Bring
energy
to life
Annual Report and
Accounts 2022/23
Our vision
is to be
at the heart
of a
Further reading
pages 00-00Clean
Fair
Affordable
energy
future
Every day we do
the right thing,
find a better way
and make it happen.
Further reading
page 2
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Highlights
Group financial highlights
Statutory earnings
per share (EPS) (p)*
74.2p
Underlying EPS (p)*
69.7p
Group Return on
Equity (RoE) (%)
11.0%
Inside this report
Strategic Report
National Grid at a glance
Our business model
Chair’s statement
Chief Executive’s review
Our business environment
2021/22
2020/21
37.0
60.6
2021/22
2020/21
65.3
2021/22
2020/21
42.4
11.4
10.6
Succeeding with our strategy
Our key performance indicators
*
From continuing operations. Prior year comparatives include
UK Gas Transmission as a discontinued operation.
Group operational highlights
Group safety
performance
Scope 1 and 2 greenhouse
gas emissions
Employee
engagement (%)
(lost time injuries (LTI) per 100,000
hours worked in 12-month period)
(CO2 equivalent, million tonnes)
Internal control and
risk management
Viability statement
Our business units
Our commitment to being
a responsible business
Our stakeholders
Task Force on Climate-related
Financial Disclosures
Energy consumption
Financial review
0.11
7.2
2021/22
2020/21
0.13
0.10
81%
2021/22
2020/21
Corporate Governance
UK Corporate Governance Code
– 2022/23 Compliance Statement
Chair’s statement
Corporate Governance overview
81
81
** 2021/22 data has been adjusted to exclude the UK Gas Transmission and Metering,
and Rhode Island businesses and to include UK Electricity Distribution.
Reporting currency
Our financial results are reported in sterling. We
convert our US business results at the weighted
average exchange rate during the year, which for
2022/23 was $1.22 to £1 (2021/22: $1.35 to £1).
Further reading
Throughout this report you can find links
to further detail within this document.
Alternative performance measure
In addition to International Financial
Reporting Standards (IFRS) figures,
management also uses a number
of alternative measures to assess
performance. Definitions and reconciliations
to statutory financial information can be
found on pages 238 – 252. These measures
are highlighted with the symbol above.
PwC Assured Data
Denotes information subject to limited
assurance by PricewaterhouseCoopers
LLP (see page 15 for full definition).
Throughout the report there are QR codes
you can scan to view content online.
Simply open the camera app on your
smartphone to scan the code.
Further reading
Online report
The PDF of our Annual Report and Accounts
2022/23 includes a full search facility. You can find
the document by visiting the ‘About us’ section at
nationalgrid.com/investors/
resources
Responsible business
National Grid has published its annual
Responsible Business Report (RBR). The RBR
reports progress on the responsible business
agenda, including towards the commitments
made in our Responsible Business Charter (RBC).
You can find both documents by visiting
nationalgrid.com/document/
149521/download
Cover image:
Viking Link subsea cable
We will need to deliver approximately
five times more infrastructure in
the next seven to eight years than
we have in the last 30 years. The
availability of key components such
as cable will challenge the rapidity of
decarbonisation of the energy system.
National Grid plc
Annual Report and Accounts 2022/23
Our Board
Board focus during the year
Key decisions and engagement –
section 172(1) statement
How the Board monitors culture
Board engagement
Committee reports
Directors’ Remuneration Report
Financial Statements
Statement of Directors’
responsibilities
108
Independent Auditor’s Report
109
Consolidated financial statements 121
Company financial statements
211
Additional Information
The business in detail
Internal control and risk factors
Index to Directors’ Report and
other disclosures
Shareholder information
Other disclosures
Other unaudited financial
information
Commentary on consolidated
financial statements
Definitions and glossary of terms
Want more information or help?
Cautionary statement
219
225
228
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238
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260
1
National Grid at a glance
Our vision
is to be at the
heart of a clean,
fair and affordable
energy future.
Our purpose
is to bring
energy to life.
Our values
Do the
right thing
Find a
better way
Make it
happen
Stand up for
safety every day
Put our
customers first
Be inclusive,
supporting and
caring for each other
Speak up, challenge
and act where
something doesn’t
feel right
Take personal
ownership for
delivering results
Be bold and act with
passion and purpose
Focus on progress
over perfection
Follow the problem
through to the end
Embrace the power
and opportunity
of diversity
Increase efficiency
to help with customer
affordability
Work with others
to find solutions
for customers
Commit to learning
and new ideas
Further reading
page 30 of our RBR
Where we operate
United Kingdom
Our core, regulated businesses focus on
electricity transmission and distribution.
We also balance energy supply and demand
as a system operator in Great Britain (GB).
1
2
3
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
UK principal offices
Owned office space: Bristol, Cardiff, Castle
Donington, Plymouth, Warwick and Wokingham
Leased office space: London
North America
Our core, regulated businesses focus
on gas and electricity transmission
and distribution.
US principal offices
Owned office space: Syracuse, New York
Leased office space: Brooklyn,
New York and Waltham, Massachusetts
4
New England
5
New York
2
National Grid plc
Annual Report and Accounts 2022/23
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Our business units
1 UK Electricity Transmission
(UK ET)
We own and operate the high-voltage
electricity transmission (ET) network in
England and Wales.
Strategic Infrastructure (SI) is a new business
unit, which, effective 1 April 2023, will deliver
UK ET projects through the Accelerated
Strategic Transmission Investment (ASTI)
framework to connect 50 GW of offshore
generation by 2030.
2 UK Electricity Distribution
(UK ED)
We own and operate the electricity distribution
networks for the Midlands, the South West and
South Wales. The combined network makes
us the largest distribution network operator
(DNO) group in the UK.
3 UK Electricity System Operator
(ESO)
We currently operate as the electricity
system operator across GB. As announced in
April 2022, the ESO is expected to transfer out
of National Grid to become part of the newly
created Future System Operator (FSO) in 2024.
Further reading
pages 28 – 32
4 New England
We own and operate electricity transmission
facilities and distribution networks across
Massachusetts, New Hampshire and Vermont
as well as gas distribution networks across
Massachusetts.
5 New York
We own and operate electricity transmission
facilities and distribution networks across
upstate New York. We own and operate gas
distribution networks across upstate New York,
in New York City and on Long Island.
6 National Grid Ventures (NGV)
NGV, which operates separately from our core
regulated units, is focused on competitive
markets across the UK and US. Its portfolio
includes electricity interconnectors, liquefied
natural gas (LNG) storage and regasification,
large-scale renewable generation, conventional
generation and competitive transmission.
7 Other activities
Other activities primarily relate to National Grid
Partners (NGP), the venture investment and
innovation arm of National Grid, as well as UK
property, insurance and corporate activities.
Regulatory asset value (RAV),
rate base and other assets (%)
1
2
3
4
29%
19%
1%
14%
5
6
7
26%
7%
4%
Statutory operating profit (%)
1
2
3
4
20%
22%
5%
23%
5
6
7
11%
19%
0%
Underlying operating profit (%)
1
2
3
4
24%
27%
1%
18%
5
6
7
19%
11%
0%
Delivering energy to consumers
Watch our online video
of how we deliver energy
Generation
Generation is the production
of electricity from fossil fuel
and nuclear power stations,
as well as from renewable
sources such as wind
and solar.
Distribution
Distribution networks take
high-voltage electricity and
high-pressure gas from the
transmission networks, and
deliver it at lower voltages and
reduced pressures to homes
and businesses, such that it
can be used by consumers.
Transmission
Transmission networks
transport energy over long
distances at high voltage
(in the case of electricity)
and high pressure (in the
case of gas) safely and
efficiently from where it is
produced, and onward to
the distribution networks.
Supply
Supply of electricity and
gas involves buying and
selling it on to customers
as well as customer services,
billing and the collection
of customer accounts.
End-users include
industrial, commercial and
residential consumers.
National Grid plc
Annual Report and Accounts 2022/23
3
Our business model
We rely on our internal resources and our strong relationships which
we use to do business, drawing on our technical expertise and culture
in order to deliver value for our stakeholders and for wider society.
Our resources and relationships
What we do
Internal resources
Physical assets
Our gas and electricity networks are built to last for
many decades and account for the vast majority of
our asset base. We also own five subsea electricity
interconnectors, with a further subsea cable to
Denmark (Viking Link) under construction, as well as
LNG importation facilities and large-scale renewables
in the US.
Funding
We fund our business through a combination of
shareholder equity and long- and short-term debt.
We maintain an appropriate mix of the two and
manage financial risks prudently.
Colleagues
Our highly skilled, dedicated colleagues have a strong
public-service ethos. They manage and maintain the
physical energy infrastructure, and assist and develop
the many stakeholder relationships crucial to the
Company’s success.
Strong relationships
Our business relies on strong relationships with all
our stakeholders. These include:
our customers, who depend on us to connect them
to the energy they use and who (through a small portion
of their energy bills) pay to use our networks. This also
includes (in the case of our transmission businesses)
the electricity generators and gas suppliers who own
the electricity that flows through our cables and
gas pipes;
our contractors and suppliers, who have
complementary experience, skills and resources and
with whom we agree mutually beneficial contractual
arrangements and, wherever possible, take advantage
of economies of scale and use sustainable and global
sourcing opportunities;
national and regional governments, local
communities, and business and domestic
consumers of the energy we transport; and
the regulators who set the prices we can charge for
providing an economic, efficient and non-discriminatory
service as well as the government agencies responsible
for health, safety and environmental standards.
Transmission
Our transmission networks
connect industrial properties
and distribution networks
that deliver the energy on
to homes and commercial
properties. We also
facilitate the connection
of generation assets to the
transmission system.
Distribution
and supply
In the UK and US, we deliver
gas and electricity safely
and reliably to millions of
consumers connected to our
distribution systems. In the US,
some of our customers pay us
for energy supply costs. Where
they choose to buy electricity
or gas from third parties, they
pay us for distribution only.
Electricity interconnection
Interconnectors are high-
voltage cables used to connect
the electricity systems of
neighbouring countries.
They allow us to trade excess
power, such as renewable
energy created by the sun,
wind and water, between
different countries.
We already have interconnectors
linking us to France, Belgium,
Norway and the Netherlands,
and each year they power
approximately 6.4 million homes.
We are also constructing our
sixth interconnector, Viking Link,
which will link GB to Denmark,
and is due to be operational in
early 2024.
How we create value
Our technical expertise
We combine our extensive skills,
knowledge and capabilities
with innovation to ensure we
continuously create value for
shareholders, customers and
wider stakeholders alike.
Our expertise includes
the following:
Asset management
We invest in and maintain our
assets across their life as cost
effectively and efficiently
as possible.
Engineering
The skills of our engineers
are vital in performing safely,
efficiently, reliably and sustainably
for all our businesses.
Capital delivery
We add value for our stakeholders by
ensuring safe and effective delivery
of large and complex infrastructure
projects, ranging from large
portfolios of smaller works to more
substantial standalone projects.
National Grid’s operations,
payments to suppliers, and
payments of wages to workers
supported £29 billion in gross
Value Added contributions to GDP
in the US and the UK in 2022/23.
Innovation
We commit to developing new
technologies and innovations,
both within our own businesses
and through investment in
external emerging technology
companies, to optimise efficiency
and help deliver net zero.
Why does
this matter?
Benefits to
National Grid
Financial
strength
By managing our operations
efficiently, safely and for
the long term, we generate
substantial cash flows. This,
coupled with long-term debt
financing, enables us to
invest in growing our asset
base and fund our dividend.
Investment
Efficient investment in our
networks will deliver strong
and sustainable growth in
our regulated asset base
over the long term.
Lower
capital costs
Using innovation and
flexibility initiatives, we look
to reduce the amount of
network reinforcement costs
that would otherwise be
needed to deliver the
additional capacity required
for net zero.
Shareholder
returns
Our dividend policy, approved
by the Board in March 2021,
is to deliver annual dividend
per share growth in line with
the rate of CPIH inflation.
Our dividend has increased
consistently in line with
this policy.
Full-year dividend on page 6
4
National Grid plc
Annual Report and Accounts 2022/23
Visit our website to find out more information
on our work in renewables:
nationalgrid.com/nationalgrid-ventures/
what-we-do/renewable-energy.
Electricity System
Operation
We are responsible for making
sure the supply of and demand
for electricity are balanced in
real time every day across GB.
In the US, similar services
are provided by independent
system operators.
Renewables
We are working with our partners
to accelerate the development
of our clean-energy future. In
support of this goal, we’ve made
significant investments in the US
in large-scale renewable energy
projects, including wind, solar
and battery storage.
Storage
Grain LNG is one of three
import terminals in the UK.
Our world-class facility delivers
the highest standards of
performance for our customers.
We import LNG from several
countries and also own storage
facilities in the US.
Generation
In the US, we own and operate
electricity generation facilities on
Long Island as well as wind and
solar generation through our
investment in the Emerald
joint venture.
Our culture
National Grid’s culture is the
values, beliefs and behaviours
that characterise our Company
and guide what we do, so we
can respond as the energy
transition accelerates.
We maintain high standards of
ethical business. We also promote
behaviours that are aligned with our
values and culture by recognising
our employees through a Company-
wide reward system. This supports
both what they achieve and how
they have achieved it.
Strategy and
risk management
As the energy industry continues
its transition to a cleaner future,
our strategy articulates our
priorities clearly, while positioning
our business to continue to bring
long-term economic benefits into
the regions where we operate.
We have well-established
governance structures that
include comprehensive risk
management, strong controls
and financial discipline.
Further reading on Our strategy on pages 12 – 13
Internal control and risk management on pages 18 – 24
Our commitment to being a responsible business
on pages 33 – 35
How the Board monitors culture on page 76
The value we create
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Further reading on our stakeholders
pages 36 – 37
Why does
this matter?
Benefits
to society
Clean energy
future
In addition to our own commitment
to reduce our greenhouse gas
(GHG) emissions to net zero
by 2050, we are working
with governments and regulators
to help them meet their carbon
reduction targets.
Fairness and
affordability
The transition to clean energy
needs to be affordable to all, and
we will play our role in ensuring no
one is left behind, helping the
places where we operate reach
their emissions targets.
Job
creation
We are providing employment
opportunities and supporting our
colleagues in developing the skills
necessary to build a net zero
energy system. The direct, indirect
and induced economic impact of
our investments in 2022/23
supported 247,000 jobs in
our regions.
Tax
contribution
We recognise that our
tax contribution supports public
services and the wider economy
and we endeavour to pay the right
amount of tax, at the right time,
in accordance with relevant tax
laws. The direct and indirect
impact of our activities in 2022/23
helped to generate £4.1 billion in
tax receipts across the UK and US.
National Grid plc
Annual Report and Accounts 2022/23
5
CustomersWe aim to deliver safe, reliable, resilient and affordable energy to customers in the communities we serve, driving operational excellence and financial discipline to help keep bills affordable for our customers.InvestorsWe aim to be a low-risk, dependable investment proposition, focused on generating shareholder value through dividends and asset growth. We deliver this through investing in essential assets under primarily regulated market conditions and servicing long-term, sustainable consumer-led demands.ColleaguesWe aim to create an inclusive environment where our colleagues can make a positive contribution, develop their careers and reach their full potential.Suppliers and contractorsWe maintain responsible and efficient supply chains where we align our interests, and those of our suppliers, with the interests of customers. Communities and governmentsWe help national and regional governments formulate and deliver their energy policies and commitments. The taxes we pay help fund essential public services. We have an important role to play in sustainability, enabling the transition to a low-carbon future.RegulatorsWe aim to build trust with our regulators through constructive, transparent engagement and by striving to consistently and reliably deliver our commitments.
Chair’s statement
Final dividend of
37.60p
per share proposed to be paid
on 9 August 2023
Dear Fellow Shareholder,
If you spent a moment looking at the cover of this year’s annual
report, you will have seen thousands of metres of high voltage electric
transmission cable. We chose this image quite purposefully. This
enormous amount of cable is a metaphor for all the work that we have
ahead of us. Indeed, National Grid – and the entirety of the electric utility
business worldwide – must rewire the energy system. As in the last
several years and well into the decades ahead, we will re-engineer and
reconfigure our assets. We will be connecting new renewable power
sources and be reinforcing our networks to enable consumers to
electrify more of the end uses in their homes and businesses. It’s
a digital world, and ensuring 100% reliable energy delivery is integral
to the success of meeting the goals of net zero.
It is this very complexity and scope that has drawn the individuals who
sit on the National Grid Board to serve. There are 29,450 individuals who
work at National Grid in the UK and US. They are, through their work,
setting about changing the world. It is a privilege for me and my fellow
Board members to be part of this effort and to be helping guide the
strategy as the Company innovates to meet the challenges in front of us.
The UK and US Governments estimate that electricity demand will
increase significantly as a result of expanded electrification of vehicles
and homes. The amount of infrastructure necessary to enable this
massive change in demand – and the sources of supply – is staggering.
Public officials in both countries have laid out ambitious plans: setting
up auctions to attract offshore wind and large-scale solar development;
establishing goals for electric vehicles, heat pumps, smart metering
and fast charging; and developing programmes to harness the flexibility
in customer use patterns to reduce system peak demands. From
governments’ ambitions, it is up to National Grid, in collaboration
with the global energy sector, to come up with the plan to drive this
vision forward.
As a Board, we see three overriding issues that will dictate the speed
of rewiring of our two countries for net zero.
First, and perhaps of greatest interest to investors, is whether the right
regulatory frameworks will be in place to enable National Grid to finance
the expansion of its transmission and distribution systems at the scale
needed to meet governments’ goals. Building subsea transmission
and energy islands, for example, requires longer lead times and has
significantly greater technical challenges. We are also in a period
of supply chain pressures and elevated inflation across the globe.
Traditional regulation isn’t well equipped to deal with the scope,
scale, and timing exigencies of massive construction programmes.
Second is the issue of permitting and planning policy, a challenge in
both countries. In the UK, National Grid has advocated for designating
certain transmission programmes as ‘nationally significant projects’
where local planning would be brought into a coordinated regime
with mandatory timeframes for decisions. Such a scheme would
feature compensation to landowners and communities for the
visual impact of new pylons that will need to be placed into service.
Full-year dividend
(pence per share)
2022/23
2021/22
2020/21
2019/20
2018/19
55.44
50.97
49.16
48.57
47.34
6
National Grid plc
Annual Report and Accounts 2022/23
In the US, National Grid supports Congressional efforts to expedite the
permitting of linear routes by, among other things, setting maximum
timelines for major project reviews, designating projects of ‘strategic
national importance’, and addressing litigation delays. In both
jurisdictions, fundamental reform is necessary if we are to build out
infrastructure in the timeframes that satisfy society’s ambitions for
cleaner power sources to replace fossil fuel-based generation.
Third is the advance of technology and our role in delivering it. As I meet
with members of the business community, government, and the public,
I often find myself spending time on the issues of how alternating current
and direct current work, what intermittency means, why the electric
system must remain synchronised as measured in cycles per second,
and whether batteries are part of the answer. Batteries have a role to
play. They address short-term intermittency – the few hours a day when
the wind doesn’t blow or the sun doesn’t shine. But National Grid has
been both an investor and a testing site for a number of emerging
technologies that address a broader spectrum of challenges on the
electric grid, deploying new technologies. Every technology we deploy
has a learning curve and we also have work to do in our jurisdictions
as to the business model for how technologies will be introduced.
Our Board is optimistic that the inventive capabilities of our countries –
and the innovative engineering expertise of our colleagues – will deliver
solutions in the years ahead. How the pace of technology synchs up
with the ambition to reach net zero is uncertain. But from what we’ve
seen National Grid do so far, the Board is confident that the Company
will be at the forefront of employing enabling technologies.
Discussion about the continued use of fossil fuels in the transition to
net zero has become a charged issue. But the energy transition will
take time and natural gas is not easily or economically exited for the
many customers we serve today. Our Board supports the direction
National Grid has undertaken to invest in new technologies involving
decarbonisation of the natural gas which we deliver to our US customers.
I have been involved in the energy industry for over forty years. This is
the most exciting time in my career. The three issues described above
are in our collective capability to address. My fervent hope is that we can
develop a collective will to get moving. Certainly National Grid is a ready
and able partner.
We appreciate your support as shareholders – and as global citizens
who aspire to a cleaner, fairer, and more affordable energy future.
Paula Rosput Reynolds
Chair
The 2023 Annual General Meeting (AGM)
of National Grid plc will be held as a hybrid event
at 11am on Monday 10 July 2023. More details
on the arrangements for this year’s AGM
including how to attend virtually can be found
on our website in the Investors section at:
nationalgrid.com/investors.
Unwavering dedication of our
colleagues in showing up for the
communities we serve
Crews from both New York
and New England left their
families at home through the
Christmas period to head out
into the storm and restore power
to thousands of households.
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In the UK, over 3,000
households and
250,000
individuals
were supported over the
first winter of our energy
support fund.
The Company donated
$1 million
to assist Buffalo customers
and communities after the
December blizzard.
In the UK,
over 1,050
volunteer hours were
delivered by National Grid
employees in support
of Citizens Advice.
National Grid plc
Annual Report and Accounts 2022/23
7
Chief Executive’s review
The energy sector remains firmly
in the spotlight. Energy bills are high,
net zero targets are getting closer and
the weaponisation of global energy
is no longer theoretical.
Context in which we are operating
In this context, it’s very clear that delivering the energy transition at pace,
whilst challenging, is vital if we are to create a future energy system that
is not just secure and clean, but fair and affordable.
This is not just about the environmental benefits of more renewables on
the grid, although that’s critical to tackle climate change. It’s clear that
the benefits of the transition actually reach much further. In both the
UK and the US, more renewable energy means lower bills in the longer
term, increased energy security, economic growth and the creation of
thousands of green jobs.
National Grid – and the whole energy sector – is innovating at a speed
not seen before. The scale of the challenge – and opportunity −
remains huge.
National Grid is operating at the very heart of this transition. We’re driving
progress and investing heavily in decarbonising the networks of today
while designing the networks of tomorrow. Our colleagues are working
hard to deliver a just transition, and to unlock the huge opportunities that
this transition can deliver for all.
In the UK, we continue to work closely with the Government and
regulator, and we welcome Ofgem’s acknowledgement of the need
for speed and scale. In particular, I am pleased that the regulator has
confirmed National Grid will deliver the 17 projects that will make up the
ASTI work on the East Coast. This decision gives National Grid – and
the wider industry – clarity on the next step towards a more affordable,
resilient and clean energy system. We now need to see a similarly
holistic and forward-thinking approach to changes to the anticipatory
investment framework, so that these projects can be progressed
at pace.
However, we continue to face regulatory and planning hurdles which
are slowing the pace of delivery of the net zero infrastructure needed
for the energy transition. We urgently need to see regulation that allows
for investment ahead of need, a more streamlined planning system
and a recognition of the important role communities play in hosting
this critical infrastructure if the UK is to reach the Government’s
decarbonisation targets. On 15 May we published a detailed policy
statement ‘Delivering for 2035’, where we set out five priorities requiring
action by the Government and Ofgem; we will continue to work closely
with them on how best to push forward the transition at pace and
welcome in particular consultations with a focus on the reform of the
planning system.
Our winter outlook this year showed that, although extremely unlikely,
the UK could have faced some disruption to power supply. I am pleased
to say that the extra measures we put in place to manage this – along
with relatively mild weather for much of the winter and cooperation from
European partners through our interconnectors – have prevented any
disruption to supply. We will continue to take a prudent approach to
planning in the months ahead as we look to the coming winter.
In the US, we have seen the introduction of the Inflation Reduction Act
2022 (IRA) – one of the most significant investments the US has ever
made to develop clean energy and slow the effects of climate change.
We welcome this Act and the bold ambition it demonstrates and the
many aspects which align well with our own fossil-free vision, which
will fully eliminate fossil fuels from both our gas and electric systems
by 2050, if not sooner.
However, in the UK, we need to see an increase in the pace at which
clean energy infrastructure can be delivered, with a more streamlined
permitting system introduced.
I’m pleased that – as the debate on the best path to net zero in the
US Northeast continues – we have forged strong inroads with key
stakeholders to find pragmatic solutions to bring us closer to a clean,
fair and affordable energy future.
Business highlights from the year
Our strategic pivot is now complete, with the sale of a majority stake in
National Grid Gas (now National Gas Transmission) to a Macquarie-led
consortium completed during the year. This pivot underlines our
commitment to decarbonisation of energy networks in order to reach
net zero, and provides a clear focus on electricity in the UK as we look
to the future. A new business unit, Strategic Infrastructure (SI), will lead
the delivery of the infrastructure required to support an electric future
in the UK.
In May, we announced our underlying operating profit was up 15%
(10% at constant currency) to £4.6 billion. Over the course of the full
year, we continued to invest in the energy transition at pace, investing
£7.7 billion across our networks, up 15% on the prior year.
Investment and delivering for shareholders
I’m extremely proud that National Grid is one of the largest green
investors in the FTSE. Over the five years of our financial outlook we
anticipate investing up to £40 billion between 2021/22 and 2025/26,
of which £29 billion is directly into the decarbonisation of our energy
networks (aligned with the EU Taxonomy).
Further reading: Our business units
pages 28 – 32
8
National Grid plc
Annual Report and Accounts 2022/23
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Whilst continuing to invest at scale and pace in both the UK and US,
we will deliver average asset growth of 8−10% per annum (compound
annual growth rate (CAGR)) and drive underlying earnings per share
growth of 6−8% per annum on average (CAGR) through the period
2021/22 − 2025/26.
Continued long-term growth will be underpinned by our strong
operational and financial performance. We have the financial visibility
to maintain a resilient balance sheet and a track record of delivering
efficiently, highlighted by the fact we are making strong progress against
our Group cost efficiency programme, having achieved £373 million of
cumulative efficiency savings at 31 March 2023 against our £400 million
target of savings by 2023/24 announced in November 2021.
Empowering colleagues, delivering for
customers and enriching communities
Against a backdrop of rising wholesale gas prices, and therefore steeper
utility bills, we are delivering significant packages of financial support – to
run across two years – to our communities in the US and the UK. There is
more detail on these initiatives, including detail on the difference they are
making to people left most vulnerable by the energy crisis, in our RBR.
In the US, we committed $17 million to help customers on the front line
of the energy crisis, and our Winter Customer Savings Initiative in
Massachusetts resulted in more than 248,000 customers receiving
discounted rates, more than 25,000 electing for budget/balanced billing
and tens of thousands of customers visiting our dedicated help website.
In the UK, a £50 million fund has been targeted at charities that provide
immediate, emergency financial relief to households using pre-payment
energy meters; charities that fund energy-efficiency measures to lower
bills over the long term; and charities that provide advisory services
for households who need help with energy bills, payments and debt.
Money from the fund will be used by beneficiary organisations to
support people struggling with energy costs by increasing the number
of support staff giving advice on phonelines, providing fuel vouchers and
improving the energy efficiency of homes at no cost to householders,
for example. This fund has supported 30,000 households to date.
This fund is in addition to the £200 million interconnector revenue Ofgem
agreed to National Grid paying ahead of schedule. And, subject to
regulatory approval, we will return a further £100 million of interconnector
revenue to Ofgem ahead of schedule, to help consumers sooner.
Sadly, in May 2022 we had a fatality: we lost a colleague in
Massachusetts. He was electrocuted whilst working on live equipment
keeping power to a residential building. This loss has had a profound
effect on me and the whole organisation. Since then, we have
completed a thorough investigation, shared what happened with the
whole organisation, changed our Group-wide approach to safety
through the establishment of a new policy and safety strategy called
‘Stand Up For Safety’. A second fatality occurred in September 2022
when a vegetation contractor in our New York business died following
an allergic reaction to a bee sting. Everyone should return home safely
at the end of their working day and following these tragedies we are
re-doubling our efforts to ensure this is the case for all who work on
our assets.
I am pleased to report that our employee engagement survey,
Grid:Voice, which included our UK ED colleagues, shows high levels
of engagement and empowerment across the business. I’d like to take
this opportunity to give my heartfelt thanks to my colleagues right across
National Grid; they have unrivalled dedication, professionalism and
commitment to doing the right thing, making it happen and finding
a better way.
John Pettigrew
Chief Executive
UK ET highlights:
Good progress at London Power Tunnels 2 – a £1 billion project to rewire
South London – where we have now completed three of five drives for the
tunnel boring machines, marking a significant milestone for the project which
will future-proof the energy infrastructure of the capital for many years to come.
1
We’ve continued to develop our proposals for the critical infrastructure needed to
upgrade the network and enable the connection of more offshore wind. We have
submitted planning applications for key parts of the grid, and continue to consult
with local communities on our plans.
We’ve wired up and energised 37 of our innovative T-pylons as part of the
Hinkley Connection project, which is connecting six million homes and
businesses to low-carbon energy. The Hinkley team has also energised
Shurton substation in Somerset, to support Hinkley Point C nuclear power
station in readiness for the connection of its generators in the future.
UK ED highlights:
Our new price control, RIIO-ED2, which was developed with 25,000
stakeholders over the course of two years, is now agreed with Ofgem.
We have run a significant winter awareness campaign to encourage vulnerable
customers to sign up to the Priority Services Register, ensuring people know
how best to prepare for winter and that we can serve our customers in the
best way possible.
Our most recent customer satisfaction survey showed an average score of
nine out of ten for April 2022 − March 2023.
Phil Swift left the business at the end of March, and I’m pleased that Cordi
O’Hara has been appointed as President UK ED. I’d like to thank Phil for his
valuable service.
ESO highlights:
Creation of the FSO: we successfully delivered our separation blueprint to
Ofgem and the UK Government in December 2022. Subject to agreeing cost
recovery, and timely passage of the legislation, we expect the process to
complete in 2024, in line with Government ambition.
New England highlights:
We have been successful in receiving $336 million in grid modernisation
funding and $487 million pre-authorisation for Advanced Metering
Infrastructure spend. These are important milestones for progressing
our modernisation of the electric grid.
2
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The Clean Energy and Climate Plan (CECP) issued by the outgoing Baker
Administration recognised the role that decarbonised fuels will play in meeting
the Commonwealth’s net zero ambitions, including for commercial and
industrial customers and hard to electrify sectors.
The Massachusetts legislature introduced a bill to advance anticipatory
planning and investment to enable transportation electrification along the
Commonwealth’s highways and a bill to consolidate and better align the
permitting process for infrastructure that supports clean energy development
and deployment, and engages communities.
New York highlights:
The regulator has approved over $2.8 billion in NiMo transmission upgrades
to enable National Grid to build ahead of the need to meet the State’s 2030
climate goals.
5
New York state adopted its Scoping Plan for implementation of the Climate
Law in late December 2022, and we were pleased that much of it aligns with
our fossil-free vision. It’s clear that investment in traditional infrastructure will
still be necessary to maintain reliability and safety, and that a decarbonised
gas system has a key role in achieving emissions reduction targets, as we map
a pathway for the scaling up of renewable natural gas and green hydrogen.
The New York state legislature has introduced a bill, written in consultation with
National Grid, to establish a highway and depot charging action plan to meet
the upcoming surge in demand from the electrification of passenger vehicles
and commercial trucks.
NGV highlights:
Our IFA interconnector returned to service ahead of schedule, taking our
total National Grid interconnector capacity to 6.4 GW.
6
Community Offshore Wind, our partnership with RWE in the Northeast US,
has submitted a proposal to the New York State Energy Research and
Development Authority for a 1.3 GW offshore wind development, with
the potential to power nearly 500,000 homes.
Ofgem has selected two National Grid projects – LionLink to the Netherlands
and Nautilus to Belgium − as part of its Multi-Purpose Interconnector (MPI) pilot
scheme, which is designed to accelerate the delivery of offshore wind faster.
At Viking Link we have seen the completion of onshore cable works and the
converter hall in Denmark, with the project still on track to become operational
in early 2024.
It was a record year for Grain LNG with 102 ships unloading, highlighting the
impressive availability record and critical role Grain LNG plays in supporting
security of supply both here in the UK and for our European neighbours.
National Grid plc
Annual Report and Accounts 2022/23
9
Our business environment
We are committed to delivering net zero whilst ensuring fairness and affordability
for customers. Through our work with governments and regulators, we’re delivering
infrastructure investments and shaping policy to realise climate goals.
Fairness and
affordability
+£3bn
economic benefit to New York
State from our Community
Offshore Wind proposals
Net zero
87.6%
zero-carbon generation on
4 January 2023 in the UK
We are committed to delivering energy safely,
reliably and affordably to the communities
we serve. We will play our role in ensuring
no one is left behind in the short term due to
increased energy prices, or in the longer-term
transition to clean energy.
Impact on our industry
By connecting a growing volume of renewable
generation and reducing our own GHG
emissions, we’re demonstrating our focus
on enabling the energy transition.
• Russia’s invasion of Ukraine, exacerbated by low nuclear and
hydropower generation in Europe, led to significant volatility
in UK gas prices, rising 400% from May to August 2022.
• Energy price volatility has been a significant driver of inflation
in the UK and US. In the UK, consumer price inflation reached
11.1%, a 41-year high and in the US, peaked at 9.1%.
• In the UK, the Government’s independent Net Zero Review
stated that “significant governmental action is required to
ensure that the UK achieves net zero in the best way possible
for the economy and the public”.
• More than 90% of global GDP is now covered by a net
zero target.
• Governments have protected customers from the worst
• The US IRA will drive significant investment into energy,
extent of energy price volatility through support schemes,
and have announced their intentions to review policy and
markets to support consumers in the long term.
manufacturing and networks. Forecasts suggest the IRA will
reduce US-economy wide emissions by up to 40% by 2030
from 2005 levels.
How we are responding
• We have launched support funds in the UK (£50 million) and
US ($17 million) to ease the financial burden that households
will face as a result of increasing energy prices.
• We are deploying innovative solutions to increase the capacity
of our transmission equipment. For example, we expect to
save British consumers £80 million by reducing constraints,
areas where infrastructure limits prevent the transfer of more
power across network boundaries, on our overhead line
running across the M1 motorway.
• We’ve supported our customers in reducing their energy
costs and managing their bills through the launch of Winter
Customer Savings initiatives in Massachusetts.
• Our Grain LNG import terminal and interconnectors have
seen record activity in their roles supporting energy security
in the UK and Europe.
• As at 31 March 2023, we have achieved savings of £373 million
out of a targeted £400 million on our three-year programme of
efficiency savings announced in November 2021. This included
property rationalisation and the use of digital solutions such as
our US Gas Business Enablement programme, the electric
solution OnMyWay and other new customer initiatives, thereby
providing better value for consumers.
• In the UK, we processed over 600 connections offers for
transmission customers, double the year before.
• In the US, we launched our fossil-free-future vision to
decarbonise our gas networks, and announced our
involvement in the Northeast Hydrogen Hub.
• The ESO published the first Holistic Network Design, which
proposes a more coordinated approach for the connection of
increasing offshore wind generation to transmission networks.
• Through the ASTI framework, we are delivering 17 major new
projects in the UK to connect more clean, low-carbon power to
the transmission network. These projects will play a vital part in
achieving the UK Government’s ambition of connecting 50 GW
of offshore wind by 2030.
• We have received approval for $691 million of Phase 1
transmission investment projects and $2.1 billion in Phase 2
in support of New York’s Climate Leadership and Community
Protection Act (CLCPA), with all projects planned to be in
service by 2030.
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National Grid plc
Annual Report and Accounts 2022/23
Impact on our industry
How we are responding
Decentralisation
Digitalisation
800 MWh
of UK grid demand reduced
through Demand Flexibility
Service so far
£95m
of further efficiency savings expected
for our UK distribution customers as
a result of innovation and digitalisation
in UK ED
System flexibility and resilience are
becoming increasingly important as the
UK and US move away from large, centralised
energy generation to a system of more
geographically distributed, intermittent
energy sources.
We’re bringing customers, colleagues
and assets together as we progress on our
journey to being an intelligent, connected
enterprise. Digitalisation supports our
progress towards net zero targets and
improves customer experience and value.
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• 2022 saw significant growth in electric vehicles (EVs), with
• Ofgem now requires DNOs to publish a network digitalisation
sales growing by more than 25% in the UK and by 65% in the
US compared with 2021.
• Driven by policy and innovation, heat pump prices are
reducing for consumers.
• Ofgem’s RIIO-ED2 regulatory deal for our UK ED business
included funding to make network investments that will
enable the rapid growth in EV chargers, heat pumps
and batteries.
strategy, and has announced its plans for the creation of
“common digital energy infrastructure” to improve the
efficiency and coordination of flexibility markets.
• Supported by policy in the US and UK, networks’ investments
in digitalisation will enable predicative maintenance, automate
operations and control, and support digital twins, making
it easier to plan network expansion and connect customers.
• Utilities are becoming increasingly aware and capable in
responding to cyber security threats. Cyber-attacks on power
grids have been seen in Ukraine, causing blackouts for
millions of people.
• We say “Yes” to all domestic sized connections on our UK ED
network, making it as simple as possible for customers to
connect their EVs and heat pumps.
• We’re working with other UK utilities to improve cyber
security training on operational technology across
transmission and distribution networks.
• We’re improving access to EV charging equipment in New
York and New England by funding infrastructure upgrade
costs for customers through our Make Ready scheme.
• In our UK and US distribution businesses, we are building
Distribution System Operator (DSO) capabilities to better
manage network development, flexibility requirements, and
constraint management as increasing volumes of distributed
generation connect to our networks.
• As the proportion of renewable and distribution-network-
connected generation increases, the ESO is deploying
innovative pathfinder solutions to maintain certain grid
services, such as inertia, and voltage management, that
have been traditionally supplied by coal and gas generators.
• Satellite imagery is increasing resilience and saving money
for consumers by improving access to information on the
condition of our networks in the UK.
• Smart meters are being rolled out to provide real-time
information to customers and to enable flexibility
services under New York’s advanced metering
infrastructure programme.
• We’re simplifying procedures and improving information
sharing between site teams and our Transmission Network
Control Centre in UK ET through the launch of new
digital tools.
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Annual Report and Accounts 2022/23
11
Succeeding with our strategy
Our vision is to be at the heart of a clean, fair and affordable
energy future. To deliver our vision in a focused way, we
have a strategy which sets the bounds of our business,
guided by four strategic priorities.
Further reading:
Internal control and
risk management on
pages 18 – 24
Strategic
priority
What this
means
2022/23
achievements
Key
highlights
Looking
ahead
Enable the
energy transition
for all
Deliver for
customers
efficiently
Grow our
organisational
capability
Empower
colleagues for
great performance
We will increase the positive impact we have on the
environment and society by innovating and influencing
policy to enable clean electricity, and for electrified heat
and transport to connect to and use our networks.
Our investments in energy system decarbonisation are
underpinned by a track record of operational excellence
and financial discipline, ensuring the delivery of safe,
reliable, resilient and affordable energy for our customers.
To deliver our part in a changing energy system, we are
Our colleagues shape the delivery of outcomes that exceed
transforming our internal processes, strengthening our
the expectations of all our stakeholders. By attracting
customer focus and sharpening our commercial edge.
diverse talent and developing our people, we will ensure
our colleagues are best placed to work towards a clean
Business environment links:
1. Fairness and affordability
2. Net zero
3. Decentralisation
4. Digitalisation
KPI link:
• Group capital investment
• Green capital investment
• Climate change – Scope 1, 2
and 3 emissions
Business environment links:
1. Fairness and affordability
2. Net zero
3. Decentralisation
4. Digitalisation
KPI link:
• Network reliability
• Underlying EPS
• Group RoE
• Total regulated asset growth
Business environment links:
KPI link:
Business environment links:
KPI link:
1. Fairness and affordability
• Customer satisfaction
1. Fairness and affordability
• Employee engagement index
2. Net zero
3. Decentralisation
4. Digitalisation
• Group LTIFR
• Workforce diversity – ethnicity
• Workforce diversity – gender
energy future.
2. Net zero
3. Decentralisation
4. Digitalisation
• We published our US Highway Charging study to forecast
• In the UK, we are working with retailers and customers
• Our research to replace SF6 in our networks with more
• We are celebrating the 10th anniversary of our
future network requirements to support widespread
rollout of EVs and charging points.
• In New England, our Make Ready scheme has received
approval for an additional 32,000 EV charging ports,
including targeted components for low-income
households and environmental justice communities.
• UK ET energised Sandford substation as part of our
work to connect Hinkley Point C when generation begins
in 2027.
• In New England, we launched drop-in events to
help customers find ways to manage their energy bills
over winter.
• NGV’s North Sea Link (NSL), which became operational
in October 2021, paid off its carbon construction cost
in six months and has saved 800,000 tonnes of carbon
in its first year.
• Our Noble Solar and Storage project in Texas went
into commercial operation, and is projected to avoid
450,000 tonnes of CO2 annually during operation.
21.6 GW
of wind power on GB’s electricity
system on 10 January 2023,
setting a new wind power record
• Viking Link, our interconnector to Denmark, is expected
to become operational in early 2024 and it will be able
to import enough renewable electricity to power
1.4 million homes.
• In the UK, Ofgem has also requested that we work on the
early-stage development of other strategic infrastructure
under the ASTI framework.
• Our MPI proposals to Belgium and the Netherlands have
been taken forward by Ofgem for Initial Project
Assessment, with a decision expected late 2023.
to provide additional grid flexibility services when
national demand is at its highest. By 30 January 2023,
our Demand Flexibility Service delivered almost
800 MWh in demand reduction.
climate-friendly alternatives with the University of
EmployAbility Let’s Work Together! supported internship
Manchester was named Best Innovation in Net Zero
scheme, supporting students with additional educational
and Sustainability at the E&T Innovation Awards.
needs to build skills to get into the workplace.
• UK ED, working with Octopus Energy and Serco,
• We have been recognised for demonstrating exemplary
• In the UK, our Take Charge scheme to improve network
launched our ‘Equinox’ trial to test demand flexibility
commitment to the health and wellbeing of our workforce
capacity at motorway service areas in a quick and
cost-efficient way won Utility Week’s Disruptor of the
Year Award.
• We expanded the use of dynamic line ratings in the
UK and US to unlock additional network capacity and
reduce constraints.
• Construction began on Smart Path Connect, a 100-mile
(161-kilometre) transmission project in New York that
will reduce congestion during peak periods, providing
$447 million in annual savings.
• Grain LNG played a critical role in supporting security
of supply in the UK and Europe with a 60% increase in
shipments compared with 2021.
• In the US, we received the Edison Electric Institute
Emergency Response Award for our response to four
storms throughout 2021/22.
98%
of Winter Storm Elliott NE customers
restored within 36 hours
• On 6 April 2022 the UK government announced its
intention to create an FSO that will take on all the main
existing ESO roles and the longer-term elements of the
Gas System Operator (GSO). Depending on a number
of factors, including timings of legislation, the FSO is
expected to be established in 2024.
• Main building works for our new UK ET Control Centre
will commence within the next 12 months and will create
purpose-built facilities providing improved resilience
and security.
• We are advocating for regulatory and planning reform
to accelerate our ability to invest in our networks and
connect renewable generation in the UK and US.
with heat pumps under Ofgem’s Network Innovation
by the Worksite Wellness Council of Massachusetts.
Competition fund.
• Working with J. Murphy & Sons and Warwick University,
• We successfully trialled a hydrogen-powered generator
we are researching and improving mental health in the
at Deeside Centre for Innovation, in the UK, showcasing
construction industry through our Health Hub at the
the potential for carbon intensity reductions of 90%.
IFA interconnector.
• In the US, we launched our northeastern Clean Energy
• We have been included in the 2022 Bloomberg
Vision, which includes the clean energy hubs we are
Gender-Equality Index, and in the UK were named
building on Long Island. These will bring together solar,
one of The Times Top 50 Employers for Women 2022.
offshore wind, generation, clean hydrogen, battery
storage, and transmission to help Long Island reach
its potential as a clean energy hub.
• In the US, we were recognised as one of the Best Places
to Work for LGBTQ+ equality on the Human Rights
Campaign Foundation’s 2022 Corporate Equality Index.
1st
81%
UK ED was the first DNO in the UK to
publish a fully costed DSO transition plan
employee engagement score
in our 2023 Grid:voice survey
• We have formed a new business unit, Strategic
• We are building partnerships to support growth and
Infrastructure, to deliver 17 major new projects under
vitality in the areas we serve through schemes including
the ASTI framework.
#10,000 black interns, Change 100 and Stonewall.
• In the US, our Power Out Reporting Tool is on track to
• We strive to achieve 50% diversity in all new talent
roll out in 2023 to supply accurate and up-to-the-minute
programmes by 2025.
outage information, enabling us to restore power to
customers and communities more safely and quickly.
• In the UK and US, we will continue to build out our DSO
capabilities to better manage network development.
• We are launching Inspire, our newest employee resource
group (ERG), to support social mobility.
12
National Grid plc
Annual Report and Accounts 2022/23
In the UK, we continue to face regulatory and planning hurdles which are slowing the pace of delivery of the net zero infrastructure so urgently
needed for the energy transition. On 15 May 2022, we published our spring policy statement, ‘Delivering for 2035’, setting out five priorities that
require action by government and regulators.
In the US, while the Inflation Reduction Act and Infrastructure Investment and Jobs Act support initiatives like the Clean Energy Vision
we published in September 2022, and have the potential to accelerate the energy transition with a pathway that is achievable, significant
permitting and siting reform are also needed. We believe that gas will continue to be needed, and therefore we are advocating the vital role
of decarbonised gas networks, alongside electrification, as the most viable, affordable and reliable solution for the northeastern US and we
are working with regulators and policymakers to provide solutions to achieve this.
Grow our
organisational
capability
Empower
colleagues for
great performance
To deliver our part in a changing energy system, we are
transforming our internal processes, strengthening our
customer focus and sharpening our commercial edge.
Our colleagues shape the delivery of outcomes that exceed
the expectations of all our stakeholders. By attracting
diverse talent and developing our people, we will ensure
our colleagues are best placed to work towards a clean
energy future.
Business environment links:
1. Fairness and affordability
2. Net zero
3. Decentralisation
4. Digitalisation
KPI link:
• Customer satisfaction
• Group LTIFR
Business environment links:
1. Fairness and affordability
2. Net zero
3. Decentralisation
4. Digitalisation
KPI link:
• Employee engagement index
• Workforce diversity – ethnicity
• Workforce diversity – gender
Business
environment
pages 10 – 11
Our KPIs
pages 14 – 17
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Strategic
priority
What this
means
2022/23
achievements
Enable the
energy transition
for all
Deliver for
customers
efficiently
We will increase the positive impact we have on the
Our investments in energy system decarbonisation are
environment and society by innovating and influencing
underpinned by a track record of operational excellence
policy to enable clean electricity, and for electrified heat
and financial discipline, ensuring the delivery of safe,
and transport to connect to and use our networks.
reliable, resilient and affordable energy for our customers.
Business environment links:
KPI link:
Business environment links:
KPI link:
1. Fairness and affordability
• Group capital investment
1. Fairness and affordability
• Network reliability
2. Net zero
3. Decentralisation
4. Digitalisation
• Green capital investment
2. Net zero
• Climate change – Scope 1, 2
3. Decentralisation
and 3 emissions
• Underlying EPS
• Group RoE
4. Digitalisation
• Total regulated asset growth
future network requirements to support widespread
to provide additional grid flexibility services when
rollout of EVs and charging points.
• In New England, our Make Ready scheme has received
approval for an additional 32,000 EV charging ports,
national demand is at its highest. By 30 January 2023,
our Demand Flexibility Service delivered almost
800 MWh in demand reduction.
including targeted components for low-income
• In the UK, our Take Charge scheme to improve network
households and environmental justice communities.
capacity at motorway service areas in a quick and
• UK ET energised Sandford substation as part of our
work to connect Hinkley Point C when generation begins
Year Award.
cost-efficient way won Utility Week’s Disruptor of the
• In New England, we launched drop-in events to
help customers find ways to manage their energy bills
reduce constraints.
in 2027.
over winter.
• NGV’s North Sea Link (NSL), which became operational
in October 2021, paid off its carbon construction cost
in six months and has saved 800,000 tonnes of carbon
in its first year.
• Our Noble Solar and Storage project in Texas went
into commercial operation, and is projected to avoid
450,000 tonnes of CO2 annually during operation.
• In the US, we received the Edison Electric Institute
• We expanded the use of dynamic line ratings in the
UK and US to unlock additional network capacity and
• Construction began on Smart Path Connect, a 100-mile
(161-kilometre) transmission project in New York that
will reduce congestion during peak periods, providing
$447 million in annual savings.
• Grain LNG played a critical role in supporting security
of supply in the UK and Europe with a 60% increase in
shipments compared with 2021.
Emergency Response Award for our response to four
storms throughout 2021/22.
98%
of Winter Storm Elliott NE customers
restored within 36 hours
• Viking Link, our interconnector to Denmark, is expected
• On 6 April 2022 the UK government announced its
to become operational in early 2024 and it will be able
intention to create an FSO that will take on all the main
to import enough renewable electricity to power
1.4 million homes.
• In the UK, Ofgem has also requested that we work on the
early-stage development of other strategic infrastructure
under the ASTI framework.
• Our MPI proposals to Belgium and the Netherlands have
been taken forward by Ofgem for Initial Project
Assessment, with a decision expected late 2023.
existing ESO roles and the longer-term elements of the
Gas System Operator (GSO). Depending on a number
of factors, including timings of legislation, the FSO is
expected to be established in 2024.
• Main building works for our new UK ET Control Centre
will commence within the next 12 months and will create
purpose-built facilities providing improved resilience
and security.
• We are advocating for regulatory and planning reform
to accelerate our ability to invest in our networks and
connect renewable generation in the UK and US.
21.6 GW
of wind power on GB’s electricity
system on 10 January 2023,
setting a new wind power record
Key
highlights
Looking
ahead
• We published our US Highway Charging study to forecast
• In the UK, we are working with retailers and customers
• Our research to replace SF6 in our networks with more
• We are celebrating the 10th anniversary of our
climate-friendly alternatives with the University of
Manchester was named Best Innovation in Net Zero
and Sustainability at the E&T Innovation Awards.
EmployAbility Let’s Work Together! supported internship
scheme, supporting students with additional educational
needs to build skills to get into the workplace.
• UK ED, working with Octopus Energy and Serco,
• We have been recognised for demonstrating exemplary
launched our ‘Equinox’ trial to test demand flexibility
with heat pumps under Ofgem’s Network Innovation
Competition fund.
• We successfully trialled a hydrogen-powered generator
at Deeside Centre for Innovation, in the UK, showcasing
the potential for carbon intensity reductions of 90%.
• In the US, we launched our northeastern Clean Energy
Vision, which includes the clean energy hubs we are
building on Long Island. These will bring together solar,
offshore wind, generation, clean hydrogen, battery
storage, and transmission to help Long Island reach
its potential as a clean energy hub.
commitment to the health and wellbeing of our workforce
by the Worksite Wellness Council of Massachusetts.
• Working with J. Murphy & Sons and Warwick University,
we are researching and improving mental health in the
construction industry through our Health Hub at the
IFA interconnector.
• We have been included in the 2022 Bloomberg
Gender-Equality Index, and in the UK were named
one of The Times Top 50 Employers for Women 2022.
• In the US, we were recognised as one of the Best Places
to Work for LGBTQ+ equality on the Human Rights
Campaign Foundation’s 2022 Corporate Equality Index.
1st
81%
UK ED was the first DNO in the UK to
publish a fully costed DSO transition plan
employee engagement score
in our 2023 Grid:voice survey
• We have formed a new business unit, Strategic
• We are building partnerships to support growth and
Infrastructure, to deliver 17 major new projects under
the ASTI framework.
vitality in the areas we serve through schemes including
#10,000 black interns, Change 100 and Stonewall.
• In the US, our Power Out Reporting Tool is on track to
• We strive to achieve 50% diversity in all new talent
roll out in 2023 to supply accurate and up-to-the-minute
outage information, enabling us to restore power to
customers and communities more safely and quickly.
• In the UK and US, we will continue to build out our DSO
capabilities to better manage network development.
programmes by 2025.
• We are launching Inspire, our newest employee resource
group (ERG), to support social mobility.
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Our key performance indicators (KPIs)
We use a range of metrics¹, reported periodically, against which
we measure Group performance. These metrics are aligned to
our strategic priorities.
Links to
strategy
Enable the
energy transition
for all
Deliver for
customers
efficiently
Grow our
organisational
capability
Empower
colleagues for
great performance
Financial measures
Strategy link
KPI and performance
Underlying EPS (£m)
This is a measure of the Group’s profitability for the year attributable to equity shareholders
of the Group. It excludes exceptional items, remeasurements, timing and major storms from
its calculation.
Our target is to grow Underlying EPS by 6-8% CAGR over a five-year period to March 2026.
2022/23
2021/22
2020/21
new KPI
69.7
65.3
42.4
Group capital investment (£m)
We plan to invest up to £40 billion in the five-year period from April 2021 to March 2026
across all areas of the Group and are one of the FTSE’s biggest investors in the delivery
of net zero. This KPI measures our annual capital investment.
2022/23
2021/22
2020/21
new KPI
7,740
6,739
4,843
Progress in 2022/23
Underlying EPS grew by 7% in the year. This reflects
a full year contribution from UK ED; good operational
performance across our US regulated businesses;
improved NGV performance across interconnectors;
and increased Property sales; partly offset by the sale
of the Narragansett Electric Company (NECO), higher
interest costs, and our community support.
We have included Underlying EPS as a new KPI this
year to reflect its importance in managing performance
across the Group and to align with key metrics used
as part of Directors’ Remuneration.
The growth in capital investment was principally driven
by higher levels of investment to drive forward energy
transition and deliver energy security across all
Business Units.
Green capital investment (£m)
Capital expenditure invested in the decarbonisation of energy systems and considered to
be aligned with the principles of the EU Taxonomy legislation at the date of reporting.
This provides a transparent view of the Group’s compatibility with the net zero goals
of the economies we served during the year ended 31 March 2023.
Our target is to deliver the current market guidance of £29 billion in green capital investment
by 2025/26.
In 2022/23 we delivered £5.6 billion of green capital
investment aligned to the EU Taxonomy, a £1.1 billion
increase on 2021/22. This consisted primarily of
increased investment in our US and UK electricity
networks consisting primarily of investment in asset
conditioning, network reliability and connections for
additional renewables capacity, as well as a full year
of UK ED.
2022/23
2021/22
2020/21
new KPI
Not measured
Group RoE (%)
5,557
4,520
In calculating Group RoE, we measure our performance in generating value for
shareholders by dividing our regulated and non-regulated financial performance, after
interest and tax, by our measure of equity investment in all our businesses, including
the regulated businesses, NGV and other activities and joint ventures.
Target: 9.5% – 10.75% each year
2022/23
2021/22
2020/21
11.0
11.4
10.6
Across the Group, we achieved an RoE of 11.0% in
2022/23, down on prior year by 40 basis points. Group
RoE was driven principally by a full year contribution
from UK ED, strong interconnector performance, offset
by higher net financing costs and impacted by the
growth in UK RAV in the denominator (because UK RAV
is indexed at actual inflation rates).
Total regulated asset growth (%)
Maintaining efficient growth in our regulated assets ensures we are well-positioned to
provide consistently high levels of service to our customers and increases our future
revenue allowances. This includes investment for a changing climate, enabling clean
electricity, heat and transport.
Target: 8 – 10% CAGR asset growth (2021/22 – 2025/26)
2022/23
2021/22
2020/21
11.4
8.7
5.6
Asset growth during the year was 11.4% (2021/22:
8.7%). This was driven by the £7.7 billion Group Capital
Investment along with the impact of higher indexation
in respect of the UK Regulated Asset Value.
Asset growth excludes the impact of the £9.6 billion
reduction in RAV, rate base and other assets as a result
of the disposal of our Rhode Island and 60% of our
UK Gas Transmission and Metering business during
the year.
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Link to remuneration
Remuneration of our Executive Directors, and our employees, is aligned
to successful delivery of our strategy. We use a number of our KPIs/
alternative performance measures as specific measures in determining
the Annual Performance Plan (APP) and Long-Term Performance
Plan (LTPP) outcomes for Executive Directors. These measures are
either specifically accounted for in Remuneration targets or considered
as part of a review of wider business performance. For further detail,
please see our Directors’ Remuneration Report, on pages 90 – 106.
Indicates an alternative
performance measure
PwC Assured Data
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’ over a range of data points
within our RBR. The metrics identified with the leaf symbol,
featured on page 1 and pages 15 − 16, have been extracted from
the RBR and are included in the scope of their work. Details of
PwC’s full limited assurance opinion and National Grid’s
Reporting Methodology are set out in the RBR.
Non-financial measures
Strategy link
KPI and performance
Progress in 2022/23
Climate change – Scope 1, 2 and 3 emissions*
This is a measure of our reduction of Scope 1, Scope 2 and Scope 3 emissions of the six
primary Kyoto GHGs. Our target is to reduce our combined Scope 1 and 2 GHG emissions
by 80% by 2030, by 90% by 2040 and to net zero by 2050, compared with our 1990
emissions of 21.6 million tonnes. Furthermore, we target reducing our Scope 3 emissions
by 37.5% by 2034 from 2019 emissions of 33.2 million tonnes and to net zero by 2050.
The percentages in the chart below reflect a reduction in our Scope 1 and 2 emissions,
from the relevant baseline. The figures are million tonnes of CO2 equivalent.
The total figures in the chart below are in million tonnes of CO2 equivalent and the
percentage represents the Scope 3 proportion.
2022/23
2021/22
2020/21
2022/23
2021/22
2020/21
70%
67%
69%
7.2
7.8
7.5
27.9
27.5
25.7
* 2021/22 data has been adjusted in line with the disposal of UK Gas Transmission and Metering
and Rhode Island, and the acquisition of UK ED.
You can read more about the Task Force on Climate-related
Financial Disclosures (TCFD) and our wider sustainability activities
and performance on pages 38 – 51.
Our Scope 1 GHG emissions for 2022/23 equate to
4.4 million tonnes of CO2 equivalent (2021/22: 5.0 million
tonnes) and our Scope 2 emissions (including electricity
line losses) equate to 2.9 million tonnes (2021/22: 2.8
million tonnes). This is a total of 7.2 million tonnes of CO2
equivalent for Scope 1 and 2 emissions. These figures
include line losses and are equivalent to an intensity of
around 337 tonnes per £1 million of revenue (2021/22:
459 tonnes). Our Scope 3 emissions for 2022/23
were 27.9 million tonnes of CO2 equivalent (2021/22:
27.5 million tonnes). 66% of Scope 1 and 2 emissions
were in our US business, with 34% in the UK. For our
Scope 3 emissions, 90% were in our US business with
10% in our UK business.
Our total energy consumption is 2,842,085,062 KWh
where the UK and US are responsible for 1,769,976,526
KWh and 1,072,108,536 KWh respectively. This
excludes fuels consumed for power generation in the
US which is 15,892,188,400 KWh and system losses
which are 15,746,136,404 KWh.
We measure and report in accordance with the World
Resources Institute and the World Business Council for
Sustainable Development Greenhouse Gas Protocol.
Scope 1, 2 and 3 emissions are subject to independent
limited assurance as set out above. This data complies
with the UK government’s Streamlined Energy and
Carbon Reporting (SECR) requirements. For further
detail, please see page 52.
1. Three of our previously reported KPIs: Cumulative low-carbon generation connected to our UK ET network, Connections of renewable schemes to US electric distribution network and
Cumulative low-carbon generation connected to our UK ED network have been retired as they are duplicative with other KPIs and no longer tracked at a Group level.
Two of our previously reported KPIs: NGV Capital Investment and Cumulative Investment in delivering new low-carbon energy sources have been changed and expanded this year to
encompass the whole Group.
The non-financial results in this section exclude UK Gas Transmission and Metering and Rhode Island.
National Grid plc
Annual Report and Accounts 2022/23
15
Our key performance indicators (KPIs) continued
Non-financial measures
Strategy link
KPI and performance
Progress in 2022/23
Network reliability
We aim to deliver reliability by planning our capital investments to meet challenging
demand and supply patterns, designing and building robust networks, and having
risk-based maintenance and replacement programmes, and detailed and tested
incident response plans. We measure network reliability separately for each of our
business areas. The table below represents our performance across all our networks
in terms of availability.
%
UK ET
UK ED
NE Electricity Transmission
NY Electricity Transmission
NE Electricity Distribution
NY Electricity Distribution
Interconnector availability
IFA interconnector
IFA2 interconnector
BritNed interconnector
NSL interconnector
Nemo Link interconnector
2022/23
99.99997
99.99453
99.95212
99.97189
99.96824
99.92384
2021/22
2020/21
99.99993
99.99469
99.97636
99.95261
99.92725
99.95681
99.99997
99.99455
99.95428
99.95429
99.91239
99.92788
51.7
95.7
99.9
86.7
98.1
61.3
90.4
80.4
63.3
99.0
95.4
96.5
75.1
–
99.2
Customer satisfaction
We measure customer and stakeholder satisfaction, while also maintaining
engagement with these groups and improving service levels.
UK ET (/10)
ESO (/10)
UK ED (/10)
NE residential — Customer
Trust Advice survey (%)
NY residential — Customer
Trust Advice survey (%)
2022/23
2021/22
2020/21
Target
7.2
7.3
8.99
7.8
7.3
9.03
8.4
7.5
9.18
50.5
59.8
63.3
58.9
64.3
68.1
8.0
8.15
–
–
–
Group lost time injury frequency rate (LTIFR)
(LTIs per 100,000 hours worked)
This is the number of worker LTIs per 100,000 hours worked in a 12-month period
(including fatalities) and includes our employee and contractor population.
Target: 0.1 LTIs per 100,000 hours worked
2022/23
2021/22
2020/21
0.11
0.13
0.10
In both the UK and US, we continued to maintain high
levels of reliability on all our networks.
The IFA recovery project following the fire incident that
occurred in September 2021 reduced the nominal
availability by 40.6%. An additional 4.5% reduction
was due to planned outages and another 3.2% a result
of unplanned outages. The unplanned outages were
mainly due to the Bucholz relay fault in April 2022 and
a coolant leak in March 2023.
Current year data performance for UK ED and UK ET
is provisional subject to Ofgem review and approval as
part of the Annual Iteration Process which is expected
by October 2023.
UK ET’s score is a result of a combination of pressures
with the existing Regulatory Connections Framework,
a dramatic uplift in volumes of customer applications,
interactive issues of market design and lack of contractual
discipline and investment linked to individual customers.
We are actively lobbying for changes and working with
ESO to design and implement a much improved
Connections Framework.
The US metric measures customers’ sentiment with
National Grid by asking their level of trust in our advice
to help them make good energy decisions. The metric,
which is tied to the value customers feel they receive from
National Grid, has softened in New York and New England,
as customers’ concern about their ability to pay has
increased, primarily due to higher energy prices. 2022/23
New England data excludes Rhode Island. The 2021/22
New England data has also been corrected to 59.8 from
59.9 as disclosed in the 2021/22 Annual Report
and Accounts.
As at 31 March 2023, our LTIFR was 0.11, which is
higher than the Group target of 0.10. This is a combined
employee and contractor LTI rate, which reflects our
continued focus on encouraging good safety behaviours
across the entire workforce. The current year result
excludes our former Rhode Island and UK Gas
Transmission and Metering businesses whose sales were
completed during the fiscal year. If prior year data had
been restated on a like-for-like basis, it would have been
0.12 and 0.10 for 2021/22 and 2020/21, respectively.
The 2022/23 LTIFR, although higher than target,
represents an improvement over 2021/22. The largest
proportion of injuries relate to slips, trips and falls and
musculoskeletal strains and twists, where lack of
concentration and complacency play a part.
Unfortunately, in May 2022, we suffered one work-related
fatality. To address this, we introduced the ‘Stand up for
Safety’ and ‘Fatal Risk Group’ campaigns to encourage
safe behaviour in everyday actions and identify hazardous
activities that carry the most potential for life changing
injuries. These campaigns are part of the newly developed
Group Safety Strategy and Safety Policy that will focus on
learning and improving safety performance going forward.
A second fatality occurred in September 2022 where
a vegetation contractor in our New York business was
stung by a bee. The contractor was allergic to bees and
unfortunately the emergency services could not save him.
Much of this work is undertaken in public areas for which
we have less direct control over, but we understand our
reporting responsibilities.
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Strategy link
KPI and performance
Progress in 2022/23
Employee engagement index (%)
This is a measure of how engaged our employees feel, based on the
percentage of favourable responses to questions repeated annually in our
employee engagement survey. Our target is to increase engagement compared
with the previous year.
2022/23
2021/22
2020/21
81
81
81
We measure employee engagement through our
employee engagement survey called Grid:voice.
Our engagement score was 81%.
Workforce diversity (%) – ethnicity
We measure the percentage of ethnic minorities in our workforce. We aim
to develop and operate a business that has an inclusive and diverse culture
(see page 34).
2022/23
2021/22
2020/21
17.5
20.2
19.5
Our ethnic diversity data for 2022/23 has changed in
comparison to prior years as it includes UK ED and
excludes UK Gas Transmission and Metering and Rhode
Island colleagues. Prior year data has not been restated
to reflect recent portfolio changes that have occurred
within the Group. We recently harmonised UK ED’s
records for data collection, with those of the Group.
Workforce diversity (%) – gender
We measure the percentage of women in our workforce. We aim to
develop and operate a business that has an inclusive and diverse culture
(see page 34).
2022/23
2021/22
2020/21
23.6
23.1
24.7
Our gender diversity data for 2022/23 includes UK ED
and excludes UK Gas Transmission and Metering and
Rhode Island colleagues.
Prior year data has not been restated to reflect recent
portfolio changes that have occurred within the Group,
although 2021/22 data does include UK ED results.
Looking ahead
At our 2022/23 half-year results announcement in November 2022, we upgraded our five-year financial outlook for the period 2021/22 − 2025/26.
It highlights the strong growth opportunities we have ahead of us and acts as an important basis for us to communicate our plans and investment
case to investors.
Five-year financial framework
2021/2022 − 2025/2026
Capital investment
Group asset growth
Underlying EPS
One of the FTSE’s biggest investors
in the delivery of net zero …
Up to
8-10%CAGR3
6-8%
CAGR3
UK ET
UK ED
green2, aligning to
EU Taxonomy
£40bn c.£9bn
c.£29bn
c.£6bn
c.£12bn
c.£9bn
c.£3-4bn
New England Regulated
New York Regulated
NGV
Credit metrics
Dividend
Credit metrics to remain
within current rating
thresholds
Net debt to RAV: low 70%
range
Aim to grow
dividend per share
in line with CPIH
2. Aligned to EU Taxonomy, directly invested into the decarbonisation of energy networks.
3. Compound annual growth rate 2021/22−2025/26. Forward years based on assumed USD foreign exchange rate of 1.2; long run CPIH and RPI inflation assumptions and
scrip uptake of 25%. Reflects the sale of Rhode Island and the sale of 60% stake in UK Gas Transmission and Metering. Assumes 40% equity interest of UK Gas
Transmission and Metering as Held for Sale from the start of 2023.
National Grid plc
Annual Report and Accounts 2022/23
17
Internal control and risk management
The Board is committed to protecting and enhancing our reputation and assets,
while safeguarding the interests of our shareholders.
Managing our risks
National Grid is exposed to a variety of
uncertainties that could have a material
adverse effect on the Group’s financial
condition, our operational results, our
reputation and the value of our shares.
The Board oversees the Group’s risk
management and internal control systems;
it sets and monitors the amount of risk the
Group is prepared to seek or accept in
pursuing our strategic objectives – our risk
appetite. The Board assesses the Group
Principal Risks (GPRs) and monitors the risk
management process through risk review
and challenge sessions twice a year.
Risk management process
Risk strategy, policy and process are set at
Group level with implementation owned by the
business. Our Enterprise Risk Management
(ERM) process provides a framework to
identify, assess, prioritise, manage, monitor
and report risks. It supports the delivery of
our vision, strategy and business model as
described on pages 4 – 5. The Group
Executive Ethics, Risk and Compliance
Committee (Group ERCC), along with
equivalent committees in the business units,
provides enhanced oversight and governance
of risk top-down and bottom-up across
the Group.
Our corporate risk profile contains the
GPRs that the Board considers to be the
main uncertainties currently facing the Group
as we endeavour to achieve our strategic
objectives. These top risks are agreed through
discussions on the Group’s risk profile with
the Group ERCC, Audit & Risk Committee,
Safety & Sustainability Committee and the
Board. The risks are reported and debated
with the Group ERCC every two months,
and with the Board every six months.
Top-down, bottom-up assessment
Risk management activities take place through all levels of our organisation. Through a ‘top-down, bottom-up’ approach, all business areas
identify the main risks to our business model and our business objectives. For each risk the effectiveness of our internal controls is assessed
when calculating the financial, operational and reputational impacts, and how likely the risk is to materialise. Where current risk levels are
outside of agreed target scores and our risk appetite, we identify and implement actions to close the gap. Cascade and escalation
mechanisms are in place throughout the organisation as appropriate for risk appetite, risks, controls and action plans.
Who are, and what are the
responsibilities of each
‘Line of Defence’?
First line (1L)
Business unit and Group functions that are
responsible for taking, owning and managing
risks through implementation of effective
policies, processes and controls.
Second line (2L)
Specialist Risk and Compliance teams
at National Grid; there are two main types
of 2L team:
1. Centres of Excellence: set the
strategic and operational approach and
frameworks, including Chief Risk Office
(CRO), US Chief Compliance Office
(US CCO) and Group Chief Engineering
Office (GCEO).
2. Embedded Risk, Controls &
Compliance (RCC) teams: business
unit or Group function teams that
offer business advice, monitoring and
assurance support to 1L (the business)
on risks, controls and compliance.
Third line (3L)
Corporate Audit function provides
independent assurance over the risk
management and internal control systems.
3L function reports directly to the Board
and the Audit & Risk Committee and
supports senior management
regarding the effectiveness of risk
and controls management.
Governance (Board and Audit & Risk Committee,
Management Oversight Committees)
Establishes the vision, values and strategic objectives of the business, and provides governance
and oversight of the risk management framework and reporting.
Business
1L
Establishes the business practices,
processes, and activities to
achieve business objectives whilst
managing risk in line with policies
and procedures.
Business Advice &
Assurance
2L
Establishes policies, processes and
procedures for National Grid’s risk
management framework and provides
oversight, assurance and reporting to
governance bodies. As the first line
matures and takes on more
responsibility for risk management, the
level of support of 2L decreases.
Internal Audit
3L
Provides independent assurance to governance bodies over the Company’s system of risk
management through internal control and advisory on the internal control framework.
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Annual Report and Accounts 2022/23
Emerging risks
Emerging risks (ERs) are less defined than
GPRs and typically do not pose an immediate
threat. They are future focused, with greater
uncertainty and are more difficult to quantify;
however, they could threaten the future
delivery of our strategy. Utilising future
scenarios, horizon scanning and emerging
risk assessments we identify ERs that could
potentially threaten the delivery of our strategic
objectives in the future. Our ongoing ER
process includes the identification, assessment,
response and reporting of ERs. Assessment
includes the potential impact and velocity (time
to impact) and our response is to then either
watch, monitor or manage the risks that are
reported to the Board and Group ERCC using
our emerging risk radar. Our process also
identifies when an ER should be considered
for transition to an active risk and is then
incorporated into the scope of relevant
GPRs. Examples of existing ERs that we are
monitoring include risks associated with
quantum computing and enhanced digital
technologies, and China/Taiwan tensions.
Changes during the year
The Group’s risk profile has been developed
drawing upon the most significant risks across
our business profiles. We have 10 GPRs.
All GPRs were reviewed by the Board at least
twice annually, including an assessment of the
key controls, key risk indicators (KRIs), risk
scores, alignment to risk appetite, and future
mitigation actions. Through these reviews,
three new risks have been added as part of
our GPR framework: energy balancing risk;
major project delivery risk; and financing
our business risk.
Due to continued economic and political
turmoil rapidly influencing global energy policy
and strategy, along with the sale of the UK Gas
Transmission and Metering business and the
future separation of the ESO, we have
bifurcated the energy balancing GPR from
the significant disruption of energy GPR. This
allows us to better articulate the risk profile,
control frameworks and accountabilities for risk
across the Group. The energy balancing GPR
captures our ability to predict and adequately
respond to fluctuations in energy supply
or demand.
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The significant disruption of energy GPR
focuses on the risk of energy disruption caused
by the failure, insufficient capacity or other
resilience issues across our networks.
Historically, National Grid has demonstrated
strong capital delivery with a reputation for
delivering large capital projects on time,
on budget, and with quality. The risk profile
is changing due to the size and strategic
importance of our capital programme which
will deliver our energy transition ambitions and
network resilience amidst increasing external
geopolitical and economic pressures.
Therefore, in addition to the creation of the
new SI business unit, we have added a major
projects delivery GPR.
Given the growth of our capital programme and
associated funding requirements, alongside the
current macro economic factors (with increasing
interest rates, high inflation and recent volatile
exchange rates) we have also created
a standalone financing our business GPR.
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Emerging risks
• Future scenarios (strategy)
• Horizon scanning
• Emerging risks
• Emerging risk assessments
1.
Identify
4.
Report
2.
Assess
3.
Response
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• Reporting of emerging risk
watchlists, radar and risk
management
• Assessment outcomes
determine how we will
manage the emerging risk
(watch, monitor, manage)
National Grid plc
Annual Report and Accounts 2022/23
19
Our principal risks and uncertainties
Accepting that it is not possible to identify,
anticipate or eliminate every risk that may arise,
and that risk is an inherent part of doing business,
our risk management process aims to provide
reasonable assurance that we understand,
monitor and manage the main uncertainties
that we face in delivering our objectives.
This aim includes considering inherent risks, which in turn
exist because of the nature of day-to-day operations in
our industry, including financial risks, which exist because
of our financing activities. Our GPRs, and a summary of
actions taken by management, are provided in the table
below. We have provided an overview of the key inherent
risks we face on pages 225 − 228, and specifically our key
financial risks, which are incorporated within note 32 to the
consolidated financial statements on pages 187 − 199.
Risk trends reported below take into account controls,
any additional mitigation actions and may be influenced
by internal or external developments.
People risks
It is through the high-quality work of our colleagues that we will achieve our vision, respond to the changing
needs of our stakeholders and create a competitive advantage.
Building and fostering an engaged and talented team that has the knowledge, training, skills and experience to deliver
our strategic objectives is vital to our success. We must attract, integrate and retain the talent we need at all levels
of the business.
Risk: Capability and leadership
Actions taken by management
There is a risk that we do not have capability
and leadership capacity because of ineffective
succession planning and recruitment into
leadership roles, leading to failure to deliver
on our vision and strategy.
We are involved in a number of initiatives to help secure the future engineering talent we require, including
industrial placements and internships in the UK and US, advanced and higher apprenticeships in the UK
and a graduate development programme across both the UK and US. We are focused on ensuring we have
high levels of diversity in these future talent pools. Our entry-level talent development schemes (graduate
training and apprenticeships) are a potential source of competitive advantage in the marketplace.
* Risk trend: Neutral
(2021/22: Neutral)
Strategic priority link
Empower colleagues
for great performance
We also continue to develop the rigour of our succession planning and development planning process,
particularly at senior levels. It is now being applied deeper into the organisation together with continued
attention in relation to the ethnic diversity of both our management and field force population. There are
multiple activities under way to drive this agenda, including ‘neutral’ talent and selection processes,
development interventions, ERGs, Leadership Connections and a global launch of our DEI, strategy
and resources.
Over the course of 2023/24 and 2024/25 we will be continuing the focus on the development of our
leadership capability by ensuring that we are clear on the expectations of our leaders through the further
embedding of our Leader/Manager Essentials and a clear assessment framework for internal and external
recruitment into leadership positions.
Financial risks
While all risks have a direct or indirect financial impact, financial risks are those which relate to financial
objectives and performance. Financial risk management is a critical process used to make investment
decisions and aims to maximise investment returns and earnings for a given level of risk.
This year we have recognised a new financing our business GPR, details of which are included below. In addition we
identify and manage a number of child financial risks, a description of all of our key financial risks is provided in note 32
to the consolidated financial statements on pages 187 – 199.
Risk: Financing our business
Actions taken by management
There is a risk that we are unable to fund our
business efficiently as a result of lack of access
to a wide pool of investors, market volatility,
unsatisfactory regulatory outcomes or unsatisfactory
financial or operational performance of the business,
leading to a lack of access to capital, impacting our
ability to achieve our strategic objectives.
* Risk trend: Neutral
(New)
Strategic priority link
Enable the energy
transition for all
This risk is impacted by management of the other GPRs, since our access to new funding from investors
is facilitated by close monitoring of our strategic and operational risks, in particular those related to the
management of our regulatory outcomes and the safe and reliable operation of our network businesses.
In addition, we maintain a funding strategy and funding plan, and engage frequently with stakeholders,
including credit rating agencies, banks and investors, so that we can take account of their views as we
monitor and update this plan.
We maintain a diverse range of funding sources and monitor our funding risk by use of both short- and
long-term cash flow forecasts. These forecasts are supplemented by a financial headroom analysis used
to assess funding requirements for at least a 24-month period and we maintain adequate liquidity for
a continuous 12-month period. Liquidity is made up of existing cash and investments, and forecast operating
cash flows together with the use of committed bank facilities if required.
20
National Grid plc
Annual Report and Accounts 2022/23
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Strategic risks
Strategic risk is the risk of failing to achieve the Group’s overall strategic business plans and objectives, as well
as failing to have the ‘right’ strategic plan. We intentionally accept some risk so we can generate the desired returns
from our strategy.
Management of strategic risks focuses on reducing the probability that the inherent risk would materialise, while improving the Group’s
ability to effectively respond to the risk should it occur. The risk owners, Executive-level leaders and their teams develop and monitor
actions to control the risks. The political climate and policy decisions of our regulators were key considerations in assessing our risks.
Risk: Climate change
Actions taken by management
There is a risk that we fail to identify and/or deliver
upon actions necessary to meet our climate change
targets and enable the wider energy transition
because of poor management of threats and
opportunities associated with mitigating climate
change, leading to a reputational impact of not
enabling us to meet our net zero commitments,
which are to:
• ensure our business model and strategy
are aligned to the Paris Agreement on
climate change;
• deliver GHG emissions reductions for our
business and enable economy-wide net
zero transition; and
• demonstrate climate change leadership within
the energy sector.
* Risk trend: Neutral
(2021/22: Neutral)
Strategic priority link
Enable the energy
transition for all
Putting in place measures to:
• continue to evolve our environmental sustainability metrics to reflect our strategy, measure our impact
and track our progress;
• evolve our external environmental, social and governance (ESG) disclosures to reflect external best practice;
• recruit the requisite capabilities and expertise to ensure we meet evolving external expectations on climate
change disclosure and continuing work on programmes to develop skills in our current and future workforce;
• ensure our internal reporting and governance develop so management has oversight of key risks and
opportunities related to climate change and GHG emissions performance;
• advocate for legislative and policy changes that advance decarbonisation, in alignment with our strategy,
while proposing and delivering actions in the regions we operate to accelerate decarbonisation for the
public and our customers. This work is wide-ranging from system improvements to supporting renewable
generation connections, EV proposals, oil to gas/electricity heat conversions, energy efficiency,
interconnectors, thought leadership and investment in new and emerging areas;
• regularly assess the potential range of net zero pathways and future impact on our gas assets, including
evaluation of new and evolving technologies and alternative fuel sources (e.g. hydrogen);
• track progress against key milestones in our decarbonisation pathways, including regulatory and policy
instrument developments, volume of renewable connections, incorporation of renewable natural gas (RNG)
into gas networks, supporting the charging infrastructure required for increased use of EVs, promoting
energy efficiency programmes for customers in the US and facilitating decarbonisation in the UK and US
including zero-carbon operation of the GB electricity system through the ESO and renewable gases
in our US gas distribution networks; and
• continue to comply with the TCFD recommended disclosures, including physical and transitional scenario
analysis (see pages 38 − 51).
Risk: Satisfactory regulatory outcomes
Actions taken by management
There is a risk that we fail to influence future
energy policies and secure satisfactory regulatory
agreements because of lack of insight or
unsuccessful negotiations, leading to poor
regulatory outcomes, energy policies that negatively
impact our operations, impacts on market prices,
reduced financial performance, fines/penalties,
increased costs to remain compliant and/or
reputational damage.
* Risk trend: Neutral
(2021/22: Neutral)
Strategic priority link
Enable the energy
transition for all
In both the UK and the US, we strive to maintain a good understanding of the regulatory agenda and
emerging issues, so that robust, public interest aligned responses can be selected and developed in good
time. Our reputation as a competent operator of important national infrastructure is critical to our ability to
do this. We have plans and governance structures in place to address key regulatory proceedings such as
UK price controls and US rate case filings.
Ongoing work to support our regulatory relationships includes the following:
• in the UK, we are influencing policy through a range of avenues, including inputting and responding to
legislation, Government consultations and other outputs, direct engagement with Government departments
and Ofgem, and engagement with wider stakeholders such as parliamentarians, trade associations and
third parties;
• in the US, we are influencing policy through a range of avenues, including inputting and responding to
legislative proposals, regulatory rulemakings and requests for information and other outputs; advocating
with Congress and the Administration; and engagement with wider stakeholders such as trade
associations, think tanks and other non-governmental organisations;
• establishment of regulatory strategy focusing on the importance of anticipatory investment in networks,
connections reform and performance-based regulation;
• establishment of executive oversight groups and regulatory steering committees for all rate cases/price
controls and other major regulatory proceedings; and
• increased focus on understanding the needs and expectations of customers and stakeholders through
regulatory relationship surveys, investor surveys and review of media sentiment.
National Grid plc
Annual Report and Accounts 2022/23
21
Our principal risks and uncertainties continued
Strategic risks continued
Risk: Political and societal expectations and perceptions Actions taken by management
There is a risk we do not position ourselves
appropriately to political and societal expectations
because of a failure to proactively monitor the
landscape (particularly the energy trilemma) or,
to anticipate and respond to changes leading to
reputational damage, political intervention, threats
to the Group’s licences to operate, and our ability
to achieve our objectives.
* Risk trend: Neutral
(2021/22: Neutral)
Strategic priority link
Enable the energy
transition for all
Processes and resources are in place to review, monitor and influence perceptions of our business and our
reputation by:
• tailoring our customer, stakeholder and media communications;
• enhancing and consolidating our digital roadmap and social channels;
• delivering on our commitment to be a responsible business (see pages 33 − 35); and
• promoting partnerships and proactive policy change discussions across the jurisdictions where we operate.
Considerations on emerging risks and horizon scanning activities have been addressed as part of financial
and reputational impact assessments. These processes, along with Board strategy discussions, are reviewed
regularly to ensure they continue to support our short- and long-term strategy. We regularly monitor and
analyse market conditions, competitors and their potential.
Operational risks
Operational risks relate to the losses resulting from inadequate or failed internal processes, people and
systems, or due to external events. These risks normally fall within our low-risk appetite level as there
is no strategic benefit from accepting the risk, as it will not be in line with our vision and values.
Our operational principal risks have a low likelihood of occurring. However, should an event occur, without effective
prevention or mitigation controls it would be likely to have a high level of impact. The risk owners, Executive-level leaders
and their teams develop and monitor actions to control the risks. Operational risks are managed through policy, standards,
procedure-based controls, active prevention and monitoring. Principal risk assessment includes reasonable worst-case
scenario testing and the financial and reputational impact should a single risk or multiple risks materialise.
Risk: Cyber security
Actions taken by management
There is a risk that we are unable to adequately
anticipate and manage disruptive forces on our
systems because of a cyber-attack, poor recovery
of critical systems or malicious external or internal
parties, resulting in an inability to operate the
network, damage to assets, loss of confidentiality
and integrity and/or availability of systems.
* Risk trend: Increasing
Driven by increased threat from
global geopolitical tensions
(2021/22: increasing)
Strategic priority link
Grow our organisational capability
We are committed to providing secure and resilient services and continue to commit significant resources
and financial investment to maintain the security of our systems and data. Our holistic approach includes:
• close partnerships with UK and US government agencies including the Department for Business & Trade,
the National Protective Security Authority, Ofgem, the National Cyber Security Centre, the Department of
Energy, the Department of Homeland Security and Cybersecurity and Infrastructure Security Agency to
understand threats and collaborate on risk management activities;
• utilisation of good practice frameworks including the National Institute of Standards and Technology Cyber
security Framework to ensure National Grid can identify, protect, detect, respond and recover from cyber
security threats. This includes the implementation of control frameworks across our security programmes
in information technology (IT), operational technology and Critical National Infrastructure; and
• a strong focus on compliance with our regulatory obligations including the Security of Network and
Information Systems Regulation in the UK, the US North American Electric Reliability Corporation Critical
Infrastructure Protection and the Transportation Security Administration Security Directives.
22
National Grid plcAnnual Report and Accounts 2022/23 Operational risks continued
Risk: Significant safety or environmental event (asset failure) Actions taken by management
There is a risk of a catastrophic asset failure or bulk
power system failure because failure of a critical asset
or system, substandard operational performance or
inadequate maintenance, over-pressurisation, leak-prone
pipe, third-party damage and undetected system
anomalies, leading to a significant public or employee
safety and/or environmental event.
* Risk trend: Neutral
(2021/22: Neutral)
Strategic priority link
Grow our organisational capability
We continue to focus on risk mitigation actions designed to reduce the risk and help meet our business
objectives. Key actions include:
Ongoing preventative measures:
• inspection and maintenance programmes including defect management;
• UK and US winter preparedness plans;
• US storm-hardening programme;
• outage planning;
• US gas services and metering inspections to domestic properties;
• US gas leak-prone pipe replacement programme; and
• Group-wide learnings from the IFA1 fire (September 2021).
Event response:
• emergency response plans;
• incident management system;
• disaster recovery; and
• business continuity management.
Embedded Group-wide process safety management system:
• to make sure a robust and consistent framework of risk management exists across our high-hazard
asset portfolio, with safety-critical assets clearly identified on the asset register.
Implemented asset management and data management standards, including:
• supporting guidelines to provide clarity around what is expected;
• a strong focus on what we need in place to keep us safe, secure and legally compliant; and
• established capability frameworks to make sure our workforce has the appropriate skills and expertise
to meet the performance requirements of these standards.
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Risk: Significant disruption of energy
Actions taken by management
There is a risk that we fail to predict and respond to
a significant disruption of energy supply because of
climate change, asset failure (including third-party
assets), storms, attacks, market failure or other
emergency events leading to significant customer harm,
lasting reputational damage with customers, regulators,
and politicians, material financial losses, loss of
franchise, and damage to investor confidence.
We continue to apply a holistic approach to managing this risk through preventative mitigating actions
to maintain network reliability, and timely and effective response plans.
Key management actions include:
Ongoing preventative measures:
• accelerating proactive maintenance and asset checks ahead of winter to maximise network availability;
• working closely with energy suppliers, Ofgem and the Department for Business & Trade to explore
wider industry mitigations designed to maximise supply, manage demand, and enhance storage flood
contingency plans for substations;
* Risk trend: Neutral
(2021/22: Neutral)
• system operator supply and demand forecasting;
• enhanced winter preparedness and scenario planning;
• testing our response plans, including establishing a proactive communication strategy covering
Strategic priority link
Deliver for customers efficiently
a range of scenarios;
• US gas mains replacement programmes;
• US storm-hardening programme; and
• outage planning.
Event response:
• emergency response plans;
• incident management system;
• disaster recovery; and
• business continuity management.
We have also reviewed market resource adequacy and balancing (where applicable). The short-term
controls and investments needed for a resilient network are in place, but further work remains to be
done to build out our climate adaptation forecasting and control framework for the next decade.
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National Grid plc
Annual Report and Accounts 2022/23
23
Our principal risks and uncertainties continued
Operational risks continued
Risk: Energy balancing
Actions taken by management
There is a risk that we fail to effectively predict or
respond to fluctuations in energy supply and are
unable to balance supply and customer demand, or
appropriately respond to energy supply constraints,
due to external, system or human factors leading to
adverse impacts on customers and/or the public.
With the 60% sale of our UK Gas Transmission and Metering business, this risk primarily focuses on the role
of our UK ESO in balancing the UK electricity supply−demand, and our US Gas businesses’ response to
potential energy supply constraints.
Significant preparations were put in place, as we worked closely with the UK Government and the wider
industry to mitigate the risks associated with concerns over winter energy supplies to the UK and
across Europe.
* Risk trend: Neutral
(separated from the significant
disruption of energy GPR)
Enhanced measures include:
• close engagement with energy suppliers, Ofgem, DESNZ, Interconnected Transmission System
Operators and the wider European energy industry to maximise supply, manage demand, and
contingency arrangements;
Strategic priority link
Deliver for customers efficiently
• the development of a world-first demand flexibility service;
• a media strategy ahead of winter; and
• an enhanced service through contracting with coal fire power stations.
Risk: Major projects delivery
Actions taken by management
There is a risk that we are unable to deliver on our
major capital project programme within the required
timeframes because of: a lack of a clearly defined
regulatory and financial frameworks to incentivise
investment; complex planning requirements;
external impacts on supply chain; or a failure to
demonstrate clear long-term economic benefits
to communities, leading to increased costs,
compromised quality and reputational damage
and detrimentally impacting our ability to deliver
our clean energy transition strategy.
Historically, National Grid, as an asset-intensive organisation, has demonstrated strong capital delivery and
built a good reputation with investors and stakeholders for delivery of large capital projects on time, to the
required quality and within budget.
UK ET has an expanded pipeline of major projects to deliver. In fact, it is the largest transmission growth the
UK has seen for 50 years. We need to ensure that we remain well-placed to deliver on our strategic priorities
and our pivotal role as a leader in the energy transition.
As part of the challenging conditions and changing environment we continue to face, we must also keep
evolving and adapt our operating model so that we are set up for success. As a result, a new business unit,
SI was created from 1 April 2023. The remit of this business unit will include the delivery of the 17 major East
Coast infrastructure projects in the UK, as well as other strategic projects to help us deliver on our net zero
ambitions and help the UK Government meet its targets.
* Risk trend: Neutral
(new)
Strategic priority link
Enable the energy
transition for all
* Risk trends are assessed to include any external factors outside our control as well as the strength and effectiveness of our controls and additional mitigations as reviewed by
management up to 31 March 2023.
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Annual Report and Accounts 2022/23
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Viability statement
The Board’s consideration of the longer-term viability of the Company
is an extension of our business planning process. The process includes
financial forecasting, a strict risk management assessment and regular
budget reviews and scenario planning incorporating industry trends,
considering any emerging issues and economic conditions. Our business
strategy aims to enhance our long-term prospects by making sure our
operations and finances are sustainable.
In accordance with provision 31 of the Code,
the Directors have assessed the prospects and
viability of the Group. Utilising our established
top-down, bottom-up risk management
process, the GPRs facing the Group as
described on pages 18 – 24 are monitored
and challenged. Over the course of the year,
the Board has considered the preventative
and mitigating controls and risk management
actions in place for the GPRs and discussed
the potential financial and reputational impact
of the GPRs against our ability to deliver the
Group’s business plan.
The assessment of the potential impact of
our GPRs on the longer-term viability of the
Company tests the significant solvency and
liquidity risks involved in delivering our business
objectives and priorities. The Board has
chosen to conduct its review for a period of
five years to May 2028, which it believes is the
appropriate timeframe as it aligns with our
annual business plan models that reflect the
UK price control periods.
Our GPRs are subject to annual stress testing
to assess whether we have a reasonable
expectation that the Company will be able
Viability criteria
to continue in operation and meet its liabilities
as they fall due (our continued viability). Viability
is assessed considering the criteria detailed in
the table below (Table A).
Each GPR was considered for inclusion within
the testing and, where appropriate, a RWCS
was identified and assessed for impacts on
operations and/or financial performance
over the five-year assessment period as
detailed in the table below (Table B).
In addition to testing individual GPRs,
the impact of a cluster of the GPRs
materialising over the assessment period
was also considered. By assessing the
interconnectivities of our GPRs we have
selected the risk cluster RWCS that pose the
most significant threat to our viability. Our
cluster RWCS modelled the financial impact
of a significant cyber attack, resulting in
a significant data breach, a catastrophic
asset failure in the US gas businesses, energy
disruption and a loss of our New York gas
operating licences.
The reputational and financial impacts for
each scenario were considered.
The Board assessed our reputational and
financial headroom and reviewed GPR testing
results against that headroom. Although the risk
cluster RWCS would lead to significant impacts,
a combination of management remediation
actions would ensure no GPR nor cluster
would have an impact on the viability of the
Company over the five-year assessment period.
Preventative and mitigating controls in place to
minimise the likelihood of occurrence and/or
financial and reputational impact are contained
within our assurance system.
In assessing the impact of the GPRs on the
Company, the Board has considered the fact
that we operate in stable markets and the
robust financial position of the Group, including
the ability to sell assets, raise capital and
suspend or reduce the payment of dividends.
The Board was satisfied that it had sufficient
information to judge the viability of the
Company. Based on the assessment described
above and on pages 18 − 24, the Board has
a reasonable expectation that the Company
will be able to continue operating and meet
its liabilities over the period to May 2028.
Reasonable
worst-case
scenario
(RWCS)
Five-year
horizon
Cliff-edge risks
Financial and
reputational
risk capacity
A theoretical generic representation of a challenging yet
plausible manifestation of a risk. The RWCS is considered
worst-case once the high-impact, low-likelihood manifestations
of a risk have been discounted.
A five-year assessment period represents a reasonable time
horizon that coincides with our more detailed annual business
plan models. It is a period over which we can foresee and
quantify reasonably accurately the potential impact of future
risk events.
