of the
financial measures in actual profit.
As detailed in Note 2 of the financial statements, for 'TNUoS'
revenues we act as agent for the GB Transmission Owners
and for certain revenues relating to UK Interconnectors.
As agent we recognise an asset or liability for such
We believe that by presenting our financial performance in
timing differences.
BSUoS revenues are based on daily calculated tariffs
allowing revenues to collect balancing costs and most
other regulatory allowed revenues in-line with the regulatory
allowed revenues. £6m of allowed regulatory revenues
were not collected in the year including bad debt costs and
anticipated incentive awards. These will be collected in
2022/23 and form part of the timing adjustments.
two components it is easier to read and interpret financial
performance between periods, as adjusted profit measures
are more comparable having removed the distorting effect of
the excluded items. Those items are better understood when
separately identified and analysed.
The presentation of these two components of financial
performance is in addition to, and not a substitute for,
the comparable total profit measures presented.
Management uses adjusted profit measures to monitor
financial performance. These measures are also used by
National Grid Group in communicating financial performance
to its investors in external presentations and announcements
of financial results.
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In Autumn 2021, there was a significant increase in gas prices
Revenue
as the world began to live with Covid-19. Ofgem issued
CMP381, an industry support scheme, to defer the impact of
part of the increase in balancing system costs in to 2022/23.
This resulted in £44m under-recovery of BSUoS collections
which is reported within adjusted operating profit for 2021/22.
This compared to a Covid-19 supplier support scheme in
2020/21 which deferred £21m of BSUoS collections into
2021/22, the collection of which reversed the timing in the
current year.
Income statement commentary:
Revenue for the year ended 31 March 2022 was £3,486m
(2021: £2,127m). The ESO is the system operator for Great
Britain, which involves the procurement of services to
balance the electricity transmission network. For this activity
the company applies a BSUoS charge, which is payable by
generators and suppliers of electricity. The ESO also holds
the role as revenue collection agent for charges to customers
on behalf of the owners of the transmission network. These
TNUoS revenues are collected in accordance with IFRS
15 and revenues are shown on a net basis. Further details
relating to the collection of revenues can be found in Note 2
Years ended 31 March
of the financial statements.
Revenue
Operating costs
Total operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit after tax
2022
£m
3,486
2021
£m
2,127
(3,465)
(2,086)
21
1
(2)
20
(7)
13
41
1
(2)
40
(7)
33
Most revenues, £3,418m (2021: £2,076m), are earned though
the operation and balancing of the electricity system. This
includes recovery of costs directly incurred to balance the
electricity system on a 'pass-through basis', recovery of
incentive revenue and amounts allowed under our regulatory
framework to cover the internal costs of our operations.
The ESO Forward Plan incentive scheme outcome for
financial year 2021-22 is expected to be £6m. The scheme
rewards performance on progress against an ambitious plan
to meet the ESO commitments and targets in relation to the
future energy transformation. Under RIIO-2 performance
is assessed at the end of the second year. The scheme is
evaluative with the outcome determined by Ofgem following
the recommendations of a performance panel including
industry stakeholders. The final award for the 2-year period
will not be known until August 2023.
TNUoS revenues of £68m (2021: £51m) reflect the
recovery of costs we directly incur through the regulatory
arrangement, including Ofgem licence fees and property
rates. This includes £6m directly recovered or repaid
to Interconnectors under their cap and floor regimes.
Further detail on this can be found in Note 2 of these
financial statements.
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Operating costs
Taxation
Operating costs for the year ended 31 March 2022
The tax charge on profits before exceptional items
were £3,465m (2021: £2,086m). Of this, £3,153m (2021:
and remeasurements was £7m (2021: £7m) at a rate
£1,875m) relates directly to balancing system costs which
higher than the standard UK tax rate of 19% due to
have increased due to lower electricity demand, high gas
deferred tax impacts of the change in future corporation
prices and record levels of renewable energy generation
tax rates from 1 April 2023.
being brought onto the transmission network, which requires
additional balancing work. Other costs of our operations
of £229m (2021: £164m) included payroll, pensions deficit,
licence payments and other running costs. Depreciation,
amortisation and impairment totalled £83m for 2022 (2021:
Statement of financial position commentary:
Commentary
Years ended 31 March
£47m), driven substantially by depreciation of intangible IT
Non-current assets
assets which are seeing a significant increase in the level of
investment over the transformation RIIO-2 period as well as
asset impairments for IT work that may no longer be required
and a cumulative adjustment against intangible assets for
Current assets
Total assets
Current liabilities
previously capitalised customisation and configuration of
Non-current liabilities
cloud computing arrangements.
Total liabilities
Under the separation agreement with National Grid Electricity
Net assets
Transmission Plc, and in accordance with the regulatory
requirements set by Ofgem, the company paid £12m (2021:
£12m) of pension deficit contributions into the National Grid
Non-current assets
2022
£m
405
1,012
2021
£m
488
747
1,417
1,235
(1,089)
(859)
(50)
(45)
(1,139)
(904)
278
331
Electricity Group of the Electricity Supply Pension Scheme
Property, plant and equipment
(NGEG of ESPS).
Net finance costs
For the year ended 31 March 2022, net finance costs before
The total net book value (NBV) of property, plant and
equipment was £116m (2021: £128m) as at 31 March 2022,
including capital additions of £20m.
exceptional items and remeasurement were £1m (2021:
Intangible assets
£1m). This includes interest paid on the fixed term loan to
National Grid plc offset by interest received on centrally
managed treasury banking arrangements. The Company also
pays fees to external providers of working capital facilities.
Interest is also charged on balances owed from or to external
customers during the normal course of business.
The total net book value (NBV) of intangible assets was
£288m as at 31 March 2022 (2021: £250m).
This included additions of £89m in year relating to software
projects, offset by £69m of amortization and impairments.
The remaining amount within Non-current assets relates to
our investment in joint ventures (£0.6m relating to Coreso SA).
Other Non-current assets in 2021 included £109m related
to TNUoS timing differences that were collectible after more
than one year in 2022/23. The closing March 2022 TNUoS
timing differences are presented within Current assets as this
will be collected within the next 12 months, detailed below.
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Current assets
Current liabilities
Trade and other receivables
Trade and other payables
Trade and other receivables totalled £743m at 31 March
Trade and other payables as at 31 March 2022 were £946m
2022 (2021: £531m), with the main component being accrued
(2021: £737m), chiefly relating to £323m (2021: £288m) of
income of £468m (2021: £361m). The accrued income
trade payables and other accruals; this was mainly generated
element comprises of TNUoS billing accruals of £265m
by £235m of BSUoS cost accruals at the year end.
(which will be invoiced in June following the annual demand
reconciliation) with the remaining balance including BSUoS
income accruals of £203m.
Deferred income as at 31 March 2022 of £235m (2021:
£180m) was generated through the deferral of TNUoS
revenues. This is caused by differences in our forecast
Trade receivables of £113m (2021: £106m) were held as at 31
TNUoS usage for billing and actual customer usage and
March 2022, net of £36m of bad debt provision (2021: £17m).
will be credited to customers following the annual demand
Other receivables of £162m (2021: £62m) includes £79m for
reconciliation in June.
TNUoS revenue timing differences that will be recovered
Social security and other taxes as at 31 March 2022 of
in 2022/23. The remaining balance relates to capital
£244m (2021: £133m) related predominantly to £243 million
contribution amounts not yet invoiced to customers.
of quarterly VAT payable. The large VAT balance is driven by
Other current assets of £269m (2021: £216m) relate
two key factors:
to balances classified within net debt, for which the
a. The Company is part of the National Grid Group VAT
in year movement is explained in the cash flow
group and settles VAT quarterly. This leads to the large
statement commentary.
VAT liability reflecting TNUoS and other charges from
National Grid Electricity Transmission not being subject
to VAT.
b. Cost incurred on Balancing the system are largely subject
to the Domestic Reverse Charge with nil net effect on the
VAT liability, but the BSUoS invoicing is subject to VAT
leading to an asymmetry and net liability.
Capital contributions for the year ended 31 March 2022 were
£104million (2021: £85m). These relate to revenues collected
on behalf of the Transmission Owners for construction
projects for which the ESO have not yet been invoiced for.
Other current liabilities of £40m (2021: £51m) chiefly comprise
of amounts due to fellow subsidiaries of National Grid plc,
£30m (2021: £38m), for amounts yet to be settled for services
they provide to the ESO for centralised Support Services.
Provisions
Total provisions remained unchanged at £2m with £1m
relating to restructuring provisions and £1m relating to
IT Licences.
Borrowings
Borrowings amounted to £141m (2021: £120m) relating
to a loan due to the ultimate parent undertaking and a
bank overdraft.
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Non-current liabilities
Deferred tax liabilities
The net deferred tax liability as at 31 March 2022 is
£11m (2021: £18m). This is a decrease in liability of £7m,
predominantly driven by a £5m movement in advanced
capital allowances.
Other non-current liabilities
Other non-current liabilities totalled £39m (2021: £27m)
as at 31 March 2022. This consisted of £39m (2021: £25m)
for application fees (relating to advance payments by
customers for feasibility studies and connections).
The remaining balance in 2021 was £2m deferred income
(relating to TNUoS revenue).
Net debt
The net debt position as at 31 March 2022 was cash
positive at £128m (2021: £96m) and is detailed further
in the following Section.
Cash flow statement commentary
Cash inflows and outflows are presented to allow users to
understand how they relate to the day-to-day operations of
the business (operating activities); the money that has been
spent or earned on assets in the year, including acquisitions
of physical or intangible assets; and the cash raised
from debt or share issues and other loan borrowings or
repayments (financing activities)
Reconciliation of cash flow to net debt:
Cash generated from operations
Net capital expenditure
Business net cash flow
Net interest paid
Tax (paid)/received
Net disposals of short term financial investments
Net proceeds from loans
Dividends paid to shareholders
(Decrease)/Increase in cash and cash equivalents
Our electricity system operations are subject to a multi-year
regulatory agreement.
For the year ended 31 March 2022 cash flow from operations
was an inflow of £225m. This was driven by operating profit
adjusted for depreciation, amortisation, and provisions of
£103m and a working capital inflow of £122m, largely driven
by an increase in VAT payable that resulted from the high
balancing costs in the last quarter of 2021/22. Prior to the
current year ESO bore cash flow risk relating to the timing of
collection of TNUoS revenues. This risk has now transferred
to onshore Transmission Owners increasing the cash flow
stability for the ESO.
Net capital cash expenditure
Net capital investment was £108m (2021: £88m) in the year
to 31 March 2022. This is mostly software and computer
hardware within IT system development projects.
Net interest paid
The net interest paid was £1m (2021: £2m).
Dividends paid
Last year on 20 July 2021, reflecting the financial position of
the ESO and in light of our residual dividend policy, the Board
recommended a final dividend of £67m which was paid in
July 2021 (2020: £nil).