Cliff-edge risks are threats that would occur beyond the
assessment period, have a reasonably certain impact and are
sufficiently large enough to threaten our viability. We look for
significant and potential cliff-edge risks beyond the five-year
period. If any such risks are identified, then an assessment
period beyond five years is considered.
We primarily assess our viability from the RWCS in two ways:
financial risk capacity and reputational risk capacity.
RWCS assessment
Operational impacts
Scenario 1
A significant cyber attack.
Scenario 2
Significant energy disruption event occurring due
to asset failures in the US during peak season.
Scenario 3
Significant energy disruption event occurring
in the UK during winter due to insufficient
generation supply.
Scenario 4
A significant process safety gas pipeline failure
in the US.
Scenario 5
Inability to deliver our major capital projects on
time and to budget.
Business plan
stress testing
We assess the financial impact and financial risk capacity of
our risk testing using the latest business plan.
Performance impacts
Individual risk
testing
For each GPR we assess the potential financial and
reputational impact.
Scenario 6
Poor outcome of future US rate case filings, and
low performance under RIIO-T2 and RIIO-ED2.
Risk cluster
testing
We also test for risk clusters; the impact of more than one
of the GPRs materialising during the assessment period, or
where the materialisation of one risk could exacerbate another.
Mitigation
actions
Where a risk scenario would potentially exceed our financial risk
capacity, we consider reasonable management mitigation.
Scenario 7
Not meeting our net zero targets.
Scenario 8
Increased political-societal pressures associated
with a prolonged cost of living crisis.
Scenario 9
Continuation of high and volatile interest rates.
Table A
Table B
National Grid plc
Annual Report and Accounts 2022/23
25
Viability statement continued
Principal risk
Viability scenario
Matters considered and overseen by the Board
Cyber security
There is a risk that we are unable to
adequately anticipate and manage
disruptive forces on our systems
because of a cyber attack, poor recovery
of critical systems or malicious external
or internal parties, resulting in an inability
to operate the network, damage to
assets, loss of confidentiality, integrity
and/or availability of systems.
Significant disruption of energy
There is a risk that we fail to prevent
or respond to a significant disruption
of energy because of climate change,
asset failure (including third-party
assets), storms, attacks, market failure
or other emergency events, leading
to significant customer harm, lasting
reputational damage with customers,
regulators and politicians, material
financial losses, loss of franchise and
damage to investor confidence.
Energy balancing
There is a risk that we fail to effectively
predict or respond to fluctuations in
energy supply and are unable to balance
supply and customer demand, or
appropriately respond to energy supply
constraints, due to external, system or
human factors leading to adverse
impacts on customers and/or the public.
Significant safety or
environmental event
There is a risk of a catastrophic asset or
bulk power system failure due to a critical
asset or system failure, substandard
operational performance or inadequate
maintenance, over-pressurisation,
leak-prone pipe, third-party damage,
undetected system anomalies leading
to a significant public or employee
safety and/or environmental event.
Scenario 1 − A significant cyber attack.
£755 million ($830 million) net (post
insurance) cost impact.
The Board and Audit & Risk Committee reviewed and discussed
cyber security including:
• a risk paper highlighting cyber threat due to geopolitical factors; and
Included in the risk cluster testing.
• a cyber risk deep dive session.
Scenario 2 − Significant energy disruption
event due to asset failure in the US.
No significant financial impact.
The Board and Audit & Risk Committee:
• considered the GPR as part of the bi-annual Group risk review.
Scenario 3 − Significant energy disruption
event occurring in the UK during winter,
due to limited generation supply.
Increased working capital and potential
regulatory penalties.
US event included in the risk cluster testing.
The Board reviewed and discussed:
• a detailed update on our winter preparedness and the risk of a disruption
of energy event;
• US energy supply adequacy in advance of the winter period; and
• a bi-annual Group risk review.
Scenario 4 − A significant process safety
gas pipeline failure in the US.
The Board reviewed and evaluated the current safety performance
of the Group including:
Estimated net (post insurance) cost impact
of $2.2 billion.
• during the bi-annual risk review;
• discussing the US businesses;
Included in the risk cluster testing.
• discussing the UK businesses; and
• discussing leading safety indicators.
The Safety & Sustainability Committee:
• was provided with an update on safety performance for each business unit;
• considered an annual update on the significant safety or environmental
event GPR; and
• reviewed and discussed the IFA fire investigation, with support from
the Finance Committee, which discussed progress of the associated
insurance claim.
Major projects delivery
There is a risk that we are unable
to deliver on our major capital
project programme within the
required timeframes.
Scenario 5 − Inability to deliver our major
capital projects.
Significant regulatory fines and impact
on returns.
This is a new risk that has been reviewed by the Board and Committees
as part of its Board bi-annual risk review, with risk description and
rationale of delivering projects of significant strategic importance alongside
external challenges.
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Principal risk
Viability scenario
Matters considered and overseen by the Board
Satisfactory regulatory
outcomes
There is a risk that we fail to influence
future energy policies and secure
satisfactory regulatory agreements
because of a lack of insight or
unsuccessful negotiations leading
to poor regulatory outcomes, energy
policies that negatively impact our
operations, impacts on market prices,
reduced financial performance, fines/
penalties, increased costs to remain
compliant and/or reputational damage.
Climate change
There is a risk that we fail to identify and/
or deliver upon actions necessary to
meet our climate change targets and
enable the wider energy transition
because of poor management of threats
and opportunities associated with
mitigating climate change, leading to
a reputational impact of not enabling the
Group to meet its net zero commitments.
Scenario 6 − Poor outcome of future US
rate case filings, and low performance under
RIIO-T2 and RIIO-ED2.
$550 million cost impact from lower average
allowed RoE in US rate cases.
£780 million cost impact from nil
outperformance under RIIO-T2 and
RIIO-ED2.
The Board received updates and discussed:
• the UK ED regulatory strategy; and
• the RIIO-ED2 Draft Determination in November 2022 and the Final
Determination in January 2023.
In addition, enrichment sessions were held on:
• US Utility Regulation (FERC, Massachusetts and New York;
regulatory frameworks);
• the UK regulatory landscape and regulatory framework; and
• the future outlook of ESO.
Scenario 7 − Not meeting our net zero
commitments.
No immediate financial impact but
various (significant) reputational impacts
were considered.
The Board, supported by the Safety & Sustainability Committee
discussed sustainability metrics and strategy to reflect and track
our impact and progress. Discussions included those in relation to:
• the bi-annual review of climate change GPR which included emerging
issues such as the challenge of connecting significant volumes of
renewable capacity, alignment to our Clean Energy Vision and adaptation
plans based on changing weather patterns;
• considered key ESG topics, such as the energy transition and climate
change, and associated expectations of investors. On the recommendation
of the Safety & Sustainability Committee, the Board approved the CTP
which was subject to a shareholder non-binding advisory vote at the
2022 AGM;
• TCFD disclosures;
• our GHG emissions performance; and
• our participation in COP27 in November.
Political and societal
expectations and perceptions
There is a risk that we do not position
ourselves appropriately to political and
societal expectations because of a failure
to proactively monitor the landscape
(particularly the energy trilemma), or,
to anticipate and respond to changes,
leading to reputational damage, political
intervention, threats to the Company’s
licence to operate and our ability to
achieve our objectives.
Scenario 8 − Increased political−societal
pressures associated with a prolonged cost
of living crisis.
Financial impact with prevention of inflation
driven bill increases.
The Board received updates on:
• each of our business units;
• our participation in COP27, both in the lead up and the key messages
from the event;
• the UK and US political landscape;
• the UK and US energy markets, amidst rising gas prices;
• the deep dive on energy policy environment in UK; and
• the short-, medium- and long-term impacts of war in Ukraine.
n/a
Capability and leadership
There is a risk that we do not have
capability and leadership capacity
because of ineffective succession
planning and recruitment into leadership
roles, leading to failure to deliver on our
vision and strategy.
The Board and the People & Governance Committee are focused
on capability and leadership particularly at the senior level.
Accordingly, it:
• considered the structure, size and composition of the Board and its
Committees and approved any changes including to remit and
membership, as well as any Board changes;
• reviewed Board succession planning;
• reviewed leadership talent and succession planning for the Group
Executive Committee; and
• approved an updated Board DEI Policy and refreshed our Board
skills matrix.
Financing our business
There is a risk that we are unable to
efficiently fund our business as a result
of a lack of access to a wide pool of
investors, market volatility, unsatisfactory
regulatory outcomes or unsatisfactory
financial performance of the business,
leading to a lack of access to capital,
impacting our ability to achieve our
strategic objectives.
Scenario 9 − High and volatile interest rates.
The Board:
Highly volatile interest rates in both the US
and UK, resulting in an increase in our cost
of debt for the next five years.
The impact on our future financing
arrangements from other significant risk
events is considered as part of our risk
cluster scenario.
• due to the significant increase forecast in the capital investment
programme of the Group and the associated funding requirements,
alongside the more volatile macro-economic environment, agreed
to recognise a standalone financing our business GPR.
The Finance Committee:
• regularly reviews and oversees key financial risks, including liquidity,
refinancing and counterparty risks on behalf of the Board.
National Grid plc
Annual Report and Accounts 2022/23
27
Our business units
1
UK Electricity Transmission (UK ET)
National Grid’s T-pylons –
the first new design for
pylons in 100 years –
salute the iconic Flying
Scotsman on its centenary.
116 of the T-pylons are
being built as part of
the Hinkley Connection
Project in the UK, enabling
the delivery of infrastructure
required for the transition
to net zero.
Highlights
UK ET has performed strongly in 2022/23, investing £1.3 billion in the
network as part of our £9 billion RIIO-T2 promise. Our strong financial
performance was delivered in the context of challenging headwinds
with strains on our supply chain in the post-COVID period, further supply
chain disruption caused by the war in Ukraine and energy price-led
inflation. Throughout this period we have maintained focus on safety,
customers, reliability and innovation as well as driving forward the net
zero energy agenda.
Following extensive engagement with Ofgem and the Department of
Energy Security & Net Zero (DESNZ), the UK Government has asked
UK ET to deliver 17 major new projects to connect low-carbon power
to the network. These projects will be delivered under the Regulator’s
ASTI framework and are a vital part of achieving the Government’s
ambition of connecting 50 GW of offshore wind by 2030. Delivery will
require UK ET to double its annual capital investment over the next
decade. This work represents the largest transmission growth the UK
has seen for 50 years. It will help deliver net zero and lower consumer
bills and underpin the UK’s energy security by boosting home-grown
renewable energy generation. National Grid has established a new
business unit for the delivery of this work – SI. The new business
unit will be focused on overcoming the key challenges of planning,
consenting and supply chain to ensure we are able to deliver the
infrastructure required for the transition to net zero, will work closely
with UK ET under a single Ofgem licence and will remain part of the
National Grid Electricity Transmission plc statutory entity.
Enable the energy transition for all
We are embarking on transformation of the electricity grid at a pace
and scale never seen before connecting nearly three times the existing
customer generation capacity connected to the network. Reform is
needed if we are to add the capacity and connect customers to the
network at the rate required to fully decarbonise the power system
by 2035 and support the electrification of the wider economy.
We are committed to reducing SF6 emissions from our operations
by 50% by 2030 and removing all SF6 gas from electrical assets by
2050. We are collaborating closely with suppliers and universities on
innovative retrofill feasibility works. We commissioned a world-first pilot
project at our Richborough 400 kV substation. This replaced 764 kg of
SF6 with an alternative gas, delivering a 13% reduction in our total SF6
holding at that site. We have identified further assets of the same design
and will work to explore the feasibility of extending this approach. We’re
working to re-wire London on our LPT2 project and have commenced
enabling works for a totally SF6-free substation.
Deliver for our customers efficiently
We have maintained our world-class record for reliability. We had only
7 MWh of energy not supplied in 2022/23 in spite of a record-breaking
hot summer, including the two hottest days on record in the UK.
This represents the best performance since 2015/16 and equates
to 99.99997% network reliability.
The current market arrangements, coupled with the existing regulatory
and industry frameworks, means it takes too long to connect new
customers. We are continuing to take concrete actions to both
rationalise the connections pipeline and drive industry reforms.
Following discussions with DESNZ, Ofgem and the ESO, Ofgem
has agreed arrangements that will allow us to optimise connections
contracts and reduce connection timescales for some existing
customers. In parallel, a one-off amnesty has been introduced to allow
customers to leave the pipeline with little or no termination cost. We are
also working with other industry stakeholders on ‘queue management’
reforms. If approved by Ofgem, this would give the ESO the ability to
remove stalled or delayed projects from the connection pipeline if
customers do not meet agreed connection milestones.
Grow our organisational capability
We are mobilising to build a new UK ET Control Centre and replace
our national control system with state-of-the-art digital technology.
Full design of the required capabilities is under way. The new control
centre will play a critical role in future-proofing the network, providing
long-term resilience as new infrastructure is added and the independent
FSO is established. Construction of the control centre will commence
within the next 12 months.
Empower colleagues for
great performance
We hold ourselves to the very highest standards for safety, proactively
considering it in everything we do. Amongst our directly employed
colleagues this is reflected in a LTIFR well below our target of 0.10, which
we consider to be world class. Whilst down on 2021/22, a persistent
injury rate amongst our contractors has resulted in us exceeding that
0.10 target overall. Therefore, as we look forward to our growing
workbook, we have increased the scope, remit and engagement in
our Contractor Safety Forum, embarked on a focus on the severity of
incidents and launched a unified Behavioural Safety programme which
will run throughout 2023/24, giving our leaders and teams new tools
and techniques for coaching for safety.
Looking ahead
Network owners across the globe are all looking to reduce their
carbon emissions. UK ET will play a pivotal role leading the transition to
renewable energy, lowering consumer bills and boosting the UK’s energy
security by ensuring we use homegrown, renewable energy generation.
We have a clear roadmap to delivering the low-carbon energy revolution.
However, meeting the UK Government’s targets will require DESNZ and
Ofgem to stimulate skills, capabilities and supply chain capacity, and
ensure we have the right regulatory frameworks in place to fund the
infrastructure needed. Our work to deliver the energy network of the
future has already started.
3
UK Electricity System
Operator (ESO)
Highlights
As GB’s electricity system operator, we are at the heart of the
energy transition, operating one of the fastest and most reliable
decarbonising networks in the world. This year, the illegal and
appalling invasion of Ukraine saw us prepare even harder for winter,
taking enhanced measures to ensure security of supply. We
delivered our Winter Outlook Report early, negotiated contingency
coal contracts and deployed a world first Demand Flexibility Service
that has been used by thousands of British businesses and
consumers. We also delivered the HND, a first-of-its-kind, integrated
approach for connecting 23 GW of offshore wind to GB, taking
GB a step closer to a decarbonised electricity system by 2035.
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UK Electricity Distribution (UK ED)
UK ED engineers
undergoing training
on maintaining pole
mounted equipment.
In addition, we have worked with the regulator to agree changes to our
licence through the Access and Forward-Looking Charges Significant
Code Review, allowing networks to pick up a greater proportion
of reinforcement costs for both demand and generation, which will
enable all customers to get connected at a lower cost.
Over the past few years we have been addressing the provision of
EV charging at motorway service stations and on trunk roads. This came
together in our Take Charge innovation project, which demonstrated
new technology to deliver the electrical capacity to power 80 rapid EV
chargers at a single service station site in a compact modular format.
It is an innovative solution that brings the electrical capacity of a small
town to each motorway service station. The project won the Utility Week
Disruptor of the Year Award for 2022.
Deliver for our customers efficiently
UK ED has a proven track record of customer service which is reflected
in our excellent performance against the Broad Measure of Customer
Satisfaction results, scoring 8.99 out of 10 overall.
We have streamlined our connections process making it quicker and
easier for customers to connect EV chargers and heat pumps. We have
received and processed over 30,000 domestic EV charger and heat
pump applications in the current year, of which 98% were approved
within two working days. To deal with increasing volumes of low-carbon
technology connections, a new digital tool has been launched that
allows customers to apply online to connect domestic EV chargers.
This tool will also be extended to heat pumps and solar installations.
Grow our organisational capability
In this rapidly changing energy sector, we have continued to build on
our organisational capabilities. During RIIO-ED1 we transformed our
network to accommodate a significant growth of distributed generation,
with the capability to connect 53 GW of generation on a network
originally designed for 14 GW of demand. Energy storage is increasingly
being used alongside generation to store excess power and release
it to the network at a later point in time. A total 11.3 GW distributed
generation is connected to our network to date, of which 7.5 GW is
low-carbon generation.
Empower colleagues for
great performance
In response to employee engagement survey results, we developed an
action plan which earmarked 37 areas of improvement and so far we
have completed 24 of them. Our training journey during the year is one
such example. We significantly increased our training programmes and
currently have around 700 employees on formal training programmes,
including those we are training ahead of need to ensure we are ready
for the future.
A ‘Safe to Say’ initiative was launched with the aim of encouraging
colleagues to use their voice and speak up without fear, being
empowered to raise issues, flag concerns and offer ideas.
Looking ahead
For RIIO-ED2, Ofgem has allowed UK ED £5.9 billion as a five-year
investment package to deliver services for our stakeholders, the largest
amount of any DNO in the UK. Over the course of RIIO-ED2, we will
prepare the network to cater for up to 1.5 million additional EVs, 600,000
heat pumps and a significant increase in renewable energy. We have
committed that by 2028 we will avoid over £94 million of network
reinforcement costs by operating our networks more flexibly.
We will ensure that the energy transition is just and fair. This includes
offering 600,000 smart energy action plans for vulnerable customers
each year. We will double our fuel poverty support, to help deliver over
£60 million of savings for 113,000 fuel poor customers over the next
five years.
Highlights
We completed the RIIO-ED1 price control period in a position of
strength, outperforming the majority of our RIIO-ED1 business plan
commitments. In the current year, we beat our targets for customer
minutes lost and customer interruptions by 26% and 27% respectively,
and our business carbon footprint has reduced by 42% over RIIO-ED1.
UK ED has also been listed as one of Europe’s Climate Leaders for
2022 in the Financial Times-Statista list.
With our fuel poverty schemes, we have supported over 24,000 fuel
poor customers, leading to an estimated annual saving of £20.6 million.
Our annual community fund was increased from £1.0 million to
£3.8 million, benefitting over 390,000 people.
Our business plan for RIIO-ED1 was ambitious and industry-
leading. Building on this impressive platform, we have listened to
our stakeholders and will deliver an even bolder set of stretching
commitments for RIIO-ED2, driving a smart, sustainable energy
revolution for the communities we serve. Following our successful
delivery of RIIO-ED1, we are now setting ourselves for the challenges
of RIIO-ED2 to ensure we deliver upon our holistic plans for the future.
Enable the energy transition for all
In the transition to decarbonisation, UK ED is committed to incorporating
the use of lower-cost alternatives such as using flexibility services as
opposed to conventional reinforcement helping to manage constraints
on the network and save customers money. In 2022/23, we have
procured 154 MW of flexibility services via our flexible power brand.
Across all flexibility zones (including procurements in previous years),
this impacts approximately 1.34 million customers and defers £43 million
of reinforcement.
Looking ahead
In July 2022, the UK Government introduced its Energy Bill in
Parliament. The Bill sets out the legislation to enable the creation of
the FSO in 2024 – and the ESO will be at the heart of this organisation.
The FSO will be an expert, impartial and operationally independent
public corporation with responsibilities across both the electricity and
gas systems and the ability to expand its remit to additional energy
vectors when needed. The FSO will be able to drive progress towards
net zero, deliver value for consumers, improve whole energy system
decision making and support energy security. As the Bill continues
its progress through Parliament, we will continue to work closely with
Government, the regulator and industry stakeholders.
National Grid plc
Annual Report and Accounts 2022/23
29
Our business units continued
4
New England
Massachusetts
gas operations
team reached its
2022 leak-prone
pipe replacement
goal, delivering
over 142 miles
(229 kilometres)
of leak-prone
pipe replacement.
Highlights
We are leading the clean energy transition in hundreds of cities and
towns across the region from Boston to the Berkshires and Cape Cod
to Newburyport. This year, we served our customers with a broad
range of affordability and sustainability needs, as we continue to play
a critical role in their daily lives providing safe and reliable gas and
electricity services.
In 2022, we completed the sale of our Rhode Island business to PPL
and are incredibly proud of our teams who navigated the complex set
of requirements to ensure a smooth transition.
New England faced several storms this fiscal year, where temperatures
dropped to record lows. One pre-Christmas storm resulted in over
140,000 customers without service, from heavy rains and wind gusts
up to 60 mph in some areas. Our crews worked around the clock to
get all customers back in service by the holiday.
Enable the energy transition for all
We have set out goals to reduce our GHG emissions to achieve net zero
by 2050 or sooner, in line with the goals of Massachusetts and the region.
Specifically, we plan to interconnect more distributed generation each
year – connecting more solar and wind energy onto the grid. As at
31 March 2023, we exceeded our target of 164 MW in distributed energy
resources, with a final result of 167.6 MW connected. In 2022, we
replaced over 142 miles (229 kilometres) of older leak-prone metal pipe in
favour of new, plastic pipe to improve the safety of the delivery network,
reduce the amount of methane, a powerful GHG, escaping the system
and enable long-term infrastructure to deliver fossil-free fuel sources,
such as green hydrogen and biogas.
We are leading the way in EV adoption and energy-efficiency
programmes – for both our customers and colleagues, which will help
reach our Group-wide goal of electrifying 100% of our light-duty vehicle
fleet by 2030 – expanding our commitment to the EV transition. Recently,
the Massachusetts state regulator also approved a $206 million filing to
expand EV charging, enabling up to 32,000 additional charging ports,
including targeted components for low-income households and
environmental justice communities.
Deliver for our customers efficiently
Our storm response efforts demonstrate our ability to meet reliability goals
and our customers’ needs, and these restoration actions are consistently
recognised by the Edison Electric Institute (EEI). We are embracing new
technology, such as the Fault Location, Isolation and Service Restoration
(FLISR) digital programme that gives us greater visibility into outages and
automatically reroutes power to reduce impact to customers, making the
system more resilient. We regularly monitor standard reliability metrics to
improve our storm response and restore power.
On the gas side of the business, responding to emergency leaks
is equally as vital, and we continue to improve our response times.
Our Mass Save 2022 – 2024 energy-efficiency plan includes
commitments to increase equitable outcomes for customers, such
as expanded benefits for dozens of designated communities within
our service territory.
We launched our Grid for Good volunteer and giving programme, and
are strengthening the social impact programmes for the communities
we serve. Our Winter Customer Savings Initiative promoted programmes
that help customers reduce their energy use, manage bills and secure
available energy assistance, including helping tens of thousands of
customers sign up for available discount rates. In the US, we also
committed $17 million to support our communities through the winter
and have disbursed $3 million in Massachusetts to date providing
energy assistance to thousands of residential customers and small
businesses, as well as helping to address food insecurity across
the Commonwealth.
Grow our organisational capability
We aim to achieve our operational expenditure and capital expenditure
efficiency goals with the aid of programmes such as gas business
enablement and digital maturity projects.
In December 2022, our Massachusetts Phase 3 EV proposal was
approved by the MADPU, which will build upon our first two EV market
development programmes by providing offerings to meet the diverse
transportation needs of all our customers.
Since we all play a role in managing bill impacts, taking a customer-
centric lens is vital, and focusing on customer satisfaction and
affordability will be engrained in everything we do.
Empower colleagues for
great performance
Investing in our people is as important as investments in our
infrastructure. We need to develop skills and capabilities for our
colleagues to achieve the clean, fair and affordable energy system
of the future. This means fostering a culture of safety where everyone
arrives home at the end of the day in the same condition that they left.
We strive for a generative safety culture with a high level of engagement
in safety protocol, where we are all invested in looking out for ourselves
and others. Sadly, in May 2022, we lost a valued colleague working in
our electric business. The fatal incident occurred when a highly skilled
colleague, along with a crew of five, were re-cabling a transformer that
was feeding a residential building.
Together we commit to embedding operational excellence in everything
we do and mobilising our most critical asset – our employees –
to become the utility of the future.
Looking ahead
As we set our sights on the future, we’re proud to announce the
launch of our first geothermal pilot in Lowell, Massachusetts, drawing
heat from below the Earth’s surface to generate renewable energy.
Throughout the Commonwealth, we are also experiencing a wave of
key stakeholder changes, including a new Governor, MADPU Chair,
MADPU Commissioner and others, and this introduces a certain amount
of uncertainty and risk as we navigate a critical period for our industry
and the Company, as well as opportunity for new partnership
and exploration.
We are excited for the clean energy future as we continue to move
towards achieving net zero, by decarbonising our gas and electric
networks and building a smarter, stronger and cleaner energy future
for all our customers and communities. We are proud of our ambition
to be a leader contributing to one of the most innovative energy regions
in the country.
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New York
National Grid
emergency crews
work in Buffalo,
New York, on
25 December 2022.
Highlights
As a leader in the clean energy transition, in one of the top states in the
US driving that change, we continued to embrace our responsibility to
deliver both electricity and natural gas in a safe, reliable and affordable
way to over 4 million customers.
To accomplish this, we have invested billions of dollars in our energy
infrastructure over the past several years and have ambitious plans to
continue investing in our networks, to meet customer and community
commitments now and in the future. In addition, we filed a three-year
rate proposal with the Public Service Commission (PSC) for our
downstate gas companies – KEDNY and KEDLI. Approval of this plan
will help ensure that we continue to deliver safe, reliable, and affordable
service to our 1.9 million gas customers in Metro NYC and Long Island.
In New York, we faced several challenging storms this year, including
the historic winter Storm Elliott in Buffalo that began the week leading
into the Christmas weekend and brought multi-day blizzard conditions.
A field force of more than 3,100 workers was mobilised, including mutual
assistance from other states and Canada, to help restore more than
110,000 customers in Western New York. Crews faced whiteout
conditions and wind gusts that reached 80 mph.
After the deadly blizzard, the Company contributed a total of $500,000
to charitable organisations with programmes directly benefitting people
impacted by the storm. The funds also helped to establish programmes
to support community resilience during future emergencies, and the
corporate contribution was matched by the National Grid Foundation
for a total of $1 million.
Although the Buffalo storm was considered a ‘once-in-a-generation’
storm, our New York business has remained focused on emergency
planning and restoration and received an Emergency Response Award
for our storm restoration efforts from the Edison Electric Institute (EEI).
Enable the energy transition for all
As we work toward our Group-wide goal of net zero by 2050, we are
also building sustainable solutions to provide alternatives to fossil fuel
and to ensure a carbon-free energy supply.
Some of the programmes underway include our Future of Heat pilots
that explore methane-free fuel sources, such as green hydrogen, and
RNG, and will take advantage of existing networks to support customer
needs. In addition, we continue to connect distributed generation
resources to our network – a total of 286 MW of supply to date. Thanks
to the dedication and focus of many of our colleagues, we are meeting
our commitments to replace leak-prone pipes state-wide. The Newtown
Creek Renewable Natural Gas Demonstration Project is operational and
will help meet New York City’s environmental goals while at the same
time fostering discussion in the industry among energy providers,
policyholders and other stakeholders.
Rudy Wynter, New York President, participated in the White House
Electrification Summit this past December, which explored how
electrification could help the US meet its climate and equity goals.
Our Grid Modernization New York team has set an ambitious target to
accelerate FLISR installations in New York, which will introduce a more
reliable and robust system. This technology gives us the ability to
remotely respond to system interruptions in real time.
Deliver for our customers efficiently
Our teams are focused on helping our customers, not only by providing
safe and reliable services, but also by improving their experience with us.
To this end, our Gas team performed above average in responding
to leaks.
Across our service territory – as throughout the US – customers
are feeling the pinch of inflationary pressures and high energy costs.
Our colleagues have provided in-person bill pay support at community
events to address affordability. Additionally, we have shown up in our
communities under our Project C programme umbrella, providing
over 27,000 hours of volunteer time, which included more than 2,000
colleagues being involved in our second annual Day of Service in 2022;
and even more efforts are underway throughout the year.
Grow our organisational capability
In preparing for the clean energy transition, we must equip our current
colleagues with the necessary training, tools and skills that will make
it happen, in addition to attracting new employees who see themselves
in the promise of clean, fair and affordable.
Technology continues to play a critical role in our ability to meet
customers’ needs. With the help of our IT teams, we must apply more
resources and focus to address the challenges we face in an
increasingly digitalised industry.
Empower colleagues for
great performance
The leadership team across New York is committed to the Company-
wide Stand Up for Safety campaign to support each other and create
a safety-focused environment, regardless of where we show up to work.
As part of that focus, New York colleagues are reporting more quality
near-miss/good-catch incidents than before, with a trajectory of reaching
defined targets ahead of plan.
We are also committed to our DEI hiring goals and are optimistic that
New York will meet our ambition of increasing the diversity of our
workforce with future new hires.
Looking ahead
Our New York team is focused on clean energy solutions throughout the
state. Exciting innovations such as Smart Path Connect – an ambitious
transmission project that is unlocking the potential of renewable
electricity for our customers – and HyGrid – a gas decarbonisation
project on Long Island that will demonstrate the use of hydrogen in
our networks – are two such examples.
We released our Electric Highways Study in autumn 2022, which was
co-authored by CALSTART, RMI, Geotab, and Stable Auto. That study
prepared the company to apply for and win a $1 million grant from
the U.S. Department of Energy to conduct a similar study and plan
for medium and heavy-duty corridor charging. That study and plan
will be a first-of-its-kind blueprint for fast-charging deployment for
commercial vehicles in the Northeast across Maine, Massachusetts,
New Hampshire, Vermont, Rhode Island, Connecticut, New York,
Pennsylvania and New Jersey. All these projects illustrate important
accomplishments that contribute to our vision to eliminate fossil fuels
from our US gas and electric systems by 2050 with clean energy hubs
across our service territories. This is a decades-long journey, and the
New York business is making significant steps toward getting there.
National Grid plc
Annual Report and Accounts 2022/23
31
Our business units continued
6
National Grid Ventures (NGV)
Highlights
NGV is focused on competitive markets across the UK and US.
Its portfolio includes electricity interconnectors, LNG storage and
regasification, large-scale renewable generation, conventional
generation and competitive transmission.
NGV businesses have performed well in 2022/23 with NSL completing
its first full year of operation and IFA1 returning to service after a fire in
September 2021. IFA’s return takes National Grid’s interconnector
portfolio to 6.4 GW, and to a GB record level of 8.4 GW with the addition
of Moyle, East–West and ElecLink.
In May 2022, Ofgem approved National Grid’s request to make early
payments to consumers of £200 million over the course of the next two
years, as part of the regulatory regime for electricity interconnectors.
In September, in the US, we launched the Northeast Clean Energy
Vision, supporting the development of clean energy hubs across the
Northeast and featuring a hub development on Long Island. The vision
builds on the plan to be fossil free across the gas and electricity systems
by 2050. NGV also successfully joined the consortium led by the New
York State Energy Research and Development Authority (NYSERDA),
and submitted a hydrogen hub concept paper for Department of Energy
(DOE) funding.
Enable the energy transition for all
NGV operates a broad mix of energy assets and businesses in the
UK and US, with the primary objective of accelerating the development
of a clean energy future. It is the leading developer and operator of
interconnectors, which are high-voltage subsea cables that enable the
UK to share excess electricity, such as wind, solar and hydro generation,
with neighbouring markets. NGV operates five interconnectors in the
UK, connecting GB with the Netherlands, Belgium, Norway and two
connections to France. A sixth interconnector to Denmark (Viking Link)
is under construction.
NGV also operates and maintains the world-class Isle of Grain LNG
facility offering a 1 million m3 LNG storage capacity to market.
National Grid Renewables has begun onsite construction of Wild Springs
128 MW Solar Energy Project in South Dakota. In Texas, Noble Solar
and Storage – a 275 MW solar and 125 MW energy storage project –
commenced commercial operation, and construction has started on
the Copperhead Solar & Storage Project totalling 150 MW of solar and
100 MW of energy storage.
Deliver for our customers efficiently
In the UK, in January 2023, NGV’s interconnector portfolio resumed
full capacity at 6.4 GW as IFA returned to service following a fire in
September 2021. The 2 GW site saw a brand-new converter hall built
in just 16 months, following close collaboration with suppliers and 24/7
shift patterns.
Progress also continues at the Grain LNG terminal to expand its storage
capacity from 1 million m³ to 1.2 million m³ by 2025. The project has
created 800+ jobs during construction, supporting the development
of future engineers.
In the US, in 2022, NGV partnered with RWE to acquire a seabed lease
to develop offshore wind in the New York-New Jersey Bight, with the
potential to host 3 GW of capacity. In January, the joint venture called
Community Offshore Wind submitted a proposal for the delivery of clean
energy from offshore wind to NYSERDA, totalling 1.3 GW. Over the last
year, through this partnership, numerous community investments have
been made across the region, including the improvement of marine
ecosystems on Long Island and providing over 30,000 meals of fresh,
local seafood to food banks across New York. In total, Community
Offshore Wind has donated more than 400 volunteer hours and
attended 50 community events across the areas it will serve.
National Grid Renewables has also pledged $1 million to two
communities in Ohio through its 274 MW Yellowbud Solar Project,
giving back to the communities in which it operates.
Grow our organisational capability
The NGV business continues to grow, increasing its headcount from
979 to 1,140.
People growth has been significant in business development and
commercial roles.
Empower colleagues for
great performance
NGV actively encourages everyone to speak out about safety, with an
emphasis on reporting at all levels. In the latest safety culture survey,
released in January, 83% of NGV colleagues responded, resulting in
a Group-leading score of 6.81 compared with 6.76 in 2022, indicating
good progress towards a ‘Proactive Safety Culture’. Improvements have
been made across the board in terms of leadership and employee
engagement, and highlighted the continued need for conversations
around safety and what we’re learning.
In May 2022, NGV launched the IFA Health Hub to provide round-the-
clock facilities to workers through the IFA recovery programme including
recreational space, a gym and healthy meals. The project was driven by
recent research into mental health and wellbeing in construction, with
an aim of developing a standard for future construction projects.
Looking ahead
In the UK, the Viking Link interconnector is due to become operational
in early 2024, expanding NGV’s portfolio of interconnector capacity by
1.4 GW to a total of 7.8 GW. Once complete, the 477 mile (767 kilometre)
subsea cable will connect the electricity systems of GB and Denmark.
In December, Ofgem confirmed that it will take forward two of our
projects – LionLink to the Netherlands and Nautilus to Belgium – as part
of its MPI pilot scheme. As the next phase in offshore interconnection,
MPIs will enable multiple wind farms to connect to multiple countries
around the North Sea, reducing the level of infrastructure required while
strengthening security of supply.
7
Other activities
Highlights
Other activities primarily relate to NGP, the corporate investment
and innovation arm of National Grid, as well as UK property,
insurance and corporate activities.
In UK Land and Property, following the successful sale of its 50%
interest in St William (joint venture with Berkeley Group) at the
end of 2021/22, it completed the sale of a further 15 sites to
Berkeley at the beginning of 2022/23, realising approximately
£200 million profit.
In 2022/23 NGP invested more than $72 million in start-ups,
including four new portfolio companies and 12 follow-on rounds.
It also saw four portfolio exits and now invests in 36 companies
and four limited partner investments in strategic venture funds.
Since its launch in 2018 it has introduced more than 230 start-up
technologies to National Grid and 80% of its existing portfolio
has strategic engagements with National Grid business units.
In September, National Grid announced the sale of its 26.25%
minority ownership in Millennium Pipeline Company for
approximately $552 million in cash proceeds.
32
National Grid plc
Annual Report and Accounts 2022/23
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Our commitment to being a responsible business
Our 2020 RBC outlines our commitments to
being a responsible business across five pillars:
the environment, our communities, our people,
the economy and our governance. The RBC was
shaped by our stakeholders, through a materiality
assessment and the application of a quantitative
Total Societal Impact methodology. Our annual
RBR reports on our progress against these
commitments over the past year.
You can find the RBC and latest RBR here,
which provide more details on all of the below.
nationalgrid.com/responsibility
The environment
7,245
Scope 1 and 2 emissions (ktCO2e)
27,879
Scope 3 emissions (ktCO2e)
278
SF6 emissions (ktCO2e)
While continuing to manage our environmental performance
responsibly, we have emphasised the need to facilitate the transition
to a clean energy system, to achieve net zero by 2050 for our Scope
1, 2 and 3 emissions and continue to improve the biodiversity of land
that we own.
We are making progress against our CTP although, as we have seen
in recent years, progress to our 2030 and 2050 goals will not be
linear. Our Scope 1 and 2 emissions have reduced 7.5% this year,
due to a reduction in emissions from our Long Island Power
Generation business, combined with our continued leak-prone pipe
replacement programme, focus on SF6 leakage and EV replacement
programme. We are on track to meet our Scope 1 and 2 long-term
targets, but are reliant on the continued development of supporting
policies and regulation.
Our Scope 3 emissions have risen slightly this year due to higher
than projected energy usage and electricity carbon intensity in our
US regions.
We have started to deliver a clean energy future and as part of this
we are supporting the delivery of accelerated onshore infrastructure
needed to reach net zero, including the 17 ASTI projects which will
connect low-carbon power to our networks in the UK. These projects
will be delivered by our new SI business unit and are vital to the
UK government’s ambition for 50 GW of offshore wind by 2030.
We believe our most material impacts on biodiversity, and where we
can have a positive impact on nature, are on the land we own and
when we are delivering new infrastructure projects, both onshore and
offshore. We are part of the Blue Recovery Leaders Group which is
led by the Wildfowl and Wetlands Trust and brings together leading
organisations to identify, develop and deliver pioneering projects to
help create 100,000 hectares of new and restored wetlands across
the UK to help fight the climate, nature and wellbeing crisis.
Our communities
£65 million
energy support fund pledged in the UK and US
60,096
number of volunteering hours from National Grid employees
99.9%
average reliability across our network
(breakdown available on page 16)
While continuing to place public safety and network reliability
and resilience as top priorities, we are focusing in particular on
the affordability and fairness of our service to the community,
and developing the skills of young people from some of the more
deprived communities where we operate to help us in the clean
energy transition.
Over the past year, we have continued to engage with our
communities to ensure we work to meet their needs for energy
security, reliability, affordability and a fair transition, through our
Grid for Good programme and Project C in New York.
To support increasing energy costs, we have delivered a £65 million
Energy Support Fund – pledging £50 million in the UK and $17 million
in the US. The majority of this funding is for non-profit organisations
on the front line of the energy crisis which have been designated
as our charity partners. This support fund is helping to provide
emergency financial relief to households that are using pre-payment
energy meters, funding energy-efficiency measures to help lower bills
over the longer term, providing advisory services for households
which need help with energy bills and debts, and more.
We continue to partner with a number of charity organisations such
as Citizens Advice and Red Cross, and encourage our colleagues
to volunteer in the community.
We have also enhanced our support for communities in areas
close to our major infrastructure projects. In the UK, this has
included community grant applications and support with the creation
of environmental centres, as well as other additional community
benefits. In the US, we support the National Grid Foundation,
a non-profit charitable organisation that awards grants to non-profit
organisations focused on educational and environmental challenges.
Further details on our progress against our environmental
commitments can be found on pages 10 – 20 of the RBR
Further details can be found on
pages 21 – 28 of the RBR
National Grid plc
Annual Report and Accounts 2022/23
33
Our commitment to being a responsible business continued
Our people
81%
employment engagement
71%
‘Safe to Say’ in Grid:voice
The economy
62%
supply chain carbon reduction
75%
EU Taxonomy aligned Group turnover
While continuing to ensure our people are kept safe and healthy, and
that work conditions meet their expectations, we are stepping up our
efforts in relation to DEI – focusing on fairness in pay and opportunity,
transparency, and training around issues of gender and ethnicity.
We are continuing to develop our infrastructure, invest in innovation
that benefits our customers and wider society, and pay the right tax,
as well as working to influence our supply chain to focus on diversity
and responsible behaviour.
The safety and wellbeing of our people is a top priority for every one
of us at National Grid, as well as creating a truly diverse, equitable
and inclusive culture, where our workforce reflects the diversity of
the communities we serve and all our colleagues feel comfortable
to bring their whole selves to work.
We review gender and ethnicity pay gaps annually in both the
UK and US. As a result of sustained focus over many years, our
UK base gender pay gap continues to be minimal, and we have
shown progress with pay and incentive gaps for ethnically diverse
employees. The strong representation of women (40.1%) in our senior
leadership population drives these figures. We will continue to make
progress within our operational teams where women are still
a significant minority. In the US, our base gender and ethnicity pay
gaps have improved since last year. We will continue to focus on
ensuring fair pay across all our employees, focusing our efforts on
ensuring that we develop a diverse workforce representative of the
communities that we serve at every level. Further details around
reward can be found on page 34 of the RBR.
Grid:voice allows colleagues to share their views on what it’s like to
work here, so that we can understand what we do well and where we
can improve. Our Employee Resource Groups (ERGs) play a key role
in helping us to provide a sense of community and achieve our DEI
aspirations. We invest in around five training days per employee,
see page 35 of the RBR for more detail.
The gender demographic table below shows the breakdown
in numbers of employees by gender at different levels of the
organisation; see footnotes on page 35.*
Gender demographic as at 31 March 2023
Our
Board2
Senior
management3
Whole
Company4
Male
7
58.3% 41.7%
Female
5
Male
88
59.9%
Female
59
40.1%
Male
22,512
76.4%
Female
6,9385
23.6%
Total 12
Total 147
Total 29,450
Our policy is that people who identify as having a disability should
be given full and fair consideration for all vacancies against the
requirements for the role. Where possible, we make reasonable
accommodations and provide additional resources for employees
who identify as having a disability. We are committed to equal
opportunity in recruitment, training, promotion and career
development for all colleagues, including those with disabilities.
Our economic contribution to society comes primarily through the
delivery of safe and reliable energy but also through our role as an
employer, a tax contributor, a business partner and community
supporter. The direct, indirect and induced economic impact of
our investments in 2022/23 supported 247,000 jobs in our regions.
Our approach to tax is part of our commitment to being a responsible
business and is guided by our values. We are committed to
a coherent and transparent tax strategy and recognise our economic
role in society in doing this, as set out on pages 63 – 65. Our total tax
contribution for 2022/23 is £4,060 million (2021/22: £3,719 million).
During the year, we invested £7.7 billion in our energy infrastructure.
This investment allows us to continue to provide secure and reliable
supplies and underpin the wider success of the economy.
As part of our Green Financing Framework, we have issued
£1.1 billion worth of green bonds from our UK and US electricity
businesses, funding projects to enable the transition to clean energy.
We recognise that our supply chain is an extension of how we
operate. We should use our position of influence to create positive
impact on a wider scale, rather than simply through direct operations.
National Grid’s operations, payments to suppliers, and payments
of wages to workers supported £29 billion in gross value added
contributions to GDP in the US and the UK in 2022/23.
We require all suppliers to acknowledge our Supplier Code of
Conduct as a condition of doing business. We expect our suppliers
to comply with all applicable local, state, federal, national and
international laws, and to adhere to the principles outlined. This
includes the UK Bribery Act 2010 and the US Foreign Corrupt
Practices Act 1977, the Principles of the United Nations Global
Compact, the International Labour Organization minimum standards,
the Ethical Trading Initiative Base Code and the US Trafficking and
Violence Protection Act 2000. We encourage all our suppliers to
be compliant with the Modern Slavery Act 2015 and to publish
a Statement, regardless of whether this is a legal requirement.
In the UK, we remain an accredited Living Wage Foundation
employer and the real Living Wage is a requirement for all suppliers
based in the UK. We undertake a Living Wage review each year to
ensure continued alignment.
We operate a Global Supplier Diversity Policy which outlines our
commitments to DEI. We expect our suppliers to extend this to their
own supply chains. We are working to create an inclusive and diverse
supply chain by raising awareness of the existence and capabilities
of small and diverse suppliers, and being proactive in identifying
sourcing and subcontracting opportunities for small and
diverse suppliers.
Further details can be found on
pages 40 – 44 of the RBR
34
National Grid plc
Annual Report and Accounts 2022/23
Our governance
97%
ethics training
98%
anti-bribery and corruption training
We will hold ourselves accountable on these commitments and
ensure that stakeholder voices continue to be heard at the highest
level, and that they influence our approach. We will ensure we
maintain the highest standards of ethical conduct.
We regard the potential for bribery and corruption as a significant risk
to the business and have established policies and governance that
set and monitor our approach to preventing financial crimes, fraud,
bribery and corruption, including our Code of Ethics. We have
a Group-wide framework of controls designed to prevent and detect
bribery. Our Code of Ethics sets out the standards and behaviours
we expect from all employees to meet our values of ‘do the right
thing’, ‘find a better way’ and ‘make it happen’, and is governed by
our executive Group ERCC. We provide e-learning on the Code of
Ethics as well as on conflicts of interest.
To ensure compliance with the UK Bribery Act 2010 and other
relevant legislation, we undertake a fraud and bribery risk
assessment across the Company on an annual basis to identify
higher-risk areas (such as system access controls, supplier fraud
and potential conflicts of interest) and make sure adequate policies
– such as our Anti-Financial Crimes Policy, which applies to all
colleagues and those working on our behalf – and procedures are
in place to address them.
Ethics and Business Conduct reports are discussed quarterly
at the ERCC and twice a year at Audit & Risk Committee. Serious
issues that meet our escalation criteria are reported in line with our
escalation process through the Global Chief Risk Officer, Group
General Counsel & Company Secretary, Audit & Risk Committee and
the Board as appropriate. All cases are investigated promptly and
where appropriate, acted upon, including ensuring any lessons learnt
are communicated across the business.
Human rights
Respect for human rights is incorporated into our employment
practices and our values, which are integral to our Code of Ethics.
This is vital in maintaining our reputation as an ethical company that
our stakeholders want to do business with and that our employees
want to work for. Although we do not have a separate human rights
or modern slavery and human trafficking policy, we cover these
issues through related policies and procedures relating to diversity,
anti-discrimination, privacy and equal opportunity, etc. and our
Supplier Code of Conduct integrates human rights into the way we
interact with our supply chain. Further details are on page 236 of this
report. We also publish an annual Modern Slavery Statement.
Whistleblowing
We have a confidential internal helpline and an external ‘Speak-up’
helpline that is available at all times in all the regions where we
operate. Our policies make it clear that we will protect anonymity,
support and protect whistleblowers, and any form of retaliation will
not be tolerated. This is discussed by the Audit & Risk Committee
(see page 85).
Further details can be found on
pages 45 – 48 of the RBR
National Grid plc
Annual Report and Accounts 2022/23
Non-financial information statement
This section provides information as required by regulation in relation to:
Environmental matters
Human rights
page 33
pages 38 – 52
page 35
page 236
Anti-corruption and
anti-bribery
page 35
Our employees
pages 14 − 17
page 34
page 77
page 236
Social matters
pages 33 – 35
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In addition, other information describing the business relationships,
products and services which are likely to cause adverse impacts
in relation to the matters above can be found as follows:
Business model
pages 4 – 5
KPIs
pages 14 – 17
Our stakeholders
People & Governance
Committee report
pages 80 – 82
Safety & Sustainability
Committee report
page 88
pages 36 – 37
TCFD
Audit & Risk Committee report
pages 38 – 51
pages 83 – 87
Risks
pages 18 – 24
Further details can be found in our RBR as follows:
Further
reading
Environment
Social matters
and employees
Anti-corruption
and bribery
Human
rights
Our policies and
due diligence
10 − 20
21 − 44
45, 47 − 48
42, 47 − 48
Outcomes
54 − 57
54 − 57
54 − 57
44, 54 − 57
*Gender demographic table footnotes
1. We have included information relating to subsidiary directors, in accordance with
the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
‘Senior management’ is defined as those managers who are at the same level, or one
level below, the Group Executive Committee. It also includes those who are Directors
of subsidiaries, or who have responsibility for planning, directing or controlling the
activities of the Group, or a strategically significant part of the Group, and are
employees of the Group.
2. ‘Board’ refers to members as defined on the Company website.
3. ‘Senior management’ refers to subsidiary Directors as well as the Senior
Leadership Group.
4. In scope are active, permanent employees. Band A−F, Staff, NEDs, NGR and UK ED.
5. Out of scope are non-employees, interns and UK Gas Transmission and Metering and
Rhode Island.
35
Our stakeholders
Effective engagement with our stakeholders is key to
successful achievement of the Group’s strategy in the long term.
Customers
Investors
Colleagues
Suppliers
and contractors
Communities
and governments
Regulators
How we engage
as a company
Most engagement with key
stakeholders is carried out by
management teams and takes
place at business level. Directors
also engage with stakeholders
on a regular basis. Reporting
mechanisms are in place to
collate feedback and output from
our engagement and enable a flow
of this information to the Board
and its Committees, to inform
decision making.
An overview of business-level
engagement and outcomes is
regularly reported to the Board
or appropriate Committees.
The cadence and content of
such reports to the Board are
considered bi-annually as part of
the forward business review by the
Chair, Chief Executive and Group
General Counsel & Company
Secretary, to ensure sufficient
consideration is given to pertinent
matters and affected stakeholders
and colleagues from across the
business during the year.
Further reading
Section 172(1) Statement
Pages 74 – 75 comprise our
Section 172(1) Statement.
The following should also
be read in conjunction with
this statement:
• Pages 72 – 73 set out key
matters considered by the
Board during the year.
• Pages 77 – 79 describe
the Board’s workforce
engagement strategy.
Overview
Interests
Engagement
Outcomes
Customers are at the heart of what we
do in all parts of our business. Regular
and effective engagement with them
is key to us delivering what they need
and expect from us, from large-scale
connections in support of net zero, to
domestic connections in homes and
businesses within the communities
we serve.
We engage with both equity and
debt investors around strategy and
performance, to keep them informed
and to enable them to hold us to
account. They play a vital role in
enabling us to deliver the investment
required for a clean, affordable and
secure energy future.
Our customer base is broad and
their interests are wide-ranging. All,
however, expect efficient and reliable
service, and transparency and fairness
in how we work with them. They
expect us to understand them and
their challenges, and how our activities
can impact their lives and businesses.
Investors are interested in our financial
and operational performance, which
act as key indicators of our ability to
provide attractive returns. There is also
increased interest in our ESG targets
and reporting to provide assurance
that investments are sustainable,
ethical and responsible.
Our Investor Relations, Company
Secretariat and Treasury teams, as
well as senior management, engage
with our investors regularly. Alongside
this ongoing engagement, key events
across the year included:
• our first RBR webinar, where
our Chief Executive and Chief
Sustainability Officer discussed
ESG performance against our
RBC targets;
• a US event hosted by our New York
business leaders, CFO and Chief
Strategy Officer to outline our new
Clean Energy Vision and growth
opportunities in the US;
• half-year and full-year financial results
presentations and roadshows;
• deal-specific debt engagement
for select bond issuances during
the year;
• continuing our ‘Grid guide to ESG’
investor series with events on
community involvement and
modernising our networks in
Massachusetts; and
• our hybrid AGM (see page 78)
Our engagement in 2022/23 has
helped investors better understand
our investment case and has provided
visibility on our strategy, performance
and financial strength.
The results of an independent investor
perception study helped us shape
our future engagement, including
new topic ideas for our ‘Grid Guide
to ESG’ investor series and future
investor events.
In addition to ongoing day-to-day
engagement, senior leaders in
our UK ET business regularly meet
with customers to discuss strategic
priorities and specific connection
projects. We also survey our
customers at key points in the
connections process and use
their feedback to drive
process improvements.
Within UK ED, our customer panel
meets quarterly, attended by the
UK ED President and other UK ED
Directors. Members represent
our customers and key stakeholder
groups and challenge us on current
and future plans. This year, surgeries
between meetings focused on
areas including social obligations
and connections.
In the US, our engagement in the
past year included community board
meetings, chamber meetings and
one-to-one meetings with customers
and community groups, with
a particular focus on affordability
and the transition to clean energy.
Engagement with UK ET customers
has helped identify the fundamental
change needed within the connections
landscape and is driving both our
short-term work to support customer
needs, and the wider regulatory reform
needed to enable net zero.
Within UK ED, our Connections
Customers Steering Group covers
a broad range of connections-related
topics and is feeding into our Major
Connections Strategy for RIIO-ED2.
In the US, we have increased our
visibility in communities and have been
invited to present our plans to city
councils. Our engagement has enabled
us to explore renewable technology
options with industrial customers.
36
National Grid plc
Annual Report and Accounts 2022/23
We listen to and engage extensively with
Engagement with this group of
We exist to serve our communities
We engage with our regulators on
our colleagues through a number of
stakeholders – listening to their ideas
with the energy they need. We serve
an almost daily basis, whether on rate
channels and processes. This enables
and working in partnership – is
customers within our communities
cases in the US and price controls in
us to understand their needs and
important to help us collectively find
across the UK and US. We work closely
the UK, or to help set policy and shape
requirements and build a culture that
better and more innovative ways of
with state, federal, national, local and
future regulatory frameworks that allow
will help to drive our performance,
delivering our commitments. We
EU governments to create the policy
our customers, stakeholders and
shape our plans and develop a skilled
engage both strategically and tactically
frameworks required to deliver our
ourselves to meet objectives.
and motivated workforce.
across a range of topics and projects.
stakeholders’ energy needs.
Colleague interests are wide-ranging.
In addition to day-to-day commercial
Our communities need us to deliver
Our regulators’ interests are based
They have an obvious interest in
interests, our suppliers and contractors
energy security, reliability and
around a common theme, whether UK
company performance and what this
would like greater forward visibility and
affordability, whilst minimising the
or US, state or federal – to protect the
means for them individually, but also
contractual commitment over a longer
impact our operations have on them.
interests of consumers and to ensure
want to understand, and play a part in
horizon to help them build capacity and
Communities and government are
affordable, safe, secure and reliable
shaping, our role in the industry and
support innovation to meet our needs,
focused on the cost of living, economic
access to the energy we provide, whilst
broader energy transition.
often with a focus on sustainability and
recovery and ensuring a fair transition
protecting the natural environment.
what the collective path to net zero
to net zero.
looks like.
We have had an extensive programme
We engage extensively and often
In the US, we are engaging with
Engagement with regulators in
of colleague engagement over the past
with our supply chain in the course
community stakeholders and members
both the UK and US is frequent
year via all-hands calls with our Chief
of our business. We also have
of the public to understand what ‘fair’
and comprehensive.
Executive, town hall sessions within
structured quarterly engagement with
means from different perspectives and
business units and functions, email,
strategic suppliers and contractors,
how it should shape our plans.
In New York and New England, we work
with state regulators to set strategy and
In both the UK and US, we engage
achieve positive financial and policy
extensively to actively support local
outcomes to meet customer priorities
communities impacted by our
and deliver shareholder value. This has
Yammer, focused colleague listening
complemented by senior-level
sessions, interaction through our many
engagements to foster collaboration
ERGs and our latest annual employee
and discuss strategic issues facing the
engagement survey, Grid:voice. These
sector. In the past year, our engagement
channels provide colleagues with
has included:
information and a chance for two-way
dialogue. The Board receives regular
updates on employee matters via
the Chief Executive and Chief
People Officer.
We also engage regularly with
colleagues through their representatives
in various trade unions in both the UK
and US on a range of matters including
pay and terms and conditions
of employment.
• surveys and one-to-one interviews
to develop our Supply Chain Charter;
construction activities.
Our engagement with government has
included executive-level advocacy for
the passage of the IRA in the US, and
• engagement through the Supply
participation in the White House
Chain Sustainability School (UK)
Electrification Summit. In the UK, we
and Sustainable Supply Chain
engage government through bilateral
Alliance (US);
meetings, parliamentary round tables
included semi-annual updates to the
New York Public Service Commission
(PSC) Chair and Commissioners by our
New York President, and engagement
with the Massachusetts Department of
Public Utilities (MADPU) Commissioners
and senior staff, related to rate cases
and other regulatory filings.
• a UK Supply Chain CEO-level forum to
inform Government and Ofgem on
and Select Committee participation in
We also have regular engagement
support of the clean energy transition.
with FERC Commissioners and staff.
changes required for connecting
Following our role as principal partner
In the UK, our engagement through
offshore wind; and
at COP26, we again had a significant
bi-laterals, round tables, workshops and
presence at COP27.
site visits has included finalising UK ED’s
• involvement in the Procurement Skills
Accord (part of Energy & Utility Skills)
and Utilities Against Slavery.
price control and helping to shape
Ofgem’s new ASTI framework.
This year, 81% of colleagues took
Our engagement has ensured our
Our engagement is informing our plans
Our engagement has led to a range
part in our Grid:voice survey, with an
supply chain has an understanding of
for how to deliver a fair transition.
of positive outcomes in the past
employee engagement index score of
the key themes and priorities related
81% favourable. This was unchanged
to our business, and that they are able
from the previous year but remains nine
to provide input across a range of
points higher than external benchmarks.
initiatives, allowing us to work with them
This year our Grid for Good activities
year, including:
have played an important role in
• a successful outcome to the UK ED
supporting economic growth and
price control review − RIIO-ED2;
to manage continuity of supply in the
shorter-term and shape our approach
to future challenges, such as the
acceleration of network investment for
net zero. Their input has helped shape
the development of the ASTI framework
in the UK.
upskilling of communities through our
outreach programmes, focusing on
areas experiencing the highest levels
of socio-economic disadvantage.
We have helped shape legislation,
including the US IRA and UK Energy Bill
and have ensured the development of
network infrastructure is recognised as
a key enabler of net zero.
• approvals for Phase 1 & 2 CLCPA
Transmission filings;
• the approval of two MPI pilot projects;
and
• approvals related to our clean
energy objectives including
incremental grid modernisation
investment, a programme to promote
clean transportation, and advanced
metering infrastructure investment.
Our ERGs play a key role in helping us
to achieve our DEI aspirations whilst
providing a sense of community to help
everyone feel comfortable to bring their
whole selves to work. We have 16 highly
active and visible ERGs – eight in
the US, four in the UK and four global.
Our ERG membership now stands at
7,890 unique members. We have just
launched a brand new, global ERG
called Inspire focusing on social
economic barriers and challenges
faced by many colleagues.
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Customers
Investors
Colleagues
Suppliers
and contractors
Communities
and governments
Regulators
Overview
Interests
Engagement
Outcomes
Customers are at the heart of what we
We engage with both equity and
do in all parts of our business. Regular
debt investors around strategy and
and effective engagement with them
performance, to keep them informed
is key to us delivering what they need
and to enable them to hold us to
and expect from us, from large-scale
account. They play a vital role in
connections in support of net zero, to
enabling us to deliver the investment
domestic connections in homes and
required for a clean, affordable and
businesses within the communities
secure energy future.
we serve.
Our customer base is broad and
Investors are interested in our financial
their interests are wide-ranging. All,
and operational performance, which
however, expect efficient and reliable
act as key indicators of our ability to
service, and transparency and fairness
provide attractive returns. There is also
in how we work with them. They
increased interest in our ESG targets
expect us to understand them and
and reporting to provide assurance
their challenges, and how our activities
that investments are sustainable,
can impact their lives and businesses.
ethical and responsible.
In addition to ongoing day-to-day
Our Investor Relations, Company
engagement, senior leaders in
Secretariat and Treasury teams, as
our UK ET business regularly meet
well as senior management, engage
with customers to discuss strategic
with our investors regularly. Alongside
priorities and specific connection
this ongoing engagement, key events
projects. We also survey our
customers at key points in the
connections process and use
their feedback to drive
process improvements.
across the year included:
• our first RBR webinar, where
our Chief Executive and Chief
Sustainability Officer discussed
ESG performance against our
Within UK ED, our customer panel
RBC targets;
meets quarterly, attended by the
UK ED President and other UK ED
Directors. Members represent
our customers and key stakeholder
groups and challenge us on current
and future plans. This year, surgeries
between meetings focused on
areas including social obligations
and connections.
In the US, our engagement in the
past year included community board
meetings, chamber meetings and
one-to-one meetings with customers
and community groups, with
a particular focus on affordability
and the transition to clean energy.
• a US event hosted by our New York
business leaders, CFO and Chief
Strategy Officer to outline our new
Clean Energy Vision and growth
opportunities in the US;
• half-year and full-year financial results
presentations and roadshows;
• deal-specific debt engagement
for select bond issuances during
the year;
• continuing our ‘Grid guide to ESG’
investor series with events on
community involvement and
modernising our networks in
Massachusetts; and
• our hybrid AGM (see page 78)
Engagement with UK ET customers
Our engagement in 2022/23 has
has helped identify the fundamental
helped investors better understand
change needed within the connections
our investment case and has provided
landscape and is driving both our
visibility on our strategy, performance
short-term work to support customer
and financial strength.
needs, and the wider regulatory reform
needed to enable net zero.
Within UK ED, our Connections
The results of an independent investor
perception study helped us shape
our future engagement, including
Customers Steering Group covers
new topic ideas for our ‘Grid Guide
a broad range of connections-related
to ESG’ investor series and future
topics and is feeding into our Major
investor events.
Connections Strategy for RIIO-ED2.
In the US, we have increased our
visibility in communities and have been
invited to present our plans to city
councils. Our engagement has enabled
us to explore renewable technology
options with industrial customers.
We listen to and engage extensively with
our colleagues through a number of
channels and processes. This enables
us to understand their needs and
requirements and build a culture that
will help to drive our performance,
shape our plans and develop a skilled
and motivated workforce.
Engagement with this group of
stakeholders – listening to their ideas
and working in partnership – is
important to help us collectively find
better and more innovative ways of
delivering our commitments. We
engage both strategically and tactically
across a range of topics and projects.
We exist to serve our communities
with the energy they need. We serve
customers within our communities
across the UK and US. We work closely
with state, federal, national, local and
EU governments to create the policy
frameworks required to deliver our
stakeholders’ energy needs.
We engage with our regulators on
an almost daily basis, whether on rate
cases in the US and price controls in
the UK, or to help set policy and shape
future regulatory frameworks that allow
our customers, stakeholders and
ourselves to meet objectives.
Colleague interests are wide-ranging.
They have an obvious interest in
company performance and what this
means for them individually, but also
want to understand, and play a part in
shaping, our role in the industry and
broader energy transition.
In addition to day-to-day commercial
interests, our suppliers and contractors
would like greater forward visibility and
contractual commitment over a longer
horizon to help them build capacity and
support innovation to meet our needs,
often with a focus on sustainability and
what the collective path to net zero
looks like.
Our communities need us to deliver
energy security, reliability and
affordability, whilst minimising the
impact our operations have on them.
Communities and government are
focused on the cost of living, economic
recovery and ensuring a fair transition
to net zero.
Our regulators’ interests are based
around a common theme, whether UK
or US, state or federal – to protect the
interests of consumers and to ensure
affordable, safe, secure and reliable
access to the energy we provide, whilst
protecting the natural environment.
We have had an extensive programme
of colleague engagement over the past
year via all-hands calls with our Chief
Executive, town hall sessions within
business units and functions, email,
Yammer, focused colleague listening
sessions, interaction through our many
ERGs and our latest annual employee
engagement survey, Grid:voice. These
channels provide colleagues with
information and a chance for two-way
dialogue. The Board receives regular
updates on employee matters via
the Chief Executive and Chief
People Officer.
We also engage regularly with
colleagues through their representatives
in various trade unions in both the UK
and US on a range of matters including
pay and terms and conditions
of employment.
We engage extensively and often
with our supply chain in the course
of our business. We also have
structured quarterly engagement with
strategic suppliers and contractors,
complemented by senior-level
engagements to foster collaboration
and discuss strategic issues facing the
sector. In the past year, our engagement
has included:
• surveys and one-to-one interviews
to develop our Supply Chain Charter;
• engagement through the Supply
Chain Sustainability School (UK)
and Sustainable Supply Chain
Alliance (US);
• a UK Supply Chain CEO-level forum to
inform Government and Ofgem on
changes required for connecting
offshore wind; and
• involvement in the Procurement Skills
Accord (part of Energy & Utility Skills)
and Utilities Against Slavery.
In the US, we are engaging with
community stakeholders and members
of the public to understand what ‘fair’
means from different perspectives and
how it should shape our plans.
In both the UK and US, we engage
extensively to actively support local
communities impacted by our
construction activities.
Our engagement with government has
included executive-level advocacy for
the passage of the IRA in the US, and
participation in the White House
Electrification Summit. In the UK, we
engage government through bilateral
meetings, parliamentary round tables
and Select Committee participation in
support of the clean energy transition.
Following our role as principal partner
at COP26, we again had a significant
presence at COP27.
Engagement with regulators in
both the UK and US is frequent
and comprehensive.
In New York and New England, we work
with state regulators to set strategy and
achieve positive financial and policy
outcomes to meet customer priorities
and deliver shareholder value. This has
included semi-annual updates to the
New York Public Service Commission
(PSC) Chair and Commissioners by our
New York President, and engagement
with the Massachusetts Department of
Public Utilities (MADPU) Commissioners
and senior staff, related to rate cases
and other regulatory filings.
We also have regular engagement
with FERC Commissioners and staff.
In the UK, our engagement through
bi-laterals, round tables, workshops and
site visits has included finalising UK ED’s
price control and helping to shape
Ofgem’s new ASTI framework.
This year, 81% of colleagues took
part in our Grid:voice survey, with an
employee engagement index score of
81% favourable. This was unchanged
from the previous year but remains nine
points higher than external benchmarks.
Our ERGs play a key role in helping us
to achieve our DEI aspirations whilst
providing a sense of community to help
everyone feel comfortable to bring their
whole selves to work. We have 16 highly
active and visible ERGs – eight in
the US, four in the UK and four global.
Our ERG membership now stands at
7,890 unique members. We have just
launched a brand new, global ERG
called Inspire focusing on social
economic barriers and challenges
faced by many colleagues.
Our engagement has ensured our
supply chain has an understanding of
the key themes and priorities related
to our business, and that they are able
to provide input across a range of
initiatives, allowing us to work with them
to manage continuity of supply in the
shorter-term and shape our approach
to future challenges, such as the
acceleration of network investment for
net zero. Their input has helped shape
the development of the ASTI framework
in the UK.
Our engagement is informing our plans
for how to deliver a fair transition.
This year our Grid for Good activities
have played an important role in
supporting economic growth and
upskilling of communities through our
outreach programmes, focusing on
areas experiencing the highest levels
of socio-economic disadvantage.
We have helped shape legislation,
including the US IRA and UK Energy Bill
and have ensured the development of
network infrastructure is recognised as
a key enabler of net zero.
Our engagement has led to a range
of positive outcomes in the past
year, including:
• a successful outcome to the UK ED
price control review − RIIO-ED2;
• approvals for Phase 1 & 2 CLCPA
Transmission filings;
• the approval of two MPI pilot projects;
and
• approvals related to our clean
energy objectives including
incremental grid modernisation
investment, a programme to promote
clean transportation, and advanced
metering infrastructure investment.
National Grid plc
Annual Report and Accounts 2022/23
37
Task Force on Climate-related
Financial Disclosures (TCFD)
At National Grid, we recognise that addressing climate change as a result of GHG
emissions is the defining challenge of the 21st century. Our networks and operations
play a central role in the transition of the energy system in the jurisdictions we operate
in. We are supportive of the 2016 Paris Agreement’s long-term goal to keep the rise
in global average temperature by 2100 to well below 2ºC above pre-industrial levels,
and to pursue efforts to limit the increase to 1.5ºC.
We have supported the recommendations
of the TCFD since its initial publication.
By helping us to understand the impacts of
climate change on our business, the framework
has benefitted us directly by: shaping our
governance structure to effectively oversee
risks and opportunities; aligning our business
strategy to identify and seize transitional
opportunities; developing values of
sustainability in our corporate culture; and
embedding climate change into our risk
management framework, which has engaged
our lines of defence to manage the
associated risks.
In this year’s disclosure we have fully complied
with the Financial Conduct Authority (FCA)
Listing Rule 9.8.6R(b). Our climate-related
financial disclosures are considered to
be consistent with the TCFD’s four
recommendations and 11 recommended
disclosures, as illustrated in the index to the
right. In addition, we have taken steps this year
to enhance our disclosure by adopting the
TCFD’s additional implementation guidance
and energy sector-specific guidance.
In the following sections, we set out
our response to the TCFD’s four core
recommendations – governance, strategy,
risk management, and metrics and targets –
in line with the recommendations and guidance
described above. We have also included
a summary of our Climate Transition Plan
(CTP), which sets out the strategic action plans
and mechanisms we have in place to realise
our net zero commitments.
TCFD index
The following index navigates between our disclosures and the TCFD’s recommendations
and recommended disclosures:
1. Governance
Disclose the organisation’s governance around climate-related
risks and opportunities
• Describe the board’s oversight of climate-related risks and opportunities: page 39
• Describe management’s role in assessing and managing climate-related risks and
opportunities: page 40
2. Strategy
Disclose the actual and potential impacts of climate-related risks and
opportunities on the organisation’s businesses, strategy and financial planning
where such information is material
• Describe the climate-related risks and opportunities the organisation has identified over
the short, medium and long term: pages 47 – 50
• Describe the impact of climate-related risks and opportunities on the organisation’s
businesses, strategy and financial planning: pages 47 – 50
• Describe the resilience of the organisation’s strategy, taking into consideration different
climate-related scenarios, including a 2°C or lower scenario: pages 41 – 42
3. Risk management
Disclose how the organisation identifies, assesses and manages
climate-related risks
• Describe the organisation’s processes for identifying and assessing climate-related risks:
pages 45 – 46
• Describe the organisation’s processes for managing climate-related risks: page 46
• Describe how processes for identifying, assessing and managing climate-related risks
are integrated into the organisation’s overall risk management: pages 44 – 45
4. Metrics and targets
Disclose the metrics and targets used to assess and manage relevant
climate-related risks and opportunities where such information is material
• Disclose the metrics used by the organisation to assess climate-related risks and
opportunities in line with its strategy and risk management process: page 51
• Describe Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions, and the related
risks: page 51, 47 – 49
• Describe the targets used by the organisation to manage climate-related risks and
opportunities and performance against targets: page 51
38
National Grid plc
Annual Report and Accounts 2022/23
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1. Governance
The Board of Directors sets and
leads the Company’s climate-
related strategy and goals and
has oversight of climate-related
risks and opportunities impacting
the Group.
The Board delegates elements of its
responsibility to its various Committees
as described on the right. Members of the
Board bring a variety of skills and experience,
including expertise in driving sustainability
and climate change matters. Several members
of the Board have specific experience of this,
including Martha Wyrsch, who joined the
Board in September 2021. Martha brings
extensive knowledge and experience around
climate related issues through her experience
as CEO of a major international gas
transmission business as well as leading the
growth and development of Vestas’ renewable
energy business in the US. See pages 70 – 71
for information on the individual experience of
Board members and page 80 for the specific
skills attributed to the Board, including
sustainability and climate change.
The Chair of the Safety & Sustainability
Committee provided updates to the Board
throughout the year on matters discussed at
the Committee meetings, including updates
on progress against goals and targets for
addressing climate-related issues. The Board
receives a CEO report at each meeting which
includes tracking of climate change metrics.
Following recommendation by the Safety &
Sustainability Committee and the Audit & Risk
Committee, the Board approved the 2022/23
RBR at their May 2023 meeting.
In addition, following Audit & Risk Committee
review and recommendation, the Board
also approved the following 2022/23
sustainability publications:
• This TCFD report
• The EU Taxonomy report
• The Global Reporting Initiative (GRI) index
• The Sustainability Accounting Standards
Board (SASB) report
Throughout the year, the Board undertook
strategy deep dives through which
consideration was given to the energy
transition and climate change, and the impact
of these on the Group’s strategy.
The remit of the Board and its Committees
under our governance framework, as well
as the number of times they meet, are set
out on pages 69 – 71 of the Corporate
Governance Report. Terms of Reference for
the Board and its Committees are available at
nationalgrid.com/about-us/corporate-
information/corporate-governance
Refer to the table on the right for the climate
related issues that were discussed through
the year.
Climate governance
Committee
How does it monitor climate-related issues? What it did in the year
Safety &
Sustainability
Committee
Responsible for assessing and monitoring
Group’s environmental sustainability
strategy and performance, and
considering potential climate change
risks and opportunities. This includes
overseeing progress being made against
our net zero aims, and other responsible
business targets.
Audit & Risk
Committee
Oversight of non-financial risk
management, disclosures and assurance,
including our RBR, TCFD disclosures
and reporting in line with leading ESG
frameworks such as SASB, GRI and the
EU Taxonomy.
• Approved the Group’s first CTP at its
May 2022 meeting (approved by
shareholders in July 2022).
• Reviewed the RBR and TCFD draft
content at its May 2023 meeting.
• Received a demonstration of the Group’s
Climate Change Risk Tool (CCRT),
including how this is used to manage
the Group’s climate change strategy.
• Reviewed and challenged the Group’s
performance against its RBC targets,
including net zero commitments.
• Undertook a deep dive into the Group’s
climate change GPR.
• Reviewed the 2022/23 draft TCFD,
EU Taxonomy, GRI and SASB content,
as well as the RBR assurance outcomes,
at its May 2023 meeting.
• Briefed on readiness initiatives and
planning for imminent mandatory
corporate sustainability
reporting regimes.
• Oversaw and monitored the progress
of data governance and controls
improvement initiatives on non-financial
information, with a focus on climate
change KPIs.
Remuneration
Committee
Considers and approves how ESG targets
are incorporated into our long- and
short-term incentive arrangements and
plans for Executive Directors and the
Senior Leadership Group.
The Committee also reviews workforce
remuneration and monitors related
policies, satisfying itself that incentives
and rewards are aligned to National Grid’s
strategy, culture and long-term
sustainable success.
• Approved the new Directors’
Remuneration Policy (approved by
shareholders in July 2022). The
proportion of incentives linked to ESG
and progress against climate-related
targets have increased.
More information on
the remuneration
incentives can be
found on page 91
People &
Governance
Committee
Oversees a diverse succession pipeline
to ensure the right people to deliver our
strategy and net zero ambition are being
attracted and retained. As part of
ensuring the Board comprises the skills
and experience needed for the future
needs of the business, the Committee
regularly reviews current and future
Board composition.
• Refreshed the Board skills matrix
by including broader sustainability-
specific skills, and assessed Board
members accordingly.
• To see the spread of Board skills
including sustainability and climate
change see page 80.
Finance
Committee
Oversees our financing strategy and
considers the financial impact of
environmental factors on our credit
metrics and relevant considerations with
regards to debt investors, pension and
insurance strategy.
• Reviewed a paper on Green and
Sustainable Financing strategy, and
continues to drive good practice in
this area.
• Monitored the issuance of green
bonds under the Group’s Green
Financing Framework. This includes
the €750 million green bond issued by
National Grid plc in January 2023 and
the $500 million green bond issued by
Niagara Mohawk Power Corporation
in September 2022. More details can
be found in our 2022/23 Green
Financing Report.
National Grid plc
Annual Report and Accounts 2022/23
39
Task Force on Climate-related
Financial Disclosures (TCFD) continued
Management’s role
The Board delegates to management
responsibility for asset investment and
maintenance planning, implementation
of the net zero strategy and overseeing
the development and achievement of RBC
commitments and targets. Management is
also responsible on a day-to-day basis for
the management of climate-related risks and
opportunities faced by the Group and for
delivering the roadmaps to achieve the net
zero strategy set by the Board.
Sustainability-focused roles have been
embedded across the Group to ensure that
in addition to the top-down focus, there is
also a bottom-up approach to addressing
climate-related issues.
Our Chief Sustainability Officer heads
a team of subject matter experts who lead
the implementation of the RBC across the
Group by working closely with business units
to ensure their strategy and operations align
with our decarbonisation and climate resilience
targets. The Sustainability team sets the Group
sustainability strategy, modelling potential
climate scenarios, working with the Science
Based Targets initiative team. In addition, they
have developed the Group’s CTP, and continue
to monitor the developments from the UK’s
Transition Plan Taskforce (TPT) to ensure it
adheres to future disclosure standards and
meets the needs of our stakeholders.
To address physical risks, the Chief Engineer’s
Office leads the development of climate
adaptation frameworks across the Group
to ensure there is a consistent approach to
assess the vulnerability of our energy assets
and to guide strategic investment planning.
Further delegation is given to our core
operational businesses including business
unit Presidents who are accountable for
delivering the net zero roadmaps for their
businesses. Corporate Affairs; Group Finance;
Sustainability; Safety & Health; and People
teams support the businesses in achieving
their net zero pathways.
The Group Finance function continues to build
out its sustainability capabilities through its
ESG Centre of Excellence, Investor Relations,
Group Treasury and Procurement teams.
These teams are responsible for setting the
Group sustainability voluntary and mandatory
reporting strategy and ensuring credible and
reliable internal and external reporting of
sustainability data. This is achieved via
implementing robust systems, processes,
controls and assurance; attracting green
investment and engaging with debt and equity
investors on how to enhance messaging
around climate-related issues; and engaging
with, and supporting, suppliers on their
decarbonisation journey.
How management is informed about
climate-related issues
Climate-related issues are flagged via the
Enterprise Risk Management (ERM) process
described in the next section. We also have
a monthly business review process whereby
more granular targets are embedded in
business unit performance contracts.
In addition, we engage in regular discussions
with regulators, policymakers and other key
stakeholders, which helps inform management
on key horizon risks.
Other relevant forums
TCFD working group, led by the Group
Finance ESG Centre of Excellence, comprises
representatives from Sustainability, Corporate
Strategy, Group Risk and Company
Secretariat. This group oversees progress
against the TCFD recommendations and the
publication of our annual disclosure.
The Responsible Business steering group,
chaired by the Chief Sustainability Officer,
provides oversight of the integration of
responsible business into National Grid,
including the development of ESG targets
and future ESG strategy.
Business Unit Green Financing
Committees chaired by the Group Treasurer,
provide governance over our Green Financing
Programme and approve the publication of our
Green Financing Report, which provides an
analysis of how we utilised the proceeds from
our portfolio of green bonds and their
environmental impact.
Climate management committees
Below, we outline the key management committees responsible for monitoring and driving our sustainability performance and managing
climate-specific risks and opportunities:
Group Executive Committee
Our Group Executive Committee oversees the safety, operational and financial performance of the Company and to execute the strategy, business objectives
and targets established by the Board. It is supported by a number of other management committees:
Safety, Health &
Sustainability
Committee
Reviews and manages
Group-wide safety,
environment and health
tracking/ monitoring and
related decisions. The
Chief Sustainability Officer
attends this Committee,
providing a link between
management and Board
discussions around
climate-related issues.
The Committee reviewed
potential impacts on our
climate strategy and
progress towards our
net zero commitments
throughout the year.
40
Reputation &
Stakeholder
Management
Executive Committee
Provides oversight of
Responsible Business
policy development and
engagement, including in
relation to the RBR and the
energy transition.
Ethics, Risk
and Compliance
Committee (ERCC)
Policy and Regulation
Committee
Investment
Committee
Oversees the
implementation of the
Group’s risk management
framework and assessment
of principal risks, including
climate change.
Agrees and provides
strategic oversight of Group
public policy priorities and
positions, including those
relating to climate change.
Has delegated authority
to approve investment
decisions, including those
related to our NGV business
which encompasses our
National Grid Renewables
business in the US.
National Grid plc
Annual Report and Accounts 2022/23
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We also consider potential transitional
impacts of scenarios of average global
temperature increases of 1.5°C in keeping
with the Paris Agreement.
Our most recent analysis executed in
2021/22 modelled three scenarios: slow
progress, orderly transition and acceleration.
They are stretching and plausible futures for
our society built using different assumptions
across variables, as demonstrated by the
graphic below. We tested the resilience of
our business strategy against these different
transition scenarios, focusing our transition
risks on the scenarios associated with lower
temperature rises, and our physical risks on
the scenarios with higher temperature rises.
Our scenarios are updated every two to three
years, with the next update due in 2023/24.
Transition scenario modelling
Our transition scenarios are developed using
driving forces which we monitor regularly as
part of our risk management process and
annually in our strategic horizon scan. In our
analysis, we do not make a judgement on the
likelihood of any one scenario relative to others;
and by design, the analysed scenarios do not
encompass all possible future pathways and
their associated risks. There are limitations
within the scope of our modelling, for example
available data across other sectors, but to
minimise this impact we have utilised a wide
range of resources and compared our results
with external scenarios.
2. Strategy
The work we have done to better understand
our climate-related risks and opportunities
have helped inform the strategic decisions
we have made in recent years.
These include the strategic pivot towards
electricity that was announced in March 2021,
for example:
• acquisition of UK ED (previously WPD)
in June 2021;
• the sale of our Rhode Island electricity
and gas business in May 2022; and
• the sale of a majority equity interest in
the UK Gas Transmission and Metering
business in January 2023.
This has shifted our portfolio of Group
assets from c.60% electricity in 2021 to
c.70% electricity on completion of all three
transactions. In addition, the Group has
continued to grow its investment in our NGV
business, which includes our interconnectors
business in the UK and National Grid
Renewables and fossil fuel generation business
in the US. This further enhances our role in
delivering the energy transition, whilst helping
to ensure energy security and sustainable
affordability in the jurisdictions we operate in.
Scenario analysis
Scenario analysis to 2050 and beyond guides
our strategic and financial planning with
respect to climate change. Scenarios consider
the potential physical impacts to the Group of
average global temperature increases of 2°C
and 4°C by 2100 from pre-industrial levels.
Our scenarios
Technology
Policy
Consumer behaviour
Competition
Science
Inputs
Physical and Transition Scenarios
Outputs
Slow progress
Orderly transition
Acceleration
• Decarbonisation progress is
made but too slow to meet
net zero targets
• Increase in distributed
generation and local solutions
where local authorities
compensate for lack of overall
national progress
• System becomes increasingly
unequal
• Reaches most net zero
targets through an orderly
approach
• Governments pursue suite
of solutions for large-scale
and consumer options
• Coordinated pathway
between key market players
e.g. orderly reduction in
natural gas
• Increased investment in
renewable electric generation
and networks
• Gas network evolution to
allow H2 clusters and/or
clean gas blending
• Reaches 2030 net zero
targets to be on track
for 2050
• Electrification of heat and
transport at a fast pace
• Accompanied by large-
scale investments
(network, storage)
• Increased grid scale
and interconnection
with smart homes and
end-use electrification
• Faster gas demand reduction
National Grid plc
Annual Report and Accounts 2022/23
Transition insights
Whilst current global climate policies and
actions suggest a lower than 4°C scenario,
a 4°C scenario was still modelled in line with
our approach to scenario modelling outlined
below. The transition impact to the Group
is most significant in scenarios resulting in
a lower degree of warming given the increased
action required. The following five transition
insights are therefore most relevant to a 2°C
(or lower) scenario:
1. Urgent collective action required
across society
To reach net zero requires new policies and
technology development. Action is required
by a wide range of stakeholders in the industry
as a result of the public expectations on climate
change; there is a push for new policies,
action and government and state targets in
the regions we operate. Our ability to meet our
own net zero commitments rely on these and
is covered in more detail in the risk and
opportunities section.
2. Retaining consumer buy-in will be key
To reach net zero, consumers can drive
domestic heating and transport decarbonisation
by switching to low-carbon alternatives such
as EVs and heat pumps. EVs are expected to
represent 90% of the global fleet by 2050, and
increased consumer demand such as this will
drive additional growth and investment in our
electric network businesses.
3. Electricity use and share of final
demand will increase
Grids are expected to grow to deliver an
increase of 50 – 160% of current demand by
2050 due to fuel switching, with both heating
and road transport sectors decarbonising.
This will drive additional growth and investment
in our electric network whilst resulting in lower
demand for our gas network.
4. Energy supply structure will shift
There will be a shift to power generation from
renewable sources, most notably wind and
solar. Offshore wind is expected to triple in
output from 2030 to 2050 and connecting this
could drive significant growth opportunities for
our businesses.
5. Pathways will adapt to global and
local realities
For example, the US Northeast region is
expected to import hydrogen to support
decarbonisation, but in the UK, blue hydrogen
and carbon capture, utilisation and storage
(CCUS) may develop due to policy and
geology. It is important that our businesses
monitor and adapt to these differing pathways
in their respective geographies.
None of the transition scenarios
tested threaten the resilience of the
Group and we are in a strong position
to adapt our portfolio to maximise the
opportunities of the energy transition.
Further detail on the transition risks and
opportunities identified in our scenario analysis,
including estimated qualitative and quantitative
impacts where applicable, can be found on
pages 47 – 50.
41
Task Force on Climate-related
Financial Disclosures (TCFD) continued
Physical modelling
Climate hazard
Definition and threshold
Potential change by 2070s (4°C scenario)
Coastal
flooding
Frequency of occurrence of coastal flood and future impacts
due to sea level rise
Significant increase in frequency
Confidence
level
Medium
River flooding
Frequency of occurrence of river flooding due to over 25mm (1 inch) daily rainfall
Significant increase in frequency
Medium
Storms
(compound
events)
Number of days per year when high winds are above 34 m/s (76 mph) and high
rainfall is above over 25 mm (1 inch) on the same day. Displayed separately for
summer (March to August) and winter (September to February) seasons
High wind
Number of days per year when maximum daily wind gust is above 34 m/s (76 mph)
Summer – slight increase in frequency
Low
Winter – no change in frequency,
but potential increase in intensity
Decrease or no change in frequency,
but increase in intensity
Lightning
Number of lightning events
Increase in frequency
High
temperatures
Number of days per year when maximum daily temperature is above 30°C (86°F)
in the UK and 95°F (35°C) in the US
Significant increase in frequency
Low
temperatures
Number of days per year when maximum temperature is below 0°C (32°F) in the
UK and 10°F (-12°C) in the US
Decrease in frequency
Freeze-thaw
cycles
Number of days per year when maximum daily temperature is above 0°C (32°F)
and minimum daily temperature is below 0°C (32°F) in the same day
Significant decrease
Heatwaves
Number of times per year when maximum daily temperature is above 30°C (90°F)
and minimum daily temperatures is above 20°C (70°F) for three consecutive days
Significant increase in frequency
Low
Low
High
High
High
High
For physical risks, the climate hazards from
our 4°C scenario analysis are summarised
above. The climate hazard data is sourced
from the relevant national climate assessments
(NCA4 in the US and UKCP18 in the UK). The
scenario data are modelled using the IPCC’s
Representative Concentration Pathway (RCP)
scenarios of RCP8.5 (4°C) and RCP4.5 (2°C).
The modelling covers decade timeframes;
2030s, 2040s, 2050s and 2070s, with
comparison to a baseline of 1981 – 2010
in the UK and 1976 – 2005 in the US.
Physical insights
Most hazards are projected to increase in
frequency in the future, with high temperatures
and coastal flooding of particular concern
across consistent areas of our operations.
In most cases the level of risk is greater in
a 4°C scenario than a 2°C scenario.
We are continuing to progress our physical risk
analysis and asset vulnerability to inform our
strategic planning and investment choices.
By developing our Climate Change Risk Tool
(CCRT) in-house with a dedicated geospatial
capability we can create bespoke physical risk
assessments for each business based on the
specific asset and hazard data that is material
to their operations, while still retaining a Group
strategic view of our overall business.
Our current risk assessment shows the risk
to our existing asset portfolio, but we are now
aligning this with data relating to our new
infrastructure investments so that our
cumulative picture of risk will begin to change.
The next version of our risk assessment in
2023/24 will incorporate UK ED and National
Grid Renewables.
Climate Vulnerability Assessment (CVA)
Our group-wide CVA began in December 2022, led by a steering group of senior leaders
from each of our businesses, and a working group with business representatives from
our engineering, resilience and policy teams.
It is a phased programme of activity which will deliver an adaptation plan to address assets with the
highest resilience risk. Sharing best practice with other energy utilities informs our approach and
the ongoing development of our industry-leading Climate Change Risk Tool.
Our CVA is a risk-based approach where each business unit identifies critical assets which are
physically vulnerable to climate hazards. The process accounts for existing adaptation plans such
as storm hardening programmes and leverages the latest climate science. Adaptations will be local
and developed by each business unit.
Process
Phase 1
Scope
Validate scope
including climate
science, hazards
and assets
Phase 2
Assess
vulnerability
Climate vulnerability
risk = Exposure x
Potential x Hazard
Phase 3
Assess
resilience
Assess climate
resilience assets
at risk, accounting
for those with
adaptation efforts
in place
Phase 4
Adaptation
Develop adaptation
plan to address
assets with
the highest
resilience risk
Outputs
Business-specific
Vulnerability Assessment
Reports
To support future regulatory
submissions
Asset policy changes
To deliver climate resilient
assets at least cost
Equipment specification
updates
External engineering
standards
To identify where changes
are needed
Discrete investment
projects
To address immediate
vulnerability risks not
captured in existing
investment plans
To influence, change
and establish industry
resilience standards
CCRT development
To continuously improve
our CCRT through
application
42
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Annual Report and Accounts 2022/23
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Progress against our CTP
In June 2022, National Grid became one
of the first FTSE 100 companies to publish
a transition plan for climate change. This was
something we committed to shareholders
following the Chancellor’s announcement at
COP26 that the UK will move towards making
it mandatory for companies to publish a clear,
deliverable plan on how they will decarbonise
and transition to net zero.
For more information, please refer to
our Climate Transition Plan
Over the last year we have:
• put our CTP to an advisory vote at the
2022 AGM, which was approved by 98%
of shareholders.
• engaged with investors on our climate
strategy and CTP.
• contributed towards the Transition Plan
Taskforce’s (TPT) consultation on both their
disclosure framework and sector specific
guidance. We also co-chair the TPT Electric
Utilities and Power Generators working group,
supporting the further development of sector
specific guidance.
• embedded performance management against
the CTP and continued to integrate climate
strategy in our financial planning process.
Our GHG performance and transition
pathway has been re-baselined following
the sale of Rhode Island and a majority
stake in UK Gas Transmission and
Metering, as well as the NGED Acquisition.
Methodological adjustments have also
been made to improve data accuracy,
including the transition to new standards
and global warming potential (GWP)
measurements contained within the
IPCC’s AR5.
Scope 3
Actuals
Projections
3% reduction since
2018/19 (Scope 3 baseline).
Whilst Scope 3 emissions
increased slightly this year,
we are currently working
to enhance our Scope 3
scenarios to increase
transparency of external
dependencies. See page 51.
30,000
25,000
20,000
15,000
10,000
5,000
0
Scope 3
(CTP)
Scope 1&2
(CTP)
27% reduction since
2015/16 (Scope 1 and 2
baseline). Emissions
reduced in FY23 in line
with the range projected
in our CTP. See page 15
of the RBR.
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FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
FY34
SF6
Line Losses
Generation
Leak Prone Pipe
Other
Scope 1&2 (CTP)
Scope 3 (CTP)
Scope 3
EU Taxonomy
The EU Taxonomy Regulation is a framework to facilitate
sustainable investment by creating a ‘green list’ of
environmentally sustainable economic activities based
on scientific criteria.
In our commitment to be a trusted, value-driven leader
in the energy transition, we have voluntarily elected to
publish disclosures based on our eligibility and alignment
to the EU Taxonomy Delegated Acts on Climate Change
Mitigation and Adaptation. Both objectives have been
developed to align with the Paris Agreement and are
highly material to our business.
Following a process of identifying a complete set of
eligible activities and assessing these activities against
the substantial contribution, do no significant harm
and minimum safeguards screening criteria, our total
EU Taxonomy-aligned KPIs are as follows:
For more information, please refer to
our 2022/23 EU Taxonomy Report
Group aligned turnover
67%
£14.4bn
(2021/22: 67% £12.4bn)
Group aligned opex
84%
£6.5bn
(2021/22: 84% £5.3bn)
Group aligned capex
75%
£5.6bn
(2021/22: 73% £4.5bn)
National Grid plc
Annual Report and Accounts 2022/23
Taxonomy aligned
activities 67%
Taxonomy eligible
but not aligned
activities 4%
Taxonomy non-
eligible activities 29%
Taxonomy aligned
activities 84%
Taxonomy eligible
but not aligned
activities 5%
Taxonomy non-
eligible activities 11%
Taxonomy aligned
activities 75%
Taxonomy eligible
but not aligned
activities 5%
Taxonomy non-
eligible activities 20%
43
Task Force on Climate-related
Financial Disclosures (TCFD) continued
2. Significant Disruption of Energy
(adaptation GPR): The adaptation or physical
risk activity, absorbed within the control
framework associated with the ‘Significant
Disruption of Energy’ risk, has helped ensure
we continue to deliver energy reliably for our
customers, with a focus on resilience.
• GPR description: We fail to predict and
respond to a significant disruption of energy
supply because of climate change, asset
failure (including third-party assets), storms,
attacks, market failure or other emergency
events leading to significant customer harm,
lasting reputational damage with customers,
regulators and politicians, material financial
losses, loss of franchise and damage to
investor confidence.
This has generated greater oversight, focus
and adoption of two distinct and proportionate
control frameworks in line with the new Group
risk appetite – mitigating downside risk, and
maximising opportunities, where applicable.
Further details of the Group’s exposure to
climate change are described on pages 21
and 23.
We have further developed our risk and
opportunity horizon scanning to assess critical
trends to the energy transition. With our senior
stakeholders and supported by external risk
experts, we identified key indicators and
metrics which are measured on a monthly
basis against thresholds. These are analysed
against our current strategy and business
plans for their potential impact and plausibility.
Emerging risks are managed under our risk
management framework with results reviewed
by senior leadership (detailed further on
page 19).
Integration of the climate risk
management process into our overall
risk management framework
Consistent with the Group’s overall approach
to risk management and internal control,
climate change risk management activities
take place through all levels of our organisation.
Our risk governance model drives an effective
‘top-down, bottom-up’ approach (see below)
which is described further on page 18.