2022
£m
225
2021
£m
(69)
(108)
(88)
117
(157)
(1)
(17)
14
(72)
(67)
(26)
(2)
10
–
160
–
11
Increase/(decrease) in financial investments
59 (160 )
Increase in borrowings and related derivatives
Net interest received on the components of net debt
Net debt increase/(decrease)
Opening net debt
Closing net debt
(21)
–
–
1
12
(148)
96
244
128
96
Section 172 Statement
The ESO aims to achieve high standards of leadership and
governance. For the year ended 31 March 2022, under
The Companies (Miscellaneous Reporting) Regulations
2018, we have applied the Wates Corporate Governance
Principles for Large Private Companies, set out in the
Corporate Governance section on pages 52-63. These
serve as a framework for the Board in managing long-term
strategic business decisions that promote the success of
the Company, while having regard to the matters set out in
section 172(1)(a) to (f) of the Companies Act 2006 (“CA 2006”).
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Corporate governance
Corporate governance statement
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Principle
Purpose and leadership
An effective board develops and promotes the purpose of the Company,
and ensures that its values, strategy and culture align with that purpose.
Purpose
We run the UK’s network of high voltage electricity wires, making sure that
Great Britain has the essential energy it needs by ensuring supply meets
demand every second of every day. At the same time, we need to partner with
the energy industry to meet the challenges of the future, delivering clean and
affordable electricity.
Strategy
The ESO is driven by its mission of enabling the transformation to a fully
decarbonised electricity system by 2035 which is reliable, affordable, and fair
for all. The ESO’s ambitions have been recently revised to better reflect the
evolving operating environment and increasing complexity of our business.
The ESO’s ambitions are:
Ensuring the electricity system can operate carbon free by 2025;
Engaging as a trusted partner;
Driving competition everywhere;
Being the Net Zero employer of choice;
Being innovative, digital and data driven.
As part of the ESO’s drive to become more sustainable and transparent, the
Board is focussing on matters of environmental, social and governance (“ESG”)
strategic importance – these are discussed on page 34-40.
Considerable effort has gone into ensuring that the strategy of the ESO
continues to align with our purpose and that our business and people are
organised and deployed in a way that ensures the future success of the ESO
and the UK energy market in the long term. For further details in this regard,
please refer here.
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Principle
Board composition
Effective board composition requires an effective chair and a balance of
skills, backgrounds, experience and knowledge, with individual directors
having sufficient capacity to make a valuable contribution. The size of a
board should be guided by the scale and complexity of the Company.
Balance, Diversity, Size and Structure
As of 20th July 2022, the Board comprises a majority of five Non-Executive
Directors (NEDs) and three Executive Directors. The Chair of the Board is also
the Executive Director of the ESO; this is considered appropriate for ESO as a
subsidiary company of a large group.
The NEDs bring a range of experience, perspective, and challenge from outside
the energy industry, including experience in technology, digital transformation
and engineering. The size and composition of the Board is appropriate to the
ESO’s size, nature, and complexity of the business. It also complies with the
requirements of our licence.
There are an equal number of male and female Directors on the Board.
The Board recognises that diversity is a challenge for the energy sector and
makes diversity an integral part of its agenda. A biography for each Board
director can be found on page 10.
There is open debate and constructive challenge at meetings, with Board
members demonstrating good engagement with the business and a sound
understanding of the ESO’s strategy, risks, and challenges. As the business
must balance costs against the prudent management of risks inherent in the
operation of the electricity system, there are often trade-offs between different
stakeholders over the longer-term and the directors carefully consider this as
they evaluate decisions. The NEDs bring independent and objective judgement
to Board deliberations, challenging and monitoring performance of executive
management and obtaining assurance that the Company’s legal and regulatory
requirements have been met. The Directors have equal voting rights when
making decisions, except the Chair, who has a casting vote in the event of a tie.
All Directors have access to the advice and services of the Company Secretary
and may also take professional advice at the Company’s expense.
All Board appointments are made in consultation with our Shareholder and
in line with National Grid’s Procedure for the Appointment of Directors to
Subsidiary Companies.
Effectiveness
In 2021, the Board instigated an effectiveness review, facilitated by an independent
external advisor. The review assessed that despite being relatively newly formed (April
2019) it is ambitious, aligned around the ESO’s mission, competent and well run. These
solid foundations offer the potential to become even more effective through a series of
small changes. The Board has an action plan to implement the recommendations of
the review.
Directors update their knowledge and familiarity with the ESO by meeting with senior
management and by attending company events and visiting operations. Induction
materials and briefings are provided to new Directors.
The Board receive updates and presentations on key operational matters and specific
initiatives within the business and the wider operating environment to strengthen their
knowledge and understanding of the business and operational matters. These visits
and briefing sessions create further links between the business and the Board room.
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Principle
Director responsibilities
Accountability
The Board and individual Directors should have a clear understanding
of their accountability and responsibilities. The Board’s policies and
procedures should support effective decision-making and
independent challenge.
The Board recognises the importance of a strong corporate governance framework
and is collectively responsible for governance and oversight of the business,
and compliance with all relevant laws and regulations, including compliance with
its obligations under its ESO Licence. To facilitate this, we have established a
comprehensive governance framework, which is aligned to the wider National Grid
plc governance framework, as is required and applicable.
The Board had eight principal meetings in the year. These are scheduled in advance
providing all Directors with sufficient notice to attend. Board attendance is set
out below and expressed as the number of meetings attended out of the number
possible or applicable for the individual director during the year to 31 March 2022.
Attendance
John Linwood
Non-Executive Director
Baroness Gillian Merron
Non-Executive Director
Regina Moran
Hannah Nixon
Paul Plummer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Fintan Slye (Chair)
Executive Director - ESO
Kayte O'Neil
Gregg Smith
Director of Transformation - ESO
Finance Director - ESO
Attendance
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
8 of 8 (100%)
Additional supplementary Board meetings were scheduled to allow discussion of
urgent issues or to allow greater focus on specific matters, there were 5 in 2021/22
covering topics such as FSO consultation, RIIO-2 Business Plan 2, strategy and risk
sessions. All Directors were either present or provided feedback to the Chair prior to
the meeting.
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The Board determines the strategic direction of the ESO,
The Directors have a clear understanding of their roles and
establishes policies for corporate management, makes
responsibilities. The five NEDs are wholly independent in
decisions on major initiatives and ensures the leadership
that they have no business or relationship with the ESO or
is in place to implement these policies and decisions.
the wider National Grid Group that would compromise their
The Board operates a forward agenda of standing items
influence or objectivity.
appropriate to the operating and reporting cycles and
The ESO is proud of its reputation for operating one of the
receives regular and timely information on all key aspects of
most reliable electricity systems in the world. Our licence
the business, including risks and opportunities, operations,
to operate is dictated by the way we are perceived by
financial and regulatory reporting, market conditions,
stakeholders, so the Board gives high priority to maintaining
relationships with regulatory bodies and human resources,
a reputation for high standards of business conduct.
legal, compliance, and regulatory matters, supported by
It identifies and monitors external developments likely to
a KPI Scorecard allowing supervision of safety, financial
impact on our reputation and ability to run our business as a
performance, the organisation and customer satisfaction.
good corporate citizen. For more information see our section
on acting as a Responsible Business on pages 34-40.
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Areas of focus in 2021/22 were
Governance
• Embedding the ESO Health, Safety and Wellbeing Committee;
• Updating the Terms of Reference for the ESO Nominations Committee;
• First Board evaluation review;
• Board Effectiveness Workshop;
• Customer & Stakeholder Engagement Plans.
Strategy
• ESO Annual Business Plan;
• Delivery of RIIO-2 Business Plan;
• RIIO-2 Business Plan 2 (2023-2025);
• Refresh ESO Mission and Ambitions;
• ESO Innovation Strategy 2021/22;
• Early Competition Programme;
• Offshore Coordination project;
• Holistic Network Design – Pathway to 2030;
• Net Zero Market Reform.
Finance
• Capital Expenditure Considerations;
• Approval of the annual financial plan;
• Oversight of Financial Performance;
• Financial sustainability and industry support schemes
(including BSUoS);
• Approval of Annual Report & Accounts;
• Approval of Working Capital Facilities.
Risk and
opportunity
• Risk Framework and Risk Appetite Review;
• Evolution to an independent Future System Operator;
• Changes to the UK’s energy landscape;
• UK’s Net Zero carbon commitment by 2035;
• Security of Supply;
• Balancing Market Review.
Corporate Social
Responsibility
• Commitment to being a Responsible Business;
• ESO Community Fund and volunteering commitment;
• Delivering on our 2025 zero carbon operation ambition.
Integrity of information
Committees
Financial information is collated by our finance function
The Board has delegated certain governance
from its accounting systems to enable the Board to
responsibilities to Committees that have the knowledge
assess financial performance. Internal control systems
and experience to make recommendations to the Board,
help ensure the financial information generated is reliable,
each of which have documented terms of reference.
consistent, timely and complete. Financial information is
Each committee is chaired by a NED and the NED
externally audited by Deloitte LLP annually and financial
members provide independent challenge and support
controls are routinely reviewed by the National Grid’s
for effective decision making.
central internal Assurance and Corporate Audit functions.
Other key information is prepared by the relevant
business and internal functions, which are also subject
to periodic reviews by the ESO’s Assurance function.
The Board and its committees regularly review terms
of reference to ensure that they remain fit for purpose,
are adapted to promote good governance and meet the
requirements of the Company as they evolve. At each
Board meeting, directors receive reports on the key
discussion items, activities and recommendations
from the Chairs of the Committees that have met in
the period.
Committee
Activity
Audit & Risk Committee
The Audit & Risk Committee (ARC) monitors the effectiveness of internal controls;
risk management; integrity of financial statements; and the performance of the internal
Assurance and Corporate Audit department and independent auditor. In November 2021,
John Linwood was appointed to ARC as a NED Member to strengthening the skill and
experience of the Committee.
Nominations Committee
The Nominations Committee makes sure the Board remains balanced and effective and that
its structure, composition and skills align to the ESO’s strategic objectives, and has due regard
for diversity. The Committee’s primary objective is to identify and evaluate candidates for future
NED appointments and in doing so, it takes advice from external recruitment consultants.
During the year, the Terms of Reference of the Nominations Committee were expanded to
include oversight of: (i) the succession plans for the Executive Leadership within the ESO; (ii)
Executive remuneration and benefits (including discretionary elements); and (iii) input on the
remuneration and benefits framework applicable to the Executive Director to the Shareholder.
Business Separation
Compliance Committee
The Business Separation Compliance oversees the duties and tasks of the ESO Business
Separation & EMR Compliance Officer with the focus upon compliance with the business
separation licence and EMR licence conditions.
Health, Safety &
Wellbeing Committee
The ESO is dedicated to ensuring the highest standards of health, safety and wellbeing for
all staff, going beyond compliance with legal requirements and adopting a good practice
model that benefits everyone. To support the Board with this ambition, it established the Health,
Safety & Wellbeing Committee, with responsibility for nurturing and promoting a positive attitude
to health, safety and wellbeing as in integral part of the ESO’s activities and to maintain an
overall assessment of the key ESO health, safety and wellbeing specific risks.
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Below is a summary of the committee structure and members:
Audit & Risk
Compliance
Nomination
Health, Safety & Wellbeing
•
•
•**
•
John Linwood*
Baroness Gillian Merron*
Regina Moran*
Hannah Nixon*
Paul Plummer*
Fintan Slye
Kayte O'Neill
Gregg Smith
*NED **Chair
•
•**
•
•
•**
•
•
•**
•
•
The Board also delegates certain powers and responsibilities to the following:
Electricity System Operator Executive Team
ESO Executive Team meets at least weekly and comprises individuals responsible for strategic
business units and key functions. Duties include formulating strategy proposals for Board approval
and ensuring the strategy is implemented in a timely and effective manner. The Executive Team
receives reports from its two sub-committees: ESO Programme Review Board (including investment
sanctioning) and the ESO Design Authority. The ESO Executive Team makes sure that the values,
strategy and culture align, are implemented and are communicated consistently to our employees
and external stakeholders. The gender balance in the ESO Executive Team is 64/36.
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Principle
Opportunity and risk
The Board should promote the long-term sustainable success of the
Company by identifying opportunities to create and preserve value,
and establish oversight for identification and mitigation of risks.
Opportunity
The ESO’s strategy is based on a long-term vision for Britain’s electricity system
to be able to run on purely zero carbon electricity by 2025, supporting the UK’s
2050 Net Zero commitment. The Board explores opportunities that align with
this purpose - such as Early Competition and Offshore Coordination, supported
by the RIIO-2 cost pass-through mechanism.
Major opportunities in excess of thresholds are considered and approved
by the Board in accordance with the Company’s Articles of Association and
Delegated Authorities. Interesting and significant initiatives are presented to
the Board alongside these.
Risk
Effective risk management is fundamental to our long-term success.
The Strategic Report on pages 41-43 includes an assessment of the ESO’s
principal risks and uncertainties and describes our internal controls and
risk management.
At Board level, oversight for the identification and mitigation of risk is delegated
to the Audit & Risk Committee. The ESO has been on a significant programme
of change over the last two years for the management of risk. This has seen the
implementation of a new risk framework and a move to a new risk management
system. In 2021, work moves to focus on the quality of information and
effectiveness of the controls.
The Audit & Risk Committee reviews the ESO’s internal control and risk
management systems and receives reports from management on the
effectiveness of the established systems and conclusions of any testing carried
out by internal and external auditors. The Committee approves the annual
internal audit and ESO assurance plan, ensuring that these are aligned to the
key risks of the business. The plans are sufficiently flexible, to help react to and
address new and emerging risks. The Committee receives regular summaries
of this work and monitors and reviews the effectiveness of these activities and
any mitigating action plans in the overall context of the ESO’s risk management
system. The Audit & Risk Committee’s Chair is responsible for keeping in
touch on a continuing basis with key people involved in the ESO’s governance
including the ESO’s Finance Director, Corporate Audit and the external audit
lead partner.
The Board approves the Company’s risk appetite and undertakes an
assessment of the Company’s risk management framework annually to ensure
that it remains appropriate.
Principle
Remuneration
A Board should promote executive remuneration structures aligned to the
long-term sustainable success of a company, taking into account pay and
conditions elsewhere in the Company.
Directors are not separately remunerated for their Board role, except for the NEDs,
who are paid an annual fee to attract and retain a balanced skill set and provide strong
stewardship and governance.
Directors’ remuneration is determined in accordance with National Grid’s remuneration
policies for employees. See the Annual Report and Accounts of National Grid plc
for further information. In accordance with the requirements of the ESO licence,
incentivisation of the executive Directors is linked to the performance of ESO only.
The ESO is committed to ensuring all employees are paid fairly for the role they
undertake and our gender pay data is scrutinised and discussed by the Board at least
annually. For further details, please refer to the Company’s latest Gender Pay Gap
Report which can be found here.
The Nomination Committee is responsible for reviewing, and where appropriate,
making recommendations to the Shareholder in respect of the remuneration policies
and benefits framework for all ESO employees to ensure that they support the
strategic objectives, culture and values of the Company.
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Principle
Stakeholder relationships and engagement
Directors should foster effective stakeholder relationships aligned to the
Company´s purpose. The board is responsible for overseeing meaningful
engagement with stakeholders, including the workforce, and having regard
to their views when taking decisions.
The Board promotes meaningful engagement and transparency with employees,
customers and external stakeholders and considers their views when taking decisions.
Many of our business initiatives require detailed stakeholder input, such as our
Towards 2030 and Future Energy Scenarios publication and our annual Network
Options Assessment. We engage with the wider stakeholder community via our core
channels, which include website, social media, live events, webinars, knowledge
shares and newsletters.
We run a UK and European public affairs engagement programme to engage with and
inform key industry stakeholders. We are members of industry collectives such as the
Energy Networks Association, Coreso and ENTSO-E.
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Shareholder
As a wholly owned subsidiary, the Board duly considers the
To support operational and managerial separation of the
views and interests of its ultimate Shareholder, National Grid
ESO, and independence of the ESO Board, there is a Group
plc, as part of any major decisions and transactions, where
level committee, the ESO Committee. The ESO Committee
this is appropriate in the context of its licence obligations
ensures all ESO ringfenced information required to support
around legal separation.
National Grid Group, as ultimate shareholder of the ESO,
is responsible for ensuring the long-term viability and
prudent financial management of the National Grid Group.
good corporate governance by the ultimate shareholder is
viewed separately from other subsidiaries in the National
Grid portfolio. The ESO Committee is not involved in the
day-to-day operation of the ESO.
Arrangements are in place to both enable appropriate Group
Matters reserved for the National Grid Group Board are
oversight but also enable the ESO to operate sufficiently
published on the National Grid website here.
independently within the National Grid Group.
The NEDs hold an annual meeting with the Chief Executive
The Articles of Association and Matters Reserved to the
of National Grid plc. There is also an annual meeting held
National Grid Group Board describe the remit of the public
between the respective Chairs of the National Grid plc
limited company (PLC) and are available on the National Grid
Audit Committee and ESO Audit and Risk Committee.
website. To bring this interaction to life, the areas of ESO
activity that have visibility or require approval at Group Board
level include things like:
The Strategic Report was approved by the Board of
Directors on 20 July 2022 and signed on its behalf by
• approval of the ESO’s annual budget;
• review and approval of the ESO’s long term rolling
financial forecast;
Fintan Slye, Chair
National Grid Electricity System Operator Limited
1-3 Strand, London WC2N 5EH
Registered in England and Wales Number: 11014226
• visibility of the ESO’s financial performance against
its annual business plan;
• visibility of the ESO’s principal risks;
• approval of any material extension of the ESO’s activities
into new business areas or any decision to cease to
operate any part of the ESO’s business;
• authorisation of changes affecting the capital structure
of the ESO;
• approval of the long-term strategic objectives of the ESO
and any major changes to the size and composition of the
ESO Board and its committees; and
• unforeseen issues that have significant or material impact
on the Group (e.g. financial, reputational or principal risks).
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For the purposes of the UK Companies
Act 2006, the Directors present their report
along with the audited consolidated financial
statements of the Company for the year
ended 31 March 2022, which comprises
the Corporate Governance Statement on
page 52 and the Statement of Directors’
Responsibilities on page 69.
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The Strategic Report sets out those matters required to be disclosed in the Directors’
Report which are considered to be of strategic importance. Further details of matters
required to be included in the Directors’ Report are detailed below.
Directors
The Directors of the Company who were in office during the year and up to the date
of signing the financial statements were:
Fintan Slye
Regina Moran (NED*)
John Linwood (NED*)
Baroness Gillian Merron (NED*)
Hannah Nixon (NED*)
Paul Plummer (NED*)
Kayte O’Neill
Gregg Smith
* Non-Executive Director
Directors Indemnities and Insurance
The Company has made qualifying third-party indemnity provisions for the benefit
of its Directors during the year; these remain in force at the date of this report.
Principal activities and business review
A full description of our principal activities, business, key performance indicators
and principal risks and uncertainties is contained on pages 6 to 43 of this report.
Material interests in shares
National Grid Electricity System Operator Limited is a wholly owned subsidiary
undertaking of National Grid Holdings One plc. The ultimate parent company
of National Grid Electricity System Operator Limited is National Grid plc.
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Dividends
In line with the Board’s residual Dividend policy, the Board is not recommending
the payment of a final dividend for the year to 31 March 2022 (2021: £67million).
Share capital
The share capital of the company remains unchanged. See Note 17 to the financial
statement for further details.
Articles of Association
The Company’s Articles of Association may be amended by a special resolution of
the Company’s shareholders. The current Articles were adopted by shareholders
on the date of incorporation, 16 October 2017.
Conflicts of Interest
The Company’s Articles permit the Board to consider and, if deemed fit, authorise
situations where a Director has an interest that conflicts, or may possibly conflict,
with the interests of the Company. If a Director becomes aware that they have an
interest that may arise in a conflict, they are required to notify the Board. Internal
controls are in place to make sure that any related party transactions involving
Directors are conducted on an arm’s length basis. Directors have a duty to update
changes to these conflicts. The Board considers the procedures in place for
reporting and considering conflicts of interest are effective.
Political donations
During the year, the Company made no political donations.
Research and development
Expenditure on research and development was £7.6m (2021: £2.6m)
during the year.
Future developments
Details of future developments are contained in the Strategic Report in
pages 31-40.
Business relationships
Details of how the Directors have had regard to the need to foster our business
relationships with suppliers, customers and other stakeholders and their effect on
the decisions taken by the Company during the financial year are contained in the
Strategic Report on pages 28-40.
Employee engagement
The average number of people employed by the Company during the year was
823. The ESO recognises that our employees are fundamental to our long-term
success. Details of how the ESO maintains a close relationship with employees
and how Directors have had regard to employee interests in their decision making
is contained in the Strategic Report on pages 28-40.
Diversity policy
Post balance sheet events
The ESO is an equal opportunities employer and our core
There were no post balance sheet events for the year ended
values are grounded in creating an environment where
31 March 2022.
our employees can perform at their best and feel fulfilled
and confident in their work, regardless of age, nationality,
disability, marital status, ethnic origin, religion, gender or
sexual orientation. The ESO gives full and fair consideration
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
to applications for employment made by disabled people.
Going concern
The ESO strives to empower all our employees to realise their
full potential and ambitions through a culture of development
and we endeavour to re-train and adjust the environment
of employees who become disabled during employment
with us.
The ESO Board has a reasonable expectation that the
Company has adequate resources to continue in the
operational existence for the foreseeable future. Despite
the challenges arising from the unprecedented
circumstances driven by the war in Ukraine, the ESO has
See page 29 for further details. Women represent 50%
demonstrated its operational and financial resilience and
of the ESO Board and 36% of our Executive Team.
ability to manage business risks successfully. Further details
Overall, women make up 36% of our workforce and hold
can be found within the Basis of Preparation on page 77.
50% of senior roles.
Fair and appropriate remuneration
We are voluntarily reporting our ESO Chair to Median
Accordingly, the financial statements set out on pages 74-101
have been prepared on the going concern basis.