3. Risk management
Climate Change and ERM
Climate change is considered as part of our
ERM process and is one of our GPRs.
For details of our ERM framework and process,
see page 18.
Since December 2021, the ERCC split
the climate change GPR risk into two
distinct elements:
1. Climate Change (mitigation GPR):
The standalone mitigation risk is aligned to
our strategic objective ‘Enable the energy
transition for all’, with a focus on delivering
clean, decarbonised energy to meet our net
zero goals.
• GPR description: We fail to identify and/or
deliver upon actions necessary to address
the transitional impacts (from a changing
energy system) of climate change on our
business, because of poor management
of threats and opportunities associated with
climate change, leading to a reputational
impact of not enabling the Group to meet
its own net zero commitments: ensure our
business model and strategy is aligned to
the Paris Agreement on climate change;
deliver greenhouse gas emission reductions
for our business and enable economy-wide
net zero transition; and demonstrate climate
change leadership within the energy sector.
Top-down, bottom-up approach
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of Directors
Senior
Leadership
Enterprise
Risk Management
Group functions
& their teams
Regional business units,
functions & their teams
Risks
Strategic
Operational
Compliance
Financial
Top-down approach refers to the activities under the
responsibility of the Board and the Senior Leadership (‘top’) to
drive strategic alignment and effective risk management across
National Grid (‘down’). The main purpose of this approach is to
capture our strategic “bigger picture”, including the main risks
to its achievement, and then drill down from there. It includes:
• defining and cascading the Group business strategy across
National Grid;
• defining high-priority risks (e.g. through the UK/US
Risk Committee or UK/US Executive);
• driving decision making over organisation-wide risks
and opportunities; and
• overseeing risk management activities across the organisation.
Bottom-up approach refers to the activities performed
by the business units and functions, supported by risk
management units (‘bottom’) to manage risks at the
operational level, and report insights and results to the
Senior Leadership (‘up’). It includes:
• performance of risk management activities at the operational
levels (e.g. deep dive activities across risk teams, risk
governance at the business unit level, review of business
risk registers);
• design and execution of mitigation plans (e.g. controls)
over risks; and
• escalation of relevant risks noted at the detailed level to
Senior Leadership and the Board.
44
National Grid plc
Annual Report and Accounts 2022/23
Group’s Risk Taxonomy
The Group’s Risk Taxonomy supports all levels
of the business to categorise any climate
change risk into one of our four taxonomy
groups: strategic, operational, financial and
compliance. Sub-categories beneath these
four groups allow the business to select a more
granular taxonomy grouping with an assigned
risk appetite. The individual business unit or
Group function Risk Committees oversee,
discuss and challenge new and existing climate
change risks using the ERM framework,
taxonomy and scoring methodology to ensure
each risk has an appropriate inherent, current
and target score for likelihood, financial and
reputational impact. Where current risk levels
are outside of agreed target scores and our
risk appetite (based on the taxonomy), the
business area implements actions and internal
controls to close the gap.
Despite external risk pressures, our risk
exposure specific to our climate-related risks is
largely unchanged with the majority of our risks
operating within risk appetite.
The table below illustrates a comprehensive
and evolving set of risk categories that is used
for organising and communicating risk across
the organisation. It is an important component
of the risk management process as it provides
a complete set of risk categories across
different levels and enables risk owners and
the risk community within an organisation to
consider climate-related risks that could affect
achieving its objectives. The climate-related
risks aligns directly with two primary risk
categories – strategic and operational.
Specifically, these risks directly focus on
‘Environmental, social and governance’ (ESG)
and ‘Production and service disruption’, but
are also indirectly incorporated into many other
risks across the framework.
Further, once a risk is identified and described,
the threat (or the exposure) it represents to
National Grid is quantified with the use of risk
scales so that a proper mitigation plan is
defined and implemented.
Setting consistent and organisation-wide
definitions for quantifying risk, with impact,
likelihood and velocity adopted as the minimum
assessment, this approach enables a robust
and meaningful quantification of risk to inform
the risk response (see table on page 46).
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Risk Taxonomy
Strategic
Operational
Compliance
Financial
Risk
level
0
Strategic risks are risks, both
internal and external, associated
with the business model,
corporate strategy and
long-term planning.
Operational risks are risks
derived from National Grid’s
core business practices, which
rely on our systems, equipment,
processes and people.
Compliance risks are risks
associated with compliance to
laws and regulations, industry
standards, contract
requirements and internal policy.
Financial risks are risks
associated with National Grid’s
ability to raise capital, maintain
access to capital, deliver
profitable growth and meet
our earnings and capital
growth targets.
Risk
level
1
• Strategy delivery
• Customer
• Market external obligations
• Planning and forecasting
• External market environment
• People management
• Regulatory strategy
• Business performance
• Political landscape
• Health and safety
• Legislative and regulatory
• Financial market
• Brand, trust and reputation
• Asset development,
complexity and scale
• Environmental, social
and governance
• Consumer
• Agility
• Global megatrends
• Culture and behaviours
• Talent management
availability and performance
• Health, safety and
• Production and
service disruption
environmental compliance
• Competition and anti-trust
• Business continuity and
• Financial crime
resilience
• Third party and supply chain
• Internal compliance
• Cyber security
• Data protection
• Technology
• Change management
• Balance sheet
• Financial reporting
• Supplier value and cost
management
National Grid plc
Annual Report and Accounts 2022/23
45
Task Force on Climate-related
Financial Disclosures (TCFD) continued
How we manage our climate-related risks
As part of our risk management process,
we have assigned key controls to manage
both our climate change mitigation and
adaptation risks.
The controls for our climate change mitigation
GPR are in line with our strategy and regulatory
frameworks and are also reflected throughout
other relevant risks, for example: regulatory
outcomes; political and societal expectations;
and significant disruption of energy. The key
overarching mitigation controls involve tracking
progress against targets, identifying changes
that could trigger additional transition risks and
implementing procedures and proposed
solutions to overcome them.
Our key climate change adaptation controls
include the following:
• Fit for Future of Electricity Strategy:
A corporate strategy that considers the
steps to ensure our business remains
resilient in the future, such as enhancing
design standards, and investments on asset
hardening and flood protection.
• Engineers Governance forums:
Group Chief Engineer and Engineering Duty
Holders sharing guidance and data on key
topics such as resilience.
• Resilience and Asset Management
Business Management Standard (BMS):
Sets out minimum requirements and
a framework for resilience capability and
managing asset risk to ensure each
business unit is prepared for the next
disruptive event.
• Establishment of the Business
Resilience and Crisis Management
organisation: Reporting to the Group Chief
Engineer and Group General Counsel &
Company Secretary, this team is focused on
building resilience to all threats and hazards.
This includes the development of crisis
management and business continuity plans,
training, and exercises to help align and
coordinate our response to severe weather
and other crisis events; but is also leveraging
innovative technologies to improve our
intelligence, looking strategically at evolving
risks associated with climate change.
We are also expanding our network
of external stakeholders to identify and
leverage industry thought leadership and
play an active role in shaping new policies
and regulations.
More information on our stakeholders
can be found on
pages 36 and 37
Risk assessment scoring
Risk scales
Rating
Financial
– Directorate (£)
Financial
– Management
(£)
Financial
– Business unit/
Function/
Regional (£)
Financial
– Group (£)
Reputation
Likelihood and descriptions
1
2
3
4
5
46
<50k
<500k
<5m
<50m
Internal
Minor impact on stakeholders within
National Grid Group
Remote
Frequency:
10% chance
and <40% chance
100 – 300k
1 – 3m
10 – 30m
100 – 300m
Local 3rd Party (External)
Impact on local stakeholders
300 – 500k
3 – 5m
30 – 50m
300 – 500m
National (External)
Impact on national stakeholders
Equally unlikely as likely
Frequency:
40% chance
and <60% chance
More likely
Frequency:
60% chance
and <90% chance
>500k
>5m
>50m
>500m
International (External)
Impact on stakeholders that could
reasonably be visible on the wider
international stage
Almost certain
Frequency:
One or more
a year
Probability:
>90% chance
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Annual Report and Accounts 2022/23
Risks and opportunities
Guided by our scenario modelling, strategic
planning and risk management approaches
articulated above, the climate-related risks and
opportunities that pose a financially material
impact to the Group are detailed below, along
with our basis of measuring and responding
strategically to each. To assess the relative
materiality, we established scope of impact,
timeframe and likelihood for each risk and
opportunity using internal analysis, market
data and input from subject matter experts.
We have only reported risks and opportunities
financially material to the Group per the risk
assessment scoring table on page 46.
Time horizons and probability
The timeframes we have used to
assess the climate-related risks
and opportunities are:
Our ‘likelihood’ assessment is an indicative
estimate of the probability for material
financial impacts with reference to the
following categorisation:
Short
Medium
Long
Very low
Low Moderate High
Very high
up to
2025
from 2025
to 2030
from 2030
to 2050
Remote Less
likely
Equally
unlikely
as likely
More
than
likely
Almost
certain
We use our ERM risk assessment scoring
scale to categorise the likelihood of our
climate change risks and opportunities.
These time horizons largely align with our
planning and forecasting processes
timelines, with some buffers to reflect the
regularity of updating scenarios:
• Short: In line with our annual planning
and shorter-term budget processes.
• Medium: Reflects our strategic
business planning process period,
which is 5 – 10 years.
• Long: Aligns with our longer-term
emerging risk assessment timelines, up
to the date of our net zero commitment.
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Our material climate-related risks and opportunities
Risk/opportunity
Potential impact
Our response
Massachusetts and New York have released
their final plans to execute their respective
decarbonisation targets. Though these plans
indicate an accelerated programme towards
electrification and a reduction in gas heating
demand, they have been developed to inform
future legislation and do not have the force of
law or regulation.
It should be noted that all net zero pathways
suggest some role of gas in heating buildings
beyond 2050, so we have performed sensitivity
analysis to assess the impact on our Group
financial results of shortening the UELs of our
gas business assets, which for 2050 illustrates
an unlikely worst-case scenario. This may result
in an increase in depreciation expense of around
£239 million to 2050 for US-regulated assets.
Please refer to note 13 Property Plant
and Equipment on page 158 for more details.
This sensitivity calculation excludes any
assumptions regarding the residual value of our
asset base and the effect that shortening the
asset depreciation lives would be expected to
have on our regulatory recovery mechanisms.
Our US fossil fuel powered electricity generation
assets are currently expected to be materially
depreciated by 2040 which aligns to New York’s
target to achieve zero emissions from electricity
by 2040.
We recognise the risk to the UELs of some
elements of our US gas networks, as a result
of the energy transition. Whilst we believe the
gas assets which we own and operate today
will continue to have a crucial role in maintaining
security, reliability and affordability of energy
beyond 2050, the extent of this role remains
uncertain given the dependency on economic,
technological, legal and regulatory developments.
Our current expectation is that any adjustments
to our accounting assumptions would only be
triggered by future changes in relevant laws and
regulations within our jurisdictions.
Under our Clean Energy Vision, we are pursuing
zero fossil fuel gas and electric systems by 2050,
if not sooner, in the US. The vision proposes
a hybrid approach to heating that enables
customers to have more affordable and practical
choices to become fossil free. More details can
be found in our Clean Energy Vision.
This year, we submitted a depreciation study on
our gas assets to the New York Public Service
Commission (PSC) in advance of our rate case
filing, outlining the affordability challenges for
various scenarios for gas, including a minimal
gas heating future.
We continue to engage in key regulatory
proceedings and processes in New York and
Massachusetts to maximise recovery on our
gas business assets, including the ongoing
DPU 20-80 ‘Future of Gas’ proceeding
in Massachusetts.
1. Transition Risk
Policy & Legal
Future reduction in the demand for
US natural gas
The role that our US gas networks play in
the pathway to achieving the GHG emissions
reduction targets set in the jurisdictions in
which we operate is currently uncertain.
Our US jurisdictions have indicated an
increase in electrification and a reduction in gas
heating demand in their plans to achieve their
respective decarbonisation targets. Though
there is acknowledgement of the value of
back-up heat sources such as low-carbon gas,
there is a risk that the accounting assumptions,
such as the useful economic life (UEL), of
certain elements of our US gas networks could
be adjusted in line with future legal and
regulatory changes.
Note: The corresponding risk in the UK is
immaterial as we have sold a majority interest
in our Gas Transmission and Metering business,
and our retained 40% interest is not treated as
part of our continuing operations.
Business potentially affected:
New York, New England, NGV
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Gas UEL sensitivities, GHG emissions, CTP
National Grid plc
Annual Report and Accounts 2022/23
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Task Force on Climate-related
Financial Disclosures (TCFD) continued
Risk/opportunity
Potential impact
Our response
2. Transition Risk
Technology
Not meeting significant increase
in electricity demand
To meet net zero, electricity use and share of
final demand will need to expand significantly,
with ever-increasing volumes of intermittent
renewable energy. If the ESO or our UK and
US electricity networks do not adapt to these
changes, there is a risk National Grid will not be
able to ensure reliability and security of supply.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Network reliability; capital expenditure on ESO
stability services and UK and US power networks
Our current role as the GB ESO is pivotal to
delivering the energy transition. If the ESO is not
prepared with the systems and processes to
operate a decarbonised energy supply system
with significantly higher intermittency, there will
be significant costs from market inefficiency and
the potential for network outages impacting
our customers.
There is also a risk that the transmission and
distribution networks we operate in the UK and
US may not be equipped to deliver the significant
electricity demand growth envisioned to achieve
net zero.
In the short term, failures could affect us through
reputational damage and lost regulatory incentive
income, which link directly to reliability. For
example, in relation to UK ED, the Interruptions
Incentive Scheme in RIIO-ED2 provides 150bps
upside incentive but 250bps downside penalty
on our return on retained earnings (RORE).
Our ESO business is ensuring it can operate the
system safely and securely at zero carbon by
proactively working with the UK Government
on electricity market reform.
On 6 April 2022, the UK Government announced
its intention to create the FSO that will take on
all of the existing ESO roles. In line with this
aspiration, we are working towards establishing
the FSO in 2024, at which point it will no longer
be part of the Group (see page 9). The ESO’s
contribution to Group operating profit can be
seen on page 56.
National Grid continues to invest substantial
capital in the UK and US networks for higher
supply load and system resilience.
In the UK, 17 major projects have been approved
by the regulator to meet the UK Government’s
ambitions to connect up to 50 GW of offshore
generation to the electricity network by 2030
(see page 3).
To enhance system flexibility, we continue to
invest in our broader interconnector portfolio,
connecting the UK electricity system to those
of mainland European countries.
We regularly measure and report our network
reliability across transmission, distribution and
interconnection networks (see page 16).
Risk/opportunity
Potential impact
Our response
3. Transition Risk
Market
Customer buy-in and trade-off
management
Policy focus on the cost of the energy transition
to customers is likely to increase regulatory
scrutiny of network operators.
If customers and regulators perceive
costs as unreasonable, National Grid
could suffer reputational damage and
regulatory repercussions.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
% of National Grid costs on customer bills,
customer trust survey, feedback through the
fair transition plan.
Missing our affordability commitments could
damage our regulatory negotiations, trust in the
market and the resulting returns and incentives
of the frameworks within which we operate.
Due to the degree of external variables affecting
our reputation, it is difficult to meaningfully
quantify the risk. However, if not managed
effectively, it could undermine our corporate
strategy and ability to attract capital,
causing a potentially material impact on
our financial performance.
Being at the ‘heart of a clean, fair and affordable
energy future’ is our purpose and our Regulatory
Strategy team has a strong focus on affordability
for consumers, working with regulators to
minimise the impacts to customer bills and to
introduce affordability mechanisms. We utilise
innovative and digitalised solutions to enhance
our operations and support a culture across our
businesses that maximises every opportunity
to innovate and work smarter for our customers.
Our RIIO-ED2 business plans embedded £723
million of efficiency savings, to limit increases
to consumer bills.
Despite these efforts, the recent cost of living
challenges have affected our communities,
so we have launched a number of initiatives:
• We launched an energy support fund of
£50 million in the UK and $17 million in the
US, deployed through our Grid for Good
programme to support those most in need
(see page 33).
• Our Winter Customer Savings Initiative was
launched in November 2022 to support our
customers in a number of ways (see page 30).
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Annual Report and Accounts 2022/23
Risk/opportunity
Potential impact
Our response
4. Transition Risk
Reputation
Missing transition targets
and commitments
There is a risk that we do not deliver our crucial
role in delivering the emissions reduction targets
of the jurisdictions that we operate in. There is
also a risk that we fall short of our own stretching
GHG emissions targets and commitments.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Network reliability, renewable capacity
additions, proportion of renewables in energy
mix, EU Taxonomy-aligned capital investment,
customer satisfaction (US)
Failing to play our central role in the energy
transition, for example by failing to deliver the
major network reinforcement required to meet
government renewable installation targets, or by
failing to meet our own emissions reduction
targets could undermine our corporate strategy,
making it difficult to attract capital and resulting in
materially lower financial performance. It could
also damage our relationships with our trusted
stakeholders, including our investors, regulators
and customers and potentially position National
Grid as an obstacle rather than an enabler in the
net zero transition.
Given this risk would likely materialise over the
medium to long term, it is difficult to meaningfully
quantify this risk at this stage.
As a regulated utilities business, there are
a number of dependencies that are unique to our
business model that impact our ability to deliver
our emissions reduction plans. We therefore
work closely with our stakeholders, including
our regulators in the UK, New York and
Massachusetts, to ensure policy and regulatory
frameworks enable and facilitate net zero plans,
for example by ensuring regulatory frameworks
are financeable.
In June 2022, National Grid published its CTP,
which sets out an ambitious roadmap to a vision
of reaching net zero, and as close to ‘real zero’
as possible, across Scope 1, 2 and 3 emissions
by 2050 (see page 43).
This year, National Grid has made £5.6 billion
in green capex as aligned to the EU Taxonomy
principles, 75% of total capex (see page 43).
This keeps us on track to deliver our £40 billion
five-year investment programme up to 31 March
2026, of which £29 billion is designated as green
investment (see page 17).
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Potential impact
Our response
5. Physical Risk
Increased frequency of extreme
weather incidents and changing
long-term climate trends
Acute
Our assets are at risk of physical impacts from
increased frequency of extreme weather events
such as storms and flooding, leading to asset
damage and operational risks.
Chronic
Our assets are at risk of physical impacts from
changing long-term climate trends, leading to
asset damage and operational risks.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Network reliability, major storm costs,
CCRT outputs, research outputs from
innovation projects
Our New York business experienced two extreme
weather incidents in December 2022, including
a 48-hour blizzard which resulted in power
outages to over 200,000 customers and cold
weather-related gas pipeline issues. These
incidents highlight the vulnerability of our energy
infrastructure and communities.
We experience significant costs because of asset
damage and operational interruptions due to
major storms, with £258 million (2021/22: £163
million) incurred in the year. Under our regulatory
frameworks such costs are typically recoverable
in future years. More details on our major storm
costs can be found on pages 238 and 239 in the
‘Other unaudited financial information’ section.
These incidents are likely to increase in line with
the increasing likelihoods illustrated by the IPCC,
and associated costs are expected to grow
accordingly, unless climate adaptation is
appropriately measured and implemented.
Our Climate Vulnerability Steering Committee
and working groups are conducting a Group-
wide CVA for energy-carrying assets. This
programme is leveraging our Climate Change
Risk Tool analysis to identify long-term climate
hazard risk to our energy infrastructure. On
completion, we will develop a Climate Change
Adaptation Plan, outlining solutions for our
high-risk assets and confirm the strategic
approach to managing that risk.
In the US, we are working with leading
organisations to develop a consistent industry
methodology for climate vulnerability
assessments, hardening plans, standards and
rate case justifications.
In the UK, we have commenced a set of innovation
projects to understand the impacts of climate
change hazards on our asset performance.
We continue to invest in climate adaptation across
the Group in the form of storm hardening and
flood defences, with a further £31 million
(2021/22: £36 million) invested in the year.
More details of this year’s climate change
adaptation costs can be found in our EU
Taxonomy Report.
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Annual Report and Accounts 2022/23
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Task Force on Climate-related
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Risk/opportunity
Potential impact
Our response
6. Transition Opportunity
Products/Services
Identifying new products and services
to deliver the future energy system
The energy transition presents a significant
opportunity for the development of new products
and services, providing business opportunities
to scale technologies and develop existing ones.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Network reliability, investment in research and
development (R&D), National Grid Partners
(NGP) capital investment, EU Taxonomy green
capex ratio
Our NGV business has the potential to benefit
from significant investment opportunities in both
the UK and US, regarding interconnectors,
offshore wind and onshore renewables.
There are also potential opportunities for our
Group entities to partner with organisations
in the development of innovative low-carbon
gas alternatives, MPIs, carbon capture, usage
and storage (CCUS) and long-term
electricity storage.
Taking advantage of these opportunities would
lead to significantly higher capital investment and
growth and ultimately increase Group profit and
EPS. Given these opportunities are dependent on
policy and incentive decisions as well as open to
competition, it is not possible to reliably measure
the impact of this opportunity at this time.
NGV is developing plans for MPIs, connecting
offshore wind to land as well as connecting these
offshore wind clusters in the UK to neighbouring
countries. In April 2023, the first of these plans
between NGV and Dutch company, TenneT,
was announced to explore connecting up to
2 GW of offshore wind between the British and
Dutch electricity systems (see page 32).
This follows a study undertaken by the ESO,
which shows we could reduce energy costs to
consumers by £3 – 6 billion and onshore cable
landing points by 50%, lessening the impact on
coastal communities.
Our NGV business is taking our Community
Offshore Wind joint venture with RWE forward
in the New York Bight area in the US, further
expanding our activities in the US renewables
generation market (see page 162).
As part of our Clean Energy Vision to eliminate
fossil fuels from our US gas and electricity
systems by 2050, we have entered into an
agreement to collaborate with state governments
and other major hydrogen ecosystem partners to
propose a regional clean energy hydrogen hub
in the Northeast US. This is in addition to our
ongoing hydrogen pipeline readiness projects.
Risk/opportunity
Potential impact
Our response
7. Transition Opportunity
Markets
Emerging segments of the
energy sector
National Grid is well positioned to capitalise on
the huge growth opportunities associated with
the changing global energy mix.
Through smart investment and proactive market
engagement National Grid can succeed in new
and existing growth markets.
Business potentially affected:
Group-wide
Timeframe (term):
Short
Medium
Long
Likelihood:
Very low
Low
Moderate
High
Very high
Measurement indicators:
Network reliability, renewable capacity
additions, proportion of renewables in energy
mix, EU Taxonomy green capex ratio
In the UK, the Government has set a target
of 50 GW of offshore wind capacity by 2030.
This led to the UK Government directly awarding
£20 billion worth of transmission projects to the
UK transmission owners including UK ET, which
was awarded 17 out of the 26 projects. This,
along with other net zero investments across our
business units, will lead to a significant increase in
Group capital investment over the short, medium
and long term, and contribute towards achieving
the Group’s asset compound annual growth rate
(CAGR) of 8 – 10% out to 2025/26 (see page 17).
Following our strategic portfolio pivot, around
70% of our revenues are derived from electricity,
and we are therefore well placed to maximise
these opportunities.
To deliver the magnitude of new infrastructure
that is needed to reach net zero, National Grid
has appointed Carl Trowell to lead the new
SI business unit focused on the delivery of the
17 offshore wind connection projects, as well
as other strategic projects to help the UK
government meet its net zero targets (see
page 3).
In New England, work began on our first
geothermal pilot, which will investigate how
a utility-deployed network may be designed to
serve new customers and potentially convert
existing gas customers to a lower-carbon
technology. Geothermal energy draws heat
from below the Earth’s surface to generate
renewable energy.
A significant area of focus for UK ED is leading
the way on net zero by enabling the connection
of 1.5 million EVs and 600,000 heat pumps to
our network by 2028.
Further, the New England state regulator has
approved our filing to expand EV charging,
enabling up to 32,000 additional charging ports.
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4. Metrics and targets
In this section, we outline our carbon
emissions performance targets and metrics
linked to our material climate change risks
and opportunities.
Our overall climate commitment is to become
a net zero business across scope 1, 2 and 3
emissions by 2050, as established in our CTP.
In order to achieve this goal, we have set
ourselves a set of ambitious short- and
medium-term targets in our RBC in 2020,
some of which were updated in our CTP.
Our targets directly linked to climate
change include:
• reduction of scope 1 and 2 GHG emissions
by 80% by 2030 and 90% by 2040 from
a 1990 baseline;
• reduction of scope 3 GHG emissions,
including the electricity and gas we sell to
our customers, by 37.5% by 2034 from
a 2019 baseline;
• reduction of SF6 emissions from our
operations 50% by 2030 from
a 2019 baseline; and
• move to a 100% electric fleet by 2030 for
our light-duty vehicles and pursue the
replacement of our medium- and heavy-duty
vehicles with zero-carbon alternatives.
A complete index of the quantitative
measurement indicators used to manage each
climate-related financial risk and opportunity
is set out in the table below.
We continually review our metrics and targets
to ensure that the data we are measuring is
meaningful, aligns with our strategy, and is
providing the information the business and our
stakeholders need to effectively monitor our
performance and demonstrate our progress.
In addition to the metrics laid out below, we
have disclosed the proportion of our
International Financial Reporting Standards
(IFRS) revenue, operating expenditure and
capital expenditure that align with the climate
change mitigation and adaptation objectives
of the EU Taxonomy delegated acts. Given the
climate change mitigation objective’s alignment
to the principles of the Paris Agreement, the
disclosures provide a transparent view of the
Group’s compatibility with the net zero goals
of the jurisdictions we serve during the year
ended 31 March 2023. See page 43 for
a summary of the EU Taxonomy.
Further, we are closely monitoring
developments regarding the formation
of the International Sustainability Standards
Board (ISSB) and its proposals to deliver
a comprehensive global baseline of
sustainability-related disclosure standards,
as well as the SEC proposed climate rules and
UK Greening Finance roadmap.
Whilst we currently leverage the TCFD, covered
in this report, and GRI and SASB frameworks
in the RBR to maximise the comparability and
usefulness of our reporting, we are encouraged
to see advancement to further align
sustainability reporting disclosures.
Material Scope 1 and 2 emissions
• Electricity line losses
• Fossil fuel generation
• Natural gas losses (combustion, fugitives
and venting)
• SF6 leakage (an insulating gas used
in electricity networks)
Please also refer to the RBR for the
limited scope assurance opinion
received over our most material
sustainability metrics.
Material Scope 3 emissions
• Gas we sell directly to customers
• Electricity we sell directly to customers
• Goods and services that we buy
Index of climate-related quantitative measurement indicators
Measurement indicator risk/opportunity
Total scope 1 and 2 emissions (tCO2e)
Scope 1 emissions (tCO2e)
Fossil fuel generation (tCO2e)
Natural gas emissions from fugitive and venting (tCO2e)
SF6 fugitive emissions (tCO2e)
Scope 2 emissions (tCO2e)
Electricity line losses emissions (tCO2e)
Scope 3 emissions (tCO2e)
Sold gas emissions (tCO2e)
Sold electricity emissions (tCO2e)
Scope 1, 2 and 3 emissions intensity1 (tCO2e) / £m
Green capex five-year forecast (2021/22 – 2025/26)
Climate change adaptation capex
Reduction of scope 1 and 2 GHG emissions from 1990 baseline %
Reduction of scope 3 GHG emissions from 2019 baseline %
Reduction of SF6 emissions from 2019 baseline %
Electric light duty fleet %
Consumer Trust Survey (US)1
NG UK’s transmission costs’ contribution to consumer bills1
NG UK’s distribution costs’ contribution to consumer bills1
US Electric: Average Customer Bill (Low Income Customers Excluded)1
US Gas: Average Customer Bill (Low Income Customers Excluded)1
US Electric: Average Low Income (only) Customer Bill1
US Gas: Average Low Income (only) Customer Bill1
Network reliability1
Investment in research and development
Gas UEL sensitivities
Major storm costs
2022/23
7,245,612
4,369,413
3,093,766
714,405
277,856
2,876,199
2,748,279
27,879,254
17,972,516
3,510,283
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c.£29bn
£30.8m
2021/22 2
7,831,047
5,033,981
3,798,944
720,058
279,268
2,797,066
2,678,531
27,492,438
17,617,298
3,448,569
459
c.£24bn
£36.1m
70% (Target 80% by 2030)
3% (Target 37.5% by 2034)
21% (Target 50% by 2030)
5%
56.0%
£22.22
£131.49
$1,774.03
$1,482.81
$1,256.62
£1,023.71
4%
62.4%
£29.04
£98.85
$1,613.35
$1,314.24
$1,107.07
$904.72
See page 16
See page 137
See note 13 on page 158
See pages 238, 239 and 242
1. Refer to RBR reporting methodology for calculation methodology: www.nationalgrid.com/responsibility/responsible-business-report
2. All prior year GHG emissions data has been restated to reflect the changes in our portfolio, including the acquisition of UK ED, and the sale of UK Gas Transmission and Metering
and Rhode Island.
National Grid plc
Annual Report and Accounts 2022/23
51
Energy consumption
Our energy consumption is a key area of focus
as this, in turn, affects our carbon emissions.
Our energy consumption consists of both fuel
consumed and energy purchased from third
parties, including renewable energy. Total
energy consumption was 2,834,620,817 KWh
(10,204,634,941,292 kilojoules), an increase
of 17% on the previous year. Of this, 97%
was from non-renewable sources, with no
significant change from the previous year.
Total energy consumption in the UK was
1,769,976,526 KWh and total energy
consumption in the US was 1,064,644,291 KWh.
Operational energy use was 1,373,650,624
KWh (2021/22: 938,626,520 KWh).
Our transport energy use was 400,788,804
KWh (2021/22: 401,858,397 KWh).
Electricity consumption was 890,918,133 KWh
(2021/22: 893,447,404 KWh) and heating was
169,263,256 KWh (2021/22: 188,324,775 KWh).
Electricity consumption includes the energy
consumed in operating the generation assets
in the US. Total energy does not include fuels
consumed for power generation on behalf
of LIPA, the contracting body, amounting to
15,892,188,400 KWh (net of energy required
to operate the generation assets), a 19%
decrease on the prior year. Energy
consumption related to power generation
can vary greatly year-on-year and is
determined by LIPA. We therefore report
an energy consumption figure net of power
generation allowing us to report underlying
energy consumption across our business.
For transparency, we have reported energy
consumption from power generation as
a separate line item. Transport covers company
car business travel, and our own operational
ground and aviation fleet. In addition to energy
consumed, we calculate that system losses
accounted for a further 15,746,136,404 KWh,
of which 34% occurred in the US. This was
a 8% increase on the previous year.
52
National Grid plc
Annual Report and Accounts 2022/23
Financial review
1 Revenue and profits
The vast majority of our revenues are set in
accordance with our regulatory agreements
(see pages 219 – 224) and are calculated based
on a number of factors including investment
in network assets, performance on incentives,
allowed returns on equity and cost of debt,
and customer satisfaction.
Revenue (%)
1
2
3
4
9%
10%
22%
20%
5
6
7
32%
6%
1%
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
A
d
d
i
t
i
o
n
a
l
I
n
f
o
r
m
a
t
i
o
n
2 Cash flows
Our ability to convert revenue to profit and
cash is important. By managing our operations
efficiently, safely and for the long term, we
generate substantial operating cash flows.
Coupled with long-term debt financing, as well as
additional capital generated through the take-up
of the shareholder scrip dividend option during
periods of higher investment, we are able to invest
in growing our asset base and fund our dividends.
Statutory operating profit (%)
1
2
3
4
20%
22%
5%
23%
5
6
7
11%
19%
0%
3 Investment
We invest efficiently in our networks to achieve
strong and sustainable growth in our regulated
asset base over the long term. We also invest
in assets in our non-regulated businesses.
We continually assess, monitor and challenge
investment decisions so we can continue to
run safe, reliable and cost-effective networks.
Capital investment (%)
1
2
3
4
17%
16%
1%
21%
5
6
7
32%
12%
1%
Capital allocation
Our capital allocation is determined by the need to make the investments and outputs
required under our regulatory frameworks in the UK and US (which accounted for over
85% of our capital expenditure in 2022/23), balanced with the desire to invest in our other
businesses, such as NGV and NGP, which may achieve higher growth. The investments we
make seek a balance between the continued growth of our core regulated operations and
investments in our non-regulated NGV and NGP businesses, while ensuring we continue
to deliver a consistent and reliable dividend to our shareholders.
1 UK Electricity Transmission (UK ET)
2 UK Electricity Distribution (UK ED)
3 UK Electricity System Operator (ESO)
4 New England
5 New York
6 National Grid Ventures (NGV)
7 Other activities
National Grid plc
Annual Report and Accounts 2022/23
53
Financial review
Summary of Group financial performance for the year ended 31 March 2023
Statutory EPS1
Underlying EPS1
Group RoE
Asset growth
74.2p 69.7p 11.0% 11.4%
2021/22
2020/21
60.6p
37.0p
2021/22
2020/21
65.3p
42.4p
2021/22
2020/21
11.4%
2021/22
8.7%
10.6%
2020/21
5.6%
1. From continuing operations
Financial summary for continuing operations
£m
2022/23
2021/22
Change
Accounting profit:
Gross revenue
Other operating income
Operating costs
Statutory operating profit
Net finance costs
Share of joint ventures and associates
Tax
Non-controlling interest
Statutory IFRS earnings (note 8)
Less: exceptional items and
remeasurements (after tax)
Less: timing and major storm costs
(after tax)
Underlying earnings1
EPS – statutory IFRS (note 8)
EPS – underlying
Dividend per share
Dividend cover – underlying
Economic profit:
Value Added1
Group RoE1
Capital investment and asset growth:
Capital expenditure (including NECO
additions within held for sale)
Add: investments in JVs and
associates (excluding St William)
Add: investments in financial assets
(National Grid Partners)
Capital investment1
Asset growth1
Balance sheet strength:
RCF/adjusted net debt (Moody’s)1
Net debt (note 29)
Add: held for sale net debt
Net debt (including held for sale)1
Group regulatory gearing1
21,659
18,449
989
228
(17,769)
(14,306)
17%
334%
24%
12%
43%
86%
(30) %
(100) %
24%
4,371
(1,022)
92
(1,258)
(1)
2,182
28
n/m
140
2,350
60.6p
65.3p
51.0p
1.3
n/m
8%
22%
7%
9%
—%
4,879
(1,460)
171
(876)
—
2,714
(379)
214
2,549
74.2p
69.7p
55.4p
1.3
4,807
3,833
25%
11.0%
11.4%
-40bps
7,484
6,185
21%
197
59
7,740
11.4%
9.3%
40,973
—
40,973
71%
461
(57) %
93
6,739
(37) %
15%
8.7%
270bps
8.9%
40bps
42,809
5,234
48,043
(4) %
n/m
(15) %
81%
-10% pts
1. Non-GAAP alternative performance measures (APMs) and/or regulatory performance
measures (RPMs). For further details and, where practicable, reconciliation to GAAP
measures, see Other unaudited financial information on pages 238 – 252.
Performance management framework
In managing the business, we focus on various non-IFRS measures
which provide meaningful comparisons of performance between years,
monitor the strength of the Group’s balance sheet as well as profitability
and reflect the Group’s regulatory economic arrangements. Such
alternative and regulatory performance measures are supplementary to,
and should not be regarded as a substitute for, IFRS measures, which
we refer to as statutory results.
Our business performance as set out in our regulatory agreements can
differ from accounting under IFRS, principally because our regulators
allow for regulatory deferral accounting. Our allowed revenues are
set in accordance with our regulatory price controls or rate plans.
54
54
Prices are set and charged to customers based on the estimated
volume of energy expected to be delivered to achieve the allowed
revenue for that year. Where actual volumes delivered differ from
those estimates, that results in an over- or under-collection of revenues
compared with our allowances. These differences are commonly
referred to as timing differences. The same principle applies to revenues
from pass-through costs (e.g. commodity and energy-efficiency costs)
which are fully recoverable from customers.
Our reported underlying profit excludes major (deferrable) storm costs
if these exceed a predetermined threshold in a year and are eligible for
future recovery under regulatory agreements. Underlying results also
exclude significant exceptional items, and commodity and financial
derivative remeasurements, as defined in our accounting policies.
We explain the basis of these measures and, where practicable,
reconcile these to statutory results in Other unaudited financial
information on pages 238 – 252. Our RPMs have been calculated for the
total Group (or individual entities where relevant) and these are not
based on IFRS measures.
Specifically, we measure the financial performance of the Group
from different perspectives:
• Accounting profit: In addition to statutory IFRS measures we
distinguish between adjusted results, which exclude exceptional
items and remeasurements, and underlying results, which further
take account of: (i) volumetric and other revenue timing differences
arising from our regulatory contracts; and (ii) major storm costs,
which are recoverable in future periods; neither of which give rise
to economic gains or losses. In doing so, we intend to make the
impact of such items clear to users of the financial information in
this Annual Report.
• Economic profit: Measures such as Return on Equity (RoE)
and Value Added take account of the regulated value of our assets
and of our regulatory economic arrangements to illustrate the returns
generated on shareholder equity.
• Capital investment and asset growth: Capital investment
comprises our additions to PP&E and intangible assets (excluding
acquisitions), plus our investments in joint ventures and associates,
along with investments made by our National Grid Partners business.
Asset growth represents the year-on-year increase in RAV and US
rate base in our regulated businesses, along with the increase in net
assets (excluding certain balances such as pensions, net debt and
deferred taxes) in our non-regulated businesses, but excluding the
impact of currency movements.
• Balance sheet strength: Maintaining a strong investment grade
credit rating allows us to finance our growth ambitions at a
competitive rate. Hence, we monitor credit metrics used by the major
rating agencies to ensure we are generating sufficient cash flow to
service our debts. Group regulatory gearing measures our Group net
debt as a proportion of the Group’s assets that are used to measure
asset growth. This includes balances for businesses classified as held
for sale under IFRS.
This balanced range of measures of financial wellbeing informs our
dividend policy, which as set out in 2021/22 is to grow the dividend
per share in line with the rate of CPIH each year.
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Financial summary for continuing operations
Accounting profit: Statutory IFRS earnings from continuing operations
of £2,714 million were up £532 million from 2021/22, significantly
impacted by a £511 million gain on disposal of NECO in May 2022 and
a £335 million gain on disposal of our Millennium Pipeline investment in
October 2022. We had a full-year contribution from our UK Electricity
Distribution business (offset by a shorter period of ownership of NECO
in the US) and a further £457 million increase in NGV’s contribution
(including exceptional insurance recoveries). Statutory results were
adversely impacted by £438 million higher interest charges (mainly
from inflation on index-linked debt and growth in new long-term senior
debt), £742 million adverse year-on-year movements from commodity
remeasurements, £252 million lower property contribution (2021/22
included £417 million exceptional gains related to the St William property
disposals) and a £95 million increase in major storm costs; but had no
repeat of the £458 million deferred tax charge recognised in 2021/22
from the change in the UK tax rate. Statutory EPS for continuing
operations of 74.2p was 13.6p higher than the prior year. The net
exceptional gains of £619 million (2022: £320 million net charge) and
remeasurement losses of £240 million (2022: £292 million net gains) are
explained in further detail in the notes to the financial statements.
Our ‘adjusted’ results exclude the impacts from exceptional items and
remeasurements, but include the impact from revenue timing and major
(deferrable) storm costs, as explained on page 56. Our ‘underlying’
results exclude the total impact of exceptional items, remeasurements,
timing and major storm costs. A reconciliation between these alternative
performance measures and our statutory performance is detailed on
page 55 and on pages 239 – 241.
Underlying operating profit for continuing operations was up 15%
(10% at constant currency), driven by a full year’s contribution and
improved performance from UK Electricity Distribution; higher revenues
and IFA insurance claim recoveries in NGV; increased underlying
revenues, pension gains and a lower COVID-19 impact in New York;
and higher property profits (excluding 2021/22’s exceptional gains).
UK Electricity Transmission performance was lower as a result of the
return of revenues related to Western Link liquidated damages. New
England profits were lower from the sale of NECO two months into
the current year, partly offset by increased revenues (Massachusetts
Electric, Massachusetts Gas and FERC). Our joint ventures and
associates’ contribution increased (mainly UK interconnector revenues).
These factors were partly offset by higher net financing costs principally
from inflation on index-linked debt. Other interest was favourable year on
year. Underlying profit after tax increased by 8% and resulted in a 7%
increase in underlying EPS to 69.7p.
Economic profit: From an economic profit perspective, our Group
regulatory performance measure of Value Added increased from
£3,833 million to £4,807 million driven by continued delivery of
performance across the Group, along with the benefit from higher
RAV indexation which will generate higher revenues in future years.
Group RoE for 2022/23 was 11.0%, lower than the 11.4% achieved
in the prior year.
Capital investment and asset growth: Capital investment of
£7,740 million was £1,001 million (15%) higher than 2021/22, or
£552 million (8%) higher at constant exchange rates, driven by a full-
year ownership of UK Electricity Distribution, increased capital
expenditure in New York, UK Electricity Transmission and NGV, partly
offset by lower investment in New England (following the sale of NECO).
Higher capital investment along with higher RAV indexation from higher
inflation increased our asset growth to 11.4% (2022: 8.7%).
Balance sheet strength: Following the completion of the disposals
linked to our portfolio repositioning, net debt reduced from £42.8 billion
at March 2022 to £41.0 billion at March 2023. Regulatory gearing was
also lower at 71% (2022: 81%) and our calculation of Moody’s RCF/
adjusted net debt credit metric was 9.3%, an improvement of 40bps
compared with 2021/22 and comfortably above the current rating
threshold of 7.0%.
Efficiency programme: As part of our Group efficiency savings
programme, we have achieved a further £236 million of savings in
2022/23. This is in addition to the £137 million of savings reported
last year. We remain on track to deliver the £400 million savings
target (that we announced in November 2021) by the end of 2023/24.
Financial summary for discontinued operations
Our UK Gas Transmission and Metering business (100%) was classified
as discontinued up to its disposal on 31 January 2023. A gain on
disposal of £4,803 million was recognised in discontinued operations
in 2022/23. The retained 40% minority stake is being treated as held
for sale, with the investment held at acquisition fair value and no further
profits recognised in 2022/23. Statutory profit after tax of £280 million for
discontinued operations (but excluding the gain on disposal) compared
with £171 million in the prior year, principally due to exceptional deferred
tax charge in 2021/22 from the change in the UK corporation tax rate,
cessation of depreciation following held for sale treatment and higher
revenues under RIIO-2, partially offset by higher interest costs driven
by inflation and a shorter period of ownership in 2022/23.
Dividend
The recommended full-year dividend per share of 55.44p is in line with
the dividend policy announced in March 2021 of increasing in line
with UK CPIH inflation and is covered 1.3 times by underlying EPS.
Profitability and earnings
In calculating adjusted profit measures, where we consider it is in the interests of users of the financial statements to do so we exclude certain
discrete items of income or expense that we consider to be exceptional in nature. The table below reconciles our statutory profit measures for
continuing operations, at actual exchange rates, to adjusted and underlying versions. Further information on exceptional items and remeasurements
is provided in notes 2, 5 and 6 to the financial statements.
Reconciliation of profit and earnings from continuing operations
£m
Statutory results
Exceptional items
Remeasurements
Adjusted results
Timing
Major storm costs
Underlying results
Operating profit
Profit after tax
Earnings per share
2022/23
2021/22
Change
2022/23
2021/22
Change
2022/23
2021/22
Change
4,879
4,371
12%
2,714
2,183
24%
(935)
350
(166)
(392)
(619)
240
320
(292)
4,294
3,813
13%
2,335
2,211
6%
30
258
16
163
26
188
19
121
74.2p
(16.9p)
6.5 p
63.8p
0.7p
5.2p
60.6p
8.9p
(8.1p)
61.4p
0.5p
3.4p
22%
4%
4,582
3,992
15%
2,549
2,351
8%
69.7p
65.3p
7%
Reconciliation of profit and earnings from discontinued operations
Statutory operating profit from discontinued operations of £715 million (2022: £637 million) includes a £1 million credit in respect of exceptional
items (2022: £17 million debit) and timing over-recovery of £12 million (2022: £80 million under-recovery). Tax on exceptional items for discontinued
operations comprises a £6 million credit (2022: £1 million credit). The tax charge in 2021/22 also included a deferred tax exceptional charge related
to the change in the UK corporation tax rate of £145 million. The after-tax gain on disposal of our 60% share in UK Gas Transmission of
£4,803 million is included in our statutory results for discontinued operations. Tax on timing was £2 million (2022: £15 million). Statutory earnings
per share from discontinued operations was 138.9p (2022: 4.8p) and adjusted earnings per share from discontinued operations (but excluding
the impact of timing) was 8.5p (2022: 11.4p).
National Grid plc
Annual Report and Accounts 2022/23
5555
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional Information
Financial review continued
Timing over/(under)-recoveries
In calculating underlying profit, we exclude regulatory revenue timing
over- and under-recoveries and major storm costs (as defined below).
Under the Group’s regulatory frameworks, most of the revenues we
are allowed to collect each year are governed by regulatory price
controls in the UK and rate plans in the US. If more than this allowed
level of revenue is collected, an adjustment will be made to future prices
to reflect this over-recovery; likewise, if less than this level of revenue is
collected, an adjustment will be made to future prices in respect of the
under-recovery. We also collect revenues from customers and pass
these on to third parties (e.g. NYSERDA). These variances between
allowed and collected revenues and timing of revenue collections for
pass-through costs give rise to over- and under-recoveries.
The following table summarises management’s estimates of such
amounts for the two years ended 31 March 2023 for continuing and
discontinued operations. All amounts are shown on a pre-tax basis
and, where appropriate, opening balances are restated for exchange
adjustments and to correspond with subsequent regulatory filings and
calculations and are translated at the 2022/23 average exchange rate
of $1.22:£1.
£m
2022/23
2021/221
Balance at start of year (restated)
In-year (under)/over-recovery (continuing)
In-year (under)/over-recovery (discontinued)
Disposal of UK Gas Transmission/NECO
Balance at end of year
(49)
(30)
12
131
64
65
(5)
(80)
—
(20)
1. March 2022 balances restated to correspond with 2021/22 regulatory filings
and calculations.
In 2022/23, we experienced timing under-recoveries of £112 million in
UK Electricity Transmission, under-recoveries of £139 million in UK
Electricity Distribution, over-recoveries of £207 million in UK Electricity
System Operator, under-recoveries of £39 million in New England and
over-recoveries of £53 million in New York. In calculating the post-tax
effect of these timing recoveries, we impute a tax rate, based on the
regional marginal tax rates, consistent with the relative mix of UK and
US balances.
Major storm costs
We also take account of the impact of major storm costs in the US
where the aggregate amount is sufficiently material in any given year.
Such costs (net of certain deductibles and allowances) are recoverable
under our rate plans but are expensed as incurred under IFRS.
Accordingly, where the net total cost incurred exceeds $100 million
in any given year, we exclude the net costs from underlying earnings.
In 2022/23, we incurred deferrable storm costs, which are eligible for
future recovery of $314 million (2022: $220 million).
Segmental operating profit
The tables below set out operating profit on statutory and underlying
bases, both of which exclude the £4.8 billion on the disposal of our
UK Gas Transmission business.
Statutory operating profit
£m
2022/23
2021/22
Change
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other activities
Continuing operations
Discontinued
Total
993
1,055
1,069
237
1,132
541
957
(50)
4,879
715
5,594
909
5
764
1,095
283
260
4,371
637
5,008
(6) %
18%
n/m
48%
(51) %
238%
(119) %
12%
12%
12%
Underlying operating profit
£m
2022/23
2021/22
Change
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other activities
1,107
1,230
31
819
874
490
31
1,152
887
54
886
706
286
21
Continuing operations
4,582
3,992
(4) %
39%
(43) %
(8) %
24%
71%
48%
15%
Statutory operating profit increased in the year, primarily as a result
of the exceptional gains on disposal of businesses, improved NGV
performance, a full-year contribution from UK ED, change in discount
rate applied to environmental provisions partly offset by year-on-year
swings in commodity derivative remeasurements and lower profits in
our commercial property business, which benefitted from exceptional
gains related to disposal of a joint venture in 2021/22.
The reasons for the movements in underlying operating profit are
described in the segmental commentaries below. Unless otherwise
stated, the discussion of performance in the remainder of this
Financial review focuses on underlying results.
UK Electricity Transmission
2022/23
2021/22
Change
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Adjusted operating profit
Timing
1,987
(994)
993
2
995
112
2,035
(980)
1,055
12
1,067
85
Underlying operating profit
1,107
1,152
Analysed as follows:
Net revenue
Regulated controllable costs
Post-retirement benefits
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
1,770
(241)
(31)
(19)
(484)
995
112
1,883
(227)
(26)
(55)
(508)
1,067
85
Underlying operating profit
1,107
1,152
(2) %
1%
(6) %
n/m
(7) %
32%
(4) %
(6) %
6%
19%
(65) %
(5) %
(7) %
32%
(4) %
UK Electricity Transmission statutory operating profit was £62 million
lower in the year. In 2022/23, there were £8 million of exceptional costs
related to the cost-efficiency programme (2022: £12 million) offset by a
£6 million (2022: £nil) credit in respect of change in discount rate applied
to environmental provisions. Timing under-recoveries of £112 million in
2022/23 compared with £85 million in 2021/22 mainly due to under-
collection of Transmission Network Use of System (TNUoS) revenues
from lower volumes and the impact of higher inflation, partly offset by
the recovery of prior period recoveries.
Adjusted operating profit reduced by £72 million (7%), but this included
£27 million adverse year-on-year timing movements. Underlying
operating profit reduced by 4%. Net revenues (adjusted for timing)
were lower from the return of £147 million for Western Link liquidated
damages received in prior years, the impact of tax allowances (super-
deductions) and lower customer-funded works (mainly HS2), partly
offset by higher revenues from RAV indexation.
Regulated controllable costs were £14 million higher from the impact of
higher energy costs (own-use utilities and fuel costs). Other inflationary
and workload increases were offset by efficiency savings. Other costs
were lower, mainly relating to a one-off settlement in the prior year and
higher profit from sale of assets in the current year.
The notation ‘n/m’ is used throughout this section where the year-on-
year percentage change is deemed to be ‘not meaningful’.
The decrease in depreciation and amortisation reflects prior year asset
write-offs partly offset by higher depreciation of a higher asset base.
56
56
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
UK Electricity Distribution
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Adjusted operating profit
Timing
Underlying operating profit
Analysed as follows:
Net revenue
Regulated controllable costs
Post-retirement benefits
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
Underlying operating profit
2022/23
2021/22
Change
2,045
(976)
1,069
22
1,091
139
1,230
1,627
(235)
(24)
(54)
(223)
1,091
139
1,230
1,482
(573)
909
—
909
(22)
887
1,357
(180)
(24)
(86)
(158)
909
(22)
887
38%
70%
18%
n/m
20%
n/m
39%
20%
31%
—%
(37) %
41%
20%
n/m
39%
Statutory operating profit was £160 million higher in the year, reflecting
a full year of ownership, compared to a 9.5-month period for the year
ended 31 March 2022.
In 2022/23, there were £22 million of exceptional costs related to the
integration of the business into the wider Group. Adjusted operating
profit increased by 20%, including the extra period of ownership and the
impact of £161 million adverse year-on-year timing movements. Timing
under-recoveries of £139 million in 2022/23 are mainly due to the under
collection of earned incentives and inflation true-ups, partly offset by
over-recovery of pass-through costs, as well as the return of prior period
over-recovered balances primarily as a result of the impact of tax
allowances (super-deductions).
Underlying operating profit increased by 39%. Net revenues (adjusted
for timing) were higher than the prior year due to the extra period of
ownership and higher revenues due to RAV indexation, partly offset by
the impact of tax allowances and lower engineering recharge revenues
due to lower workload.
Regulated controllable costs were higher than the prior year as a result
of the different period of ownership. Other costs were lower, mainly due
to £13 million profit from the sale of the Smart Metering business and
lower engineering recharge costs due to lower work volumes offset by
the longer period of ownership.
The increase in depreciation and amortisation reflects the full year of
ownership and a higher asset base.
UK Electricity System Operator
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Adjusted operating profit
Timing
Underlying operating profit
Analysed as follows:
Net revenue
Controllable costs
Post-retirement benefits
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
Underlying operating profit
2022/23
2021/22
Change
4,690
(4,453)
3,455
(3,450)
237
1
238
(207)
31
538
(175)
(17)
(7)
(101)
238
(207)
31
5
2
7
47
54
240
(129)
(16)
(5)
(83)
7
47
54
36%
29%
n/m
(50) %
n/m
n/m
(43) %
124%
36%
6%
40%
22%
n/m
n/m
(42) %
UK Electricity System Operator statutory operating profit increased
£232 million in the year, mostly driven by year-on-year timing
movements. Timing over-recoveries of £207 million in 2022/23 were
driven by collection of prior period balances (legacy TNUoS, Balancing
Services Use of System (BSUoS) deferrals, licence fee and other pass-
through costs), a £22 million totex over-recovery (reflecting lower totex
spend compared with allowances) and the net impact of other pass-
through cost true-ups from inflation, incentives and post-vesting
connections. In 2022/23 £1 million (2022: £2 million) of exceptional
costs were incurred as part of our broader cost efficiency programme.
Adjusted operating profit increased by £231 million driven by the
£254 million year-on-year timing movement, partly offset by asset
write offs. Excluding the impact of timing, underlying operating profit
decreased by £23 million. Net revenue (adjusted for timing) was
£44 million higher, but broadly offset by increased regulated controllable
costs and pensions as a result of the expected higher volume of work
under RIIO-2, plus £10 million additional FSO costs ahead of separation
of this business. Depreciation and amortisation was £18 million higher,
mostly from accelerated depreciation of the Electricity Balancing System.
New England
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Remeasurements
Adjusted operating profit
Timing
Major storm costs
Underlying operating profit
Analysed as follows:
Net revenue
Regulated controllable costs
Post-retirement benefits
Bad debt expense
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
Major storm costs
Underlying operating profit
2022/23
2021/22
Change
4,427
(3,295)
1,132
(456)
32
708
39
72
819
4,550
(3,786)
764
80
(101)
743
32
111
886
2,332
(755)
2,500
(813)
(27)
(58)
(391)
(393)
708
39
72
819
(40)
(45)
(494)
(365)
743
32
111
886
(3) %
(13) %
48%
n/m
n/m
(5) %
22%
(35) %
(8) %
(7) %
(7) %
(33) %
29%
(21) %
8%
(5) %
22 %
(35) %
(8) %
New England’s results were impacted by the disposal of our Rhode
Island business, NECO, which was sold in May 2022. This business
was classified as held for sale on 31 March 2021 and has not been
depreciated since that date. New England’s statutory operating profit
increased by £368 million, predominantly a result of the £511 million
exceptional net gain on disposal of NECO, lower year-on-year
exceptional costs associated with transaction and separation, and
lower major storm costs, offset by £133 million year-on-year
unfavourable movements in commodity contract remeasurements and
higher exceptional costs associated with the cost efficiency programme.
Excluding the above items, the impacts of a partial year ownership
of NECO in 2022/23 and year-on-year foreign exchange movements
were partly offset by improved underlying performance in the remaining
New England businesses.
Adjusted operating profit decreased by £35 million (5%) at actual
exchange rates. Adjusted operating profit includes the impact of
major storm costs which were £39 million lower than 2021/22 and
also includes the impact of timing which was broadly flat year on year.
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Financial review continued
Excluding the impact of major storm costs and timing, underlying
operating profit decreased by £67 million (8%). The impact of owning
our Rhode Island business for 10 months less in 2022/23 reduced
underlying operating profit by £267 million (30%). Unless stated
otherwise, the following commentary is presented excluding the impact
of the disposal of NECO in May 2022 and also excluding the impact of
foreign currency movements. Net revenues (adjusted for timing and
exchange rate movements) increased by £140 million from the benefits
of rate case increments in Massachusetts Gas and Massachusetts
Electric and higher wholesale network revenues partially offset by the
non-recurrence of a property sale in 2021/22. New England controllable
costs increased by £22 million (at constant currency) as a result of
inflation and workload increases exceeding efficiency savings made in
the year. Bad debt expenses were £26 million higher (at constant
currency) than 2021/22 due to higher write-offs of aged receivables and
the impact of provision rates applied in the current year. Depreciation
and amortisation increased due to increased investment, but was offset
by non-recurrence of charges in 2021/22. Other costs were lower due
to decreases in environmental reserves and favourable pension plan
performance, offset by increased operating taxes driven by increased
network investment. The weaker pound in 2022/23 increased underlying
operating profit by £96 million.
New York
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Remeasurements
Adjusted operating profit
Timing
Major storm costs
Underlying operating profit
Analysed as follows:
Net revenue
Regulated controllable costs
Post-retirement benefits
Bad debt expense
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
Major storm costs
Underlying operating profit
2022/23
2021/22
Change
6,994
(6,453)
541
(118)
318
741
(53)
186
874
4,037
(1,151)
(2)
(157)
(1,366)
(620)
741
(53)
186
874
5,561
(4,466)
1,095
(24)
(291)
780
(126)
52
706
3,400
(963)
(44)
(87)
(989)
(537)
780
(126)
52
706
26%
44%
(51) %
n/m
n/m
(5) %
(58) %
n/m
24%
19%
20%
(95) %
80%
38%
15%
(5) %
(58) %
n/m
24%
New York statutory operating profit decreased by £554 million,
principally as a result of the £609 million year-on-year unfavourable
movements in commodity contract remeasurements and net exceptional
gains which included £156 million for increasing the discount rate on
environmental provisions offset by £38 million of exceptional costs
related to our cost efficiency programme. Timing over-recoveries
of £53 million in 2022/23 compared with timing over-recoveries of
£126 million in 2021/22, driven by commodity price fluctuations and
high auction sale prices on transmission wheeling. Major storm costs
of £186 million were £134 million higher year-on-year, driven by Storm
Elliott, but as in 2021/22, the total costs passed our threshold
($100 million in aggregate with New England) and so are excluded from
our underlying results. These factors, offset by increased underlying
operating profit, driven primarily by rate increases and a weaker pound,
reduced statutory operating profit to £541 million.
Adjusted operating profit decreased by £39 million (5%), impacted
by £73 million year-on-year unfavourable timing movements and
higher year-on-year major storm costs of £134 million, but partly
offset by the underlying operating profit increasing by 24%, including
a £77 million increase as a result of foreign exchange movements.
Adjusted for the impact of foreign currency, underlying operating
profit increased by £91 million (12%) compared with 2021/22.
Net revenues (adjusted for timing and exchange rate movements)
increased by £353 million from the benefits of rate case increases in
KEDNY, KEDLI and Niagara Mohawk and income received under the
funded COVID-19 arrears management programme alongside resumed
collection activities. Regulated controllable costs were £83 million higher
(at constant currency) year-on-year, with increased workload and the
impact of inflation being partially offset by cost efficiency savings.
Provisions for bad and doubtful debts increased by £61 million (at
constant currency) driven by write-offs related to the COVID-19 arrears
management programme. Depreciation and amortisation increased
due to the growth in assets. Other costs were higher due to increased
property taxes and higher costs on funded programmes (offset by rate
increases), offset by the benefit of a gain on a pension buyout in our
Niagara Mohawk business.
National Grid Ventures (NGV)
£m
Revenue
Operating costs
Depreciation and amortisation
Statutory operating profit
Exceptional items
Remeasurements
Adjusted/underlying
operating profit
2022/23
2021/22
Change
1,341
1,024
(235)
(149)
957
(467)
—
(585)
(156)
283
3
—
31%
(60) %
(5) %
238%
n/m
n/a
490
286
71%
NGV’s statutory operating profit includes an exceptional gain of
£467 million, comprising a £335 million gain from the sale of NGV’s
stake in Millennium Pipeline and £130 million credit for property
damage insurance claim recoveries related to the fire at our French
interconnector (IFA) in September 2021 and a £3 million credit
for increasing the discount rate on environmental provisions, offset
by £1 million of exceptional costs incurred as part of the broader
cost efficiency programme.
Underlying and adjusted operating profit was £204 million higher than
2021/22. Interconnector profit increased versus prior year reflecting
a full year of contribution from our North Sea Link interconnector (NSL),
higher auction revenues in IFA and upside in our second French
interconnector (IFA2) which benefitted from an increase in the revenue
cap following an Ofgem review. There was additional upside in IFA
relating to insurance recoveries following the September 2021 fire.
Revenues in our Grain LNG business also increased year-on-year due
to increased utilisation.
Other activities
£m
2022/23
2021/22
Statutory operating (loss)/profit
Exceptional items
Adjusted/underlying
operating profit
Analysed as follows:
Property
Corporate and Other activities
Adjusted/underlying
operating profit
(50)
81
31
216
(185)
31
260
(239)
Change
(119) %
n/m
21
48%
40
(19)
21
n/m
n/m
48%
Other activities statutory operating loss includes an exceptional
charge of £25 million related to the cost efficiency programme
(2022: £22 million), £31 million of costs for the separation of UK Gas
Transmission and Metering (2022: £61 million, which also included
NECO separation costs) and £16 million of integration costs for
UK Electricity Distribution (2022: £95 million of transaction costs
for the acquisition of National Grid Electricity Distribution). In 2021/22,
we recognised an exceptional gain of £417 million related to the
St William disposal.
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National Grid plcAnnual Report and Accounts 2022/23
Excluding exceptional items, underlying operating profit was £31 million
(including corporate costs) in 2022/23 compared with £21 million in
2021/22. This increase mainly relates to property site sales which were
£176 million higher, primarily related to the sale of 15 sites to St William
following the disposal of that joint venture last year, mostly offset by
NG Partners investments’ fair value losses (mainly driven by Copperleaf)
plus no repeat of the high level of fair value gains experienced in
2021/22, and higher corporate costs which included support payments
to charitable causes and employees in respect of the energy crisis.
Exceptional items and remeasurements in operating
profit – continuing
In 2022/23, we classified a number of items as exceptional, which has
the net impact of increasing our statutory operating profit by £935 million
(2022: £166 million) compared with our adjusted and underlying
operating profit measures. These items comprise: gains on disposals
of our Rhode Island business (£511 million) and Millennium Pipeline
(£335 million) in 2022/23 (2022: £228 million gain on disposal of
St William joint venture and £189 million release of St William deferred
income); transaction, separation and integration costs of £117 million
(2022: £223 million); insurance recoveries of £130 million (2022:
£38 million); £176 million credit from changes in environmental
provisions in 2022/23; and cost efficiency programme and operating
model implementation costs of £100 million (2022: £66 million). For
further details see note 5 to the financial statements. The expected
future costs related to the cost efficiency programme are anticipated
to be in the region of £60 million.
We also exclude certain unrealised gains and losses on mark-to-market
financial instruments (‘remeasurements’) from adjusted and underlying
profit. In 2022/23, net remeasurement losses on commodity contract
derivatives (i.e. ‘mark-to-market’ movements on derivatives used to
hedge the cost of buying wholesale gas and electricity on behalf of
US customers) were £350 million, compared with net remeasurement
gains of £392 million in 2021/22.
Financing costs and taxation – continuing
Net finance costs
Net finance costs (excluding remeasurements) for the year were 40%
higher than last year at £1,514 million, with the £433 million increase
driven by higher net debt-related financing costs, from growth in new
long-term senior debt and a £244 million impact from higher inflation
on our index-linked debt, along with the impact of foreign exchange
movements. These higher costs were partly offset by favourable year-
on-year other interest income, with benefits from interest on pension
and other post-employment benefit (OPEB) liabilities and increased
capitalised interest. The effective interest rate for continuing operations
of 4.4% is 120bps higher than the prior year rate.
Joint ventures and associates
The Group’s share of net profits from joint ventures and associates on
a statutory basis increased by £79 million, benefitting from £37 million
favourable year-on-year derivative remeasurements. On an adjusted
basis, the share of net profits from joint ventures and associates
increased by £42 million compared with 2021/22, mainly as a result of
BritNed, with higher revenues driven by higher auction prices plus the
impact of a two-month outage in the prior year, partly offset by Nemo
Link as a result of interconnector cap adjustments and an adverse year-
on-year contribution from our joint venture investments in NG Partners
as a result of downward market fair value movements.
Tax
The underlying effective tax rate (excluding joint ventures and associates)
of 23.1% was 120bps lower than last year (2022: 24.3%). This reflects
the lower tax charge in 2022/23 for the remeasurement of state deferred
taxes following the sale of our Rhode Island business. The Group’s
tax strategy is detailed later in this review.
Discontinued operations
On 31 January 2023, we sold 60% of our interest in the UK Gas
Transmission and Metering business in exchange for £4.0 billion cash
consideration and a 40% retained interest in that business (now called
National Gas Transmission). The £4.8 billion gain on disposal is excluded
from the numbers in the table below. The 60% interest in National Gas
Transmission is owned by a consortium of Macquarie Infrastructure and
Real Assets and British Columbia Investment Management Corporation.
The consortium holds an option to acquire our remaining 40% interest.
Further details are provided in the ‘assets held for sale’ note to the
financial statements. The results of our 100% share of this business
(including metering) are presented as ‘discontinued operations’ in
2021/22 and for the 10 months fully owned to 31 January 2023.
On 31 August 2021, the 100% share of the business met the IFRS 5
criteria to be classified as held for sale and depreciation was stopped
from that date. The retained 40% has also been classified as a business
held for sale with no further profits recognised in 2022/23.
UK Gas Transmission (including metering)
£m
Revenue
Operating costs
Statutory operating profit
Exceptional items
Adjusted operating profit
Timing
Adjusted operating profit
(excluding timing)
Analysed as follows:
Net revenue
Regulated controllable costs
Post-retirement benefits
Other operating costs
Depreciation and amortisation
Adjusted operating profit
Timing
Adjusted operating profit
(excluding timing)
2022/23
2021/22
Change
1,604
(889)
715
(1)
714
(12)
702
946
(146)
(17)
(69)
—
714
(12)
702
1,374
(737)
637
17
654
80
734
977
(160)
(17)
(55)
(91)
654
80
734
17%
21%
12%
n/m
9%
n/m
(4) %
(3) %
(9) %
—%
25%
(100) %
9%
n/m
(4) %
UK Gas Transmission statutory operating profit increased £78 million
in the year. In 2022/23, there was a £1 million credit (2022: £14 million)
of costs incurred in separating the business from the Group and
transaction-related costs in preparation of the sales process; and the
prior year also included £3 million of exceptional costs related to the
reorganisation and cost efficiency programme. Timing net over-
recoveries of £12 million arose in 2022/23, mainly related to higher
volumes offset by an under-recovery of shrinkage costs from higher
gas prices and under-collection of pass-through cost true-ups
including inflation. This compared with under-recoveries of £80 million
in the prior year which also mainly related to recovery of shrinkage costs
from higher gas prices.
Despite UK Gas Transmission being fully owned for only 10 months of
the current year, adjusted operating profit increased by £60 million (9%),
as this included a year-on-year £92 million favourable timing movement.
Excluding the impact of timing, underlying operating profit decreased by
4%. The prior year also included £91 million of depreciation to 31 August
2021 when the business was classified as held for sale. Net revenue
(excluding timing) was £123 million lower, reflecting the shorter period
of ownership partly offset by the impact of higher inflation and an
increase in revenues for customer-funded works. Regulated controllable
costs (including pensions) and other costs were £14 million lower as
a result of two months’ less ownership in 2022/23 offset by increased
customer-funded works, cyber and decommissioning costs.
Within UK Gas Transmission, our non-regulated metering business’s
operating profit of £129 million was lower than the prior year mainly
impacted by a shorter period of ownership in 2022/23.
The table in this section excludes the £4.8 billion gain on the disposal
of our UK Gas Transmission business.
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Financial review continued
Capital investment, asset growth and Value Added
These performance metrics are all non-GAAP measures. Value Added is a measure that reflects the value to shareholders of our dividend and the
growth in National Grid’s regulated and non-regulated assets (as measured in our regulated asset base, for regulated entities), net of the growth in
overall debt. It is a key metric used to measure our performance and underpins our approach to sustainable decision-making. Value Growth, which
is derived from Value Added (but using long-run inflation assumptions) forms part of our long-term management incentive arrangements.
Capital investment
Capital investment comprises capital expenditure in critical energy infrastructure, equity investments, funding contributions and loans to joint ventures
and associates and, in the case of National Grid Partners, investments in financial assets.
£m
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England1
New York
National Grid Ventures
Other activities
Continuing1
Discontinued
Total Group
At actual exchange rates
At constant currency
2022/23
2021/22
Change
2022/23
2021/22
Change
1,303
1,220
108
1,677
2,454
906
72
7,740
301
8,041
1,195
899
108
1,561
1,960
913
103
6,739
261
7,000
9%
36%
—%
7%
25%
(1) %
(30) %
15%
15%
15%
1,303
1,220
108
1,677
2,454
906
72
7,740
301
8,041
1,195
899
108
1,731
2,174
968
113
7,188
261
7,449
9%
36%
—%
(3) %
13%
(6) %
(36) %
8%
15%
8%
1. New England capital investment for 2022/23 includes £53 million of additions for NECO, which, although part of continuing operations, is also classified as an ‘asset held for sale’ under
IFRS. As such it is not included within additions to PP&E and intangibles in notes 2, 12 and 13 to the financial statements. Group capital expenditure for continuing operations excluding
NECO additions for 2022/23 was £7,431 million (2022: £6,185 million).
Capital investment in UK Electricity Transmission increased by £108 million compared with 2021/22, primarily due to LPT2, overhead line projects
including Cottam to Wymondley, East Coast onshore projects and capitalised interest, partly offset by lower Hinkley Seabank spend. UK Electricity
Distribution increased by £321 million primarily due to a full year of ownership alongside increased customer-driven connection activities. In New
England, capital investment increased by £116 million (£54 million reduction on a constant currency basis) primarily due to the disposal of our Rhode
Island business during 2022/23 resulting in a £280 million reduction (at constant currency), partially offset by higher spend on gas assets, including
the gas system enhancement plan, and increased reinforcement of electricity networks. In New York, capital investment was £280 million higher
on a constant currency basis (£494 million higher at actual currency), primarily due to increased electricity network reinforcement, right of use asset
additions (non-cash leases entered into in 2022/23) including renewing the Volney-Marcy transmission line lease, increased digital and increased
security investment, partially offset by lower leak-prone pipe replacement work in our gas businesses, following the acceleration in 2021/22. Capital
investment in NGV decreased by £7 million (£62 million lower at constant currency), with higher expenditure in IFA following the fire in September
2021 and also in Grain LNG, being more than offset by lower NSL interconnector investment (commissioned in 2021/22) and no recurrence of last
year’s investment in an over 3 GW potential offshore wind seabed lease in New York. Other activities’ capital investment reduced primarily as a result
of lower investments in National Grid Partners.
In UK Gas Transmission, capital investment increased by £40 million from continued investment at Peterborough and Huntingdon compressor
stations, higher capitalised interest and higher cyber spend compared with 2021/22.
Asset growth
A key part of our investor proposition is growth in our regulated asset base. The regulated asset base is a regulatory construct, representing the
invested capital on which we are authorised to earn a cash return. By investing efficiently in our networks, we add to our regulatory asset base
over the long term and this in turn contributes to delivering shareholder value. Our regulated asset base comprises our regulatory asset value (RAV)
in the UK, plus our rate base in the US. We also invest in related activities that are not subject to network regulation and this further contributes to
asset growth.
In total, asset growth for the Group in 2022/23 was 11.4% (2022: 8.7%). Asset growth is a non-GAAP measure, which tracks the overall increase in
assets (excluding foreign exchange movements and the impact of portfolio-repositioning transactions) using a combination of UK RAV and US rate
base for our regulated businesses and IFRS balances for our non-regulated businesses. Asset growth excludes the impact of the reduction in RAV,
rate base and other assets as a result of the disposal of our NECO and UK Gas Transmission and Metering businesses during 2022/23. A detailed
calculation of asset growth is provided on pages 251 to 252.
In terms of asset growth by business sector, UK RAV growth was 11.5% (2022: 10.7%) including the impact of higher CPIH and RPI inflation on RAV
indexation, partly offset by RAV depreciation. US rate base grew strongly by 8.0% (2022: 7.2%), with the higher level of capital expenditure under
US GAAP resulting in increased rate base at March 2023. Non-regulated businesses growth was 26% (2022: 6%) mainly as a result of in-year
performance and ongoing investment in NGV, the site disposals in our property business and cash payments for the offshore wind seabed lease,
partly offset by the impact of the sale of our interest in the Millennium associate during the year.
Value Added, Value Added per share and Value Growth
Detailed calculations of Value Added are provided on pages 251 to 252 and in 2022/23 exclude the reduction in assets and reduction in net debt as
a consequence of the sale of NECO and the sale of 60% of the UK Gas Transmission and Metering business.
Value Added, which reflects the key components of value delivery to shareholders (i.e. dividend and growth in the economic value of the Group’s
assets, net of growth in net debt) was £4.8 billion in 2022/23. This was higher than last year’s £3.8 billion, driven by higher RAV indexation in UK
Electricity Transmission and UK Electricity Distribution, stronger NGV and Other performance, higher US returns and a smaller adverse impact from
COVID-19 compared with 2021/22, offset by higher interest. Of the £4.8 billion Value Added, £1.6 billion was paid to shareholders as cash dividends
and £3.2 billion was retained in the business. Value Added per share was 131.4p compared with 106.5p in 2021/22. Value Growth is normalised for
long-run inflation assumptions by adjusting Value Added for the difference between actual experienced inflation on UK RAV indexation and index-
linked debt and the equivalent movements at a long-run assumed inflation rate of 2% CPIH or 3% RPI, and dividing this result by the equity base
used to calculate Group RoE (at closing exchange rates). Value Growth was 12.4% compared with 12.8% in 2021/22.
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National Grid plcAnnual Report and Accounts 2022/23
Cash flow, net debt and funding
Net debt is the aggregate of cash and cash equivalents, borrowings,
current financial and other investments and derivatives (excluding
commodity contract derivatives) as disclosed in note 29 to the financial
statements. ‘Adjusted net debt’ used for the RCF/adjusted net debt
calculation is principally adjusted for pension deficits and hybrid debt
instruments. For a full reconciliation see page 245. The following table
summarises the Group’s cash flow for the year, reconciling this to the
change in net debt.
Summary cash flow statement
£m
2022/23
2021/22
Change
Cash generated from continuing
operations
Cash capital investment
(net of disposals and exceptional
insurance recoveries)
Disposal of Millennium/St William
Dividends from JVs and associates
Business net cash (outflow)/inflow
from continuing operations
Net interest paid
Net tax paid
Cash dividends paid
Other cash movements
Net cash outflow (continuing)
Disposal of UK Gas Transmission
and Metering and NECO1
Acquisition of National Grid
Electricity Distribution2
Discontinued operations
(Repayment of)/proceeds from
bridge loan to acquire
National Grid Electricity Distribution
Other, including net financing raised
in year
(Decrease)/increase in cash
and cash equivalents
Reconciliation to movement in net debt
(Decrease)/increase in cash
and cash equivalents
Bridge loan to acquire National Grid
Electricity Distribution
Less: other net cash flows from
investing and financing transactions
Net debt reclassified to held for sale
Fair value of National Grid Electricity
Distribution net debt acquired
Impact of foreign exchange
movements on opening net debt
Other non-cash movements
6,432
5,788
11%
(7,167)
(5,781)
497
190
(48)
413
166
586
(1,365)
(1,013)
(89)
(1,607)
17
(298)
(922)
30
(3,092)
(1,617)
(24) %
20%
14%
n/m
(35) %
70%
(74) %
(43) %
(91) %
6,995
—
n/m
—
(9)
(7,837)
657
100%
n/m
(8,200)
8,200
4,271
628
(35)
31
(35)
31
8,200
(8,200)
(4,271)
—
(628)
4,063
n/m
n/m
n/m
n/m
n/m
n/m
(100) %
—
(8,147)
100%
(1,293)
(765)
(828)
(554)
(56) %
(38) %
n/m
(50) %
4%
Decrease/(increase) in net debt
1,836
(14,263)
Net debt at start of year
Net debt at end of year
(42,809)
(28,546)
(40,973)
(42,809)
Cash flow generated from continuing operations was £6.4 billion,
£644 million higher than last year, mainly due to a full-year contribution
from UK Electricity Distribution, higher revenues compared with
2021/22, lower spend on provisions and higher net exceptional income,
offset by favourable working capital inflows on payables. Cash expended
on investment activities increased as a result of continued organic
growth in our regulated and non-regulated businesses, partly offset
by the disposal of financial investments.
Our strategic pivot is complete with the sale of NECO in May 2022
generating £3,081 million of proceeds (less £40 million financing
costs) and the sale of 60% of the UK Gas Transmission and Metering
business in January 2023 generating £4,032 million of proceeds. The
disposal of our Millennium Pipeline investment in October 2022 also
generated £497 million of proceeds in 2022/23. In the prior year, the
sale of the St William joint venture generated £413 million of proceeds.
Net interest paid increased as a result of a higher average level of net
debt and increased base rates on borrowings. The Group made net
tax payments of £89 million for continuing operations during 2022/23.
The higher cash dividend of £1,607 million reflected a lower scrip
uptake of 15% (2022: 48%). In the prior year, the cash acquisition
of WPD in June 2021 for £7.9 billion increased net debt, along with
a further £8.1 billion increase from the fair value of net debt acquired.
Discontinued operations represents the UK Gas Transmission and
Metering business which generated lower cash inflows in 2022/23,
principally as a result of a shorter period of ownership, higher capital
expenditure and adverse working capital movements, partly offset by
favourable timing movements, lower tax payments and other investing
activities compared with 2021/22. Non-cash movements primarily reflect
changes in the sterling–dollar exchange rate, accretions on index-linked
debt, lease additions and other derivative fair value movements, offset by
the amortisation of fair value adjustments on the debt acquired with
WPD.
During the year we raised over £7 billion of new long-term senior debt
to refinance maturing debt and to fund a portion of our significant capital
programme. The new bonds issued include further borrowings under
our Green Financing Framework. The £8.2 billion bridge financing facility
to fund the purchase of the UK Electricity Distribution business was fully
repaid in 2022/23 following receipt of proceeds from the sales of NECO
and a 60% stake in our UK Gas Transmission and Metering business.
As at 18 May 2023, we have £8.0 billion of undrawn committed facilities
available for general corporate purposes, all of which have expiry dates
beyond May 2024. National Grid’s balance sheet remains robust, with
strong overall investment grade ratings from Moody’s, Standard
& Poor’s (S&P) and Fitch.
The Board has considered the Group’s ability to finance normal
operations as well as funding a significant capital programme, taking
account of the disruption caused by the energy crisis. This includes
stress testing of the Group’s finances under a ‘reasonable worst-case’
scenario, assessing the timing of the sale of businesses held for sale
and the further levers at the Board’s discretion to ensure our businesses
are adequately financed. As a result, the Board has concluded that the
Group will have adequate resources to do so.
1. Cash proceeds of £3,081 million for NECO and £4,032 million for UK Gas Transmission,
less balance of cash and cash equivalents disposed with these businesses.
2. Includes £44 million cash and cash equivalents acquired with National Grid Electricity
Distribution.
National Grid plc
Annual Report and Accounts 2022/23
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Financial review continued
Financial position
The following table sets out a condensed version of the Group’s IFRS
balance sheet.
Summary balance sheet
£m
31 March 2023 31 March 2022
Change
Goodwill and intangibles
Property, plant and equipment
Assets and liabilities held for sale
Other net liabilities
Tax balances
Net pension assets
Provisions
Net debt
Net assets
13,451
64,433
1,334
(618)
(7,374)
1,951
(2,642)
12,804
57,532
2,812
(334)
(6,685)
3,075
(2,539)
(40,973)
(42,809)
29,562
23,856
5%
12%
(53) %
85%
10%
(37) %
4%
(4) %
24%
Goodwill and intangibles increased mainly as a result of changes
in exchange rates during the year. Property, plant and equipment
increased mainly as a result of the continuing capital investment
programme and exchange rate movements. Assets held for sale
at 31 March 2022 comprised assets and liabilities of NECO and the
UK Gas Transmission and Metering business both of which were sold
during 2022/23 (see note 10 to the financial statements) and at
31 March 2023 comprised the retained 40% minority interest
in National Gas Transmission. Tax balances increased principally
from accelerated tax depreciation from ongoing capital investment,
movements in other net temporary differences and the impact of
exchange rate movements. Net pension assets decreased in both
the US and UK as a result of lower asset valuations from investment
returns, partly offset by a decrease in liabilities from higher discount
rates and foreign exchange movements. Provisions were higher
principally as a result of increases in environmental and other
provisions and foreign exchange movements. Other movements
are largely explained by net working capital inflows and changes
in the sterling–dollar exchange rate.
Regulatory gearing, measured as net debt as a proportion of total
regulatory asset value and other business invested capital reduced
significantly in the year to 71% as at 31 March 2023. This was lower
than the previous year-end level of 81% principally as a result of the
sale of the UK Gas Transmission and Metering business for £4 billion in
January 2023 along with £3 billion proceeds from the sale of NECO in
May 2022. Taking into account the benefit of our hybrid debt, adjusted
gearing as at 31 March 2023 was 69%, which we believe is a level
appropriate for the current overall Group credit rating of BBB+/Baa1
(S&P/Moody’s).
Retained cash flow as a proportion of adjusted net debt was 9.3%,
up 40bps from 2021/22 and comfortably above the long-term average
level of 7.0% indicated by Moody’s, as consistent with maintaining
our current Group rating.
Off-balance sheet items
There were no significant off-balance sheet items other than
the commitments and contingencies detailed in note 30 to the
financial statements. Further information in respect of certain of the
Group’s energy purchase contracts and commodity price risk is
disclosed in note 32(f) to the financial statements.
Economic returns
In addition to Value Added, one of the principal ways in which we
measure our performance in generating value for shareholders is
to divide regulated financial performance by regulatory equity, to
produce RoE.
As explained on page 246, regulated financial performance adjusts
reported operating profit to reflect the impact of the Group’s various
regulatory economic arrangements in the UK and US. In order to
show underlying performance, we calculate RoE measures excluding
exceptional items of income or expenditure.
Group RoE is used to measure our performance in generating value
for our shareholders by dividing regulated and non-regulated financial
performance, after interest and tax, by our measure of equity investment
in all our businesses, including the regulated businesses, NGV and
Other activities and joint ventures. Group RoE includes our UK Gas
Transmission and Metering and NECO businesses up to the date these
were sold.
Regulated RoEs are measures of how the businesses are performing
compared with the assumptions and allowances set by our regulators.
US jurisdictional and UK entity regulated returns are calculated using
the capital structure assumed within their respective regulatory
arrangements and, in the case of the UK, assuming inflation of 3%
RPI under RIIO-1 and 2% CPIH under RIIO-2. As these assumptions
differ between the UK and the US, RoE measures are not directly
comparable between the two geographies. In our performance
measures, we compare achieved RoEs to the level assumed when
setting base rate and revenue allowances in each jurisdiction.
Return on Equity (RoE)
%
2022/23
2021/22
UK Electricity Transmission
UK Electricity Distribution
UK Gas Transmission
New England
New York
Group RoE
7.5 %
13.2 %
7.8 %
8.3 %
8.6 %
7.7 %
13.6 %
7.8 %
8.3 %
8.8 %
11.0 %
11.4 %
Change
-20 bps
-40 bps
— bps
— bps
-20 bps
-40 bps
In 2022/23, UK Electricity Transmission achieved operational returns
of 7.5%, 120bps higher than base allowed return under RIIO-2, mainly
from totex performance related to savings on capital delivery (2022:
7.7% achieved return, or 140bps above the allowed base return).
UK Electricity Distribution achieved an operational return of 13.2% in
2022/23 under RIIO-1, or 360bps outperformance, mostly as a result
of strong incentives performance, but also totex outperformance driven
by efficient capital expenditure (2022: 13.6% achieved return, or 400bps
above the allowed base return). For the 10 months owned in 2022/23,
UK Gas Transmission achieved estimated operational returns of 7.8%,
120bps higher than allowed, from totex outperformance, driven by cost
efficiencies and incentives (2022: 7.8% achieved return, or 120bps
above the allowed base return).
New England’s achieved return of 8.3% was 84% of the allowed return
of 9.9% in 2022/23 as a result of higher IT costs, workforce costs and
penalties being broadly offset by higher rates and remained in line with
the achieved return of 8.3% of the allowed return in 2021/22. New
York’s achieved return of 8.6% was 96% of the allowed return of 8.9%
in 2022/23. This was a reduction compared with an achieved return of
8.8% in 2021/22, as a result of the non-recurrence of a property tax
rebate in 2021/22 and higher IT costs. The quoted returns for New
England and New York represent the weighted average return across
operating companies within each jurisdiction. In 2020/21 US RoE was
significantly impacted by high levels of bad debt as a result of COVID-19
and restrictions placed on collection activities as a result. We made an
adjustment to US RoE at the time, reflecting our expectation for future
recovery of the debt costs. In 2022/23 we received approval to establish
regulatory assets to recover the COVID-19 arrears; as such we have
reversed the previous adjustment to US RoE. As a result, the net impact
of COVID-19-related bad debt costs and associated recoveries on our
New England and New York RoEs is broadly neutral in 2022/23.
Overall Group RoE, which incorporates NGV, property, corporate and
other activities, plus financing and tax performance was 11.0%.
62
62
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
2021/22
Revenue
Tax jurisdiction
Unrelated
party1
£m
Related
party2
£m
Total
£m
Profit/
(loss)
before
income
tax3
£m
Income tax
accrued
– current
year4
£m
Tangible
assets/
(liabilities)
other than
cash and
cash
equivalents5
£m
United Kingdom 9,165
122 9,287
2,501
290
27,846
United States
10,646
45 10,691
1,395
6
29,686
Isle of Man
Luxembourg
Netherlands
Guernsey
Total
—
18
— —
—
—
33
4
18
—
33
4
(48)
—
—
—
—
—
—
—
—
—
—
—
19,811
222 20,033
3,848
296
57,532
1. Unrelated party revenue comprises revenue from continuing operations of
£21,659 million (2022: £18,449 million) (see consolidated income statement)
and revenue from discontinued operations of £1,604 million (2022: £1,362 million)
(see note 10 to the financial statements).
2. Related party revenue only includes cross-border transactions and comprises
related party revenue from continuing operations of £206 million (2022: £189 million)
and related party revenue from discontinued operations of £nil (2022: £33 million).
3. Profit/(loss) before income tax (PBT) from operations after exceptionals comprises
continuing operations PBT of £3,590 million (2022: £3,441 million) (see consolidated
income statement) and discontinued operations PBT of £373 million (2022: £407 million)
(see note 10 to the financial statements).
4. Current year income tax accrued comprises current year income tax from continuing
operations of £386 million (2022: £261 million) (see note 7 to the financial statements)
and current year income tax from discontinued operations of £14 million (2022: £35
million). See the tax charge to tax paid reconciliation below for further information.
5. Tangible assets comprises property, plant and equipment (see consolidated statement
of financial position) and excludes tangible fixed assets for businesses disposed of
during the year (classified as held for sale in the prior year) of £8,344 million (UK Gas
Transmission £4,981 million, NECO £3,363 million) (2022: UK Gas Transmission
£4,719 million, NECO £3,173 million) (see note 10 to the financial statements).
Our Hong Kong entity is UK tax resident and is now in liquidation and
our entities in Australia and Canada are dormant. Our entity in Ireland
was dissolved during the year. Therefore, those jurisdictions have not
been included in the table above.
Our Isle of Man and Guernsey companies are captive insurance
companies which are treated as controlled foreign companies for UK
tax purposes and as such UK corporation tax is paid on their profits.
In the Netherlands, we historically had a finance company which
borrowed money externally and on-lent it to another Group company.
Both loans have now been settled and the company was dissolved
during the year.
Our presence in Luxembourg is to address a historical nationalisation
risk which arose from a Labour Party proposal in 2019 to nationalise
nearly all of National Grid’s UK assets.
Transfer pricing is not a significant issue for the Group since there are
limited transactions between Group companies, but any transactions
between related parties are made on an arm’s-length basis and aligned
to the Organisation for Economic Co-operation and Development
(OECD) principles.
Tax transparency
As a responsible taxpayer, we have voluntarily included additional tax
disclosures, which we believe are of significant interest to many of
our stakeholders. For information on the Company’s activities, please
see page 3 and for a definition of discontinued operations, please see
note 10 to the financial statements.
Tax strategy
National Grid is a responsible taxpayer. Our approach to tax is
consistent with the Group’s broader commitments to doing business
responsibly and upholding the highest ethical standards. This includes
managing our tax affairs, as we recognise that our tax contribution
supports public services and the wider economy. We endeavour to
manage our tax affairs so that we pay and collect the right amount
of tax, at the right time, in accordance with the tax laws in all the
territories in which we operate. We will claim valid tax reliefs and
incentives where these are applicable to our business operations,
but only where they are widely accepted through the relevant tax
legislation such as those established by government to promote
investment, employment and economic growth. We do not
have operations in tax havens or low-tax jurisdictions without
commercial purpose.
We have a strong governance framework and our internal control and
risk management framework helps us manage risks, including tax risk,
appropriately. We take a conservative approach to tax risk. However,
there is no prescriptive level or pre-defined limit to the amount of
acceptable tax risk.
Our financial statements have been audited. The figures in the tax
transparency disclosures in the Annual Report and Accounts have
been taken from our financial systems, which are subject to our
internal control framework.
We act with openness and honesty when engaging with relevant tax
authorities and seek to work with tax authorities on a real-time basis.
We engage proactively in developments of external tax policy and
engage with relevant bodies where appropriate. Ultimate responsibility
and oversight of our tax strategy and governance rests with the Finance
Committee, with executive management delegated to our Chief Financial
Officer who oversees and approves the tax strategy on an annual basis.
For more detailed information, please refer to our published global tax
strategy on our website.
Country-by-country reporting summary
We have disclosed in the table below data showing the scale of
our activities in each of the countries we operate in. This allows our
stakeholders to see the profits earned, taxes paid and the context
of those payments. The Group’s entities are tax resident in their
jurisdiction of incorporation other than where indicated in the footnotes
to note 34 to the financial statements.
2022/23
Revenue
Tax jurisdiction
Unrelated
party1
£m
Related
party2
£m
Total
£m
Profit/
(loss)
before
income
tax3
£m
Income tax
accrued
– current
year4
£m
Tangible
assets/
(liabilities)
other than
cash and
cash
equivalents5
£m
United Kingdom 11,215
111 11,326
2,729
United States
12,048
58 12,106
1,269
175
225
30,001
34,432
Isle of Man
Luxembourg
Netherlands
Guernsey
Total
—
32
— —
— —
—
5
32
—
—
5
(35)
—
—
—
—
—
—
—
—
—
—
—
23,263
206 23,469
3,963
400
64,433
National Grid plc
Annual Report and Accounts 2022/23
6363
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional Information
Financial review continued
Group’s total tax charge to tax paid
The total tax charge for the year disclosed in the financial statements
in accordance with accounting standards and the equivalent total
corporate income tax paid during the year will differ.
The principal differences between these two measures are as follows:
Reconciliation of Group’s total tax charge to tax paid
(continuing and discontinued)
Group’s total tax contribution
The total amount of taxes we pay and collect globally year-on-year is
significantly more than just the tax which we pay on our global profits.
To provide a full picture, we have disclosed the Group’s global total
tax contribution which includes contributions from both continuing
and discontinued businesses.
Group’s total tax contribution 2022/23 (taxes borne/collected)
2022/23
2021/22
Taxes borne
Taxes collected
£m
Total Group tax charge1
Adjustment for Group non-cash deferred tax
Adjustments for Group current tax (charge)/credit
in respect of prior years
Group current tax charge
Group tax instalment payments (repayable)/payable
in the following year
Utilisation of tax losses2
Tax instalment payments over/(under) paid in the
current year
Group tax payment/(refunds) in respect of prior
years paid in the current year3
Group tax payments relating to tax disclosed
elsewhere in the financial statements
Group tax paid4
969
(579)
10
400
—
(218)
(21)
(70)
1
92
1,494
(1,233)
35
296
(1)
—
18
15
3
331
Profit before income tax5
3,963
3,848
Effective cash tax rate6
Effective tax rate7
%
2.3
24.5
%
8.6
38.8
1. Total Group tax charge from operations after exceptionals is comprised of tax charge of
continuing operations of £876 million (2022: £1,243 million) and discontinued operations
of £93 million (2022: £234 million).
2. Relates to US utilisation of tax losses against, primarily, gains on the sale of NECO
and Millennium.
3. Primarily relates to refunds in respect of US tax settlements for historic years.
4. Total Group tax paid is comprised of tax paid for continuing operations of £89 million
(2022: £302 million) and discontinued operations of £3 million (2022: £30 million).
5. Profit/(loss) before income tax (PBT) from continuing operations after exceptionals is
comprised of continuing operations PBT of £3,590 million (2022: £3,385 million) and
discontinued operations PBT of £373 million (2022: £407 million).
6. Effective cash tax rate for continuing operations after exceptionals is 2.5% (2022: 8.8%)
and discontinued operations is 0.8% (2022: 8.1%).
7. Effective tax rate for continuing operations after exceptionals is 24.4% (2022: 36.6%)
and discontinued operations is 24.9% (2022: 57.5%).
Effective cash tax rate
The effective cash tax rate for the total Group is 2.3%. The difference
between this and the accounting effective rate of 24.5% is due to
changes in tax rates impacting deferred tax, together with the
following factors.
National Grid is a capital-intensive business, across both the UK and
the US, and as such invests significant sums each year in its networks.