Acknowledgement
remuneration ratio which is 9:1. The ratio is based on total
The Directors wish to convey their appreciation to all ESO
pay and taxable benefits (2021/22) and comprises salary,
employees for their continued commitment and contribution
pension, and other benefits including an estimated vesting
to delivering our ambitions.
value for the 2019 Long Term Performance Plan award
which is expected to vest in early July 2022. Excluding this
estimated Long Term Performance Plan award the median
The Directors would also like to extend their thanks to all
other key stakeholders for their continued support of the
Company and their confidence in its management.
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pay ratio is 6:1.
Energy and carbon
Details of the Company’s energy impact and carbon
emissions across Scope 1 and 2 are detailed below:
tCO2e
Buildings
Transport
Total
2021/22
2020/21
1,308
21
1,329
1,336
77
1,413
Fintan Slye
Chair
20 July 2022
National Grid Electricity System Operator Limited
denotes FY22 metric included within PwC's limited assurance scope,
see note on page 40.
1-3 Strand, London WC2N 5EH
Registered in England and Wales Number: 11014226
Disclosure of information to auditors
The auditors have made the requisite enquiries, and so far
as the Directors in office at the date of the signing of this
report are aware, there is no relevant audit information of
which the auditors are unaware. Each Director has taken all
reasonable steps to make themselves aware of any relevant
audit information and to establish that the auditors are aware
of that information.
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Throughout these financial statements, we have provided explanations of the
disclosures and why they are important to the understanding of our financial
performance and position.
Notes
Notes to the financial statements provide additional information required by
statute, accounting standards or other regulations to assist in a more detailed
understanding of the primary financial statements. In many notes, we have
included an accounting policy that describes how the transactions or balance
in that note have been measured, recognised and disclosed. The basis of
preparation section provides details of accounting policies that apply to
transactions and balances in general.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under
that law the Directors have elected to prepare the company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the UK and, FRS 101. Under
company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the company and of the profit or loss of the
company for that period.
In preparing the company financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate
to presume that the company will continue in business.
In preparing the financial statements, International Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
• Provide additional disclosures when compliance with the specific requirements
in IFRSs are insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s financial position and
financial performance; and
• Make an assessment of the company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the company’s transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to make sure that the financial statements comply
with Companies Act 2006. They are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the National Grid ESO website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
On behalf of the Board
Gregg Smith
Finance Director
20 July 2022
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Independent Auditor's report to the
members of National Grid Electricity
System Operator Limited
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of National Grid Electricity System Operator Limited (the ‘company’):
• Give a true and fair view of the state of the company’s affairs as at 31 March 2022 and of its profit for
the year then ended;
• Have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• Have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• The statement of profit or loss;
• The statement of other comprehensive income;
• The statement of changes in equity;
• The statement of financial position;
• The statement cash flow; and
• The related Notes 1 to 23 of the financial statements.
The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards, including Financial Reporting Standard 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
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 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, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
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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.
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 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.
Other Information
The other information comprises the information included in the Annual Report, other than the financial
statements and our auditor’s report thereon. The Directors are responsible for the other information
contained within the annual report. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit,
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement
in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in respect of these matters.
Responsibilities of directors
As explained more fully in the statement of Directors’ responsibilities, 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 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 Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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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.
We considered the nature of the Company’s industry and its control environment, and reviewed the
Company’s documentation of their policies and procedures relating to fraud and compliance with
laws and regulations. We also enquired of management about their own identification and assessment
of the risks of irregularities.
We obtained an understanding of the legal and regulatory framework that the Company operates in,
and identified the key laws and regulations that:
• Had a direct effect on the determination of material amounts and disclosures in the financial
statements. These included UK Companies Act, FRS 101 and tax legislation; and
• Do not have a direct effect on the financial statements but compliance with which may be fundamental
to the Company’s ability to operate or to avoid a material penalty. These included the Company’s
operating licence and environmental regulations.
We discussed among the audit engagement team including relevant internal IT specialists regarding the
opportunities and incentives that may exist within the organisation for fraud and how and where fraud
might occur in the financial statements.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond
to the risk of management override. In addressing the risk of fraud through management override of
controls, we tested the appropriateness of journal entries and other adjustments; assessed whether the
judgements made in making accounting estimates are indicative of a potential bias; and evaluated the
business rationale of any significant transactions that are unusual or outside the normal course of business.
In addition to the above, our procedures to respond to the risks identified included the following:
• Reviewing financial statement disclosures by testing to supporting documentation
to assess compliance with provisions of relevant laws and regulations described
as having a direct effect on the financial statements;
• Performing analytical procedures to identify any unusual or unexpected relationships
that may indicate risks of material misstatement due to fraud;
• Enquiring of management, internal audit and in-house legal counsel concerning actual
and potential litigation and claims, and instances of non-compliance with laws and regulations; and
• Reading minutes of meetings of those charged with governance, internal audit reports and reviewing
correspondence with relevant regulatory authorities.
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Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• The information given in the strategic report and the directors’ report for the financial year
for which the financial statements are prepared is consistent with the financial statements; and
• The strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the company and its 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
Under the Companies Act 2006 we are required to report in respect of the following matters if,
in our opinion:
• Adequate accounting records have not been kept, or returns adequate for our audit have
not been received from branches not visited by us; or
• The financial statements are not in agreement with the accounting records and returns; or
• Certain disclosures of directors’ remuneration specified by law are not made; or
• We have not received all the information and explanations we require for our audit.
We have nothing to report in respect of these matters.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the company and the company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.
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Jane Whitlock ACA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 July 2022
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Statement of profit or loss
and other comprehensive income
for the years ended 31 March
Revenue
Operating costs
Operating Profit
Finance income
Finance costs
Total profit before tax
Tax
Profit after tax/Profit for the year
attributable to owners of the parent
Total comprehensive income for the year attributable
to owners of the parent
Notes
2
3
4
4
5
2022
£m
3,486
2021
£m
2,127
(3,465)
(2,086)
21
1
(2)
20
(7)
13
13
41
1
(2)
40
(7)
33
33
Statement of changes in equity
Notes
Called up
share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Merger
Reserve1
£m
Total
equity
£m
At 1 April 2020
Profit for the year
Total comprehensive
income for the year
Share-based payments
At 31 March 2021
Profit for the year
Total comprehensive
income for the year
Equity dividends
6
Share-based payments
At 31 March 2022
¹Analysis of merger reserve has been provided within Note 18.
3
—
3
—
—
—
—
3
327
—
327
—
—
—
—
327
109
33
33
1
143
13
13
(67)
1
90
(142)
297
33
33
1
331
13
13
(67)
1
278
—
(142)
—
—
—
—
(142)
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Statement of financial position
as at 31 March
Non-current assets
Intangible assets
Property, plant and equipment
Investment in joint venture
Other non-current assets
Total non-current assets
Current assets
Trade and other receivables
Financial assets and other investments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Retained earnings
Merger Reserve
Total equity
Notes
2022
£m
2021
£m
7
8
23
9
11
10
12
13
14
16
15
5
17
18
288
116
1
—
405
743
263
6
1,012
1,417
(141)
(946)
(2)
250
128
1
109
488
531
204
12
747
1,235
(120)
(737)
(2)
(1,089)
(859)
(39)
(11)
(50)
(1,139)
278
3
327
90
(142)
278
(27)
(18)
(45)
(904)
331
3
327
143
(142)
331
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The financial statements set out on pages 74-101 were approved by the Board of Directors and authorised for issue
on 20 July 2022. They were signed on its behalf by:
Fintan Slye, Chair
Gregg Smith, Finance Director
National Grid Electricity System Operator Limited
Registered Number: 11014226
Statement of cash flow
for the years ended 31 March
Notes
2022
£m
2021
£m
Cash flows from operating activities
Operating profit
Adjustments for:
Depreciation, amortisation & impairment
Share-based payment charge
Changes in working capital
Changes in provisions
Cash generated from operations
Tax (paid)/received
Net cash inflow from operating activities
Cash flows from investing activities
Purchases of intangible assets
Purchases of property, plant and equipment
Interest received
Net disposals of short-term financial investments
Net cash flow used in investing activities
Cash flows from financing activities
Payments/receipts of loans (to)/from ultimate parent
Interest paid
Dividends paid to shareholders
Net cash flow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Net cash and cash equivalents at the end of the year1
12
20
83
1
122
(1)
225
(17)
208
(88)
(20)
1
14
(93)
(72)
(2)
(67)
(141)
(26)
12
(14)
41
47
1
(149)
(9)
(69)
10
(59)
(53)
(35)
1
—
(87)
160
(3)
—
157
11
1
12
¹Cash and cash equivalents at end of year are shown net of the company’s bank overdraft as at 31 March 2022 of £22million (2021 : £nil).
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Notes to the financial statements
- analysis of items in the primary statements
1. Basis of preparation and recent accounting developments
Accounting policies describe our approach to
These financial statements were approved for issue by
recognising and measuring transactions and balances
the Board of Directors on 20 July 2022. The company
in the year. The accounting policies applicable across
meets the definition of a qualifying entity under FRS
the financial statements are shown below, whereas
100 Application of Financial Reporting Requirements.
accounting policies that are specific to a component
Accordingly, the company has elected to apply FRS
of the financial statements have been incorporated
101 Reduced Disclosure Framework. The recognition
into the relevant note.
and measurements requirements of UK-adopted IFRS
This section also shows areas of judgement and key
sources of estimation uncertainty in these financial
statements. In addition, we have summarised new
have therefore been applied within these financial
statements, with amendments where necessary in
order to comply with the Companies Act 2006.
International Accounting Standards Board (IASB) and
The financial statements have been prepared on
UK endorsed accounting standards, amendments and
a historical cost basis. These financial statements
interpretations and whether these are effective for this
are presented in pounds sterling, which is also the
year end or in later years, explaining how significant
functional currency of the Company. The notes to
changes are expected to affect our reported results.
the financial statements have been prepared on a
continuing basis unless otherwise stated.
National Grid Electricity System Operator’s principal
activities involve the operation of the electricity
transmission system in Great Britain. The Company is
a limited liability company incorporated and domiciled
in England and Wales, with its registered office at
1-3 Strand, London WC2N 5EH.
a) FRS 101 exemptions
b) Going concern
As permitted by FRS 101, the company has taken
As part of the Board's consideration of the
advantage of exemptions from the requirements of
appropriateness of adopting the going concern basis
IFRS in relation to the following elements:
of accounting in preparing these financial statements,
• Disclosures in respect of share based payment;
the Board has considered the impact of principal
risks on the ESO's operations. The ESO Board has
• Disclosures in respect of capital management;
assessed the principal risks including
• Disclosures required by IFRS 13
‘Fair Value Measurement’;
• Disclosures required by IFRS 7
‘Financial Instruments: Disclosures’;
• Presentation of comparative information
in respect of certain assets;
• The effect of standards not yet effective.
by modelling cash flow forecast scenarios. These
cash flow scenarios, included a reasonable worst
case scenario.
The main cash flow transactions assessed in
the forecast scenarios are:
• TNUoS and BSUoS under- and over-recoveries
collected from or returned to customers in
accordance with established regulatory
Where required, equivalent disclosures are given in
structures, including those arising from
the Group financial statements of National Grid Plc,
Covid-19 and other industry support schemes;
which are available to the public as set out in Note 22.
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¹Cash and cash equivalents at end of year are shown net of the company’s bank overdraft as at 31 March 2022 of £22million (2021 : £nil).
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1. Basis of preparation and recent accounting developments (continued)
• Significant termination payments;
• review of residual lives, carrying values and
• Bad debts, including higher bad debt
costs than forecast; and
• Payment of proposed dividends to
the shareholder.
Having considered the forecast scenarios, the ESO
continues to have headroom against its committed
external facilities identified in Note 13 to the
financial statements.
Based on the above, the Directors have concluded
the Company is well placed to manage its financing
and other business risks satisfactorily, and have
reasonable expectation that the Company will have
adequate resources to continue in operation for
at least 12 months from the signing date of these
impairment charges for other intangible assets
and property, plant and equipment - notes 7
and 8
• Agency relationship in respect of certain
Transmission Network Use of Service revenues,
principally those collected on behalf of the
Onshore and Offshore transmission operators
under IFRS 15 - note 2
Key sources of estimation uncertainty that have a
significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within
the next financial year are as follows:
• Outcome of Forward Plan incentive scheme -
note 2
financial statements. They therefore consider it
• Increased levels of bad debts with the continued
appropriate to adopt the going concern basis of
high gas prices and consumer energy price caps
accounting in preparing the financial statements.
increasing the level of energy supplier failures -
c) Foreign currencies
note 11.
Transactions in currencies other than the functional
e) Accounting policy choices
currency of the Company are recorded at the
The IFRS framework provides certain options
rates of exchange prevailing on the dates of the
available within accounting standards. Choices
transactions. At each reporting date, monetary
we have made, and continue to make, include
assets and liabilities that are denominated in foreign
the following:
currencies are retranslated at closing exchange
rates. Non-monetary assets are not retranslated
unless they are carried at fair value.
• Presentational formats: we use the nature of
expense method for our income statement
and aggregate our statement of financial
Gains and losses arising on the retranslation of
position to net assets and total equity. In the
monetary assets and liabilities are included in the
income statement, we present subtotals of
income statement.
d) Areas of judgement and key
sources of estimation uncertainty
total operating profit, profit before tax and
profit from continuing operations, together with
additional subtotals excluding exceptional items
and remeasurements. Exceptional items and
The preparation of financial statements requires
remeasurements are presented separately on the
management to make estimates and assumptions
face of the income statement where applicable.
that effect the reported amounts of assets and
liabilities, disclosures of contingent assets and
liabilities and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from these estimates. Information about
such judgements and estimations is contained in
the notes to the financial statements, and the key
areas are summarised below.
Areas of judgement that have the most signification
effect on the amounts recognised in the financial
statements are as follows:
1. Basis of preparation and recent accounting developments (continued)
f) New IFRS accounting standards and
interpretations effective for the year
ended 31 March 2022
g) New IFRS accounting standards and
interpretations not yet adopted
The following new accounting standards and
With effect from the period commencing 1 April 2021,
amendments to existing standards have been issued
the financial statements are prepared in accordance with
but are not yet effective or have not yet been endorsed
IAS and IFRS and related interpretations as adopted by
by the UK:
the UK, instead of those adopted by the EU. As both sets
of accounting standards are currently aligned, there will
• IFRS 17 ‘Insurance Contracts’;
be no transitional adjustments required and comparative
• amendments to IFRS 3 ‘Business Combinations’;
amounts were not required to be restated.
• amendments to IAS 12 ‘Deferred Tax Related to Assets
The Company early adopted the following amendments
and Liabilities Arising from a Single Transaction’;
to standards which have had no material impact on the
Company's results or financial statement disclosures:
• amendments to IAS 16 ‘Property, Plant
and Equipment’;
• Amendments to IFRS 16 ‘Leases –
COVID-19 Related Rent Concessions';
• amendments to IAS 37 ‘Provisions, Contingent
Liabilities and Contingent Assets’;
• Amendments to IFRS 3 ‘Definition of a Business'; and
• amendments to IAS 1 ‘Presentation of
• Amendments to IAS 1 and IAS 8 ‘Definition of Material'.
Financial Statements’;
In April 2021, the IFRS IC (Interpretation Committee) also
• Amendments to IAS 8 ‘Accounting Policies,
issued an agenda decision in relation to the accounting
Changes in Accounting Estimates and Errors’;
treatment for configuration and customisation costs in
a cloud computing arrangement. This guidance clarified
that in order for an intangible asset to be capitalised
in relation to customisation and configuration costs
in a cloud computing arrangement, it is necessary for
there to be control of the underlying software asset or
• annual improvements to IFRS standards 2018-2020;
and
• amendments to IFRS Practice Statement 2 – making
materiality judgements.
Effective dates will be subject to the UK endorsement
for there to be a separate intangible asset which meets
process. The Company is currently assessing the impact
the definition in IAS 38 Intangible Assets. As at 31
of the above standards, but they are not expected to
March 2022, the Company has recognised a cumulative
have a material impact.
adjustment against software intangible assets of £7m for
previously capitalised customisation and configuration
relating to its continuing operations. The Company has
also considered the application of the new accounting
guidance for its comparative periods and concluded that
it does not have a material impact. Accordingly,
no comparative periods have been restated.
The Company has not adopted any other standard,
amendment or interpretation that has been issued
but is not yet effective.
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2. Revenue
Revenue arises in the course of the ordinary
These charges are termed Transmission Network
activities of the company and principally comprises
Use of System (‘TNUoS’) charges and relate
balancing transmission services.
to use of the transmission network. Use of the
transmission network involves the supply of
high-voltage electricity. Revenue is billed based
on capacity and volumes and where the customer
pays upfront, revenues are deferred and released
when the relevant transmission network owner has
provided their services to the customer.
The company also administers other charges on
behalf of transmission network owners principally
for construction work they have completed for
customer connections.
Electricity transmission in the UK is regulated
by Ofgem, which establishes price control
mechanisms that set the amount of annual allowed
returns for companies operating in the sector. With
respect to TNUoS charges, where revenue received
differs to the amount of allowable revenue permitted
by regulatory agreement, adjustments will be made
to future prices to factor in these amounts. Where
such differences arise, we recognise either an asset
or liability, depending on whether the difference
between revenue received is less than or greater
than allowable revenue respectively. As part of our
regulatory agreements we are entitled to recover
certain costs directly from customers (pass-through
costs). These amounts are included in the overall
calculation of allowed revenue as stipulated by
regulatory agreements.
Balancing transmission services fall within the scope
of IFRS 15, 'Revenue from Contracts with Customers'.
The company’s role in transmission services is
as the system operator for Great Britain, which
involves the procurement of services to balance
the electricity transmission network and ensuring
security and quality of electricity supply across the
transmission network. For this activity the company
applies a Balancing Service Use of System
(‘BSUoS’) charge, which is payable by generators
and suppliers of electricity.
The ESO also earns revenue through rewards for
progress against an ambitious plan to meet its
commitments and targets in relation to the future
energy transformation. The scheme is evaluative
with the outcome determined by Ofgem following
the recommendations of a performance panel
including industry stakeholders. Under RIIO-2 this
is a 2 year scheme and so the final outcome is
expected in August 2023. As such the results
presented in these accounts have been adjusted
to reflect management's best estimate based on
performance in prior years and the outcome of
the mid-year performance panel. The outcome of
the Forward Plan incentive scheme is estimated to
be income of £6m for the financial year (2020/21:
£1m income).
In its role as system operator, the company is
also responsible for the administration of charges
to customers on behalf of the owners of the
transmission network: National Grid Electricity
Transmission Plc, Scottish Power Transmission
Plc, Scottish Hydro Electric Transmission Plc and
various Offshore Transmission Owners. Under
IFRS 15, this arrangement is considered to result
in the company acting as an agent on behalf of
the transmission network owners. Accordingly,
revenues are presented on a net basis (amounts
collected from customers and consideration paid to
transmission network owners). This comprises the
entire billing cycle (invoicing and cash collection)
and our performance obligation is deemed satisfied
when funds have been remunerated to transmission
network owners.
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2. Revenue (continued)
As system operator, we also act as intermediary for various electricity interconnectors in satisfying their
regulatory obligations. Interconnectors may have a cap on the amount of revenue they are allowed to earn
during any financial year (1 April to 31 March). Where actual revenues exceed this cap, the excess must be
passed onto consumers. We invoice and recover this amount from the interconnectors and in turn reduce
the TNUoS charges due from customers. We recognise an asset for the amounts payable from them, and a
corresponding liability for the requirement to reduce customer bills, which occurs two financial years after
the measurement period.
The following table details the disaggregation of revenue between TNUoS and BSUoS.
Revenue for the year ended 31 March
Revenue under IFRS 15:
BSUoS
TNUoS¹
Total revenue from continuing operations
UK Electricity System Operation
2022
£m
2021
£m
3,418
2,076
68
51
3,486
2,127
1 TNUoS revenues of £68m are reported net of £3,516m (2021: £3,123m) consideration paid to transmission
network owners. These revenues reflect the recovery of costs borne by the system operator in relation to
TNUoS operations.
Total revenue from continuing operations are generated from operations based in the UK.
Analysis of BSUoS revenue by major customer, greater than 10% revenue contribution:
Customer A
Customer B
Customer C
2022
£m
412
384
2021
£m
—
—
210
No other single customer contributed 10% or more to the ESO's revenue in either 2022 or 2021.
3. Operating costs
Below we have presented separately certain items included in our operating costs. These include a
breakdown of payroll costs and fees paid to our auditors.
After exceptional items and remeasurements
Depreciation, amortisation and impairment
Payroll costs
Pensions deficit payments
Rates and property taxes
System balancing costs
Other
Continuing operations
2022
£m
2021
£m
83
61
12
1
47
55
12
1
3,153
1,875
155
96
3,465
2,086
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3. Operating costs (continued)
(a) Payroll costs
Wages and salaries
Recharge of payroll costs from other National Grid companies
Social security costs
Pension scheme costs
Share-based payments
Severance costs (excluding pension costs)
Total payroll costs
Payroll costs capitalised
Net payroll costs
2022
£m
2021
£m
46
12
7
10
1
—
76
(15)
61
41
—
6
8
1
(1)
55
—
55
(b) Directors' Emoluments
Key management comprises the Board of Directors of the Company who have managerial responsibility
for National Grid Electricity System Operator Limited.
Aggregate Emoluments
2022
£k
2021
£k
928
1,004
Aggregate emoluments excludes social security, pensions and share-based payments.
Post-employment benefits are accruing to one Director under a Group defined benefit scheme (2021: one).
During the year, one Director exercised share options as part of long term incentive plans of the ultimate
parent company, National Grid plc (2021: three).
The aggregate emoluments for the highest paid Director were £347,000 for 2022 (2021: £320,000); and total
accrued annual defined benefit pension at 31 March 2022 for the highest paid Director was £nil (2021: nil).