In 2022/23 the Group’s total capital expenditure was £7,785 million.
To promote investment, tax legislation allows a deduction for qualifying
capital expenditure at a faster rate than the associated depreciation in
the statutory accounts. The impact of this is to defer cash tax payments
into future years.
In the current period, the US federal taxable income was offset by
brought forward Net Operating Losses which primarily arose from
deductions for qualifying capital expenditure incurred by National Grid in
earlier years. In addition, in 2022/23, a federal tax refund was received
relating to net operating loss claims from historical tax years. Hence no
significant federal tax payments were made and a net refund resulted
in the current period. Moreover, US state and local income tax
payments of £27 million ($33 million) were made during the year.
The Group continued to make payments into the UK defined benefit
pension schemes, National Grid UK Pension Scheme, National Grid
Electricity Group section of the Electricity Supply Pension Scheme
and the Western Power Pension Scheme during the course of the
year. These payments have further reduced the overall cash tax paid
in the UK.
Key:
u People
u Product
u Profit
u Property
u Miscellaneous
Total
£m
254
211
101
1,302
24
1,892
Key:
u People
u Product
Total
£m
792
1,376
2,168
Taxes borne are a cost to the Group; and taxes collected are generated
by the operations of the Group and which companies are obliged to
administer on behalf of government (e.g. income tax under PAYE,
employees’ national insurance contributions).
2022/23
Tax contribution
Income
tax paid/
(repaid)
on cash
basis1
£m
Property
taxes
£m
Other
taxes
borne
£m
Taxes
collected
£m
Total tax
contribution
£m
Number of
employees2
as at
31 March
2023
Tax jurisdiction
United Kingdom
157
305
144 1,435
2,041
14,397
United States
(65)
997
354
733
2,019
16,878
Ireland
Isle of Man
Luxembourg
Netherlands
Total
— — —
— — —
— — —
— — —
—
—
—
—
—
—
—
—
—
—
—
—
92 1,302
498 2,168
4,060
31,275
1. See the tax charge to tax paid reconciliation above for further information.
2. Number of employees is calculated as the total National Grid workforce across all parts
of the business, including Non-executive Directors and Executive Directors and
employees of the discontinued operations. All are active, permanent employees as well
as both full-time and part-time employees.
2021/22
Tax contribution
Income
tax paid/
(repaid)
on cash
basis1
£m
Property
taxes
£m
Other
taxes
borne
£m
Taxes
collected
£m
Total tax
contribution
£m
Number of
employees2
as at
31 March
2022
Tax jurisdiction
United Kingdom
315
302
114 1,110
1,841
13,424
United States
16
889
328
645
1,878
17,332
Ireland
Isle of Man
Luxembourg
Netherlands
Total
— — —
— — —
— — —
— — —
—
—
—
—
—
—
—
—
—
—
—
—
331 1,191
442 1,755
3,719
30,756
1. See the tax charge to tax paid reconciliation above for further information.
2. Number of employees is calculated as the total National Grid workforce across all parts
of the business, including Non-executive Directors and Executive Directors and
employees of the discontinued operations. All are active, permanent employees as well
as both full-time and part-time employees.
64
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National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
For 2022/23, our total tax contribution globally was £4,060 million
(2021/22: £3,719 million), taxes borne were £1,892 million (2021/22:
£1,964 million) and taxes collected were £2,168 million (2021/22:
£1,755 million). Our total tax contribution has increased in the year
primarily due to higher taxes borne in 2022/23 in respect of income
taxes paid and other taxes borne and higher taxes collected in relation
to indirect taxes.
Two thirds of the tax borne by the Group continues to be in relation
to property taxes, of which £997 million are paid in the US across over
1,200 cities and towns in Massachusetts, New Hampshire, New York
and Vermont. These taxes are the municipalities principal source of
revenue to fund school districts, police and fire departments, road
construction and other local services.
In the UK, we participate in The 100 Group’s Total Tax Contribution
Survey. The survey ranks the UK’s biggest listed companies in terms
of their contribution to the total UK government’s tax receipts. The
most recent result of the survey for 2021/22 ranks National Grid as
the 14th highest contributor of UK taxes (2020/21: 19th), the 10th
highest in respect of taxes borne (2020/21: 15th) and first in respect
of capital expenditure (£3,858 million; 2020/21: £1,549 million) on fixed
assets (2020/21: third). Our ranking in the survey is proportionate to the
size of our business and capitalisation relative to the other contributors
to the survey.
However, National Grid’s contribution to the UK and US economies is
broader than just the taxes it pays over to and collects on behalf of the
tax authorities.
Both in the UK and the US we employ thousands of individuals directly.
We also support jobs in the construction industry through our capital
expenditure, which in 2022/23 was £7,785 million, as well as supporting
a significant number of jobs in our supply chain.
Furthermore, as a utility we provide a core essential service which allows
the infrastructure of the country/states we operate in to run smoothly.
This enables individuals and businesses to flourish and contribute to the
economy and society.
Development of future tax policy
We believe that the continued development of a coherent and
transparent tax policy across the Group is critical to help drive growth
in the economy.
We continue to engage on consultations with policymakers where the
subject matter impacts taxes borne or collected by our business, with
the aim of openly contributing to the debate and development of tax
legislation for the benefit of all our stakeholders.
To ensure that the needs of our stakeholders are considered in the
development of tax policy we are a member of a number of industry
groups which participate in the development of future tax policy, such
as the Electricity Tax Forum and CBI Employment Taxes Working Group,
together with The 100 Group in the UK, which represents the views of
finance directors of FTSE 100 companies and several other large UK
companies. We undertake similar activities in the US, where the Group
is an active member in the Edison Electric Institute, the American Gas
Association, the Global Business Alliance, the American Clean Power
Association, the Energy Storage Association and the Solar Energy
Industries Association.
Feedback from these groups, such as the results of The 100 Group’s
Total Tax Contribution Survey, helps to ensure that we consider the
needs of our stakeholders and are engaged at the earliest opportunity
on tax issues which affect our business.
Pensions
In 2022/23, defined benefit pensions and other post-employment
benefit operating costs decreased to £274 million (2022/23:
£321 million).
During the year, our pensions and other post-retirement benefit
plans decreased from a net surplus position of £3,075 million at
31 March 2022 to a net surplus of £1,951 million at 31 March 2023.
This was principally the result of actuarial losses on plan assets of
£5.7 billion (lower investment returns) and actuarial gains on plan
liabilities of £4.4 billion (higher discount rates from corporate bond yields
and lower long-term RPI inflation expectations). Employer contributions
during the year were £284 million (2022: £300 million), including
£123 million (2022: £84 million) of deficit contributions. As at 31 March
2023, the total UK and US assets and liabilities and the overall net
IAS 19 (revised) accounting surplus (2022: surplus) is shown below.
Further information can be found in note 25 to the financial statements.
Net pension and other post-retirement obligations
£m
Plan assets
Plan liabilities
Net surplus
UK
US
Total
12,578
8,668
21,246
(10,964)
(8,331)
(19,295)
1,614
337
1,951
As at 31 March 2023, we recognised in the statement of financial
position pension assets of £21,246 million (UK pensions £12,578 million;
US pensions £6,060 million; and US other £2,608 million); and pension
liabilities of £19,295 million (UK pensions £10,964 million; US pensions
£5,736 million; and US other £2,595 million).
Dividend
The Board has recommended an increase in the final dividend to 37.60p
per ordinary share ($2.3459 per American Depository Share), which will
be paid on 9 August 2023 to shareholders on the register of members
as at 2 June 2023. If approved, this will bring the full-year dividend to
55.44p per ordinary share, an increase of 8.8% over the 50.97p per
ordinary share in respect of the financial year ended 31 March 2022.
This is in line with the increase in average UK CPIH inflation for the year
ended 31 March 2023 as set out in our dividend policy. Our aim is to
grow the annual dividend per share in line with CPIH, thus maintaining
it in real terms. The Board will review this policy regularly, taking into
account a range of factors including expected business performance
and regulatory developments.
At 31 March 2023, National Grid plc had £14 billion of distributable
reserves, which is sufficient to cover more than five years of forecast
Group dividends. If approved, the final dividend will absorb
approximately £1.4 billion of shareholders’ funds. This year’s dividend
is covered approximately 1.3x by underlying earnings.
The Directors consider the Group’s capital structure at least twice
a year when proposing an interim and final dividend and aim to
maintain distributable reserves that provide adequate cover for
dividend payments.
New accounting standards
We did not adopt any new accounting standards in 2022/23.
Amendments to certain existing accounting standards were adopted
during the year, but these had no material impact on the Group’s
results or financial statement disclosures.
Impact of UK capital allowance change
on future years’ UK regulatory revenues
In March 2023, the UK government announced changes to UK
capital allowances tax legislation effective from April 2023 to March
2026. This is expected to reduce our cash tax payments to HMRC, but
is not expected to directly reduce our overall tax charge, with the lower
cash tax paid being offset by a corresponding increase in deferred tax
liabilities. However, because our UK regulated businesses’ revenues
include a tax allowance, the increased tax relief from higher capital
allowances would result in lower cash tax paid and therefore lower
allowed revenues. This is expected to have a significant adverse impact
on our UK regulatory businesses’ reported underlying results (i.e. no
change to the overall tax charge, but lower underlying revenues) from
2023/24 to 2025/26, despite this change being economically neutral to
National Grid over the longer term. As part of our results announcement
in May 2023, we have provided further information in respect of this
change, including the likely impact on future years’ results.
Post balance sheet events
For further details, see note 38 to the financial statements.
National Grid plc
Annual Report and Accounts 2022/23
6565
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional Information
Corporate
Governance
report
UK Corporate Governance Code – 2022/23 Compliance Statement
Chair’s statement
Corporate Governance overview
Our Board
Board focus during the year
Section 172 Statement
People & Governance Committee report
Audit & Risk Committee report
Safety & Sustainability Committee report
Finance Committee report
Directors’ Remuneration report
66
67
68 – 69
70 – 71
72 – 73
74 – 75
80 – 82
83 – 87
88
89
90 – 106
UK Corporate Governance Code (the ‘Code’)
– 2022/23 Compliance Statement
The Company is subject to the Principles and Provisions of the Code, published by the Financial Reporting Council in
July 2018 (available at frc.org.uk). For the year ended 31 March 2023, the Board considers it has complied in full with the
Provisions of the Code. This Corporate Governance Report as a whole explains how the Company has applied the Principles
and complied with the Provisions of the Code and the below acts as a guide to where the most relevant explanations are given:
Principles of the Code
1. Board leadership and company purpose
A. Leadership, long-term sustainable success, generating value for shareholders and contributing to wider society
B. Purpose, values, strategy and culture
C. Resources and prudent and effective controls
D. Effective engagement with stakeholders
E. Workforce policies and practices
2. Division of responsibilities
F. Chair’s leadership
G. Board composition and clear division of responsibilities
H. Role and time commitment of Non-executive Directors
I. Policies, processes, information, time and resources, and support of the Company Secretary
3. Composition, succession and evaluation
J. Board appointment process and effective succession planning
K. Board and Committee skills, experience and knowledge
L. Annual Board and individual Director evaluation
4. Audit, risk and internal controls
M. Independence and effectiveness of internal and external audit functions
N. Fair, balanced and understandable assessment of Company’s position and prospects
O. Procedures to manage risk, oversee internal control framework and determine nature and extent of principal risks
5. Remuneration
P. Remuneration policies and practices
Q. Procedure for developing policy on executive, Director and senior management remuneration
R.
Independent judgement and discretion in remuneration outcomes
Details on information required for our US Securities and Exchange Commission filing and the Form 20-F can be found on page 230.
6 – 7, 68 – 69
2, 12 – 13, 34
12 – 24
36 – 37, 74 – 78
34 – 35, 37, 77
67 – 68
68 – 71
70 – 71, 79
68, 78 – 79, 235
80 – 82
70 – 71, 80
78
86 – 87
83
18 – 24, 86
90 – 106
90 – 106
90 – 91, 93, 96
66
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Annual Report and Accounts 2022/23
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Chair’s statement
Key highlights in 2022/23
100%
Board meeting attendance for
the year ended 31 March 2023
42%
female representation on our
Board as at date of report
17%
ethnicity representation on
our Board as at date of report
Purposeful engagement
It is a privilege to be able to meet a wide variety
of colleagues in different roles with varying
backgrounds and experiences. The Directors
held a number of formal and informal
engagement sessions throughout the year
with colleagues. We feel that our alternative
arrangement of ‘Full Board Employee Voice’
for Board workforce engagement remains
appropriate for our organisation. I have
travelled to operational sites and spoken with
many of our colleagues. In addition, I continue
to meet stakeholders including regulators,
elected and appointed officials and customers.
All our Non-executive Directors are encouraged
to visit our operational sites to get a better view
of the challenges on the ground and gain an
authentic sense of the organisation and our
culture (see page 77 for the engagement
during the year). Furthermore, through external
speakers, we try and give the Board an
opportunity to understand different stakeholder
perspectives in order to strengthen our
deliberations and discussions and, ultimately,
the decisions we make.
Annual General Meeting (AGM)
Following the success of our hybrid AGM in
2022, shareholders will again be able to join
the 2023 AGM online as well as in person.
This uses technology to enable shareholders
to participate fully in the business of the
meeting without the necessity of appearing
in person. Further details are outlined in the
Notice of Meeting for the AGM available on
the Company’s website.
Looking forward
We have refreshed our Board goals to guide
our activities throughout the year ahead. These
include continuing our strategic discussions
regarding the contours of the Group’s future
business, monitoring progress in our
commitment to net zero, transforming our
business in terms of technology, and business
process improvement.
Paula Rosput Reynolds
Chair
Dear shareholders,
I am pleased to present to you the 2022/23
Corporate Governance Report.
The year in review
One has only to read the media in any country
and realise that energy is at the forefront of
challenges faced around the globe. The Board
recognises that we must assure reliability and
resilience on behalf of millions of people who
depend on National Grid every day. Yet at the
same time, the Board must be looking to the
future and helping shape a strategy compatible
with the momentum to decarbonise and
electrify large portions of national economies.
We are also ultimately responsible for
monitoring and assessing the Group’s culture
and its alignment with the Group’s purpose,
values and strategy, with emphasis on delivery
and accountability, and where diversity, equity
and inclusion are championed.
As has been our practice, the Board continued
to rely on a set of goals to guide our activities
through the year, addressing major strategic
issues such as: the pace and direction of the
energy transition, regulatory and government
policy, technology and digitisation, and
market structure. We set aside time outside
of normal Board meetings for enrichment
sessions to deepen knowledge of technology
and innovation, among other topics. During the
year, we routinely brought external viewpoints
into the boardroom, including regulators,
investors, policymakers and energy experts,
to provide important external context to our
deliberations. The Board, through the People
& Governance Committee, also worked on
strengthening our oversight of management
development and succession.
Board composition and changes
The Board has undergone a major refreshment
over the past several years. We added one
new Board member in the year; Iain Mackay,
then Chief Financial Officer at GSK plc, joined
the Board in July 2022. In January 2023, Iain
became the Chair of the Audit & Risk Committee.
Having inducted seven new Board members
over the last three years, we are keen to
ensure a balance of longer and newer serving
Directors to retain knowledge and experience.
As such we have agreed with Thérèse Esperdy,
who completed her nine years as a Director
in March 2023, to remain on the Board until
31 December 2023 to provide an orderly
succession, given her roles as Senior
Independent Director and Chair of the
Finance Committee (see page 82).
Keeping the Board refreshed is an ongoing
process. The People & Governance
Committee is responsible for ensuring that
Board composition evolves in line with the skills
and experience we need for the current and
future strategy of the Company, as well as
ensuring we continue to meet our diversity
commitments in our Board Diversity, Equity
and Inclusion Policy (Board DEI Policy). As we
actively search for new Board members, these
priorities will be reflected.
National Grid plc
Annual Report and Accounts 2022/23
67
Corporate Governance overview
We have a high-functioning, diverse and balanced Board. Our governance
framework ensures that the Board is effective in its decision making and
maintaining oversight of the Group’s activities, complementing our values
of do the right thing, find a better way and make it happen.
Our governance framework
Board of Directors
People &
Governance
Committee
Audit & Risk
Committee
Safety &
Sustainability
Committee
Finance
Committee
Remuneration
Committee
P
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F
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Group Executive Committee and other management committees
Governance structure
The schedule of matters reserved for the Board and the Terms of Reference
for each Board Committee are available in our Board Governance document at:
www.nationalgrid.com/about-us/corporate-information/corporate-governance
How the Board operates
Board of Directors
Our Board is collectively responsible
for the effective oversight of the Group.
It determines the Company’s strategic
direction and objectives, business plan,
dividend policy, viability and governance
structure to help achieve long-term
success and deliver sustainable
shareholder value. It also plays a major
role in setting and leading the Company’s
culture and wider sustainability goals.
It considers key stakeholders in its
decision making and, in doing so, ensures
that Directors comply with their duty
under section 172 of the Companies Act
2006 (see page 74).
To operate efficiently and enable
appropriate oversight and consideration
over relevant matters, the Board delegates
certain responsibilities to the Board
Committees. Each Committee Chair
reports to the Board on their respective
Committee’s activities after each meeting
and papers and minutes are available
to all Directors unless there is an actual
or perceived conflict of interest.
Key matters considered by the
Board include:
• establishing the vision, purpose, values
and strategy for the organisation;
• the business strategy and long-term
strategic objectives;
• overall corporate governance arrangements;
• risk appetite and determination and
monitoring of Group Principal Risks;
• systems of internal control and
risk management;
• ensuring legal compliance and
ethical integrity;
• annual business plan and budget;
• significant changes in capital structure;
• ensuring the Company has adequate
resources and that resources are
managed responsibly;
• succession planning for the Board and
the Group Executive Committee;
• half- and full-year results statements,
Annual Report and Accounts and other
statutory reporting;
• oversight of the Company’s response to
major crises and other significant challenges;
• oversight of material ESG issues;
• appointing new Directors and assessing
Board and individual Director performance;
• ensuring dialogue with key stakeholders
to keep in touch with stakeholder opinions,
issues and concerns; and
• determination of the framework or policy
for the remuneration of the Directors.
Board composition and roles
Our Board comprises a Non-executive
Chair (independent on appointment), two
Executive Directors (Chief Executive and
Chief Financial Officer) and nine independent
Non-executive Directors, as at the date
of this report. There is a clear division of
responsibilities between the Chair and
Chief Executive. See the Board Governance
document on our website for further details
on the split of responsibilities. A list of our
Directors’ biographies can be found on
pages 70 and 71.
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Safety & Sustainability Committee
Assists the Board in fulfilling its oversight
responsibilities in respect of reviewing
and challenging the strategies, policies,
initiatives, risk exposure, targets and
performance of the Company in relation
to safety and sustainability.
Key matters considered:
• Safety policies and progress against
initiatives and performance targets.
• Health and wellbeing of the workforce.
• Sustainability strategy, ESG and climate-
related targets, disclosures and action plans.
Committee report
page 88
People & Governance Committee Audit & Risk Committee
Reviews the structure, size and
composition of the Board and its
Committees and advises the Board on
its succession planning and that of the
Group Executive Committee. It ensures
the Board is diverse, with the appropriate
balance of skills, experience, diversity,
independence and knowledge and
oversees the effectiveness of the
Board’s workforce engagement strategy.
It monitors the Board’s corporate
governance framework.
Assists the Board in discharging its
responsibilities for the integrity of
the Company’s financial statements,
risk management, assessment of
the effectiveness of internal controls
and internal and external auditors.
Key matters considered:
• Financial reporting and statements.
• Internal controls, risk management
• Corporate audit.
and compliance.
Key matters considered:
• Board and Committee composition
and succession planning.
• Board and Group Executive
Committee appointments.
• Board workforce engagement.
Committee report
pages 80 – 82
• External audit and assurance.
• Complaints and whistleblowing procedures.
• ESG and climate change-related disclosures.
Committee report
pages 83 – 87
F
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Finance Committee
Monitors the financial risk of the Group
and sets the finance policy.
Key matters considered:
• Financing policies and decisions.
• Credit exposure.
• Hedging.
• Foreign exchange transactions.
• Tax strategy and policy.
• Guarantees and indemnities.
Remuneration Committee
Determines the remuneration framework
for the Chair, Executive Directors and
Group Executive Committee members
and oversees the remuneration practices
and policies for the wider workforce.
Key matters considered:
• Setting and implementation of the
Directors’ Remuneration Policy.
• Incentive design and setting of
remuneration targets.
Committee report
page 89
Committee report
pages 90 – 106
Group Executive Committee and other management committees
Our Group Executive Committee oversees the safety, operational and financial performance of the Company. It is responsible
for making the day-to-day management and operational decisions it considers necessary to safeguard the interests of the
Company and to execute the strategy, business objectives and targets established by the Board.
It is supported by a number of other management committees including Safety, Health & Sustainability; Ethics, Risk & Compliance;
Reputation & Stakeholder Management; Policy & Regulation; Investment; Disclosure.
Full biographies for the Group Executive Committee are available at:
www.nationalgrid.com/about-us/our-leadership-team/the-executive-committee
National Grid plc
Annual Report and Accounts 2022/23
69
Our Board
P
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Paula Rosput Reynolds (66)
Chair
John Pettigrew (54)
Chief Executive
Thérèse Esperdy (62)
Senior Independent Director
Appointed: Chair with effect from 31 May
2021 and to the Board on 1 January 2021
Tenure: 2 years
Skills and competencies: Paula’s
strong business acumen is shown by her
impressive track record of leading complex
international businesses. In her board and
leadership roles, Paula has demonstrated
her decisive and pioneering nature,
which is crucial in moving National Grid’s
vision forward, as it progresses its journey
to enable the clean energy transition
and net zero by 2050. Her knowledge
of the energy market and experience
supporting organisations through
transitional periods is an asset to the
Board, and her leadership was recognised
as she was named FTSE 100 Non-
executive Director of the year by The Times
in March 2023. Paula is Chair of the People
& Governance Committee and is pivotal in
ensuring the succession and composition
of the Board align to the culture, strategy
and leadership needs of the Group.
These skills combined with her insight
into strategic and regulatory issues
support her in leading and governing
an effective board.
External appointments:
• Senior Independent Director and Chair of
the Remuneration Committee of BP p.l.c.
• Non-executive Director of General
Electric and Chair of the Governance
and Public Affairs Committee
• President and CEO of PreferWest LLC
Appointed: Chief Executive with effect
from 1 April 2016 and to the Board from
1 April 2014
Tenure: 9 years
Skills and competencies: John joined
National Grid as a graduate engineer in
1991, progressing through many senior
management roles and demonstrating
a strong track record of developing
and implementing global strategies for
profitable growth. John contributes widely
into external industry discussions shaping
energy policy and brings significant
know-how and commerciality to his
leadership of the executive team and
management of the Company’s businesses.
As Chief Executive, John leads on the
implementation of the Group’s strategy.
Most recently, he progressed our strategic
pivot with the successful acquisition of
NGED, the sale of a majority stake in our
UK Gas Transmission & Metering business
and the sale of the Rhode Island electricity
and gas business.
External appointments:
• Senior Independent Director of Rentokil
Initial plc
• Member of the Electric Power Research
Institute Board
• Member of the Edison Electric Institute
Executive Committee
Appointed: 18 March 2014
Tenure: 9 years
Skills and competencies: Thérèse has
significant international investment banking
experience, having held a variety of
leadership roles spanning 27 years.
Her career began at Lehman Brothers
and in 1997 she joined Chase Securities
and subsequently JPMorgan Chase & Co,
where she held a number of senior
positions. With a distinguished career in
the investment banking sector, Thérèse
brings significant banking, strategic
and international financial management
expertise and knowledge of financial
markets to the Board and to her role as
Chair of the Finance Committee.
Thérèse’s specialist knowledge combined
with her sharp and incisive thinking
enables her to contribute to, and
constructively challenge on, a wide
range of Board debates.
External appointments:
• Chair of Imperial Brands PLC
• Non-executive Director of Moody’s
Corporation
Anne Robinson (52)
Non-executive Director;
Independent
Appointed: 19 January 2022
Tenure: 1 year
Skills and competencies: Anne has
over 20 years of legal experience in the
financial services industry, where she has
counselled senior executives on a wide
range of legal, regulatory and business
issues. She is also an advocate for
sponsorship and mentorship of other
women in the legal profession. Anne brings
to the Board expansive and varied legal
experience in the financial services and
consulting fields as well as experience of
working closely with boards and investors
on a broad range of ESG issues. Anne
earned a BS from Hampton University
and a JD from Columbia University
Law School.
External appointments:
• Managing Director, General Counsel
and Corporate Secretary of The
Vanguard Group, Inc.
S
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Earl Shipp (65)
Non-executive Director;
Independent
Appointed: 1 January 2019
Tenure: 4 years
Skills and competencies: With
an extensive career in the chemicals
industry and having held a senior
leadership role in a safety-critical
process environment, Earl brings
significant safety, project management,
environmental, sustainability and
strategic expertise to the Board and its
Committees, particularly in relation to
operational safety management. This,
combined with his innovative way of
thinking, enables Earl to contribute on
a wide range of issues to Board debates
and to effectively chair the Safety &
Sustainability Committee.
External appointments:
• Non-executive Director of
Olin Corporation
• Non-executive Director of Great Lakes
Dredge and Dock Co.
Andy Agg (53)
Chief Financial Officer (CFO)
Appointed: 1 January 2019
Tenure: 4 years
Skills and competencies: Andy trained
and qualified as a chartered accountant
with PricewaterhouseCoopers and is
a member of the ICAEW. He has significant
financial experience, having held a number
of senior finance leadership roles across
the Group, including Group Financial
Controller, UK CFO and Group Tax and
Treasury Director. Andy has in-depth
knowledge of National Grid, in both the
UK and the US, and has broad experience
across operational and corporate finance
roles. Most recently he was instrumental
in the successful acquisition of NGED, the
sale of a majority interest in the UK Gas
Transmission & Metering business and
the sale of the Rhode Island electricity
and gas business, to enable our strategic
pivot towards electricity transmission
and distribution.
External appointments:
• Member of The 100 Group Main
Committee and Chair of the
Tax Committee
Liz Hewitt (66)
Non-executive Director;
Independent
Lord Ian Livingston (58)
Non-executive Director;
Independent
Appointed: 1 January 2020
Tenure: 3 years
Skills and competencies: Liz qualified
as a chartered accountant with Arthur
Andersen & Co. In her executive career she
worked in private equity for 3i Group plc,
Gartmore Investment Management Limited
and Citicorp Venture Capital Ltd gaining
insights into a wide variety of industries.
She gained global insight through her
work at Smith & Nephew plc. She was
seconded for a year to HM government.
Liz’s executive career in private equity
provided her with insights into a wide
variety of industries. Her broad industrial
and global experience and her financial
knowledge enable her to bring a wide
perspective to the Board.
External appointments:
• Director of Silverwood Property Limited
• Non-executive Director of Glencore plc
Appointed: 1 August 2021
Tenure: 1 year
Skills and competencies: Ian is
a chartered accountant who qualified
with Arthur Andersen & Co. He brings
a wealth of experience to National Grid,
having been Chief Financial Officer of both
Dixons Group plc and Chief Executive and
Chief Financial Officer of BT Group plc.
In addition to a highly successful executive
career, he has also had extensive
non-executive board experience in both
UK and US public companies, including
as board chair, remuneration committee
chair and audit committee chair. He has
extensive experience of large, regulated
companies operating in both the UK and
internationally in a variety of sectors. He
has a variety of non-commercial interests
and involvement with a number of charities
in education and social care.
External appointments:
• Non-executive Director of S&P Global
• Member of the House of Lords
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F Finance Committee
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S
Safety & Sustainability
Committee
E
Group Executive Committee
Committee Chair
Biographies, tenure and age as at
17 May 2023
Iain Mackay (61)
Non-executive Director;
Independent
Jonathan Silver (65)
Non-executive Director;
Independent
Appointed: 11 July 2022
Tenure: Less than 1 year
Skills and competencies: A member
of the Institute of Chartered Accountants
of Scotland, Iain also holds an MA in
Business Studies and Accounting and
received an Honorary Doctorate from
Aberdeen University in Scotland. Iain has
significant financial experience gained
in a range of sectors and operating in
regulated environments globally. He was
most recently Chief Financial Officer at
GSK plc, where he was a member of
its board and leadership team and
responsible for Global Finance and several
of GSK’s key global functions including
Investor Relations and Technology. Prior
to this, Iain was Group Finance Director
at HSBC Holdings plc for eight years
working across Asia, the US and Europe,
and previously worked at General
Electric, Dowell Schlumberger and Price
Waterhouse. Iain’s extensive background
knowledge and financial expertise allows
him to effectively Chair the Audit &
Risk Committee.
External appointments:
• Member, Court of University of Aberdeen
and Chair of its Remuneration Committee
Appointed: 16 May 2019
Tenure: 4 years
Skills and competencies: Jonathan
has considerable knowledge of the
US-regulated energy environment,
experience and understanding of
integrating public policy and technology
into a utility as well as a strong background
in finance. Previously, he was the head of
the US government’s $40 billion clean
energy investment fund. Jonathan’s strong
background in finance and government
policy along with his long career at the
intersection of policy, technology, finance,
and energy bring innovative and positive
insight to the Board’s policy discussions
and to its interaction with management.
External appointments:
• Independent Director of EG
Acquisition Corp.
• Director of Plug Power Inc.
• Director of Intellihot Inc.
• Chair of Global Climate Council Apollo
Global Management, Inc.
Tony Wood (57)
Non-executive Director;
Independent
Appointed: 1 September 2021
Tenure: 1 year
Skills and competencies: Tony has
proven business leadership credentials
as an experienced CEO, and brings to the
Board significant engineering experience;
he is also a Fellow of the Royal Aeronautical
Society. He was most recently CEO of
Meggitt plc and led the operational and
cultural transformation of the company,
transitioning from an industrial holding
structure to a focused and customer-led
business, leveraging technology investment.
During his time at Rolls-Royce plc
as President of its Aerospace division,
Tony developed a strong reputation as
an operator, turning around and growing
several challenging business units and
internationalising the company’s footprint.
External appointments:
• Director of ADS Group Limited
• Non-executive Director of Airbus SE
R
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Board meeting attendance
The table below sets out Director attendance at Board meetings
during the year ended 31 March 2023.
Martha Wyrsch (64)
Non-executive Director;
Independent
Justine Campbell (52)
Group General Counsel &
Company Secretary
Appointed: 1 September 2021
Tenure: 1 year
Skills and competencies: Martha
has held a number of senior positions in
the energy industry and has significant
experience of the US market, having been
a fortune 100 General Counsel and Chief
Executive of a major international gas
transmission business, as well as leading
the growth and development of Vestas’
renewables business in the US.
Having held a number of director roles
of publicly listed companies in both the
UK and the US, Martha brings to the Board
relevant experience across the renewable
energy sector, as well as a strong
understanding of the US regulatory
environment, bringing enriching discussion
and strategic thought to the Board.
External appointments:
• Independent Director of Quanta
Services, Inc.
• Independent Director of First American
Financial Corp.
• Advisor to Summit Carbon Solutions
Appointed: 1 January 2021
Tenure: 2 years
Skills and competencies: Justine
graduated from Trinity College Dublin
before qualifying as a corporate lawyer
and spending a number of years at
Freshfields in London and Brussels.
She has held senior executive positions
with responsibility for legal, regulatory,
compliance and public affairs matters
at several international companies,
including Telefonica, Vodafone and
Centrica, and has particular expertise
in regulated sectors.
Justine is responsible for safety, legal, risk,
compliance and corporate governance
activities across the Group.
External appointment:
• Member of the GC100 Group
Executive Committee
Director
Paula Rosput Reynolds
John Pettigrew
Andy Agg
Thérèse Esperdy
Liz Hewitt
Ian Livingston
Iain Mackay
Anne Robinson
Earl Shipp
Jonathan Silver
Tony Wood
Martha Wyrsch
Former Director
Jonathan Dawson
Amanda Mesler
Board Chair
Attendance
6/6
6/6
6/6
6/6
6/6
6/6
5/51
6/6
6/6
6/6
6/6
6/6
1/12
1/12
1. Iain Mackay joined the Board on 11 July 2022.
2. Jonathan Dawson and Amanda Mesler retired from the Board at the 2022 AGM.
National Grid plc
Annual Report and Accounts 2022/23
71
Board focus during the year
Our Board is collectively responsible for the effective oversight of the Company
and its businesses. It is responsible for establishing the Company’s strategy,
purpose, values and culture. It considers key stakeholders in its decision making
and, in doing so, ensures that Directors comply with their duty under section 172
of the Companies Act 2006 (see our Section 172(1) Statement).
Our stakeholders considered in Board discussions
Colleagues
Investors
Regulators
Communities
Customers
Suppliers
Strategy
Performance
The Board discussed with the Chief Executive his monthly report, which updates on the Group’s overall
performance, business unit operations, progress against strategy and engagement with stakeholders including
colleagues. The Board also spent time with the different business unit Presidents, with a particular focus on being
updated on the progress and key challenges and progress of the integration of UK ED.
Strategic priorities With a dynamic external environment, the Board has spent a lot of its time discussing our strategic priorities and the
execution of these with management.
External insights were provided throughout the year to enhance the Board’s understanding of different stakeholder
perspectives and increase knowledge on the industry and macro issues impacting the business in both the UK and
the US to enable well-rounded Board discussions. This included discussions with externals in a wide range of areas
– financial, political, business – and stakeholders such as regulators, government and investors.
Whilst the Board considers strategy at every meeting, it holds an annual strategy meeting to focus on the main
strategic questions and longer-term growth opportunities impacting the Group and the business units and the key
areas of focus, challenges and risks to delivering our priorities and plans to address or mitigate these, including our
financing strategy.
Our commitment
to reach net zero
The Board discussed ESG matters, including key strategic enhancements to keep pace with stakeholder
expectations and how these align with our commitments as a responsible business. The Safety & Sustainability
Committee oversees our sustainability strategy and progress in this area which it reports to the Board.
On the recommendation of the Safety & Sustainability Committee, the Board approved the Climate Transition Plan
in May 2022 and recommended its approval to shareholders at the 2022 AGM (see page 75).
Strategic Business
Plan and budget
The Board discussed and approved the Strategic Business Plan, to promote alignment of financial performance,
and the annual budget.
Dividend
RIIO-ED2
The Board considered the dividend policy, which provides for growth of the dividend in line with UK CPIH. It also
approved the 2022/23 interim and proposed 2022/23 final dividend.
The Board discussed with management the impact and areas of challenge we would seek under the Draft
Determination under RIIO-ED2. Further to the publication of the Final Determination, the Board undertook
a thorough review with management on the impact and ability to deliver on these including whether to appeal.
The Board decided that it would accept the price control arrangements in March 2023 (see page 75).
Impacts on the
UK energy market
As Russia’s invasion of Ukraine continued throughout 2022/23, the Board was briefed on the significant impacts on
the UK energy market, including the high and volatile prices, impact on consumers and impacts on Group and how
we were mitigating against these. This included oversight of the impact on affordability and UK Security of Supply,
cyber security and potential cost recovery.
Following publication of the British Energy Security Strategy, the Board received updates on the impact of the
increased ambition from the UK government and joined an enrichment session to consider the impact on the Group.
Future System
Operator
Further to the announcement of the planned separation of the UK ESO from the Group as an independent Future
System Operator, the Board has been kept updated on progress of this, including the progress of the Energy Bill
through Parliament, the ongoing engagement with the Department for Energy Security and Net Zero, the potential
impact on employees and the implications for the Group.
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Execution of strategy
Oversight
and execution
of strategy
The Board continued to keep under review the Group’s portfolio to ensure we are best positioned to drive value
for our shareholders. In particular, given the evolving regulatory and political landscape and stakeholder sentiment,
the Board spent time discussing the opportunities and risks facing each of our businesses and how we are
managing these. This included ensuring the political and regulatory frameworks in the jurisdictions in which we
operate are supportive to enable the execution of our plans and capital investment. The Board is particularly
mindful of this as we seek to develop the critical infrastructure needed to update the network on the East Coast.
Further to the approval of the sale of NECO and majority stake in UK Gas Transmission and Metering business last
year, the Board was kept updated on the status of these transactions as they proceeded to completion.
The Board approved the sale of 26.25% equity interest in Millennium Gas Pipeline Company, LLC (see page 75).
Financial
performance
The Board was updated by the CFO at each meeting on the current financial performance for the period against
budget and full-year outlook.
The Board considered and approved the half-year and full-year results, including any external guidance.
The Board received regular reports on our top shareholders, movements in the share register, share price
performance and how we are engaging with institutional investors and analysts. The interaction with debt investors
is discussed with the Finance Committee.
Litigation and
compliance
The Board was kept updated on internal compliance investigations and litigation and the impact on our
stakeholders and reputation.
People and culture
Culture
The Board monitored and assessed both the culture of the Group and its alignment with the Company’s purpose,
values and strategy (see page 76).
Community and
employee support
Given the backdrop of rising wholesale gas prices and increasing energy bills, the Board discussed, and
approved, financial support packages to run across two years to our communities in both the UK and US.
Together with management, it agreed to thank our colleagues with a £500/$600 payment and establish other
initiatives to support colleagues during the challenging winter period.
Safety
The Board with the support of the Safety & Sustainability Committee monitored safety performance throughout
the year. Updates were received on the investigation into the fatality in Medford, Massachusetts. The learnings
were shared with the whole organisation and we have changed our approach to safety through our Stand Up For
Safety campaign.
Risk, controls and governance
Review and
approval of Group
Principal Risks and
emerging risks
The Board with the support of the Audit & Risk Committee keeps under review the Group’s systems of risk
management including the GPRs and emerging risks and how we manage them. The Board agreed to add three
new principal risks to our profile: (i) major project delivery; (ii) financing our business; and (iii) energy balancing.
The Board reviewed and approved the effectiveness of the Group’s risk management system, following
recommendation from the Audit & Risk Committee. You can read more about our risks on pages 20 – 24.
As part of ensuring that the Board is comfortable with the Group’s cyber security risk, it also met with the National
Cyber Security Centre to discuss its role and strategy and how the Board can be comfortable with the assurance
it gains from the organisation in this area.
Governance
The Board reviewed and approved changes to the composition of the Committees including the Committee chairs
and undertook an annual review of the Terms of Reference approving any changes.
AGM
The Board approved the arrangements for our first hybrid AGM in 2022.
Annual Report
and Form 20-F
The Board considered the Annual Report, which was subsequently approved on the recommendation of the Audit
& Risk Committee (see page 83), on the basis that, taken as a whole, it is fair, balanced and understandable and
provides the information necessary for shareholders to accurately assess the Group’s position and performance,
business model and strategy. The Board also considered and approved the Annual Report on the Form 20-F.
National Grid plc
Annual Report and Accounts 2022/23
73
Key decisions and engagement
Effective engagement with our stakeholders is key to successful
achievement of the Group’s strategy in the long term.
Section 172(1)
Statement
During the year, the Directors
acted in the way they
considered, in good faith, most
likely to promote the long-term
success of the Company for
the benefit of its members as
a whole, with due regard to
stakeholders and the matters
set out in section 172 of the
Companies Act 2006.
The Board recognises its responsibilities to
each of the Group’s stakeholder groups and
to wider society. The Directors endeavour
to ascertain the interests and views of our
stakeholders and consider these when
making decisions.
The Board acknowledges its responsibility
for setting and monitoring the culture, values
and reputation of the Group. Every day our
colleagues seek to live by our values – do
the right thing, find a better way and make
it happen – and use these to guide how we
make decisions. When making decisions, the
Directors have regard to all stakeholders but
also acknowledge that not every decision
will result in each stakeholder’s preferred
outcome. The Board strives to balance the
different and competing priorities and
interests of our stakeholders in a way
compatible with the long-term, sustainable
success of the business and which maintains
a standard of business conduct aligned to
our values and purpose.
Pages 72 to 78 comprise our Section 172(1)
Statement.
Further details on how we engage
with our stakeholders can be found
on pages 36 to 37
Our Board’s engagement is detailed
on pages 77 to 78
How the Board had regard to Section 172 factors
Section 172
Key examples
A The likely consequence of any decisions in the long term
Our strategy and business model, pages 4 – 5 and
pages 12 – 13
B The interests of employees
Workforce engagement, pages 77 – 78
Our people, page 34
C
The need to foster the company’s business relationships with
suppliers, customers and others
Our commitment to being a responsible business,
pages 33 – 35
D Impact of operations on the community and environment
E Maintaining a reputation for high standards of business conduct
Our commitment to being a responsible business,
pages 33 – 35
TCFD, pages 38 – 51
Our commitment to being a responsible business,
pages 33 – 35
How the Board operates, page 68
F The need to act fairly as between members of the company
Shareholder engagement, pages 36 – 37 and page 78
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Decisions taken during the year
The following table provides some examples of decisions taken by our Board during the year
which demonstrate how section 172 has been taken into account as part of Board discussions
and decision making. The Board’s key focus areas for 2022/23 can be found on pages 72 and 73.
Key decisions
Sale of Millennium
Gas Pipeline
Acceptance of RIIO-ED2
Final Determination
Climate Transition Plan
(CTP)
Section 172 considerations
Section 172 considerations
Section 172 considerations
A
B
C
D
E
F
A
B
C
D
E
F
A
B
C
D
E
F
Context
We owned 26.25% of Millennium Gas
Pipeline Company, LLC, which owns and
operates the Millennium Pipeline, a FERC-
regulated natural gas pipeline in New York
state. The stake was a non-operational,
minority interest.
Context
In November 2022, Ofgem published
its Final Determination for the RIIO-ED2
framework covering our UKED regulated
business for the period from April 2023
to March 2028. Management completed
a detailed review of the full package to
assess whether it incentivised sufficient
investment to ensure safe, secure and
reliable supply of electricity alongside the
need to help transition to a low carbon
domestic energy system, at the lowest
cost to customers.
Context
The Company has set, and is working
towards, ambitious targets to reach net zero
by 2050. The CTP sets out the Company’s
plans, actions and assumptions enabling
it to achieve its Scope 1, 2 and 3 emissions
reduction targets, aligned to the goals of the
Paris Agreement.
Stakeholder groups considered
Stakeholder groups considered
Stakeholder groups considered
Decision taken
The Board approved the sale of our
26.25% stake for a cash purchase price
of $552 million to DT Midstream, an
existing partner. The Board noted that
the supply to customers would be
unaffected as National Grid will remain
a shipper through the pipeline for the
foreseeable future and the transaction
allowed the Group to crystallise value
from a non-core asset.
Decision taken
The Safety & Sustainability Committee
considered the CTP and provided
feedback on the key messages to
ensure it reflected the Company’s
priorities. It also considered the
importance of alignment to other
reporting requirements around
climate change.
It recommended the CTP to the Board
who approved putting it to shareholders
for an advisory vote at the 2022 AGM.
The CTP received favourable support
from over 98% of our shareholders.
Decision taken
The Board considered the assessment
in detail, reviewing, inter alia, the detailed
engagement with Ofgem, the longer-
term financial impact of the proposed
framework on the various stakeholders
within our business and the associated
risks to the Group. It approved that it
would accept all of the RIIO-ED2 price
control arrangements proposed by
Ofgem in its Final Determination.
These price controls will further
accelerate our delivery of smart,
decarbonised electricity distribution
networks in the UK, at the lowest-level
cost to customers. They also form an
important part of the Group’s financial
framework (see page 17), with up to
£40 billion of investment between 2021
and 2026, as we continue the journey
towards net zero, and a clean, fair
and affordable energy future.
Our Stakeholder groups
Colleagues
Investors
Regulators
Communities
Customers
Suppliers
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Annual Report and Accounts 2022/23
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How the Board monitors culture
The Board plays a significant role in monitoring and assessing both the
culture of the Group and its alignment with the Company’s purpose, values and
strategy. It is supported by the People & Governance Committee, which identifies
opportunities to strengthen culture, and the capabilities that underpin it, in a way
that serves the future strategic goals of the Company.
There has been a focus on leadership
capabilities, development and succession.
The People & Governance Committee Chair
reports back to the full Board following each
meeting, which also provides the opportunity
for full Board input and ensures all Board
members are actively engaged in monitoring
corporate culture.
The Board assesses the Company’s culture
and the progress being made from two key
data sources:
• lagging indicators from the Grid:voice survey
and the Spencer Stuart culture diagnostic;
and
• leading indicators taken from the culture
change activity under way across
the organisation.
Lagging indicators
The findings of this year’s Grid:voice survey
showed positive movement across nearly all
indicators. Overall engagement remains six
points above the high-performing norm in
the Korn Ferry benchmark*. We have also
maintained top-quartile performance for ‘Safe
to Say’, consolidating a spirit of openness and
trust across the organisation. Our colleagues
feel they can express their views, opinions and
concerns and have confidence that action will
be taken where needed. This is a strength
of National Grid’s culture.
* The Korn Ferry benchmark comprises the average
survey scores from over 700,000 employees in 55 high
performing organisations around the world in a variety
of industries.
Leaders have a disproportionate influence on
engagement, so the tone set from the top of
the organisation is critical. Strong focus has
been placed on this over the past year and,
as a result, the level of belief in our strategic
direction at all levels of the Company and
confidence in senior leader decision making
have significantly increased. The progress we
saw in our ‘leadership index’ in 2021/22 has
continued in 2022/23, with more leaders than
ever behaving in line with our values, at or
above our expectations. Further plans are in
place for an experienced leaders programme
in 2023/24 to continue this positive trajectory.
We have strengthened both ‘purpose’ and
‘results’ focus, with the former now ingrained in
the core behaviours of the organisation and its
people, and the latter now being the dominant
leadership style at National Grid. The trait that
unifies the organisation remains ‘order’, vital for
a utility delivering the safe and reliable flow of
energy to homes and businesses. The fourth
defining attribute of our culture is ‘caring’, less
common in the energy sector but a unique
strength for National Grid, which aspires to
become one of the most diverse, equitable
and inclusive companies of the 21st Century.
Our focus going forward is to now consolidate
and maintain the current culture.
Leading indicators of change
In addition to the quantitative data, the Board
also monitors leading indicators of change.
Throughout the year this has been through the
results of the organisation’s ‘Living our Values
Everyday’ campaign, ‘Untapped AI’ personal
development coaching activity and through the
‘Team Effectiveness’ facilitation programme.
Looking forward
In a world where affordability is more important
than ever, we will be dialling up our focus on
customers, to ensure we are increasingly
responsive to their needs and that we deliver
for them efficiently now and in the future, as
we work to deliver net zero. We have updated
the behaviour statements that sit under our
three values to reflect our desire for genuine
customer-centricity, and work to embed
this is under way. We have also put in place
performance contracts for each business unit
and function that connect the dots between
the work colleagues do and National Grid’s
overall vision and strategic priorities. So,
whatever their role, each colleague can now
understand the positive impact of their role
on Company performance and society as
a whole. The Board will continue to oversee
this area and monitor the progress in this area.
For further information on culture see
page 34
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Non-executive Directors on a site visit
to our LNG Plant in Providence, MA
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Board engagement
Engagement is key to the Group’s long-term success and the Board directly and
indirectly engages with key stakeholders, ensuring it understands their interests
and takes them into account in Board decision making. This complements other
engagement with the workforce (as set out on page 37). You can read the Board’s
Section 172(1) Statement on page 74.
Site visits
We encourage our Non-executive Directors
to visit operational and field sites to hear
views from operational colleagues to provide
a platform for meaningful engagement whilst
enhancing their understanding of our
vital operations.
Engagement in action
Our Non-executive Directors visited
a number of sites during the year, including
the London Power Tunnels and St John’s
Wood substation; the Gas Transmission
Main Replacement Project and LNG
Providence site in Massachusetts; our
UK ED control room and contact centre
in Cardiff.
Meeting talent
To enable our Board to meet our high-potential
colleagues informally, we periodically have
opportunities for members of the Board to
meet the broader colleague population.
Engagement in action
Our Board met our UK ET leadership team
for dinner in July 2022 and our New England
leadership team for breakfast in September
2022. Members of the Audit & Risk
Committee and Safety & Sustainability
Committee also met with colleagues in the
Finance and Safety and Sustainability teams
respectively in Boston in September 2022.
Other activities
Our Board have undertaken other engagement
activities throughout the year to reflect
on our operational performance and
significant achievements.
Workforce engagement
Throughout the year we continued with our
‘Full Board Employee Voice’ approach, utilising
and enhancing existing colleague engagement
methods and communication channels to
ensure meaningful engagement across all
parts of the business by our Board. During the
year, the Board’s engagement comprised:
Small group listening sessions
These consist of mixed role/level colleagues
in attendance with different Non-executive
Directors. Attendees are coordinated by HR
and represent a diverse mix of colleagues
across our workforce. The sessions can be
open discussion or on specific themes.
Engagement in action
• Five Non-executive Directors, including
the Remuneration Committee Chair, met
colleagues in May 2022 for a remuneration
themed engagement breakfast, providing
an opportunity to discuss the Group’s
approach to remuneration.
• Five Non-executive Directors, including
the Safety & Sustainability Committee
Chair, met colleagues for a climate
transition and net zero themed
engagement breakfast in May 2022,
providing an opportunity to discuss
the Group’s approach to these
important topics.
Employee Resource Groups (ERG)
We are proud to have 16 ERGs split across
the UK and US, representing a significant and
diverse proportion of the workforce. Our Board
interacts with the ERGs to better understand
their key areas of focus and future direction.
Engagement in action
Two Non-executive Directors attended the
first ERG summit held in London in July
2022. Members of the Board also
supported and spoke at virtual ERG
sessions in June 2022.
The Chair was a panel member at the
International Women’s Day – Leaders in
Energy event hosted by our Women’s ERG.
Engagement in action
• One Non-executive Director and the
Chief Executive attended a dinner in
October 2022 in Boston to recognise
engineers involved in world-leading
Energy Transition projects including
T-Pylons, the UK’s new nuclear power
station and the Storm Eunice response.
The event provided the opportunity for
individuals to discuss a range of topics.
• Two Non-executive Directors toured the
Company’s storm response organisation
in Buffalo, NY during an actual storm
deployment; three Directors attended an
event in Buffalo, NY hosted by our Chief
Executive to recognise our US colleagues
working during the significant storms
experienced during the winter.
• Our Chair routinely visits our UK and
US sites to meet with operating and
planning teams.
• Our Chief Executive holds biannual
colleague webcasts which provide all
colleagues the opportunity to ask him
questions on any subject in an informal
forum. Alongside the CFO, he also holds
monthly discussions with the Senior
Leadership Group.
Feedback and engagement insight
Following engagement activities, the Board
takes the time to discuss the views of the
workforce and take these into consideration
throughout wider Board and Committee
discussions. To supplement direct
engagement, periodic updates are shared by
management on progress with engagement
and culture through our two main colleague
insight tools – the Grid:voice engagement
survey and the employee culture diagnostic.
Further details on Grid:voice can be
found on page 34
Looking ahead
The People & Governance Committee
monitors the effectiveness of the programme
and reviews our chosen mechanism under
the Code. In January 2023, it reviewed the
current mechanism and continued to feel
that the variety of engagement is a great
way of building and maintaining trust and
communication whilst providing our colleagues
with an appropriate forum to influence change
and agreed that the current approach
remained appropriate. For 2023/24, the Board
has considered other opportunities to continue
to refine and strengthen this and allow for
Directors to continue to immerse themselves
in the culture and operations of the Group.
National Grid plc
Annual Report and Accounts 2022/23
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Board engagement continued
Shareholder engagement
The Board is committed to maintaining strong
communications with our investors (both equity
and debt). The Company has a comprehensive
investor relations programme where it meets
a range of key investors in person or virtually
at small meetings and larger investor roadshow
events. The Chair has made routine contact
with shareholders who are interested in
discussing Board governance. In addition,
Committee Chairs such as the Remuneration
Committee Chair engage specifically on topics
within their responsibility. Management also
hosts webcasts for both our half-year
and full-year results and takes questions from
investors and analysts to ensure an open
dialogue with the market. Presentations are
given to analysts and investors covering the
Group’s results, along with all results and
other regulatory announcements. This
information can be found on our website at
nationalgrid.com/investors
The Board gets regular reports on our top
shareholders, movements in the share register,
share price performance and how we are
engaging with institutional investors and
analysts. It also discusses shareholder issues
with management and advisors and considers
these as part of its decision making.
Investor events
We hold a range of events to provide
engagement opportunities with our investors.
This included continuing our ‘Grid Guide to’
series, which consists of short, virtual sessions
covering our ambitions and progress across
a range of themes. Some of the key sessions
of our 2022/23 programme included:
• June 2022 – ESG Investor Webinar
• July 2022 – NY Investor Event
• January 2023 – GLIO Investor Seminar
• March 2023 – Grid Guide to Enabling
EVs and modernising our networks
in Massachusetts
Further details and supporting materials
from these events can be found in the
investor section on our website:
nationalgrid.com/investors/events/
grid-guide
AGM
Our AGM is another opportunity for the
Board to meet and engage with shareholders.
We were pleased to hold our 2022 AGM as
a hybrid meeting in London. This was the first
meeting we were able to hold for in person
attendance since the onset of the COVID-19
pandemic. We had a good number of
shareholders attending electronically and
asking questions which enables us to
broaden our engagement with those who
may not be able to be with us in person. The
comprehensive support from our shareholders
for our CTP was a great acknowledgement of
our vital role in the energy transition and our
pathway to becoming a net zero business
by 2050.
Findings of the Board evaluation
Our 2022/23 Board evaluation found that the
focus on strategy has led to greater clarity and
an agreed direction of travel between Board
and management and the refreshment of the
Board skills and a diversity of perspectives and
views to our boardroom discussions. There are
further opportunities to strengthen our focus
on talent and succession. The findings also
indicated a need to monitor performance
metrics as various business units meet with
the Board throughout 2023/24.
Performance of the Chair
As part of IBE’s evaluation, in line with the
Code, each individual Director’s effectiveness
was evaluated, including our Chair’s
performance. Detailed feedback was shared
directly with the Senior Independent Director,
Thérèse Esperdy. Thérèse also discussed the
views of the Chair with each Director. An
overview of the findings was shared during
a private session between Thérèse and Paula.
We will once again look to hold the 2023 AGM
as a hybrid meeting. Details are included in our
Notice of Meeting which is made available to
shareholders in advance of the meeting and
available on our website.
Board performance
evaluation
Our annual evaluation process provides the
Board and its Committees with an opportunity
to consider and reflect on the quality and
effectiveness of their decision making, and
for each member to consider their own
contribution and performance. Following
on from the externally facilitated evaluation
in 2021/22, the Board again engaged
Independent Board Evaluation (IBE) in 2022/23
as a continuation of the prior year evaluation,
to check in on progress given the embedding
of newer Directors and to consider further
areas of strengthening the relationship and
effectiveness of the Board.
A mix of meeting observation and interviews
has been used, with individual feedback for
each Director, including the Chair, on Board
dynamics, working with management and
effective use of Board time.
Neither the principal consultant nor IBE
has any connection with the Company
or individual Directors.
Board performance evaluation – progress against 2022/23 actions
Focus area
Board actions for 2022/23
Progress against actions
Strategy
• Finalise Board strategic topics for 2022/23
and ensure agendas align.
Capability
• Strengthen focus on talent and
succession at all levels. Include regular
reviews on People & Governance agendas
and align with opportunities for the Board
to meet high-potential employees.
Agreed an area of strategic topics to be covered
through the year and in particular the key
questions to tackle with the Board as part of the
annual Strategy meeting.
Continued the review of individual talent
evaluations and succession plans.
Reviewed the progress of increasing diversity
in the workforce via the People & Governance
Committee.
Culture
• Incorporate the results of the culture
scorecard in People & Governance
Committee deliberations.
Positive shift in results focus across the
organisation and our ‘Purpose’ is ingrained
in our culture.
Employee
engagement
• Review and refine the overall approach
to employee engagement.
• Ensure key insights from engagement
opportunities are shared with the Board.
Engagement
with
management
• Ensure effective communication flows to
provide the right insights, including early
sight of emerging issues when required.
The People & Governance Committee reviewed
our current approach and believes it continues
to be best for the Company (see page 77).
The Board discussed and agreed areas to
further refine and strengthen this for 2023/24.
Updates are shared via the Chief Executive’s
monthly updates either at each Board
meeting or as ad hoc notes when there is not
a scheduled Board meeting. The Board is
informed as appropriate on emerging issues
through updates as required.
• Continue to improve discipline around
Board papers and processes.
We continue to refine content and messaging
within our Board papers.
Process and
meeting
management
• Routinely bring outside views into
the boardroom.
ESG
• Ensure that ESG commitments are
embedded in the Board’s stewardship.
There have been a number of external speakers
at both Board and Committee meetings and at
engagements sessions outside of these.
Thorough review of our climate and related
ambitions, goals, measurements and progress
by the Safety & Sustainability Committee and
discussion at each Board meeting regarding
areas of focus.
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Directors’ induction,
development and training
Together with the support of the Group
General Counsel and Company Secretary and
her team, the Chair has overall responsibility
for ensuring that our Non-executive Directors
receive a comprehensive induction and
ongoing development and training. The
induction programme and induction pack
are tailored to their experience, background,
Committee membership and requirements
of their role. They are encouraged to engage
with the business by visiting sites in the UK
and US. As our internal and external business
environment continues to change, it is
important to ensure that Directors’ skills
and knowledge are refreshed and
updated regularly.
As part of continuing to enhance their
knowledge of the business, during the year,
the Board attended a series of enrichment
sessions on a number of topics including
ESG, the British Energy Security Strategy,
energy futures and US utility regulation,
supply chain & inflation and winter outlook and
preparedness. They also received corporate
governance updates, investor guidelines and
potential changes to legislation and regulation
through updates to the Board or the
relevant Committees.
Iain Mackay’s induction
Iain received a comprehensive induction in
which he met and heard from key stakeholders
responsible for the delivery of the Group’s
strategy, key business operations and matters
pertinent to his Committee roles. This is
detailed in the table below. Specific focus
was given to prepare Iain to step into the role
of Chair of the Audit & Risk Committee from
January 2023. Iain visited our LNG Plant in
Providence, Massachusetts in September
2022 with some fellow Board members to
observe our operations in action and meet
colleagues to gain further insight into
our culture.
Time commitment
The Board monitors and approves significant
external appointments in advance and
considers any potential conflicts of interest
when it agrees that a Director can take
on a new appointment (see page 229).
On accepting their appointment with the
Company, Directors must confirm they are
able to allocate sufficient time to discharge
their responsibilities effectively. Directors are
expected to attend meetings of the Board and
any Committees of which they are members
and devote sufficient time to prepare for this
in advance.
Director’s induction – Iain Mackay
They also are encouraged to visit different
offices and sites. Before accepting new external
appointments, Directors are required to obtain
the prior approval of the Board. The Board
considered Liz Hewitt’s proposed appointment
as a non-executive director of Glencore plc in
July 2022; Tony Wood’s proposed appointment
as a non-executive director of Airbus SE in
December 2022; and Iain Mackay’s proposed
appointment as a non-executive director of
Schroders plc in January 2024 in light of their
other appointments and roles on the Board.
It was concluded that the appointments would
not impact their ability to perform their duties as
a Non-executive Director of the Company, and
accordingly the Board gave its prior approval
in each instance.
Re-election of Directors
The People & Governance Committee
considers, in respect of each Director, their
skills and experience, time commitment and
tenure as part of the Board’s recommendation
to shareholders for their re-election of
Directors. Each Director has confirmed that
they are willing to be re-elected. The Board
believes that each Director who is being put
forward for re-election at the 2023 AGM brings
considerable knowledge, wide-ranging skills
and experience to the Board, makes an
effective and valuable contribution and
continues to demonstrate commitment to their
role. The Board also considered the continued
independence of Non-executive Directors as
part of its consideration of the re-election of
Directors. The Board continues to consider all
Non-executive Directors as being independent
in line with the Code.
Induction area
Provided by
Governance and Directors’ duties
• Chair of the Board
Topics covered
• Priority areas for the Board
• Group General Counsel & Company Secretary
• Governance framework and corporate structure
• Head of Secretariat
• External Legal Counsel
• Overall legal matters
• Director duties for a listed company
• Market Abuse Regulation
Audit & Risk
• Incumbent Chair of the Audit & Risk Committee
• Priority areas for the Audit & Risk Committee
• CFO
• Group Head of Audit
• Chief Risk Officer
• Group Financial Controller
• External Auditor (Deloitte)
• Regional CFOs
• Regulatory finance model
• Financial reporting framework
• Risk management framework and principal risks
• External audit including lead partner succession
Remuneration
• Chair of the Remuneration Committee
• Priority areas for the Remuneration Committee
Safety & Sustainability
• Chief People & Culture Officer
• Group Head of Reward
• External remuneration consultant (PwC)
• Group Head of Safety
• Group Chief Engineer
• Directors’ Remuneration Policy
• Remuneration matters including broader workforce
engagement
• Priority areas for the Safety & Sustainability Committee
• National Grid’s approach to safety and sustainability
• Engineering assurance
• Climate change and climate risk
Strategy
• Chief Strategy & External Affairs Officer
• National Grid’s strategy and transition to net zero
• Chief Sustainability Officer
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Annual Report and Accounts 2022/23
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People & Governance Committee report
Culture
High-performing organisations are
characterised by, among other things, clarity
on goals and performance. National Grid is
purpose led, which reflects our long-term
outlook in respect of the energy transition
and our role as a responsible business.
This is anchored in our core behaviours
and is a unifying aspect of our culture. The
Committee discussed the progress against
our cultural ambitions during the year noting
improvements in key elements and also
areas where further progress is desirable.
See page 76 to read more about how we
as a Board monitor culture.
Board succession
and composition
The Committee and I spent a fair amount of
time during the year discussing succession
planning and ongoing progressive Board
refreshment. We are cognisant of having
a Board that remains balanced in experience,
skills, diversity, independence and tenure.
We view diversity through a broader lens
than just gender and ethnicity.
Board skills
In January 2023, we refreshed our Board skills
matrix as part of ensuring it continues to reflect
the skills required from the Board as a whole
to support the business in line with its strategy
and to meet future challenges. We sought to
simplify and focus these to the top 10 key skills
set out below. This matrix is used to inform
searches for Non-executive Directors and
consider the overall composition of the Board.
Key activities during the year
• Approved a new Non-executive Director
appointment
• Reviewed and approved the refreshed
Board Diversity, Equity and Inclusion (DEI)
Policy and monitored progress
against objectives
• Focused on executive succession planning
Composition and
Committee attendance
The Committee is made up of four
independent Non-executive Directors
and the Chair of the Board.
Committee members
Paula Rosput Reynolds
Thérèse Esperdy
Jonathan Silver
Earl Shipp
Tony Wood
Committee Chair
Attendance
5/5
5/5
5/5
5/5
5/5
Board skills and experience
Board independence*
Compliance/Regulation
Government/Political
10
10
Cyber
3
Technology/Digital innovation
3
Safety
5
Energy industry/Utilities
7
Engineering operations
4
Finance, M&A and Audit
10
People Operations/Management
Sustainability including climate change
11
9
Executive 2
Non-executive 9
* Excludes Chair who
was independent
on appointment
Non-executive Directors’ tenure
0 – 3 years 6
3 – 6 years 3
6 – 9 years 0
9+ years 1
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Diversity, Equity and Inclusion (DEI)
We believe that DEI is a vital part of our efforts in building the talent and capabilities we need
for the future to deliver on our purpose and strategic priorities. Our vision is to build and develop
an inclusive culture and diverse workforce that is representative of the communities we serve.
At each meeting, the Committee starts with a ‘DEI moment’ to focus attention on areas in which
the Company is addressing and nurturing various aspects of the employee experience. Our Group
Chief Diversity Officer has met with the Committee to review the global DEI strategy including the
progress against our DEI commitments and changes to corresponding targets under the RBC.
Information on DEI throughout the organisation is set out on page 17.
We also recognise the Board’s role in exemplifying its commitment to diversity at a leadership
level and this is set out in the Board DEI Policy. The Committee monitored the Board’s progress
against its objectives:
Objectives
Progress as at 31 March 2023
The Board aspires to comprise at least 40% women
on our Board.
The Board aspires to comprise at least one of the
senior Board positions (Chair, Chief Executive, Chief
Financial Officer or Senior Independent Director)
is a woman.
Objective exceeded: There are five female
Directors on the Board, resulting in 42% women
on our Board.
Objective exceeded: The Chair and Senior
Independent Director are both women.
The Board aspires to comprise at least one Director
from a minority ethnic background.*
Objective exceeded: We currently have two
Directors from a minority ethnic background.
The Board aspires to achieve 50% diversity**
on our Board.
Objective met: We currently have 50% diversity
on the Board.
* The following categories are used to define those from a minority ethnic background: Asian/Asian British; Black/
African/Caribbean/Black British; Mixed/Multiple Ethnic Groups; other ethnic group, including Arab
** Diversity of the Board is defined, in this context, as female and individuals from a minority ethnic background.
As part of executive succession planning, the Committee also strives to challenge bias in
appointments and succession plans and ensure that they are made on the basis of merit and
objective criteria.
In accordance with Listing Rule 9.8.6R(10), as at 31 March 2023, the numerical data on the gender
identity and ethnic background of our Board and Group Executive Committee is as follows:
Gender Board members
Senior positions on Board*
Group Executive Committee
Senior Leadership Group**
Women
Men
Women
Men
Women
Men
Women
Men
Number
% 2023
% 2022
5
7
2
2
4
7
59
88
41.7
58.3
50.0
50.0
36.4
63.6
40.1
59.9
46.2
53.8
50.0
50.0
N/A
N/A
N/A
N/A
Number
of Board
members
Percentage
of the Board
Senior
Positions
on Board*
Group
Executive
Committee
Percentage
of Group
Executive
Committee
Senior
Leadership
Group**
Percentage
of Senior
Leadership
Group
Ethnicity White British
or other White
(including
minority-white
groups)
Mixed/Multiple
ethnic group
Asian/Asian
British
Black/African/
Caribbean/
Black British
Other ethnic
group, including
Arab
Not specified/
prefer not to say
10
83.3%
–
–
2
–
–
–
–
16.7%
–
–
4
–
–
–
–
–
10
90.9%
117
80%
–
–
1
–
–
–
–
–
9.1%
2
10
7
1
–
10
1%
7%
5%
1%
7%
* Senior positions on Board refer to the Chair, Chief Executive, Chief Financial Officer and Senior Independent Director.
** Senior Leadership Group includes all direct reports to Group Executive Committee members and Directors of our
subsidiary entities.
Gender representation
Male 7
Female 5
Ethnicity representation
Minority ethnic
background 2
White 10
Board nationality
UK 6
US 6
Approach to collating diversity data
Data is sourced from MyHub (our People
system) containing all permanent colleague
details, as at 31 March 2023. All diversity
information for ethnicity is based on
voluntary self-declaration. For Non-
executive Directors, we collect data through
our annual year-end Director data collection.
National Grid plc
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People & Governance Committee report continued
Group Executive Committee
succession planning
and talent
Last year I set out our approach to ensuring
we had a robust process of reviewing
management development and executive
succession. We have made progress, in
conjunction with our Chief Executive and
Chief People & Culture Officer, in reviewing the
succession pipeline for many of the key roles
in the Company, development plans for our
emerging leaders and identifying where we
need to introduce new skills and experience
into the organisation.
The Committee has spent time focusing on
leadership and talent at the senior leadership
level, in particular the Group Executive
Committee members, as we adapt our
operating model to continue to deliver on
our strategic priorities. The Board, on the
recommendation of the Committee, approved
a few changes to the Group Executive
Committee during the year, with Carl Trowell
joining as President of the new Strategic
Infrastructure business unit and Cordi O’Hara
becoming President of UK ED.
Paula Rosput Reynolds
Committee Chair
Board appointments
As part of ongoing succession planning, the
Committee recommended the appointment
of Iain Mackay following a transparent and
thorough process outlined below:
• Russell Reynold Associates and MWM
Consulting were appointed jointly as
the firms for the search. There are no
connections between the search firms and
the Company and its individual Directors.
Both are also signed up to the Voluntary
Code of Conduct for Executive Search Firms
in line with the Board DEI Policy. They
discussed the skills and experience needed
for the new Director.
• A shortlist of candidates was considered
by the Committee with preferred candidates
meeting with a sub-set of Directors, who
provided feedback to the Committee.
• The Committee recommended the
appointment of Iain Mackay as an
independent Non-executive Director, which
was subsequently approved by the Board.
The Committee continues to keep succession
planning under review particularly for longer-
serving Directors. We are conscious Thérèse
Esperdy reached her nine-year tenure as
a Non-executive Director in March 2023.
Accordingly, the Committee and the Board
undertook a thorough review of her
independence. The Committee considered
her personal qualities and circumstances,
including any business or relationships that
could materially interfere with her ability to
exercise objective or independent judgement
or her ability to act in the best interests of the
Group. Both the Committee and the Board
concluded that she continues to be
independent of management and a valuable
Director, with experience in the areas of
finance, risk, control and governance. Given
the number of recent changes to the Board,
we are mindful of balancing the longer and
newer serving Directors to retain knowledge
and experience and have agreed with Thérèse
that she will remain on the Board until
31 December 2023. This will allow continuity
and ensure an orderly succession of her roles.
The Board, together with the Committee, are
actively searching for new Non-executive
Directors and are considering the skills and
experience we need, as well as ensuring we
continue to seek to meet our diversity
commitments in the Board DEI Policy.
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Audit & Risk Committee report
Review of the year
I’m delighted to be writing to you following
my appointment as Committee Chair during
the financial year. As a Committee, we met
five times, which included an ad hoc meeting
to allow us to step back and focus on our
financial reporting control environment and
cyber security, which continues to be front
of mind as a GPR in an ever-changing macro
environment. I would like to thank Liz Hewitt
for her time as Committee Chair; she has
supported me with a comprehensive handover
and continues to add value to our deliberations
as a Committee member.
As Committee Chair, I met with the Deloitte
lead Audit Partner, the Group Head of Audit
and management as appropriate to discuss
specific items of focus to report to the
Committee. After each meeting, I also
reported back to the Board on the Committee’s
activities, the main issues discussed and
matters of particular relevance, with the Board
receiving copies of the Committee’s meeting
papers and minutes. I frequently meet with
the regular attendees to ensure that the
Committee is focused on the relevant matters
and can support and constructively challenge
their work.
During the year, Chris Thomas stepped into the
role of lead Audit Partner, following Doug King
having completed his five-year rotation on the
account. Ensuring a smooth transition was
a major focus of the year, supported by
a number of handover meetings.
Transactions
We have performed an active role monitoring
the progress of the various transactions across
the Group that fall within our remit. We have
received updates from management in
relation to NGED’s ongoing financial controls
integration and the accounting issues linked
to the sale of NECO and the majority stake in
UK Gas Transmission & Metering, taking time
to review management’s accounting
judgements and the audit conclusions in
relation to these key strategic transactions.
Internal controls
Evaluating the effectiveness of the internal
control environment is key to presenting a fair,
balanced and understandable assessment
of the Group’s current position and prospects.
The Committee requested a deep dive during
the year on financial reporting controls and the
roadmap to increase automation and improve
controls culture. This allowed us to monitor
this key maturity journey during a period of
significant transformation for National Grid and
provide guidance using Committee members’
wealth of experience from other sectors.
The Committee will continue to monitor
through regular reporting in 2023/24,
supporting and challenging the team on
our approach and progress.
Iain Mackay
Committee Chair
Committee financial experience
The Board is satisfied that all Committee members are suitably qualified with recent and
relevant financial experience and competence in accounting or auditing or both. The
Committee as a whole is deemed to have competence relevant to the sector in which
the Company operates. For the purposes of the US Sarbanes-Oxley Act of 2002 (SOx),
Iain Mackay is the Committee’s financial expert.
Fair, balanced and understandable
In May 2023, the Committee reviewed the Annual Report and Accounts, having previously fed
back on earlier drafts. The Committee concluded that the Annual Report and Accounts, taken
as a whole, was fair, balanced and understandable and provided the information necessary
for shareholders to assess the Group’s position, performance, business model and strategy.
It also considered the TCFD (see pages 38 – 51) and the potential impact on forward-looking
assumptions supporting going concern and viability assessments. In its assessment,
it considered that the following had been carried out and this formed the basis of its
recommendation to the Board:
• a full verification exercise to review the content of statements made with supporting
evidence; and
• a comprehensive review by management, including Group Executive Committee members,
to consider the accuracy and consistency of messaging and overall balance.
Key activities during the year
• Focused on internal controls
• Reviewed strategic transaction accounting
• Further focus on risk management
Composition and
Committee attendance
The Committee is made up of five
independent Non-executive Directors.
Committee members
Attendance
Iain Mackay1
Thérèse Esperdy
Liz Hewitt2
Ian Livingston
Jonathan Silver
4/4
5/5
5/5
5/5
5/5
Former Committee members
Attendance
Amanda Mesler3
Committee Chair
1/1
1. Iain Mackay joined the Committee effective
11 July 2022 and became Committee Chair effective
1 January 2023. Iain chaired two out of five meetings
during the year.
2. Liz Hewitt stepped down from her role as Chair of
the Audit & Risk Committee effective 1 January 2023.
Liz chaired three out of five meetings during the year.
3. Amanda Mesler stepped down from the Board
and the Committee effective 11 July 2022.
National Grid plc
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Audit & Risk Committee report continued
Significant issues/judgements relating to the financial statements
The significant issues and judgements considered for the year ended 31 March 2023 are set out in the following table. In addition, the Committee
and the external auditor discussed the significant issues addressed by the Committee during the year. You can read more in the Independent
Auditor’s Report on pages 109 – 120.
Matters considered
Factors and reasons considered, including financial outcomes
NGED goodwill
impairment trigger
analysis and annual test
• In September and November 2022, the Committee reviewed the output of the provisional and the final goodwill and indefinite life
licence intangible asset impairment trigger analysis. In particular, the Committee reviewed and agreed with management’s accounting
judgement that the fluctuations in discount rate resulting from the market volatility in UK gilts did not result in an impairment trigger
that would necessitate a full test being undertaken.
Useful life of gas
assets in the context
of climate change
Environmental
provision cashflows
and discount rate
Sale of a majority
stake in UK Gas
Transmission & Metering
• In March and May 2023, the Committee reviewed the output of the provisional and then final impairment tests carried out as
of 31 December 2022. The Committee challenged the reasonableness of the cash flow forecast duration and reviewed the key
assumptions including the cash flows, discount rate and terminal value. The Committee also received Deloitte’s audit conclusions
over both the impairment work and the execution of management’s impairment SOx controls. The Committee concluded that the
judgements taken and estimates made by management are appropriate and the cashflow duration should continue to be disclosed
as an area of judgement.
• The Committee reviewed the latest regulatory and legislative developments regarding the net zero plans of the jurisdictions that we
operate in and concurred with management’s judgement that the Company’s gas network assets will continue to have a crucial role
in maintaining security, reliability and affordability of energy beyond 2050, although recognised that the scale and purpose for which
the networks will be used is dependent on technological, legal and regulatory developments. The Committee agreed that the useful
economic lives (UELs) of the gas network assets remain appropriate. The Committee also agreed with management that the additional
disclosures and sensitivities previously added to the notes to the financial statements should be retained and approved the new climate
change disclosure in note 1G.
• In May 2023, the Committee reviewed management’s judgement to increase the environmental and decommissioning provision
discount rate from 0.5% real to 1.5% real in light of the recent sustained increase in US government bond yield curves. The Committee
agreed with management’s conclusion that it was appropriate to classify the £176 million income statement credit as exceptional in line
with the Group’s Exceptional Items Framework. In addition, the Committee also reviewed management’s accounting for the £1.9 billion
of environmental remediation provisions. The Committee challenged management on the number of estimation uncertainties involved in
calculating the provision and approved both the discount rate and cashflows being disclosed as a key source of estimation uncertainty,
the new contingent liability disclosure in note 30 and the updated sensitivities disclosed in note 35.
• In March and May 2023, the Committee reviewed management’s judgements and accounting for the sale of a majority stake in UK Gas
Transmission & Metering. In particular, the Committee reviewed the calculation and classification of the gain on disposal, the valuation
and classification of the Group’s 40% interest in GasT TopCo Limited (being the new holding company of the UK Gas Transmission
business) and the valuation and classification of derivative liability in respect of the Further Acquisition Agreement (FAA). The Committee
received Deloitte’s audit conclusions over management’s judgements and associated SOx controls and agreed with management’s
recommendation that the classification of both the 40% interest in GasT TopCo Limited and the FAA should be disclosed as a key
judgement and the valuation of GasT TopCo Limited should be disclosed as a key source of estimation uncertainty. This is detailed
further in note 1 on page 128.
Application of the
Group’s Exceptional
Items Framework
• Throughout the year, the Committee considered papers from management setting out how the Group’s Exceptional Items Framework
had been applied to certain events and transactions over the period, as set out in note 5 to the financial statements.
• For each item, the Committee considered the judgements made by management, including challenging when transactions were
concluded as not qualifying for exceptional treatment.
• Based on the reviews performed, the Committee was satisfied this Framework had been correctly applied throughout the year.
Financial reporting
Going concern and viability
The Committee reviewed the Group’s going concern statement, viability statement (as set out on page 127 and pages 25 – 27 respectively) and
the supporting assessment reports prepared by management. During 2022/23, there has been a continued review of the Group’s viability and going
concern. The financial statements are prepared on a going concern basis such that the Company and the Group have adequate resources to
continue in operation for at least 12 months from the date of signing the consolidated financial statements.
Statutory reporting framework policy
The Board has responsibility for effective management of risk for the Group including determining its risk appetite, identifying key strategic
and emerging risks and reviewing the risk management and internal control framework. The Committee, in supporting the Board to assess the
effectiveness of risk management and internal control processes, relies on a number of Company-specific internal control mechanisms to support
the preparation of the Annual Report and Accounts and the financial reporting process. This includes both the Board and the Committees receiving
regular management reports to include analysis of results, forecasts and comparisons with last year’s results, and assurance from the external
auditor, Deloitte.
With the regulatory environment evolving quickly, during the year, the Committee was kept fully informed of new legislation and regulation including
the potential impact of the Financial Reporting Council’s position paper ‘Restoring trust in Audit and Corporate Governance’.
The Committee and Board receive, in advance of the full-year results, a periodic SOx report on management’s opinion on the effectiveness of
internal control over financial reporting. This report concerns the Group-wide programme to comply with the requirements of SOx and is received
directly from the Group SOx and Controls team.
In relation to the financial statements, the Company has specific internal mechanisms that govern the financial reporting process and the preparation
of the Annual Report and Accounts. The Committee oversees that the Company provides accurate, timely financial results and implements
accounting standards and judgements effectively, including in relation to going concern and viability. Our financial processes include a range of
system, transactional and management oversight controls. Our businesses prepare detailed monthly management reports that include analysis
of their results, along with comparisons to relevant budgets, forecasts and the previous year’s results. Monthly business reviews, attended by the
Chief Executive and CFO, supplement these reports. Each month, the CFO presents a consolidated financial report to the Board.
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Key matters considered by the Committee
In addition to the significant issues and judgements highlighted on page 84, the Committee also considered the following matters during the
course of the year ended 31 March 2023:
Matters considered
Factors and reasons considered, including financial outcomes
Financial reporting
• Considered the accounting for the Group’s disposal of NECO and the 26.25% equity interest in Millennium Pipeline LLC; the change in
operating segments to reflect NGV as a separate reportable segment; and the impact of state COVID-19 bill credit programmes on our
US retail customers’ bad and doubtful accounts provision.
• Monitored and reviewed the integrity of the Group’s financial information and other formal documents relating to its financial
performance, including the appropriateness of accounting policies.
• Recommended to the Board management’s key accounting judgements and key sources of estimation uncertainty, including those
related to pension valuations for the 2022/23 half-year and full-year financial statements and the filing of other reports with the US
Securities and Exchange Commission (SEC) containing financial information.
ESG reporting
• Received an update on the preparation of the RBR and the Company’s TCFD disclosure. This included reviewing management’s
assessment against the recommendations of the FRC’s Thematic Review of TCFD disclosures.
• Received a report from PwC regarding the conclusions from its ‘limited assurance’ over the RBR metric reporting.
• Discussed management’s preparedness for the transition from voluntary to mandatory ESG reporting, including the proposed
International Sustainability Standards Board standards and the SEC’s proposed Climate Disclosure Rule, as well as the expected
shift from limited to reasonable assurance.
• Recommended to the Board the RBR and other ESG disclosures for approval.
APMs and RPMs
• Reviewed and approved the key judgements relating to the Group’s Alternative Performance Measures and Regulatory
Performance Measures.
• Reviewed and approved the Group’s Major Storms Policy.
Internal controls
• In May 2022, the CFO presented an update on the implementation of the new enterprise resource planning and general ledger system.
• Received regular updates on progress towards the Group’s annual US regulatory attestation.
• Discussed with management its programme of work to strengthen the maturity of the Group’s risk and controls framework as part
of a deep dive session.
Risk and viability
statement
• Received regular updates on actions being taken to monitor and manage risk in line with the Group’s risk appetite.
• Received confirmation from each of the business units and functions that risks are managed appropriately and continue to consider
external influence and matters outside of the Group’s control.
• Received a bi-annual update and considered a deep dive session on cyber risk.
• Monitored the internal control processes and reviewed and challenged the going concern and viability statements, including testing
for reasonable worst-case scenarios.
• Advised the Board that the Group’s risk management processes were effective and provided sufficient assurance.
External auditor
• Received a report from Deloitte at each meeting, including updates on the status of, and results from, the annual audit process
and monitoring the approach, scope and risk assessments within the external audit plan.
• Considered Deloitte’s reports on the 2022/23 half-year and full-year results.
• Held private meetings with Deloitte and maintained dialogue throughout the year.
• Engaged with Deloitte regularly during the transition to the new lead Audit Partner.
• Assessed the effectiveness and independence of Deloitte, as well as continued the review and oversight of non-audit services
from Deloitte.
• Recommended the reappointment of Deloitte as the Company’s external auditor to the Board to be recommended to shareholders
at the 2023 AGM.
Corporate audit
• Received regular updates on the 2022/23 corporate audit plan and any significant findings, including themes and progress of actions
identified, and approved the corporate audit plan for 2023/24.
• Approved the Corporate Audit Charter which had been updated to reflect best practice and recent corporate
governance developments.
Compliance, governance
and disclosure matters
• Received updates on ethics and business conduct, including whistleblowing to support the oversight, management and mitigation
of business conduct issues as part of the internal controls framework.
• Discussed the whistleblowing procedures in place and confirmed internal procedures remained effective, noting the communications
during the year to employees, including additional communications in relation to fraud and bribery.
• Received bi-annual updates of compliance with external legal requirements and regulations, including any non-compliance issues and
steps being taken to improve compliance across the Group.
• Reviewed and approved the updated Terms of Reference for the Committee.
National Grid plc
Annual Report and Accounts 2022/23
85
Audit & Risk Committee report continued
Risk management
and internal controls
Risk management
Risk management is key to achieving our
strategic priorities. The Board provides
oversight and approves the system of risk
management, which sets risk appetite and
maintains the system of internal controls to
manage risk within the Group. The Committee
has delegated responsibility from the Board
for the oversight of the Group’s systems of
internal control and risk management. This
includes policies, compliance, legislation,
appropriateness of financial disclosures,
procedures, business conduct and internal
audit. As part of the framework, our values –
do the right thing, find a better way and make
it happen – continue to communicate and
promote a culture of integrity. The Chief Risk
Officer is responsible for establishing
and maintaining the Group’s risk management
processes to ensure the effective
management of risk.
During the year, the Board provided oversight
of the principal risks facing the Group
(as set out on pages 20 – 24). The Committee,
alongside the Safety & Sustainability
Committee, provided oversight and challenge
through the detailed risk reviews to ensure
that processes are in place to manage risk
appropriately and effective reporting to the
Board is in place.
Internal control and risk
management effectiveness
We continually monitor the effectiveness
of our internal control and risk management
processes to make sure they are effective,
robust and remain fit for purpose. Controls are
in place to reduce likelihood, occurrence or
impact of any risk. Based on work conducted
by the Committee over the year, the Committee
confirmed to the Board that the assurance
framework provides appropriate assurance
over the internal control and risk management
frameworks and that the sources of assurance
received from management have sufficient
authority, independence and expertise to
provide objective advice and information.
This review includes financial, operational and
compliance controls. The Committee also
monitors and addresses any business conduct
issues or compliance issues. The Certificate of
Assurance process, which provides assurance
to the Committee on behalf of the Board that
all significant issues relating to the integrity
and standard of risk management and internal
controls systems across the Group have been
effectively managed during the reporting
period, operates via a cascade system
and takes place annually in support of the
Company’s full-year results.
Corporate audit
Corporate audit supports the Group’s risk
management and internal control processes.
It maintains an independent and objective
approach to evaluate and enhance process
developments. The appointment of the Global
Head of Audit is a matter reserved for the
Committee. They have responsibility for the
Group’s internal audit function, attend all
Committee meetings and have access to
the Committee Chair, and also meet with
the Committee without management in
attendance. The Committee regularly
reviews progress of the internal audit process
including significant outstanding actions.
The Corporate Audit Charter was last approved
by the Committee in November 2022. The
Committee has also been kept informed of the
transformation of the corporate audit function
as it seeks to remain ahead of strategic and
technological developments, effectively meets
future stakeholder needs and be equipped to
deal with emerging risks.
External audit
The Committee is responsible for overseeing
the relationship with the external auditor.
Effectiveness, quality
and performance
As part of the Committee’s responsibilities,
consideration is regularly given to the
effectiveness of the external auditor to verify
that the quality, challenge and output of the
external audit process is sufficient. Throughout
the year, the Committee also looks at the
quality of the auditor’s reports and considers
its response to accounting, financial control
and audit issues as they arise. To maintain high
levels of quality the Committee reviews and
challenges the external audit plan prior
to approval.
The Committee regularly engages and receives
the views of senior management and members
of the Finance team in forming conclusions on
auditor effectiveness.
Meetings are held around each scheduled
Committee meeting, and outside the meeting
cycle on a regular basis, between the
Committee Chair and the external auditor
without management being present, to
encourage open and transparent feedback.
The Committee members also meet privately
with the external auditor at least twice per year.
• Deloitte is the external auditor to
During the year, the Committee:
the Company.
• It was appointed in 2017 following a formal
tender process.
• Reappointed for 2022/23 at the 2022 AGM.
• The Committee was authorised by
shareholders to set Deloitte’s remuneration
at the 2022 AGM.
• reviewed the quality of audit planning,
including approach, scope, progress and
level of fees;
• reviewed the outcome of recommendations
from the Deloitte Insights Report
(detailed below);
• held private meetings with Deloitte without
• The current lead Audit Partner is Chris
management present; and
• confirmed that the Deloitte external audit
process had been delivered effectively.
Audit quality insights
External auditor Insights Report
On an annual basis, the Committee receives
a report summarising the financial reporting
and/or internal control areas that, based on
the results of the most recent audit, Deloitte
considers management should prioritise
during the year ahead. This year, the report
included management’s responses to the
recommendations, along with an update on
prior year recommendations.
Thomas, with 2022/23 being his first year
following a year of shadowing his
predecessor, Doug King.
Following consideration of the auditor’s
independence and objectivity, the audit
quality and the auditor’s performance, the
Committee was satisfied with the effectiveness,
independence and objectivity of Deloitte and
recommended to the Board its reappointment
for the year ended 31 March 2024. A resolution
to reappoint Deloitte and give authority to the
Committee to determine its remuneration will
be submitted to shareholders at the 2023
AGM. The Committee considers that during
2022/23 the Company complied with the
mandatory audit processes and audit
committee responsibility provisions of the
Competition and Markets Authority Statutory
Audit Services Order 2014 and does not intend
to conduct a competitive tender before the end
of the current required period of 10 years. The
next competitive tender is expected to begin
in 2025/26. Given the independence and
objectivity of Deloitte to date, the Committee
remains satisfied with its performance and
considers its reappointment for 2023/24 to
be in the best interests of the Company.
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Annual Report and Accounts 2022/23
External auditor fees
The amounts paid to the external auditor in the
past two years were:
Statutory auditor’s fees (£m)
2022/23
2021/22
2020/21
17.0
20.9
19.3 1.6
18.9 1.0
2.8
19.9
19.8
Audit services 19.3
Non-audit services 1.6
2022/23
Total billed non-audit services provided by
Deloitte during the year ended 31 March 2023
were £1.6 million, representing 7.7% of total
audit and non-audit fees. In 2021/22, non-audit
services totalled £1.0 million (5.0% of total audit
and non-audit fees).
Further information on the fees paid to Deloitte
for audit, audit-related and other services is
provided in note 4 to the financial statements
on page 138.
Total audit and audit-related fees include the
statutory fee and fees paid to Deloitte for other
services that the external auditor is required to
perform, such as regulatory audits and SOx
attestation. Non-audit fees represent all
non-statutory services provided by Deloitte.
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Management survey on the
external audit process
Management undertook a survey in
2022/23 that sought views from over 100 key
stakeholders involved in the external audit
process across the Company. The questions
comprised the following areas:
• Deloitte’s performance – key performance
indicators included:
• planning and scope;
• robustness of the audit process;
• independence and objectivity;
• quality of delivery;
• quality of people and service; and
• understanding of the Company.
• National Grid’s commitment to the audit.
Management, Deloitte and the Committee
discussed the results of the survey in
September 2022, which showed that the
external auditor’s score had remained
consistent with the prior year. Together with
the Committee, Deloitte agreed proposed
actions to continue to improve the audit
process and address the identified areas
in its 2022/23 audit plan. The Committee
considered the proposed actions to improve
the phasing of audit work, ensure timely
requests for information and improve
coordination between Deloitte’s various
team supporting the audit. The survey
concluded that:
• the audit contributed to the integrity
of the Group’s financial reporting;
• the relationship between Deloitte, the
Committee and management continues
to be effective; and
• Deloitte demonstrated an appropriate
degree of professional scepticism and
a team with the required level of skill and
expertise to enable an effective audit.
Auditor independence
and objectivity
The independence of the external auditor
is essential to the provision of an objective
opinion on the true and fair view presented
in the financial statements.
The Committee considered the safeguards
in place, including the annual review by
corporate audit, to assess the external
auditor’s independence. Deloitte reported
to the Committee in May 2023 that it had
considered its independence in relation to the
audit and confirmed that it complies with UK
regulatory and professional requirements, SEC
regulations and Public Company Accounting
Oversight Board (PCAOB) standards
and that its objectivity is not compromised.
The Committee took this into account
when considering the external auditor’s
independence and concluded that Deloitte
continued to be independent for the purposes
of the external audit and confirmed that this
recommendation was free from third-party
influence and restrictive contractual clauses.
Non-audit services
In line with the FRC’s Ethical Standard and to
maintain the external auditor’s objectivity and
independence, we have a policy governing
Deloitte’s provision of non-audit services.
The cap on the total fees that may be paid to
the external auditor for non-audit services in
any given year is 70% of the average audit fees
paid in the last three financial years.
The provision of any non-audit service by the
external auditor requires prior approval by the
Committee. A subset of services where, due to
their nature, we believe there is no threat to the
auditor’s independence or objectivity and have
a value under £250,000 can be approved in
advance by the CFO. These services are
limited to:
• audit, review or attest services. These are
services that generally only the external
auditor can provide, in connection with
statutory and regulatory filings, including
comfort letters, statutory audits, attest
services, consents and assistance with
review of filing documents; and
• the provision of access to technical
publications.
In any event, the Committee is provided with
a list of all non-audit services to ensure that
it is monitoring all non-audit services provided.
Non-audit service approvals during 2022/23
principally related to comfort letters for
debt issuances and the refresh of related
debt issuance programmes.
National Grid plc
Annual Report and Accounts 2022/23
87
Safety & Sustainability Committee report
Key activities during the year
• Recommended the Climate Transition
Plan (CTP) to the Board for
shareholder approval
• Reviewed the ‘Stand Up For Safety’
campaign and monitored implementation
of principles established
• Approved the year-end sustainability
disclosures
Composition and
Committee attendance
The Committee is made up of four
independent Non-executive Directors.
Committee members
Attendance
Earl Shipp
Anne Robinson
Tony Wood
Martha Wyrsch
Committee Chair
4/4
4/4
4/4
4/4
Our CTP can be found at
nationalgrid.com/responsibility
Everyone should return home safely at the
end of their working day and following these
tragedies we are re-doubling our efforts to
ensure this is the case for all who work on
our assets. The Committee has considered
the results of the successful campaign in
which particular focus was given to embedding
our four safety principles throughout the
organisation. You can see some of our key
safety results on page 16.
The annual review of wellbeing confirmed the
importance of focusing on the prevention of
health and wellbeing issues, including mental
health, to create an environment where
employees can thrive.
We have made progress against our
greenhouse gas emissions targets through
targeting resource at our leak-prone pipe
programme, which replaced or eliminated
360 miles (579 kilometers) of leak-prone
pipe across New York and Massachusetts
in 2022/23.
As with the prior year, several significant
storms in the UK and US throughout this
year highlighted the importance of continually
reviewing our preparedness. The emergence
of extreme weather impacts our assets and
workforce. Our colleagues worked tirelessly
to restore service to every last disconnected
customer safely and securely. The Committee
will continue to oversee the Group’s efforts to
adapt, ensuring our safety processes are
robust and resilient in the long run to continue
to provide reliable services to our customers.
Sustainability
The sustainability agenda, and supporting
regulation, continue to grow at speed and it
is vital that we are clear on how we can make
an impact as a Company. The Committee’s
oversight was supported by a deep dive on the
climate change GPR and a demonstration of
the associated climate change risk modelling
tool, which provides valuable insights around
resilience, climate commitments and impact
on our assets. Further details on this GPR can
be found on page 21. We also considered the
wider sustainability external outlook, allowing
us to focus on how our commitments compare
to our peers.
Earl Shipp
Committee Chair
Review of the year
We recognise the vital role the Company
has in the energy transition. At the start of
the year the Committee spent time discussing
with management our first CTP ahead of
recommending it to the Board to put to
shareholders at the 2022 AGM. It sets out
challenging greenhouse gas emissions
reduction targets and the pathway to becoming
a net zero business by 2050. The CTP received
favourable support from over 98% of our
shareholders. The Committee oversees our
progress against the performance measures
in the RBC, which are reported in the RBR.
The Committee also reviewed the sustainability
content within the TCFD.
Our business unit management teams discuss
with the Committee their respective safety
performance culture and activities to allow the
Committee to have an oversight of operations
in this area as part of the review of the Group
as a whole. As part of the sale of the majority
stake in UK Gas Transmission & Metering, the
Committee specifically considered the safety
risks which were to move out of the Group
at completion and significant changes to our
workforce related to its sale. The Committee
also considered whether any significant safety
risks were being created via the transaction.
Given the increasing number of contractors
supporting our operations we also
discussed how safety standards and related
general commitments are shared by the
wider workforce.
To ensure our deliberations are well rounded,
we received an external presentation from
a key UK and US contractor, allowing the
Committee to review the partnership and
suggest areas of improvement. Committee
members completed seven site visits during
the year, providing an opportunity to engage
with our operational colleagues and observe
first hand how safety and sustainability plans
are being implemented. Further details on the
Board’s engagement activities can be found
on page 77.
Safety, wellbeing and
asset protection
Safety is of paramount importance across
the Group and a key priority of the Committee.
The Committee monitors both process and
occupational safety at every meeting and
uses the business unit deep dives to provide
value-adding independent oversight. The
Group Chief Engineer led a discussion on the
Group safety strategy refresh, highlighting
the proactive measures being taken to ensure
safety training materials are clear and easy to
understand. Following a fatality at our Medford
facility in Massachusetts in May 2022 we have
since improved employee engagement in
safety by raising awareness of our Fatal Risk
Groups, as part of the ‘Stand Up For Safety’
campaign. Tragically, a second fatality
occurred in September 2022 when a vegetation
contractor in our New York business died
following an allergic reaction to a bee sting.
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Finance Committee report
Key activities during the year
• Monitored the significantly changing
macro environment
• Approved the refinancing of the bridge
loan in relation to the NGED acquisition
• Considered pension implications
to transactions
Composition and
Committee attendance
The Committee is made up of three
independent Non-executive Directors
and two Executive Directors.
Committee members*
Thérèse Esperdy
Andy Agg
Liz Hewitt
Ian Livingston1
John Pettigrew
Committee Chair
Attendance
3/3
3/3
3/3
1/1
3/3
1. Ian Livingston joined the Committee as a member in
January 2023.
* Jonathan Dawson stepped down from the Board and
the Committee effective 11 July 2022. There were no
meetings held during this period of the reporting year.
Review of the year
This year the Committee met three times
monitoring the financial risk of the Group and
focusing on the key areas within our remit:
treasury, tax, pensions and insurance. The
past year has seen major changes in financial
and energy markets, with rapidly increasing
interest rates, high inflation, sizeable and rapid
foreign exchange movements and significantly
higher energy commodity prices. Together
they represent a significant change to the
macro economic environment within which
the Group operates.
The Committee has reviewed the financial
position of the business in light of these
changes to ensure the effectiveness of its
wide-ranging risk management processes in
place to manage this volatility and we believe
that we continue to have appropriate liquidity
and access to capital markets to deliver our
critical role in the energy systems and the
energy transition.
We have also paid close attention to ESG
financing, supported by an external presentation
delivered by one of our relationship banks,
which helped us assess the benefits of various
financing methods and market instruments to
inform our ESG financing strategy.
The Committee reviewed the broader financing
strategy of the Group ahead of the approval
of the Strategic Business Plan by the Board.
The Committee was joined by the full Board
to take part in a finance enrichment session
where we took a step back to consider in detail
the key financial features of our businesses,
how we deliver the existing investor proposition
and how the overall economic model of
National Grid operates.
Transactions
The Committee has continued to play a key
oversight role in relation to the financing and
treasury, tax and pensions matters for the
Group’s strategic transactions. We monitored
the progress of the sale of the majority stake
in UK Gas Transmission & Metering throughout
the year, including the arrangements to transfer
impacted members to suitable pension
arrangements consistent with their future
employer. We also approved the refinancing
of the bridge facility used to finance the
acquisition of NGED during the year, which
has subsequently been repaid following the
completion of the UK Gas Transmission &
Metering sale.
Treasury
There has been significant uncertainty in
financial markets at various stages of the year.
I’m delighted that National Grid continues to
attract strong investor demand in the debt
capital markets at both holding and operating
company levels. We monitor the action of credit
rating agencies at each of our meetings.
Insurance
Like many other sectors, the insurance industry
has been navigating uncertainty due to the
ongoing geopolitical situation. The significant
hard market trends experienced in recent years
have continued, and the Committee paid close
attention to progress of our 2022/23 renewals.
We were pleased that all insurance policies
were successfully renewed for the start
of the new financial year at 1 April 2023.
The Committee has also monitored progress
of the insurance claim following the IFA fire
in September 2021.
Tax
The Committee has stayed abreast of tax
policy developments in both the UK and US.
In the US the enactment of the IRA included
both a new corporate minimum tax based
on book profits and expanded energy tax
incentives. The UK saw possible reforms
of capital investment incentives, the abolition
of the UK’s proposed Health and Social Care
Levy and the introduction of the Organisation
for Economic Co-operation and Development’s
Pillar Two principle into UK law. In addition, we
reviewed the current status of our relationship
with tax authorities.
Pensions
In the UK, pension investments are managed
by independent Trustees. However, it is
the Committee’s duty to ensure funding is
adequate to meet obligations, which in turn
allows the Trustees to reduce investment risk
for everyone’s benefit. We paid close attention
to our seven UK defined benefit pension
arrangements, particularly following the rise in
gilt yields which caused liquidity problems for
many schemes. We had collateral buffers in
place and were relatively unaffected by the
events leading up to the Bank of England’s
intervention in September 2022.
The Committee has spent time overseeing
the impact on our pension commitments as
a result of the expected separation of the ESO
and will continue to monitor this including any
discussions with the UK Government.
In the US, pension investments are overseen
by an internal fiduciary committee comprising
senior leaders with appropriate levels of
financial experience. The Committee has
assessed the key strategic priorities of the
US pension arrangements, noting the continued
strong funding positions, and, in line with our
aim to reduce investment risk within the plans,
approved a derisking transaction covering
$700 million of liabilities across three of our
US pension plans in May 2022.
Looking forward
Given the impact of geopolitical events on
energy markets and inflation in the broad
economy, we continue to monitor the Group’s
risk appetite in relation to the Group’s financing
risk. We regularly review stress tests and seek
to bring our expertise from other sectors of
the economy to foster a holistic view of
financial markets.
Thérèse Esperdy
Committee Chair
National Grid plc
Annual Report and Accounts 2022/23
89
Directors’ Remuneration Report
Key activities during the year
• Reviewed 2022/23 remuneration
outcomes, including 2022/23 APP
outturn and vesting of 2020 LTPP
• Reviewed 2023/24 APP and 2023 LTPP
awards and Executive Director salaries
• Reviewed UK Gas Transmission and
Metering remuneration awards
at completion
Composition and
Committee attendance
The Committee is made up of four
independent Non-executive Directors.
Committee members
Attendance
Ian Livingston
Martha Wyrsch
Anne Robinson¹
Iain Mackay¹
6/6
6/6
3/3
2/3
Former Committee members
Attendance
Amanda Mesler2
Jonathan Dawson2
Committee Chair
3/3
3/3
1. Anne Robinson and Iain Mackay were appointed
to the Committee effective 11 July 2022.
2. Jonathan Dawson and Amanda Mesler stepped
down from the Board and the Committee effective
11 July 2022.
Dear shareholders
This year has seen some of the biggest
energy challenges in history, and National Grid
has played a key role in providing reliable
and resilient energy networks to serve our
customers in both the UK and US.
The financial results of National Grid for
2022/23 have been good, with investment in
regulated and non-regulated assets together
with strong progress on our Group efficiency
programme and UK ED integration well-
progressed, yielding returns for
our shareholders.
Our remuneration outturns reflect these
results, and also the Group delivering for
our wider stakeholders.
Society
As part of our vision to be at the heart of
a clean, fair and affordable energy future,
we remain committed to realising our net zero
ambitions. This year we published our first
Climate Transition Plan (CTP), setting out our
plan to reduce Scope 1 and 2 emissions by
80% by 2030 and achieving net zero by 2050
(from a 1990 base-year). Our 2030 emissions
targets have been SBTi validated and are
aligned to a well below 2ºC pathway. As part
of our commitment and accountability to this,
20% of our 2022 and 2023 Long Term
Performance Plan (LTPP) is linked to our
progress towards these ambitious goals.
Consumers
Whilst in the UK our revenues are not linked to
the price of energy, we are acutely aware of the
affordability challenges felt by households, and
are committed to playing our part in supporting
consumers. We have achieved £373 million of
cumulative efficiency savings as at 31 March
2023, within close reach of our target of
£400 million by 2023/24, and this is enabling
us to mitigate some inflationary pressures
on the business and our customers. We will
return a further £100 million of interconnector
revenues, on top of £200 million we have
already committed to return to Ofgem to allow
it to support consumer bills. In addition, we
have delivered a £65 million Energy Support
Fund – pledging £50 million in the UK and
$17 million in the US to support those
struggling with increasing energy costs.
Wider workforce
The Committee considers remuneration
across the wider workforce when determining
executive director remuneration, policy and
practices. We aim to pay our colleagues fair
and competitive salaries and benefits, with
the majority of our colleagues being paid
well above the Living Wage. As part of this
commitment, we’re an accredited Living Wage
employer in the UK. We are also in the process
of obtaining Living Wage accreditation in the
US. Our colleagues worked exceptionally hard
to support our customers and communities
during the winter period, and so as a gesture of
appreciation we made an additional ‘thank you’
payment of £500/$600 to all colleagues below
senior leadership level this year. We have also
put in place an Emergency Support Fund for
all of our colleagues facing a sudden financial
hardship. We recognise that inflationary
pressures are often felt more strongly by
those on lower incomes, and so our approach
to salary increases for 2023 takes a tiered
approach to ensure the higher increases
are targeted towards those colleagues on
lower incomes.
In 2022/23, we have made great strides in
further empowering our colleagues, a key
cornerstone in our purpose and strategy.
We are proud to have an 81% response rate
in our employee engagement survey this year,
Grid:Voice, which covered topics related to
remuneration, and resulting in an overall
engagement score of 81%.
As part of our commitment to creating
a diverse, equitable and inclusive workforce
that is fully representative of the communities
we serve, we publish our ethnicity pay data,
alongside our gender pay data which
continues to show that we have no material
gender pay gap within the UK business and
globally – see our Responsible Business
Report (RBR). Whilst we appreciate that there
remains a great deal of work to be done to
further our support of diversity, equity and
inclusion (DEI), we are proud of the work
that our colleagues have delivered to date
and wish to build upon this progress, which
is why DEI metrics are part of our executive
remuneration measures.
We continue to engage with the wider
workforce on a variety of topics including
remuneration (more details on the ‘small
group listening sessions’ as part of Board
engagement can be found on page 77).
Performance and
remuneration outcomes
during the year
Salary, pension and benefits
As disclosed last year, salary increases
of 3.75% and 6.50% were awarded to John
Pettigrew (Chief Executive) and Andy Agg
(Chief Financial Officer) respectively, effective
1 July 2022. These changes took into account
external market factors and wider workforce
conditions and included the last instalment of
our three-year plan to bring Andy Agg’s salary
to a level that was broadly equivalent to market
median for his role.
From 1 April 2022, the pension allowances
for both John Pettigrew and Andy Agg were
reduced from 23.4% and 20.0% respectively
to 12.0% of salary, aligning them to pension
contribution levels of the UK wider workforce
and new joiners.
Annual Performance Plan (APP)
The APP for 2022/23 was based on financial
performance measures (70%), operational
measures (15%), and individual objectives (15%)
that reflect key business and operational
performance goals.
Financial performance (70%)
The outturn of the financial portion of the
APP was 93.8% of the maximum, based
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on achievement of 100.0% of maximum for
Group Underlying EPS and 87.5% of maximum
for Group RoE, both equally weighted. These
outcomes reflect another year of significant
progress and strategic change for National
Grid with good results, demonstrating
execution against our key priorities and
£7.7 billion investment across networks
in building the clean, smarter energy
infrastructure of the future.
Operational performance (15%)
Our approach to operational performance goes
beyond safely maintaining the resilient energy
systems society expects. It is about making
sure our business has a positive impact on
our stakeholders. Operational measures were
equally weighted and linked to Group customer
satisfaction index (50.0% of maximum
achieved), performance against our Group
colleague ‘Having a voice’ index (75.0% of
maximum achieved) and Strategic Leadership
Group diversity (75.0% of maximum achieved).
Overall performance amounted to 66.7%
of maximum.
Individual objectives (15%)
15% of the APP award is linked to individual
objectives, which resulted in outturns of 80.0%
of the maximum for both John Pettigrew and
Andy Agg. Detailed targets and performance
are set out on page 97.
Overall assessment
In reaching its overall decisions on the APP,
the Committee holistically reviewed business,
individual performance and delivery throughout
the year, across a range of KPIs. Based on
National Grid’s good financial and operational
performance, and taking account of
performance against individual objectives, the
APP payouts to John Pettigrew and Andy Agg
would have been between 87.6% of maximum.
However, following the fatal incident in May
2022 at Medford, Massachusetts, the
Committee decided to exercise its discretion
to reduce the operational portion of the APP by
half from 66.7% to 33.3% for John Pettigrew
and Andy Agg. This results in the overall APP
award reducing to 82.6% of maximum for
John Pettigrew and Andy Agg.
The Committee decision to apply downward
discretion on the operational portion of the
APP award – which is fully supported by
management – reinforces that safety continues
to be an important underpin in our APP.
As mentioned in the Chief Executive’s review,
we have extensively focused on safety
improvements this year and changed our
Group-wide approach to safety through
our ‘Stand up for Safety’ campaign.
The details of the 2022/23 APP are further
outlined on pages 95 – 97.
LTPP
The measurement period of the 2020 LTPP
ended on 31 March 2023 and consisted of
two measures – Group Value Growth (5/6th)
and Group RoE (1/6th). These targets and
weightings were set to reflect the transition
from RIIO-1 to RIIO-2 following shareholder
consultation at that time, with details set out
in our 2018/19 Annual Report.
At the time the 2020 LTPP awards were
granted, the Committee had considered
the potential for windfall gains to arise,
but concluded that, as there had been no
identifiable share price fall prior to grant,
there was no case for adjusting the number
of shares awarded and no apparent risk of
a windfall gain arising when the shares
vested in 2023. This was set out in the 2018/19
Directors’ Remuneration Report at that time.
When determining the payout made under the
2020 LTPP this year, the Committee reviewed
again the issue of windfall gains and noted that
as there had been no share price fall prior
to grant or marked recovery post COVID-19,
there was no issue of windfall gains arising.
The formulaic vesting outcome of the 2020
LTPP was 100.0% of the maximum. The
Committee also considered the level of vesting
taking into account the broader shareholder
context and shareholder experience to
determine whether the formulaic level of
vesting was appropriate. The Committee
concluded that the formulaic vesting levels
appropriately reflected the strong financial
performance against our Group RoE and Value
Growth measures during the performance
period, as well as broader delivery against
our strategy and wider stakeholder objectives.
The 2022 LTPP was granted during the year,
under which performance will be measured
between the period 1 April 2022 to 31 March
2025. Awards will be measured based on
cumulative three-year underlying EPS (40%),
Group RoE (40%), Scope 1 emissions (10%)
and enablement of net zero transition (10%).
The details of the LTPP awards granted and
vested can be found on pages 97 – 98.
Single total figure
of remuneration
The 2022/23 single total figure of remuneration
for John Pettigrew and Andy Agg are
£7.248 million and £4.117 million respectively.
These outcomes reflect good business
performance in the year, highlighted by
a good outcome in the 2022/23 APP, along
with a high-level of long-term value creation
across a period of uncertainty, shown by the
maximum payout under the 2020 LTPP. The
value of the 2020 LTPP award is driven in part
by the strong TSR of 31.2% over the three-year
performance period. The outcomes also reflect
the heavy weighting on long-term share-based
pay in our reward structure.
Policy implementation
in 2023/24
Salary, pension and benefits
This year’s review of Executive Directors’
salaries gave careful consideration to the
experiences of our colleagues across the wider
workforce following what has been a difficult
year financially for many households. The
Committee felt it was fair that the salary
budget for the year was directed towards
our lower-paid colleagues and sought to take
a balanced approach by applying tiered
increases across the organisation.
In line with this tiered approach, the Committee
has awarded salary increases of 4.0% to both
John Pettigrew and Andy Agg, effective from
1 July 2023. This is compared with an average
salary increase of 8.7% across the UK
wider workforce.
Pension and benefits remain unchanged.
2023/24 APP
Looking forward to the 2023/24 APP, the
structure will remain largely unchanged from
2022/23 as the Committee looks to build on
what it believes is an effective approach.
This year, we will refine the operational
measures under the APP, replacing our
Group colleague ‘Having a voice’ index with
a ‘Delivering Results’ index to better align with
our major delivery programmes. We have also
updated our DEI measures to focus further on
gender and ethnic diversity at senior manager
level and above, as well as new joiners in our
workforce. Weightings and other measures
remain the same as last year.
2023 LTPP
For the 2023 LTPP grant, we have retained the
financial and the net zero transition measures
and weightings, making refinements to targets
in order to reflect our strategic initiatives.
As part of the 2023 LTPP, we will again set
a three-year cumulative EPS target (40%) and
Group RoE target (40%). The basis for the
target ranges are set out in pages 104 – 105.
Our 2030 emissions targets have been SBTi
validated and are set in line with our plan to
reach net zero by 2050. For the 2022/23 LTPP
these remain a combination of a reduction in
our Scope 1 emissions (10%) and our
enablement of net zero transition measure
(10%), which focuses on specific actions to
reduce our Scope 2 and Scope 3 emissions.
Our CTP sets out plans to support the delivery
of key emissions related ESG commitments in
our RBC.
Shareholder engagement
The Committee has taken into consideration
and is comfortable that the remuneration
decisions stated above align with the
shareholder experience. The decisions also
build upon the constructive feedback received
last year as part of the 2022 Directors’
Remuneration Policy approval.
Conclusion
As always, the Committee and I wish to
maintain an open dialogue with shareholders
and I would welcome any comments
or feedback.
Ian Livingston
Committee Chair
National Grid plc
Annual Report and Accounts 2022/23
91
Directors’ Remuneration Report
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24
Our Directors’ Remuneration Policy (Policy) sets out to ensure strong alignment with our strategic priorities and creation of value
for shareholders whilst providing market competitive remuneration to enable the attraction and retention of top leadership talent.
Last year the Committee conducted a review of the Policy in order to best support our strategy, making refinements to reflect
the importance of the Company’s responsible business strategy and ESG goals. As part of this we engaged widely with key
stakeholders, and were pleased to receive 93.1% support for our revised Policy at the 2022 AGM.
2022/23 remuneration outcomes are aligned to the delivery of our strategy and reflect good business and individual performance
during the year. Our approach for 2023/24 aims to continue to incentivise delivery of our strategic goals.
The Policy is available on our website at
nationalgrid.com/about-us/corporate-information/
corporate-governance
Annual report on remuneration
A comparison of the 2022/23 single total figure of remuneration to the previous year is set out below for the Executive Directors, John Pettigrew and
Andy Agg. Each Executive Director is UK based. Fixed pay consists of salary, pension and benefits in kind paid during the respective financial years.
The 2022/23 single total figure of remuneration for John Pettigrew and Andy Agg are £7.248 million and £4.117 million and represent an achievement
of 91.3% for John Pettigrew and Andy Agg of the total maximum opportunity.
These outcomes reflect good annual performance delivery in 2022/23 and long-term value creation as evidenced in the 2020 LTPP outcome.
The single total figure of remuneration is largely driven by the heavy weighting on long-term share awards which reflects the long-term nature of our
business, make up to two thirds of total remuneration and around 80% of variable pay. The 100% vesting of the LTPP reflects the strong financial
performance against our Group RoE and value growth metrics during the performance period, as well as broader delivery against our strategy and
wider stakeholder objectives. The value of the 2020 LTPP award is driven in part by a Total Shareholder Return (TSR) of 31.2% over the three-year
performance period delivering a total value of circa £1.26 million for John Pettigrew and circa £0.66 million for Andy Agg.
John Pettigrew (£’000)
Andy Agg (£’000)
Single figure 2022/23
Single figure 2021/22
7,248
Single figure 2022/23
6,614
Single figure 2021/22
4,117
3,570
0
2,000
4,000
6,000
8,000
0
2,000
4,000
6,000
8,000
Fixed pay
APP
LTPP
TSR
Fixed pay
APP
LTPP
TSR
Note: The single total figure of remuneration for 2022/23 is explained in the single total figure of remuneration table for Executive Directors and single total figure for 2021/22 has been
restated to reflect actual share price for 2019 LTPP vesting in 2022 and all dividend equivalent shares, consistent with comparative figures shown in this year’s single total figure of
remuneration table.
Key features of Policy
(adopted 2022)
Implementation of Policy
in 2022/23
How we propose to implement
the Policy in 2023/24
Salary increases
8.7%
3.75% 4.0%
4.0%
• Target broadly mid-market against FTSE
11 – 40 for UK-based Executive Directors
• Target the mid-market of general industry
and energy services companies with
similar revenue if a US-based Executive
Director is appointed
2022/23
2023/24
John Pettigrew
Average UK
wider workforce
Pension (% of salary)
• Eligible to participate in a defined
12% 12%
John Pettigrew
UK wider workforce
contribution scheme (or defined benefit
if already a member)
• All new and existing UK-based
Executive Directors will receive pension
contributions of up to 12% of base salary
for the defined contribution scheme or
cash in lieu, in line with the level for new
joiners across the UK wider workforce
• Pensionable pay is salary only in the UK
• Other benefits as appropriate
• John Pettigrew’s salary increased by
3.75% to £1,092,500 as of 1 July 2022,
below the average increase of the wider
workforce at 4%
• Andy Agg’s salary increased by 6.5%
to £719,000 reflecting a previously
communicated progressive increase
to align his salary with the market rate
for his role
• John Pettigrew’s and Andy Agg’s
pension cash allowance was 12%
of salary for 2022/23, in line with the
UK wider workforce
• Other benefits remain unchanged
• John Pettigrew’s and Andy Agg’s salaries
will increase by 4.0% to £1,136,200 and
£747,800 respectively – below the average
increase of 8.7% across the UK
wider workforce
• Pension and benefits will remain
unchanged
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Annual Report and Accounts 2022/23
Key features of Policy
(adopted 2022)
APP
• Maximum opportunity is 125% of salary
• 50% paid in cash and 50% paid in shares
net of tax, which must be retained until
the later of two years or meeting the
shareholding requirement
• Total APP award is subject to both malus
and clawback
Y1
Y2
Y3
Y4
Y5
Shares
(50%)
Deferred
shares
Cash
(50%)
2022/23
APP
How we propose to implement
the Policy in 2023/24
• Measures for 2023/24:
– Group RoE (35%)
– Underlying EPS (35%)
– Operational measures – Customer,
Colleague, Diversity (15%)
– Individual objectives (15%)
Implementation of Policy
in 2022/23
2022/23 APP
Performance measures
(%) weighting
Outturn
(% of max)
Group Underlying EPS (35%)
100.0%
Group RoE (35%)
Operational (15%)*
Individual John Pettigrew (15%)
Individual Andy Agg (15%)
87.5%
33.3%
80.0%
80.0%
* As mentioned in the Chair letter,
downward discretion was applied to
the operational portion of APP
2022/23 APP outcome
% of
Maximum
Actual
(£’000)
Maximum
(£’000)
John
Pettigrew
82.6%
Andy Agg
82.6%
1,118
731
1,353
885
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LTPP
Y0 Y1
Y2 Y3 Y4 Y5
• Maximum award level is 350% of
salary for the Chief Executive and 300%
for other Executive Directors
2020 LTPP
Performance measures
(%) weighting
2020 LTPP
award
Vesting
period
Two-year
holding
period
• Financial measures to comprise at least
60% of the LTPP; introduction of an ESG
measure expected to make up 20% of
the LTPP
• Vesting is subject to long-term
performance conditions over a three-year
performance period
• Shares (net of tax) must be retained until
the later of two years from vesting or
meeting the shareholding requirement
• Subject to both malus and clawback
Shareholding
requirements
Shareholding requirement
• 500% of salary for the Chief Executive;
and
• 400% of salary for other
Executive Directors
Post-employment shareholding
requirement
• 200% of salary for two years
Non-executive
Director fees
Provides flexibility to reflect additional
responsibilities where these are material
to the roles
Fee structure:
• Chair fee (all inclusive);
• Basic fee;
• Committee Chair fee;
• Committee membership fee;
• Senior Independent Director fee; and
• Additional Board responsibilities fees
• Measures for 2023/24:
Outturn
(% of max)
100.0%
100.0%
– Underlying EPS (40%)
– Group RoE (40%)
– Scope 1 carbon emissions (10%)
– Enablement of net zero transition (10%)
Group Value Growth (83.3%)
Group RoE (16.7%)
2020 LTPP outcome
% of
Maximum
Actual
(£’000)
Maximum
(£’000)
John
Pettigrew
Andy Agg
100%
100%
4,859
2,564
4,859
2,564
John Pettigrew and Andy Agg have met
their shareholding requirements
John Pettigrew
1,273%
1,166%
4%
• Shareholding requirements
remain unchanged
500%
Andy Agg
500%
400%
0%
968%
7%
2,500%
Shareholding requirement
Shares counting towards shareholding requirement1
Shares subject to performance conditions2
Shares subject to conditioned performance3
1. Represents beneficially owned shares as
well as shares held in trust as part of the
APP deferred share awards
2. Represents the 2020, 2021 and 2022 LTPP
awards subject to performance conditions
3. Represents shares held as part of the
Sharesave scheme
• Nicola Shaw has met her post-
employment shareholding
requirement as at 31 March 2023
Non-executive Directors’ fees were
reviewed last year, and as disclosed
any increases were effective from
1 January 2022 and paid retrospectively
on 1 July 2022
• Chair fee remains unchanged in line with
her fee being fixed on appointment for
three years
• All Non-executive Directors’ fees will
be increased by 4.0% – below the
average increase of 8.7% across the
UK wider workforce
• The Audit & Risk Chair fee will be
increased by 9.7% given the increasing
complexity within the role and to align
fees at mid-market
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National Grid plc
Annual Report and Accounts 2022/23
93
Directors’ Remuneration Report continued
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24 continued
Alignment of remuneration with our business strategy
We align our performance linked elements of remuneration (APP and LTPP) to our strategic priorities, and our vision to be at the heart of a clean,
fair and affordable energy future, and our sustainability commitment.
Our
strategy
Our vision and values
Our vision is to be at the heart
of a clean, fair and affordable
energy future.
Every day we do the right
thing, find a better way and
make it happen.
Enable the
energy transition
for all
Deliver for
customers
efficiently
Grow our
organisational
capability
Empower
colleagues for
great performance
Our 2022 Policy is aligned to our business strategy
Element of reward
Summary
Link to
our strategy
Link to
our values
Link to our sustainability
commitments
APP
Group Underlying EPS
(pence per share)
(35% weighting)
Group RoE
(35% weighting)
Customer
(5% weighting)
The most appropriate APP earnings
measure for the Group; and the targets
consider specific challenges and
opportunities in the year ahead whilst
remaining consistent with our
longer-term performance goals.
A relevant and key measure of
performance as a primarily regulated
asset-based company with targets set
to ensure strong in-year returns and
operational results.
An equally weighted index of
quantifiable and predominantly
externally measured customer
satisfaction scores across each
of the Group’s business units.
Colleague
(5% weighting)
A quantitative index from our annual
Group-wide employee engagement
survey of our colleagues.
Diversity
(5% weighting)
LTPP
A quantifiable measure to improve the
overall gender and ethnic diversity at
specific layers to support the delivery
of the Group’s strategy.
Cumulative 3 year
Underlying Group EPS
(40% weighting)
A measure that assesses underlying
EPS over the three years in the LTPP
performance period.
Group RoE
(40% weighting)
A measure that is averaged across
the three-year performance period
to incentivise sustainable returns for
shareholders in the longer term.
Reduction of Scope 1
emissions
(10% weighting)
A cumulative measure aligned to meet
the Group’s 2030 SBTi and long-term
net zero target of below 2°C.
Enablement of net zero
transition (Scope 2
and 3 emissions and
strategic initiatives)
A measure that assesses delivery
against key net zero strategic priorities
and quantified outcomes to achieve
a net zero future by 2050.
(10% weighting)
94
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
Do the right thing
Find a better way
Make it happen
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
The environment
Our communities
Our people
The economy
Our governance
National Grid plc
Annual Report and Accounts 2022/23
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Statement of implementation of Policy in 2022/23
Content contained within a blue box indicates that all the information in the panel is audited
2022/23 remuneration implementation
Single total figure of remuneration – Executive Directors
The following table shows a single total figure of remuneration in respect of qualifying service for 2022/23, together with comparative figures for
2021/22. All figures shown to £’000:
Salary
Benefits in Kind (BiK)
Pension
Total fixed pay
APP
LTPP
Total variable pay
Total remuneration
John Pettigrew
Andy Agg
2022/23
1,083
58
130
1,271
1,118
4,859
5,977
7,248
2021/22
1,047
101
245
1,393
1,116
4,105
5,221
6,614
2022/23
2021/22
708
29
85
822
731
2,564
3,295
4,117
665
22
133
820
717
2,033
2,750
3,570
Notes:
Salary: John Pettigrew’s salary increased by 3.75% to £1,092,500 as of 1 July 2022, below the average increase of the wider workforce at 4.0%. Andy Agg was awarded an increase
of 6.5% to £719,000 as part of a previously communicated progressive increase to align his salary with the market rate for his role.
BiK: BiK includes private medical insurance, life assurance, allowance under the Group’s flexible benefits programme, travel and accommodation expenses, a fully expensed car or cash
alternative and the use of a car and a driver when required. John Pettigrew received £12,000 for his company car allowance, £2,090 for life assurance, £891 for private medical insurance
and travel tax and around £43,500 for the use of a car and driver for 2022/23 (2021/22: approximately £85,500). Andy Agg received £12,000 for his company car allowance, £5,847 for
life assurance, £1,465 for private medical insurance and £10,079 for taxable accommodation and travel expenses for 2022/23. There were no Sharesave options granted to any Executive
Directors during 2022/23.
Pension: Pension contributions for John Pettigrew and Andy Agg are 12% of salary for 2022/23.
LTPP: The 2020 LTPP is due to vest in July 2023. The average share price over the three months from 1 January 2023 to 31 March 2023 of 1,043.51 pence has been applied and
estimated dividend equivalents are included. The 2019 LTPP figures (included in the 2021/22 column) have been restated to reflect the actual share price on vesting and all dividend
equivalent shares. As the vesting share price of 1,124.24 pence was higher versus the estimate of 1,098.09 pence (and the additional dividend equivalent shares added for the dividend
with a record date of 6 June 2022 with a dividend rate of 33.76 pence per share), the actual value at vesting was c.£107,000 higher than for the estimate published last year for John
Pettigrew and £53,000 higher for Andy Agg.
Impact of TSR and share price change: The value of the 2020 LTPP award is driven in part by the share price increase of 17.4% from date of grant to date of vest and the strong TSR
of 31.2% over the three-year performance period.
Total pension benefits
John Pettigrew and Andy Agg received a cash allowance in lieu of participation in a pension arrangement. There are no additional benefits on early
retirement. The values of these benefits, received during this year, are shown in the single total figure of remuneration table.
John Pettigrew has, in addition, accrued defined benefit (DB) entitlements. He opted out of the DB scheme on 31 March 2016 with a deferred
pension and lump sum payable at his normal retirement date of 26 October 2031. At 31 March 2023, John Pettigrew’s accrued DB pension was
£99,873 per annum and his accrued lump sum was £299,620. No additional DB entitlements have been earned over the financial year, other than
an increase for price inflation due under the pension scheme rules and legislation. Under the terms of the pension scheme, if he satisfies the ill-health
requirements or he is made redundant, a pension may be payable earlier than his normal retirement date. A lump sum death in service benefit is also
provided in respect of these DB entitlements.
2022/23 APP
For 2022/23 APP, financial measures represent 70% of the award (an increase from 60% in 2021/22) and operational measures and individual
objectives equally represent 15% of the award (a decrease from 20% in 2021/22). Payment of the APP award is made 50% in shares and 50% in
cash. Shares (after any sales to pay associated tax) must be retained until the shareholding requirement is met, and in any event for a minimum
of two years after receipt.
For financial measures, threshold, target and stretch performance levels are set by the Committee for the performance period and pay out at 0%,
50% and 100% of the maximum calculated on a straight-line basis. Operational measures have been assessed on a four-point scale (not met,
partially achieved, achieved and over-achieved) based on quantitative targets set at the beginning of the year by the Committee. Target and stretch
performance levels for the individual objectives are also predetermined by the Committee for the performance period, and an assessment of the
performance relative to the target and stretch performance levels is made at the end of the performance year on each objective. Executive Directors
have a maximum opportunity of 125% of base salary for 2022/23.
APP – Financial performance
The financial measures (70%) were weighted equally between two measures – Group Underlying EPS and Group RoE. The Group has continued to
deliver strong financial performance despite record levels of cost inflation and other macroeconomic factors. The outcomes reflect good operational
performance across our US regulated businesses; improved NGV performance across interconnectors; and also higher levels of investment to drive
forward energy transition and deliver energy security across all business units.
National Grid plc
Annual Report and Accounts 2022/23
95
Directors’ Remuneration Report continued
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24 continued
The financial performance outcomes of the 2022/23 APP awards are summarised in the tables below:
Measure
Group Underlying EPS
Group RoE (%)
Total financial outturn
Weighting
(% of APP)
Threshold
Target
Stretch
Outcome
(% of max)
35%
35%
70%
71.1
74.1
78.2
77.1
100.0%
10.3%
10.7%
11.1%
11.0%
87.5%
93.8%
Denotes an ‘alternative performance measure’ as described on page 14
Notes:
Group Underlying EPS includes discontinued earnings contribution from UK Gas Transmission & Metering for the period of ownership.
Underlying EPS: Technical adjustments have been made which increase the performance range (including threshold, target and stretch) by 4.0 pence. This reflects the net effect of
currency adjustments, scrip issuances, US pension assumptions, as well as the actual dates of the portfolio transactions, specifically the disposal of the UK Gas Transmission & Metering
and Rhode Island.
Group RoE: Technical adjustments have been made which decrease the performance range by 0.3% to reflect the impact of the final opening equity being higher than forecast following
inflation-related RAV increases and the impact of the date of disposal of the UK Gas Transmission & Metering.
APP – Operational performance
The operational measures (15%) were weighted equally between three key measures:
• Customer: Group customer satisfaction index;
• Colleague: Group Having a Voice index; and
• DEI: Percentage diversity of Strategic Leadership Group (top ~110 leaders)
Operational measures were assessed on a four-point scale (not met, partially achieved, achieved and over-achieved) based on quantifiable targets
where possible and qualitative outcomes to reflect a balanced assessment of performance. Overall, there was strong progress made against each
measure, resulting in a combined outcome of 66.7% of maximum.
However, as detailed in the Chair letter, following the fatal incident in May 2022 at Medford, Massachusetts, the Committee decided to exercise
its discretion to reduce the operational portion of the APP by half, reducing the operational outturn from 66.7% to 33.3% for John Pettigrew and
Andy Agg.
Measure
Details
Assessment
Customer:
Group customer
satisfaction index
(5%)
Blend of customer scores across the
business units all equally weighted:
• Customer Relationship Index for NE
and NY;
• Ofgem scores for UK ET and UK ED; and
• Customer output measures for NGV
The customer sentiment, which is tied to the value customers feel they
receive from National Grid, has softened in New York and New England
as customer’s concern about their ability to pay has increased.
UK ET’s score is a result of a combination of pressures with the existing
Regulatory Connections Framework, a dramatic uplift in volumes of
customer applications; interactive issues of market design; and a lack
of contractual discipline and investment linked to individual customers.
Both UK ED and NGV received positive customer and stakeholder
satisfaction scores.
Further detail on customer satisfaction can be found on page 16.
Colleague:
Group Having a Voice
index (5%)
Index in annual employee engagement survey
(Grid:Voice) which assesses the level of
transparency and cultural openness across
the organisation through four questions
Group Having a Voice index was 77% (ahead of target); Strong
progress made on embedding the Group’s purpose, values and culture
as part of the integration of UK ED as well as continuing to evolve the
culture and ways of working across the Group.
DEI:
Percentage diversity
of Strategic
Leadership Group (top
~110 leaders) (5%)
Measure focused on delivering improvements
in diversity in line with the key strategic priority
to build a strong, diverse and inclusive strategic
leadership team and pipeline of talent to
support the delivery of the Group’s strategy
Strategic Leadership Group diversity was at 49.1% (ahead of target);
Progress underpinned by robust delivery of a Group-wide DEI strategy
Combined operational outcome
Post discretion – Combined operational outcome
Outcome
NY – 1
Not met
NE – 2
Partially achieved
UK ET – 1
Not met
UK ED – 3
Achieved
NGV – 3
Achieved
(10/20) – 50.0%
3
Achieved
(3/4) – 75.0%
3
Achieved
(3/4) – 75.0%
66.7%
33.3%
Notes: Diversity is defined as colleagues who have self-identified themselves of varying gender, sexual orientation, disability, under-represented racial and/or ethnic group.
96
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Annual Report and Accounts 2022/23
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APP – Individual objectives
In addition to the financial and operational goals previously discussed, the Board approves annual individual performance goals for the Executive
Directors in line with key operational and strategic priorities. Performance is assessed at the end of the financial year by the Board and Committee.
The Chief Executive completed a self-evaluation which was shared with members of the Board for their comments. The Chair compiled these
comments, and based on these comments, proposed a scoring for each of the goals. The Chief Executive undertook the same process for the
Chief Financial Officer and presented his recommendations to the Committee in April 2023. The table below sets out the 2022/23 individual
objectives together with associated performance commentaries and the Committee’s assessment of the performance outcome for each of the
Executive Directors:
Individual objectives and performance summary – John Pettigrew
Deliver on the enterprise wide transformation
• The enterprise transformation showed good results, with work remaining in advancing the capabilities that will be required as part of the
energy transition
Execute next wave of corporate strategy in line with Board strategic blueprint
• The strategy of pivoting to electricity networks was advanced by completing various major transactions
• Successfully led robust board strategy discussions which have led to greater clarity on the role National Grid plays in the energy transition
Improve and deepen leadership capabilities and succession; create strong and diverse talent pipeline to enable energy transition
• Leadership capabilities have been strengthened through a comprehensive approach to assessing and advancing talent. Given the dynamic nature
of the environment in which the Group operates, this is an area that will need continued focus
Individual objectives and performance summary – Andy Agg
Successfully complete the strategic repositioning & ED2 outcome, ensuring strong investor support
• UK ED integration well-progressed and delivered successful RIIO-ED2 price control outcome
• Completed strategic pivot with completion of sale of Rhode Island and majority sale of UK Gas Transmission & Metering
• Delivered successful funding strategy against challenging macro-economic backdrop
Deliver transformation programmes across the Group and Finance function
• Successfully implemented efficiencies and process improvements, supporting delivery against external cost commitments
• Delivered Finance transformation milestones including new Data and Reporting Office and various system improvements
Demonstrate progress in and deepen leadership capabilities and succession planning
• Launched National Grid’s CFO apprentice programme and enhanced career pathway planning and leadership skills training
• Increased the Finance talent pipeline through several key senior appointments
Outcome
80.0%
Outcome
80.0%
2020 LTPP
Performance conditions
The 2020 LTPP that will vest on 1 July 2023 was structured in consideration of the transition to RIIO-T2 in the UK during the performance period.
The financial measures and weightings of the 2020 LTPP below are the same for all Executive Directors.
• Group RoE over a one-year period (2020/21) determines one sixth of the award
• Group Value Growth over the three-year period (2020/21 – 2022/23) determines five sixths of the award
As detailed in the Chair letter, the outturns of the 2020 LTPP reflect the good business performance over the performance period and are
summarised below:
Performance measure
Weighting
Threshold
20% vesting
Maximum
100% vesting
Actual
% of maximum
Group RoE
16.67%
8.25%
Group Value Growth
Overall vesting outcome
83.33%
8.00%
Denotes an ‘alternative performance measure’ as described on page 14
10.4%
11.5%
9.75%
10.5%
100.0%
100.0%
100.0%
Vesting
The amounts due to vest under the 2020 LTPP for the performance period that ended on 31 March 2023 are included in the 2022/23 single total
figure table on page 95 and are shown in the table below. The current share price valuation is an estimate based on the average share price over the
three months from 1 January 2023 to 31 March 2023 of 1,043.51 pence and the proposed 2022/23 dividend with record date of 2 June 2023, subject
to shareholder approval, is included. The total value of awards vesting, and dividend equivalent shares are subject to a two-year holding period.
The Committee considered wider business factors, such as underlying financial performance, ESG considerations and shareholder experience,
when determining the final outturn for the 2020 LTPP and were comfortable that no adjustments were required.
John Pettigrew
Andy Agg
Shares
awarded
405,217
213,795
Performance
outcome
(% of maximum)
Vested shares
based on
performance
Face value of the
award at grant
(£’000)
Share price
appreciation
(£’000)
Dividend
equivalent shares
(£’000)
100.00
100.00
405,217
213,795
3,603
1,901
625
330
630
333
National Grid plc
Annual Report and Accounts 2022/23
Total
value
(£’000)
4,859
2,564
97
Directors’ Remuneration Report continued
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24 continued
Assessment of National Grid shareholder returns
National Grid plc’s 10-year annual TSR performance against the FTSE 100 Index since 31 March 2013 is shown below and illustrates the growth in
value of a notional £100 holding invested in National Grid plc on 31 March 2013, compared with the same invested in the FTSE 100 Index. The FTSE
100 Index has been chosen because it is a widely-recognised performance benchmark for large companies in the UK and it is a useful reference to
assess relative value creation for National Grid plc shareholders. Over the last 10-year period, National Grid plc’s TSR is 134% versus the FTSE 100
Index at 73%, demonstrating sustainable long-term value for our shareholders.
Total Shareholder Return (£)
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250
200
150
100
100.00
100.00
50
117.15
106.83
130.19
114.85
162.29
151.42
132.76
106.71
157.16
141.19
131.63
132.92
National Grid
FTSE 100 Index
239.18
233.88
178.22
169.77
141.89
117.74
173.25
160.08
31/3/13
31/3/14
31/3/15
31/3/16
31/3/17
31/3/18
31/3/19
31/3/20
31/3/21
31/3/22
31/3/23
Data source: Datastream by Refinitiv
2022 LTPP
Performance conditions
For the 2022 LTPP, the performance measures comprise of equally weighted financial measures totalling 80% and two equally weighted net zero
transition measures with a combined weighting of 20% over the three-year performance period, as outlined in the table below. As disclosed in last
year’s Directors’ Remuneration Report, Group Value Growth was replaced with a three-year cumulative Underlying EPS and net zero transition
measures were introduced to align to targets set out in our CTP.
Performance measures
Cumulative three-year Underlying EPS
Group RoE
National Grid Scope 1 emissions
Enablement of net zero transition: Strategic initiatives
(Scope 2 and 3)
Weighting
40%
40%
10%
Threshold
20% vesting
199 p
9.50%
Maximum
100% vesting
217 p
10.75%
-50 ktCO2e
-117 ktCO2e
10% There are four key areas of focus (US energy-efficiency programmes,
UK net zero transmission strategy, US future of gas strategy and low-carbon
electricity distribution investment) which will be measured on a four-point
scale (not met, partially achieved, achieved and over-achieved) based on
delivery of quantifiable and qualitative outcomes.
Notes: Vesting between threshold and maximum will be on a straight-line basis.
Denotes an ‘alternative performance measure’ as described on page 14
Conditional awards made during the year
The face value of the awards are calculated using the volume weighted average share price at the date of grant. The share price at the date of grant
on 28 June 2022 was 1,069.26 pence. The 2022 LTPP will vest on 1 July 2025. The total value of awards vesting and dividend equivalent shares are
subject to a two-year holding period following vesting.
John Pettigrew
Andy Agg
Basis of award
(% of base)
350%
300%
Number of shares
357,606
201,727
Face value
(£’000)
£3,824
£2,157
Proportion vesting at
threshold performance
Performance period
end date
20%
20%
31 March 2025
31 March 2025
Statement of Directors’ shareholdings and share interests
The Executive Directors are required to build up and hold a shareholding from vested share plan awards until their shareholding requirement is met.
Until this point, Executive Directors will not be permitted to sell shares, other than to pay income tax liabilities on shares just vested or in exceptional
circumstances approved by the Committee. The following table shows the position of each of the Executive Directors in relation to the shareholding
requirement. The shareholding is as at 31 March 2023 and the salary used to calculate the value of the shareholding is the gross salary as at
31 March 2023. The table also presents the number of shares owned by the Non-executive Directors, including their connected persons.
Both John Pettigrew and Andy Agg have met their shareholding requirement.
Further shares have been purchased in April and May 2023 on behalf of each of John Pettigrew and Andy Agg as part of the Share Incentive Plan (SIP)
(an HMRC tax-advantaged all-employee share plan), thereby increasing the beneficial interests by 26 shares (13 in April and May) for John Pettigrew and
26 shares (13 in April and May) for Andy Agg. There have been no other changes in Directors’ shareholdings between 1 April 2023 and 18 May 2023.
The expected vesting dates for the conditional share awards subject to performance conditions are 3 July 2023, 1 July 2024 and 1 July 2025 for the
2020 LTPP, 2021 LTPP and 2022 LTPP respectively.
98
National Grid plc
Annual Report and Accounts 2022/23
Directors
Executive Directors
John Pettigrew
Andy Agg
Non-executive Directors
Paula Rosput Reynolds (ADSs)
Thérèse Esperdy (ADSs)
Liz Hewitt
Ian Livingston
Earl Shipp (ADSs)
Jonathan Silver (ADSs)
Tony Wood
Martha Wyrsch (ADSs)
Anne Robinson (ADSs)
Iain Mackay
Former Non-executive Directors
Jonathan Dawson
Amanda Mesler
Share ownership
requirements
(multiple of salary)
Number of shares/ADSs
owned outright (including
closely associated
persons and SIP for
Executive Directors)
Value of shares
held as a multiple
of current salary
(excluding closely
associated persons)
Number of options
granted under
the Sharesave Plan
Conditional share awards
subject to performance
conditions (LTPP 2020,
2021, and 2022)
500%
400%
1,268,112
327,917
1,273%
500%
4,219
4,316
1,161,391
634,515
–
–
–
–
–
–
–
–
–
–
–
–
2,000
1,587
2,500
1,838
1,000
0
2,097
5,000
0
0
45,632
1,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
John Pettigrew: On 31 March 2023 John Pettigrew held 4,219 options granted under the Sharesave Plan with an exercise price of 711 pence per share (the 20% discounted option
price) and they can, subject to their terms, be exercised at 711 pence per share between 1 April 2025 and 30 September 2025. The number of conditional share awards subject to
performance conditions is as follows: 2020 LTPP: 405,217; 2021 LTPP: 398,568; 2022 LTPP: 357,606.
Andy Agg: On 31 March 2023 Andy Agg held 4,316 options granted under the Sharesave Plan with an exercise price of 695 pence per share (the 20% discounted option price) and
they can, subject to their terms, be exercised at 695 pence per share between 1 April 2026 and 30 September 2026. The number of conditional share awards subject to performance
conditions is as follows: 2020 LTPP: 213,795; 2021 LTPP: 218,993; 2022 LTPP: 201,727.
Paula Rosput Reynolds, Thérèse Esperdy, Earl Shipp, Jonathan Silver, Martha Wyrsch and Anne Robinson: Holdings are shown as American Depositary Shares (ADSs)
and each ADS represents five ordinary shares.
Jonathan Dawson and Amanda Mesler: Both Non-executive Directors resigned from the Board effective 11 July 2022, therefore their shareholding is as at 31 March 2022.
Post employment shareholding requirements
Past Executive Directors are required to continue to hold their shares/ADSs post employment for a period of two years in line with our current Policy.
To enforce this, the Executive Directors have given permission for the Group to periodically check with its third-party share scheme administrator
whether the minimum shareholding requirement is being maintained. The Executive Directors have acknowledged that if they breach their post-
employment shareholding requirement for any reason, the Group may enforce at its discretion one or more of the following processes: to request
they repay to the Group an amount equivalent in value to the shareholding requirement that has not been met; the Group may withdraw/vary the
vesting of any future shares granted under the LTPP; the Company may publish a public statement in a form, as the Group may decide that the
Director has failed to comply with the post-employment shareholding requirement. Executive Directors are reminded annually and when employed,
of the post-employment shareholding requirement. At termination, the minimum shareholding requirement is confirmed to the Director and checks
are made by the Group at the 12-month and 24-month anniversary of leaving and at the relevant financial year end, 31 March, to ascertain if their
post-employment shareholding requirement has been met.
Nicola Shaw stood down from the Board on 26 July 2021 and her termination date was 30 April 2022, at which time she was subject to a post-
employment shareholding requirement of 200% of salary at termination for a period of two years. As of 31 March 2023, Nicola Shaw continues
to meet her post-employment shareholding requirement.
Shareholder dilution
All Company employees are encouraged to become shareholders through a number of all-employee share plans and a significant proportion of our
employees participate annually. These plans include Sharesave and the SIP in the UK and the US Employee Stock Purchase Plan (ESPP) and US
Incentive Thrift Plan (commonly referred to as a 401(k) plan) in the US which are summarised on page 235 and in our Policy. UK ED employees can
now participate in the UK all-employee share plans since their acquisition.
Where shares may be issued or treasury shares reissued to satisfy incentives, the aggregate dilution resulting from executive or discretionary
share-based incentives will not exceed 5% in any 10-year period. Dilution resulting from all incentives, including all-employee incentives, will not
exceed 10% in any 10-year period. The Committee reviews dilution levels against these limits annually and under these limits the Company,
as at 31 March 2023, had a headroom of 3.87% and 7.75% respectively.
Chief Executive pay ratio
We have disclosed our Chief Executive pay ratios comparing the single total figure of remuneration of the Chief Executive to the equivalent pay for the
25th percentile, median and 75th percentile UK employees (calculated on a full-time equivalent basis), as well as the median Group-wide pay ratio.
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Method
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Median pay ratio
UK
Group-wide
Year
2022/23
2021/22
2020/21
2019/20
2018/19 – voluntary
Option A
Option A
Option A
Option A
Option A
144
135
104
111
96
111
105
81
86
76
86
81
62
66
58
Notes: Salaries as at 31 March 2023 and estimated performance-based annual payments for 2022/23 have been annualised for part-time employees to reflect full-time equivalents.
Performance payments have not been further adjusted to compensate where new employees have not completed a full performance year. The comparison with UK employees is
specified by the Companies (Miscellaneous Reporting) Regulations 2018 (as amended). US employees represent approximately 57% of our total employees. Our median pay ratio
on a Group-wide basis is outlined above and calculated on the same basis as the UK pay ratios and at an exchange rate of $1.2156:£1.
National Grid plc
Annual Report and Accounts 2022/23
76
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Directors’ Remuneration Report continued
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24 continued
The Chief Executive pay ratio has increased from 105:1 to 111:1 at the UK median, primarily due to the impact of the 2020 LTPP award on the
Chief Executive’s single total figure of remuneration. This year the 2020 LTPP vesting represents 67% (2021/22: 61%) of the Chief Executive’s single
total figure of remuneration. Whilst the UK median pay ratio increased this year, our Group median pay ratio has remained consistent compared
with 2021/22 due to higher level of wages in the regions of the US where we operate as compared with the UK.
Excluding estimated 2020 LTPP vesting, our UK median pay ratio has decreased from 40:1 in 2021/22 to 37:1 this year and our Group pay ratio
decreased from 29:1 to 25:1.
Changes in the Chief Executive pay ratio reflect the fact that a key feature of our executive and senior leadership remuneration strategy is heavily
weighted towards longer-term performance share-based reward, resulting in larger swings year-on-year than the wider workforce. Across the wider
workforce, employee reward is largely focused on in-year annual delivery.
The 2022/23 salary and total pay including benefits for the Chief Executive versus UK employees is shown below.
2022/23 Salary and benefits – Chief Executive versus UK wider workforce
Salary
Total pay and benefits
Chief Executive
Remuneration
£1,082,625
£7,247,980
UK employee
25th percentile
UK employee
50th percentile
£39,299
£50,493
£44,367
£65,112
UK employee
75th percentile
£58,240
£84,466
We have chosen to use Option A in calculating the ratios, which is a calculation based on the pay of all UK employees on a full-time equivalent basis,
as this option is considered to be more statistically robust. The ratios are based on total pay and benefits inclusive of short-term and long-term
incentives applicable for the respective financial year (1 April – 31 March). The reference employees at the 25th, 50th and 75th percentile have been
determined by reference to pay and taxable benefits as at the last day of the respective financial year, 31 March, with estimates for the respective
APP payouts and performance outcomes of the LTPP and dividend equivalents.
We are satisfied that the median pay ratio reported this year is consistent with our wider pay, reward and progression policies for employees.
The median reference employee falls within our collectively bargained employee population and has the opportunity for annual pay increases,
annual performance payments and career progression and development opportunities. The Chief Executive received a pay increase of 3.75% in
2022/23, below the UK wider workforce increase of 4.0%. For reference, in 2023/24, the Chief Executive will receive a 4.0% pay increase, which
is below the UK average increase of 8.7% (with the tiers ranging from 4.5% to 9.5%) across the UK wider workforce.
Relative importance of spend on pay
The chart below shows the relative importance of spend on pay compared with other costs and disbursements (dividends, tax, net interest and
capital expenditure). Given the capital-intensive nature of our business and the scale of our operations, these costs were chosen as the most relevant
measures for comparison purposes. All amounts exclude exceptional items and remeasurement.
Relative importance of spend on pay
2021/22 (£m)
2022/23 (£m)
+20%
7,431
6,185
+9%
1,770
1,929
+10%
1,854
2,034
Payroll costs
Dividends
-5%
669
635
Tax
+40%
1,514
1,081
Net interest
Capital expenditure
Notes:
1. The dividend figure for 2021/22 has been restated at £1,854 million (from £1,852 million) to reflect the actual value of dividends paid.
2. Percentage increase/decrease of the costs between years is shown.
Chief Executive’s pay in the last 10 financial years
Steve Holliday was Chief Executive throughout the three-year period from 2013/14 to 2015/16. John Pettigrew became Chief Executive on 1 April 2016.
Steve Holliday
John Pettigrew
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
Single total figure of
remuneration (£’000)
Single total figure of
remuneration including
only 2014 LTPP (£’000)
APP (proportion of
maximum awarded)
LTPP (proportion
of maximum vesting)
4,801
4,845
5,151
4,623
3,648
4,651
5,205
5,071
6,614
7,248
3,931
77.94%
94.80%
94.60%
73.86%
82.90%
84.20%
70.58%
80.43%
85.20%
82.62%
76.20%
55.81%
63.45%
90.41%
85.20%
84.20%
84.90%
68.00%
74.22%
100.00%
Notes:
John Pettigrew: The single total figure of remuneration for 2022/23 is explained in the single total figure of remuneration table for Executive Directors and single total figure for 2021/22
has been restated to reflect actual share price for 2019 LTPP vesting in 2022 and all dividend equivalent shares, consistent with comparative figures shown in this year’s single total figure
of remuneration table.
2014 LTPP: The 2016/17 single total figure of remuneration includes both the 2013 LTPP award and the 2014 LTPP award due to a change in the vesting period from four years
(2013 LTPP) to three years (2014 LTPP).
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LTPP plans: Prior to 2014, LTPP awards were made under a different long-term incentive framework which incorporated a four-year performance period for the RoE element of the
awards. The last award under this framework was made in 2013 and was fully vested in 2017. Awards made from 2014 are subject to a three-year performance period. The first of these
awards vested in 2017.
Single total figure of remuneration – Non-executive Directors
The following table shows a single total figure in respect of qualifying service for 2022/23, together with comparative figures for 2021/22:
Fees (£’000)
Other emoluments (£’000)
Total (£’000)
2022/23
2021/22
2022/23
2021/22
2022/23
2021/22
Paula Rosput Reynolds
Thérèse Esperdy
Liz Hewitt
Ian Livingston
Earl Shipp
Jonathan Silver
Tony Wood
Martha Wyrsch
Anne Robinson
Iain Mackay
Appointed on 1.08.2021
Appointed on 1.09.2021
Appointed on 1.09.2021
Appointed on 19.01.2022
Appointed on 11.07.2022
Former Non-executive Directors
Jonathan Dawson
Resigned on 11.07.2022
Amanda Mesler
Resigned on 11.07.2022
700
180
128
142
123
124
117
117
110
89
44
50
599
141
113
66
113
99
48
56
19
n/a
108
93
56
18
10
1
22
45
18
12
14
0
3
3
Total
1,924
1,455
202
18
10
9
1
7
9
2
3
0
n/a
3
2
63
756
199
138
142
145
169
135
129
125
89
47
53
616
151
122
67
120
109
50
59
19
n/a
111
94
2,125
1,518
Notes: Non-executive Director fee increases approved in 2021/22 were effective from 1 January 2022 and paid retrospectively on 1 July 2022.
Other emoluments: In accordance with the Group’s expenses policies, Non-executive Directors receive reimbursement for their reasonable expenses for attending Board meetings.
In instances where these costs are treated by HMRC as taxable benefits, the Group also meets the associated tax cost to the Non-executive Directors through a PAYE settlement
agreement with HMRC and these costs are included in the table above. The 2022/23 year-on-year increase on Non-executive Directors benefits was due to global travel returning
to pre-pandemic levels; therefore Directors travelled several times during the year incurring travel/accommodation expenses.
Anne Robinson: Joined the Remuneration Committee as a member effective 11 July 2022.
Liz Hewitt: Stepped down as Chair of the Audit & Risk Committee but remains as a member of the Audit & Risk Committee effective 1 January 2023.
Ian Livingston: Joined the Finance Committee as a member effective 1 January 2023.
Iain Mackay: Appointed Chair of the Audit & Risk Committee effective 1 January 2023.
The total emoluments paid to Executive and Non-Executive Directors in the year was £13.5 million (2021/22: £11.7 million).
Percentage change in Remuneration (Executive Directors, Non-executive Directors,
employee average)
We have included percentage change in salary/fee, bonus and benefits for each of the Directors compared with prior years. The regulations
cover employees of the Parent Company only and not across the Group, and since we have very few people employed by our Parent Company
(National Grid plc), we have voluntarily chosen a comparator group of all employees in the UK and the US to provide a representative comparison.
In line with the regulations, we shall build this information to display a five-year history by 2024/25.
Executive Directors
John Pettigrew
Andy Agg
Non-executive Directors
Paula Rosput Reynolds
Thérèse Esperdy
Liz Hewitt
Ian Livingston1
Earl Shipp
Jonathan Silver
Tony Wood2
Martha Wyrsch2
Anne Robinson3
Iain Mackay4
Salary
1.3%
4.9%
n/a
0.4%
334.8%
n/a
0.5%
14.3%
n/a
n/a
n/a
n/a
2020/21
Benefits
-4.7%
40.6%
n/a
-100.0%
-100.0%
n/a
-100.0%
-100.0%
n/a
n/a
n/a
n/a
Bonus
15.4%
17.7%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Former Non-executive Directors
Jonathan Dawson5
Amanda Mesler5
Employee median
0.5%
0.5%
-8.5%
37.1%
-100.0%
1.7%
n/a
n/a
-5.5%
Salary
1.7%
6.5%
2816.8%
-0.8%
14.5%
n/a
8.6%
-4.2%
n/a
n/a
n/a
n/a
-3.0%
1.6%
2.8%
2021/22
Benefits
-8.8%
-31.6%
Bonus
7.8%
15.9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
417.6%
n/a
6.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
40.0%
Salary
3.4%
6.5%
16.9%
28.2%
12.8%
113.2%
9.0%
24.5%
144.2%
111.0%
474.0%
n/a
-59.6%
-46.1%
12.4%
2022/23
Benefits
-42.0%
32.6%
217.1%
84.8%
12.0%
3.0%
208.6%
383.6%
857.5%
280.3%
n/a
n/a
1.2%
85.7%
36.4%
Bonus
0.3%
2.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-23.0%
Notes:
1. Ian Livingston was appointed to the Board on 1 August 2021, therefore 2021/22 fees and benefits were prorated.
2. Tony Wood and Martha Wyrsch were appointed to the Board on 1 September 2021, therefore 2021/22 fees and benefits were prorated.
3. Anne Robinson was appointed to the Board on 19 January 2022, therefore 2021/22 fees and benefits were prorated.
4. Iain Mackay was appointed to the Board on 11 July 2022, therefore percentage change is not applicable for 2022/23.
5. Jonathan Dawson and Amanda Mesler resigned from the Board effective 1 July 2022, therefore received prorated fees for the financial year.
6. Benefits/other emoluments: For Executive Directors, benefits include private medical insurance, life assurance, allowance under the Group’s flexible benefits programme,
travel and accommodation expenses, a fully expensed car or cash alternative and the use of a car and a driver when required. For Non-executive Directors, the equivalent of benefits
is emoluments. In accordance with the Group’s expenses policies, Non-executive Directors receive reimbursement for their reasonable expenses for attending Board meetings.
In instances where these costs are treated by HMRC as taxable benefits, the Group also meets the associated tax cost to the Non-executive Directors through a PAYE settlement
agreement with HMRC and these costs are included in the table above. The 2022/23 year-on-year increase on Non-executive Directors benefits was due to global travel returning
to pre-pandemic levels; therefore Directors travelled several times during the year incurring travel/accommodation expenses.
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Directors’ Remuneration Report continued
Summary of Policy table and approach taken for 2022/23 with intended approach for 2023/24 continued
For 2022/23, the percentage change data for salary reflects that salary increases for Executive Directors were below the employee median of 12.4%.
The 2022/23 year-on-year increase in Non-executive Director fees is due to pro-rated fees for Non-executive Directors joining during the year and
also partly due to increased fees effective 1 January 2022. Further, Non-executive Directors receive reimbursement for their reasonable expenses
for attending Board meetings. In instances where these costs are treated by HMRC as taxable benefits, the Group also meets the associated tax
cost to the Non-executive Directors through a PAYE settlement agreement with HMRC and these costs are included in the table above. The 2022/23
year-on-year increase on Non-executive Director emoluments was due to global travel returning to pre-pandemic levels and also due to part-year
travel costs versus full-year travel costs. For 2022/23, the percentage change in benefits and bonus for the employee median is on account of the
changes in the underlying UK workforce with UK Gas Transmission & Metering colleagues leaving and UK ED colleagues joining the Group.
Salary increases vary for employees covered by collective agreements depending on arrangements agreed with the respective trade unions. The
Committee takes account of the general salary increases available for managers/non-unionised employees when reviewing Directors’ salaries/fees.
Further alignment between Executive Director pay and arrangements available to the wider workforce is evidenced by the approach that most
employees have the opportunity to receive a bonus which is linked to either a combination of individual and/or Group/business performance
measures, thus enabling employees as well as the Executive Directors to benefit in the Group’s success annually.
Service contracts/letters of appointment
In line with our Policy, all Executive Directors have service contracts which are terminable by either party with 12 months’ notice commencing
immediately after announcement. Non-executive Directors are subject to letters of appointment. The Board Chair’s appointment is subject to
six months’ notice by either party; for other Non-executive Directors, notice is one month. All Directors are required to be elected at each AGM.
There has been no changes made to Directors’ service contracts and letters of appointment. Copies of service contracts and letters of appointment
are available for inspection at the Company’s registered office.
Payments for loss of office and payments to past Directors
On 20 May 2021, we announced Nicola Shaw, Executive Director UK, would not be seeking re-election to the Board. Nicola Shaw stood down from
the Board on 26 July 2021 and remained in active employment until 31 October 2021. She received salary and benefits until her termination date of
30 April 2022 and received pay in lieu of notice for the unexpired period of her 12-month notice period (i.e. from 1 May 2022 to 19 May 2022).
For the period from 1 April 2022 to 31 March 2023, Nicola Shaw received remuneration totalling £135,588 which includes her salary and benefits
of £58,450 (for 1 April 2022 to 30 April 2022), her pay in lieu of notice of £29,905 (for 1 May 2022 to 19 May 2022) and other payments (including but
not limited to statutory pay, holiday pay and a SIP refund) of £47,233. All payments are in accordance with her service agreement, the 2019 Policy
and in line with our June 2021 RNS announcement and subject to applicable tax withholdings.
The Committee agreed to grant good leaver treatment for Nicola Shaw’s in-flight LTPP awards given her overall long-term strong performance and
contribution to the business. The 2019 LTPP figure published last year in our Directors’ Remuneration Report 2021/22 (page 114) of £1,765,000 is
restated to £1,812,000 to reflect the actual share price on vesting and all dividend equivalent shares. As the vesting share price of 1,124.24 pence
was higher versus the estimate of 1,098.09 pence (and the additional dividend equivalent shares added for the dividend with a record date of
6 June 2022 with a dividend rate of 33.76 pence per share), the actual value at vesting was c.£47,000 more than for the estimate published last year.
Nicola Shaw’s 2020 LTPP award is due to vest in July 2023 and her award will be pro-rated for completed months held since the award date until
30 April 2022. The awards will vest at the same time as other participants, subject to performance measured at the vesting date and any discretion
the Committee may decide to exercise at the time of vesting, in line with our Policy. These shares will be subject to the two-year post-vesting holding
requirement and post-employment shareholding requirement. Using the same methodology for LTPP on page 95, Nicola Shaw’s estimated value for
the 2020 LTPP is £1,336,277.
There have been no other payments made to other past Directors during 2022/23.
External appointments and retention of fees
The table below details the Executive Director who served as Non-executive Director in other companies during the year ended 31 March 2023
(further detail on external appointments can be found in our Policy):
John Pettigrew
Company
Rentokil Initial plc
Retained fees
£80,481
Role of the Remuneration Committee
The Committee is responsible for recommending to the Board the Policy for the Executive Directors. The Committee is also responsible for
approving the remuneration of the other members of the Group Executive Committee and the Chair. The aim is to align the Policy to the Group
strategy and key business objectives, and ensure it reflects our shareholders’, customers’ and regulators’ interests. The Committee receives input
on Policy implementation within the wider workforce before reaching decisions on matters such as salary increases and annual incentive payouts
and closely reviews the appropriateness of pay positioning by reference to external measures (benchmarking remuneration packages) and internal
review of Group performance and pay gaps (CEO pay ratios, gender and ethnicity pay gaps) and the relativity year-on-year of salary, benefits and
annual performance incentives compared with the same for the rest of the workforce.
• Clarity: We identify and communicate a range of performance measures in our incentives which clearly link to the successful execution of the
Company’s strategy.
• Simplicity: Elements of our remuneration framework and their purpose are clearly articulated within our market-standard policy and we believe
this is understood by all our stakeholders.
• Risk: Risk is managed in a number of ways and evidenced through our Policy, for example: setting maximum levels for incentive plans;
implementing measures that are aligned to Group performance and shareholder interests; focusing on the long term and creating value through
the LTPP; reviewing formulaic outcomes; malus and clawback provisions; and having a high shareholding requirement for senior executives.
• Predictability: Full information on the potential values which could be earned are disclosed; our policy outlines threshold, target and maximum
opportunity with varying actual incentive outcomes dependent on performance; and all the checks and balances set out above under Risk are
disclosed as part of the Policy.
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• Proportionality: Whilst incentive plans reward executives’ performance in successfully delivering the business strategy, there is also a focus
on sustaining this through holding periods that apply to vested shares and annual incentives paid out as shares; all executives are also subject
to significant shareholding and post-employment shareholding requirements. The Policy does not reward poor performance and the range
of potential payouts under the Policy is appropriate.
• Alignment to culture and strategy: Our culture recognises that how we do things is as vital as what we do and this is reflected in the type
of performance conditions used in our incentive plans. Both the measures themselves and the targets set aim to reinforce this approach.
Our Policy has operated as intended in terms of Group performance and quantum; a review of key considerations and decisions pertaining to its
implementation is provided in the Committee Chair’s statement.
The Committee’s activities in 2022/23
Meeting/circulations
Main areas of discussion
April 2022
May 2022
Discussion on the 2022/23 APP individual objectives for the Group Executive Committee
Review of the 2022 LTPP measures and provisional targets for the Group Executive Committee
Discussion on a number of governance updates including share dilution limits and shareholding for the Group Executive Committee
Approval of 2021/22 APP and 2019 LTPP outcomes for the Group Executive Committee
Approval of pay decisions for the Group Executive Committee
Review of Chair fees
Approval of the 2022/23 APP financial, operational and individual objectives and 2022 LTPP targets for the Group Executive Committee
September 2022*
Proposal for the 2022/23 APP strategic objective for a new Group Executive Committee appointment
October 2022*
November 2022
January 2023
March 2023
Items related to new Group Executive Committee appointment
AGM update
Discussion of the 2023/24 APP and 2023 LTPP provisional measures the Group Executive Committee
Approval of the UK Gas Transmission & Metering remuneration arrangements methodology at sale completion
Proposal for the 2022/23 APP strategic objective for a new Group Executive Committee appointment
Approval of the 2022/23 Sharesave Plan
Discussion on external environment and current governance concerns in relation to executive pay
Review and approval of the Gender and Ethnicity Pay Gap
Items related to various Group Executive Committee members’ (i) leaving arrangements and (ii) remuneration arrangements
Discussion on the 2023/24 APP financial and operational measures
Discussion on the 2023 LTPP financial and ESG measures
External market update and evolving governance
Discussion on the 2022/23 expected incentive plan outcomes (APP and outstanding LTPP) for the Group Executive Committee
Discussion on the 2023/24 APP financial and operational measures and 2023 LTPP award for the Group Executive Committee
Market data review, base salary increase proposals, in context of wider workforce increases, for the Group Executive Committee
Approval of the 2022/23 UK Gas Transmission & Metering APP outturns post sale completion
*By circulation
Note: For completeness, the market data review and base salary increase proposals, in context of wider workforce increases (for 2022/23) for the Group Executive Committee and
discussion on feedback from shareholder consultation on 2022 Policy were held in the March 2022 meeting.
Advisors to the Remuneration Committee
PricewaterhouseCoopers LLP (PwC) was selected by the Committee to become its independent advisor from 3 August 2020 and provided advice
and counsel to the Committee throughout 2022/23. PwC is a member of the Remuneration Consultants Group (RCG) and has signed up to RCG’s
code of conduct. The Committee is satisfied that any potential conflicts were appropriately managed. Work undertaken by PwC in its role as
independent advisor to the Committee has incurred fees of £62,541 on the basis of time charged to perform services and deliverables.
The Committee reviews the objectivity and independence of the advice it receives from its advisors each year. It is satisfied that PwC provided
credible and professional advice. PwC has provided general and technical remuneration services in relation to employees below Board and Group
Executive Committee level that include broad-based employee reward support and data assurance services. In addition, Willis Towers Watson
(WTW) provided benchmarking support to the Committee in the year and incurred fees of £26,100.
The Committee considers the views of the Chair on the performance and remuneration of the Chief Executive, and of the Chief Executive on the
performance and remuneration of the other members of the Group Executive Committee. The Committee is also supported by the Group General
Counsel & Company Secretary, and either she or her delegate acts as Secretary to the Committee; the Chief People & Culture Officer; the Group
Head of Reward; and, as required, the Chief Financial Officer, the Group Head of Pensions and Group Financial Controller.
Voting on the Policy and the Directors’ Remuneration Report at the 2022 AGM
2022 Policy
Directors’ Remuneration Report 2021/22
For
93%
Against 7%
For
95%
Against 5%
Notes:
1. The Directors’ Remuneration Policy voting figures shown refer to votes cast at the 2022 AGM and represent 66.28% of the share capital. In addition, shareholders holding 42.6 million
shares abstained.
2. The Directors’ Remuneration Report voting figures shown refer to votes cast at the 2022 AGM and represent 66.28% of the issued share capital.
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Directors’ Remuneration Report continued
Implementation of the Policy for 2023/24 continued
Implementation of the Policy for 2023/24
The 2022 Policy, which was approved at the 2022 AGM, will be implemented during 2023/24 as outlined below:
Salary and pensions
Salary increases for the Executive Directors will be below the increase awarded to the UK wider workforce. Higher salary increases may be awarded
for a change in responsibility. Additionally, in line with the Policy on recruitment remuneration, salaries for new Directors may be set below market
level initially and aligned to market level over time (provided the increase is merited by the individual’s contribution and performance).
John Pettigrew and Andy Agg will be awarded salary increases of 4.0%, effective from 1 July 2023.
John Pettigrew
Andy Agg
From 1 July 2023
£1,136,200
£747,800
From 1 July 2022
£1,092,500
£719,000
% increase
4.0%
4.0%
The pension contribution for all Executive Directors is in line with the pension contribution rates for the UK wider workforce and new joiners at 12%.
2023/24 APP
The 2023/24 APP measures will be split across financial measures, operational measures and individual objectives, weighted 70%, 15% and 15%
respectively. The maximum APP award for both the Executive Directors for 2023/24 is 125% of basic salary, in line with the Policy.
Financial measures
Measure
Underlying Group EPS
Group RoE
Operational measures
Colleague: Group ‘Delivering Results’ index
Customer: Group customer satisfaction index
DEI: Gender and ethnic diversity of senior managers and above and of new joiners
Individual objectives
Denotes an ‘alternative performance measure’ as described on page 14
Weighting
35%
35%
5%
5%
5%
15%
Financial measures
Following the extensive review of measures as part of the Policy review, Underlying EPS and Group RoE have been retained as financial measures
for the 2023/24 APP. Group RoE remains a relevant and key measure of performance as a primarily regulated asset-based company and targets are
set to ensure strong in-year returns and operational results. Underlying EPS remains the most appropriate APP earnings measure for the business
and the targets consider specific challenges and opportunities in the year ahead and are flexed accordingly whilst remaining consistent with our
longer-term performance goals. Financial APP targets are considered commercially sensitive and consequently will be disclosed retrospectively
in the 2023/24 Directors’ Remuneration Report.
Operational measures
The 2023/24 APP operational measures are designed to incentivise key annual priorities aligned to the Group’s strategy as a responsible business
and broader ESG goals and are weighted equally across three key measures focused on customers, colleagues and DEI. Operational measures will
be assessed against quantitive targets for threshold, target and stretch performance and then reviewed on a qualitative basis to reflect a balanced
assessment of performance.
The Group customer satisfaction index is an equally weighted index of quantifiable and predominantly externally measured customer satisfaction
scores across each of the business units. The customer measure reflects the strategic importance on delivering safe, reliable, resilient and affordable
energy to customers whilst also ensuring operational excellence. The colleague ‘Delivering Results’ index quantitatively assesses our annual
Group-wide employee engagement survey of colleagues and will align with our major delivery programmes. The DEI measure this year continues
to be a quantifiable target and will focus on the overall gender diversity and ethnic diversity of senior managers and above as well as new entrants
to the workforce. The intention is to improve the overall gender and ethnic diversity at specific layers to support the delivery of the Group’s strategy.
Individual objectives
The Committee has approved individual objectives for the Executive Directors in line with key strategic and operational priorities for the year ahead.
John Pettigrew’s individual objectives for 2023/24 are focused on: 1) achieving greater clarity on future transmission and related investment in the
UK in support of net zero; 2) advancing a framework of agreement on the future of natural gas in the US and 3) continuing to develop leaders for
the future. Andy Agg’s individual objectives are focused on: 1) ensuring the financing strategy is well understood with strong investor support; 2)
establishing key relationships with our suppliers to facilitate time and cost-effective delivery of capital projects; 3) delivering CFO transformation
roadmap and function capabilities and 4) improving leadership capabilities with a strong diverse talent pipeline.
2023 LTPP
The 2023 LTPP performance measures and weightings for all Executive Directors comprise two equally weighted financial measures totalling 80%
and two equally weighted net zero transition measures with a combined weighting of 20% as outlined in the table below. The maximum 2023 LTPP
award is 350% and 300% of base salary for John Pettigrew and Andy Agg respectively, in line with the Policy.
LTPP targets and performance are measured over the entire three-year performance period, which for the 2023 LTPP is 1 April 2023 – 31 March
2026. The 2022 Policy and the LTPP plan rules apply to the 2023 LTPP awards.
The Committee reviewed whether there was any risk of windfall gains and concluded that there was not material decline in the current share price
to the previous share prices at award grants. Therefore, no adjustment is proposed to the 2023 LTPP award.
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Financial measures
Net zero transition measures
Measure
Cumulative 3 year Underlying Group EPS
Group RoE
National Grid Scope 1 emissions
Denotes an ‘alternative performance measure’ as described on page 14
Enablement of net zero transition: National Grid Scope 2 and 3 emissions and strategic initiatives
Weighting
40%
40%
10%
10%
Financial measures
LTPP financial measures are selected to reflect key drivers of the Group’s longer-term strategy and value creation for shareholders. Given the
primarily regulated and long-term nature of our businesses, earnings growth and sustainable investment returns are important measures of long-term
shareholder value creation. Whilst we recognise our short-term (APP) and long-term (LTPP) financial measures are similar, we believe these are the
right measures to deliver both short- and long-term business strategy, long-term efficient asset growth and shareholder value.
As such, the 2023 LTPP financial measures are designed to incentivise different elements of performance over the long-term as compared with the
short-term. Specifically in LTPP, Group RoE is averaged across the three-year performance period to incentivise sustainable returns for shareholders
in the longer term. Similarly, the cumulative three-year Underlying Group EPS measure assesses Underlying EPS for the three years in the LTPP
performance period.
As part of approving the 2023 LTPP performance range for the Financial measures, more specifically the Underlying EPS, the Committee carefully
considered the impact of the changes in UK Capital Allowances announced by the UK Chancellor in March 2023. This is expected to reduce our
cash tax payments to HMRC, but is not expected to directly reduce our overall accounting tax charge, with the lower cash tax paid being offset by
a corresponding increase in deferred tax liabilities. However, because our UK regulated businesses’ revenues include a tax allowance, the increased
tax relief from higher capital allowances would result in lower cash tax paid and therefore lower allowed revenues. This is expected to have
a significant adverse impact on our UK regulatory businesses’ reported underlying results (i.e. no change to the overall tax charge, but lower
revenues) from 2023/24 to 2025/26, despite this change being economically neutral to National Grid. More details on the earnings impact can
be found on page 65.
It was within this context that the Committee approved the 2023 LTPP targets in respect of Underlying EPS. The 2023 LTPP Underlying EPS targets
have been set in line with the Company’s five-year investor frame of delivering EPS growth of 6-8% CAGR.
The Committee also noted that the change in UK Capital Allowances have a similar impact on the performance range of the 2022 LTPP (approved
in May 2022), more specifically the forward looking two year period of the Cumulative Underlying EPS metric (for the years ending 31 March 2024
and 31 March 2025 respectively). The Committee agreed to review the options to reflect this later in the year.
The Committee also noted that the UK Capital Allowances change does not impact the Group RoE performance range due to the treatment of tax
allowances within that calculation. However, the performance range for the 2023 LTPP in respect of Group RoE has been amended to reflect the
impact of higher indexation on the denominator used in the calculation. The LTPP Underlying EPS measure will not be subject to the technical
adjustments made in the annual Group EPS measure.
Below are the performance ranges for the financial measures in the 2023 LTPP.
Performance conditions
Performance measures
Cumulative three-year Underlying Group EPS
Group RoE
Weighting
40%
40%
Threshold
20% vesting
201p
8.25%
Maximum
100% vesting
219p
9.50%
Notes: Vesting between threshold and maximum will be on a straight-line basis. Underlying EPS growth reflects the cumulative summation of the Underlying EPS results for each of the
three years in the performance period: 2023/24, 2024/25 and 2025/26.
Net zero measures
The net zero transition measures continue to set out targets and outcomes to achieve: (1) reductions in the Company’s direct Scope 1 emissions
and (2) enable the broader net zero energy transition.
The reduction of Scope 1 emissions target is a cumulative measure aligned to meet our 2030 emissions target. Our 2030 emissions targets have
been SBTi validated and are aligned to a well below 2ºC pathway. There has been no change to the underlying methodology and the Scope 1
reduction target continues to exclude the Long Island Power Authority (LIPA) generation asset emissions as management does not have direct
control over decisions to run the assets. Broader considerations and actions regarding the longer term for LIPA have been incorporated into the
second measure as part of enabling the net zero transition.
Performance measures
Reduction of National Grid Scope 1 emissions
Weighting
10%
Threshold
20% vesting
-77 ktCO2e
Maximum
100% vesting
-127 ktCO2e
The second measure reflects National Grid’s role in enabling the net zero transition to a carbon neutral future by 2050. This measure will continue
to assess delivery against key net zero strategic priorities and quantified outcomes that underpin the Group’s strategy to enable a net zero future
by 2050. The four key areas of focus remain: (1) US energy-efficiency programmes and generation; (2) UK net zero transmission strategy including
interconnectors and transmission investment to connect offshore wind; (3) US future of gas strategy, including the transition to renewable natural gas
(RNG), hydrogen and hybrid/electrification of heat; and (4) low-carbon electricity distribution investment in line with government and regulatory plans.
The measure has been updated to add more quantifiable targets to the strategic initiatives and to ensure it reflects a 2023 – 2026 trajectory.
Assessment of this measure will be based on a four-point scale (not met, partially achieved, achieved and over-achieved) based on delivery of
quantifiable and qualitative outcomes to reflect a balanced assessment of performance.
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Directors’ Remuneration Report continued
Implementation of the Remuneration Policy for 2023/24 continued
Fees for Non-executive Directors
Non-executive Director fees were reviewed in May 2023 and will be effective from 1 July 2023 in line with the annual salary review cycle for the
majority of our employees.
Chair
Senior Independent Director
Board fee
Chair Audit & Risk Committee
Chair Remuneration Committee
Chair other Committees (Finance, Safety & Sustainability)
Audit & Risk Committee member
Remuneration Committee member
Other Committee member (Finance, Safety & Sustainability, People & Governance)
From 1 July 2023
(£’000)
From 1 January 2022
(£’000)
% increase vs 2022
700.0
31.2
83.2
35.0
31.2
26.0
23.9
18.7
15.6
700.0
30.0
80.0
31.9
30.0
25.0
23.0
18.0
15.0
0.0%
4.0%
4.0%
9.7%
4.0%
4.0%
4.0%
4.0%
4.0%
Note: For the People & Governance Committee, no fees are paid for the Committee Chair, the Senior Independent Director or the Board Chair. The Chair Audit & Risk fee will be
increased by 9.7% given the increasing complexity with the role and to align fee with the market levels.
The Directors’ Remuneration Report has been approved by the Board and signed on its behalf by:
Ian Livingston
Committee Chair
18 May 2023
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Financial
statements
Directors’ statement and independent auditor’s reports
Note 33 – Borrowing facilities
Note 34 – Subsidiary undertakings, joint ventures and associates
Note 35 – Sensitivities
Note 36 – Additional disclosures in respect of guaranteed securities
Note 37 – Acquisitions
Note 38 – Post balance sheet events
Company financial statements under FRS 101
Basis of preparation
Company accounting policies
Primary statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Note 1 – Fixed asset investments
Note 2 – Debtors
Note 3 – Creditors
Note 4 – Derivative financial instruments
Note 5 – Investments
Note 6 – Borrowings
Note 7 – Share capital
Note 8 – Shareholders’ equity and reserves
Note 9 – Parent Company guarantees
Note 10 – Audit fees
Statement of Directors’ responsibilities
Independent auditor’s report
Consolidated financial statements under IFRS
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated cash flow statement
Notes to the consolidated financial statements
Note 1 – Basis of preparation and recent accounting developments
Note 2 – Segmental analysis
Note 3 – Revenue
Note 4 – Other operating costs
Note 5 – Exceptional items and remeasurements
Note 6 – Finance income and costs
Note 7 – Tax
Note 8 – Earnings per share (EPS)
Note 9 – Dividends
Note 10 – Assets held for sale and discontinued operations
Note 11 – Goodwill
Note 12 – Other intangible assets
Note 13 – Property, plant and equipment
Note 14 – Other non-current assets
Note 15 – Financial and other investments
Note 16 – Investments in joint ventures and associates
Note 17 – Derivative financial instruments
Note 18 – Inventories and current intangible assets
Note 19 – Trade and other receivables
Note 20 – Cash and cash equivalents
Note 21 – Borrowings
Note 22 – Trade and other payables
Note 23 – Contract liabilities
Note 24 – Other non-current liabilities
Note 25 – Pensions and other post-retirement benefits
Note 26 – Provisions
Note 27 – Share capital
Note 28 – Other equity reserves
Note 29 – Net debt
Note 30 – Commitments and contingencies
Note 31 – Related party transactions
Note 32 – Financial risk management
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Statement of Directors’ responsibilities
The Directors are responsible for preparing
the Annual Report and Accounts, including
the Group financial statements and the
Parent Company financial statements
in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors are required to
prepare the Group financial statements in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards
(IFRS) as adopted by the UK. The financial statements also comply with
IFRS as issued by the IASB. In addition, the Directors have elected to
prepare the Parent Company financial statements in accordance
with UK Generally Accepted Accounting Practice (UK Accounting
Standards and applicable law), including FRS 101 ‘Reduced Disclosure
Framework’. Under company law, the Directors must not approve the
accounts unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Parent Company and of the profit
or loss of the Group and Parent Company for that period.
In preparing the Group 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 IFRS are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and financial performance; and
• make an assessment of the Group’s ability to continue as
a going concern.
In preparing the Parent 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.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Parent Company on a consolidated
and individual basis, and to enable them to ensure that the Group
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Parent Company and
its subsidiaries 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
Company’s website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.
Having made the requisite enquiries, so far as the Directors in office at
the date of the approval of this Report are aware, there is no relevant
audit information of which the auditors are unaware and 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.
Each of the Directors, whose names and functions are listed on pages
70 – 71 confirms that:
• to the best of their knowledge, the Group financial statements and the
Parent Company financial statements, which have been prepared in
accordance with IFRS as issued by the IASB and IFRS as adopted by
the UK and UK GAAP FRS 101 respectively, give a true and fair view
of the assets, liabilities, financial position and profit of the Company on
a consolidated and individual basis;
• to the best of their knowledge, the Strategic Report contained in the
Annual Report and Accounts includes a fair review of the development
and performance of the business and the position of the Company on
a consolidated and individual basis, together with a description of the
principal risks and uncertainties that it faces; and
• they consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
This Responsibilities Statement was approved by the Board and signed
on its behalf.
Directors’ Report
The Directors’ Report, prepared in accordance with the requirements
of the Companies Act 2006 and the UK Listing Authority’s Listing Rules,
and Disclosure Guidance and Transparency Rules, comprising pages
1 – 106 and 218 – 260, was approved by the Board and signed on
its behalf.
Strategic Report
The Strategic Report, comprising pages 1 – 65, was approved by the
Board and signed on its behalf.
By order of the Board
Justine Campbell
Group General Counsel & Company Secretary
17 May 2023
Company number: 04031152
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Independent Auditor’s Report
to the members of National Grid plc
Report on the audit of the financial statements
1. Opinion
Parent Company:
• the Company accounting policies;
• the Company balance sheet;
In our opinion:
• the financial statements of National Grid plc (the ‘Parent
Company’) and its subsidiaries (the ‘Group’) give a true and
fair view of the state of the Group’s and the Parent Company’s
affairs as at 31 March 2023 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly prepared
in accordance with United Kingdom adopted International
Accounting Standards and International Financial Reporting
Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
• the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting
Standard 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
Group:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated statement of changes in equity;
• the consolidated statement of financial position;
• the consolidated cash flow statement; and
• the related notes 1 to 38 to the consolidated financial statements.
• the Company statement of changes in equity; and
• the related notes 1 to 10 to the Company financial statements.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law, United
Kingdom adopted International Accounting Standards and IFRSs as
issued by the IASB. The financial reporting framework that has been
applied in the preparation of the Parent Company financial statements
is applicable law and United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 Reduced Disclosure
Framework (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities
for the audit of the financial statements section of our report.
We are independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. The non-audit services provided
to the Group and Parent Company for the year are disclosed in note 4e
to the consolidated financial statements and note 10 to the Company
financial statements. We confirm that we have not provided any
non-audit services that are prohibited by the FRC’s Ethical Standard
to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Materiality
Scoping
The materiality that we used for the Group financial statements was £150 million which represents 5.1% of adjusted profit
before tax (profit before tax from continuing operations, excluding the impact of reported exceptional items and
remeasurements) and 4.2% of profit before tax from continuing operations.
Our scope covered eight components of the Group in addition to procedures performed at the Group level. Of these,
three were subjected to a full-scope audit whilst the remaining five were subject to specific procedures on certain
account balances.
Key audit matters
Our scoping covered 92% of the Group’s revenue; 83% of the Group’s profit before tax; and 89% of the Group’s net assets.
The key audit matters that we identified in the current year were:
• NGED impairment testing of the related goodwill;
• impact of climate change on property, plant and equipment; and
• US environmental provisions.
The following item was identified as a key audit matter in the prior year but not in the current year:
• the acquisition of WPD (rebranded to NGED) has not been deemed to be a key audit matter in the current year as the
acquisition has now been completed alongside the finalisation of the associated exercise to fair value the assets and
liabilities at the date of acquisition. We only consider the NGED goodwill impairment testing to be a key audit matter in
the current year.
US environmental provisions were identified as a key audit matter in the current year. This was due to the increased
estimation uncertainty in determining the future cash flows and discount rate for the environmental remediation provision.
National Grid plc
Annual Report and Accounts 2022/23
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Independent Auditor’s Report
to the members of National Grid plc continued
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern basis of
accounting included:
• assessing the financing facilities including the nature of facilities, repayment terms and covenants;
• testing the clerical accuracy and appropriateness of the model used to prepare the forecasts;
• assessing the assumptions used in the forecasts, including the impact of the current macroeconomic environment;
• assessing management’s identified potential mitigating actions and the appropriateness of the inclusion of these in the going concern assessment;
• assessing the historical accuracy of forecasts prepared by management;
• reading analyst reports, industry data and other external information to determine if it provided corroborative or contradictory evidence in relation
to assumptions used;
• reperforming management’s sensitivity analysis; and
• evaluating the disclosures made within the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention
to concerning the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors concerning going concern are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on; the overall audit strategy, the allocation of resources in the audit and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
5.1 NGED impairment testing of the related goodwill
Key audit matter
description
Goodwill – Impairment Testing of National Grid Electricity Distribution – Refer to notes 1F and 11 to the
financial statements and the Audit & Risk Committee’s discussion on pages 83 to 87.
The National Grid Electricity Distribution (‘NGED’) goodwill balance of £4,721 million (2022: £4,721 million) was tested for
impairment at 31 December 2022. This was performed in line with the requirement under IAS 36 – Impairment of Assets
to perform an impairment review annually. A subsequent assessment of potential impairment indicators was performed
at 31 March 2023.
Management prepared a discounted cash flow model to estimate the value-in-use and compared this to the carrying value;
this indicated there was headroom and accordingly no impairment was recognised. The value-in-use was measured for the
combined NGED Cash-Generating Units to which the goodwill relates (the ‘Goodwill CGU’), and the calculation was derived
from multiple inputs to the model. These inputs include the following areas of complexity:
• Discount rate inputs – Management utilised a nominal pre-tax discount rate of 5.6%. The discount rate should reflect
the return required by the market and the risks inherent in the cash flows being discounted and accordingly should be
independent of the actual capital structure of the business being assessed. Identification of appropriate inputs for the
discount rate calculation requires significant judgement in the current macro-economic environment, and a failure to
apply a reasonable discount rate methodology when determining the discount rate inputs could lead to a material
misstatement of goodwill. Further, judgement is required when determining an appropriate company specific risk
premium, including consideration of the level of risk adjustment reflected in the underlying cash flows.
• Total expenditure (‘totex’) forecasts – The model used for the impairment test leverages the cash flow forecasts
which extend to 2050 with the terminal value then applied. This longer forecast period exceeds that required under
IAS 36, and includes negative cash flows for a number of years, due to the level of totex required to reinforce the
networks to meet expected electricity demand and comply with the Group’s licence conditions. The future forecast
expenditure reflects the future electrification of the network, with increased demand for Low-carbon Technologies
(‘LCTs’) including electric vehicles and heat pumps, which will also require more connections on the distribution network.
There are a number of potential pathways for the energy transition to 2050 with varying extents and timings for the
incremental electricity demand leading to greater uncertainty in the level of future totex required. Thus, significant
judgement must be applied when forecasting the future cash flows.
The impairment test of the NGED Goodwill CGU involved significant assumptions, particularly those mentioned above.