(c) Number of employees, including Directors
31 March
2022
Number
31 March
2021
Number
Monthly average
2022
Number
Monthly average
2021
Number
Electricity System Operator
884
711
835
695
(d) Auditors' remuneration
Audit services
Audit of the Company's financial statements
Other services supplied
Other non-audit fees1
2022
£m
2021
£m
0.2
0.2
0.6
0.3
1 Other services supplied represent £0.5m fees payables for audit services which are required to be carried out by auditors in relation to the Group’s reporting
requirements to NG plc, and £0.1m for the Contracts for difference independent audit. In particular, this includes fees for reports under section 404 of the US
Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley), and assurance fees in relation to regulatory returns.
4. Finance income and costs
This note details the interest income generated by our financial assets and interest expense incurred on our
financial liabilities.
Finance income
Interest income and financial instruments:
Bank deposits and other financial assets
Finance costs
Other borrowings
Net finance costs from operations
2022
£m
2021
£m
1
1
(2)
(1)
(2)
(1)
5. Tax
This note gives further details of the total tax charge and tax liabilities, including current and deferred
tax. The current tax charge is the tax payable on this year’s taxable profits. Deferred tax is an
accounting adjustment to provide for tax that is expected to arise in the future due to differences
in accounting and tax bases of profit.
The tax charge for the period is recognised in the income statement, the statement of comprehensive
income or directly in equity, according to the accounting treatment of the related transaction. The tax
charge comprises both current and deferred tax.
Current tax assets and liabilities are measured at the amounts expected to be recovered from, or
paid to, the taxation authorities. The tax rates and tax laws used to compute the amounts are those
that are enacted or substantively enacted by the reporting date.
The calculation of the ESO's total tax charge involves a degree of estimation and judgement.
Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. Judgement is made for each position having
regard to particular circumstances and advice obtained.
Deferred tax is provided for using the balance sheet liability method and is recognised on temporary
differences between the carrying amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised on all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. However, deferred tax assets and
liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill
or from the initial recognition of other assets and liabilities in a transaction (other than a business
combination) that affects neither the accounting nor taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability
is settled or the asset is realised, based on the tax rates and tax laws that have been enacted or
substantively enacted by the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the deferred tax asset to be recovered. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
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5. Tax (continued)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the ESO intends to settle its current tax assets and liabilities on a net basis.
Tax charged to the income statement:
Total tax charge¹
¹ 2022 includes £3m relating to tax rate changes, this is detailed in the table below.
The tax charge for the year can be analysed as follows:
Current tax
Current tax charge
Corporation tax adjustment in respect of prior years
Total current tax
Deferred tax
Deferred tax charge
Deferred tax adjustment in respect of prior years
Total deferred tax
Total tax charge
2022
£m
7
2021
£m
7
2022
£m
2021
£m
11
3
14
(4)
(3)
(7)
7
2
—
2
5
—
5
7
4
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Tax charged to equity and other comprehensive income:
The tax charge for the year is higher than (prior year lower than) the standard rate of corporation tax in the UK of 19%:
Before
exceptional
items and
remeasurements
After
exceptional
items and
remeasurements
Before
exceptional
items and
remeasurements
After exceptional
items and
remeasurements
2022
£m
20
4
—
3
7
2022
£m
20
4
—
3
7
2021
£m
40
8
(1)
—
7
2021
£m
40
8
(1)
—
7
Profit before tax from continuing operations
Profit before tax multiplied by UK corporation
tax rate of 19%
Effect of:
Adjustments in respect of prior years
Deferred tax impact of change in UK tax rate
Total tax charge
Effective tax rate
35.2%
35.2%
17.5%
17.5%
5. Tax (continued)
Factors that may affect future tax charges
In the Spring Budget 2021, the UK government announced an increase in the main corporation tax
rate from 19% to 25% with effect from 1 April 2023. This was substantively enacted on 24 May 2021.
Deferred tax balances as at 31 March 2022, that are expected to reverse after 1 April 2023, have been
calculated at 25%.
The Directors will continue to monitor the developments driven by Brexit, the OECD’s Base Erosion and
Profit Shifting (BEPS) project and European Commission initiatives including fiscal aid investigations.
At this time the Directors do not expect this to cause any material impact on future tax charges.
Governments across the world including the UK have introduced various stimulus / reliefs for
businesses to cope with the impact of Covid-19 pandemic. The Directors will monitor as the details
become available for any that may materially impact our future tax charges.
Tax included within the statement of financial position
The following are the major deferred tax assets and liabilities recognised, and the movements thereon,
during the current and prior reporting periods:
Deferred tax (liabilities) / assets:
At 1 April 2021
Credited to income statement
At 31 March 2022
Accelerated
tax
depreciation
Other net
temporary
differences
£m
(17)
5
(12)
£m
(1)
2
1
Total
£m
(18)
7
(11)
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and
there is intention to settle the balances net. The deferred tax balances (after offset) for statement of
financial position purposes consist solely of deferred tax liabilities of £11m.
6. Dividends
Dividends represent the return of profits to shareholders. Dividends are paid as an amount per ordinary
share held. We retain part of the profits generated in the year to meet future growth plans and meet our
gearing target and pay out the remainder per our dividend policy.
Interim dividends are recognised when they become payable to the Company’s shareholders.
Final dividends are recognised when they are approved by shareholders.
On 20 July 2022, the Board of directors proposed no final dividend for the year ended 31 March 2022
(2021: £67m).
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7. Intangible assets
Intangible assets relate to software, which is written down (amortised) over the period we expect to receive a
benefit from the asset. Identifiable intangible assets are recorded at cost less accumulated amortisation and
any provision for impairment. Intangible assets are tested for impairment only if there is some indication that the
carrying value of the assets may have been impaired.
Impairments of assets are calculated as the difference between the carrying value of the asset and the
recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from
other assets, the recoverable amount of the cash-generating unit to which that asset belongs is estimated.
Impairments are recognised in the income statement and are disclosed separately. Any assets which suffered
impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date.
Internally generated intangible assets, such as software, are recognised only if: an asset is created that can be
identified; it is probable that the asset created will generate future economic benefits; and that the development
cost of the asset can be measured reliably. Where no internally generated intangible asset can be recognised,
development expenditure is recorded as an expense in the period in which it is incurred.
Intangible assets under development are not amortised. Other non-current intangible assets are amortised on
a straight-line basis over their estimated useful economic lives. The amortisation period for software is usually
between three to seven years but can be up to ten years.
Cloud computing arrangements are reviewed to determine if the Company has control of the software intangible
asset. Control is considered to exist where the Company has the right to take possession of the software and
run it on its own or a third party’s computer infrastructure or if the Company has exclusive rights to use the
software such that the supplier is unable to make the software available to other customers.
Costs relating to configuring or customising the software in a cloud computing arrangement are assessed to
determine if there is a separate intangible asset over which the Company has control. If an asset is identified, it
is capitalised and amortised over the useful economic life of the asset. To the extent that no separate intangible
asset is identified, then the costs are either expensed when incurred or recognised as a prepayment and spread
over the term of the arrangement if the costs are concluded to not be distinct. The accounting for costs incurred
in cloud computing arrangements represents the application of new accounting guidance for the Company for
the year ended 31 March 2022. Certain costs which were previously capitalised in respect of the Company's
cloud computing arrangements have been expensed in the period (£7m).
Cost at 31 March 2020
Additions
Disposals
Reclassifications
Transfers
Cost at 31 March 2021
Additions
Reclassifications
Transfers¹
Cost at 31 March 2022
Accumulated amortisation at 1 April 2020
Amortisation charge for the year
Disposals
Accumulated amortisation at 31 March 2021
Amortisation charge for the year
Impairment
Accumulated amortisation at 31 March 2022
Net book value at 31 March 2022
Net book value at 31 March 2021
Software
£m
185
Assets in the course
of construction
£m
53
Total
£m
238
—
(14)
46
(9)
208
—
86
18
312
(30)
(35)
15
(50)
(58)
(1)
(109)
203
158
54
(1)
(23)
9
92
89
(86)
—
95
—
—
—
—
—
(10)
(10)
85
92
54
(15)
23
—
300
89
—
18
407
(30)
(35)
15
(50)
(58)
(11)
(119)
288
250
1 Transfers represents amounts transferred (to)/from property, plant and equipment (see Note 8).
8. Property, plant and equipment
The following note shows the physical assets
estimated useful economic lives, consideration
controlled by us. The cost of these assets primarily
is given to any contractual arrangements and
represents the amount initially paid for them.
operational requirements relating to particular
This includes both their purchase price and the
assets. The assessments of estimated useful
construction and other costs associated with getting
economic lives and residual values of assets are
them ready for operation. A depreciation expense is
performed annually.
charged to the income statement to reflect annual
wear and tear and the reduced value of the asset
over time. Depreciation is calculated by estimating
the number of years we expect the asset to be
used (useful economic life) and charging the cost
of the asset to the income statement equally over
this period.
With effect from 1 April 2019, new lease
arrangements entered into are recognised as a
right-of-use asset and a corresponding liability
at the date at which the leased asset is available
for use by the company. The right-of-use asset
and associated lease liability arising from a lease
are initially measured at the present value of the
Property, plant and equipment is recorded at
lease payments expected over the lease term. The
cost, less accumulated depreciation and any
discount rate applied is the rate implicit in the lease
impairment losses.
Cost includes the purchase price of the asset, any
payroll and finance costs incurred which are directly
attributable to the construction of property, plant
and equipment as well as the cost of any associated
asset retirement obligations.
Property, plant and equipment includes assets in
which the ESO’s interest comprises legally protected
statutory or contractual rights of use. Additions
represent the purchase or construction of new
assets, including capital expenditure for safety
and environmental assets, and extensions to,
enhancements to, or replacement of existing assets.
All costs associated with projects or activities
which have not been fully commissioned at the
period end are classified within assets in the course
of construction.
No depreciation is provided on freehold land or
assets in the course of construction.
Other items of property, plant and equipment
are depreciated, on a straight-line basis, at rates
estimated to write off their book values over their
estimated useful economic lives. In assessing
or if that is not available, then the incremental rate
of borrowing for a similar term. The lease term takes
account of exercising any extension options that are
at our option if we are reasonably certain to exercise
the option and any lease termination options unless
we are reasonably certain not to exercise the option.
The lease term does not include any lease extension
options at the option of the lessor but does include
lease termination options unless we are reasonably
certain that the lessor will not exercise them. Each
lease payment is allocated between the liability and
finance cost. The finance cost is charged to the
income statement over the lease period using the
effective interest rate method. The right-of-use asset
is depreciated over the shorter of the asset’s useful
life and the lease term on a straight-line basis. For
short-term leases (lease term of 12 months or less)
and leases of low value assets (such as computers),
the Group continues to recognise a lease expense
on a straight-line basis.
Unless otherwise determined by operational
requirements, the depreciation periods for the
principal categories of property, plant and
equipment are, in general, as shown in the
table below:
Freehold and Leasehold buildings
Motor vehicles
Office equipment
Years
10 to 50
5 to 7
3 to 10
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8. Property, plant and equipment (continued)
Gains and losses on disposals are determined by
an asset does not generate cash flows that are
comparing the proceeds with the carrying amount
independent from other assets, the recoverable
and are recognised within operating profit in the
amount of the cash-generating unit to which that
income statement.
asset belongs is estimated.