Auditing these assumptions required a high degree of auditor judgement, including the need to involve more senior
members of the team and several valuations specialists.
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How the scope of our
audit responded to
the key audit matter
We tested the effectiveness of controls over management’s impairment review of the NGED business. In addition,
we conducted the following substantive procedures.
Discount rate inputs
• We engaged our valuation specialists to assess the reasonableness of the discount rate inputs and the methodology
applied. Our specialists developed an independent range for a reasonable discount rate using relevant third-party market
and peer data for the NGED business. We compared management’s calculated rate to our reasonable range.
• We challenged the company specific risk premium in the context of the risk adjustments and contingencies included
in the underlying cash flow assumptions.
• We challenged and independently assessed the disclosures around the discount rate in notes 1F and 11 to the
financial statements.
Totex forecasts
• We compared the projected totex to historical information observed in ED1 and the allowances set by Ofgem as part
of the ED2 final determinations.
• We understood the underlying inputs used by management and its external expert in developing the forecast totex
from ED3 onwards. We engaged our industry specialists to challenge these inputs and forecasts by benchmarking the
assumptions against third-party and relevant industry publications to inform our assessment of the nature, timing and
extent of the expected electrification in the UK. Some examples of industry publications include those obtained from
the Department for Business, Energy & Industrial Strategy (‘BEIS’) such as the ‘Electricity network strategic framework’
(‘ENSF’) and ‘Modelling 2050: Electricity system analysis’ (‘ESA’).
• We evaluated the competence, capabilities and objectivity of the third-party industry experts used by management
to develop the totex forecasts including through direct discussion.
Other
• We assessed whether the impairment methodology including the duration of the cash flows applied by management
was acceptable under IFRS and tested the integrity and mechanical accuracy of the impairment model with the
assistance of our valuation specialists.
• We assessed whether management’s impairment forecasts are consistent with other forecasts used by management,
including the going concern model.
• With the assistance of our climate specialists, we assessed whether management’s forecasts are consistent overall
with the Group’s own-stated climate commitments.
• We evaluated all changes to key assumptions between the prior year impairment review and the current year’s review,
and challenged whether market conditions in the current year had been appropriately considered in the assumptions.
• We challenged management’s assessment of potential impairment indicators as described in IAS 36 at 31 March 2023.
• We challenged management’s disclosures in notes 1F and 11 for compliance with the disclosure requirements described
in IAS 36.
Key observations
Our testing confirmed that relevant controls over management’s impairment test of the NGED Goodwill CGU were designed
and operating effectively.
Ofgem issued the final ED2 price control determinations which are effective from 1 April 2023 to 31 March 2028.
Management’s forecasts reflect and assume a continuation of the principles applied in ED2 for the future regulatory
price controls to 2050. However, should there be a significant change in the stability of the regulatory model that governs
the performance of electricity distribution operators, this could create a risk of impairment, as set out in note 11 to the
financial statements.
Discount rate
Management’s pre-tax discount rate of 5.6% is within the reasonable range determined by our specialists. We agree
with the methodology applied in light of current macroeconomic conditions.
Totex forecasts
For the purpose of the impairment test, management has used forecasts for totex which we consider represent
a reasonable view of the extent of expected electrification in targeting net-zero when compared with a range of scenarios
in the public domain.
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Independent Auditor’s Report
to the members of National Grid plc continued
5.2 Impact of climate change on property, plant and equipment
Key audit matter
description
Property, plant and equipment – the impact of climate change on US gas assets – refer to notes 1F and 13
to the financial statements and the Audit & Risk Committee’s discussion on pages 83 to 87.
The US have enacted legislation and established targets in respect of net zero carbon emissions by 2050. Accordingly,
climate change represents a strategic challenge for the Group, which has also set targets for reducing greenhouse gas
emissions by the same date.
Natural gas, when burned, emits carbon dioxide and is considered a greenhouse gas. Therefore, the strategic challenge
relates to the potential future use of the Group’s gas assets, which are used to facilitate gas distribution services in the
period approaching 2050 and beyond. Particular focus is on the useful economic lives of the National Grid Group’s gas
assets in the US which are up to 80 years, extending well beyond the 2050 net zero commitment date.
As described in note 13 to the financial statements, the impact of changing the useful economic lives of the gas assets
in the US, such that they would be fully depreciated by 2050, would be an increase in the annual depreciation expense
of £239 million.
As the continued use of natural gas as a primary energy source beyond 2050 appears to be in conflict with net zero targets
and the impact of shortening the useful lives of the gas assets to 2050 has a material impact on annual depreciation, there
is a risk that management judgements taken to determine the useful lives of US gas assets in the context of net zero
commitments are not reasonable.
The Group announced in April 2022 its Clean Energy Vision (‘CEV’) to eliminate fossil fuels from its gas and electric systems
in New York state and Massachusetts by 2050, by decarbonising the gas network through the use of renewable natural gas
(‘RNG’) and green hydrogen.
Both New York and Massachusetts, the largest states in which the Group operates, announced non-legally binding
climate action plans. The New York Scoping Plan targets 85% of homes and commercial building space in New York being
electrified by 2050. The Massachusetts Clean Energy and Climate Plan for 2025 and 2030 (‘CECP’) targets a high use of
electrification including widespread deployment of heat pumps for buildings. Both plans envisage moderate demand for
RNG and hydrogen in 2050.
Although there are uncertainties around the sufficiency of RNG supply and the use of hydrogen for home heating as
they are early-stage technologies, management is of the view that a hybrid electric-gas heating system approach will
be a practical and achievable pathway to meet the state and regional decarbonisation goals. Management’s CEV, which
will require legislative and regulatory support to implement, proposes a hybrid approach that management considers
the most economically and technically viable home heating approach reflecting the climate and housing stock in the
states in which it operates.
This hybrid approach would mean there would be a need for the Group’s US gas assets in the long term and hence
management’s judgement is that the regulatory lives of US gas assets continue to be considered as the best estimate
of their useful economic lives.
Management disclosed a key judgement in relation to the potential future use of the US gas assets post-2050 and
disclosure of the gas asset lives as a key estimate along with disclosure of sensitivity analysis.
We have identified the estimated useful lives of the Group’s gas distribution assets in the US as a key audit matter due
to the significance of the judgement involved.
We tested the effectiveness of controls over management’s assessment and disclosure of the potential impacts associated
with the energy transition and climate change.
With the assistance of our sustainability specialists, we challenged the appropriateness of the useful lives of the US gas
assets, including management’s judgement that it is probable they will extend beyond 2050 in light of the different goals,
commitments and legislation relating to net zero in the US states in which the Group operates by:
• understanding management’s CEV and other potential strategic pathways to achieve net zero targets in New York
and Massachusetts;
• obtaining and reading key federal and state policy announcements for achieving net zero including those set out below
and evaluating the extent to which they were consistent or contradictory to management’s CEV:
• The Massachusetts Clean Energy and Climate Plan (issued in December 2022)
• National Grid New York Climate Leadership and Community Protection Act Study (issued in February 2023)
• Future Energy Scenarios 2022, published by the Electricity System Operator (issued in February 2023)
• The New York State Climate Action Council Scoping Plan (issued in December 2022);
• obtaining and reading third-party engineering and technical studies to assess the relative costs and viabilities of the
different pathways and technologies proposed, including the technical feasibility of management’s plans by considering
the readiness for hydrogen blending with other gases across both transmission and distribution networks and the
scalability of RNG supply;
• discussing with Deloitte specialists in other countries regarding the suitability of existing gas infrastructure for
transporting hydrogen across gas assets as well as the potential cost effectiveness of green hydrogen and considering
the impact on management’s CEV;
• evaluating correspondence from the Group’s regulators, including rate cases in the US, to consider whether they
presented any contradictory evidence; and
• assessing the disclosures set out in note 1F to the financial statements and the sensitivity analysis set out in note 13 to
the financial statements regarding the useful economic lives of the Group’s gas assets, for compliance with the
disclosure requirements of IAS 1 – Presentation of Financial Statements.
How the scope of our
audit responded to
the key audit matter
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Key observations
• Our testing confirmed that the relevant controls over management’s assessment of the impact of the energy transition
and climate change were designed and operating effectively.
• Management’s best estimate of the useful economic lives of US gas assets, across all states in which it operates, is
based on the depreciable lives identified through engineering depreciation studies for each asset which are approved
by the respective state regulator. Accordingly, the IFRS asset depreciable lives are identical to those agreed by the
Group’s regulators for regulatory purposes.
• We observe that whilst some indicators do exist suggesting that the useful economic lives of the Group’s US gas
assets may be limited to 2050, these are contradicted by other policy statements and technical studies which suggest
electrification alone is not the most economically and technically viable solution and therefore gas distribution assets
in the US, will continue to have a role beyond 2050.
• We note that whilst state energy policy in the US states in which the Group operates is codified by the legislature, it is
the regulators who are charged with implementing state energy policies. We concluded it was reasonable to assume
that there will be a valuable use for the Group’s US gas assets beyond 2050 and in the absence of any determination
by the Group’s regulators, it continues to be reasonable to use the regulatory asset lives for the calculation of
depreciation in accordance with IFRS.
• We consider the disclosures in note 1 to the financial statements and the sensitivity analysis in note 13 to the financial
statements to be appropriate. We are satisfied that management’s other disclosures in the Annual Report and
Accounts relating to the uncertainty surrounding the future use of the Group’s gas assets are consistent with the
financial statements and our understanding of the business.
5.3 US environmental provisions
Key audit matter
description
US environmental provisions – Refer to notes 1F, 26 and 35 to the financial statements and the Audit & Risk
Committee’s discussion on pages 83 to 87.
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At 31 March 2023 the Group has £1,891 million (2022: £1,877 million) of environmental provisions, of which £1,768 million
(2022: £1,725 million) are in the US and £123 million (2022: £152 million) are in the UK. The Group’s environmental provisions
relate to a number of sites owned and managed by the Group together with certain US sites which are no longer owned.
In the US, the provision is in respect of 221 sites which vary in the level of remediation performed to date and remaining
remediation required. Of the total US environmental provisions of £1,768 million, more than half relates to three former sites
which were identified by the Environmental Protection Agency (EPA) as sites of significant contamination (Superfund sites).
The EPA, and additional environmental agencies at the state level, have the authority to force the parties responsible for the
contamination of these sites either to perform remediation works or reimburse the government for work led by the EPA.
Environmental provisions are calculated based on management’s best estimate of the cash flows that will be required,
discounted at a real discount rate, calculated based on the US government bond yield curve and the weighted average
life of the provisions. There are a number of estimation uncertainties across all of the sites, including the Superfund sites.
The Superfund sites are particularly complicated because of their size, the number of parties involved and the stage of
remediation the projects are at. The uncertainties that exist in relation to these sites include:
• the impact of changes in regulation or the environmental agencies’ interpretation and implementation of the regulations;
• the extent of contamination identified and modelled from ongoing exploratory works;
• the form, timing, extent and associated cost of remediation needed;
• the methods and technologies used in remediation;
• the allocation of responsibility for remediation; and
• the discount rate applied to the forecast cash flows.
In the current year, additions of £142 million have been recorded, predominantly relating to a number of other higher
risk US sites. We determined that the estimation of the discounted cash outflows was the most significant and sensitive
estimate to a change in reasonably possible outcomes for the total US environmental provision.
Management is required to make judgements in selecting an appropriate discount rate which reflects changes in US
treasury rates as current market assessments of the time value of money. The Group increased the real discount rate
applied to the undiscounted cash flows from 0.5% in the prior year to 1.5% for US provisions to reflect the substantial
and sustained change in US government bond yield curves. As described in note 35, changes to the discount rate
applied could have a material impact on the provision balance in the next year.
We have identified the US environmental provisions as a key audit matter due to the complexities in estimating the
future cost of remediation and the judgement involved in the determination of the discount rate applied.
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How the scope of our
audit responded to
the key audit matter
We tested the effectiveness of controls over management’s compilation of forecast cash flows and determination of the
discount rate.
With regard to the estimated cash outflows:
• we performed detailed risk assessments to categorise US sites based on size and the level of estimation uncertainty;
• with respect to higher risk sites, we agreed the proposed remediation activities and associated timing to technical
engineering studies and remediation plans agreed with the environmental agencies where available. The associated
costings of these activities were agreed to third-party contracts and other benchmarks. We utilised our environmental
specialists to assist us in evaluating management’s key assumptions;
• in order to assess the completeness of the year end liabilities we completed public domain searches on federal
databases across all Group subsidiaries to determine whether any relevant costs or applicable sites were omitted.
We further checked for the latest regulatory changes at the federal and local level and precedent from remediation
plans recently agreed with the environmental agencies, to determine any indication of changing requirements;
• at selected sites, we evaluated the results of ongoing environmental testing for potential non-compliance or evidence
that the existing or planned remediation activities would require revision or enhancement;
• we read relevant correspondence and meeting minutes with the environmental agencies, using our specialists
to evaluate management’s position where significant estimation of uncertainty exists;
• we considered information obtained from the Group’s internal legal counsel in our evaluation of the recorded
provisions; and
• we performed additional procedures on one site with ongoing uncertainty around the allocation of responsibility.
Specifically relating to the judgement over the estimated allocation of total remediation costs, we made enquiries of the
US internal legal counsel and obtained analysis directly from external legal counsel to understand any potential changes
to the previously determined positions. We enquired of the Group’s external legal counsel to provide views regarding
the Potentially Responsible Party (‘PRP’) allocation. We evaluated settlements in the period with PRPs and compared
the results to their assumed shares. We evaluated publicly available financial statement information and disclosures for
a selection of PRPs to identify contradictory evidence in their share percentage and test financial viability. We assessed
the extent to which there is evidence obtained demonstrating that the allocations will be substantially followed by
all parties.
We challenged the methodology that management has adopted for calculating the discount rate with the support of our
valuation specialists. In addition, we independently calculated an appropriate discount rate range and used this to assess
management’s rate.
Key observations
We assessed management’s disclosures in notes 1F, 26 and 35.
Our testing confirmed that the relevant controls over the compilation of forecast cash flows and the determination of the
discount rate were designed and operating effectively.
We found the provisioning assumptions associated with the tested sites to be reasonable, including the US Superfund
sites. In respect of the US Superfund sites we are satisfied that management’s estimate of the proportion of costs expected
to be allocated to the Group are within our independently calculated range.
We consider the increase in real discount rates from 0.5% to 1.5% applied to be reasonable based on the movement in
treasury yields.
We noted that the assumptions and judgements that are required to formulate the provisions mean that the range of
possible outcomes is broad, hence it is appropriate for management to disclose the key estimation of uncertainty and the
sensitivity of the judgments they applied. We are satisfied that the Group’s disclosures of the key estimation of uncertainty,
related contingent liabilities, and sensitivities, are reasonable.
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
The basis for
determining
materiality
Group financial statements
£150 million (2022: £135 million)
Our determined materiality represents 5.1% (2022: 4.7%)
of adjusted profit before tax from continuing operations
and 4.2% (2022: 3.9%) of profit before tax from
continuing operations.
Adjusted profit before tax is profit before tax, exceptional
items and remeasurements as disclosed in the consolidated
income statement. Prior year materiality was determined
on a similar basis.
Parent Company financial statements
£150 million (2022: £135 million)
We determined materiality for our audit of the Parent
Company financial statements using 0.92% of net assets
(2022: 0.83%). The increase in materiality is in part a result
of net assets increasing in the current year. In addition,
we decided to cap the Parent Company materiality with
Group materiality.
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The rationale for the
benchmark applied
We consider adjusted profit before tax to be an important
benchmark of the performance of the Group. We consider
it appropriate to adjust for exceptional items and
remeasurements as these items are volatile and not
reflective of the underlying performance of the Group.
We conducted an assessment of which line items we
understand to be the most important to investors and
analysts by reviewing analyst reports and National Grid’s
communications to shareholders and lenders, as well as
the communications of peer companies. This assessment
resulted in us considering the financial statement line
items above.
Profit before tax is the benchmark ordinarily considered by
us when auditing listed entities. It provides comparability
against other companies across all sectors but has
limitations when auditing companies whose earnings are
impacted by items which can be volatile from one period
to the next, and therefore may not be representative of the
volume of transactions and the overall size of the business
in a given year, or where the impact of volatility may result
in the recognition of material income or charges in
a particular year.
Whilst not an IFRS measure, adjusted profit is one of the key
metrics communicated by management in National Grid’s
results announcements. It excludes some of the volatility
arising from changes in fair values of financial assets and
liabilities as well as exceptional items. It was also the key
measure applied in the prior year.
£2,335m
Adjusted profit before tax
from continued operations
Group materiality
Group materiality
£150m
Component
materiality range
£24m to £105m
Audit Committee
reporting threshold
£7.5m
As the Company is non-trading, operates as a holding
company for the Group’s trading entities, and is not profit
orientated, we believe the net asset position is the most
appropriate benchmark to use.
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6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
70% (2022: 70%) of Group materiality.
Parent Company financial statements
70% (2022: 70%) of Parent Company materiality.
Consistent with the prior year, we have set this at 70%
of materiality.
In determining performance materiality, we considered the following factors:
Consistent with the prior year, we align performance
materiality with the Group performance materiality.
• our cumulative experience from prior year audits;
• the level of corrected and uncorrected misstatements identified;
• our risk assessment, including our understanding of the entity and its environment; and
• our assessment of the Group’s overall control environment.
We also considered the level of change in the business from the prior year.
6.3 Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £7.5 million (2022: £6.75 million),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit & Risk
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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7. An overview of the scope of our audit
7.1 Identification and scoping of components
Our audit was scoped by obtaining an understanding of the Group and its environment and assessing the risks of material misstatements at the
Group level. We used data analytics tools and specialists to help inform our understanding of the business, identify key risk areas and evaluate the
level of audit coverage required.
The UK Electricity Transmission, UK Electricity Distribution and US Regulated (comprising the New York and New England business units)
components were subject to a full-scope audit, completed to the individual component materiality levels set out below.
In addition to the above components subject to full scope audit procedures by the component teams, we have identified five other business units
which form part of National Grid Ventures and Other, where we consider there to be a reasonable possibility of material misstatement in specific items
within the financial statements: National Grid Electricity System Operator, UK Gas Transmission, National Grid Ventures UK, National Grid Ventures US
(including GENCO) and National Grid Partners. Accordingly, we have directed component auditors to perform specific audit procedures in relation to
material account balances and analytical procedures on the respective income statements and statements of financial position for these components.
Business unit
UK Electricity Transmission
US Regulated (comprising New York and New England)
UK Electricity Distribution
National Grid Electricity System Operator
UK Gas Transmission
National Grid Ventures UK
National Grid Ventures US (including GENCO)
National Grid Partners
In addition to the work performed at a component level, the Group audit team performed audit procedures on the Parent Company financial
statements, including but not limited to corporate activities such as treasury as well as on the consolidated financial statements themselves, including
entity-level controls, the consolidation, financial statement disclosures and risk assessment work on components not included elsewhere in the
scope of our audit. The Group audit team also performed analytical reviews on out-of-scope components, co-ordinated the work in connection
with the impact of climate change on the useful lives of the Group’s gas assets and performed certain procedures on key areas, such as the NGED
goodwill impairment and environmental provisions, where audit work is performed by both the Group and component audit teams.
Audit scope
Full scope audit
Full scope audit
Full scope audit
Audit of specified account balances
Audit of specified account balances
Audit of specified account balances
Audit of specified account balances
Audit of specified account balances
Component materiality
£58 million
£105 million
£58 million
£42 million
£53 million
£58 million
£58 million
£40 million
The scope and risk assessment of our audit is broadly consistent with the prior year and our audit coverage of ‘Revenue’, ‘Profit before tax’ and
‘Net assets’ is materially the same as in the prior year.
Revenue
Profit before tax
Net assets
Full audit scope
92%
Specified audit procedures 1%
Review at Group level
7%
Full audit scope
83%
Specified audit procedures 0%
Review at Group level
17%
Full audit scope
89%
Specified audit procedures 5%
Review at Group level
6%
7.2 Our consideration of the control environment
Our audit approach was generally to place reliance on management’s relevant controls of overall business cycles affecting in scope financial
statement line items. We tested controls through a combination of tests of inquiry, observation, inspection and re-performance.
In some circumstances where controls were deficient and there were not sufficient mitigating or alternative controls we could rely on, we adopted
a non-control reliance approach. All control deficiencies which we considered to be significant were communicated to the Audit & Risk Committee.
All other deficiencies were communicated to management. For all deficiencies identified, we considered the impact and updated our audit
plan accordingly.
The Group’s financial systems environment relies on a high number of UK and US applications. In the current year, we identified 45 IT systems
as relevant to the audit. These systems are all directly or indirectly relevant to the entity’s financial reporting process.
We planned to rely on the General IT Controls (GITCs) associated with these systems, where the GITCs were appropriately designed and
implemented, and these were operating effectively. To assess the operating effectiveness of GITCs, our IT audit specialists performed testing
on access security, change management, data centre operations and network operations.
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7.3 Our consideration of climate-related risks
Climate change impacts National Grid’s business in several ways as set out in the Strategic Report on page 21 of the annual report and note 1
of the financial statements on page 129. It represents a key strategic consideration of management.
We reviewed management’s climate change risk assessment and evaluated the completeness of identified risks and the impact on the financial
statements. We also considered the impact of climate change in our risk assessment procedures. Management’s assessment included an overview
of the legislative changes in the US, key developments post COP26 and an evaluation of the possible future use of National Grid’s US gas assets
in a net zero carbon energy system. Both management’s and our risk assessment identified the useful economic lives of the gas assets in the US,
as the key risk as described in note 13 to the financial statements and in the Audit & Risk Committee report (page 84). Our response to this risk
is documented in our Key Audit Matter on pages 110 – 114.
In addition to the procedures in respect of the Key Audit Matter mentioned above, with the involvement of our climate change specialists we:
• made enquiries to senior management to understand the potential impact of climate change risk including physical risks to producing network
assets, the potential changes to the macro-economic environment and the potential for the transition to a low carbon environment to occur
quicker than anticipated;
• read the climate-related statements made by management (as disclosed in ‘The Environment’ section of the ‘Our commitment to being
a responsible leader’ in the Strategic Report) and considered whether these were in line with our understanding of managements approach
to climate change and the narrative reporting was in line with financial statements and the knowledge obtained throughout the audit;
• read the Task Force on Climate-related Financial Disclosures (TCFD) and considered if any of the information disclosed was inconsistent with the
information we obtained through our audit; and
• read and considered external publications by recognised authorities on climate change such as the International Energy Agency’s World Energy
Outlook amongst others.
7.4 Working with other auditors
The Group audit team are responsible for the scope and direction of the audit process and provide direct oversight, review and coordination of our
component audit teams.
As each of the financially significant components maintains separate financial records, we have engaged component auditors from the Deloitte
member firms in the US or the UK to perform procedures at these components on our behalf. This approach allows us to engage local auditors who
have appropriate knowledge of local regulations to perform this audit work. We issued detailed instructions to the component auditors and directed
and supervised their work.
We interacted regularly with the component Deloitte teams during each stage of the audit and reviewed key working papers. We maintained
continuous and open dialogue with our component teams in addition to holding formal meetings to ensure that we were fully aware of their progress
and the results of their procedures.
Our oversight of component auditors focused on the planning of their audit work and key judgements made. In particular, our supervision and
direction focused on the work performed in relation to key estimates and judgements made by management. As part of our monitoring of component
auditors, we participated in key local audit meetings.
The senior statutory auditor and other Group audit partners conducted visits to meet in person with the component teams responsible for the full
scope locations, which was supplemented by procedures performed remotely throughout the year. Their involvement included attending planning
meetings, discussing the audit approach and any issues arising from the component team’s work, meetings with local management and reviewing
key audit working papers on higher and significant-risk areas to drive a consistent and high-quality audit. The level of involvement of the lead audit
partner and the Group audit team in the component audits has been extensive and we are satisfied that it has enabled us to conclude that sufficient
appropriate audit evidence has been obtained in support of our opinion on the Group financial statements as a whole.
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8. Other information
The other information comprises the information included in the Annual Report, other than the financial
statements and our auditor’s report thereon. The Directors are responsible for the other information contained
within the Annual Report.
We have nothing to report
in this regard.
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.
9. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken based on these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies,
key drivers for Directors’ remuneration, bonus levels and performance targets;
• the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was approved by the Audit & Risk
Committee on 21 March 2023;
• results of our enquiries of management, internal audit, and the Audit & Risk Committee about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• the matters discussed among the engagement team and our specialists regarding how and where fraud might occur in the financial statements
and any potential indicators of fraud. The engagement team includes partners and staff who have extensive experience working with companies
in the same sectors as National Grid operates, and this experience was relevant to the discussion about where fraud risks may arise. Fraud
specialists also advised the engagement team of fraud schemes that had arisen in similar sectors and industries and they participated in the
initial fraud risk assessment discussions.
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11.1 Identifying and assessing potential risks related to irregularities continued
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override
of controls.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws and
regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the UK Companies Act, Listing Rules, pensions legislation, tax legislation, UK Corporate Governance Code,
IFRS as issued by the IASB, United Kingdom adopted international accounting standards, FRS 101, as well as the US Securities Exchange Act 1934
and relevant SEC regulations, as well as laws and regulations prevailing in each country which we identified a full scope component.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the Group’s operating licences and
environmental regulations.
11.2 Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance with laws
and regulations.
Our procedures to respond to the risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit & Risk Committee and in-house legal counsel concerning actual and potential litigation and claims;
• obtaining confirmations from external legal counsel concerning open litigation and claims;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with relevant
regulatory authorities; and
• testing the design of the entity-level controls, particularly in respect of the whistleblowing process.
In addressing the risk of fraud through management override of controls our procedures included:
• working with our forensic specialists to perform detailed audit procedures on business transactions with high-risk individuals and companies;
• making enquiries of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing
of journal entries and other adjustments;
• using our data analytics tools, we selected and tested journal entries and other adjustments which were either made at the end of a reporting
period or which identified activity that exhibited certain characteristics of audit interest;
• assessing whether the judgements made in making accounting estimates are indicative of a potential bias;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud; and
• considering whether any significant transactions are outside the normal course of business, or that otherwise appear to be unusual due
to their nature, timing or size.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams. We remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
National Grid plc
Annual Report and Accounts 2022/23
119
Independent Auditor’s Report
to the members of National Grid plc continued
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed
14. Matters on which we are required
by the Companies Act 2006
to report by exception
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with 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 light of the knowledge and understanding of the Group and the
Parent Company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the
Strategic Report or the Directors’ Report.
13. Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation
to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group’s compliance with the
provisions of the UK Corporate Governance Code specified for
our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 127;
• the directors’ explanation as to its assessment of the Group’s
prospects, the period this assessment covers and why the
period is appropriate set out on pages 25 – 27;
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
We have nothing
to report in respect
of these matters.
• we have not received all the information and
explanations we require for our audit; or
• adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements
are not in agreement with the accounting
records and returns.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if, in our opinion, certain
disclosures of directors’ remuneration have not
been made or the part of the Directors’
Remuneration Report to be audited is not in
agreement with the accounting records
and returns.
We have nothing
to report in respect
of these matters.
15. Other matters which we are required
to address
15.1 Auditor tenure
We became independent and commenced our audit transition on
1 January 2017. Following the recommendation of the Audit & Risk
Committee, we were appointed by the shareholders at the Annual
General Meeting on 31 July 2017 to audit the financial statements
for the year ending 31 March 2018 and subsequent financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is six years, covering the
years ending 31 March 2018 to 31 March 2023.
15.2 Consistency of the audit report with the additional report
to the Audit & Risk Committee
• the directors’ statement concluding that the Annual Report &
Accounts are fair, balanced and understandable set out on
pages 83 and 108;
Our audit opinion is consistent with the additional report to the Audit
& Risk Committee we are required to provide in accordance with
ISAs (UK).
• the Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
pages 18 – 24 and 73;
• the section of the Annual Report that describes the review of
the effectiveness of risk management and internal control
systems set out on pages 18 – 24; and
• the section describing the work of the Audit & Risk Committee
set out on pages 83 – 87.
16. Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body,
for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure
Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements will form part of the European Single Electronic Format
(ESEF) prepared Annual Financial Report filed on the National Storage
Mechanism of the UK FCA in accordance with the ESEF Regulatory
Technical Standard (ESEF RTS). This auditor’s report provides no
assurance over whether the annual financial report has been prepared
using the single electronic format specified in the ESEF RTS.
Christopher Thomas FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
17 May 2023
120
National Grid plc
Annual Report and Accounts 2022/23
Consolidated income statement
for the years ended 31 March
2023
Continuing operations
Revenue
Provision for bad and doubtful debts
Other operating costs
Other operating income
Operating profit
Finance income
Finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax from continuing operations
Profit after tax from discontinued operations
Total profit for the year (continuing and discontinued)
Attributable to:
Equity shareholders of the parent
Non-controlling interests from continuing operations
Earnings per share (pence)
Basic earnings per share (continuing)
Diluted earnings per share (continuing)
Basic earnings per share (continuing and discontinued)
Diluted earnings per share (continuing and discontinued)
2022
Continuing operations
Revenue
Provision for bad and doubtful debts
Other operating costs¹
Other operating income¹
Operating profit
Finance income
Finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax from continuing operations
Profit after tax from discontinued operations
Total profit for the year (continuing and discontinued)
Attributable to:
Equity shareholders of the parent
Non-controlling interests from continuing operations
Earnings per share (pence)
Basic earnings per share (continuing)
Diluted earnings per share (continuing)
Basic earnings per share (continuing and discontinued)
Diluted earnings per share (continuing and discontinued)
Before exceptional
items and
remeasurements
£m
Exceptional items and
remeasurements
(note 5)
£m
21,659
(220)
(17,158)
13
4,294
166
(1,680)
190
2,970
(635)
2,335
320
2,655
2,655
—
—
—
(391)
976
585
(28)
82
(19)
620
(241)
379
4,763
5,142
5,142
—
Before exceptional items
and remeasurements
£m
Exceptional items and
remeasurements
(note 5)
£m
18,260
(167)
(14,280)
—
3,813
65
(1,146)
148
2,880
(669)
2,211
344
2,555
2,554
1
189
—
141
228
558
(15)
74
(56)
561
(589)
(28)
(173)
(201)
(201)
—
Notes
2(a),3
4
4,5
5
2(b)
5,6
5,6
5,16
2(b),5
5,7
10
8
8
8
8
Notes
2(a),3,5
4
4,5
5
2(b)
5,6
5,6
5,16
2(b),5
5,7
10
8
8
8
8
Total
£m
21,659
(220)
(17,549)
989
4,879
138
(1,598)
171
3,590
(876)
2,714
5,083
7,797
7,797
—
74.2
73.8
213.1
212.1
Total
£m
18,449
(167)
(14,139)
228
4,371
50
(1,072)
92
3,441
(1,258)
2,183
171
2,354
2,353
1
60.6
60.3
65.4
65.0
1. Comparatives have been re-presented to disclose other operating income separately from other operating costs.
National Grid plc
Annual Report and Accounts 2022/23
121121
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Consolidated income statement
for the years ended 31 March continued
2021
Continuing operations
Revenue
Provision for bad and doubtful debts
Other operating costs
Operating profit
Finance income
Finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax from continuing operations
Profit after tax from discontinued operations
Total profit for the year (continuing and discontinued)
Attributable to:
Equity shareholders of the parent
Non-controlling interests from continuing operations
Earnings per share (pence)
Basic earnings per share (continuing)
Diluted earnings per share (continuing)
Basic earnings per share (continuing and discontinued)
Diluted earnings per share (continuing and discontinued)
Before exceptional items
and remeasurements
£m
Exceptional items and
remeasurements
(note 5)
£m
13,665
(325)
(10,913)
2,427
35
(900)
66
1,628
(334)
1,294
340
1,634
1,633
1
—
—
(26)
(26)
23
47
(8)
36
(26)
10
(3)
7
7
—
Notes
2(a),3
4
4,5
2(b)
5,6
5,6
5
2(b),5
5,7
10
8
8
8
8
Total
£m
13,665
(325)
(10,939)
2,401
58
(853)
58
1,664
(360)
1,304
337
1,641
1,640
1
37.0
36.8
46.6
46.3
122
122
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Consolidated income statement
for the years ended 31 March continued
Consolidated statement of comprehensive income
for the years ended 31 March
Continuing operations
2021
Revenue
Provision for bad and doubtful debts
Other operating costs
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Share of post-tax results of joint ventures and associates
Profit after tax from continuing operations
Profit after tax from discontinued operations
Total profit for the year (continuing and discontinued)
Attributable to:
Equity shareholders of the parent
Non-controlling interests from continuing operations
Earnings per share (pence)
Basic earnings per share (continuing)
Diluted earnings per share (continuing)
Basic earnings per share (continuing and discontinued)
Diluted earnings per share (continuing and discontinued)
Before exceptional items
and remeasurements
£m
Exceptional items and
remeasurements
(note 5)
£m
13,665
(325)
(10,913)
2,427
35
(900)
66
1,628
(334)
1,294
340
1,634
1,633
1
—
—
(26)
(26)
23
47
(8)
36
(26)
10
(3)
7
7
—
Notes
2(a),3
4
4,5
2(b)
5,6
5,6
5
2(b),5
5,7
10
8
8
8
8
Total
£m
13,665
(325)
(10,939)
2,401
58
(853)
58
1,664
(360)
1,304
337
1,641
1,640
1
37.0
36.8
46.6
46.3
Profit after tax from continuing operations
Profit after tax from discontinued operations
Other comprehensive income from continuing operations
Items from continuing operations that will never be reclassified to profit or loss:
Notes
2023
£m
2,714
5,083
2022
£m
2,183
171
2021
£m
1,304
337
Remeasurement (losses)/gains on pension assets and post-retirement benefit obligations
25
(1,362)
2,172
1,658
Net gains on equity instruments designated at fair value through other comprehensive income
Net gains/(losses) in respect of cash flow hedging of capital expenditure
Tax on items that will never be reclassified to profit or loss
Total items from continuing operations that will never be reclassified to profit or loss
Items from continuing operations that may be reclassified subsequently to profit or loss:
Retranslation of net assets offset by net investment hedge
7
Exchange differences reclassified to the consolidated income statement on disposal
10,16
Net (losses)/gains in respect of cash flow hedges
Net (losses)/gains in respect of cost of hedging
Net (losses)/gains on investment in debt instruments measured at fair value
through other comprehensive income
Share of other comprehensive income of associates, net of tax
Tax on items that may be reclassified subsequently to profit or loss
Total items from continuing operations that may be reclassified subsequently to profit or loss
Other comprehensive (loss)/income for the year, net of tax from continuing operations
Other comprehensive (loss)/income for the year, net of tax from discontinued operations
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year from continuing operations
Total comprehensive income for the year from discontinued operations
Total comprehensive income for the year
7
10
10
Attributable to:
Equity shareholders of the parent
From continuing operations
From discontinued operations
Non-controlling interests
From continuing operations
—
10
341
(1,011)
883
(170)
—
(16)
(25)
1
11
684
(327)
(227)
(554)
2,387
4,856
7,243
12
(1)
(496)
1,687
46
(12)
(472)
1,220
630
(1,347)
—
(57)
1
(11)
1
15
—
67
20
80
1
(8)
579
(1,187)
2,266
211
2,477
4,449
382
4,831
33
(216)
(183)
1,337
121
1,458
2,386
4,856
7,242
4,447
382
4,829
1,338
121
1,459
1
2
(1)
122
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
123123
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Consolidated statement of changes in equity
for the years ended 31 March
At 31 March 2020
Profit for the year
Other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Purchase of own shares
Share-based payments
Tax on share-based payments
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2021
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share-based payments
Tax on share-based payments
Transfer of accumulated gains and losses on sale
of equity investments3
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2022
Profit for the year
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share-based payments
Cash flow hedges transferred to the statement
of financial position, net of tax
At 31 March 2023
Share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Other equity
reserves1
£m
Total
shareholders’
equity
£m
Non-
controlling
interests
£m
470
1,301
21,895
(3,895)
19,771
—
—
—
—
4
—
—
—
—
—
474
—
—
—
—
11
—
—
—
—
—
—
485
—
—
—
—
3
—
—
—
—
488
—
—
—
—
(5)
—
—
—
—
—
1,640
1,001
2,641
(1,413)
—
17
(2)
27
(2)
—
—
(1,182)
(1,182)
—
—
—
—
—
—
(17)
1,640
(181)
1,459
(1,413)
(1)
17
(2)
27
(2)
(17)
1,296
23,163
(5,094)
19,839
—
—
—
—
(12)
—
16
—
—
—
—
2,353
1,871
4,224
(922)
—
17
(3)
43
7
82
—
—
605
605
—
—
—
—
—
—
(82)
8
2,353
2,476
4,829
(922)
(1)
17
13
43
7
—
8
1,300
26,611
(4,563)
23,833
—
—
—
—
(3)
—
5
—
—
7,797
(1,253)
6,544
(1,607)
—
16
(4)
48
—
—
698
698
—
—
—
—
—
5
7,797
(555)
7,242
(1,607)
—
16
1
48
5
1,302
31,608
(3,860)
29,538
22
1
(2)
(1)
—
—
—
—
—
—
—
21
1
1
2
—
—
—
—
—
—
—
—
23
—
1
1
—
—
—
—
—
—
24
Total
equity
£m
19,793
1,641
(183)
1,458
(1,413)
(1)
17
(2)
27
(2)
(17)
19,860
2,354
2,477
4,831
(922)
(1)
17
13
43
7
—
8
23,856
7,797
(554)
7,243
(1,607)
—
16
1
48
5
29,562
1. For further details of other equity reserves, see note 28.
2. Included within the share premium account are costs associated with scrip dividends.
3. In the year ended 31 March 2022, the Group disposed of its equity instruments related to shares held as part of a portfolio of financial instruments which back some long-term employee
liabilities. The equity instruments were previously measured at FVOCI and prior to the disposal the Group recognised a gain of £12 million. The accumulated gain of £82 million
recognised in other comprehensive income was transferred to retained earnings on disposal.
124
124
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Consolidated statement of changes in equity
for the years ended 31 March
Consolidated statement of financial position
as at 31 March
At 31 March 2020
Profit for the year
Other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Purchase of own shares
Share-based payments
Tax on share-based payments
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2021
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share-based payments
Tax on share-based payments
Transfer of accumulated gains and losses on sale
of equity investments3
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2022
Profit for the year
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Equity dividends
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share-based payments
Cash flow hedges transferred to the statement
of financial position, net of tax
At 31 March 2023
Share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Other equity
reserves1
£m
shareholders’
Total
equity
£m
Non-
controlling
interests
470
1,301
21,895
(3,895)
19,771
—
—
—
—
4
—
—
—
—
—
474
—
—
—
—
11
—
—
—
—
—
—
485
—
—
—
—
3
—
—
—
—
488
1,296
23,163
(5,094)
19,839
—
—
—
—
(5)
—
—
—
—
—
—
—
—
—
(12)
—
16
—
—
—
—
—
—
—
—
(3)
—
5
—
—
1,640
1,001
2,641
(1,413)
—
17
(2)
27
(2)
—
2,353
1,871
4,224
(922)
—
17
(3)
43
7
82
—
7,797
(1,253)
6,544
(1,607)
—
16
(4)
48
—
—
(1,182)
(1,182)
—
—
—
—
—
—
(17)
—
605
605
—
—
—
—
—
—
(82)
8
—
698
698
—
—
—
—
—
5
1,640
(181)
1,459
(1,413)
(1)
17
(2)
27
(2)
(17)
2,353
2,476
4,829
(922)
(1)
17
13
43
7
—
8
7,797
(555)
7,242
(1,607)
—
16
1
48
5
1,300
26,611
(4,563)
23,833
Total
equity
£m
19,793
1,641
(183)
1,458
(1,413)
(1)
17
(2)
27
(2)
(17)
19,860
2,354
2,477
4,831
(922)
(1)
17
13
43
7
—
8
—
16
1
48
5
23,856
7,797
(554)
7,243
(1,607)
£m
22
1
(2)
(1)
—
—
—
—
—
—
—
21
1
1
2
—
—
—
—
—
—
—
—
23
—
1
1
—
—
—
—
—
—
24
1. For further details of other equity reserves, see note 28.
2. Included within the share premium account are costs associated with scrip dividends.
3. In the year ended 31 March 2022, the Group disposed of its equity instruments related to shares held as part of a portfolio of financial instruments which back some long-term employee
liabilities. The equity instruments were previously measured at FVOCI and prior to the disposal the Group recognised a gain of £12 million. The accumulated gain of £82 million
recognised in other comprehensive income was transferred to retained earnings on disposal.
1,302
31,608
(3,860)
29,538
29,562
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Other non-current assets
Pension assets
Financial and other investments
Investments in joint ventures and associates
Derivative financial assets
Total non-current assets
Current assets
Inventories and current intangible assets
Trade and other receivables
Current tax assets
Financial and other investments
Derivative financial assets
Cash and cash equivalents
Assets held for sale
Total current assets
Total assets
Current liabilities
Borrowings
Derivative financial liabilities
Trade and other payables
Contract liabilities
Current tax liabilities
Provisions
Liabilities held for sale
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial liabilities
Other non-current liabilities
Contract liabilities
Deferred tax liabilities
Pensions and other post-retirement benefit obligations
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Retained earnings
Other equity reserves
Total shareholders’ equity
Non-controlling interests
Total equity
Notes
2023
£m
2022
£m
11
12
13
14
25
15
16
17
18
19
15
17
20
10
21
17
22
23
26
10
21
17
24
23
7
25
26
27
9,847
3,604
9,532
3,272
64,433
57,532
567
2,645
859
1,300
276
303
3,885
830
1,238
305
83,531
76,897
876
3,883
43
2,605
153
163
1,443
9,166
92,697
511
3,715
106
3,145
282
204
10,000
17,963
94,860
(2,955)
(12,121)
(222)
(144)
(5,068)
(4,915)
(252)
(236)
(288)
(109)
(130)
(32)
(240)
(7,188)
(9,130)
(24,770)
(40,030)
(33,344)
(1,071)
(921)
(1,754)
(7,181)
(694)
(869)
(805)
(1,342)
(6,765)
(810)
(2,354)
(2,299)
(54,005)
(46,234)
(63,135)
(71,004)
29,562
23,856
488
1,302
485
1,300
31,608
26,611
28
(3,860)
(4,563)
29,538
23,833
24
23
29,562
23,856
The consolidated financial statements set out on pages 121 – 210 were approved by the Board of Directors on 17 May 2023 and were signed
on its behalf by:
John Pettigrew Chief Executive
Andy Agg Chief Financial Officer
National Grid plc
Registered number: 4031152
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Annual Report and Accounts 2022/23
125125
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Consolidated cash flow statement
for the years ended 31 March
Cash flows from operating activities
Total operating profit from continuing operations
Adjustments for:
Exceptional items and remeasurements
Other fair value movements
Depreciation, amortisation and impairment
Share-based payments
Changes in working capital
Changes in provisions
Changes in pensions and other post-retirement benefit obligations
Cash flows relating to exceptional items
Cash generated from operations – continuing operations
Tax paid
Net cash inflow from operating activities – continuing operations
Net cash inflow from operating activities – discontinued operations
Cash flows from investing activities
Purchases of intangible assets
Purchases of property, plant and equipment
Disposals of property, plant and equipment
Investments in joint ventures and associates
Dividends received from joint ventures, associates and other investments
Acquisition of National Grid Electricity Distribution¹
Disposal of interest in the UK Gas Transmission business2
Disposal of interest in The Narragansett Electric Company2
Disposal of interest in Millennium Pipeline Company LLC
Disposal of interest in St William Homes LLP
Disposal of financial and other investments
Acquisition of financial investments
Contributions to National Grid Renewables and Emerald Energy Venture LLC
Net movements in short-term financial investments
Interest received
Cash inflows on derivatives
Cash outflows on derivatives
Cash flows relating to exceptional items
Net cash flow from/(used in) investing activities – continuing operations
Net cash flow used in investing activities – discontinued operations
Cash flows from financing activities
Proceeds from issue of treasury shares
Transactions in own shares
Proceeds received from loans
Repayment of loans
Payments of lease liabilities
Net movements in short-term borrowings
Cash inflows on derivatives
Cash outflows on derivatives
Interest paid
Dividends paid to shareholders
Net cash flow (used in)/from financing activities – continuing operations
Net cash flow (used in)/from financing activities – discontinued operations
Net (decrease)/increase in cash and cash equivalents
Reclassification to held for sale
Exchange movements
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year3
Notes
2023
£m
2022
£m
2021
£m
2(b)
4,879
4,371
2,401
5
(585)
21
(558)
(65)
26
(22)
1,984
1,830
1,485
48
286
23
(46)
(178)
6,432
(89)
6,343
555
38
361
140
(76)
(253)
5,788
(298)
5,490
782
23
279
(167)
(16)
(42)
3,967
(91)
3,876
585
(567)
(446)
(399)
(6,325)
(5,098)
(4,209)
87
(443)
190
26
(265)
166
—
(7,837)
4,027
2,968
497
—
116
(95)
(19)
586
65
—
(362)
79
—
—
—
413
215
(197)
(16)
(781)
40
17
(122)
—
7
(81)
80
—
—
—
—
—
66
(99)
(26)
(438)
16
225
(81)
—
804
(13,885)
(4,939)
(564)
(125)
(177)
16
1
33
(3)
11,908
12,347
(15,260)
(1,261)
16
(2)
5,150
(1,654)
(107)
(619)
17
(183)
(753)
(117)
(11)
20
(114)
(1,053)
(922)
(1,413)
8,919
(1,150)
31
(11)
5
157
182
452
298
95
(4)
(7)
73
157
(155)
(511)
190
(118)
(1,430)
(1,607)
(6,966)
(207)
(35)
9
7
182
163
37
10
10
16
16
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
9
29(b)
10,29(b)
29(b)
20
1. Balance consists of cash consideration paid and cash acquired from National Grid Electricity Distribution (NGED, formerly known as Western Power Distribution).
2. The balance for the year ended 31 March 2023 consists of cash proceeds received, net of cash disposed.
3. Cash and cash equivalents at end of year are shown net of the Group’s bank overdraft as at 31 March 2023 of £nil (2022: £22 million; 2021: £nil).
126
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National Grid plcAnnual Report and Accounts 2022/23
Consolidated cash flow statement
for the years ended 31 March
Notes to the consolidated financial statements
Notes
2023
£m
2022
£m
2021
£m
2(b)
4,879
4,371
2,401
5
(585)
21
(558)
(65)
1,984
1,830
1,485
1. Basis of preparation and recent accounting developments
Accounting policies describe our approach to recognising and measuring transactions and balances in the year. The accounting policies
applicable across the financial statements are shown below, whereas accounting policies that are specific to a component of the financial
statements have been incorporated into the relevant note.
This section also shows areas of judgement and key sources of estimation uncertainty in these financial statements. In addition, we have
summarised new International Accounting Standards Board (IASB) and UK endorsed accounting standards, amendments and interpretations
and whether these are effective for this year end or in later years, explaining how significant changes are expected to affect our reported results.
National Grid’s principal activities involve the transmission and
distribution of electricity in Great Britain and of electricity and gas in
northeastern US. The Company is a public limited liability company
incorporated and domiciled in England and Wales, with its registered
office at 1–3 Strand, London, WC2N 5EH.
The Company, National Grid plc, which is the ultimate parent of the
Group, has its primary listing on the London Stock Exchange and is
also quoted on the New York Stock Exchange.
These consolidated financial statements were approved for issue
by the Board on 17 May 2023.
These consolidated financial statements have been prepared in
accordance with International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS) and related
interpretations as issued by the IASB and IFRS as adopted by
the UK. They are prepared on the basis of all IFRS accounting
standards and interpretations that are mandatory for the period
ended 31 March 2023 and in accordance with the Companies Act
2006. The comparative financial information has also been
prepared on this basis.
The consolidated financial statements have been prepared on
a historical cost basis, except for the recording of pension assets
and liabilities, the revaluation of derivative financial instruments and
certain commodity contracts and certain financial assets and liabilities
measured at fair value.
These consolidated financial statements are presented in pounds
sterling, which is also the functional currency of the Company.
The notes to the financial statements have been prepared on a
continuing basis unless otherwise stated.
Our income statement and segmental analysis separately identify
financial results before and after exceptional items and remeasurements.
We continue to use a columnar presentation as we consider it improves
the clarity of the presentation, is consistent with the way that financial
performance is measured by management and reported to the Board
and the Executive Committee, and assists users of the financial
statements to understand the results. The inclusion of total profit for
the period from continuing operations before exceptional items and
remeasurements is used to derive part of the incentive target set
annually for remunerating certain Executive Directors and accordingly
we believe it is important for users of the financial statements to
understand how this compares with our results on a statutory basis
and period on period.
A. Going concern
As part of the Directors’ consideration of the appropriateness of
adopting the going concern basis of accounting in preparing these
financial statements, the Directors have assessed the principal risks
discussed on pages 20 – 24 alongside potential downside business
cash flow scenarios impacting the Group’s operations. The Directors
specifically considered both a base case and reasonable worst-case
scenario for business cash flows. The assessment is prepared on the
conservative assumption that the Group has no access to the debt
capital markets.
The main cash flow impacts identified in the reasonable worst-case
scenario are:
• the timing of the sale of assets classified as held for sale (see note 10);
• additional potential working capital requirements in response
to energy price increases driven by an under-recovery of higher
Balancing Services Use of System (BSUoS) energy costs in
UK Electricity System Operator;
• adverse impacts of inflation on our capital expenditure programme;
• adverse impact from timing across the Group (i.e. a net under-
recovery of allowed revenues or reductions in over-collections);
• a significant reduction in cash collections driven by lower customer
demand and increased bad debt in our US businesses and potential
supplier defaults in our UK businesses;
• higher operating and financing costs than expected, or non-delivery
of planned efficiencies across the Group; and
• the potential impact of further significant storms in the US.
As part of their analysis, the Board also considered the following
potential levers at their discretion to improve the position identified
by the analysis if the debt capital markets are not accessible:
• the payment of dividends to shareholders;
• significant changes in the phasing of the Group’s capital expenditure
programme, with elements of non-essential works and programmes
delayed; and
• a number of further reductions in operating expenditure across
the Group.
Having considered the reasonable worst-case scenario and the further
levers at the Board’s discretion, the Group continues to have headroom
against the Group’s committed facilities identified in note 33 to the
financial statements.
In addition to the above, the ability to raise new and extend existing
financing was separately included in the analysis, and the Directors
noted over £7.0 billion of new long-term senior debt issued in the period
from 1 April 2022 to 31 March 2023 as evidence of the Group’s ability
to continue to have access to the debt capital markets if needed.
Based on the above, the Directors have concluded the Group is well
placed to manage its financing and other business risks satisfactorily
and have a reasonable expectation that the Group will have adequate
resources to continue in operation for at least 12 months from the
signing date of these consolidated financial statements. They therefore
consider it appropriate to adopt the going concern basis of accounting
in preparing the financial statements.
Cash flows from operating activities
Total operating profit from continuing operations
Adjustments for:
Exceptional items and remeasurements
Other fair value movements
Depreciation, amortisation and impairment
Share-based payments
Changes in working capital
Changes in provisions
Changes in pensions and other post-retirement benefit obligations
Cash flows relating to exceptional items
Cash generated from operations – continuing operations
Tax paid
Net cash inflow from operating activities – continuing operations
Net cash inflow from operating activities – discontinued operations
Cash flows from investing activities
Purchases of intangible assets
Purchases of property, plant and equipment
Disposals of property, plant and equipment
Investments in joint ventures and associates
Dividends received from joint ventures, associates and other investments
Acquisition of National Grid Electricity Distribution¹
Disposal of interest in the UK Gas Transmission business2
Disposal of interest in The Narragansett Electric Company2
Disposal of interest in Millennium Pipeline Company LLC
Disposal of interest in St William Homes LLP
Disposal of financial and other investments
Acquisition of financial investments
Contributions to National Grid Renewables and Emerald Energy Venture LLC
Net movements in short-term financial investments
Net cash flow from/(used in) investing activities – continuing operations
Net cash flow used in investing activities – discontinued operations
Interest received
Cash inflows on derivatives
Cash outflows on derivatives
Cash flows relating to exceptional items
Cash flows from financing activities
Proceeds from issue of treasury shares
Transactions in own shares
Proceeds received from loans
Repayment of loans
Payments of lease liabilities
Cash inflows on derivatives
Cash outflows on derivatives
Interest paid
Dividends paid to shareholders
Net movements in short-term borrowings
Net cash flow (used in)/from financing activities – continuing operations
Net cash flow (used in)/from financing activities – discontinued operations
Net (decrease)/increase in cash and cash equivalents
Reclassification to held for sale
Exchange movements
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year3
26
(22)
23
279
(167)
(16)
(42)
3,967
(91)
3,876
585
7
(81)
80
—
—
—
—
—
66
(99)
(26)
(438)
16
225
(81)
—
(107)
(619)
17
(183)
(753)
452
298
95
(4)
(7)
73
157
(567)
(446)
(399)
(6,325)
(5,098)
(4,209)
—
(7,837)
48
286
23
(46)
(178)
6,432
(89)
6,343
555
87
(443)
190
4,027
2,968
497
—
116
(95)
(19)
586
65
—
(362)
79
38
361
140
(76)
(253)
5,788
(298)
5,490
782
26
(265)
166
—
—
—
413
215
(197)
(16)
(781)
40
17
(122)
—
804
(13,885)
(4,939)
(564)
(125)
(177)
16
1
33
(3)
11,908
12,347
(15,260)
(1,261)
16
(2)
5,150
(1,654)
(922)
(1,413)
(155)
(511)
190
(118)
(1,430)
(1,607)
(6,966)
(207)
(35)
9
7
182
163
(117)
(11)
20
(114)
(1,053)
8,919
(1,150)
31
(11)
5
157
182
37
10
10
16
16
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
29(c)
9
29(b)
10,29(b)
29(b)
20
1. Balance consists of cash consideration paid and cash acquired from National Grid Electricity Distribution (NGED, formerly known as Western Power Distribution).
2. The balance for the year ended 31 March 2023 consists of cash proceeds received, net of cash disposed.
3. Cash and cash equivalents at end of year are shown net of the Group’s bank overdraft as at 31 March 2023 of £nil (2022: £22 million; 2021: £nil).
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Annual Report and Accounts 2022/23
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Notes to the consolidated financial statements continued
1. Basis of preparation and recent accounting developments continued
B. Basis of consolidation
The consolidated financial statements incorporate the results, assets
and liabilities of the Company and its subsidiaries, together with a share
of the results, assets and liabilities of joint operations.
A subsidiary is defined as an entity controlled by the Group. Control is
achieved where the Group is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
The Group accounts for joint ventures and associates using the equity
method of accounting, where the investment is carried at cost plus post-
acquisition changes in the share of net assets of the joint venture or
associate, less any provision for impairment. Losses in excess of the
consolidated interest in joint ventures and associates are not recognised,
except where the Company or its subsidiaries have made a commitment
to make good those losses.
Where necessary, adjustments are made to bring the accounting policies
used in the individual financial statements of the Company, subsidiaries,
joint operations, joint ventures and associates into line with those used
by the Group in its consolidated financial statements under IFRS.
Intercompany transactions are eliminated.
The results of subsidiaries, joint operations, joint ventures and associates
acquired or disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
Acquisitions are accounted for using the acquisition method, where
the purchase price is allocated to the identifiable assets acquired and
liabilities assumed on a fair value basis and the remainder recognised
as goodwill.
C. Foreign currencies
Transactions in currencies other than the functional currency of the
Company or subsidiary concerned are recorded at the rates of exchange
prevailing on the date of the transactions. At each reporting date,
monetary assets and liabilities that are denominated in foreign currencies
are retranslated at closing exchange rates. Non-monetary assets are not
retranslated unless they are carried at fair value.
Gains and losses arising on the retranslation of monetary assets and
liabilities are included in the income statement, except where
the application of hedge accounting requires inclusion in other
comprehensive income (see note 32(e)).
On consolidation, the assets and liabilities of operations that have a
functional currency different from the Company’s functional currency
of pounds sterling, principally our US operations that have a functional
currency of US dollars, are translated at exchange rates prevailing at
the reporting date. Income and expense items are translated at the
average exchange rates for the period where these do not differ
materially from rates at the date of the transaction. Exchange differences
arising are recognised in other comprehensive income and transferred
to the consolidated translation reserve within other equity reserves
(see note 28).
D. Disposal of The Narragansett Electric Company
As described further in note 10, on 17 March 2021, the Group signed
an agreement to sell 100% of the share capital of a wholly owned
subsidiary, The Narragansett Electric Company (NECO), to PPL Rhode
Island Holdings, LLC. On 25 May 2022, the Group completed the
disposal for cash consideration of £3.1 billion, recognising a post-tax
gain on disposal of £280 million which has been classified as exceptional
(see note 10). NECO did not meet the criteria for classification as a
discontinued operation and therefore its results have not been separately
disclosed on the face of the income statement, and are instead included
within the results from continuing operations.
E. Disposal of the UK Gas Transmission business
As described further in note 10, on 27 March 2022, the Group entered
into a sale and purchase agreement to dispose of a 100% controlling
stake in the UK Gas Transmission business. The disposal completed
on 31 January 2023 for cash consideration of £4.0 billion and a 40%
interest in a newly incorporated UK limited company, GasT TopCo
Limited, as further described below. Proceeds received have been
classified in the consolidated cash flow statement within continuing
operations. As a result, the Group derecognised all of the assets and
liabilities of the UK Gas Transmission business and recognised the
40% interest acquired in GasT TopCo Limited. The 40% interest
is classified as an investment in an associate on the basis that the
Group has a significant influence over the business. The Group has
the ability to appoint two out of the five Directors to the Board of
GasT Topco Limited.
On 27 March 2022, the Group also entered into a Further Acquisition
Agreement (FAA) over its 40% interest in GasT TopCo Limited. The FAA
became binding following the settlement of the Acquisition Agreement
and is exercisable in the period between 1 May and 31 July 2023.
The window can further be deferred at the Group’s discretion by three
months. Taking into consideration the timing of the FAA exercise
window, the Group has classified its interest in GasT TopCo Limited
as held for sale with effect from 31 January 2023 and has not equity
accounted for its share of the associate’s results. The disposal group
comprises our equity investment in GasT TopCo Limited and the
FAA derivative. Refer to note 10 for further details.
The results of the UK Gas Transmission business were treated as
a discontinued operation during the year ended 31 March 2022, with
comparatives restated accordingly. Remeasurements in relation to the
FAA derivative were also recorded within discontinued operations for the
year ended 31 March 2023. The classification impacts the consolidated
income statement, the consolidated statement of comprehensive income
and consolidated cash flow statement, as well as earnings per share
(EPS) split between continuing and discontinued operations.
128
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
B. Basis of consolidation
D. Disposal of The Narragansett Electric Company
The consolidated financial statements incorporate the results, assets
As described further in note 10, on 17 March 2021, the Group signed
and liabilities of the Company and its subsidiaries, together with a share
an agreement to sell 100% of the share capital of a wholly owned
of the results, assets and liabilities of joint operations.
A subsidiary is defined as an entity controlled by the Group. Control is
achieved where the Group is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity.
subsidiary, The Narragansett Electric Company (NECO), to PPL Rhode
Island Holdings, LLC. On 25 May 2022, the Group completed the
disposal for cash consideration of £3.1 billion, recognising a post-tax
gain on disposal of £280 million which has been classified as exceptional
(see note 10). NECO did not meet the criteria for classification as a
discontinued operation and therefore its results have not been separately
The Group accounts for joint ventures and associates using the equity
disclosed on the face of the income statement, and are instead included
method of accounting, where the investment is carried at cost plus post-
within the results from continuing operations.
acquisition changes in the share of net assets of the joint venture or
associate, less any provision for impairment. Losses in excess of the
E. Disposal of the UK Gas Transmission business
consolidated interest in joint ventures and associates are not recognised,
As described further in note 10, on 27 March 2022, the Group entered
except where the Company or its subsidiaries have made a commitment
into a sale and purchase agreement to dispose of a 100% controlling
to make good those losses.
Where necessary, adjustments are made to bring the accounting policies
used in the individual financial statements of the Company, subsidiaries,
joint operations, joint ventures and associates into line with those used
by the Group in its consolidated financial statements under IFRS.
Intercompany transactions are eliminated.
stake in the UK Gas Transmission business. The disposal completed
on 31 January 2023 for cash consideration of £4.0 billion and a 40%
interest in a newly incorporated UK limited company, GasT TopCo
Limited, as further described below. Proceeds received have been
classified in the consolidated cash flow statement within continuing
operations. As a result, the Group derecognised all of the assets and
liabilities of the UK Gas Transmission business and recognised the
The results of subsidiaries, joint operations, joint ventures and associates
40% interest acquired in GasT TopCo Limited. The 40% interest
acquired or disposed of during the year are included in the consolidated
is classified as an investment in an associate on the basis that the
income statement from the effective date of acquisition or up to the
Group has a significant influence over the business. The Group has
effective date of disposal, as appropriate.
the ability to appoint two out of the five Directors to the Board of
Acquisitions are accounted for using the acquisition method, where
GasT Topco Limited.
the purchase price is allocated to the identifiable assets acquired and
On 27 March 2022, the Group also entered into a Further Acquisition
liabilities assumed on a fair value basis and the remainder recognised
Agreement (FAA) over its 40% interest in GasT TopCo Limited. The FAA
as goodwill.
C. Foreign currencies
became binding following the settlement of the Acquisition Agreement
and is exercisable in the period between 1 May and 31 July 2023.
The window can further be deferred at the Group’s discretion by three
Transactions in currencies other than the functional currency of the
months. Taking into consideration the timing of the FAA exercise
Company or subsidiary concerned are recorded at the rates of exchange
window, the Group has classified its interest in GasT TopCo Limited
prevailing on the date of the transactions. At each reporting date,
as held for sale with effect from 31 January 2023 and has not equity
monetary assets and liabilities that are denominated in foreign currencies
accounted for its share of the associate’s results. The disposal group
are retranslated at closing exchange rates. Non-monetary assets are not
comprises our equity investment in GasT TopCo Limited and the
retranslated unless they are carried at fair value.
FAA derivative. Refer to note 10 for further details.
Gains and losses arising on the retranslation of monetary assets and
The results of the UK Gas Transmission business were treated as
liabilities are included in the income statement, except where
the application of hedge accounting requires inclusion in other
comprehensive income (see note 32(e)).
On consolidation, the assets and liabilities of operations that have a
functional currency different from the Company’s functional currency
of pounds sterling, principally our US operations that have a functional
currency of US dollars, are translated at exchange rates prevailing at
the reporting date. Income and expense items are translated at the
average exchange rates for the period where these do not differ
materially from rates at the date of the transaction. Exchange differences
arising are recognised in other comprehensive income and transferred
to the consolidated translation reserve within other equity reserves
(see note 28).
a discontinued operation during the year ended 31 March 2022, with
comparatives restated accordingly. Remeasurements in relation to the
FAA derivative were also recorded within discontinued operations for the
year ended 31 March 2023. The classification impacts the consolidated
income statement, the consolidated statement of comprehensive income
and consolidated cash flow statement, as well as earnings per share
(EPS) split between continuing and discontinued operations.
1. Basis of preparation and recent accounting developments continued
1. Basis of preparation and recent accounting developments continued
F. Areas of judgement and key sources of
estimation uncertainty
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities, and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates. Information about such
judgements and estimations is in the notes to the financial statements,
and the key areas are summarised below.
Areas of judgement that have the most significant effect on the amounts
recognised in the financial statements are as follows:
• categorisation of certain items as exceptional items or
remeasurements and the definition of adjusted earnings (see notes
5 and 8). In applying the Group’s exceptional items framework, we
have considered a number of key matters, as detailed in note 5;
• the judgement that it is appropriate to classify our 40% equity
investment in GasT TopCo Limited, together with the FAA derivative,
as held for sale with effect from 31 January 2023, as detailed in
note 10;
• in performing the NGED goodwill and indefinite-lived licence intangible
assets impairment assessment, judgement has been applied over
the forecast cash flow duration used in the value-in-use calculations
(see note 11); and
• the judgement that, notwithstanding legislation enacted and targets
committing the states of New York and Massachusetts to achieving
net zero greenhouse gas emissions by 2050, these do not trigger a
reassessment of the remaining useful economic lives (UELs) of our
US gas network assets (see key sources of estimation uncertainty
below and note 13).
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:
• the value attributable to GasT TopCo Limited following disposal of
our controlling stake in the UK Gas Transmission business and in
determining the fair value of the written option over the Group’s 40%
equity interest (see note 10);
• the valuation of liabilities for pensions and other post-retirement
benefits (see note 25);
• the cash flows and real discount rates applied in determining the
environmental provisions, in particular relating to three US Superfund
sites (see note 26); and
• the estimates made regarding the UELs of our gas network assets
due to the length over which they are being depreciated, the potential
for new and evolving technologies over that period, and the range of
potential pathways for meeting net zero targets (see note 13 for details
and sensitivity analysis).
In performing our impairment assessment of goodwill and indefinite-lived
licence intangible assets, we have sensitised our forecasts to factor in
adjustments to key inputs to each model (see note 11).
In order to illustrate the impact that changes in assumptions for
the valuation of pension assets and liabilities and cash flows for
environmental provisions could have on our results and financial
position, we have included sensitivity analysis in note 35.
G. Impact of climate change and the transition
to net zero – areas of judgement and key sources
of estimation uncertainty
In preparing these financial statements for the year ended 31 March
2023, management has taken into account the Group’s commitments
regarding its transition to net zero and the impact of climate change.
The Group has a published climate transition plan which sets out its
targets to achieve this commitment by 2050, in line with the Paris
Agreement. Management has also identified a number of significant
climate-related risks and opportunities, as set out within the Task Force
on Climate-related Financial Disclosures (TCFD) on pages 38 – 51.
Changes to the Group’s commitments and the impact of climate change
may have a material impact on the currently reported amounts of the
Group’s assets and liabilities and on similar assets and liabilities that may
be recognised in future reporting periods, as set out above with respect
to the judgement and key source of estimation uncertainty regarding the
UELs of our US gas network assets, and as further detailed below.
Repairs to property, plant and equipment
The Group’s network assets recorded within property, plant and
equipment (PP&E) are at risk of physical impacts from extreme weather
events such as major storms which may be accentuated by increased
frequency of weather incidents and changing long-term climate trends,
thereby leading to asset damage. As set out in the Financial review on
pages 53 – 65, major storm costs, net of deductibles and disallowances,
incurred by the Group are recoverable as revenue in future periods under
our rate plans but the associated repair costs are expensed as incurred
as other operating costs under IFRS.
Impairment of property, plant and equipment and goodwill
Included within the Group’s PP&E (see note 13) are £333 million
of oil- and gas-fired electricity generation units with approximately
3,800 MW of electric generation capacity located in Long Island,
New York. Whilst the Group retains ownership of these assets, it sells
all of the capacity, energy in response to dispatch requests, and any
related ancillary services provided by the generating facilities to the
Long Island Power Authority (LIPA) via a Power Supply Agreement
running until 2028.
The maximum UEL for these units ends in 2040, which aligns to the
target set by the state of New York to achieve decarbonised power
generation by 2040. However, there is a risk that the UEL of certain,
or all, of the units may be shortened, depending on the progress of
decarbonisation activities in Long Island. The Group believes there are
no material accounting judgements in respect of the generation assets
and the UELs have not been accelerated in the year.
The assets related to the Group’s liquefied natural gas (LNG) storage
facility have a maximum UEL to 2045, which is in line with the current
commercial contracts. Accordingly, the Group believes there are no
material accounting judgements in respect of the UELs of the storage
assets as of 31 March 2023.
The net zero pathway may also impact our US gas networks which
in turn may affect the recoverable amount of our New York and New
England cash-generating units (CGUs). In assessing the recoverability
of our CGUs (see note 11), we calculate the value-in-use based on
projections that incorporate our best estimates of future cash flows and
assumptions pertaining to the net zero plans of the jurisdictions that we
operate in. In respect of our New York and New England CGUs, our
forecast cash flow duration used in our impairment testing is five years
and we continue to have sufficient headroom. Accordingly, the impacts
of certain variables that will play out in the medium to long term as a
result of the anticipated transition to decarbonised power generation
do not currently affect the carrying value of our New York and New
England CGUs.
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1. Basis of preparation and recent accounting developments continued
J. New IFRS accounting standards and
interpretations not yet adopted
The following new accounting standards and amendments to existing
standards have been issued but are not yet effective or have not yet
been endorsed by the UK:
• IFRS 17 ‘Insurance Contracts’;
• amendments to IAS 12 ‘Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction’;
• amendments to IAS 1 ‘Presentation of Financial Statements’
on classification of liabilities as current or non-current;
• amendments to IAS 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’; and
• amendments to IAS 1 and IFRS Practice Statement 2 – making
materiality judgements.
Effective dates will be subject to the UK endorsement process.
The Group is currently assessing the impact of the above standards,
but they are not expected to have a material impact.
The Group has not adopted any other standard, amendment or
interpretation that has been issued but is not yet effective.
G. Impact of climate change and the transition
to net zero – areas of judgement and key sources
of estimation uncertainty continued
Decommissioning provisions
Provisions to decommission significant portions of our regulated
transmission and distribution assets are not recognised where no legal
obligations exist, and a realistic alternative exists to incurring costs to
decommission assets at the end of their life. Included within the Group’s
decommissioning provisions as at 31 March 2023 (see note 26) is
£57 million relating to legal requirements to remove asbestos upon major
renovation or demolition of our oil- and gas-fired electricity generation
structures and facilities located in Long Island, New York. As noted
above, the progress of decarbonisation activities in Long Island may
bring forward the decommissioning of these assets, thereby increasing
the present value of associated decommissioning provisions. Currently,
the expected timing of decommissioning expenditures has not materially
been brought forward but management will continue to review the facts
and circumstances.
Sensitivity to commodity contract derivatives
The Group has contracts associated with the forward purchase of
gas and enters into derivative financial instruments linked to commodity
prices, including gas options and swaps which are used to manage
market price volatility (see note 17). As at 31 March 2023, the Group’s
gas commodity contract derivatives are primarily short-term and
accordingly we do not anticipate a risk as a result of the transition
to net zero.
H. Accounting policy choices
IFRS provides certain options available within accounting standards.
Choices we have made, and continue to make, include the following:
• Presentational formats: we use the nature of expense method for our
income statement and aggregate our statement of financial position
to net assets and total equity. In the income statement, we present
subtotals of total operating profit, profit before tax and profit after
tax from continuing operations, together with additional subtotals
excluding exceptional items and remeasurements as a result of the
three-columnar presentation described earlier. Exceptional items and
remeasurements are presented in a separate column on the face of
the income statement.
• Financial instruments: we normally opt to apply hedge accounting
in most circumstances where this is permitted (see note 32(e)).
• Gains and losses arising from the sale of a subsidiary: in accounting
for the gain on sale of the UK Gas Transmission business, we have
considered the conflicts in guidance between IAS 28 ‘Investments in
Associates and Joint Ventures’ and IFRS 10 ‘Consolidated Financial
Statements’. We have elected to apply the full gain recognition
approach in accordance with IFRS 10.
I. New IFRS accounting standards and
interpretations effective for the year ended
31 March 2023
The Group adopted the following amendments to standards which
have had no material impact on the Group’s results or financial
statement disclosures:
• amendments to IFRS 3 ‘Business Combinations’;
• amendments to IAS 16 ‘Property, Plant and Equipment’;
• amendments to IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’; and
• annual improvements to IFRS standards 2018–2020.
130
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
1. Basis of preparation and recent accounting developments continued
2. Segmental analysis
G. Impact of climate change and the transition
J. New IFRS accounting standards and
to net zero – areas of judgement and key sources
interpretations not yet adopted
of estimation uncertainty continued
Decommissioning provisions
The following new accounting standards and amendments to existing
standards have been issued but are not yet effective or have not yet
Provisions to decommission significant portions of our regulated
been endorsed by the UK:
transmission and distribution assets are not recognised where no legal
• IFRS 17 ‘Insurance Contracts’;
obligations exist, and a realistic alternative exists to incurring costs to
decommission assets at the end of their life. Included within the Group’s
decommissioning provisions as at 31 March 2023 (see note 26) is
£57 million relating to legal requirements to remove asbestos upon major
renovation or demolition of our oil- and gas-fired electricity generation
structures and facilities located in Long Island, New York. As noted
above, the progress of decarbonisation activities in Long Island may
• amendments to IAS 12 ‘Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction’;
• amendments to IAS 1 ‘Presentation of Financial Statements’
on classification of liabilities as current or non-current;
• amendments to IAS 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’; and
bring forward the decommissioning of these assets, thereby increasing
• amendments to IAS 1 and IFRS Practice Statement 2 – making
the present value of associated decommissioning provisions. Currently,
materiality judgements.
the expected timing of decommissioning expenditures has not materially
been brought forward but management will continue to review the facts
and circumstances.
Sensitivity to commodity contract derivatives
Effective dates will be subject to the UK endorsement process.
The Group is currently assessing the impact of the above standards,
but they are not expected to have a material impact.
The Group has contracts associated with the forward purchase of
The Group has not adopted any other standard, amendment or
gas and enters into derivative financial instruments linked to commodity
interpretation that has been issued but is not yet effective.
prices, including gas options and swaps which are used to manage
market price volatility (see note 17). As at 31 March 2023, the Group’s
gas commodity contract derivatives are primarily short-term and
accordingly we do not anticipate a risk as a result of the transition
to net zero.
H. Accounting policy choices
IFRS provides certain options available within accounting standards.
Choices we have made, and continue to make, include the following:
• Presentational formats: we use the nature of expense method for our
income statement and aggregate our statement of financial position
to net assets and total equity. In the income statement, we present
subtotals of total operating profit, profit before tax and profit after
tax from continuing operations, together with additional subtotals
excluding exceptional items and remeasurements as a result of the
three-columnar presentation described earlier. Exceptional items and
remeasurements are presented in a separate column on the face of
the income statement.
• Financial instruments: we normally opt to apply hedge accounting
in most circumstances where this is permitted (see note 32(e)).
• Gains and losses arising from the sale of a subsidiary: in accounting
for the gain on sale of the UK Gas Transmission business, we have
considered the conflicts in guidance between IAS 28 ‘Investments in
Associates and Joint Ventures’ and IFRS 10 ‘Consolidated Financial
Statements’. We have elected to apply the full gain recognition
approach in accordance with IFRS 10.
I. New IFRS accounting standards and
interpretations effective for the year ended
31 March 2023
The Group adopted the following amendments to standards which
have had no material impact on the Group’s results or financial
statement disclosures:
• amendments to IFRS 3 ‘Business Combinations’;
• amendments to IAS 16 ‘Property, Plant and Equipment’;
• amendments to IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’; and
• annual improvements to IFRS standards 2018–2020.
This note sets out the financial performance for the year split into the different parts of the business (operating segments). The performance of
these operating segments is monitored and managed on a day-to-day basis. Revenue and the results of the business are analysed by operating
segment, based on the information the Board of Directors uses internally for the purposes of evaluating the performance of each operating
segment and determining resource allocation between them. The Board is National Grid’s chief operating decision maker (as defined by IFRS 8
‘Operating Segments’) and assesses the profitability of operations principally on the basis of a profit measure that excludes certain income and
expenses. We call that measure ‘adjusted profit’. Adjusted profit excludes exceptional items and remeasurements (as defined in note 5) and is
used by management to monitor financial performance as it is considered that it aids the comparability of our reported financial performance from
year to year. As a matter of course, the Board also considers profitability by segment, excluding the effects of timing and major storms. However,
the measure of profit disclosed in this note is operating profit before exceptional items and remeasurements, as this is the measure that is most
consistent with the IFRS results reported within these financial statements.
In the year ended 31 March 2023, the National Grid Ventures (NGV) operating segment met the quantitative thresholds set out in IFRS 8 to be
identified as the Group’s sixth separate reportable segment. Accordingly, the Group’s operating segments have been modified and the data relating
to previous periods has been restated to reflect this change. The results of our six principal businesses are reported to the Board of Directors and are
accordingly treated as reportable operating segments. All other operating segments are reported to the Board of Directors on an aggregated basis.
The following table describes the main activities for each reportable operating segment:
UK Electricity Transmission
The high-voltage electricity transmission networks in England and Wales.
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
The electricity distribution networks of NGED in the East Midlands, West Midlands and South West of England and
South Wales.
The Great Britain system operator. As announced in April 2022, the entirety of the UK Electricity System Operator is
expected to transfer out of the Group to become part an independent system operator public body, following the Future
System Operator (FSO) consultation. The FSO is subject to legislative approval and accordingly the held for sale criteria have
not been met as at 31 March 2023.
Gas distribution networks, electricity distribution networks and high-voltage electricity transmission networks
in New England.
Gas distribution networks, electricity distribution networks and high-voltage electricity transmission networks in New York.
Comprises all commercial operations in LNG at the Isle of Grain in the UK, our electricity generation business in the US,
our electricity interconnectors in the UK and our investment in National Grid Renewables Development LLC, our renewables
business in the US. NGV operates outside our regulated core business.
Other activities that do not form part of any of the segments in the above table primarily relate to our UK property business together with insurance
and corporate activities in the UK and US and the Group’s investments in technology and innovation companies through National Grid Partners.
(a) Revenue
Revenue primarily represents the sales value derived from the generation, transmission and distribution of energy, together with the sales value
derived from the provision of other services to customers. Refer to note 3 for further details.
Sales between operating segments are priced considering the regulatory and legal requirements to which the businesses are subject. The analysis
of revenue by geographical area is on the basis of destination. There are no material sales between the UK and US geographical areas.
Operating segments – continuing operations:
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total revenue before exceptional
items and remeasurements
Exceptional items and remeasurements2
2023
Sales
between
segments
£m
Total
sales
£m
1,987
2,045
4,690
4,427
6,994
1,341
317
(41)
(12)
(31)
—
—
(58)
—
Sales
to third
parties
£m
1,946
2,033
4,659
4,427
6,994
1,283
317
20221
Sales
between
segments
£m
(7)
(14)
(18)
—
—
—
—
Total
sales
£m
2,035
1,482
3,455
4,550
5,561
1,024
192
Sales
to third
parties
£m
2,028
1,468
3,437
4,550
5,561
1,024
192
20211
Sales
between
segments
£m
Total
sales
£m
Sales
to third
parties
£m
1,974
(10)
1,964
—
2,018
4,214
4,605
786
78
—
—
—
—
—
—
—
2,018
4,214
4,605
786
78
21,801
(142)
21,659
18,299
(39)
18,260
13,675
(10)
13,665
—
—
—
189
—
189
—
—
—
Total revenue from continuing operations
21,801
(142)
21,659
18,488
(39)
18,449
13,675
(10)
13,665
Split by geographical areas – continuing operations:
UK
US
Total revenue from continuing operations
9,611
12,048
21,659
7,803
10,646
18,449
4,368
9,297
13,665
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
2. In connection with the disposal of St William Homes LLP in the year ended 31 March 2022 the Group released deferred income within Other of £189 million related to deferred profits
from previous property sales (see note 5).
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Notes to the consolidated financial statements continued
2. Segmental analysis continued
(b) Operating profit
A reconciliation of the operating segments’ measure of profit to profit before tax from continuing operations is provided below. Further details of the
exceptional items and remeasurements are provided in note 5.
Operating segments – continuing operations:
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit from
continuing operations
Split by geographical area – continuing operations:
UK
US
Total operating profit from
continuing operations
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
After exceptional items
and remeasurements
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
995
1,067
1,094
1,091
909
238
708
741
490
31
7
743
780
286
21
—
(60)
611
665
185
(68)
(2)
(22)
(1)
424
(200)
467
(81)
(12)
—
(2)
21
315
(3)
239
(14)
—
7
3
30
(4)
(48)
993
1,055
1,080
1,069
909
237
5
1,132
764
541
957
(50)
1,095
283
260
—
(53)
614
695
181
(116)
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
2,825
2,234
1,469
1,579
1,113
1,314
26
559
224
334
(57)
31
2,851
2,458
2,028
1,913
1,056
1,345
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
Reconciliation to profit before tax:
Operating profit from continuing operations
Share of post-tax results of joint ventures
and associates
Finance income
Finance costs
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
After exceptional items
and remeasurements
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
190
166
148
65
66
35
(1,680)
(1,146)
(900)
(19)
(28)
82
(56)
(15)
74
(8)
23
47
36
171
138
92
50
58
58
(1,598)
(1,072)
(853)
3,590
3,441
1,664
Profit before tax from continuing operations
2,970
2,880
1,628
620
561
(c) Capital expenditure
Capital expenditure represents additions to property, plant and equipment and non-current intangibles but excludes additional investments in and
loans to joint ventures and associates.
Operating segments:
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total
Split by geographical area – continuing operations:
UK
US
Total
Asset type:
Net book value of property, plant
and equipment and other
intangible assets
Capital expenditure
Depreciation, amortisation
and impairment
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
15,483
14,678
14,000
1,303
1,195
984
13,462
12,522
411
404
—
379
1,220
108
899
108
13,406
11,485
10,165
1,624
1,561
21,730
18,676
16,467
2,454
1,960
3,507
3,009
2,693
38
30
57
709
13
452
10
—
88
1,437
1,738
451
29
(484)
(223)
(101)
(393)
(620)
(149)
(14)
(508)
(158)
(83)
(364)
(537)
(156)
(24)
(460)
—
(47)
(389)
(453)
(116)
(20)
68,037
60,804
43,761
7,431
6,185
4,727
(1,984)
(1,830)
(1,485)
32,343
30,131
16,627
3,259
2,546
35,694
30,673
27,134
4,172
3,639
68,037
60,804
43,761
7,431
6,185
1,504
3,223
4,727
(921)
(1,063)
(879)
(951)
(596)
(889)
(1,984)
(1,830)
(1,485)
Property, plant and equipment
Non-current intangible assets
Total
64,433
57,532
42,424
6,853
5,714
4,335
(1,700)
(1,544)
(1,317)
3,604
3,272
1,337
578
471
392
(284)
(286)
(168)
68,037
60,804
43,761
7,431
6,185
4,727
(1,984)
(1,830)
(1,485)
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
132
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National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
2. Segmental analysis continued
(b) Operating profit
A reconciliation of the operating segments’ measure of profit to profit before tax from continuing operations is provided below. Further details of the
exceptional items and remeasurements are provided in note 5.
3. Revenue
Revenue arises in the course of ordinary activities and principally comprises:
• transmission services;
• distribution services; and
• generation services.
Transmission services, distribution services and certain other services (excluding rental income) fall within the scope of IFRS 15 ‘Revenue from
Contracts with Customers’, whereas generation services (which solely relate to the contract with LIPA in the US) are accounted for under IFRS 16
‘Leases’ as rental income, also presented within revenue. Revenue is recognised to reflect the transfer of goods or services to customers at an
amount that reflects the consideration to which the Group expects to be entitled to in exchange for those goods or services and excludes
amounts collected on behalf of third parties and value added tax. The Group recognises revenue when it transfers control over a product or
service to a customer.
Revenue in respect of regulated activities is determined by regulatory agreements that set the price to be charged for services in a given period
based on pre-determined allowed revenues. Variances in service usage can result in actual revenue collected exceeding (over-recoveries) or
falling short (under-recoveries) of allowed revenues. Where regulatory agreements allow the recovery of under-recoveries or require the return
of over-recoveries, the allowed revenue for future periods is typically adjusted. In these instances, no assets or liabilities are recognised for under-
or over-recoveries respectively, because the adjustment relates to future customers and services that have not yet been delivered.
Revenue in respect of non-regulated activities primarily relates to the sale of capacity on our interconnectors, which is determined at auctions.
Capacity is sold in either day, month, quarter or year-ahead tranches. The price charged is determined by market fundamentals rather than
regulatory agreement. The interconnectors are subject to indirect regulation with regard to the levels of returns they are allowed to earn. Where
amounts fall below this range they receive top-up revenues and where amounts exceed this range they must pass back the excess. In these
instances, assets or liabilities are recognised for the top-up or pass-back respectively.
Below, we include a description of principal activities, by reportable segment, from which the Group generates its revenue. For more
detailed information about our segments, see note 2.
(a) UK Electricity Transmission
The UK Electricity Transmission segment principally generates revenue by providing electricity transmission services in England and Wales. Our
business operates as a monopoly regulated by Ofgem, which has established price control mechanisms that set the amount of annual allowed
returns our business can earn (along with the Scottish and Offshore transmission operators amongst others).
The transmission of electricity encompasses the following principal services:
• the supply of high-voltage electricity – revenue is recognised based on usage. Our performance obligation is satisfied over time as our customers
make use of our network. We bill monthly in arrears and our payment terms are up to 60 days. Price is determined prior to our financial year end
with reference to the regulated allowed returns and estimated annual volumes; and
• construction work (principally for connections) – revenue is recognised over time, as we provide access to our network. Customers can either pay
over the useful life of the connection or upfront. Where the customer pays upfront, revenues are deferred as a contract liability and released over
the life of the asset.
For other construction where there is no consideration for any future services, for example diversions, revenues are recognised as the construction
work is completed.
(b) UK Electricity Distribution
The UK Electricity Distribution segment principally generates revenue by providing electricity distribution services in the Midlands and South West
of England and South Wales. Similar to UK Electricity Transmission, UK Electricity Distribution operates as a monopoly in the jurisdictions that it
operates in and is regulated by Ofgem.
The distribution of electricity encompasses the following principal services:
• electricity distribution – revenue is recognised based on usage by customers (over time), based upon volumes and price. The price control
mechanism that determines our annual allowances is similar to UK Electricity Transmission. Revenues are billed monthly and payment terms are
typically within 14 days; and
• construction work (principally for connections) – revenue is recognised over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability and released over the life of the asset.
For other construction where there is no consideration for any future services, revenues are recognised as the construction is completed.
(c) UK Electricity System Operator
The UK Electricity System Operator earns revenue for balancing supply and demand of electricity on Great Britain’s electricity transmission system,
where it acts as principal. Balancing services are regulated by Ofgem and revenue, which is payable by generators and suppliers of electricity, is
recognised as the service is provided.
The UK Electricity System Operator also collects revenues on behalf of transmission operators, principally National Grid Electricity Transmission plc
and the Scottish and Offshore transmission operators, from users (electricity suppliers) who connect to or use the transmission system. As the UK
Electricity System Operator acts as an agent in this capacity, it records transmission network revenues net of payments to transmission operators.
(d) New England
The New England segment principally generates revenue by providing electricity and gas supply and distribution services and high-voltage electricity
transmission services in New England. Supply and distribution services are regulated by the Massachusetts Department of Public Utilities (MADPU)
and transmission services are regulated by the Federal Energy Regulatory Commission (FERC), both of whom regulate the rates that can be charged
to customers.
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Annual Report and Accounts 2022/23
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Annual Report and Accounts 2022/23
133133
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
After exceptional items
and remeasurements
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
995
1,067
1,094
1,091
909
238
708
741
490
31
7
743
780
286
21
—
(60)
611
665
185
(68)
(2)
(22)
(1)
424
(200)
467
(81)
(12)
—
(2)
21
315
(3)
239
(14)
—
7
3
30
(4)
(48)
993
1,055
1,080
1,069
909
237
5
1,132
764
541
957
(50)
1,095
283
260
—
(53)
614
695
181
(116)
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
2,825
2,234
1,469
1,579
1,113
1,314
26
559
224
334
(57)
31
2,851
2,458
2,028
1,913
1,056
1,345
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
After exceptional items
and remeasurements
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
Operating segments – continuing operations:
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit from
continuing operations
UK
US
Total operating profit from
continuing operations
Split by geographical area – continuing operations:
Reconciliation to profit before tax:
Share of post-tax results of joint ventures
and associates
Finance income
Finance costs
(c) Capital expenditure
loans to joint ventures and associates.
Operating segments:
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Split by geographical area – continuing operations:
Other
Total
UK
US
Total
Asset type:
Total
132
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
Operating profit from continuing operations
4,294
3,813
2,427
585
558
(26)
4,879
4,371
2,401
Profit before tax from continuing operations
2,970
2,880
1,628
620
561
3,590
3,441
1,664
190
166
148
65
66
35
(1,680)
(1,146)
(900)
(19)
(28)
82
(56)
(15)
74
171
138
92
50
58
58
(1,598)
(1,072)
(853)
Capital expenditure represents additions to property, plant and equipment and non-current intangibles but excludes additional investments in and
(8)
23
47
36
—
88
1,437
1,738
451
29
1,504
3,223
4,727
Net book value of property, plant
and equipment and other
intangible assets
Capital expenditure
Depreciation, amortisation
and impairment
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
2023
£m
20221
£m
20211
£m
15,483
14,678
14,000
1,303
1,195
984
13,462
12,522
411
404
—
379
1,220
108
899
108
13,406
11,485
10,165
1,624
1,561
21,730
18,676
16,467
2,454
1,960
3,507
3,009
2,693
38
30
57
709
13
452
10
(484)
(223)
(101)
(393)
(620)
(149)
(14)
(508)
(158)
(83)
(364)
(537)
(156)
(24)
(460)
—
(47)
(389)
(453)
(116)
(20)
68,037
60,804
43,761
7,431
6,185
4,727
(1,984)
(1,830)
(1,485)
32,343
30,131
16,627
3,259
2,546
35,694
30,673
27,134
4,172
3,639
(921)
(1,063)
(879)
(951)
(596)
(889)
68,037
60,804
43,761
7,431
6,185
(1,984)
(1,830)
(1,485)
Property, plant and equipment
Non-current intangible assets
64,433
57,532
42,424
6,853
5,714
4,335
(1,700)
(1,544)
(1,317)
3,604
3,272
1,337
578
471
392
(284)
(286)
(168)
68,037
60,804
43,761
7,431
6,185
4,727
(1,984)
(1,830)
(1,485)
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
3. Revenue continued
(d) New England continued
The supply and distribution of electricity and gas and the provision of electricity transmission facilities encompasses the following principal services:
• electricity and gas supply and distribution and electricity transmission – revenue is recognised based on usage by customers (over time). Revenues
are billed monthly and payment terms are 30 days; and
• construction work (principally for connections) – revenue is recognised over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer contributions (where they relate to government entities) and released over the life
of the connection.
(e) New York
The New York segment principally generates revenue by providing electricity and gas supply and distribution services and high-voltage electricity
transmission services in New York. Supply and distribution services are regulated by the New York Public Service Commission (NYPSC) and
transmission services are regulated by the FERC, both of which regulate the rates that can be charged to customers.
The supply and distribution of electricity and gas and the provision of electricity transmission facilities encompasses the following principal services:
• electricity and gas supply and distribution and electricity transmission – revenue is recognised based on usage by customers (over time). Revenues
are billed monthly and payment terms are 30 days; and
• construction work (principally for connections) – revenue is recognised over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer contributions (where they relate to government entities) and released over the life
of the connection.
(f) National Grid Ventures
National Grid Ventures generates revenue from electricity interconnectors, LNG at the Isle of Grain, National Grid Renewables and rental income.
The Group recognises revenue from transmission services through interconnectors and LNG importation at the Isle of Grain by means of customers’
use of capacity and volumes. Revenue is recognised over time and is billed monthly. Payment terms are up to 60 days.
Electricity generation revenue is earned from the provision of energy services and supply capacity to produce energy for the use of customers of
LIPA through a power supply agreement, where LIPA receives all of the energy and capacity from the asset until at least 2028. The arrangement is
treated as an operating lease within the scope of the leasing standard where we act as lessor, with rental income being recorded as other revenue,
which forms part of total revenue. Lease payments (capacity payments) are recognised on a straight-line basis and variable lease payments are
recognised as the energy is generated.
Other revenue in the scope of IFRS 15 principally includes sales of renewables projects from National Grid Renewables to Emerald Energy Venture
LLC (Emerald), which is jointly controlled by National Grid and Washington State Investment Board (WSIB) (see note 16). National Grid Renewables
develops wind and solar generation assets in the US, whilst Emerald has a right of first refusal to buy, build and operate those assets. Revenue is
recognised as it is earned.
Other revenue, recognised in accordance with standards other than IFRS 15, primarily comprises adjustments in respect of the interconnector cap
and floor regime constructed by Ofgem for certain wholly owned interconnector subsidiaries. Where an interconnector expects to exceed its total
five-year cap, a provision and reduction in revenue is recognised in the current reporting period (see note 26). Where an interconnector does not
expect to reach its five-year floor, either an asset will be recognised where a future inflow of economic benefits is considered virtually certain, or a
contingent asset will be disclosed where the future inflow is concluded to be probable.
(g) Other
Revenue in Other relates to our UK commercial property business and insurance. Revenue is predominantly recognised in accordance with
standards other than IFRS 15 and comprises property sales by our UK commercial property business (including sales to our 50% share in
the St William joint venture which was disposed of in the prior year). Property sales are recorded when the sale is legally completed.
(h) Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical market and major service lines. The table below reconciles disaggregated
revenue with the Group’s reportable segments (see note 2).
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures
£m
Other
£m
Total
£m
Revenue for the year ended 31 March 2023
Revenue under IFRS 15
Transmission
Distribution
System Operator
Other1
1,868
—
—
31
—
1,951
—
77
126
—
4,533
—
52
567
4,314
6,373
—
8
—
13
Total IFRS 15 revenue
1,899
2,028
4,659
4,374
6,953
Other revenue
Generation
Other2
Total other revenue
—
47
47
—
5
5
—
—
—
—
53
53
—
41
41
791
—
—
131
922
394
(33)
361
—
—
—
—
—
—
317
317
317
3,404
12,638
4,533
260
20,835
394
430
824
21,659
Total revenue from continuing operations
1,946
2,033
4,659
4,427
6,994
1,283
1. The UK Electricity Transmission and UK Electricity Distribution other IFRS 15 revenue principally relates to engineering recharges, which are the recovery of costs incurred for
construction work requested by customers, such as the rerouting of existing network assets. Within NGV, the other IFRS 15 revenue principally relates to revenue generated from
our National Grid Renewables business.