Items within property, plant and equipment are
Impairments are recognised in the income statement
tested for impairment only if there is some indication
and if immaterial are included within depreciation
that the carrying value of the assets may have
charge for the year.
been impaired.
Any assets which suffered impairment in a previous
Impairments of assets are calculated as the
period are reviewed for possible reversal of the
difference between the carrying value of the asset
impairment at each reporting date.
and the recoverable amount, if lower. Where such
Cost at 31 March 2020
Additions
Disposals
Reclassifications
Cost at 31 March 2021
Additions
Reclassifications
Transfers¹
Cost at 31 March 2022
Accumulated depreciation at 1 April 2020
Depreciation charge for the year
Impairment
Accumulated depreciation at 31 March 2021
Depreciation charge for the year
Accumulated depreciation at 31 March 2022
Net book value at 31 March 2022
Net book value at 31 March 2021
Land and
buildings
Plant and
machinery
Assets in the
course of
construction
£m
31
2
—
—
33
—
—
—
33
(5)
(4)
—
(9)
(3)
(12)
21
24
£m
17
6
—
6
29
1
2
(6)
26
—
—
—
—
—
—
26
29
£m
72
27
1
(55)
45
19
(27)
(12)
25
—
—
(3)
(3)
—
(3)
22
42
Motor
vehicles
and office
equipment
£m
16
—
—
26
42
—
25
—
67
(3)
(6)
—
(9)
(11)
(20)
47
33
Total
£m
136
35
1
(23)
149
20
—
(18)
151
(8)
(10)
(3)
(21)
(14)
(35)
116
128
1 Included within transfers are assets transferred to intangibles (see Note 7) to the value of £18m.
Right-of-use assets are included within the net book value of property, plant and equipment at 31 March 2022.
The total net book value of these assets as at 31 March 2022 was £305,000 (2021: £32,000) in respect of the
motor vehicles and office equipment category.
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9. Other non-current assets
Non-current assets are initially recognised at fair value and subsequently measured at amortised cost.
There is no material difference between the fair value and the carrying value of other non-current assets.
Other assets¹
2022
£m
—
—
2021
£m
109
109
1 2021 includes £109m relating to TNUoS charges caused by timing difference between amounts charged to customers and that passed through to the GB
Transmission Owners, this includes regulatory term 'K'. 2022 timing differences are presented within Trade and other receivables as they are collectable
during 2023.
10. Financial assets and other investments
The financial assets and other Investments balance
They are initially recognised on trade date at fair
of £263m comprises current loans to the ultimate
value less transaction costs and expected losses.
parent company and restricted cash balances
In the current year, the transaction value equals
in relation to Network Innovation Competition
fair value.
(NIC) projects.
Interest income is recognised using the effective
Debt instruments that have contractual cash flows
interest method. Interest income, together with
that are solely payments of principal and interest,
gains and losses when the loans and receivables
and which are held within a business model whose
are derecognised or impaired, is recognised in the
objective is to collect contractual cash flows, are
income statement.
held at amortised cost.
Current
Restricted cash
Loans and receivables
Financial assets and other investments comprise the following:
NIC restricted cash deposits
Loans and receivables - amount due from the ultimate parent company
2022
£m
2021
£m
4
259
263
4
259
263
18
186
204
18
186
204
The carrying value of current financial assets at amortised cost approximates their fair values, primarily
due to short-dated maturities. The exposure to credit risk at the reporting date is the fair value of the
financial investments.
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11. Trade and other receivables
Trade and other receivables are amounts
Trade receivables are non-interest-bearing and
which are due from our customers for services
generally have a 30 day term. Due to their short
we have provided.
Trade and other receivables are initially
recognised at fair value and subsequently
measured at amortised cost, less any appropriate
allowances for estimated irrecoverable amounts.
maturities, the fair value of trade and other
receivables approximate to their book value.
All other receivables are recorded at amortised
cost. The provision for impairment of receivables
as at 31 March 2022 was £36m (2021: £17m).
Current
Trade receivables
Amounts owed by ultimate parent
Accrued income
Prepayments
Other receivables¹
2022
£m
2021
£m
113
—
468
—
162
743
106
1
361
1
62
531
¹ 2022 includes £79m relating to TNUoS charges caused by timing difference between amounts charged to customers
and that passed through to the GB Transmission Owners, this includes regulatory term 'K'.
Provision for impairment of receivables
A provision matrix is not used to assess expected loss rates as an assessment is performed
on individual debtors.
At 1 April
Charge/(write-off) for the year¹
Amounts recovered in the year
At 31 March
2022
£m
2021
£m
17
19
—
36
31
(15)
1
17
¹ There are no write-offs in 2022.
2021 Includes write-offs in year for Margree Wind Farm £11m and Iresa £2m (provision acquired with business utilised).
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12. Cash and cash equivalents
Cash and cash equivalents include cash balances,
Cash at bank earns interest at floating rates based
together with short-term investments with an original
on daily bank deposit rates. Short-term deposits
maturity of less than three months that are readily
are made for periods varying between one day and
convertible to cash.
Net cash and cash equivalents reflected in the cash
flow statement are net of bank overdrafts, which
three months, depending on the immediate cash
requirements, and earn interest at the respective
short-term deposit rates.
are reported in borrowings. The carrying amounts
Net cash and cash equivalents held in currencies
of cash and cash equivalents and bank overdrafts
other than sterling have been converted into sterling
approximate their fair values.
at year-end exchange rates.
Cash at bank and short-term deposits
2022
£m
6
2021
£m
12
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13. Borrowings
We borrow money primarily in the form of borrowings from our ultimate parent company.
These are for a fixed term and have floating interest rates.
Our price controls lead to an optimal ratio of debt to equity and, as a result, we issue debt to maintain
this balance.
Borrowings are initially recorded at fair value. This normally reflects the proceeds received (net of direct
issue costs for liabilities measured at amortised cost). Subsequently these are stated at amortised cost.
Any difference between the proceeds after direct issue costs and the redemption value is recognised over
the term of the borrowing in the income statement using the effective interest method.
Information on our net debt is presented in Note 19.
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Current
Bank loan and overdrafts
Borrowings from the ultimate parent company
Total borrowings
2022
£m
2021
£m
20
121
141
141
—
120
120
120
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The bank loan and overdraft is repayable on demand and the loan from the ultimate parent company matures
on 1 April 2027, though may be repayable with 30 days notice if the Company ceases to be at least 99.99%
owned directly or indirectly by National Grid plc.
At 31 March 2022, we had committed external credit facilities of £550m of which £550m was undrawn
(2021: £550m of which £550m undrawn). We also have £550m of intercompany credit facilities with our
ultimate parent, National Grid plc of which £550m was undrawn (2021: £550m of which £550m undrawn).
All of the unused facilities at 31 March 2022 are available for liquidity purposes.
None of the ESO's borrowings are secured by charges over assets of the Company.
Lease liabilities
Lease liabilities are initially measured at the present value of the lease payments expected over the lease
term. The discount rate applied is the rate implicit in the lease or if that is not available, then the incremental
rate of borrowing for a similar term. The lease term takes account of exercising any extension options that are
at our option if we are reasonably certain to exercise the option and any lease termination options unless we
are reasonably certain not to exercise the option. Each lease payment is allocated between the liability and
finance cost. The finance cost is charged to the income statement over the lease period using the effective
interest rate method.
Right-of-use assets were included within property, plant and equipment (see Note 8) at 31 March 2022 with
outstanding leases to the value of £387,000 (2021: £130,000) relating to motor vehicles.
14. Trade and other payables
Trade and other payables include amounts owed to suppliers, tax authorities and other parties which are due
to be settled within 12 months. The total also includes deferred amounts, some of which represents monies
received from customers but for which we have not yet delivered the associated service. These amounts are
recognised as revenue when the service is provided.
Trade payables are initially recognised at fair value and subsequently measured at amortised cost.
Trade payables
Social security and other taxes¹
Deferred income²
Amounts owed to fellow subsidiaries of National Grid plc
Other payables
2022
£m
2021
£m
323
244
235
30
114
946
288
133
180
38
98
737
¹ Includes Value Added Tax of £243m (2021: £132m).
² 2021 includes £61m relating to TNUoS charges caused by timing differences between amounts charged to customers and that
passed through to the GB Transmission Owners, this includes regulatory term 'K'. 2022 timing differences are presented within
Trade and other receivables as they are collectible during 2023.
Due to their short maturities, the fair value of trade payables approximates their book value.
15. Other non-current liabilities
Non-current liabilities are initially recognised at fair value and subsequently measured at amortised cost.
There is no material difference between the fair value and the carrying value of other payables.
Deferred income
Other payables¹
Other non-current liabilities
2022
£m
2021
£m
—
39
39
2
25
27
¹Balances held in relation to application fees collected on behalf of GB Transmission Owners.
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16. Provisions
We make provisions when an obligation exists, resulting from a past event and it is probable that cash will be
paid to settle it, but the exact amount of cash required can only be estimated.
The main estimates relate to provisions for restructuring plans. The evaluation of the likelihood of the
contingent events has required best judgement by management regarding the probability of exposure to
potential loss. Should circumstances change following unforeseeable developments, the likelihood could alter.
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a
past event, where the amount of the obligation can be reliably estimated and where the outflow of economic
benefit is probable.
Changes in the provision arising from revised estimates or discount rates or changes in the expected timing
of expenditures are recognised in the income statement.
At 1 April 2020
Utilised
At 31 March 2021
Additions
Unused amounts reversed
Utilised
At 31 March 2022
Current
Non-current
Restructuring
£m
Other
£m
Total
£m
12
(10)
2
2
(1)
(2)
1
2022
£m
2
—
2
—
—
—
1
—
—
1
—
—
2
3
(1)
(2)
2
2021
£m
2
—
2
Restructuring provision
The provision reflects on-going cost efficiency and restructuring programmes being undertaken
in the wider National Grid group for which the company receives an allocation as it takes services
from centralised support functions.
Other provision
Other provisions include a provision for IT Licences.
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17. Share capital and share premium
Ordinary share capital represents the total number of shares issued.
Share capital is accounted for as an equity instrument. An equity instrument is any contract that includes a
residual interest in the consolidated assets of the Company after deducting all its liabilities and is recorded at
the proceeds received, net of direct issue costs, with an amount equal to the nominal amount of the shares
issued included in the share capital account and the balance recorded in the share premium account.
Number of
shares
2022
millions
Number of
shares
2021
millions
2022
£m
2021
£m
At 31 March 2021 and 2022 -
ordinary shares of 1p each
Allotted, called-up and fully paid
330
330
330
330
Number
of shares
millions
Par value
Share
premium
£m
£m
Total
£m
At 31 March 2022
330
3
327
330
18. Other equity - Merger reserve
Other equity reserves are different categories of equity as required by accounting standards and represent
the impact of a number of our historical transactions.
At 31 March 2022, the ESO held one form of other equity, being a merger reserve. The merger reserve arose
on the acquisition of the ESO business on 1 April 2019. This acquisition did not fall within the scope of IFRS
3 Business Combinations, thus, assets and liabilities were transferred at their net book value. The difference
between the net book value and consideration paid for the assets and liabilities acquired resides within
this reserve.
As the amounts included in other equity reserves are not attributable to any of the other classes of equity
presented, they have been disclosed as a separate classification of equity.
At 31 March 2021 & 31 March 2022
Merger reserve
£m
142
The merger reserve is principally attributable to the ESO business’s exclusive licence and profitability.
Merger reserve balance remains at £142m at 31 March 2022, £56m is considered realised for the purposes of
assessing the company’s distributable profits and £86m is considered unrealised. Accordingly, at 31 March
2022 the profits available for distribution by the company were £32m, comprising the whole of the company’s
retained earnings less the realised element of the merger reserve.
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19. Net debt
Net debt represents the amount of borrowings and
primary objective of the treasury function is to
overdrafts less cash, current financial investments
manage our funding and liquidity requirements.
and related financing derivatives.
A further important objective is to manage the
Funding and liquidity risk management is carried
out by the National Grid plc treasury function under
policies and guidelines approved by the Finance
Committee of the National Grid plc Board, these
policies have been deemed applicable at the ESO
associated financial risks, in the form of interest
rate risk and foreign exchange risk, to within pre-
authorised parameters. Further details can be found
in the National Grid plc accounts available publicly,
details on how to access can be found in Note 22.
by their respective board of directors. The Finance
Investment of surplus funds, usually in short-term
Committee is responsible for the regular review and
fixed deposits or placements with money market
monitoring of treasury activity and for the approval
funds that invest in highly liquid instruments of high
of specific transactions, the authority for which fall
credit quality, is subject to our counterparty risk
outside the delegation of authority to management.
management policy.
The ESO apply the National Grid plc group policy
and we utilise the group treasury function. The
(a) Reconciliation of net cash flow to movement in net debt
(Decrease)/Increase in cash and cash equivalents
(Decrease)/Increase in financial investments
Increase in borrowings and related derivatives
Net interest receivable/(payable) on the components of net debt
Change in net debt resulting from cash flows
Movement in net debt in the year
Net debt at the start of the year
Net debt at the end of the year
2022
£m
(6)
59
(21)
—
32
32
96
128
2021
£m
11
(160)
—
1
(148)
(148)
244
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19. Net debt (continued)
Composition of net debt
Net debt is summarised as follows:
Cash, cash equivalents and financial investments
Borrowings and bank overdrafts
(b) Analysis of changes in net debt
2022
£m
269
(141)
128
2021
£m
216
(120)
96
At 1 April 2021
Cash flow
Interest income/(charges)
At 31 March 2022
Balances at 31 March 2022 comprise:
Current assets
Current liabilities
Cash
and cash
equivalents
Financial
investments
Borrowings
Total
debt
£m
12
(6)
6
6
—
6
£m
204
59
263
263
—
263
£m
(120)
(20)
(1)
(141)
—
(141)
(141)
£m
96
33
(1)
128
269
(141)
128
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20. Commitments and contingencies
Commitments are those amounts that we are contractually required to pay in the future as long as the other
party meets its obligations. These commitments primarily relate to contract for the purchase of assets
which, in many cases, extend over a long period of time. We also disclose any contingencies, which include
guarantees that companies have given, where we pledge assets against current obligations that will remain
for a specific period.
Future capital expenditure
Contracted for but not provided
Balances as at 31 March 2022 comprise:
Amounts due: Less than 1 year
More than 1 year
2022
£m
2021
£m
26
26
—
26
25
24
1
25
Litigation and claims
Through the ordinary course of our operations, we are party to various litigation, claims and investigations.
We do not expect the ultimate resolution of any of these proceedings to have a material adverse effect on our
results of operations, cash flows or financial position.
Pension Scheme Contributions
The ESO is a participating employer in the National Grid ESPS defined benefit pension scheme. Following
completion of the March 2019 valuation, we are responsible for making contributions into the scheme
equivalent to 44% (average) of remaining active employees pensionable salaries.
In 2021/22, we also contributed an additional amount into the scheme relating to the funding deficit to the
value of £12m (2021: £12m). This additional payment is made in line with the regulatory treatment determined
by Ofgem. The most recently agreed recovery plan for the scheme runs until FY24. As the ESO is not the
sponsoring employer of the scheme, there is no contractual obligation or requirement to make a provision for
scheme costs.
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21. Related party transactions
A related party is a company or individual who also has an interest in us, for example a company that
provides a service to us with a director who holds a controlling stake in that company and who is also a
Director of National Grid Electricity System Operator Limited. The related parties identified include fellow
subsidiaries, joint ventures, associated undertakings, investments and key management personnel.
The following significant transactions with related parties were in the normal course of business. Amounts
receivable from and payable to related parties are due on normal commercial terms:
Income:
Goods and services supplied¹
Expenditure:
Services received²
Corporate services received
Interest paid on borrowings from ultimate parent
Interest received on borrowings to ultimate parent
Balance Sheet as at 31 March
Lending to ultimate parent (amounts due within one year)
Borrowings from ultimate parent (amounts due within one year)
Amounts included in Trade and other payables
At 31 March
2022
£m
2021
£m
13
13
1
1
(1,958)
(1,879)
(3)
(1)
1
—
—
—
(1,961)
(1,879)
259
(121)
(32)
106
186
(120)
(38)
27
¹ Includes TNUoS related pre and post vesting charges to Western Power Distribution of £19m and payments made to Britned Development
Limited £4.1m, IFA £1.7m and Nemo Link Limited £0.3m under the Interconnector cap and floor regime operated by Ofgem.
² Expenditure includes TNUoS revenue collection for National Grid Electricity Transmission plc of £1,945m and £8.2m for balancing services
from the above Interconnectors.
In the UK, National Grid operates a centralised Support Function model. Costs for these functions including
IT, procurement, and payroll services are initially borne by National Grid Gas plc and National Grid Electricity
Transmission plc. NGESO receives an allocation of these costs based on its relative usage. The allocated
costs are included within operating costs and totalled £63m (2021: £51m).
On 6 October 2021 Elexon requested and was granted a short term loan of £10m to cover a cash shortfall it
had on settlements. The loan, and associated interest, was repaid in full by 31 October 2021.
Amounts receivable from or payable to related parties in respect of income and expenditure are ordinarily
settled one month in arrears. Advances to and borrowings from fellow subsidiary undertakings are repayable
on demand and bear interest at commercial rates.
Expenditure balances relate to the collection of TNUoS revenues on behalf of National Grid Electricity
Transmission plc. Under IFRS 15 we act as an agent and these balances are shown net within our revenue
figure. Further details of this relationship have been provided in Note 2.
Information relating to pension fund arrangements is disclosed in Note 20.
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22. Ultimate parent company
This note shows the immediate and ultimate parent companies for these
financial statements.
National Grid Electricity System Operator Limited’s immediate parent company is
National Grid Holdings One plc. The ultimate parent company, and controlling party,
is National Grid plc. Both companies are incorporated in Great Britain and are registered
in England and Wales. National Grid plc consolidates the financial statements of
National Grid Electricity System Operator Limited.
Copies of the consolidated financial statements of National Grid plc may be obtained from
the Company Secretary, 1-3 Strand, London WC2N 5EH, or on our company website here.
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23. Subsidiaries and associates
The ESO holds investments in subsidiaries and associates, the company includes contributions
from associates which are detailed in the below table.
Subsidiary undertakings
The list below contains all subsidiaries held by National Grid Electricity System Operator Limited.
Elexon Limited¹
4th Floor 350 Euston Road, London NW1 3AW
Electricity market Balancing and Settlement
Code company for Great Britain
Principal activity
Holding
100%
¹ National Grid Electricity System Operator does not consolidate its wholly owned subsidiary Elexon Limited, as it does not control the entity.
The subsidiary is incorporated in England and Wales.
The Elexon Limited shares were inherited on the 1st April 2019 as part of the purchase of the
ESO business from NGET plc.
Associates
The list below contains all associates included within the National Grid Electricity System Operator Limited.
Coreso SA (incorporated in Belgium)
71 Avenue de Cortnbergh, 1000 Bruxelles, Belgium
Associate in relation to a European regional
transmission operations coordination centre
Principal activity
Holding
16%
The Coreso SA shares were inherited on the 3rd May 2019 as part of the purchase of the ESO business
from NGET plc.
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References to the ‘Company’, ‘we’, ‘our’ and ‘us’ refer to National Grid Electricity System Operator Limited itself.
Carbon intensity
The measure of CO2 emissions produced
per kilowatt hour of electricity consumed.
National Grid
National Grid plc, the ultimate parent company of National Grid
Electricity System Operator Limited and its controlling party.
EMR Delivery Body
Provides independent evidence and analysis to the UK Government
to inform its decisions on the key rules and parameters to achieve
the Government's policy objectives under EMR, administers key
elements of the capacity mechanism and contracts for difference
regime and reports to the Government annually on performance
against the Government's delivery plan.
Electricity Market Reform (EMR)
A government policy to incentivise delivery of low carbon energy
supplies whilst maintaining security of supply and minimising the
cost to the consumer.
EU
European Union.
FRS
Financial Reporting Standard.
GAAP
Generally Accepted Accounting Principles.
GHG
Greenhouse gas.
GW
Gigawatt 1,000,000 kilowatts.
GWh
Gigawatt hours.
HSE
Health and Safety Executive.
IAS
International Accounting Standard.
IASB
International Accounting Standards Board.
IFRIC
The International Financial Reporting Interpretations Committee,
which provides guidance on how to apply accounting standards.
IFRS
International Financial Reporting Standard.
KPI
Key Performance Indicator.
Lost time injury
A work-related injury which causes a person to be away from
work for at least one normal shift after the shift on which the injury
occurs, because the person is unfit to perform his or her duties.
Ofgem
The Office of Gas and Electricity Markets.
Regulatory asset value (RAV)
The value ascribed by Ofgem to the capital employed in the
licensed business. It is an estimate of the initial market value
of the regulated asset base at privatisation, plus subsequent
allowed additions at historic costs, less the deduction of annual
regulatory depreciation. Deductions are also made to reflect the
value realised from the disposal of certain assets that formed part
of the regulatory asset base. It is also indexed to the RPI to allow
for effects to inflation.
Regulated controllable operating costs
Total operating costs under IFRS less depreciation and certain
regulatory costs where, under our regulatory agreements,
mechanisms are in place to recover such costs in current or
future periods.
RIIO
The revised regulatory framework issued by Ofgem which was
implemented in the eight-year price controls which started on
1 April 2013.
RoE
A performance metric measuring returns from the investment of
shareholders’ funds. UK regulated return on equity is a measure of
how a business is performing operationally against the assumptions
used by Ofgem. These returns are calculated using the assumption
that the businesses are financed in line with the regulatory
adjudicated capital structure, at the assumed cost of debt and that
UK taxation paid is at the level assumed by Ofgem.
RPI
UK Retail Price Index.
Tonnes CO2 equivalent
Measure of greenhouse gas emissions in relation to the impact
of carbon dioxide.
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TW
Terawatt, 1,000 Gigawatts.
TWh
Terawatt hours.
1-3 Stand, London, WC2N 5EH
www.nationalgrideso.com