2. Other revenue, recognised in accordance with accounting standards other than IFRS 15, includes property sales by our UK commercial property business, rental income, income arising
in connection with the Transition Services Agreements following the sales of NECO and the UK Gas Transmission business in the year, and a provision and adjustment to NGV revenue
in respect of the interconnector cap and floor regime constructed by Ofgem. In the year ended 31 March 2023 the Group also recognised other income relating to an insurance claim.
134
134
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
3. Revenue continued
(d) New England continued
of the connection.
(e) New York
The supply and distribution of electricity and gas and the provision of electricity transmission facilities encompasses the following principal services:
• electricity and gas supply and distribution and electricity transmission – revenue is recognised based on usage by customers (over time). Revenues
are billed monthly and payment terms are 30 days; and
• construction work (principally for connections) – revenue is recognised over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer contributions (where they relate to government entities) and released over the life
The New York segment principally generates revenue by providing electricity and gas supply and distribution services and high-voltage electricity
transmission services in New York. Supply and distribution services are regulated by the New York Public Service Commission (NYPSC) and
transmission services are regulated by the FERC, both of which regulate the rates that can be charged to customers.
The supply and distribution of electricity and gas and the provision of electricity transmission facilities encompasses the following principal services:
• electricity and gas supply and distribution and electricity transmission – revenue is recognised based on usage by customers (over time). Revenues
are billed monthly and payment terms are 30 days; and
• construction work (principally for connections) – revenue is recognised over time as we provide access to our network. Where the customer pays
upfront, revenues are deferred as a contract liability or customer contributions (where they relate to government entities) and released over the life
of the connection.
(f) National Grid Ventures
National Grid Ventures generates revenue from electricity interconnectors, LNG at the Isle of Grain, National Grid Renewables and rental income.
The Group recognises revenue from transmission services through interconnectors and LNG importation at the Isle of Grain by means of customers’
use of capacity and volumes. Revenue is recognised over time and is billed monthly. Payment terms are up to 60 days.
Electricity generation revenue is earned from the provision of energy services and supply capacity to produce energy for the use of customers of
LIPA through a power supply agreement, where LIPA receives all of the energy and capacity from the asset until at least 2028. The arrangement is
treated as an operating lease within the scope of the leasing standard where we act as lessor, with rental income being recorded as other revenue,
which forms part of total revenue. Lease payments (capacity payments) are recognised on a straight-line basis and variable lease payments are
recognised as the energy is generated.
Other revenue in the scope of IFRS 15 principally includes sales of renewables projects from National Grid Renewables to Emerald Energy Venture
LLC (Emerald), which is jointly controlled by National Grid and Washington State Investment Board (WSIB) (see note 16). National Grid Renewables
develops wind and solar generation assets in the US, whilst Emerald has a right of first refusal to buy, build and operate those assets. Revenue is
recognised as it is earned.
Other revenue, recognised in accordance with standards other than IFRS 15, primarily comprises adjustments in respect of the interconnector cap
and floor regime constructed by Ofgem for certain wholly owned interconnector subsidiaries. Where an interconnector expects to exceed its total
five-year cap, a provision and reduction in revenue is recognised in the current reporting period (see note 26). Where an interconnector does not
expect to reach its five-year floor, either an asset will be recognised where a future inflow of economic benefits is considered virtually certain, or a
contingent asset will be disclosed where the future inflow is concluded to be probable.
(g) Other
Revenue in Other relates to our UK commercial property business and insurance. Revenue is predominantly recognised in accordance with
standards other than IFRS 15 and comprises property sales by our UK commercial property business (including sales to our 50% share in
the St William joint venture which was disposed of in the prior year). Property sales are recorded when the sale is legally completed.
(h) Disaggregation of revenue
revenue with the Group’s reportable segments (see note 2).
In the following tables, revenue is disaggregated by primary geographical market and major service lines. The table below reconciles disaggregated
Total IFRS 15 revenue
1,899
2,028
4,659
4,374
6,953
Revenue for the year ended 31 March 2023
Revenue under IFRS 15
Transmission
Distribution
System Operator
Other1
Other revenue
Generation
Other2
Total other revenue
1,868
—
—
31
—
1,951
—
77
126
—
4,533
—
—
47
47
—
5
5
—
—
—
52
567
4,314
6,373
—
8
—
53
53
—
13
—
41
41
791
—
—
131
922
394
(33)
361
—
—
—
—
—
—
317
317
317
3,404
12,638
4,533
260
20,835
394
430
824
21,659
Total revenue from continuing operations
1,946
2,033
4,659
4,427
6,994
1,283
1. The UK Electricity Transmission and UK Electricity Distribution other IFRS 15 revenue principally relates to engineering recharges, which are the recovery of costs incurred for
construction work requested by customers, such as the rerouting of existing network assets. Within NGV, the other IFRS 15 revenue principally relates to revenue generated from
our National Grid Renewables business.
2. Other revenue, recognised in accordance with accounting standards other than IFRS 15, includes property sales by our UK commercial property business, rental income, income arising
in connection with the Transition Services Agreements following the sales of NECO and the UK Gas Transmission business in the year, and a provision and adjustment to NGV revenue
in respect of the interconnector cap and floor regime constructed by Ofgem. In the year ended 31 March 2023 the Group also recognised other income relating to an insurance claim.
3. Revenue continued
(h) Disaggregation of revenue continued
Geographical split for the year ended
31 March 2023
Revenue under IFRS 15
UK
US
Total IFRS 15 revenue
Other revenue
UK
US
Total other revenue
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures
£m
1,899
2,028
4,659
—
—
—
1,899
2,028
4,659
—
4,374
4,374
—
6,953
6,953
47
—
47
5
—
5
—
—
—
—
53
53
—
41
41
799
123
922
(31)
392
361
Total revenue from continuing operations
1,946
2,033
4,659
4,427
6,994
1,283
Other
£m
Total
£m
—
—
—
205
112
317
317
9,385
11,450
20,835
226
598
824
21,659
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
Total IFRS 15 revenue
2,018
1,464
3,437
4,496
5,525
1,983
—
—
35
—
1,375
—
89
—
—
3,418
19
52
405
4,434
5,110
—
10
—
10
—
10
10
—
4
4
—
—
—
—
54
54
—
36
36
2,028
1,468
3,437
4,550
5,561
1,024
627
—
—
147
774
373
(123)
250
Exceptional items and remeasurements
—
—
—
—
—
—
Total revenue from continuing operations
2,028
1,468
3,437
4,550
5,561
1,024
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
2,018
1,464
3,437
—
—
—
2,018
1,464
3,437
—
4,496
4,496
—
5,525
5,525
10
—
10
4
—
4
—
—
—
—
54
54
—
36
36
646
128
774
(132)
382
250
2,028
1,468
3,437
4,550
5,561
1,024
Revenue for the year ended 31 March 2022
Revenue under IFRS 15
Transmission
Distribution
System Operator
Other2
Other revenue
Generation
Other3
Total other revenue
Total revenue before exceptional items
and remeasurements
Geographical split for the year ended 31 March 2022
Revenue under IFRS 15
UK
US
Total IFRS 15 revenue
Other revenue
UK
US
Total other revenue
Total revenue before exceptional items and
remeasurements
—
—
—
—
—
—
192
192
192
189
381
3,067
10,919
3,418
310
17,714
373
173
546
18,260
189
18,449
—
—
—
167
25
192
192
189
381
7,565
10,149
17,714
49
497
546
18,260
189
18,449
UK Electricity
Transmission
UK Electricity
Distribution
£m
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures
£m
Other
£m
Total
£m
Exceptional items and remeasurements
—
—
—
—
—
—
Total revenue from continuing operations
2,028
1,468
3,437
4,550
5,561
1,024
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
2. The UK Electricity Transmission and UK Electricity Distribution other IFRS 15 revenue principally relates to engineering recharges, which are the recovery of costs incurred for
construction work requested by customers, such as the rerouting of existing network assets. UK Electricity System Operator other IFRS 15 revenue reflects the net income from
its role as agent in respect of transmission network revenues. Within NGV, the other IFRS 15 revenue principally relates to revenue generated from our National Grid Renewables
business.
3. Other revenue, recognised in accordance with accounting standards other than IFRS 15, includes property sales by our UK commercial property business and rental income.
Included within NGV is a provision and adjustment to NGV revenue in respect of the interconnector cap and floor regime constructed by Ofgem.
134
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
135135
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
3. Revenue continued
(h) Disaggregation of revenue continued
Total revenue from continuing operations
1,964
Revenue for the year ended 31 March 2021
Revenue under IFRS 15
Transmission
Distribution
System Operator
Other2
Total IFRS 15 revenue
Other revenue
Generation
Other3
Total other revenue
Geographical split for the year ended 31 March 2021
Revenue under IFRS 15
UK
US
Total IFRS 15 revenue
Other revenue
UK
US
Total other revenue
1,875
—
—
67
1,942
—
22
22
1,942
—
1,942
22
—
22
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
—
—
—
—
—
—
—
—
—
—
—
2,076
(61)
74
329
316
4,091
4,226
—
8
—
7
—
—
76
2,015
4,173
4,562
392
—
3
3
—
41
41
—
43
43
2,018
4,214
4,605
376
18
394
786
—
—
—
—
—
—
78
78
78
2,594
8,317
2,076
97
13,084
376
205
581
13,665
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
—
—
—
—
—
—
—
2,015
—
2,015
—
4,173
4,173
—
4,562
4,562
3
—
3
—
41
41
—
43
43
2,018
4,214
4,605
327
65
392
3
391
394
786
—
—
—
56
22
78
78
4,284
8,800
13,084
84
497
581
13,665
Total revenue from continuing operations
1,964
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
2. The UK Electricity Transmission other IFRS 15 revenue principally relates to engineering recharges, which are the recovery of costs incurred for construction work requested by
customers, such as the rerouting of existing network assets. UK Electricity System Operator other IFRS 15 revenue reflects the net income from its role as agent in respect of
transmission network revenues. Within NGV, the other IFRS 15 revenue principally relates to revenue generated from our National Grid Renewables business.
3. Other revenue, recognised in accordance with accounting standards other than IFRS 15, principally includes property sales by our UK commercial property business reported in Other.
Contract liabilities (see note 23) represent revenue to be recognised in future periods relating to contributions in aid of construction of £2,006 million
(2022: £1,472 million; 2021: £1,160 million). Contract liabilities in the year ended 31 March 2021 included amounts in respect of the UK Gas
Transmission business of £136 million. Revenue is recognised over the life of the asset. The asset lives for connections in UK Electricity Transmission,
UK Electricity Distribution, New England and New York are 40 years, 69 years, 51 years and up to 51 years respectively. The weighted average
amortisation period is 27 years.
Future revenues in relation to unfulfilled performance obligations not yet received in cash amount to £5.0 billion (2022: £5.2 billion; 2021: £4.8 billion).
£1.8 billion (2022: £1.7 billion; 2021: £1.6 billion) relates to connection contracts in UK Electricity Transmission which will be recognised as revenue
over 24 years and £2.7 billion (2022: £3.0 billion; 2021: £3.0 billion) relates to revenues to be earned under Grain LNG contracts until 2045. The
remaining amount will be recognised as revenue over two years.
The amount of revenue recognised for the year ended 31 March 2023 from performance obligations satisfied (or partially satisfied) in previous
periods, mainly due to changes in the estimate of the stage of completion, is £nil (2022: £nil; 2021: £nil).
136
136
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
UK Electricity
Transmission
UK Electricity
Distribution
£m
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
3. Revenue continued
(h) Disaggregation of revenue continued
Revenue for the year ended 31 March 2021
Revenue under IFRS 15
Transmission
Distribution
System Operator
Other2
Total IFRS 15 revenue
Other revenue
Generation
Other3
Total other revenue
Geographical split for the year ended 31 March 2021
Revenue under IFRS 15
UK
US
UK
US
Total IFRS 15 revenue
Other revenue
Total other revenue
1,875
—
—
67
1,942
—
22
22
1,942
—
1,942
22
—
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
74
329
316
4,091
4,226
—
—
2,076
(61)
—
3
3
—
8
—
41
41
—
7
—
43
43
2,015
4,173
4,562
392
2,015
—
2,015
—
4,173
4,173
—
4,562
4,562
3
—
3
—
41
41
—
43
43
—
—
76
376
18
394
786
327
65
392
3
391
394
786
—
—
—
—
—
—
78
78
78
—
—
—
56
22
78
78
2,594
8,317
2,076
97
13,084
376
205
581
13,665
4,284
8,800
13,084
84
497
581
13,665
Total revenue from continuing operations
1,964
2,018
4,214
4,605
Total revenue from continuing operations
1,964
2,018
4,214
4,605
1. Comparative amounts have been re-presented to reflect NGV as a separate operating segment.
2. The UK Electricity Transmission other IFRS 15 revenue principally relates to engineering recharges, which are the recovery of costs incurred for construction work requested by
customers, such as the rerouting of existing network assets. UK Electricity System Operator other IFRS 15 revenue reflects the net income from its role as agent in respect of
transmission network revenues. Within NGV, the other IFRS 15 revenue principally relates to revenue generated from our National Grid Renewables business.
3. Other revenue, recognised in accordance with accounting standards other than IFRS 15, principally includes property sales by our UK commercial property business reported in Other.
(2022: £1,472 million; 2021: £1,160 million). Contract liabilities in the year ended 31 March 2021 included amounts in respect of the UK Gas
Transmission business of £136 million. Revenue is recognised over the life of the asset. The asset lives for connections in UK Electricity Transmission,
UK Electricity Distribution, New England and New York are 40 years, 69 years, 51 years and up to 51 years respectively. The weighted average
amortisation period is 27 years.
Future revenues in relation to unfulfilled performance obligations not yet received in cash amount to £5.0 billion (2022: £5.2 billion; 2021: £4.8 billion).
£1.8 billion (2022: £1.7 billion; 2021: £1.6 billion) relates to connection contracts in UK Electricity Transmission which will be recognised as revenue
over 24 years and £2.7 billion (2022: £3.0 billion; 2021: £3.0 billion) relates to revenues to be earned under Grain LNG contracts until 2045. The
remaining amount will be recognised as revenue over two years.
The amount of revenue recognised for the year ended 31 March 2023 from performance obligations satisfied (or partially satisfied) in previous
periods, mainly due to changes in the estimate of the stage of completion, is £nil (2022: £nil; 2021: £nil).
4. Other operating costs
Below we have presented separately certain items included in our operating costs from continuing operations. These include a breakdown
of payroll costs (including disclosure of amounts paid to key management personnel) and fees paid to our auditors.
Depreciation, amortisation
and impairment
Payroll costs
Purchases of electricity
Purchases of gas
Property and other taxes
UK Electricity Balancing costs
Other
Other operating costs
Provision for bad
and doubtful debts
Before exceptional items
and remeasurements
2023
£m
1,984
1,929
1,808
2,413
1,302
4,052
3,670
2022¹
£m
1,830
1,770
1,487
1,851
1,202
3,152
2,988
2021
£m
1,485
1,622
1,181
1,233
1,105
1,875
2,412
17,158
14,280
10,913
Exceptional items
and remeasurements
2023
£m
2022¹
£m
2021
£m
—
29
247
103
—
—
12
391
—
24
(207)
(185)
—
—
227
(141)
—
16
(51)
17
—
—
44
26
—
26
UK Electricity
Transmission
UK Electricity
Distribution
£m
£m
UK Electricity
System
Operator
£m
New
England
£m
New
York
£m
National
Grid
Ventures¹
£m
Other¹
£m
Total
£m
Total operating costs from
continuing operations
Operating costs from continuing operations include:
17,378
Inventory consumed
Research and development expenditure
14,447
11,238
391
(141)
220
167
325
—
—
Contract liabilities (see note 23) represent revenue to be recognised in future periods relating to contributions in aid of construction of £2,006 million
Less: payroll costs capitalised
Total payroll costs from continuing operations
1. Amounts in the year ended 31 March 2022 have been re-presented to disclose other operating income separately from other operating costs.
(a) Payroll costs
Wages and salaries1
Social security costs
Defined contribution scheme costs
Defined benefit pension costs
Share-based payments
Severance costs (excluding pension costs)
2023
£m
1,984
1,958
2,055
2,516
1,302
4,052
3,682
Total
2022¹
£m
1,830
1,794
1,280
1,666
1,202
3,152
3,215
2021
£m
1,485
1,638
1,130
1,250
1,105
1,875
2,456
17,549
14,139
10,939
220
167
325
17,769
14,306
11,264
723
23
436
11
312
12
2023
£m
2022
£m
2021
£m
2,971
2,563
2,170
244
98
121
46
3
3,483
(1,525)
1,958
201
81
185
38
5
3,073
(1,279)
1,794
156
67
126
23
9
2,551
(913)
1,638
1. Included within wages and salaries are US other post-retirement benefit costs of £37 million (2022: £39 million; 2021: £43 million). For further information refer to note 25.
(b) Number of employees
UK
US
Total number of employees (continuing operations)
31 March
2023
12,572
16,878
29,450
Monthly
average
2023
12,024
16,539
28,563
31 March
2022
11,960
17,332
29,292
Monthly
average
2022
11,393
17,314
28,707
31 March
2021
4,468
17,026
21,494
Monthly
average
2021
4,333
16,821
21,154
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Notes to the consolidated financial statements continued
4. Other operating costs continued
(c) Key management compensation
Short-term employee benefits
Compensation for loss of office
Post-employment benefits
Share-based payments
Total key management compensation
2023
£m
2022
£m
7
—
—
6
13
7
—
1
5
13
2021
£m
7
—
1
4
12
Key management compensation relates to the Board, including the Executive Directors and Non-executive Directors for the years presented.
(d) Directors’ emoluments
Details of Executive Directors’ emoluments are contained in the Remuneration Report on page 95 and those of Non-executive Directors on
page 101.
(e) Auditors’ remuneration
Auditors’ remuneration is presented below in accordance with the requirements of the Companies Act 2006 and the principal accountant fees
and services disclosure requirements of Item 16C of Form 20-F:
Audit fees payable to the Parent Company’s auditor and their associates in respect of:
Audit of the Parent Company’s individual and consolidated financial statements1
The auditing of accounts of any associate of the Company
Other services supplied2
Total other services3
All other fees:
Other assurance services4
Other non-audit services not covered above5
Total auditor’s remuneration
2023
£m
2022
£m
2.9
9.0
7.4
2.7
8.9
7.3
2021
£m
2.5
8.1
6.4
19.3
18.9
17.0
1.4
0.2
1.6
0.9
0.1
1.0
0.8
2.0
2.8
20.9
19.9
19.8
1. Audit fees in each year represent fees for the audit of the Company’s financial statements for the years ended 31 March 2023, 2022 and 2021.
2. Other services supplied represent fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the auditor. 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 Act), audit reports on regulatory returns
and the review of interim financial statements for the six-month periods ended 30 September 2022, 2021 and 2020 respectively.
3. There were no tax compliance or tax advisory fees and no audit-related fees as described in Item 16C(b) of Form 20-F.
4. In all years, principally relates to assurance services provided in relation to comfort letters for debt issuances and, in 2021, also includes amounts related to capacity market auction
monitoring services.
5. For 2021, includes the class 1 Circular in respect of the acquisition of NGED.
The Audit & Risk Committee considers and makes recommendations to the Board, to be put to shareholders for approval at each AGM, in relation
to the appointment, reappointment, removal and oversight of the Company’s independent auditor. The Committee, under authority granted at the
AGM, also considers and approves the audit fees on behalf of the Board in accordance with the Competition and Markets Authority Audit Order
2014. Details of our policies and procedures in relation to non-audit services to be provided by the independent auditor are set out on page 87
of the Corporate Governance Report.
Certain services are prohibited from being performed by the external auditor under the Sarbanes-Oxley Act. Of the above services, none
were prohibited.
138
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National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
4. Other operating costs continued
(c) Key management compensation
Short-term employee benefits
Compensation for loss of office
Post-employment benefits
Share-based payments
Total key management compensation
(d) Directors’ emoluments
page 101.
(e) Auditors’ remuneration
Key management compensation relates to the Board, including the Executive Directors and Non-executive Directors for the years presented.
Details of Executive Directors’ emoluments are contained in the Remuneration Report on page 95 and those of Non-executive Directors on
Auditors’ remuneration is presented below in accordance with the requirements of the Companies Act 2006 and the principal accountant fees
and services disclosure requirements of Item 16C of Form 20-F:
Audit fees payable to the Parent Company’s auditor and their associates in respect of:
Audit of the Parent Company’s individual and consolidated financial statements1
The auditing of accounts of any associate of the Company
Other services supplied2
Total other services3
All other fees:
Other assurance services4
Other non-audit services not covered above5
2023
£m
2022
£m
7
—
—
6
13
7
—
1
5
13
2021
£m
7
—
1
4
12
2023
£m
2022
£m
2.9
9.0
7.4
1.4
0.2
1.6
2.7
8.9
7.3
0.9
0.1
1.0
2021
£m
2.5
8.1
6.4
0.8
2.0
2.8
19.3
18.9
17.0
1. Audit fees in each year represent fees for the audit of the Company’s financial statements for the years ended 31 March 2023, 2022 and 2021.
2. Other services supplied represent fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the auditor. 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 Act), audit reports on regulatory returns
and the review of interim financial statements for the six-month periods ended 30 September 2022, 2021 and 2020 respectively.
3. There were no tax compliance or tax advisory fees and no audit-related fees as described in Item 16C(b) of Form 20-F.
4. In all years, principally relates to assurance services provided in relation to comfort letters for debt issuances and, in 2021, also includes amounts related to capacity market auction
monitoring services.
5. For 2021, includes the class 1 Circular in respect of the acquisition of NGED.
The Audit & Risk Committee considers and makes recommendations to the Board, to be put to shareholders for approval at each AGM, in relation
to the appointment, reappointment, removal and oversight of the Company’s independent auditor. The Committee, under authority granted at the
AGM, also considers and approves the audit fees on behalf of the Board in accordance with the Competition and Markets Authority Audit Order
2014. Details of our policies and procedures in relation to non-audit services to be provided by the independent auditor are set out on page 87
of the Corporate Governance Report.
were prohibited.
5. Exceptional items and remeasurements
To monitor our financial performance, we use an adjusted consolidated profit measure that excludes certain income and expenses. We exclude
items from adjusted profit because, if included, these items could distort understanding of our performance for the year and the comparability
between periods. This note analyses these items, which are included in our results for the year but are excluded from adjusted profit.
Exceptional items and remeasurements from continuing operations
Included within operating profit
Exceptional items:
Net gain on disposal of NECO
Net gain on disposal of Millennium Pipeline Company LLC
IFA fire
Transaction, separation and integration costs¹
Changes in environmental provisions
Cost efficiency programme
New operating model implementation costs
Release of St William Homes LLP deferred income
Net gain on disposal of St William Homes LLP
Environmental insurance recovery
Remeasurements – commodity contract derivatives
Included within finance income and costs
Remeasurements:
Net gains on financing derivatives
Net (losses)/gains on financial assets at fair value through profit and loss
Included within share of post-tax results of joint ventures and associates
Remeasurements:
Total auditor’s remuneration
20.9
19.9
19.8
Remeasurements – net losses on financial instruments
Total included within profit before tax
Included within tax
Exceptional items – movements arising on items not included in profit before tax:
Deferred tax charge arising as a result of UK tax rate change
Tax on exceptional items
Tax on remeasurements
Total exceptional items and remeasurements after tax
Analysis of total exceptional items and remeasurements after tax
Exceptional items after tax
Remeasurements after tax
Total exceptional items and remeasurements after tax
Certain services are prohibited from being performed by the external auditor under the Sarbanes-Oxley Act. Of the above services, none
1. Transaction, separation and integration costs represent the aggregate of distinct activities undertaken by the Group in the years presented.
2023
£m
2022
£m
2021
£m
511
335
130
(117)
176
(100)
—
—
—
—
935
(350)
585
82
(28)
54
—
—
—
(223)
—
(42)
(24)
189
228
38
166
392
558
74
(15)
59
(19)
620
(56)
561
—
(316)
75
(241)
379
619
(240)
379
(458)
(28)
(103)
(589)
(28)
(320)
292
(28)
—
—
—
(24)
14
—
(50)
—
—
—
(60)
34
(26)
47
23
70
(8)
36
—
8
(34)
(26)
10
(52)
62
10
138
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Annual Report and Accounts 2022/23
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Annual Report and Accounts 2022/23
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Notes to the consolidated financial statements continued
5. Exceptional items and remeasurements continued
Exceptional items
Management uses an exceptional items framework that has been discussed and approved by the Audit & Risk Committee. This follows a three-step
process which considers the nature of the event, the financial materiality involved and any particular facts and circumstances. In considering the
nature of the event, management focuses on whether the event is within the Group’s control and how frequently such an event typically occurs.
With respect to restructuring costs, these represent additional expenses incurred that are not related to the normal business and day-to-day
activities. In determining the facts and circumstances, management considers factors such as ensuring consistent treatment between favourable
and unfavourable transactions, the precedent for similar items, the number of periods over which costs will be spread or gains earned, and the
commercial context for the particular transaction. The exceptional items framework was last updated in March 2022.
Items of income or expense that are considered by management for designation as exceptional items include significant restructurings, write-downs
or impairments of non-current assets, significant changes in environmental or decommissioning provisions, integration of acquired businesses, gains
or losses on disposals of businesses or investments and significant debt redemption costs as a consequence of transactions such as significant
disposals or issues of equity, and the related tax, as well as deferred tax arising on changes to corporation tax rates.
Costs arising from efficiency and transformation programmes include redundancy costs. Redundancy costs are charged to the consolidated income
statement in the year in which a commitment is made to incur the costs and the main features of the restructuring plan have been announced to
affected employees.
Set out below are details of the transactions against which we have considered the application of our exceptional items framework in each of the
years for which results are presented. No COVID-19 related costs incurred have been recognised as exceptional in any of the years presented.
2023
Net gain on disposal of NECO
During the year, the Group recognised a gain of £511 million on the disposal of 100% of the share capital of NECO to PPL Rhode Island Holdings,
LLC for cash consideration of £3.1 billion ($3.9 billion) (see note 10). The receipt of cash has been recognised within net cash used in investing
activities within the consolidated cash flow statement.
Net gain on disposal of Millennium Pipeline Company LLC
During the year, the Group recognised a gain of £335 million on the disposal of its entire 26.25% equity interest in the Millennium Pipeline Company
LLC associate to DT Midstream for cash consideration of £497 million. The receipt of cash has been recognised within net cash used in investing
activities within the consolidated cash flow statement.
Fire at IFA converter station
In September 2021, a fire at the IFA converter station in Sellindge, Kent caused significant damage to infrastructure on site. In the year, the Group
recognised £130 million of insurance claims (net of asset write-offs) which have been recognised as exceptional in line with our exceptional items
policy. The total cash inflow for the period was £79 million.
Transaction, separation and integration costs
During the year, separation costs of £39 million were incurred in relation to the disposal of NECO, £38 million in relation to the disposal of a majority
stake in our UK Gas Transmission business (see note 10) and £40 million in connection with the integration of NGED. The costs incurred primarily
relate to legal fees, bankers’ fees, professional fees and employee costs. The costs have been classified as exceptional, consistent with similar costs
for the years ended 31 March 2022 and 2021 and in line with the exceptional items policy. The total cash outflow for the period in relation to these
costs was £84 million.
Changes in environmental provisions
The real discount rate applied to the Group’s environmental provisions was revised to 1.5% in the year (2022: 0.5%) to reflect the substantial and
sustained change in United States government bond yield curves (see note 26). The principal impact of this rate increase was a £165 million
decrease in our US environmental provisions and a £11 million decrease in our UK environmental provision. The weighted average remaining duration
of our cash flows is now around 10.5 years.
Cost efficiency programme
During the year, the Group incurred a further £100 million of costs in relation to the major cost efficiency programme announced in November 2021,
that is targeting at least £400 million savings per annum across the Group by the end of three years. The costs recognised in the period primarily
relate to property costs, employee costs and professional fees incurred in delivering the programme. Whilst the costs incurred during the period
do not meet the quantitative threshold to be classified as exceptional on a standalone basis, when taken in aggregate with the £42 million of costs
incurred in the year ended 31 March 2022, the costs qualify for exceptional treatment in line with our exceptional items policy. Estimated costs
expected to be incurred in future years are disclosed in the Financial review on page 59. The total cash outflow for the period in relation to these
costs was £85 million.
140
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
Exceptional items
Management uses an exceptional items framework that has been discussed and approved by the Audit & Risk Committee. This follows a three-step
process which considers the nature of the event, the financial materiality involved and any particular facts and circumstances. In considering the
nature of the event, management focuses on whether the event is within the Group’s control and how frequently such an event typically occurs.
With respect to restructuring costs, these represent additional expenses incurred that are not related to the normal business and day-to-day
activities. In determining the facts and circumstances, management considers factors such as ensuring consistent treatment between favourable
and unfavourable transactions, the precedent for similar items, the number of periods over which costs will be spread or gains earned, and the
commercial context for the particular transaction. The exceptional items framework was last updated in March 2022.
Items of income or expense that are considered by management for designation as exceptional items include significant restructurings, write-downs
or impairments of non-current assets, significant changes in environmental or decommissioning provisions, integration of acquired businesses, gains
or losses on disposals of businesses or investments and significant debt redemption costs as a consequence of transactions such as significant
disposals or issues of equity, and the related tax, as well as deferred tax arising on changes to corporation tax rates.
Costs arising from efficiency and transformation programmes include redundancy costs. Redundancy costs are charged to the consolidated income
statement in the year in which a commitment is made to incur the costs and the main features of the restructuring plan have been announced to
Set out below are details of the transactions against which we have considered the application of our exceptional items framework in each of the
years for which results are presented. No COVID-19 related costs incurred have been recognised as exceptional in any of the years presented.
affected employees.
2023
Net gain on disposal of NECO
During the year, the Group recognised a gain of £511 million on the disposal of 100% of the share capital of NECO to PPL Rhode Island Holdings,
LLC for cash consideration of £3.1 billion ($3.9 billion) (see note 10). The receipt of cash has been recognised within net cash used in investing
During the year, the Group recognised a gain of £335 million on the disposal of its entire 26.25% equity interest in the Millennium Pipeline Company
LLC associate to DT Midstream for cash consideration of £497 million. The receipt of cash has been recognised within net cash used in investing
In September 2021, a fire at the IFA converter station in Sellindge, Kent caused significant damage to infrastructure on site. In the year, the Group
recognised £130 million of insurance claims (net of asset write-offs) which have been recognised as exceptional in line with our exceptional items
activities within the consolidated cash flow statement.
Net gain on disposal of Millennium Pipeline Company LLC
activities within the consolidated cash flow statement.
Fire at IFA converter station
policy. The total cash inflow for the period was £79 million.
Transaction, separation and integration costs
During the year, separation costs of £39 million were incurred in relation to the disposal of NECO, £38 million in relation to the disposal of a majority
stake in our UK Gas Transmission business (see note 10) and £40 million in connection with the integration of NGED. The costs incurred primarily
relate to legal fees, bankers’ fees, professional fees and employee costs. The costs have been classified as exceptional, consistent with similar costs
for the years ended 31 March 2022 and 2021 and in line with the exceptional items policy. The total cash outflow for the period in relation to these
costs was £84 million.
Changes in environmental provisions
of our cash flows is now around 10.5 years.
Cost efficiency programme
The real discount rate applied to the Group’s environmental provisions was revised to 1.5% in the year (2022: 0.5%) to reflect the substantial and
sustained change in United States government bond yield curves (see note 26). The principal impact of this rate increase was a £165 million
decrease in our US environmental provisions and a £11 million decrease in our UK environmental provision. The weighted average remaining duration
During the year, the Group incurred a further £100 million of costs in relation to the major cost efficiency programme announced in November 2021,
that is targeting at least £400 million savings per annum across the Group by the end of three years. The costs recognised in the period primarily
relate to property costs, employee costs and professional fees incurred in delivering the programme. Whilst the costs incurred during the period
do not meet the quantitative threshold to be classified as exceptional on a standalone basis, when taken in aggregate with the £42 million of costs
incurred in the year ended 31 March 2022, the costs qualify for exceptional treatment in line with our exceptional items policy. Estimated costs
expected to be incurred in future years are disclosed in the Financial review on page 59. The total cash outflow for the period in relation to these
costs was £85 million.
5. Exceptional items and remeasurements continued
5. Exceptional items and remeasurements continued
Exceptional items continued
2022
Net gain on disposal of St William Homes LLP and release of deferred income
The Group recognised a gain of £228 million on the disposal of its entire 50% equity interest in the St William Homes LLP joint venture to The
Berkeley Group plc for cash consideration of £413 million (see note 16). In connection with the disposal, the Group also released deferred income
of £189 million which related to deferred profits from previous property sales to St William Homes LLP. We concluded that the release of the
deferred income should be classified as exceptional given the crystallisation event for the release is the sale of the Group’s equity interest in
St William Homes LLP.
New operating model implementation costs and cost efficiency programme
The Group incurred a further £24 million of costs in relation to the design and implementation of our new operating model and £42 million in relation
to the major cost efficiency programme announced in November 2021. The costs recognised primarily related to professional fees incurred and
redundancy provisions.
Whilst the costs incurred did not meet the quantitative threshold to be classified as exceptional on a standalone basis, when taken in aggregate
with the costs expected to be incurred over the duration of the cost efficiency programme, we concluded that the costs should be classified as
exceptional in line with our exceptional items policy. The total cash outflow for the period was £48 million.
Transaction and separation costs
£223 million of transaction and separation costs were incurred in relation to the acquisition of NGED (see note 37), the planned disposal of NECO
(see note 10) and the planned disposal of our UK Gas Transmission business (see note 10). The costs related to legal fees, bankers’ fees and other
professional fees. The costs were classified as exceptional, consistent with similar costs for the year ended 31 March 2021. The total cash outflow
for the year was £196 million.
Environmental insurance recovery
In the US, the most significant component of our £1.9 billion environmental provision relates to several Superfund sites, and arose from former
manufacturing gas plant facilities, previously owned or operated by the Group or its predecessor companies. Under Federal and State Superfund
laws, potential liability for the historical contamination may be imposed on responsible parties jointly and severally, without regard to fault, even if
the activities were lawful when they occurred. In the year ended 31 March 2022, we recognised an exceptional gain of £38 million relating to an
insurance receivable for site remediation costs included in our Superfund sites environmental provision. The insurance receipts were recorded as
an exceptional item in line with the treatment of the related costs.
2021
New operating model implementation costs
The Group incurred £50 million of costs in relation to the design and implementation of our new operating model that is built on a foundation of six
business units. The costs recognised in the year ended 31 March 2021 primarily related to professional fees incurred and redundancy provisions.
In evaluating the costs incurred against the quantitative thresholds in our exceptional items framework we considered the total costs to be incurred
over the duration of the programme. Whilst the costs incurred did not meet the quantitative threshold to be classified as exceptional on a standalone
basis, we concluded that the costs should be classified as exceptional in line with our exceptional items policy, in order to ensure that the costs are
treated in a consistent manner with similar costs incurred previously. The total cash outflow for the year was £33 million.
Transaction and separation costs
£24 million of transaction and separation costs were incurred in relation to the acquisition of NGED (see note 37) and the planned sale of NECO
(see note 10). The costs related to legal fees, bankers’ fees and professional fees. Whilst the costs incurred in isolation were not sufficiently material
to warrant classification as an exceptional item, we expected further costs to be incurred in the next year, for example in regard to success fees on
completion of the acquisition. When taken in aggregate, the costs incurred over both years will be sufficiently material to be classified as exceptional
in line with our policy. The total cash outflow for the year was £14 million.
Changes in environmental provision
We recognised an exceptional gain of £14 million relating to the release of environmental provisions relating to one of our US Superfund sites, for
which the original provision was treated as an exceptional item. The reduction in the provision arose as a result of the re-evaluation of the Group’s
share of estimated costs following the finalisation of discussions on the scope of certain remediation work with government authorities. The release
was recorded as an exceptional item in line with the treatment of the original provision.
140
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5. Exceptional items and remeasurements continued
Remeasurements
Remeasurements comprise unrealised gains or losses recorded in the consolidated income statement arising from changes in the fair value of certain
of our financial assets and liabilities accounted for at fair value through profit and loss (FVTPL). Once the fair value movements are realised (for
example when the derivative matures), the previously recognised fair value movements are then reversed through remeasurements and recognised
within earnings before exceptional items and remeasurements. These assets and liabilities include commodity contract derivatives and financing
derivatives to the extent that hedge accounting is not available or is not fully effective.
The unrealised gains or losses reported in profit and loss on certain additional assets and liabilities treated at FVTPL are also classified within
remeasurements. These relate to financial assets (which fail the ‘solely payments of principal and interest test’ under IFRS 9), the money market fund
investments used by Group Treasury for cash management purposes and the net foreign exchange gains and losses on borrowing activities. These
are offset by foreign exchange gains and losses on financing derivatives measured at fair value. In all cases, these fair values increase or decrease
because of changes in foreign exchange, commodity or other financial indices over which we have no control.
We report unrealised gains or losses relating to certain discrete classes of financial assets accounted for at FVTPL within adjusted profit. These
comprise our portfolio of investments made by National Grid Partners, our investment in Sunrun Neptune 2016 LLC and the contingent consideration
arising on the acquisition of National Grid Renewables (all within NGV). The performance of these assets (including changes in fair value) is included in
our assessment of adjusted profit for the relevant business units.
Remeasurements excluded from adjusted profit are made up of the following categories:
i. Net gains/(losses) on commodity contract derivatives represent mark-to-market movements on certain physical and financial commodity contract
obligations in the US. These contracts primarily relate to the forward purchase of energy for supply to customers, or to the economic hedging
thereof, that are required to be measured at fair value and that do not qualify for hedge accounting. Under the existing rate plans in the US,
commodity costs are recoverable from customers although the timing of recovery may differ from the pattern of costs incurred;
ii. Net gains/(losses) on financing derivatives comprise gains and losses arising on derivative financial instruments used for the risk management
of interest rate and foreign exchange exposures and the offsetting foreign exchange losses and gains on the associated borrowing activities.
These exclude gains and losses for which hedge accounting has been effective and have been recognised directly in the consolidated statement
of other comprehensive income or are offset by adjustments to the carrying value of debt (see notes 17 and 32). Net foreign exchange gains
and losses on financing derivatives used for the risk management of foreign exchange exposures are offset by foreign exchange losses and
gains on borrowing activities;
iii. Net gains/(losses) on financial assets measured at FVTPL comprise gains and losses on the investment funds held by our insurance captives
which are categorised as FVTPL (see note 15); and
iv. Unrealised net gains/(losses) on derivatives and other financial instruments within our joint ventures and associates.
Items included within tax
2022
Change in UK corporation tax rate
In the Spring Budget 2021, the UK government announced that from 1 April 2023 the UK corporation tax rate will increase to 25%, and this was
substantively enacted on 24 May 2021. Deferred tax balances at 31 March 2022 were remeasured at the enacted rate, with £458 million recognised
as exceptional, in line with previous periods.
142
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National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
Remeasurements
Remeasurements comprise unrealised gains or losses recorded in the consolidated income statement arising from changes in the fair value of certain
of our financial assets and liabilities accounted for at fair value through profit and loss (FVTPL). Once the fair value movements are realised (for
example when the derivative matures), the previously recognised fair value movements are then reversed through remeasurements and recognised
within earnings before exceptional items and remeasurements. These assets and liabilities include commodity contract derivatives and financing
derivatives to the extent that hedge accounting is not available or is not fully effective.
The unrealised gains or losses reported in profit and loss on certain additional assets and liabilities treated at FVTPL are also classified within
remeasurements. These relate to financial assets (which fail the ‘solely payments of principal and interest test’ under IFRS 9), the money market fund
investments used by Group Treasury for cash management purposes and the net foreign exchange gains and losses on borrowing activities. These
are offset by foreign exchange gains and losses on financing derivatives measured at fair value. In all cases, these fair values increase or decrease
because of changes in foreign exchange, commodity or other financial indices over which we have no control.
We report unrealised gains or losses relating to certain discrete classes of financial assets accounted for at FVTPL within adjusted profit. These
comprise our portfolio of investments made by National Grid Partners, our investment in Sunrun Neptune 2016 LLC and the contingent consideration
arising on the acquisition of National Grid Renewables (all within NGV). The performance of these assets (including changes in fair value) is included in
our assessment of adjusted profit for the relevant business units.
Remeasurements excluded from adjusted profit are made up of the following categories:
i. Net gains/(losses) on commodity contract derivatives represent mark-to-market movements on certain physical and financial commodity contract
obligations in the US. These contracts primarily relate to the forward purchase of energy for supply to customers, or to the economic hedging
thereof, that are required to be measured at fair value and that do not qualify for hedge accounting. Under the existing rate plans in the US,
commodity costs are recoverable from customers although the timing of recovery may differ from the pattern of costs incurred;
ii. Net gains/(losses) on financing derivatives comprise gains and losses arising on derivative financial instruments used for the risk management
of interest rate and foreign exchange exposures and the offsetting foreign exchange losses and gains on the associated borrowing activities.
These exclude gains and losses for which hedge accounting has been effective and have been recognised directly in the consolidated statement
of other comprehensive income or are offset by adjustments to the carrying value of debt (see notes 17 and 32). Net foreign exchange gains
and losses on financing derivatives used for the risk management of foreign exchange exposures are offset by foreign exchange losses and
iii. Net gains/(losses) on financial assets measured at FVTPL comprise gains and losses on the investment funds held by our insurance captives
gains on borrowing activities;
which are categorised as FVTPL (see note 15); and
iv. Unrealised net gains/(losses) on derivatives and other financial instruments within our joint ventures and associates.
Items included within tax
2022
Change in UK corporation tax rate
In the Spring Budget 2021, the UK government announced that from 1 April 2023 the UK corporation tax rate will increase to 25%, and this was
substantively enacted on 24 May 2021. Deferred tax balances at 31 March 2022 were remeasured at the enacted rate, with £458 million recognised
as exceptional, in line with previous periods.
5. Exceptional items and remeasurements continued
6. Finance income and costs
This note details the interest income generated by our financial assets and interest expense incurred on our financial liabilities, primarily our
financing portfolio (including our financing derivatives). It also includes the net interest on our pensions and other post-retirement assets. In
reporting adjusted profit, we adjust net financing costs to exclude any net gains or losses on financial instruments included in remeasurements
(see note 5).
Finance income and costs remeasurements include unrealised gains and losses on certain assets treated at FVTPL. The interest income, dividends
and interest expense on these items are included in finance income and finance costs before remeasurements respectively.
Finance income
Net interest income on pensions and other post-retirement benefit obligations
Interest income on financial instruments:
Bank deposits and other financial assets
Dividends received on equities held at fair value through other comprehensive income (FVOCI)
Other income
Finance costs
Notes
25
2023
£m
2022
£m
2021
£m
85
—
80
1
—
166
32
3
30
65
—
33
2
—
35
Net interest expense on pensions and other post-retirement benefit obligations
25
—
—
(51)
Interest expense on financial liabilities held at amortised cost:
Bank loans and overdrafts
Other borrowings1
Interest on derivatives
Unwinding of discount on provisions
Other interest
Less: interest capitalised2
Remeasurements – Finance income
Net (losses)/gains on FVTPL financial assets
Remeasurements – Finance costs
Net gains on financing derivatives³:
Derivatives designated as hedges for hedge accounting
Derivatives not designated as hedges for hedge accounting
Total remeasurements – Finance income and costs
Finance income
Finance costs4
Net finance costs from continuing operations
26
(328)
(1,330)
(170)
(88)
(13)
249
(216)
(961)
(59)
(73)
11
152
(1,680)
(1,146)
(28)
(28)
(15)
(15)
22
60
82
54
138
45
29
74
59
50
(53)
(741)
(47)
(77)
(51)
120
(900)
23
23
30
17
47
70
58
(1,598)
(1,072)
(853)
(1,460)
(1,022)
(795)
1. Includes interest expense on lease liabilities (see note 13 for details).
2. Interest on funding attributable to assets in the course of construction in the current year was capitalised at a rate of 4.7% (2022: 3.2%; 2021: 3.1%). In the UK, capitalised interest
qualifies for a current year tax deduction with tax relief claimed of £30 million (2022: £16 million; 2021: £11 million). In the US, capitalised interest is added to the cost of property, plant
and equipment and qualifies for tax depreciation allowances.
3. Includes a net foreign exchange loss on borrowing activities of £86 million (2022: £110 million gain; 2021: £73 million gain) offset by foreign exchange gains and losses on financing
derivatives measured at fair value.
4. Finance costs include principal accretion on inflation-linked liabilities of £483 million (2022: £241 million; 2021: £46 million).
142
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Notes to the consolidated financial statements continued
7. Tax
Tax is payable in the territories where we operate, mainly the UK and the US. 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 the accounting and tax bases.
The tax charge for the period is recognised in the income statement, the statement of comprehensive income or directly in the statement of
changes 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 tax authorities. The tax rates and
tax laws used to compute the amounts are those that have been enacted or substantively enacted by the reporting date.
The Group operates internationally in territories with different and complex tax codes. Management exercises judgement in relation to the level
of provision required for uncertain tax outcomes. There are a number of tax positions not yet agreed with the tax authorities where different
interpretations of legislation could lead to a range of outcomes. Judgements are 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.
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 the taxable profit or loss.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and joint arrangements except where
the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on 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.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when
they relate to income taxes levied by the same tax authority, and the Company and its subsidiaries intend to settle their current tax assets and
liabilities on a net basis.
Tax charged to the consolidated income statement – continuing operations
Tax before exceptional items and remeasurements
Exceptional tax on items not included in profit before tax (note 5)
Tax on other exceptional items and remeasurements
Total tax reported within exceptional items and remeasurements
Total tax charge from continuing operations
Tax as a percentage of profit before tax
Before exceptional items and remeasurements – continuing operations
After exceptional items and remeasurements – continuing operations
2023
£m
635
—
241
241
876
2023
%
21.4
24.4
2022
£m
669
458
131
589
1,258
2022
%
23.2
36.6
2021
£m
334
—
26
26
360
2021
%
20.5
21.6
144
144
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
7. Tax
Tax is payable in the territories where we operate, mainly the UK and the US. 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 the accounting and tax bases.
The tax charge for the period is recognised in the income statement, the statement of comprehensive income or directly in the statement of
changes 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 tax authorities. The tax rates and
tax laws used to compute the amounts are those that have been enacted or substantively enacted by the reporting date.
The Group operates internationally in territories with different and complex tax codes. Management exercises judgement in relation to the level
of provision required for uncertain tax outcomes. There are a number of tax positions not yet agreed with the tax authorities where different
interpretations of legislation could lead to a range of outcomes. Judgements are 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.
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 the taxable profit or loss.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and joint arrangements except where
the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on 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
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when
they relate to income taxes levied by the same tax authority, and the Company and its subsidiaries intend to settle their current tax assets and
recovered.
liabilities on a net basis.
Tax charged to the consolidated income statement – continuing operations
Tax before exceptional items and remeasurements
Exceptional tax on items not included in profit before tax (note 5)
Tax on other exceptional items and remeasurements
Total tax reported within exceptional items and remeasurements
Total tax charge from continuing operations
Tax as a percentage of profit before tax
Before exceptional items and remeasurements – continuing operations
After exceptional items and remeasurements – continuing operations
2023
£m
635
—
241
241
876
2023
%
21.4
24.4
2022
£m
669
458
131
589
1,258
2022
%
23.2
36.6
2021
£m
334
—
26
26
360
2021
%
20.5
21.6
7. Tax continued
The tax charge for the year can be analysed as follows:
Current tax:
UK corporation tax at 19% (2022: 19%; 2021: 19%)
UK corporation tax adjustment in respect of prior years
Overseas corporation tax
Overseas corporation tax adjustment in respect of prior years
Total current tax from continuing operations
Deferred tax:
UK deferred tax
UK deferred tax adjustment in respect of prior years
Overseas deferred tax
Overseas deferred tax adjustment in respect of prior years
Total deferred tax from continuing operations
2023
£m
2022
£m
2021
£m
161
—
161
225
(16)
209
370
255
13
268
233
5
238
506
255
(9)
246
6
(26)
(20)
226
605
(5)
600
425
7
432
1,032
157
15
172
3
(15)
(12)
160
39
(20)
19
174
7
181
200
Total tax charge from continuing operations
876
1,258
360
Tax (credited)/charged to the consolidated statement of comprehensive income and equity
Current tax:
Share-based payments
Deferred tax:
Investments at fair value through other comprehensive income
Cash flow hedges, cost of hedging and own credit reserve
Remeasurements of pension assets and post-retirement benefit obligations
Share-based payments
Total tax recognised in the statements of comprehensive income from continuing operations
Total tax relating to share-based payments recognised directly in equity from continuing operations
2023
£m
2022
£m
2021
£m
(1)
—
—
(1)
(7)
(344)
1
(352)
(352)
—
(352)
—
(12)
493
(4)
477
481
(4)
477
12
6
462
1
481
480
1
481
144
National Grid plc
Annual Report and Accounts 2022/23
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Annual Report and Accounts 2022/23
145145
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
7. Tax continued
The tax charge for the year after exceptional items and remeasurements, for the continuing business, is higher (2022: higher tax charge; 2021: higher
tax charge) than the standard rate of corporation tax in the UK of 19% (2022: 19%; 2021: 19%):
Profit before tax from continuing operations
Before exceptional items and remeasurements
Exceptional items and remeasurements
Profit before tax from continuing operations
Profit before tax from continuing operations multiplied by
UK corporation tax rate of 19% (2022: 19%; 2021: 19%)
Effect of:
Adjustments in respect of prior years1
Expenses not deductible for tax purposes
Non-taxable income2
Adjustment in respect of foreign tax rates3
Deferred tax impact of change in UK tax rate
Adjustment in respect of post-tax profits of joint ventures
and associates included within profit before tax
Other4
Total tax charge from continuing operations
Effective tax rate – continuing operations
Before
exceptional
items and
remeasurements
2023
£m
After
exceptional
items and
remeasurements
2023
£m
Before
exceptional
items and
remeasurements
2022
£m
After
exceptional
items and
remeasurements
2022
£m
Before
exceptional
items and
remeasurements
2021
£m
After
exceptional
items and
remeasurements
2021
£m
2,970
—
2,970
2,970
620
3,590
2,880
—
2,880
2,880
561
3,441
1,628
—
1,628
1,628
36
1,664
564
682
547
654
309
316
2
28
(47)
73
62
(36)
(11)
635
%
21.4
2
92
(75)
147
66
(27)
(11)
876
%
24.4
(28)
13
(19)
143
43
(28)
(2)
669
%
23.2
(33)
47
(49)
170
501
(17)
(15)
1,258
%
36.6
(10)
18
(7)
42
—
(15)
(3)
334
%
20.5
(12)
29
(7)
42
—
(12)
4
360
%
21.6
1. The prior year adjustments are primarily due to agreement of prior period tax returns.
2. Includes tax on chargeable disposals after the offset of capital losses.
3. Includes remeasurement of US closing state deferred tax balances as a result of expected increase in the blended state tax rate following the disposal of NECO.
4. Other primarily comprises the movement in the deferred tax asset on previously unrecognised capital losses, claims for land remediation relief and claims for Research
& Development credit.
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 2023 have been calculated at 25%.
The US Government continues to consider changes to federal tax legislation, but as no changes have been substantively enacted at the balance
sheet date, deferred tax balances as at 31 March 2023 have been calculated at the prevailing tax rates based on the current tax laws.
We 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, we do not expect this to have any material impact on our future tax charges.
Governments across the world, including the UK and the US, have introduced various stimuli/reliefs for businesses to cope with the impact of the
COVID-19 pandemic, from which we do not currently expect there to be a material impact on our future tax charges.
146
146
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
Profit before tax from continuing operations
Before exceptional items and remeasurements
Exceptional items and remeasurements
Profit before tax from continuing operations
Profit before tax from continuing operations multiplied by
UK corporation tax rate of 19% (2022: 19%; 2021: 19%)
Effect of:
Adjustments in respect of prior years1
Expenses not deductible for tax purposes
Non-taxable income2
Adjustment in respect of foreign tax rates3
Deferred tax impact of change in UK tax rate
Adjustment in respect of post-tax profits of joint ventures
and associates included within profit before tax
Other4
Total tax charge from continuing operations
Before
exceptional
items and
After
exceptional
items and
Before
exceptional
items and
After
exceptional
items and
Before
exceptional
items and
After
exceptional
items and
remeasurements
remeasurements
remeasurements
remeasurements
remeasurements
remeasurements
2023
£m
2,970
—
2,970
2
28
(47)
73
62
(36)
(11)
635
%
21.4
2023
£m
2,970
620
3,590
2
92
(75)
147
66
(27)
(11)
876
%
24.4
2022
£m
2,880
—
2,880
(28)
13
(19)
143
43
(28)
(2)
669
%
23.2
2022
£m
2,880
561
3,441
(33)
47
(49)
170
501
(17)
(15)
1,258
%
36.6
2021
£m
1,628
—
1,628
(10)
18
(7)
42
—
(15)
(3)
334
%
20.5
2021
£m
1,628
36
1,664
(12)
29
(7)
42
—
(12)
4
360
%
21.6
Effective tax rate – continuing operations
1. The prior year adjustments are primarily due to agreement of prior period tax returns.
2. Includes tax on chargeable disposals after the offset of capital losses.
& Development credit.
Factors that may affect future tax charges
3. Includes remeasurement of US closing state deferred tax balances as a result of expected increase in the blended state tax rate following the disposal of NECO.
4. Other primarily comprises the movement in the deferred tax asset on previously unrecognised capital losses, claims for land remediation relief and claims for Research
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 2023 have been calculated at 25%.
The US Government continues to consider changes to federal tax legislation, but as no changes have been substantively enacted at the balance
sheet date, deferred tax balances as at 31 March 2023 have been calculated at the prevailing tax rates based on the current tax laws.
We 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, we do not expect this to have any material impact on our future tax charges.
Governments across the world, including the UK and the US, have introduced various stimuli/reliefs for businesses to cope with the impact of the
COVID-19 pandemic, from which we do not currently expect there to be a material impact on our future tax charges.
7. Tax continued
7. Tax continued
The tax charge for the year after exceptional items and remeasurements, for the continuing business, is higher (2022: higher tax charge; 2021: higher
tax charge) than the standard rate of corporation tax in the UK of 19% (2022: 19%; 2021: 19%):
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:
564
682
547
654
309
316
Charged/(credited) to other comprehensive income and equity
Deferred tax liabilities/(assets)
At 1 April 2021
Exchange adjustments and other2
Charged/(credited) to income statement
Reclassification to held for sale (note 10)
Acquisition of NGED (note 37)
At 1 April 2022
Exchange adjustments and other2
Charged/(credited) to income statement
Charged/(credited) to other comprehensive income and equity
Disposals
At 31 March 2023
—
—
—
—
—
429
429
—
—
—
—
6,434
247
1,050
—
(643)
622
7,710
357
145
—
1
429
8,213
(42)
(1)
26
(6)
5
—
(18)
(2)
(2)
1
—
(21)
93
1
118
587
(166)
142
775
8
51
(344)
—
490
(44)
1
153
(10)
2
(403)
(301)
8
(71)
(6)
—
Total
£m
4,815
163
1,230
571
(803)
789
(1,626)
(85)
(117)
—
(1)
(1)
(1,830)
6,765
(116)
386
—
—
255
509
(349)
1
(370)
(1,560)
7,181
Regulatory
licences
£m
Accelerated
tax
depreciation
£m
Share-
based
payments
£m
Pensions
and other
post-
retirement
benefits
£m
Financial
instruments
£m
Other net
temporary
differences1
£m
1. The deferred tax asset of £1,560 million as at 31 March 2023 (2022: £1,830 million) in respect of other net temporary differences primarily relates to losses of £47 million (2022:
£428 million), US contract and lease liabilities £511 million (2022: £450 million), US environmental provisions of £503 million (2022: £511 million) and US bad debt provision of
£148 million (2022: £201 million).
2. Exchange adjustments and other primarily comprises foreign exchange arising on translation of the US dollar deferred tax balances.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an 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 £7,181 million
(2022: £6,765 million). This balance is after offset of a deferred tax asset of £47 million (2022: £428 million) which has been recognised in respect
of net operating losses (£39 million) and capital losses (£8 million).
Deferred tax assets in respect of some capital losses as well as trading losses and non-trade deficits have not been recognised as their future
recovery is uncertain or not currently anticipated. The total deferred tax assets not recognised are as follows:
Capital losses
Non-trade deficits
Trading losses
2023
£m
2022
£m
2,367
2,363
—
4
1
7
The capital losses arose in the UK on disposal of certain businesses or assets. They are available to carry forward indefinitely but can only be offset
against future capital gains. The UK non-trade deficits arose prior to 1 April 2017 and therefore can only be offset against future non-trade profits.
At 31 March 2023 and 31 March 2022, there were no recognised deferred tax liabilities for taxes that would be payable on the unremitted
earnings of the Group’s subsidiaries or its associates as there are no significant corporation tax consequences of the Group’s UK, US or overseas
subsidiaries or associates paying dividends to their parent companies. There are also no significant income tax consequences for the Group from
the payment of dividends by the Group to its shareholders.
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Notes to the consolidated financial statements continued
8. Earnings per share (EPS)
EPS is the amount of profit after tax attributable to each ordinary share. Basic EPS is calculated on profit after tax for the year attributable to equity
shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS shows what the impact would be if all
outstanding share options were exercised and treated as ordinary shares at year end. The weighted average number of shares is increased by
additional shares issued as scrip dividends and reduced by shares repurchased by the Company during the year. The earnings per share
calculations are based on profit after tax attributable to equity shareholders of the Company which excludes non-controlling interests.
Adjusted earnings and EPS, which exclude exceptional items and remeasurements, are provided to reflect the adjusted profit subtotals used by the
Company. We have included reconciliations from this additional EPS measure to earnings for both basic and diluted EPS to provide additional detail
for these items. For further details of exceptional items and remeasurements, see note 5.
(a) Basic EPS
Adjusted earnings from continuing operations
2,335
63.8
2,210
61.4
1,293
Earnings
2023
£m
EPS
2023
pence
Earnings
2022
£m
EPS
2022
pence
Earnings
2021
£m
Exceptional items and remeasurements after tax from continuing operations
(see note 5)
Earnings from continuing operations
Adjusted earnings from discontinued operations (see note 10)
Exceptional items and remeasurements after tax from discontinued operations
Earnings from discontinued operations
Total adjusted earnings
Total exceptional items and remeasurements after tax
(including discontinued operations)
Total earnings
Weighted average number of ordinary shares – basic
(b) Diluted EPS
379
2,714
320
4,763
5,083
2,655
5,142
7,797
10.4
74.2
8.7
130.2
138.9
72.5
140.6
213.1
2023
millions
3,659
(28)
2,182
344
(173)
171
(0.8)
60.6
9.6
(4.8)
4.8
10
1,303
340
(3)
337
2,554
71.0
1,633
(201)
2,353
(5.6)
65.4
7
1,640
2022
millions
3,599
Earnings
2023
£m
EPS
2023
pence
Earnings
2022
£m
EPS
2022
pence
Earnings
2021
£m
Adjusted earnings from continuing operations
2,335
63.5
2,210
61.1
1,293
Exceptional items and remeasurements after tax from continuing operations
(see note 5)
Earnings from continuing operations
Adjusted earnings from discontinued operations
Exceptional items and remeasurements after tax from discontinued operations
(see note 10)
Earnings from discontinued operations
Total adjusted earnings
Total exceptional items and remeasurements after tax
(including discontinued operations)
Total earnings
Weighted average number of ordinary shares – diluted
379
2,714
320
4,763
5,083
2,655
5,142
7,797
10.3
73.8
8.7
129.6
138.3
72.2
139.9
212.1
2023
millions
3,676
(28)
2,182
344
(173)
171
2,554
(201)
2,353
(0.8)
60.3
9.5
(4.8)
4.7
70.6
(5.6)
65.0
2022
millions
3,616
10
1,303
340
(3)
337
1,633
7
1,640
EPS
2021
pence
36.7
0.3
37.0
9.7
(0.1)
9.6
46.4
0.2
46.6
2021
millions
3,523
EPS
2021
pence
36.5
0.3
36.8
9.6
(0.1)
9.5
46.1
0.2
46.3
2021
millions
3,540
(c) Reconciliation of basic to diluted average number of shares
Weighted average number of ordinary shares – basic
Effect of dilutive potential ordinary shares – employee share plans
Weighted average number of ordinary shares – diluted
2023
millions
2022
millions
3,659
3,599
17
17
2021
millions
3,523
17
3,676
3,616
3,540
9. Dividends
approved by shareholders.
Interim dividend in respect of the current year
Final dividend in respect of the prior year
Interim dividends are recognised when they become payable to the Company’s shareholders. Final dividends are recognised when they are
2023
Cash
dividend
£m
Pence
per share
17.84
488
33.76
1,119
51.60
1,607
Scrip
dividend
£m
163
114
277
2022
Cash
dividend
£m
339
583
922
Scrip
dividend
£m
282
562
844
2021
Cash
dividend
£m
Pence
per share
17.00
348
32.00
1,065
49.00
1,413
Scrip
dividend
£m
249
54
303
Pence
per share
17.21
32.16
49.37
The Directors are proposing a final dividend for the year ended 31 March 2023 of 37.60p per share that would absorb approximately £1,383 million
of shareholders’ equity (assuming all amounts are settled in cash). It will be paid on 9 August 2023 to shareholders who are on the register of
members at 2 June 2023 (subject to shareholders’ approval at the AGM). A scrip dividend will be offered as an alternative.
10. Assets held for sale and discontinued operations
The results and cash flows of significant assets or businesses sold during the year are shown separately from our continuing operations, and
presented within discontinued operations in the income statement and cash flow statement. Assets and businesses are classified as held for sale
when their carrying amounts are recovered through sale rather than through continuing use. They only meet the held for sale condition when the
assets are ready for immediate sale in their present condition, management is committed to the sale and it is highly probable that the sale will
complete within one year. Depreciation ceases on assets and businesses when they are classified as held for sale and the assets and businesses
are impaired if the proceeds less sale costs fall short of the carrying value.
(a) Assets held for sale
The following assets and liabilities were classified as held for sale:
Investment in GasT TopCo Limited
FAA derivative
The Narragansett Electric Company
UK Gas Transmission
Net assets held for sale
2023
Total
assets
Total
liabilities
held for sale
held for sale
Net assets
held for sale
held for sale
held for sale
Net assets
held for sale
£m
1,443
—
—
—
£m
—
(109)
—
—
£m
1,443
(109)
—
—
1,443
(109)
1,334
10,000
Total
assets
£m
—
—
4,129
5,871
2022
Total
liabilities
£m
—
—
(1,658)
(5,530)
(7,188)
£m
—
—
2,471
341
2,812
Gain on disposal of The Narragansett Electric Company
On 17 March 2021, the Group signed an agreement to sell 100% of the share capital of a wholly owned subsidiary, The Narragansett Electric
Company (NECO). The Group subsequently completed the NECO Sale to PPL Rhode Island Holdings, LLC on 25 May 2022 for cash consideration
of £3.1 billion ($3.9 billion). NECO was part of our New England operating segment and is a retail distribution company providing electricity and gas
to customers in Rhode Island. The associated assets and liabilities were presented as held for sale in the consolidated financial statements with effect
from the year ended 31 March 2021.
148
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Notes to the consolidated financial statements continued
8. Earnings per share (EPS)
9. Dividends
Interim dividends are recognised when they become payable to the Company’s shareholders. Final dividends are recognised when they are
approved by shareholders.
Interim dividend in respect of the current year
Final dividend in respect of the prior year
2023
Pence
per share
Cash
dividend
£m
Scrip
dividend
£m
17.84
488
33.76
1,119
51.60
1,607
163
114
277
2022
Cash
dividend
£m
339
583
922
Scrip
dividend
£m
282
562
844
2021
Cash
dividend
£m
Pence
per share
17.00
348
32.00
1,065
49.00
1,413
Scrip
dividend
£m
249
54
303
Pence
per share
17.21
32.16
49.37
The Directors are proposing a final dividend for the year ended 31 March 2023 of 37.60p per share that would absorb approximately £1,383 million
of shareholders’ equity (assuming all amounts are settled in cash). It will be paid on 9 August 2023 to shareholders who are on the register of
members at 2 June 2023 (subject to shareholders’ approval at the AGM). A scrip dividend will be offered as an alternative.
10. Assets held for sale and discontinued operations
The results and cash flows of significant assets or businesses sold during the year are shown separately from our continuing operations, and
presented within discontinued operations in the income statement and cash flow statement. Assets and businesses are classified as held for sale
when their carrying amounts are recovered through sale rather than through continuing use. They only meet the held for sale condition when the
assets are ready for immediate sale in their present condition, management is committed to the sale and it is highly probable that the sale will
complete within one year. Depreciation ceases on assets and businesses when they are classified as held for sale and the assets and businesses
are impaired if the proceeds less sale costs fall short of the carrying value.
(a) Assets held for sale
The following assets and liabilities were classified as held for sale:
Adjusted earnings from continuing operations
2,335
63.5
2,210
61.1
1,293
Exceptional items and remeasurements after tax from continuing operations
Earnings
2023
£m
EPS
2023
pence
Earnings
2022
£m
EPS
2022
pence
Earnings
2021
£m
Investment in GasT TopCo Limited
FAA derivative
The Narragansett Electric Company
UK Gas Transmission
Net assets held for sale
2023
2022
Total
assets
held for sale
£m
Total
liabilities
held for sale
£m
Net assets
held for sale
£m
Total
assets
held for sale
£m
Total
liabilities
held for sale
£m
Net assets
held for sale
£m
1,443
—
—
—
—
(109)
—
—
1,443
(109)
—
—
—
—
4,129
5,871
1,443
(109)
1,334
10,000
—
—
(1,658)
(5,530)
(7,188)
—
—
2,471
341
2,812
Gain on disposal of The Narragansett Electric Company
On 17 March 2021, the Group signed an agreement to sell 100% of the share capital of a wholly owned subsidiary, The Narragansett Electric
Company (NECO). The Group subsequently completed the NECO Sale to PPL Rhode Island Holdings, LLC on 25 May 2022 for cash consideration
of £3.1 billion ($3.9 billion). NECO was part of our New England operating segment and is a retail distribution company providing electricity and gas
to customers in Rhode Island. The associated assets and liabilities were presented as held for sale in the consolidated financial statements with effect
from the year ended 31 March 2021.
EPS is the amount of profit after tax attributable to each ordinary share. Basic EPS is calculated on profit after tax for the year attributable to equity
shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS shows what the impact would be if all
outstanding share options were exercised and treated as ordinary shares at year end. The weighted average number of shares is increased by
additional shares issued as scrip dividends and reduced by shares repurchased by the Company during the year. The earnings per share
calculations are based on profit after tax attributable to equity shareholders of the Company which excludes non-controlling interests.
Adjusted earnings and EPS, which exclude exceptional items and remeasurements, are provided to reflect the adjusted profit subtotals used by the
Company. We have included reconciliations from this additional EPS measure to earnings for both basic and diluted EPS to provide additional detail
for these items. For further details of exceptional items and remeasurements, see note 5.
(a) Basic EPS
Adjusted earnings from continuing operations
2,335
63.8
2,210
61.4
1,293
Earnings
2023
£m
EPS
2023
pence
Earnings
2022
£m
EPS
2022
pence
Earnings
2021
£m
Exceptional items and remeasurements after tax from continuing operations
(see note 5)
Earnings from continuing operations
Adjusted earnings from discontinued operations (see note 10)
Exceptional items and remeasurements after tax from discontinued operations
Earnings from discontinued operations
Total adjusted earnings
Total exceptional items and remeasurements after tax
(including discontinued operations)
Total earnings
Weighted average number of ordinary shares – basic
(b) Diluted EPS
Exceptional items and remeasurements after tax from discontinued operations
Earnings from continuing operations
Adjusted earnings from discontinued operations
(see note 5)
(see note 10)
Earnings from discontinued operations
Total adjusted earnings
Total exceptional items and remeasurements after tax
(including discontinued operations)
Total earnings
Weighted average number of ordinary shares – diluted
379
2,714
320
4,763
5,083
2,655
5,142
7,797
379
2,714
320
4,763
5,083
2,655
5,142
7,797
10.4
74.2
8.7
130.2
138.9
72.5
140.6
213.1
2023
millions
3,659
10.3
73.8
8.7
129.6
138.3
72.2
139.9
212.1
2023
millions
3,676
(28)
2,182
344
(173)
171
(0.8)
60.6
9.6
(4.8)
4.8
10
1,303
340
(3)
337
2,554
71.0
1,633
(201)
2,353
(5.6)
65.4
7
1,640
2022
millions
3,599
(0.8)
60.3
9.5
(4.8)
4.7
70.6
(5.6)
65.0
2022
millions
3,616
(28)
2,182
344
(173)
171
2,554
(201)
2,353
10
1,303
340
(3)
337
1,633
7
1,640
EPS
2021
pence
36.7
0.3
37.0
9.7
(0.1)
9.6
46.4
0.2
46.6
2021
millions
3,523
EPS
2021
pence
36.5
0.3
36.8
9.6
(0.1)
9.5
46.1
0.2
46.3
2021
millions
3,540
(c) Reconciliation of basic to diluted average number of shares
Weighted average number of ordinary shares – basic
Effect of dilutive potential ordinary shares – employee share plans
Weighted average number of ordinary shares – diluted
2023
millions
2022
millions
3,659
3,599
17
17
2021
millions
3,523
17
3,676
3,616
3,540
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Notes to the consolidated financial statements continued
10. Assets held for sale and discontinued operations continued
(a) Assets held for sale continued
As NECO did not represent a separate major line of business or geographical area of operation, it did not meet the criteria for classification as a
discontinued operation and therefore its results are not separately disclosed on the face of the income statement. Financial information relating to
the gain arising on the disposal of NECO is set out below:
Goodwill
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Other assets
Total assets on disposal
Borrowings
Pension liabilities
Other liabilities
Total liabilities on disposal
Net assets on disposal
Satisfied by:
Cash proceeds
Total consideration received
Less:
Financing costs1
Gain on sale before tax and reclassification of foreign currency translation reserve
Reclassification of foreign currency translation reserve2
Tax3
Post-tax gain on disposal
£m
616
4
3,363
215
113
165
4,476
(1,230)
(19)
(552)
(1,801)
2,675
3,081
3,081
(40)
366
145
(231)
280
1. Relates to the transfer of hedge losses previously deferred within equity in respect of foreign exchange forward contracts which the Group entered into in order to manage its exposure
to the foreign currency cash proceeds due from PPL Rhode Island Holdings, LLC.
2. The reclassification of the foreign currency translation reserve attributable to NECO comprises a gain of £496 million relating to the retranslation of NECO’s operations offset by a loss of
£351 million relating to borrowings, cross-currency swaps and foreign exchange forward contracts used to hedge the Group’s net investment in NECO.
3. The high effective tax rate arising on the gain on sale is primarily a result of the tax base of the assets being significantly lower than the accounting base which includes non-deductible
goodwill.
No impairment losses were recognised upon remeasurement of the assets and liabilities prior to classification as held for sale. NECO generated profit
after tax of £84 million for the period until 25 May 2022 (2022: £237 million; 2021: £104 million) which was recognised within continuing operations.
150
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Notes to the consolidated financial statements continued
(a) Assets held for sale continued
As NECO did not represent a separate major line of business or geographical area of operation, it did not meet the criteria for classification as a
discontinued operation and therefore its results are not separately disclosed on the face of the income statement. Financial information relating to
the gain arising on the disposal of NECO is set out below:
Goodwill
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Other assets
Total assets on disposal
Borrowings
Pension liabilities
Other liabilities
Total liabilities on disposal
Net assets on disposal
Satisfied by:
Cash proceeds
Less:
Financing costs1
Total consideration received
Tax3
Post-tax gain on disposal
Gain on sale before tax and reclassification of foreign currency translation reserve
Reclassification of foreign currency translation reserve2
1. Relates to the transfer of hedge losses previously deferred within equity in respect of foreign exchange forward contracts which the Group entered into in order to manage its exposure
to the foreign currency cash proceeds due from PPL Rhode Island Holdings, LLC.
2. The reclassification of the foreign currency translation reserve attributable to NECO comprises a gain of £496 million relating to the retranslation of NECO’s operations offset by a loss of
£351 million relating to borrowings, cross-currency swaps and foreign exchange forward contracts used to hedge the Group’s net investment in NECO.
3. The high effective tax rate arising on the gain on sale is primarily a result of the tax base of the assets being significantly lower than the accounting base which includes non-deductible
goodwill.
No impairment losses were recognised upon remeasurement of the assets and liabilities prior to classification as held for sale. NECO generated profit
after tax of £84 million for the period until 25 May 2022 (2022: £237 million; 2021: £104 million) which was recognised within continuing operations.
3,363
£m
616
4
215
113
165
4,476
(1,230)
(19)
(552)
(1,801)
2,675
3,081
3,081
(40)
366
145
(231)
280
10. Assets held for sale and discontinued operations continued
10. Assets held for sale and discontinued operations continued
(a) Assets held for sale continued
Gain on disposal of the UK Gas Transmission business
On 27 March 2022, the Group entered into an Acquisition Agreement to sell 100% of the UK Gas Transmission business in exchange for £4.0 billion
of cash consideration and a 40% interest in a newly incorporated company, GasT TopCo Limited. The Group subsequently completed the sale on
31 January 2023. The other 60% interest in GasT TopCo Limited is owned by Macquarie Infrastructure and Real Assets (MIRA) and British Columbia
Investment Management Corporation (BCI) (together, the ‘Consortium’).
The Group classified the associated assets and liabilities of the business as held for sale in the consolidated statement of financial position as at
31 August 2021, when the sale was considered to be highly probable following management approval of the sale timetable and communication
thereof to potential buyers. Accordingly, the UK Gas Transmission business was also reported as held for sale in the consolidated statement of
financial position as at 31 March 2022.
Financial information relating to the gain arising on the disposal of the UK Gas Transmission business is set out below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Pension assets
Cash and cash equivalents
Financing derivatives
Other assets
Total assets
Borrowings
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets on disposal
Satisfied by:
Cash proceeds
Associate at fair value
Total consideration received
Less:
Transaction costs
Gain on disposal
£m
180
4,981
458
341
5
96
338
6,399
(4,276)
(800)
(711)
(5,787)
612
4,032
1,443
5,475
(60)
4,803
No impairment losses were recognised upon remeasurement of the assets and liabilities prior to classification as held for sale. The portion of the
gain on disposal related to the remeasurement of the Group’s retained non-controlling investment to fair value is £1,198 million.
GasT TopCo Limited is an unlisted entity, and so no quoted price exists. The fair value has been determined with reference to the equity value
of GasT TopCo Limited, derived through a valuation exercise performed under the discount dividend model (DDM) methodology. The DDM
methodology involves estimating the future cash flows expected to be generated by the associate and discounting those back to their present
value using an appropriate discount rate. Management has determined that the DDM methodology provides a reasonable estimate of the fair
value of the associate interest at the date of acquisition.
On 27 March 2022, the Group also entered into an FAA with the Consortium. The FAA gives the Consortium the option to purchase the Group’s
40% equity interest in GasT TopCo Limited for £1.4 billion plus an annualised escalation factor. The FAA became binding following the settlement
of the Acquisition Agreement and is exercisable in the period between 1 May and 31 July 2023. The window can further be deferred at the Group’s
discretion by three months.
The FAA is a Level 3 derivative, which is accounted for at fair value, and the assumptions which are used to determine fair value are specific to the
contract and not readily observable in active markets. Significant unobservable inputs include the valuation and volatility of GasT TopCo Limited’s
unlisted equity. These inputs are used as part of a Black-Scholes option pricing model to produce the reported valuation. The fair value of the option
as at 31 March 2023 is £109 million (31 March 2022: £nil). The FAA derivative will be extinguished when the option is either exercised or lapses.
The option cannot be cash settled.
The Group’s interest in GasT TopCo Limited was immediately classified as held for sale with effect from 31 January 2023 together with the FAA
derivative. The Group has not applied equity accounting in relation to its investment in GasT TopCo Limited.
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Notes to the consolidated financial statements continued
10. Assets held for sale and discontinued operations continued
(b) Discontinued operations
UK Gas Transmission
As UK Gas Transmission represented a major separate line of business, the business was also classified as a discontinued operation in the prior year.
The results of the business are shown separately from the continuing business for all periods presented on the face of the income statement as a
discontinued operation. This is also reflected in the statement of comprehensive income, as well as earnings per share (EPS) being shown split
between continuing and discontinued operations.
The summary income statement for the UK Gas Transmission business for the period until 31 January 2023 and the years ended 31 March 2022
and 2021 is as follows:
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
2023
£m
2022
£m
2021
£m
2023
£m
Discontinued operations
Revenue
Other operating costs
Operating profit
Finance income
Finance costs1
Profit before tax
Tax2
Profit after tax from
discontinued operations
Gain on disposal
Total profit after tax from
discontinued operations
1,604
1,362
1,114
(890)
714
15
(310)
419
(99)
320
—
(708)
654
—
(218)
436
(92)
344
—
320
344
(615)
499
—
(77)
422
(82)
340
—
340
2022
£m
—
(17)
(17)
—
(12)
(29)
(144)
(173)
—
—
1
1
6
(53)
(46)
6
(40)
4,803
4,763
(173)
2021
£m
2023
£m
Total
2022
£m
2021
£m
—
(5)
(5)
—
2
(3)
—
(3)
—
(3)
1,604
1,362
1,114
(889)
715
21
(363)
373
(93)
280
4,803
(725)
637
—
(230)
407
(236)
171
—
5,083
171
(620)
494
—
(75)
419
(82)
337
—
337
1. Finance costs from discontinued operations include principal accretion of inflation-linked liabilities in the UK Gas Transmission business of £268 million (2022: £158 million; 2021:
£38 million). Exceptional finance costs in the current year relate to the remeasurement of the FAA derivative.
2. Of the £144 million exceptional tax charge in the year ended 31 March 2022, £145 million relates to an increase in deferred tax liability due to the change in the UK corporation tax rate.
The summary statement of comprehensive income for discontinued operations for the period until 31 January 2023 and the years ended 31 March
2022 and 2021 is as follows:
Profit after tax from discontinued operations
Other comprehensive (loss)/income from discontinued operations
Items from discontinued operations that will never be reclassified to profit or loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit obligations
Net losses on financial liability designated at fair value through profit and loss attributable to changes in own credit risk
Net losses in respect of cash flow hedging of capital expenditure
Tax on items that will never be reclassified to profit or loss
Total (losses)/gains from discontinued operations that will never be reclassified to profit or loss
Items from discontinued operations that may be reclassified subsequently to profit or loss:
Net gains in respect of cash flow hedges
Net gains/(losses) in respect of cost of hedging
Tax on items that may be reclassified subsequently to profit or loss
Total gains/(losses) from discontinued operations that may be reclassified subsequently to profit or loss
Other comprehensive (loss)/income for the year, net of tax from discontinued operations
Total comprehensive income for the year from discontinued operations
Details of the cash flows relating to discontinued operations are set out within the consolidated cash flow statement.
2023
£m
2022
£m
5,083
171
(313)
—
—
78
(235)
6
4
(2)
8
(227)
4,856
309
(1)
—
(94)
214
1
(4)
—
(3)
211
382
2021
£m
337
(250)
(11)
(2)
50
(213)
3
(6)
—
(3)
(216)
121
152
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Notes to the consolidated financial statements continued
10. Assets held for sale and discontinued operations continued
11. Goodwill
(b) Discontinued operations
UK Gas Transmission
between continuing and discontinued operations.
and 2021 is as follows:
As UK Gas Transmission represented a major separate line of business, the business was also classified as a discontinued operation in the prior year.
The results of the business are shown separately from the continuing business for all periods presented on the face of the income statement as a
discontinued operation. This is also reflected in the statement of comprehensive income, as well as earnings per share (EPS) being shown split
The summary income statement for the UK Gas Transmission business for the period until 31 January 2023 and the years ended 31 March 2022
Before exceptional items
and remeasurements
Exceptional items
and remeasurements
2023
£m
2022
£m
2021
£m
2023
£m
2021
£m
2023
£m
Total
2022
£m
1,604
1,362
1,114
1,604
1,362
1,114
Discontinued operations
Revenue
Other operating costs
Operating profit
Finance income
Finance costs1
Profit before tax
Tax2
Profit after tax from
discontinued operations
Gain on disposal
Total profit after tax from
discontinued operations
(890)
714
15
(310)
419
(99)
320
—
(708)
654
—
(218)
436
(92)
344
—
(615)
499
—
(77)
422
(82)
340
—
340
2022
£m
—
(17)
(17)
—
(12)
(29)
(144)
(173)
—
—
1
1
6
(53)
(46)
6
(40)
4,803
—
(5)
(5)
—
2
(3)
—
(3)
—
(3)
(889)
715
21
(363)
373
(93)
280
4,803
(725)
637
—
(230)
407
(236)
171
—
320
344
4,763
(173)
5,083
171
1. Finance costs from discontinued operations include principal accretion of inflation-linked liabilities in the UK Gas Transmission business of £268 million (2022: £158 million; 2021:
£38 million). Exceptional finance costs in the current year relate to the remeasurement of the FAA derivative.
2. Of the £144 million exceptional tax charge in the year ended 31 March 2022, £145 million relates to an increase in deferred tax liability due to the change in the UK corporation tax rate.
The summary statement of comprehensive income for discontinued operations for the period until 31 January 2023 and the years ended 31 March
2022 and 2021 is as follows:
Profit after tax from discontinued operations
Other comprehensive (loss)/income from discontinued operations
Items from discontinued operations that will never be reclassified to profit or loss:
Remeasurement (losses)/gains on pension assets and post-retirement benefit obligations
Net losses on financial liability designated at fair value through profit and loss attributable to changes in own credit risk
Net losses in respect of cash flow hedging of capital expenditure
Tax on items that will never be reclassified to profit or loss
Total (losses)/gains from discontinued operations that will never be reclassified to profit or loss
Items from discontinued operations that may be reclassified subsequently to profit or loss:
Net gains in respect of cash flow hedges
Net gains/(losses) in respect of cost of hedging
Tax on items that may be reclassified subsequently to profit or loss
Total gains/(losses) from discontinued operations that may be reclassified subsequently to profit or loss
Other comprehensive (loss)/income for the year, net of tax from discontinued operations
Total comprehensive income for the year from discontinued operations
Details of the cash flows relating to discontinued operations are set out within the consolidated cash flow statement.
2023
£m
2022
£m
5,083
171
(313)
—
—
78
(235)
6
4
(2)
8
(227)
4,856
309
(1)
—
(94)
214
1
(4)
—
(3)
211
382
2021
£m
(620)
494
—
(75)
419
(82)
337
—
337
2021
£m
337
(250)
(11)
(2)
50
(213)
3
(6)
—
(3)
(216)
121
Goodwill represents the excess of what we paid to acquire businesses over the fair value of their net assets at the acquisition date. We assess
whether goodwill is recoverable by performing an impairment review annually or more frequently if events or changes in circumstances indicate
a potential impairment.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing exchange rate. Goodwill is allocated to cash-generating units (CGUs) and this allocation is made to those CGUs that
are expected to benefit from the acquisition in which the goodwill arose.
Impairment is recognised where there is a difference between the carrying value of the CGU and the estimated recoverable amount of the CGU
to which that goodwill has been allocated. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
Any impairment loss is first allocated to the carrying value of the goodwill and then to the other assets within the CGU. Recoverable amount is
defined as the higher of fair value less costs to sell and estimated value-in-use at the date the impairment review is undertaken. Value-in-use
represents the present value of expected future cash flows, discounted using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
Net book value at 1 April 2021
Exchange adjustments
Acquisition of NGED (note 37)
Net book value at 1 April 2022
Exchange adjustments
Net book value at 31 March 2023
Total
£m
4,588
223
4,721
9,532
315
9,847
There was no significant accumulated impairment charge as at 31 March 2023 or 31 March 2022.
Impairment review of goodwill and indefinite-lived intangibles
Goodwill and indefinite-lived intangibles (see note 12) are reviewed annually for impairment and the recoverability is assessed by comparing the
carrying amount of our operations with the expected recoverable amount on a value-in-use basis which uses pre-financing and pre-tax cash flow
projections based on the Group’s financial plans, approved by the Directors, as a starting point. See below for a summary of which operations
our goodwill and indefinite-lived intangibles are allocated to:
CGU or group of CGUs
Goodwill:
National Grid Ventures Renewables
New England
New York
UK Electricity Distribution1
Total goodwill
Indefinite-lived intangibles (regulatory licences related to UK Electricity Distribution):
West Midlands
East Midlands
South Wales
South West
2023
£m
163
1,609
3,354
4,721
9,847
518
519
257
420
2022
£m
150
1,510
3,151
4,721
9,532
518
519
257
420
Total indefinite-lived intangibles
1,714
1,714
1. This is a combination of the West Midlands, East Midlands, South Wales and South West CGUs, reflecting the level at which the goodwill is monitored.
In each assessment, the value-in-use has been calculated assuming a stable regulatory framework and is based on projections that incorporate
our best estimates of future cash flows, including costs, changes in commodity prices, future rates and growth. Such projections reflect our current
regulatory agreements and allow for future agreements and recovery of investment, including those related to achieving the net zero plans of the
jurisdictions that we operate in. Our plans have proved to be reliable guides in the past and the Directors believe the estimates are appropriate.
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Notes to the consolidated financial statements continued
11. Goodwill continued
(a) Cash flow periods, terminal value and discount rate assumptions
We select cash flow durations longer than five years, when our forecasts are considered reliable. The cash flow durations selected reflect
our knowledge and understanding of the regulatory environments in which we operate, and most significantly, where markets have legislated
decarbonisation commitments by 2050 we may utilise longer cash flow forecasts that reflect the investment required to deliver those commitments
before applying a terminal value at the point those commitments are due to be fulfilled and market growth is expected to stabilise. For our regulated
UK ED operations, we consider cash flow durations that run until 2050, reflecting the expected investment required in the network, in excess of
economy-wide long-term growth rates in order to deliver the energy transition. Total expenditure forecasts, comprising capital and operating
expenditure, are estimated with reference to the Group’s strategic modelling and expectations around a reasonable energy transition based upon
the policies and commitments in place today. Cash flows related to uncommitted future restructurings and enhancement capital expenditure
(beyond activity to reinforce the network and build new connections) are excluded from the projections. For our regulated US operations (New York
and New England CGUs), we use a five-year cash flow forecast.
For our UK ED business, a nominal terminal growth rate of 2.6% (2022: 2.5%) is assumed upon the terminal year cash flows, reflecting
management’s best view, based on market and operational experience, of the expected long-term growth in the relevant market. For our regulated
US operations, due to differences in the regulatory framework and the combination of gas and electricity networks, we apply a growth rate of 2.5%
(2022: 2.3%). This has been determined with regard to data on industry growth projections, specifically related to the energy transition, and projected
growth in real Gross Domestic Product (GDP) for the territory within which the CGU is based.
Pre-tax cash flows are discounted by applying a pre-tax discount rate reflecting the time value of money and the risks specific to the group of
assets. In practice, the post-tax discount rate for the group of assets in question is derived from a post-tax weighted average cost of capital. The
assumptions used in the calculation of the weighted average cost of capital are benchmarked to externally available data. The determined discount
rate is independent of the entity’s capital structure and reflects a market participant’s view of a risk adjusted discount rate specific to the CGU or
group of CGUs. The post-tax discount rate is then grossed up to a pre-tax discount rate that is applied to pre-tax cash flows. The pre-tax discount
rates used for the year ended 31 March 2023 were as follows: UK ED Group 5.6% (2022: 5.2%); UK ED DNOs 5.6% (2022: 4.9%); New York 6.4%
(2022: 5.5%); New England 6.6% (2022: 5.6%); and NGV Renewables 8.6% (2022: 7.5%).
(b) Key inputs and sensitivity analysis
In assessing the carrying value of goodwill and licences, we have sensitised our forecasts to factor in adjustments to key inputs to each model.
Whilst regulatory licences are tested for impairment before we test goodwill, we consider the sensitivity for goodwill attributable to UK ED and
our regulated US operations and those related to licences separately below.
Goodwill – UK ED, regulated US operations (New York and New England) and NGV Renewables
While key assumptions underpinning the goodwill valuations will change over time, the Directors consider that no reasonably foreseeable change
would result in an impairment of goodwill. This is in view of the long-term nature of the key assumptions, including those used in determining an
appropriate discount rate, and specifically the risk-free rate and total market return, the margin by which the estimated value-in-use exceeds
the carrying amount and the nature of the regulatory regimes that UK ED and our regulated US businesses operate under. This remains the case
even after taking into account the short-term effects of the volatility in wider macroeconomic factors. No reasonably possible changes to inputs to the
impairment test performed over goodwill attributable to NGV Renewables were identified as resulting in an impairment.
Indefinite-lived regulatory licences – UK ED
No reasonably possible changes to inputs to the impairment test performed over the South West, East Midlands, West Midlands and South Wales
Distribution Network Operator CGUs were identified as resulting in an impairment.
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
(a) Cash flow periods, terminal value and discount rate assumptions
We select cash flow durations longer than five years, when our forecasts are considered reliable. The cash flow durations selected reflect
our knowledge and understanding of the regulatory environments in which we operate, and most significantly, where markets have legislated
decarbonisation commitments by 2050 we may utilise longer cash flow forecasts that reflect the investment required to deliver those commitments
before applying a terminal value at the point those commitments are due to be fulfilled and market growth is expected to stabilise. For our regulated
UK ED operations, we consider cash flow durations that run until 2050, reflecting the expected investment required in the network, in excess of
economy-wide long-term growth rates in order to deliver the energy transition. Total expenditure forecasts, comprising capital and operating
expenditure, are estimated with reference to the Group’s strategic modelling and expectations around a reasonable energy transition based upon
the policies and commitments in place today. Cash flows related to uncommitted future restructurings and enhancement capital expenditure
(beyond activity to reinforce the network and build new connections) are excluded from the projections. For our regulated US operations (New York
and New England CGUs), we use a five-year cash flow forecast.
For our UK ED business, a nominal terminal growth rate of 2.6% (2022: 2.5%) is assumed upon the terminal year cash flows, reflecting
management’s best view, based on market and operational experience, of the expected long-term growth in the relevant market. For our regulated
US operations, due to differences in the regulatory framework and the combination of gas and electricity networks, we apply a growth rate of 2.5%
(2022: 2.3%). This has been determined with regard to data on industry growth projections, specifically related to the energy transition, and projected
growth in real Gross Domestic Product (GDP) for the territory within which the CGU is based.
Pre-tax cash flows are discounted by applying a pre-tax discount rate reflecting the time value of money and the risks specific to the group of
assets. In practice, the post-tax discount rate for the group of assets in question is derived from a post-tax weighted average cost of capital. The
assumptions used in the calculation of the weighted average cost of capital are benchmarked to externally available data. The determined discount
rate is independent of the entity’s capital structure and reflects a market participant’s view of a risk adjusted discount rate specific to the CGU or
group of CGUs. The post-tax discount rate is then grossed up to a pre-tax discount rate that is applied to pre-tax cash flows. The pre-tax discount
rates used for the year ended 31 March 2023 were as follows: UK ED Group 5.6% (2022: 5.2%); UK ED DNOs 5.6% (2022: 4.9%); New York 6.4%
(2022: 5.5%); New England 6.6% (2022: 5.6%); and NGV Renewables 8.6% (2022: 7.5%).
(b) Key inputs and sensitivity analysis
In assessing the carrying value of goodwill and licences, we have sensitised our forecasts to factor in adjustments to key inputs to each model.
Whilst regulatory licences are tested for impairment before we test goodwill, we consider the sensitivity for goodwill attributable to UK ED and
our regulated US operations and those related to licences separately below.
Goodwill – UK ED, regulated US operations (New York and New England) and NGV Renewables
While key assumptions underpinning the goodwill valuations will change over time, the Directors consider that no reasonably foreseeable change
would result in an impairment of goodwill. This is in view of the long-term nature of the key assumptions, including those used in determining an
appropriate discount rate, and specifically the risk-free rate and total market return, the margin by which the estimated value-in-use exceeds
the carrying amount and the nature of the regulatory regimes that UK ED and our regulated US businesses operate under. This remains the case
even after taking into account the short-term effects of the volatility in wider macroeconomic factors. No reasonably possible changes to inputs to the
impairment test performed over goodwill attributable to NGV Renewables were identified as resulting in an impairment.
Indefinite-lived regulatory licences – UK ED
No reasonably possible changes to inputs to the impairment test performed over the South West, East Midlands, West Midlands and South Wales
Distribution Network Operator CGUs were identified as resulting in an impairment.
11. Goodwill continued
12. Other intangible assets
Other intangible assets include software which is written down (amortised) over the period we expect to receive a benefit from the asset.
An amortisation expense is charged to the income statement to reflect the reduced value of the asset over time. Amortisation is calculated by
estimating the number of years we expect the asset to be used (useful economic life or UEL) and charging the cost of the asset to the income
statement equally over this period.
Indefinite-lived intangibles comprise regulatory licences for which there is no foreseeable limit to the period over which they are expected to
generate net cash inflows. These assets are considered to have an indefinite life and are not amortised but are subject to a review for impairment
annually, or more frequently if events or circumstances indicate a potential impairment. Any impairment is charged to the income statement
as it arises.
Identifiable intangible assets are recorded at cost less accumulated amortisation and any provision for impairment, with the exception of regulatory
licences that are assessed to have indefinite lives and are therefore tested annually for impairment (see note 11 for details of impairment tests
performed over indefinite-lived intangible assets). Other intangible assets are tested for impairment only if there is an 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 CGU to which that asset belongs is estimated. Impairments are recognised in the consolidated income statement within other operating
costs. Any assets which suffered impairment in a previous period are reviewed for possible reversal of the impairment at each reporting date.
The Group’s regulatory licences relate to electricity distribution licences acquired following the Group’s acquisition of NGED in the prior year
(see note 37). The licences provide the right to operate and invest in the relevant network that operates as a monopoly in the licensed geographical
area. Once granted by Ofgem, the licence is issued to a licensee on the basis that it remains active into perpetuity. On that basis, the value
attributed to the electricity distribution network licence assets is considered to have an indefinite useful life.
Internally generated intangible assets, such as software, are recognised only if: i) an asset is created that can be identified; ii) it is probable that
the asset created will generate future economic benefits; and iii) 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.
Cloud computing arrangements are reviewed to determine if the Group has control of the software intangible asset. Control is considered to exist
where the Group 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 Group
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 Group 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 represented the application of new accounting guidance for the Group for the
year ended 31 March 2022. Accordingly, certain costs which were previously capitalised in respect of the Group’s cloud computing arrangements
were expensed in the prior year.
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12. Other intangible assets continued
Other than regulatory licences, intangible assets are amortised on a straight-line basis over their estimated useful economic lives. Amortisation
periods for other intangible assets are:
Software
Regulatory licences
Cost at 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Disposals
Reclassifications2
Reclassification to held for sale (note 10)
Cost at 1 April 2022
Exchange adjustments
Additions
Disposals
Reclassifications2,3
Cost at 31 March 2023
Accumulated amortisation at 1 April 2021
Exchange adjustments
Amortisation charge for the year
Impairment4
Accumulated amortisation of disposals
Reclassification to held for sale (note 10)
Accumulated amortisation at 1 April 2022
Exchange adjustments
Amortisation charge for the year
Accumulated amortisation of disposals
Reclassifications3
Accumulated amortisation at 31 March 2023
Net book value at 31 March 2023⁵
Net book value at 31 March 2022
Regulatory
licences1
£m
—
—
—
1,714
—
—
—
Software
£m
2,120
69
15
49
(7)
260
(431)
1,714
2,075
—
—
—
—
1,714
—
—
—
—
—
—
—
—
—
—
—
—
1,714
1,714
79
34
(17)
895
3,066
(1,363)
(33)
(297)
—
7
309
(1,377)
(51)
(291)
15
(23)
(1,727)
1,339
698
Assets in the
course of
construction
£m
686
11
513
—
—
(302)
(38)
870
32
544
—
(885)
561
—
—
—
(10)
—
—
(10)
—
—
—
—
(10)
551
860
Years
3 to 10
Indefinite
Total
£m
2,806
80
528
1,763
(7)
(42)
(469)
4,659
111
578
(17)
10
5,341
(1,363)
(33)
(297)
(10)
7
309
(1,387)
(51)
(291)
15
(23)
(1,737)
3,604
3,272
1. Relates to the licence intangibles acquired as part of the acquisition of NGED in the prior year (see note 37). The Group assesses its indefinite-lived intangible assets for impairment
annually (see note 11).
2. Reclassifications includes amounts transferred to property, plant and equipment (see note 13).
3. Amounts recognised in the year include adjustments relating to a misclassification between cost and accumulated depreciation in the prior year.
4. Depreciation of assets in the course of construction relate to impairment provision adjustments recognised in the prior year.
5. The Group has capitalised £370 million (2022: £366 million) in relation to the Gas Business Enablement system in the US, of which £369 million (2022: £152 million) is in service and is
being amortised over 10 years, with the remainder included within assets in the course of construction. A further £87 million (2022: £103 million) relates to our new UK general ledger
system within software and is being amortised over 10 years, having been reclassified from assets in the course of construction to software assets in the prior year.
156
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Notes to the consolidated financial statements continued
Other than regulatory licences, intangible assets are amortised on a straight-line basis over their estimated useful economic lives. Amortisation
periods for other intangible assets are:
Software
Regulatory licences
Cost at 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Disposals
Reclassifications2
Reclassification to held for sale (note 10)
Cost at 1 April 2022
Exchange adjustments
Additions
Disposals
Reclassifications2,3
Cost at 31 March 2023
Accumulated amortisation at 1 April 2021
Exchange adjustments
Amortisation charge for the year
Impairment4
Accumulated amortisation of disposals
Reclassification to held for sale (note 10)
Accumulated amortisation at 1 April 2022
Exchange adjustments
Amortisation charge for the year
Accumulated amortisation of disposals
Reclassifications3
Accumulated amortisation at 31 March 2023
Net book value at 31 March 2023⁵
Net book value at 31 March 2022
annually (see note 11).
Years
3 to 10
Indefinite
Total
£m
2,806
80
528
1,763
(7)
(42)
(469)
4,659
111
578
(17)
10
5,341
(1,363)
(33)
(297)
(10)
7
309
(51)
(291)
15
(23)
(1,387)
(1,737)
3,604
3,272
£m
686
11
513
—
—
(302)
(38)
870
32
544
—
(885)
561
—
—
—
(10)
—
—
(10)
—
—
—
—
(10)
551
860
Regulatory
licences1
£m
Software
£m
2,120
Assets in the
course of
construction
1,714
2,075
1,714
1,714
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,714
1,714
69
15
49
(7)
260
(431)
79
34
(17)
895
3,066
(1,363)
(33)
(297)
—
7
309
(1,377)
(51)
(291)
15
(23)
(1,727)
1,339
698
1. Relates to the licence intangibles acquired as part of the acquisition of NGED in the prior year (see note 37). The Group assesses its indefinite-lived intangible assets for impairment
2. Reclassifications includes amounts transferred to property, plant and equipment (see note 13).
3. Amounts recognised in the year include adjustments relating to a misclassification between cost and accumulated depreciation in the prior year.
4. Depreciation of assets in the course of construction relate to impairment provision adjustments recognised in the prior year.
5. The Group has capitalised £370 million (2022: £366 million) in relation to the Gas Business Enablement system in the US, of which £369 million (2022: £152 million) is in service and is
being amortised over 10 years, with the remainder included within assets in the course of construction. A further £87 million (2022: £103 million) relates to our new UK general ledger
system within software and is being amortised over 10 years, having been reclassified from assets in the course of construction to software assets in the prior year.
12. Other intangible assets continued
13. Property, plant and equipment
Property, plant and equipment are the physical assets controlled by us. The cost of these assets primarily represents the amount initially paid
for them or the fair value on the date of acquisition of a business. Cost includes both their purchase price and the construction and other costs
associated with getting them ready for operation. A depreciation expense is 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 or UEL) and charging the cost of the asset to the income statement equally over this period.
We operate an energy networks business and therefore have a significant physical asset base. We continue to invest in our networks to
maintain reliability, create new customer connections and ensure our networks are flexible, resilient and prepared for the transition to net zero.
Our business plan envisages these additional investments will be funded through a mixture of cash generated from operations and the issue
of new debt.
Property, plant and equipment is recorded at cost, less accumulated depreciation and any 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 together with an
appropriate portion of overheads which are directly linked to the capital work performed; and the cost of any associated asset retirement obligations.
Property, plant and equipment includes assets in which the Group’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.
Items within property, plant and equipment 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 if immaterial are included within the depreciation
charge for the year.
(a) Analysis of property, plant and equipment
Cost at 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Disposals
Reclassifications1
Reclassification to held for sale (note 10)
Cost at 1 April 2022
Exchange adjustments
Additions
Disposals
Adjustment for change in discount rate on decommissioning provisions (note 26)
Reclassifications1,2
Cost at 31 March 2023
Accumulated depreciation at 1 April 2021
Exchange adjustments
Depreciation charge for the year3
Disposals
Reclassifications1
Reclassification to held for sale (note 10)
Accumulated depreciation at 1 April 2022
Exchange adjustments
Depreciation charge for the year3
Disposals
Reclassifications1,2
Accumulated depreciation at 31 March 2023
Net book value at 31 March 2023
Net book value at 31 March 2022
Land and
buildings
£m
Plant and
machinery
£m
Assets
in the
course of
construction
£m
Motor
vehicles
and office
equipment
£m
Total
£m
3,752
56,061
5,221
1,018
66,052
97
22
200
(165)
62
1,627
111
926
4,843
9,512
(367)
185
—
4,063
(4,133)
(309)
(8,800)
3,659
63,022
126
158
(163)
—
286
2,073
1,196
(331)
(36)
(640)
5,587
156
5,345
(4)
(12)
3,841
(4,312)
37
129
154
(88)
89
1,872
5,920
10,051
(620)
81
(267)
(10,016)
1,072
73,340
50
154
(156)
—
102
2,405
6,853
(654)
(48)
(83)
4,066
69,765
6,760
1,222
81,813
(876)
(17,482)
(20)
(114)
29
15
(351)
(1,300)
311
(40)
193
4,421
(773)
(14,441)
(30)
(122)
127
4
(444)
(1,459)
311
107
—
—
(48)
—
(18)
6
(60)
—
(1)
2
4
(651)
(19,009)
(23)
(167)
88
2
(394)
(1,629)
428
(41)
217
4,837
(534)
(15,808)
(32)
(183)
152
(8)
(506)
(1,765)
592
107
(794)
(15,926)
3,272
2,886
53,839
48,581
(55)
6,705
5,527
(605)
(17,380)
617
538
64,433
57,532
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1. Represents amounts transferred between categories, (to)/from other intangible assets (see note 12), from inventories and reclassifications between cost and accumulated depreciation.
2. Amounts recognised in the year include adjustments relating to prior year misclassifications between cost and accumulated depreciation.
3. Depreciation of assets in the course of construction relates to impairment provision adjustments.
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
13. Property, plant and equipment continued
(b) Asset useful economic lives
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 UELs. In assessing UELs, consideration is given to any
contractual arrangements and operational requirements relating to particular assets. The assessments of estimated UELs and residual values of
assets are performed annually.
Unless otherwise determined by operational requirements, the depreciation periods for the principal categories of property, plant and equipment
are shown in the table below split between the UK and US, along with the weighted average remaining UEL for each class of property, plant
and equipment (which is calculated by applying the annual depreciation charge per class of asset to the net book value of that class of asset).
Freehold and leasehold buildings
Plant and machinery:
Electricity transmission plant and wires
Electricity distribution plant
Electricity generation plant
Interconnector plant and other
Gas plant – mains, services and regulating equipment
Gas plant – storage
Gas plant – meters
Motor vehicles and office equipment
Years
UK
US
up to 60
up to 100
up to 100
22 to 85
14 to 99
5 to 85
n/a
12 to 93
5 to 70
5 to 60
n/a
25 to 95
5 to 25
15
up to 30
5 to 65
14 to 36
up to 32
Weighted
average
remaining
UEL
40
31
45
10
25
52
11
22
3
(c) Gas asset lives
The role that our US gas networks play in the pathway to achieving the greenhouse gas emissions reductions targets set in the jurisdictions in which
we operate is currently uncertain. In the year, policymakers in New York and Massachusetts have indicated an increase in electrification and a
strategic downsizing of gas networks in their formal plans to meet their respective decarbonisation targets. As a result, there is a risk that the UELs
of certain elements of our gas networks may be shortened in line with future legislation.
We believe the gas assets which we own and operate today will continue to have a crucial role in maintaining security, reliability and affordability
of energy beyond 2050, although the scale and purpose for which the networks will be used is dependent on technological, legal and regulatory
developments.
In the US, our gas distribution asset lives are assessed as part of detailed depreciation studies completed as part of each separate rate proceeding.
Depreciation studies consider the physical condition of assets and the expected operational life of an asset. We believe these assessments are our
best estimate of the UEL of our gas network assets in the US.
The weighted average remaining UEL for our US gas distribution fixed asset base is circa 52 years; however, a sizeable proportion of our assets
are assumed to have UELs which extend beyond 2080. We continue to believe the lives identified by rate proceedings are the best estimate of the
assets’ UELs, although we continue to keep this assumption under review as we gain more certainty about policy-driven legislation. We continue
to actively engage and support our regulators to enable the clean energy transition in a safe, reliable and affordable way.
Asset depreciation lives feed directly into our US regulatory recovery mechanisms, such that any shortening of asset lives and regulatory recovery
periods as agreed with regulators should be recoverable through future rates, subject to agreement, over future periods, as part of wider
considerations around ensuring the continuing affordability of gas in our service territories.
Given the uncertainty described relating to the UELs of our gas assets, below we provide a sensitivity on the depreciation charge for our New York
and New England segments were a shorter UEL presumed. It should be noted that all net zero pathways suggest some role of gas in heating
buildings beyond 2050, so our sensitivity analysis for 2050 illustrates an unlikely worst-case scenario:
UELs limited to 2050
UELs limited to 2060
UELs limited to 2070
Increase in depreciation expense for
the year ended 31 March 2023
Increase in depreciation expense for
the year ended 31 March 2022
New York
£m
New England
£m
New York
£m
New England
£m
185
90
42
54
21
3
140
67
31
40
15
1
Note that this sensitivity calculation excludes any assumptions regarding the residual value for our asset base and the effect that shortening asset
depreciation lives would be expected to have on our regulatory recovery mechanisms. In the event that any of the US gas distribution assets are
stranded, the Group would expect to recover the associated costs. While recovery is not guaranteed and is determined by regulators in the US,
there are precedents for stranded asset cost recovery for US utility companies.
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Notes to the consolidated financial statements continued
13. Property, plant and equipment continued
(b) Asset useful economic lives
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 UELs. In assessing UELs, consideration is given to any
contractual arrangements and operational requirements relating to particular assets. The assessments of estimated UELs and residual values of
assets are performed annually.
Unless otherwise determined by operational requirements, the depreciation periods for the principal categories of property, plant and equipment
are shown in the table below split between the UK and US, along with the weighted average remaining UEL for each class of property, plant
and equipment (which is calculated by applying the annual depreciation charge per class of asset to the net book value of that class of asset).
Years
UK
US
up to 60
up to 100
up to 100
22 to 85
14 to 99
5 to 85
n/a
12 to 93
5 to 70
5 to 60
n/a
25 to 95
5 to 25
15
up to 30
5 to 65
14 to 36
up to 32
Weighted
average
remaining
UEL
40
31
45
10
25
52
11
22
3
Freehold and leasehold buildings
Plant and machinery:
Electricity transmission plant and wires
Electricity distribution plant
Electricity generation plant
Interconnector plant and other
Gas plant – storage
Gas plant – meters
Motor vehicles and office equipment
(c) Gas asset lives
Gas plant – mains, services and regulating equipment
The role that our US gas networks play in the pathway to achieving the greenhouse gas emissions reductions targets set in the jurisdictions in which
we operate is currently uncertain. In the year, policymakers in New York and Massachusetts have indicated an increase in electrification and a
strategic downsizing of gas networks in their formal plans to meet their respective decarbonisation targets. As a result, there is a risk that the UELs
of certain elements of our gas networks may be shortened in line with future legislation.
We believe the gas assets which we own and operate today will continue to have a crucial role in maintaining security, reliability and affordability
of energy beyond 2050, although the scale and purpose for which the networks will be used is dependent on technological, legal and regulatory
developments.
In the US, our gas distribution asset lives are assessed as part of detailed depreciation studies completed as part of each separate rate proceeding.
Depreciation studies consider the physical condition of assets and the expected operational life of an asset. We believe these assessments are our
best estimate of the UEL of our gas network assets in the US.
The weighted average remaining UEL for our US gas distribution fixed asset base is circa 52 years; however, a sizeable proportion of our assets
are assumed to have UELs which extend beyond 2080. We continue to believe the lives identified by rate proceedings are the best estimate of the
assets’ UELs, although we continue to keep this assumption under review as we gain more certainty about policy-driven legislation. We continue
to actively engage and support our regulators to enable the clean energy transition in a safe, reliable and affordable way.
Asset depreciation lives feed directly into our US regulatory recovery mechanisms, such that any shortening of asset lives and regulatory recovery
periods as agreed with regulators should be recoverable through future rates, subject to agreement, over future periods, as part of wider
considerations around ensuring the continuing affordability of gas in our service territories.
Given the uncertainty described relating to the UELs of our gas assets, below we provide a sensitivity on the depreciation charge for our New York
and New England segments were a shorter UEL presumed. It should be noted that all net zero pathways suggest some role of gas in heating
buildings beyond 2050, so our sensitivity analysis for 2050 illustrates an unlikely worst-case scenario:
UELs limited to 2050
UELs limited to 2060
UELs limited to 2070
Increase in depreciation expense for
the year ended 31 March 2023
Increase in depreciation expense for
the year ended 31 March 2022
New York
New England
New York
£m
New England
£m
185
90
42
£m
54
21
3
140
67
31
£m
40
15
1
Note that this sensitivity calculation excludes any assumptions regarding the residual value for our asset base and the effect that shortening asset
depreciation lives would be expected to have on our regulatory recovery mechanisms. In the event that any of the US gas distribution assets are
stranded, the Group would expect to recover the associated costs. While recovery is not guaranteed and is determined by regulators in the US,
there are precedents for stranded asset cost recovery for US utility companies.
13. Property, plant and equipment continued
(d) Right-of-use assets
The Group leases various properties, land, equipment and cars. 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 Group. The right-of-use asset and associated lease liability
arising from a lease are initially measured at the present value of the lease payments expected over the lease term. The lease payments include fixed
payments, any variable lease payments dependent on an index or a rate, and any break fees or renewal option costs that we are reasonably certain
to incur. The discount rate applied is the rate implicit in the lease or, if that is not available, the incremental rate of borrowing for a similar term and
similar security. This is determined based on observable data for borrowing rates for the specific Group entity that has entered into the lease, with
specific adjustments for the term of the lease and any lease-specific risk premium. The lease term takes account of 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. 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.
The table below shows the movements in the net book value of right-of-use assets included within property, plant and equipment at 31 March 2023
and 31 March 2022, split by category. The associated lease liabilities are disclosed in note 21.
Net book value at 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Reclassification to held for sale (note 10)
Modifications of leases1
Disposals
Depreciation charge for the year
Net book value at 31 March 2022
Exchange adjustments
Additions
Disposals
Depreciation charge for the year
Net book value at 31 March 2023
Land and
buildings
£m
Plant and
machinery
£m
Assets
in the
course of
construction
£m
Motor
vehicles
and office
equipment
£m
365
10
14
7
(7)
(122)
(2)
(40)
225
10
101
(13)
(42)
281
81
1
2
2
—
—
—
(16)
70
1
97
—
(18)
150
—
—
—
—
—
—
—
—
—
—
—
—
—
—
184
10
88
—
(4)
—
(1)
(67)
210
13
88
(1)
(70)
240
Total
£m
630
21
104
9
(11)
(122)
(3)
(123)
505
24
286
(14)
(130)
671
1. The Group entered into an agreement to reduce the lease term of its New England corporate office, Reservoir Woods, with effect from October 2021. The existing lease liability and
right-of-use asset were remeasured based on the terms of the modified lease in the year ended 31 March 2022.
The following balances have been included in the income statement for the years ended 31 March 2023 and 31 March 2022 in respect of right-of-
use assets:
Included within net finance income and costs:
Interest expense on lease liabilities
Included within revenue:
Lease income1
Included within operating expenses:
Expense relating to short-term and low-value leases
2023
£m
2022
£m
(24)
(18)
409
385
(19)
(14)
1. Included within lease income is £394 million (2022: £374 million) of variable lease payments, the majority of which relates to the power supply arrangement entered into with LIPA
(see note 3).
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Notes to the consolidated financial statements continued
14. Other non-current assets
Other non-current assets include assets that do not fall into specific non-current asset categories (such as goodwill or property, plant and
equipment) where the benefit to be received from the asset is not due to be received until after 31 March 2023.
Other receivables¹
Non-current tax assets
Prepayments
2023
£m
496
—
71
567
2022
£m
297
6
—
303
1. Primarily comprises amounts due in relation to property sales to The Berkeley Group which will be received until 2031.
15. Financial and other investments
The Group holds a range of financial and other investments. These investments include short-term money market funds, quoted investments
in equities or bonds of other companies, investments in our venture capital portfolio (National Grid Partners), bank deposits with a maturity of
greater than three months, and investments that can not be readily used in operations, principally collateral deposited in relation to derivatives.
The classification of each investment held by the Group is determined based on two main factors:
• its contractual cash flows – whether the asset’s cash flows are solely payments of the principal and interest on the financial asset on
pre-determined dates or whether the cash flows are determined by other factors such as the performance of a company; and
• the business model for holding the investments – whether the intention is to hold onto the investment for the longer term (collect the
contractual cash flows) or to sell the asset with the intention of managing any gain or loss on sale or to manage any liquidity requirements.
The three categories of financial and other investments are as follows:
• Financial assets at amortised cost – debt instruments that have contractual cash flows that are solely payments of principal and interest, and
which are held within a business model whose objective is to collect contractual cash flows, are held at amortised cost. This category includes
our receivables in relation to deposits and collateral;
• FVOCI debt and other investments – debt investments, such as bonds, that have contractual cash flows that are solely payments of principal and
interest, and which are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments,
are measured at fair value through other comprehensive income (FVOCI), with gains or losses recognised in the consolidated statement of
comprehensive income instead of through the income statement. On disposal, any gains or losses are recognised within finance income in the
income statement (see note 6). Other investments include insurance contracts which are held to back the present value of unfunded pension
liabilities (see note 25); and
• FVTPL investments – other financial investments are subsequently measured at fair value with any gains or losses recognised in the income
statement (FVTPL). This primarily comprises our money market funds, insurance company fund investments and corporate venture capital
investments held by National Grid Partners.
Financial and other investments are initially recognised on trade date. Subsequent to initial recognition, the fair values of financial assets that are
quoted in active markets are based on bid prices. When independent prices are not available, fair values are determined by applying valuation
techniques used by the relevant markets including observable market data where possible (see note 32(g) for further details).
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Notes to the consolidated financial statements continued
Other non-current assets include assets that do not fall into specific non-current asset categories (such as goodwill or property, plant and
equipment) where the benefit to be received from the asset is not due to be received until after 31 March 2023.
Other receivables¹
Non-current tax assets
Prepayments
1. Primarily comprises amounts due in relation to property sales to The Berkeley Group which will be received until 2031.
15. Financial and other investments
The Group holds a range of financial and other investments. These investments include short-term money market funds, quoted investments
in equities or bonds of other companies, investments in our venture capital portfolio (National Grid Partners), bank deposits with a maturity of
greater than three months, and investments that can not be readily used in operations, principally collateral deposited in relation to derivatives.
The classification of each investment held by the Group is determined based on two main factors:
• its contractual cash flows – whether the asset’s cash flows are solely payments of the principal and interest on the financial asset on
pre-determined dates or whether the cash flows are determined by other factors such as the performance of a company; and
• the business model for holding the investments – whether the intention is to hold onto the investment for the longer term (collect the
contractual cash flows) or to sell the asset with the intention of managing any gain or loss on sale or to manage any liquidity requirements.
The three categories of financial and other investments are as follows:
• Financial assets at amortised cost – debt instruments that have contractual cash flows that are solely payments of principal and interest, and
which are held within a business model whose objective is to collect contractual cash flows, are held at amortised cost. This category includes
our receivables in relation to deposits and collateral;
• FVOCI debt and other investments – debt investments, such as bonds, that have contractual cash flows that are solely payments of principal and
interest, and which are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments,
are measured at fair value through other comprehensive income (FVOCI), with gains or losses recognised in the consolidated statement of
comprehensive income instead of through the income statement. On disposal, any gains or losses are recognised within finance income in the
income statement (see note 6). Other investments include insurance contracts which are held to back the present value of unfunded pension
liabilities (see note 25); and
• FVTPL investments – other financial investments are subsequently measured at fair value with any gains or losses recognised in the income
statement (FVTPL). This primarily comprises our money market funds, insurance company fund investments and corporate venture capital
investments held by National Grid Partners.
Financial and other investments are initially recognised on trade date. Subsequent to initial recognition, the fair values of financial assets that are
quoted in active markets are based on bid prices. When independent prices are not available, fair values are determined by applying valuation
techniques used by the relevant markets including observable market data where possible (see note 32(g) for further details).
14. Other non-current assets
15. Financial and other investments continued
2023
£m
496
—
71
567
2022
£m
297
6
—
303
Non-current
FVOCI debt and other investments
FVTPL investments
Current
FVTPL investments
Financial assets at amortised cost
Financial and other investments include the following:
Investments in short-term money market funds
Investments held by National Grid Partners
Investments in Sunrun
Balances that are restricted or not readily used in operations:
Collateral1
Insurance company and non-qualified plan investments
Cash surrender value of life insurance policies
Other investments
2023
£m
407
452
859
1,764
841
2,605
3,464
2022
£m
413
417
830
2,292
853
3,145
3,975
1,449
1,936
346
106
764
490
232
77
309
109
806
534
234
47
3,464
3,975
1. The collateral balance includes £734 million (2022: £802 million) of collateral placed with counterparties with whom we have entered into a credit support annex to the International
Swaps and Derivatives Association (ISDA) Master Agreement, £25 million (2022: £4 million) of restricted amounts allocated for specific projects within National Grid Electricity System
Operator and National Grid Electricity Transmission plc and £5 million (2022: £5 million) insurance captive letters of credit.
FVTPL and FVOCI investments are recorded at fair value. 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.
For further information on our credit risk, refer to note 32(a).
For the purposes of impairment assessment, the investments in bonds are considered to be low risk as they are investment grade securities; life
insurance policies are held with regulated insurance companies; and deposits, collateral receivable and other financial assets at amortised cost are
investment grade. All financial assets held at FVOCI or amortised cost are therefore considered to have low credit risk and have an immaterial
impairment loss allowance equal to 12-month expected credit losses.
In determining the expected credit losses for these assets, some or all of the following information has been considered: credit ratings, the financial
position of counterparties, the future prospects of the relevant industries and general economic forecasts.
No FVOCI or amortised cost financial assets have had modified cash flows during the period. There has been no change in the estimation techniques
or significant assumptions made during the year in assessing the loss allowance for these financial assets. There were no significant movements in
the gross carrying value of financial assets during the year that contribute to changes in the loss allowance. No collateral is held in respect of any of
the financial investments in the above table. No balances are more than 30 days past due and no balances were written off during the year.
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Notes to the consolidated financial statements continued
16. Investments in joint ventures and associates
Investments in joint ventures and associates represent businesses we do not control but over which we exercise joint control or significant
influence. They are accounted for using the equity method. A joint venture is an arrangement established to engage in economic activity, which
the Group jointly controls with other parties and has rights to a share of the net assets of the arrangement. An associate is an entity which is
neither a subsidiary nor a joint venture, but over which the Group has significant influence.
Share of net assets at 1 April
Exchange adjustments
Additions
Share of post-tax results for the year
Share of other comprehensive income of associates, net of tax
Dividends received
Disposals
Other movements¹
2023
Joint
ventures
£m
Associates
£m
277
20
40
9
1
(30)
(167)
4
961
52
157
162
—
(152)
—
(34)
Total
£m
1,238
72
197
171
1
(182)
(167)
(30)
Share of net assets at 31 March
154
1,146
1,300
2022
Joint
ventures
£m
Associates
£m
229
6
17
43
1
(35)
—
16
277
638
19
469
49
—
(123)
(50)
(41)
961
Total
£m
867
25
486
92
1
(158)
(50)
(25)
1,238
1. Other movements relate to tax liabilities for US and certain UK associates and joint ventures which are borne by the Group and the elimination of profits arising from sales to the
Group’s share of joint ventures.
A list of joint ventures and associates including the name and proportion of ownership is provided in note 34. Transactions with and outstanding
balances with joint ventures and associates are shown in note 31. The joint ventures and associates have no significant contingent liabilities to which
the Group is exposed, and the Group has no significant contingent liabilities in relation to its interests in the joint ventures and associates. The Group
has capital commitments of £412 million (2022: £714 million) in relation to joint ventures and associates.
On 7 October 2022, the Group disposed of its 26.25% minority ownership interest in the Millennium Pipeline Company LLC to DT Midstream, an
existing owner, in exchange for £497 million ($552 million) cash consideration. The receipt of cash has been recognised within net cash used in
investing activities within the cash flow statement. The Group recognised a gain on disposal of £335 million within other operating income and this
has been classified as exceptional in the year (see note 5). The gain on disposal includes a gain of £47 million attributable to foreign currency
exchange differences, offset by a loss of £22 million relating to net investment hedge reserves, which were recycled to the income statement.
On 15 March 2022, the Group disposed of its entire 50% interest in St William Homes LLP to The Berkeley Group for cash consideration of
£413 million. The receipt of cash was recognised within net cash used in investing activities within the cash flow statement. In the prior year the
Group recognised a gain on disposal of £228 million within other operating income and released to revenue deferred income of £189 million which
related to deferred profits on previous property sales to St William Homes LLP. The gain on disposal and the release of deferred income were both
classified as exceptional (see note 5).
The following table describes the Group’s material joint ventures and associates at 31 March 2023:
Joint venture
BritNed Development Limited1
% stake
50% BritNed is a joint venture with the Dutch transmission system operator, TenneT, and operates the subsea electricity
interconnector between Great Britain and the Netherlands, commissioned in 2011.
Nemo Link Limited1
50% Nemo is a joint venture with the Belgian transmission operator, Elia, and is a subsea electricity interconnector between
Great Britain and Belgium, which became operational on 31 January 2019.
Emerald Energy Venture LLC
51%
Emerald is a joint venture with Washington State Investment Board and builds and operates wind and solar assets.
Emerald was acquired on 11 July 2019.
Community Offshore Wind, LLC
27.3% Community Offshore Wind (formerly known as Bight Wind Holdings LLC) is a joint venture with RWE Renewables.
Following the successful win at auction of six seabed leases in northeastern US in the prior year, Community Offshore
Wind commenced the development of an offshore wind project which will play a key role in supplying clean energy to
customers in New York.
1. BritNed and Nemo have reporting periods ending on 31 December with monthly management reporting information provided to the Group.
162
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National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
16. Investments in joint ventures and associates
Investments in joint ventures and associates represent businesses we do not control but over which we exercise joint control or significant
influence. They are accounted for using the equity method. A joint venture is an arrangement established to engage in economic activity, which
the Group jointly controls with other parties and has rights to a share of the net assets of the arrangement. An associate is an entity which is
neither a subsidiary nor a joint venture, but over which the Group has significant influence.
Share of net assets at 1 April
Exchange adjustments
Additions
Share of post-tax results for the year
Dividends received
Disposals
Other movements¹
Share of other comprehensive income of associates, net of tax
Associates
2023
Joint
ventures
£m
2022
Joint
ventures
£m
Associates
£m
£m
277
20
40
9
1
(30)
(167)
4
Total
£m
1,238
72
197
171
1
(182)
(167)
(30)
961
52
157
162
—
(152)
—
(34)
229
6
17
43
1
(35)
—
16
277
638
19
469
49
—
(123)
(50)
(41)
961
Total
£m
867
25
486
92
1
(158)
(50)
(25)
1,238
Share of net assets at 31 March
154
1,146
1,300
1. Other movements relate to tax liabilities for US and certain UK associates and joint ventures which are borne by the Group and the elimination of profits arising from sales to the
Group’s share of joint ventures.
A list of joint ventures and associates including the name and proportion of ownership is provided in note 34. Transactions with and outstanding
balances with joint ventures and associates are shown in note 31. The joint ventures and associates have no significant contingent liabilities to which
the Group is exposed, and the Group has no significant contingent liabilities in relation to its interests in the joint ventures and associates. The Group
has capital commitments of £412 million (2022: £714 million) in relation to joint ventures and associates.
On 7 October 2022, the Group disposed of its 26.25% minority ownership interest in the Millennium Pipeline Company LLC to DT Midstream, an
existing owner, in exchange for £497 million ($552 million) cash consideration. The receipt of cash has been recognised within net cash used in
investing activities within the cash flow statement. The Group recognised a gain on disposal of £335 million within other operating income and this
has been classified as exceptional in the year (see note 5). The gain on disposal includes a gain of £47 million attributable to foreign currency
exchange differences, offset by a loss of £22 million relating to net investment hedge reserves, which were recycled to the income statement.
On 15 March 2022, the Group disposed of its entire 50% interest in St William Homes LLP to The Berkeley Group for cash consideration of
£413 million. The receipt of cash was recognised within net cash used in investing activities within the cash flow statement. In the prior year the
Group recognised a gain on disposal of £228 million within other operating income and released to revenue deferred income of £189 million which
related to deferred profits on previous property sales to St William Homes LLP. The gain on disposal and the release of deferred income were both
classified as exceptional (see note 5).
Joint venture
% stake
The following table describes the Group’s material joint ventures and associates at 31 March 2023:
BritNed Development Limited1
50% BritNed is a joint venture with the Dutch transmission system operator, TenneT, and operates the subsea electricity
interconnector between Great Britain and the Netherlands, commissioned in 2011.
Nemo Link Limited1
50% Nemo is a joint venture with the Belgian transmission operator, Elia, and is a subsea electricity interconnector between
Great Britain and Belgium, which became operational on 31 January 2019.
Emerald Energy Venture LLC
51%
Emerald is a joint venture with Washington State Investment Board and builds and operates wind and solar assets.
Emerald was acquired on 11 July 2019.
Community Offshore Wind, LLC
27.3% Community Offshore Wind (formerly known as Bight Wind Holdings LLC) is a joint venture with RWE Renewables.
Following the successful win at auction of six seabed leases in northeastern US in the prior year, Community Offshore
Wind commenced the development of an offshore wind project which will play a key role in supplying clean energy to
customers in New York.
1. BritNed and Nemo have reporting periods ending on 31 December with monthly management reporting information provided to the Group.
16. Investments in joint ventures and associates continued
Summarised financial information as at 31 March, together with the carrying amount of material investments, is as follows:
Statement of financial position
Non-current assets
Cash and cash equivalents
All other current assets
Non-current liabilities
Non-current financial liabilities
Current liabilities
Current financial liabilities
Net assets
Group’s ownership interest
in joint venture/associate
Group adjustment: elimination
of profits on sales to joint venture
Carrying amount of the Group’s investment
BritNed Development
Limited
2023
£m
2022
£m
Nemo Link
Limited
2023
£m
Emerald Energy
Venture LLC
Community Offshore
Wind LLC
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
397
208
29
(55)
(31)
(34)
—
514
257
—
257
390
77
10
(52)
(29)
(15)
—
381
191
—
191
514
515
1,598
1,070
77
8
(3)
(32)
(131)
—
433
217
—
217
7
7
(34)
—
(33)
—
462
231
—
231
169
14
(244)
(398)
(131)
(95)
913
134
8
(182)
(310)
(66)
(23)
631
466
322
(85)
381
(49)
273
925
19
—
(19)
(3)
—
922
251
—
251
7
3
835
(1)
(2)
—
842
230
(1)
229
BritNed Development
Limited
2023
£m
2022
£m
Nemo Link
Limited
2023
£m
2022
£m
2023
£m
Emerald Energy
Venture LLC
Community Offshore
Wind LLC
Income statement
Revenue
Depreciation and amortisation
Other income/(costs)
Operating profit/(loss)
Net interest expense
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Group’s share of profit/(loss)
Group adjustment: tax credit
Group’s share of post-tax results
for the year
358
(16)
22
364
(2)
362
(82)
280
140
—
140
131
(15)
(9)
107
(2)
105
(20)
85
43
—
43
88
(23)
(1)
64
(7)
57
(11)
46
23
—
23
148
(23)
(6)
119
(1)
118
(22)
96
48
—
48
75
(29)
(46)
—
(6)
(6)
—
(6)
(3)
1
(2)
2022
£m
25
(17)
(145)
(137)
(5)
(142)
—
(142)
(72)
19
(53)
2023
£m
2022
£m
—
—
1
1
—
1
—
1
—
—
—
—
—
(1)
(1)
—
(1)
—
(1)
—
—
—
162
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Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
163163
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
17. Derivative financial instruments
Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates, foreign exchange rates,
credit spreads, commodities, equities or other indices. In accordance with policies approved by the Board, derivatives are transacted generally
to manage exposures to fluctuations in interest rates, foreign exchange rates and commodity prices. Our derivatives balances comprise two
broad categories:
• financing derivatives – these are used to manage our exposure to interest rates and foreign exchange rates. Specifically, we use these
derivatives to manage our financing portfolio, holdings in foreign operations and contractual operational cash flows; and
• commodity contract derivatives – these are used to manage our US customers’ exposure to price and supply risks. Some forward contracts
for the purchase of commodities meet the definition of derivatives. We also enter into derivative financial instruments linked to commodity
prices, including index futures, options and swaps, which are used to manage market price volatility.
Derivatives are initially recognised at fair value and subsequently remeasured to fair value at each reporting date. Changes in fair values are recorded
in the period they arise, in either the consolidated income statement or other comprehensive income. Where the gains or losses recorded in the
income statement arise from changes in the fair value of derivatives to the extent that hedge accounting is not applied or is not fully effective, these
are recorded as remeasurements, detailed in notes 5 and 6. Where the fair value of a derivative is positive it is carried as a derivative asset, and
where negative as a derivative liability.
The fair value of derivative financial instruments is calculated by taking the present value of future cash flows, primarily incorporating market
observable inputs. The various inputs include foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis
spreads between the respective currencies, interest rate and inflation curves, the forward rate curves of underlying commodities and, for those
positions that are not fully cash collateralised, the credit quality of the counterparties.
Certain clauses embedded in non-derivative financial instruments or other contracts are presented as derivatives because they impact the risk
profile of their host contracts and they are deemed to have risks or rewards not closely related to those host contracts.
Further information on how derivatives are valued and used for risk management purposes is presented in note 32. Information on commodity
contracts and other commitments not meeting the definition of derivatives is presented in note 30.
The fair values of derivatives by category are as follows:
Current
Non-current
Financing derivatives
Commodity contract derivatives
(a) Financing derivatives
The fair values of financing derivatives by type are as follows:
Interest rate swaps
Cross-currency interest rate swaps
Foreign exchange forward contracts¹
Inflation-linked swaps
2023
Assets
£m
Liabilities
£m
153
276
429
363
66
429
(222)
(1,071)
(1,293)
(1,119)
(174)
(1,293)
2023
Assets
£m
Liabilities
£m
49
192
100
22
363
(98)
(888)
(11)
(122)
(1,119)
Total
£m
(69)
(795)
(864)
(756)
(108)
(864)
Total
£m
(49)
(696)
89
(100)
(756)
Assets
£m
2022
Liabilities
£m
282
305
587
298
289
587
(144)
(869)
(1,013)
(991)
(22)
(1,013)
Assets
£m
89
174
35
—
298
2022
Liabilities
£m
(97)
(642)
(65)
(187)
(991)
Total
£m
138
(564)
(426)
(693)
267
(426)
Total
£m
(8)
(468)
(30)
(187)
(693)
1. Included within the foreign exchange forward contracts balance are £4 million (2022: £21 million) of derivative liabilities in relation to the hedging of capital expenditure.
164
164
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
17. Derivative financial instruments
Derivatives are financial instruments that derive their value from the price of an underlying item such as interest rates, foreign exchange rates,
credit spreads, commodities, equities or other indices. In accordance with policies approved by the Board, derivatives are transacted generally
to manage exposures to fluctuations in interest rates, foreign exchange rates and commodity prices. Our derivatives balances comprise two
broad categories:
• financing derivatives – these are used to manage our exposure to interest rates and foreign exchange rates. Specifically, we use these
derivatives to manage our financing portfolio, holdings in foreign operations and contractual operational cash flows; and
• commodity contract derivatives – these are used to manage our US customers’ exposure to price and supply risks. Some forward contracts
for the purchase of commodities meet the definition of derivatives. We also enter into derivative financial instruments linked to commodity
prices, including index futures, options and swaps, which are used to manage market price volatility.
Derivatives are initially recognised at fair value and subsequently remeasured to fair value at each reporting date. Changes in fair values are recorded
in the period they arise, in either the consolidated income statement or other comprehensive income. Where the gains or losses recorded in the
income statement arise from changes in the fair value of derivatives to the extent that hedge accounting is not applied or is not fully effective, these
are recorded as remeasurements, detailed in notes 5 and 6. Where the fair value of a derivative is positive it is carried as a derivative asset, and
where negative as a derivative liability.
The fair value of derivative financial instruments is calculated by taking the present value of future cash flows, primarily incorporating market
observable inputs. The various inputs include foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis
spreads between the respective currencies, interest rate and inflation curves, the forward rate curves of underlying commodities and, for those
positions that are not fully cash collateralised, the credit quality of the counterparties.
Certain clauses embedded in non-derivative financial instruments or other contracts are presented as derivatives because they impact the risk
profile of their host contracts and they are deemed to have risks or rewards not closely related to those host contracts.
Further information on how derivatives are valued and used for risk management purposes is presented in note 32. Information on commodity
contracts and other commitments not meeting the definition of derivatives is presented in note 30.
The fair values of derivatives by category are as follows:
Current
Non-current
Financing derivatives
Commodity contract derivatives
Interest rate swaps
Cross-currency interest rate swaps
Foreign exchange forward contracts¹
Inflation-linked swaps
(a) Financing derivatives
The fair values of financing derivatives by type are as follows:
2023
Assets
£m
Liabilities
£m
153
276
429
363
66
429
(222)
(1,071)
(1,293)
(1,119)
(174)
(1,293)
2023
Assets
£m
Liabilities
£m
49
192
100
22
363
(98)
(888)
(11)
(122)
(1,119)
Total
£m
(69)
(795)
(864)
(756)
(108)
(864)
Total
£m
(49)
(696)
89
(100)
(756)
Assets
£m
2022
Liabilities
£m
282
305
587
298
289
587
(144)
(869)
(1,013)
(991)
(22)
(1,013)
Assets
£m
89
174
35
—
298
2022
Liabilities
£m
(97)
(642)
(65)
(187)
(991)
Total
£m
138
(564)
(426)
(693)
267
(426)
Total
£m
(8)
(468)
(30)
(187)
(693)
1. Included within the foreign exchange forward contracts balance are £4 million (2022: £21 million) of derivative liabilities in relation to the hedging of capital expenditure.
17. Derivative financial instruments continued
(a) Financing derivatives continued
The maturity profile of financing derivatives is as follows:
Current
Less than 1 year
Non-current
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
2023
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
2022
Liabilities
£m
100
100
13
15
32
14
189
263
363
(93)
(93)
(100)
(96)
(11)
(107)
(712)
(1,026)
(1,119)
7
7
(87)
(81)
21
(93)
(523)
(763)
(756)
34
34
6
28
—
12
218
264
298
(136)
(136)
(29)
(39)
(26)
(16)
(745)
(855)
(991)
Total
£m
(102)
(102)
(23)
(11)
(26)
(4)
(527)
(591)
(693)
The notional contract amounts of financing derivatives by type are as follows:
Interest rate swaps
Cross-currency interest rate swaps
Foreign exchange forward contracts
Inflation-linked swaps
2023
£m
2022
£m
(1,727)
(1,607)
(15,025)
(10,397)
(5,263)
(2,387)
(6,371)
(500)
(24,402)
(18,875)
London Inter-bank Offered Rate (LIBOR) is being replaced as an interest rate benchmark by alternative reference rates and therefore we are
transitioning LIBOR cash flows on our affected contracts in line with the relevant jurisdictions. In the prior year we transitioned all derivatives which
pay or receive cash flows that reference GBP LIBOR (maturing between 2023 and 2040) to alternative reference rates. Derivatives with a notional
value of £859 million that reference USD LIBOR (maturing between 2023 and 2026) were present at 31 March 2023 (2022: £806 million, maturing
between 2023 and 2026).
(b) Commodity contract derivatives
The fair values of commodity contract derivatives by type are as follows:
Commodity purchase contracts accounted for as derivative contracts
Forward purchases of gas
2
(6)
(4)
11
(6)
Derivative financial instruments linked to commodity prices
2023
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
2022
Liabilities
£m
Electricity capacity
Electricity swaps
Electricity options
Gas swaps
Gas options
1
53
—
9
1
66
—
(92)
(3)
(42)
(31)
1
(39)
(3)
(33)
(30)
(174)
(108)
1
208
5
29
35
289
—
(10)
—
(6)
—
(22)
164
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
Total
£m
5
1
198
5
23
35
267
165165
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
17. Derivative financial instruments continued
(b) Commodity contract derivatives continued
The maturity profile of commodity contract derivatives is as follows:
Current
Less than one year
Non-current
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
2023
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
2022
Liabilities
£m
53
53
11
2
—
—
13
66
(129)
(129)
(29)
(15)
(1)
—
(45)
(174)
(76)
(76)
(18)
(13)
(1)
—
(32)
(108)
248
248
34
5
2
—
41
289
(8)
(8)
(6)
(5)
(2)
(1)
(14)
(22)
Total
£m
240
240
28
—
—
(1)
27
267
The notional quantities of commodity contract derivatives by type are as follows:
Forward purchases of gas1
Electricity swaps
Gas swaps
Gas options
2023
22m Dth
2022
28m Dth
14,076 GWh
13,458 GWh
50m Dth
57m Dth
39m Dth
59m Dth
1. Forward gas purchases have terms up to three years (2022: one year). The contractual obligations under these contracts are £24 million (2022: £86 million).
18. Inventories and current intangible assets
Inventories represent assets that we intend to use in order to generate revenue in the short term, either by selling the asset itself (for example fuel
stocks) or by using it to fulfil a service to a customer or to maintain our network (consumables).
Inventories are stated at the lower of weighted average cost and net realisable value. Where applicable, cost comprises direct materials and direct
labour costs as well as those overheads that have been directly incurred in bringing the inventories to their present location and condition.
Emission allowances, principally relating to the emissions of carbon dioxide in the UK and sulphur and nitrous oxides in the US, are recorded as
intangible assets within current assets. They are initially recorded at cost and subsequently at the lower of cost and net realisable value. A liability
is recorded in respect of the obligation to deliver emission allowances and emission charges are recognised in the income statement in the period
in which emissions are made.
Fuel stocks
Raw materials and consumables
Current intangible assets – emission allowances
There is a provision for obsolescence of £6 million against inventories as at 31 March 2023 (2022: £7 million).
2023
£m
280
460
136
876
2022
£m
96
297
118
511
166
166
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
17. Derivative financial instruments continued
(b) Commodity contract derivatives continued
The maturity profile of commodity contract derivatives is as follows:
Current
Less than one year
Non-current
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
Forward purchases of gas1
Electricity swaps
Gas swaps
Gas options
The notional quantities of commodity contract derivatives by type are as follows:
2023
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
2022
Liabilities
£m
53
53
11
2
—
—
13
66
(129)
(129)
(29)
(15)
(1)
—
(45)
(174)
(76)
(76)
(18)
(13)
(1)
—
(32)
(108)
248
248
34
5
2
—
41
289
(8)
(8)
(6)
(5)
(2)
(1)
(14)
(22)
Total
£m
240
240
28
—
—
(1)
27
267
1. Forward gas purchases have terms up to three years (2022: one year). The contractual obligations under these contracts are £24 million (2022: £86 million).
18. Inventories and current intangible assets
Inventories represent assets that we intend to use in order to generate revenue in the short term, either by selling the asset itself (for example fuel
stocks) or by using it to fulfil a service to a customer or to maintain our network (consumables).
Inventories are stated at the lower of weighted average cost and net realisable value. Where applicable, cost comprises direct materials and direct
labour costs as well as those overheads that have been directly incurred in bringing the inventories to their present location and condition.
Emission allowances, principally relating to the emissions of carbon dioxide in the UK and sulphur and nitrous oxides in the US, are recorded as
intangible assets within current assets. They are initially recorded at cost and subsequently at the lower of cost and net realisable value. A liability
is recorded in respect of the obligation to deliver emission allowances and emission charges are recognised in the income statement in the period
in which emissions are made.
Fuel stocks
Raw materials and consumables
Current intangible assets – emission allowances
There is a provision for obsolescence of £6 million against inventories as at 31 March 2023 (2022: £7 million).
2023
£m
280
460
136
876
2022
£m
96
297
118
511
19. Trade and other receivables
Trade and other receivables include amounts which are due from our customers for services we have provided, accrued income which has not
yet been billed, prepayments, contract assets where certain milestones are required to be fulfilled and other receivables that are expected to be
settled within 12 months.
Trade and other receivables are initially recognised at fair value, except for trade receivables that do not have a significant financing component
which are measured at transaction price, and are subsequently measured at amortised cost, less any appropriate allowances for estimated
irrecoverable amounts.
Trade receivables
Accrued income
Provision for impairment of receivables and accrued income
Trade receivables and accrued income, net
Prepayments
Contract assets
Other receivables
2023
£m
2,583
1,126
(560)
3,149
442
49
243
2022
£m
2,661
1,110
(741)
3,030
429
33
223
3,883
3,715
14,076 GWh
13,458 GWh
2023
22m Dth
50m Dth
57m Dth
2022
28m Dth
39m Dth
59m Dth
Trade receivables are non-interest-bearing and generally have a term of up to 60 days. Due to their short maturities, the fair value of trade and other
receivables approximates their carrying value. The maximum exposure of trade and other receivables to credit risk is the carrying amount reported
on the balance sheet.
Provision for impairment of receivables
A provision for credit losses is recognised at an amount equal to the expected credit losses that will arise over the lifetime of the trade receivables
and accrued income.
At 1 April
Exchange adjustments
Charge for the year, net of recoveries
Uncollectible amounts written off
Reclassification to held for sale (note 10)
At 31 March
2023
£m
741
51
220
(452)
—
560
2022
£m
672
31
167
(124)
(5)
741
The trade receivables balance, accrued income balance and provisions balance split by geography are as follows:
Trade receivables
Accrued income
Provision for impairment of receivables and accrued income
As at 31 March 2023
As at 31 March 2022
UK
£m
223
650
(11)
862
US
£m
2,360
476
(549)
2,287
Total
£m
2,583
1,126
(560)
3,149
UK
£m
352
715
(43)
US
£m
2,309
395
(698)
1,024
2,006
Total
£m
2,661
1,110
(741)
3,030
There are no retail customers in the UK businesses. A provision matrix is not used in the UK, as an assessment of expected losses on individual
debtors is performed and the provision is not material.
In the US, £2,325 million (2022: £2,243 million) of the trade receivables and accrued income balance is attributable to retail customers. For non-retail
US customer receivables, a provision matrix is not used and expected losses are determined on individual debtors.
The provision for retail customer receivables in the US is calculated based on a series of provision matrices which are prepared by regulated entity
and by customer type. The expected loss rates in each provision matrix are based on historical loss rates adjusted for current and forecast economic
conditions at the balance sheet date. The inclusion of forward-looking information in the provision matrix-setting process under IFRS 9 results in loss
rates that reflect expected future economic conditions and the recognition of an expected loss on all debtors even where no loss event has occurred.
In March 2020, the Group’s US distribution business temporarily ceased certain customer cash collection activities in response to regulatory
instructions and to changes in State, Federal and City level regulations and guidance, and actions to minimise risk to the Group’s employees as
a result of COVID-19. At that time, the Group also ceased customer termination activities as requested by relevant local authorities and this resulted
in the recognition of additional expected credit losses. Cash collection and customer termination activities subsequently resumed in New England
and New York during the year ended 31 March 2022.
In the years ended 31 March 2023 and 2022, the Group’s US distribution businesses have also been supported by certain government and state
COVID-19 funding programmes, including the Arrears Management Program in New York aimed to provide low-income customers with COVID-19
relief via one-time bill credits. This year, in connection with the Arrears Management Program, the Group has written off £270 million ($333 million)
of COVID-19-related trade receivables. This has been funded via the receipt of £44 million ($51 million) of government funding in the year, with the
remainder to be recovered through future rates over future periods.
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Notes to the consolidated financial statements continued
19. Trade and other receivables continued
Provision for impairment of receivables continued
In calculating our provision for impairment of receivables at 31 March 2023, we were able to incorporate the actual cash collection levels
experienced for the three years since the start of the pandemic to determine the expected loss rates per category of outstanding receivable by
operating company. These were benchmarked against provision matrices run on pre-COVID-19 behaviour and data. Factored into our analysis
are expected cash collections based on the resumed collection activities in New England and New York, as well as the impacts of government
and state funding programmes and the outlook for the wider macroeconomic environment. The resulting rates are summarised in the provision
matrix shown below.
Based on our review, we recognised a charge of £215 million (2022: £139 million) which represents our best estimate based on the information
available. We based our review on certain macroeconomic factors, including unemployment levels, inflation, average commodity rate changes and
our experience regarding debtor recoverability since the start of the COVID-19 pandemic. In performing our review of actual cash collection levels,
we also factored in the impacts of government and state COVID-19 funding programmes in order to reflect an expected collection rate.
The average expected loss rates and gross balances for the retail customer receivables in our US operations are set out below. The decreases
in expected loss rates applied to amounts less than 12 months past due are primarily attributable to the resumption of cash collection activities since
the prior year, while the increase in the average loss rate applied to amounts over 12 months reflects the increased risk of non-collection in light of
wider macroeconomic factors, as well as the reduced likelihood of recoverability given the significant ageing of the amounts within this category.
Accrued income
0 – 30 days past due
30 – 60 days past due
60 – 90 days past due
3 – 6 months past due
6 – 12 months past due
Over 12 months past due
2023
%
3
3
13
23
32
43
88
£m
462
838
235
139
189
178
284
2022
%
5
5
20
32
41
56
71
£m
382
731
213
123
161
177
456
2,325
2,243
US retail customer receivables are not collateralised. Trade receivables are written off when regulatory requirements are met. Write-off policies vary
between jurisdictions as they are aligned with the local regulatory requirements, which differ between regulators. There were no significant amounts
written off during the period that were still subject to enforcement action. Our internal definition of default is aligned with that of the individual
regulators in each jurisdiction.
For further information on our wholesale and retail credit risk, refer to note 32(a).
20. Cash and cash equivalents
Cash and cash equivalents include cash balances, together with short-term investments with an original maturity of less than three months that
are readily convertible to cash.
Net cash and cash equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in borrowings. The carrying
amounts of cash and cash equivalents and bank overdrafts approximate their fair values.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Cash and cash equivalents held in currencies other than sterling have
been converted into sterling at year-end exchange rates. For further information on currency exposures, refer to note 32(c).
Cash and cash equivalents at 31 March 2023 include £37 million (2022: £14 million) that is restricted. The restricted cash balances include
amounts required to be maintained for insurance purposes and cash balances that can only be used for low-carbon network fund projects.
Cash at bank
Cash and cash equivalents
2023
£m
163
163
2022
£m
204
204
168
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21. Borrowings
We borrow money primarily in the form of bonds and bank loans. These are for a fixed term and may have fixed or floating interest rates or are
linked to inflation indices. We use derivatives to manage risks associated with interest rates, inflation rates and foreign exchange. Lease liabilities
are also included within borrowings.
Our price controls and rate plans lead us to fund our networks within a certain ratio of debt to equity or regulatory asset value and, as a result,
we have issued a significant amount of debt. As we continue to invest in our networks, the value of debt is expected to increase over time.
To maintain a strong balance sheet and to allow us to access capital markets at commercially acceptable interest rates, we balance the amount
of debt we issue with the value of our assets, and we take account of certain other metrics used by credit rating agencies.
Borrowings, which include interest-bearing and inflation-linked debt, overdrafts and collateral payable, are initially recorded at fair value. This
normally reflects the proceeds received (net of direct issue costs for liabilities measured at amortised cost). Subsequently, borrowings are stated
either: i) at amortised cost; or ii) at fair value though profit and loss. Where a borrowing is held 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. For the liability held at fair value through profit and loss, interest is calculated using the effective interest method.
Where a borrowing or liability is held at fair value, changes in the fair value of the borrowing due to changes in the issuer’s credit risk are recorded
in the own credit reserve within equity (see note 28). All other changes in the fair value of the liability are recognised in the income statement within
remeasurements (see notes 5 and 6).
2023
%
3
3
13
23
32
43
88
£m
462
838
235
139
189
178
284
2022
%
5
5
20
32
41
56
71
£m
382
731
213
123
161
177
456
2,325
2,243
Current
Bank loans1
Bonds
Commercial paper
Lease liabilities
Non-current
Bank loans
Bonds
Lease liabilities
Total borrowings
2023
£m
381
1,638
840
96
2022
£m
8,976
1,735
1,303
107
2,955
12,121
2,557
2,211
36,855
30,682
618
40,030
42,985
451
33,344
45,465
1. Current bank loans in the year ended 31 March 2022 included £8,179 million of borrowings under a bridge facility related to the acquisition of NGED. The bridge facility included a
requirement that the proceeds of the sales of NECO and the UK Gas Transmission business were applied to repay the facility. The bridge facility was subsequently settled in full during
the year ended 31 March 2023.
Notes to the consolidated financial statements continued
19. Trade and other receivables continued
Provision for impairment of receivables continued
In calculating our provision for impairment of receivables at 31 March 2023, we were able to incorporate the actual cash collection levels
experienced for the three years since the start of the pandemic to determine the expected loss rates per category of outstanding receivable by
operating company. These were benchmarked against provision matrices run on pre-COVID-19 behaviour and data. Factored into our analysis
are expected cash collections based on the resumed collection activities in New England and New York, as well as the impacts of government
and state funding programmes and the outlook for the wider macroeconomic environment. The resulting rates are summarised in the provision
matrix shown below.
Based on our review, we recognised a charge of £215 million (2022: £139 million) which represents our best estimate based on the information
available. We based our review on certain macroeconomic factors, including unemployment levels, inflation, average commodity rate changes and
our experience regarding debtor recoverability since the start of the COVID-19 pandemic. In performing our review of actual cash collection levels,
we also factored in the impacts of government and state COVID-19 funding programmes in order to reflect an expected collection rate.
The average expected loss rates and gross balances for the retail customer receivables in our US operations are set out below. The decreases
in expected loss rates applied to amounts less than 12 months past due are primarily attributable to the resumption of cash collection activities since
the prior year, while the increase in the average loss rate applied to amounts over 12 months reflects the increased risk of non-collection in light of
wider macroeconomic factors, as well as the reduced likelihood of recoverability given the significant ageing of the amounts within this category.
Accrued income
0 – 30 days past due
30 – 60 days past due
60 – 90 days past due
3 – 6 months past due
6 – 12 months past due
Over 12 months past due
US retail customer receivables are not collateralised. Trade receivables are written off when regulatory requirements are met. Write-off policies vary
between jurisdictions as they are aligned with the local regulatory requirements, which differ between regulators. There were no significant amounts
written off during the period that were still subject to enforcement action. Our internal definition of default is aligned with that of the individual
regulators in each jurisdiction.
For further information on our wholesale and retail credit risk, refer to note 32(a).
20. Cash and cash equivalents
Cash and cash equivalents include cash balances, together with short-term investments with an original maturity of less than three months that
are readily convertible to cash.
Net cash and cash equivalents reflected in the cash flow statement are net of bank overdrafts, which are reported in borrowings. The carrying
amounts of cash and cash equivalents and bank overdrafts approximate their fair values.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Cash and cash equivalents held in currencies other than sterling have
been converted into sterling at year-end exchange rates. For further information on currency exposures, refer to note 32(c).
Cash and cash equivalents at 31 March 2023 include £37 million (2022: £14 million) that is restricted. The restricted cash balances include
amounts required to be maintained for insurance purposes and cash balances that can only be used for low-carbon network fund projects.
Cash at bank
Cash and cash equivalents
2023
£m
163
163
2022
£m
204
204
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Notes to the consolidated financial statements continued
21. Borrowings continued
Total borrowings are repayable as follows:
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years:
By instalments
Other than by instalments
2023
£m
2,955
2,799
2,689
3,129
2,505
922
27,986
42,985
2022
£m
12,121
1,410
2,544
2,580
2,493
869
23,448
45,465
The fair value of borrowings, excluding lease liabilities, at 31 March 2023 was £38,219 million (2022: £45,066 million). Where market values were
available, the fair value of borrowings (Level 1) was £31,710 million (2022: £24,454 million). Where market values were not available, the fair value
of borrowings (Level 2) was £6,509 million (2022: £20,612 million) and calculated by discounting cash flows at prevailing interest rates. The notional
amount outstanding of the debt portfolio at 31 March 2023 was £42,353 million (2022: £44,055 million). There have been no new issuances since
the year end.
Collateral is placed with or received from any derivative counterparty where we have entered into a credit support annex to the ISDA Master
Agreement once the current mark-to-market valuation of the trades between the parties exceeds an agreed threshold. Included in current bank
loans is £111 million (2022: £60 million) in respect of cash received under collateral agreements. For further details of our borrowing facilities, refer
to note 33. For further details of our bonds in issue, please refer to the debt investor section of our website. Unless included herein the information
on our website is unaudited.
Certain borrowings, primarily some of our USD denominated bank loans and company car lease contracts, have payments that are linked to LIBOR.
LIBOR is being replaced as an interest rate benchmark by alternative reference rates and therefore we are transitioning LIBOR cash flows on our
affected contracts in line with the relevant jurisdictions. The migration project is under way, with all affected contracts where we previously paid or
received GBP LIBOR amended in the prior year. £314 million of bank loans affected by GBP LIBOR were transitioned to alternative reference rates
in the year ended 31 March 2022. £227 million (2022: £181 million) of lease liabilities affected by USD LIBOR have been transitioned to alternative
rates and £120 million (2022: £110 million) of bank loans affected by USD LIBOR have yet to be amended.
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Notes to the consolidated financial statements continued
21. Borrowings continued
Total borrowings are repayable as follows:
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years:
By instalments
Other than by instalments
2023
£m
2,955
2,799
2,689
3,129
2,505
922
27,986
42,985
2022
£m
12,121
1,410
2,544
2,580
2,493
869
23,448
45,465
The fair value of borrowings, excluding lease liabilities, at 31 March 2023 was £38,219 million (2022: £45,066 million). Where market values were
available, the fair value of borrowings (Level 1) was £31,710 million (2022: £24,454 million). Where market values were not available, the fair value
of borrowings (Level 2) was £6,509 million (2022: £20,612 million) and calculated by discounting cash flows at prevailing interest rates. The notional
amount outstanding of the debt portfolio at 31 March 2023 was £42,353 million (2022: £44,055 million). There have been no new issuances since
the year end.
Collateral is placed with or received from any derivative counterparty where we have entered into a credit support annex to the ISDA Master
Agreement once the current mark-to-market valuation of the trades between the parties exceeds an agreed threshold. Included in current bank
loans is £111 million (2022: £60 million) in respect of cash received under collateral agreements. For further details of our borrowing facilities, refer
to note 33. For further details of our bonds in issue, please refer to the debt investor section of our website. Unless included herein the information
on our website is unaudited.
Certain borrowings, primarily some of our USD denominated bank loans and company car lease contracts, have payments that are linked to LIBOR.
LIBOR is being replaced as an interest rate benchmark by alternative reference rates and therefore we are transitioning LIBOR cash flows on our
affected contracts in line with the relevant jurisdictions. The migration project is under way, with all affected contracts where we previously paid or
received GBP LIBOR amended in the prior year. £314 million of bank loans affected by GBP LIBOR were transitioned to alternative reference rates
in the year ended 31 March 2022. £227 million (2022: £181 million) of lease liabilities affected by USD LIBOR have been transitioned to alternative
rates and £120 million (2022: £110 million) of bank loans affected by USD LIBOR have yet to be amended.
21. Borrowings continued
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, the incremental rate of borrowing for a similar term and similar security. The lease
term takes account of exercising any extension options that are at our option if we are reasonably certain to exercise the option as well as 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.
Gross lease liabilities are repayable as follows:
Less than 1 year
1 to 5 years
More than 5 years
Less: finance charges allocated to future periods
The present value of lease liabilities are as follows:
Less than 1 year
1 to 5 years
More than 5 years
22. Trade and other payables
2023
£m
118
318
480
916
(202)
714
96
269
349
714
2022
£m
132
282
259
673
(115)
558
107
247
204
558
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 represent 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 and other payables are initially recognised at fair value and subsequently measured at amortised cost, with the exception of contingent
consideration, which is subsequently measured at fair value.
Trade payables
Deferred payables
Customer contributions1
Social security and other taxes
Contingent consideration
Other payables²
2023
£m
2022
£m
3,249
3,113
404
171
240
19
985
487
137
278
34
866
5,068
4,915
1. Relates to amounts received from government-related entities for connecting to our networks, where we have obligations remaining under the contract.
2. Included within other payables are payments due in respect of interconnector excess revenues in accordance with the cap and floor regime constructed by Ofgem (see note 3).
Due to their short maturities, the fair value of trade and other payables approximates their carrying value.
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Notes to the consolidated financial statements continued
23. Contract liabilities
Contract liabilities primarily relate to the advance consideration received from customers for construction contracts, mainly in relation to
connections, for which revenue is recognised over the life of the asset.
Current
Non-current
Significant changes in the contract liabilities balances during the period are as follows:
As at 1 April
Exchange adjustments
Revenue recognised that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognised as revenue during the period
Reclassification to held for sale (note 10)
At 31 March
2023
£m
252
1,754
2,006
2022
£m
130
1,342
1,472
2023
£m
2022
£m
1,472
1,160
54
(292)
772
—
29
(53)
510
(174)
2,006
1,472
24. Other non-current liabilities
Other non-current liabilities include deferred income and customer contributions which will not be recognised as income until after 31 March
2024. It also includes contingent consideration and other payables that are not due until after that date.
Other non-current liabilities are initially recognised at fair value and subsequently measured at amortised cost, with the exception of contingent
consideration, which is subsequently measured at fair value.
Deferred income
Customer contributions1
Contingent consideration
Other payables²
1. Relates to amounts received from government-related entities for connecting to our networks, where we have obligations remaining under the contract.
2. Included within other payables are payments due in respect of the IFA1 interconnector in accordance with the Use of Revenue regime constructed by Ofgem.
There is no material difference between the fair value and the carrying value of other payables.
2023
£m
84
421
—
416
921
2022
£m
41
421
7
336
805
172
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Notes to the consolidated financial statements continued
Contract liabilities primarily relate to the advance consideration received from customers for construction contracts, mainly in relation to
connections, for which revenue is recognised over the life of the asset.
Current
Non-current
Significant changes in the contract liabilities balances during the period are as follows:
As at 1 April
Exchange adjustments
Reclassification to held for sale (note 10)
At 31 March
Revenue recognised that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognised as revenue during the period
24. Other non-current liabilities
Other non-current liabilities include deferred income and customer contributions which will not be recognised as income until after 31 March
2024. It also includes contingent consideration and other payables that are not due until after that date.
Other non-current liabilities are initially recognised at fair value and subsequently measured at amortised cost, with the exception of contingent
consideration, which is subsequently measured at fair value.
Deferred income
Customer contributions1
Contingent consideration
Other payables²
1. Relates to amounts received from government-related entities for connecting to our networks, where we have obligations remaining under the contract.
2. Included within other payables are payments due in respect of the IFA1 interconnector in accordance with the Use of Revenue regime constructed by Ofgem.
There is no material difference between the fair value and the carrying value of other payables.
2023
£m
252
1,754
2,006
2022
£m
130
1,342
1,472
1,472
1,160
2023
£m
54
(292)
772
—
2022
£m
29
(53)
510
(174)
2,006
1,472
2023
£m
84
421
—
416
921
2022
£m
41
421
7
336
805
23. Contract liabilities
25. Pensions and other post-retirement benefits
All of our employees are eligible to participate in a pension plan. We have defined contribution (DC) and defined benefit (DB) pension plans in
the UK and the US. In the US we also provide healthcare and life insurance benefits to eligible employees, post retirement. The fair value of
associated plan assets and present value of DB obligations are updated annually in accordance with IAS 19 ‘Employee Benefits’. We separately
present our UK and US pension plans to show the geographical split. Below we provide a more detailed analysis of the amounts recorded in the
primary financial statements and the actuarial assumptions used to value the DB obligations.
UK pension plans
Defined contribution plan
Employees of National Grid’s legacy UK businesses are eligible to join the National Grid UK Retirement Plan (NGUKRP), a section of a Master Trust
arrangement managed by Legal & General. Separately, DC pension benefits are provided to NGED employees through the Western Power Pension
Scheme (WPPS), which comprises four sections, each containing an element of DC pension provision. Of the four sections, it is only the ‘2010
Section’ which is open to new NGED employees. National Grid pays contributions into the NGUKRP and WPPS 2010 Section to provide DC benefits
on behalf of its employees, generally providing a double match of member contributions (up to a maximum Company contribution of 12% of salary in
NGUKRP and 10% of salary in WPPS 2010 Section, increasing to 12% for future years on 1 April 2023).
Investment risks are borne by the member and there is no legal or constructive obligation on National Grid to pay additional contributions in the
instance that investment performance is poor. Payments to these DC plans are charged as an expense as they fall due.
Defined benefit plans
National Grid operates various DB pension arrangements in the UK. These include Section A of the National Grid UK Pension Scheme (NGUKPS),
three sections of the industry-wide Electricity Supply Pension Scheme (ESPS) and a legacy scheme (WPUPS), DB sections within WPPS and some
unfunded pension obligations. Each of these plans holds assets in separate Trustee administered funds. The arrangements are managed by Trustee
companies with boards consisting of company and member appointed Directors. These plans are all closed to new members, except for the ESPS
schemes in very rare circumstances.
The Group became responsible for four of these pension schemes following the acquisition of NGED in the prior year. At the date of acquisition these
schemes had combined assets of £7,662 million and the Group recognised a net pension asset on the balance sheet of £566 million (see note 37).
This net pension asset was assessed consistently with the valuation of National Grid’s existing defined benefit pension schemes but reflecting market
conditions at the date of acquisition. In addition, the Group also became responsible for some smaller unfunded obligations relating to previous
executives at NGED East Midlands and NGED West Midlands.
Following the sale of the UK Gas Transmission business in January 2023, the Group is no longer responsible for Section B of the NGUKPS. During
the year, the Group carried out an exercise to align each employee’s pension scheme with their future employer, enabling them to continue to earn
DB benefits after the closing of the sale. These employees were then offered the chance to transfer their accrued pension benefits into their new
pension scheme, with the transfers completing in January 2023.
The arrangements are subject to independent actuarial funding valuations every three years and, following consultation and agreement with the
Company, the qualified actuary certifies the employers’ contributions which together with the specified contributions payable by the employees
and proceeds from the plans’ assets, are expected to be sufficient to fund the benefits payable. The Company is in the process of agreeing actuarial
valuations as at 31 March 2022 for each of the DB plans. This will involve implementing revised deficit recovery plans for any schemes where there is
an assessed funding shortfall. The existing recovery plans agreed as part of the 31 March 2019 actuarial valuations are due to finish in November
2024, or earlier, with payments of approximately £60 million across all plans still due to be paid. Separately, National Grid continues to fund the cost
of future benefit accrual (over and above member contributions) for each of the DB schemes. In the year to March 2023, the aggregate level of
ongoing contributions (excluding recovery plan payments) was £74 million (2022: £83 million; 2021: £50 million). National Grid also pays contributions
in respect of the costs of plan administration and the Pension Protection Fund (PPF) levies for most of its DB plans.
In addition, for some plans the Company has also agreed to establish security arrangements. This includes £186 million of security for Section A of
NGUKPS, all of which is currently provided in the form of surety bonds but may also be provided as letters of credit or cash. This amount will be paid
to Section A in the event that the relevant supporting employer is subject to an insolvency event or fails to make required contributions. Contingent
security would be provided to National Grid Electricity Group (NGEG) of ESPS, in the form of cash payments of up to a maximum of £500 million,
payable if certain trigger events occur in respect of National Grid Electricity Transmission plc.
A guarantee has also been provided to Section A of NGUKPS, with the payment contingent on insolvency or on failure to pay pension obligations
to Section A and can be claimed against National Grid plc, National Grid Holdings One plc or Lattice Group Limited.
US pension plans
The US pension plans are governed by a fiduciary committee called the Retirement Plan Committee (RPC). The RPC is structured in accordance
with US laws governing retirement plans under the Employee Retirement Income Security Act (ERISA) and comprises appointed employees of
the Company.
Defined contribution plans
National Grid has a DC pension plan which allows employee as well as Company contributions. Non-union employees hired after 1 January 2011,
as well as most new hire union employees, receive a core contribution into the DC plan ranging from 3% to 9% of salary, irrespective of the
employee’s contribution into the plan. Most employees also receive a matching contribution that varies between 25% and 50% of employee
contributions up to a maximum of 8% to 10%. The assets of the plans are held in trusts and administered by the RPC.
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Notes to the consolidated financial statements continued
25. Pensions and other post-retirement benefits continued
US pension plans continued
Defined benefit plans
National Grid sponsors four non-contributory qualified DB pension plans, which provide vested union employees, and vested non-union employees
hired before 1 January 2011, with retirement benefits within prescribed limits as defined by the US Internal Revenue Service. National Grid also
provides non-qualified DB pension arrangements for a closed group of current and former employees with designated company investments set
aside to fund these obligations. Benefits under the DB plans generally reflect age, years of service and compensation, and are paid in the form of
an annuity or lump sum. An independent actuary performs valuations annually. The Company funds the DB plans by contributing no less than the
minimum amount required, but no more than the maximum tax-deductible amount allowed under US Internal Revenue Service regulations. The range
of contributions determined under these regulations can vary significantly depending upon the funded status of the plans. At present, there is some
flexibility in the amount that is contributed on an annual basis. In general, the Company’s policy for funding the US pension plans is to contribute the
amounts collected in rates and capitalised in the rate base during the year, to the extent that the funding is no less than the minimum amount
required. For the current financial year, these contributions amounted to approximately £76 million (2022: £116 million).
In May 2022, NECO was sold to PPL Rhode Island Holdings, LLC (see note 10) and a portion of one of the DB pension plans was transferred to
PPL Rhode Island Holdings, LLC’s successor plan. Both active and inactive participants from NECO were transferred to PPL Rhode Island Holdings,
LLC’s successor plan with the sale, as well as some active employees from other subsidiaries. The sale required curtailment and settlement
accounting, resulting in a remeasurement of the related plan’s pension assets and benefit liabilities.
In addition, three of the DB pension plans underwent an annuity buyout transaction in which a portion of existing retiree pension payments were
transferred to a reputable insurance company in exchange for a single bulk premium payment. As a result, all associated financial, governance and
administrative responsibilities for those payments were transferred to the selected insurer. The annuity buyout required settlement accounting when
the single bulk premium payment was paid to the insurer in June 2022.
US other post-retirement benefits
National Grid provides healthcare and life insurance benefits to eligible employees, post retirement. Eligibility is based on certain age and length of
service requirements and, in most cases, retirees contribute to the cost of their healthcare coverage. In the US, there is no governmental requirement
to pre-fund post-retirement healthcare and life insurance plans. However, in general, the Company’s policy for funding the US retiree healthcare and
life insurance plans is to contribute amounts collected in rates and capitalised in the rate base during the year. For the current financial year, these
contributions amounted to £11 million (2022: £17 million).
The sale of NECO to PPL Rhode Island Holdings, LLC in May 2022 resulted in the transfer of a proportional share of the associated union and
non-union OPEB assets and benefit liabilities to PPL Rhode Island Holdings, LLC’s successor plans.
Actuarial assumptions
On retirement, members of DB plans receive benefits whose value is dependent on factors such as salary and length of pensionable service. National
Grid’s obligation in respect of DB pension plans is calculated separately for each DB plan by projecting the estimated amount of future benefit
payments that employees have earned for their pensionable service in the current and prior periods. These future benefit payments are discounted
to determine the present value of the liabilities. Current service cost and any unrecognised past service cost are recognised immediately.
Advice is taken from independent actuaries relating to the appropriateness of the key assumptions applied, including life expectancy, expected salary
and pension increases, and inflation. Comparatively small changes in the assumptions used may have a significant effect on the amounts recognised
in the consolidated income statement, the consolidated statement of other comprehensive income and the net liability recognised in the consolidated
statement of financial position (see note 35). Remeasurements of pension assets and post-retirement benefit obligations are recognised in full in the
period in which they occur in the consolidated statement of other comprehensive income.
The Company has applied the following financial assumptions in assessing DB liabilities:
Discount rate – past service
Discount rate – future service
Rate of increase in RPI – past service
Rate of increase in RPI – future service
Salary increases
Initial healthcare cost trend rate
Ultimate healthcare cost trend rate
UK pensions
US pensions
US other post-retirement benefits
2023
%
4.80
4.80
3.17
3.07
3.11
n/a
n/a
2022
%
2.78
2.85
3.60
3.33
3.47
n/a
n/a
2021
%
2.00
2.15
3.15
3.00
3.40
n/a
n/a
2023
%
4.85
4.85
n/a
n/a
4.50
n/a
n/a
2022
%
3.65
3.65
n/a
n/a
2021
%
3.25
3.25
n/a
n/a
4.60
4.30
n/a
n/a
n/a
n/a
2023
%
4.85
4.85
n/a
n/a
4.50
6.80
4.50
2022
%
3.65
3.65
n/a
n/a
4.60
6.80
4.50
2021
%
3.25
3.25
n/a
n/a
4.30
7.10
4.50
For UK pensions, single equivalent financial assumptions are shown above for presentational purposes, although full yield curves have been used
in our calculations. The discount rate is determined by reference to high-quality UK corporate bonds at the reporting date. The rate of increase in
salaries has been set using a promotional scale where appropriate. The rates of increases stated are not indicative of historical increases awarded
or a guarantee of future increase, but merely an appropriate assumption used in assessing DB liabilities. Our DB plans in the UK provide for pension
increases that are generally linked to Retail Price Index (RPI), subject to relevant caps and floors.
Discount rates for US pension liabilities have been determined by reference to appropriate yields on high-quality US corporate bonds at the reporting
date based on the duration of plan liabilities. The healthcare cost trend rate is expected to reach the ultimate trend rate by 2031 (2022: 2031).
174
174
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
US pension plans continued
Defined benefit plans
National Grid sponsors four non-contributory qualified DB pension plans, which provide vested union employees, and vested non-union employees
hired before 1 January 2011, with retirement benefits within prescribed limits as defined by the US Internal Revenue Service. National Grid also
provides non-qualified DB pension arrangements for a closed group of current and former employees with designated company investments set
aside to fund these obligations. Benefits under the DB plans generally reflect age, years of service and compensation, and are paid in the form of
an annuity or lump sum. An independent actuary performs valuations annually. The Company funds the DB plans by contributing no less than the
minimum amount required, but no more than the maximum tax-deductible amount allowed under US Internal Revenue Service regulations. The range
of contributions determined under these regulations can vary significantly depending upon the funded status of the plans. At present, there is some
flexibility in the amount that is contributed on an annual basis. In general, the Company’s policy for funding the US pension plans is to contribute the
amounts collected in rates and capitalised in the rate base during the year, to the extent that the funding is no less than the minimum amount
required. For the current financial year, these contributions amounted to approximately £76 million (2022: £116 million).
In May 2022, NECO was sold to PPL Rhode Island Holdings, LLC (see note 10) and a portion of one of the DB pension plans was transferred to
PPL Rhode Island Holdings, LLC’s successor plan. Both active and inactive participants from NECO were transferred to PPL Rhode Island Holdings,
LLC’s successor plan with the sale, as well as some active employees from other subsidiaries. The sale required curtailment and settlement
accounting, resulting in a remeasurement of the related plan’s pension assets and benefit liabilities.
In addition, three of the DB pension plans underwent an annuity buyout transaction in which a portion of existing retiree pension payments were
transferred to a reputable insurance company in exchange for a single bulk premium payment. As a result, all associated financial, governance and
administrative responsibilities for those payments were transferred to the selected insurer. The annuity buyout required settlement accounting when
the single bulk premium payment was paid to the insurer in June 2022.
US other post-retirement benefits
National Grid provides healthcare and life insurance benefits to eligible employees, post retirement. Eligibility is based on certain age and length of
service requirements and, in most cases, retirees contribute to the cost of their healthcare coverage. In the US, there is no governmental requirement
to pre-fund post-retirement healthcare and life insurance plans. However, in general, the Company’s policy for funding the US retiree healthcare and
life insurance plans is to contribute amounts collected in rates and capitalised in the rate base during the year. For the current financial year, these
contributions amounted to £11 million (2022: £17 million).
The sale of NECO to PPL Rhode Island Holdings, LLC in May 2022 resulted in the transfer of a proportional share of the associated union and
non-union OPEB assets and benefit liabilities to PPL Rhode Island Holdings, LLC’s successor plans.
Actuarial assumptions
On retirement, members of DB plans receive benefits whose value is dependent on factors such as salary and length of pensionable service. National
Grid’s obligation in respect of DB pension plans is calculated separately for each DB plan by projecting the estimated amount of future benefit
payments that employees have earned for their pensionable service in the current and prior periods. These future benefit payments are discounted
to determine the present value of the liabilities. Current service cost and any unrecognised past service cost are recognised immediately.
Advice is taken from independent actuaries relating to the appropriateness of the key assumptions applied, including life expectancy, expected salary
and pension increases, and inflation. Comparatively small changes in the assumptions used may have a significant effect on the amounts recognised
in the consolidated income statement, the consolidated statement of other comprehensive income and the net liability recognised in the consolidated
statement of financial position (see note 35). Remeasurements of pension assets and post-retirement benefit obligations are recognised in full in the
period in which they occur in the consolidated statement of other comprehensive income.
The Company has applied the following financial assumptions in assessing DB liabilities:
Discount rate – past service
Discount rate – future service
Rate of increase in RPI – past service
Rate of increase in RPI – future service
Salary increases
Initial healthcare cost trend rate
Ultimate healthcare cost trend rate
UK pensions
US pensions
US other post-retirement benefits
2023
%
4.80
4.80
3.17
3.07
3.11
n/a
n/a
2022
%
2.78
2.85
3.60
3.33
3.47
n/a
n/a
2021
%
2.00
2.15
3.15
3.00
3.40
n/a
n/a
2023
%
4.85
4.85
n/a
n/a
4.50
n/a
n/a
2022
%
3.65
3.65
n/a
n/a
n/a
n/a
2021
%
3.25
3.25
n/a
n/a
n/a
n/a
4.60
4.30
2023
%
4.85
4.85
n/a
n/a
4.50
6.80
4.50
2022
%
3.65
3.65
n/a
n/a
4.60
6.80
4.50
2021
%
3.25
3.25
n/a
n/a
4.30
7.10
4.50
For UK pensions, single equivalent financial assumptions are shown above for presentational purposes, although full yield curves have been used
in our calculations. The discount rate is determined by reference to high-quality UK corporate bonds at the reporting date. The rate of increase in
salaries has been set using a promotional scale where appropriate. The rates of increases stated are not indicative of historical increases awarded
or a guarantee of future increase, but merely an appropriate assumption used in assessing DB liabilities. Our DB plans in the UK provide for pension
increases that are generally linked to Retail Price Index (RPI), subject to relevant caps and floors.
Discount rates for US pension liabilities have been determined by reference to appropriate yields on high-quality US corporate bonds at the reporting
date based on the duration of plan liabilities. The healthcare cost trend rate is expected to reach the ultimate trend rate by 2031 (2022: 2031).
25. Pensions and other post-retirement benefits continued
25. Pensions and other post-retirement benefits continued
Actuarial assumptions continued
The table below sets out the projected life expectancies adopted for the UK and US pension arrangements:
Assumed life expectations for a retiree age 65
Males
Females
In 20 years:
Males
Females
UK pensions
US pensions
2023
years
21.9
23.7
23.0
25.1
2022
years
22.0
23.8
23.2
25.2
2021
years
21.8
23.7
23.1
25.2
2023
years
21.6
23.8
23.2
25.4
2022
years
21.4
23.6
23.1
25.3
2021
years
21.6
24.0
23.2
25.5
The weighted average duration of the DB obligation for each category of plan is 12 years for UK pension plans, 12 years for US pension plans and
13 years for US other post-retirement benefit plans. The table below summarises the split of DB obligations by status for each category of plan:
Active members
Deferred members
Pensioner members
UK pensions
US pensions
US other
post-retirement benefits
2023
%
14
9
77
2022
%
16
10
74
2023
%
37
9
54
2022
%
36
9
55
2023
%
33
—
67
2022
%
34
—
66
Amounts recognised in the consolidated statement of financial position
Present value of funded obligations
Fair value of plan assets
Present value of unfunded obligations
Other post-employment liabilities
Net defined benefit asset
Represented by:
Liabilities
Assets
2023
£m
2022
£m
(18,934)
(23,541)
21,246
27,013
2,312
3,472
(292)
(69)
(326)
(71)
1,951
3,075
(694)
(810)
2,645
1,951
3,885
3,075
The geographical split of pensions and other post-retirement benefits is as shown below:
Present value of funded obligations
(10,906)
(14,197)
(5,502)
(6,531)
(2,526)
(2,813)
(18,934)
(23,541)
Fair value of plan assets
12,578
16,865
6,060
7,263
2,608
2,885
21,246
27,013
UK pensions
US pensions
US other
post-retirement benefits
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
Total
2023
£m
2022
£m
Present value of unfunded obligations
Other post-employment liabilities
Net defined benefit asset
Represented by:
Liabilities
Assets
1,672
2,668
(58)
—
(78)
—
1,614
2,590
558
(234)
—
324
732
(248)
—
484
(58)
(78)
(234)
(248)
1,672
1,614
2,668
2,590
558
324
732
484
82
—
(69)
13
(402)
415
13
72
—
(71)
1
(484)
485
1
2,312
3,472
(292)
(69)
(326)
(71)
1,951
3,075
(694)
(810)
2,645
1,951
3,885
3,075
The recognition of the pension assets in the UK and in the US reflects legal and actuarial advice that we have taken regarding recognition of
surpluses under IFRIC 14. In the UK, the Group has an unconditional right to a refund in the event of a winding up. In the US, surplus assets
of a plan may be used to pay for future benefits expected to be earned under that plan.
174
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
175175
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
25. Pensions and other post-retirement benefits continued
Amounts recognised in the income statement and statement of other comprehensive income
The expense or income arising from all Group retirement benefit arrangements recognised in the Group income statements is shown below:
Included within operating costs
Administration costs
Included within payroll costs
Defined benefit plan costs:
Current service cost
Past service cost – augmentations
Past service cost/(credit) – redundancies
Special termination benefit cost – redundancies
Gains on settlement
Included within finance income and costs
Net interest (income)/cost
Total included in income statement1
Remeasurement (losses)/gains of pension assets and post-retirement benefit obligations2
Exchange adjustments
Total included in the statement of other comprehensive income³
2023
£m
2022
£m
2021
£m
19
20
18
194
—
5
3
(45)
157
(85)
91
223
175
1
1
9
—
234
(2)
252
—
(1)
5
—
179
38
235
(1,364)
2,481
1,408
41
7
186
(1,323)
2,488
1,594
1. Amounts shown in the table above include operating costs of £nil (2022: £4 million; 2021: £3 million); payroll costs of £nil (2022: £10 million; 2021: £10 million); and net interest income
of £nil (2022: £2 million; 2021: £13 million) presented within profit from discontinued operations. These amounts all relate to UK pensions.
2. For the year ended 31 March 2021, this included actuarial losses from the purchase of buy-in policies of £0.1 billion.
3. Amounts shown in the table above include remeasurements of pension assets and post-retirement benefit obligations of £nil (2022: £309 million gain; 2021: £250 million loss) presented
within discontinued operations. These amounts all relate to UK pensions.
The geographical split of pensions and other post-retirement benefits is shown below:
Included within operating costs
Administration costs
Included within payroll costs
Defined benefit plan costs:
Current service cost
Past service cost – augmentations
Past service cost/(credit) – redundancies
Special termination benefit cost – redundancies
Gains on settlement
Included within finance income and costs
Net interest (income)/cost
Total included in income statement
Remeasurement (losses)/gains of pension assets
and post-retirement benefit obligations1
Exchange adjustments
Total included in the statement of other
comprehensive income
UK pensions
2023
£m
2022
£m
US pensions
US other post-retirement benefits
2021
£m
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
9
11
9
8
7
7
2
2
2
69
—
5
3
—
77
(64)
22
83
1
1
9
—
94
(7)
98
28
—
(1)
5
—
32
(38)
3
88
—
—
—
(45)
43
(21)
30
101
104
—
—
—
—
—
—
—
—
101
104
—
108
35
146
(1,183)
1,577
(622)
—
—
—
(242)
36
532
1,017
11
83
37
—
—
—
—
37
—
39
61
5
39
—
—
—
—
39
5
46
43
—
—
—
—
43
41
86
372
1,013
(4)
103
(1,183)
1,577
(622)
(206)
543
1,100
66
368
1,116
1. For the year ended 31 March 2021, UK pensions is stated after actuarial losses from the purchase of buy-in policies of £0.1 billion.
176
176
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
Amounts recognised in the income statement and statement of other comprehensive income
The expense or income arising from all Group retirement benefit arrangements recognised in the Group income statements is shown below:
2023
£m
2022
£m
2021
£m
19
20
18
194
—
5
3
(45)
157
(85)
91
223
175
1
1
9
—
234
(2)
252
—
(1)
5
—
179
38
235
(1,364)
2,481
1,408
41
7
186
(1,323)
2,488
1,594
Included within operating costs
Administration costs
Included within payroll costs
Defined benefit plan costs:
Current service cost
Past service cost – augmentations
Past service cost/(credit) – redundancies
Special termination benefit cost – redundancies
Gains on settlement
Included within finance income and costs
Net interest (income)/cost
Total included in income statement1
Remeasurement (losses)/gains of pension assets and post-retirement benefit obligations2
Exchange adjustments
Total included in the statement of other comprehensive income³
1. Amounts shown in the table above include operating costs of £nil (2022: £4 million; 2021: £3 million); payroll costs of £nil (2022: £10 million; 2021: £10 million); and net interest income
of £nil (2022: £2 million; 2021: £13 million) presented within profit from discontinued operations. These amounts all relate to UK pensions.
2. For the year ended 31 March 2021, this included actuarial losses from the purchase of buy-in policies of £0.1 billion.
3. Amounts shown in the table above include remeasurements of pension assets and post-retirement benefit obligations of £nil (2022: £309 million gain; 2021: £250 million loss) presented
within discontinued operations. These amounts all relate to UK pensions.
The geographical split of pensions and other post-retirement benefits is shown below:
Included within operating costs
Administration costs
Included within payroll costs
Defined benefit plan costs:
Current service cost
Past service cost – augmentations
Past service cost/(credit) – redundancies
Special termination benefit cost – redundancies
Gains on settlement
Included within finance income and costs
Net interest (income)/cost
Total included in income statement
Remeasurement (losses)/gains of pension assets
and post-retirement benefit obligations1
Exchange adjustments
Total included in the statement of other
comprehensive income
UK pensions
2023
£m
2022
£m
US pensions
US other post-retirement benefits
2021
£m
2023
£m
2022
£m
2021
£m
2023
£m
2022
£m
2021
£m
9
11
9
8
7
7
2
2
2
69
—
5
3
—
77
(64)
22
83
1
1
9
—
94
(7)
98
28
—
(1)
5
—
32
(38)
3
88
—
—
—
(45)
43
(21)
30
101
104
—
—
—
—
—
—
—
—
101
104
—
108
35
146
39
—
—
—
—
39
5
46
43
—
—
—
—
43
41
86
37
—
—
—
—
37
—
39
61
5
(1,183)
1,577
(622)
—
—
—
(242)
36
532
1,017
11
83
372
1,013
(4)
103
(1,183)
1,577
(622)
(206)
543
1,100
66
368
1,116
1. For the year ended 31 March 2021, UK pensions is stated after actuarial losses from the purchase of buy-in policies of £0.1 billion.
25. Pensions and other post-retirement benefits continued
25. Pensions and other post-retirement benefits continued
Reconciliation of the net defined benefit asset
Opening net defined benefit asset/(liability)
2,590
1,035
484
(22)
1
(298)
3,075
UK pensions
US pensions
US other
post-retirement benefits
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
Total
2023
£m
2022
£m
715
Cost recognised in the income statement (including
discontinued operations)
Remeasurement and foreign exchange effects recognised
in the statement of other comprehensive income
Employer contributions
Other movements
Acquisition of NGED
Reclassification to held for sale (note 10)
Closing net defined benefit asset
(22)
(98)
(30)
(108)
(39)
(46)
(91)
(252)
(1,183)
1,577
(206)
197
2
—
30
167
7
566
(664)
76
—
—
—
1,614
2,590
324
543
116
—
—
(45)
484
66
11
(26)
—
—
13
368
(1,323)
2,488
17
(29)
—
(11)
1
284
(24)
—
30
300
(22)
566
(720)
1,951
3,075
Changes in the present value of defined benefit obligations (including unfunded obligations)
The table below shows the movement in defined benefit obligations across our DB plans over the year.
Opening defined benefit obligations
(14,275)
(13,645)
(6,779)
(6,931)
(2,813)
(3,031)
(23,867)
(23,607)
UK pensions
US pensions
US other
post-retirement benefits
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
Total
2023
£m
2022
£m
Current service cost
Interest cost
Actuarial (losses)/gains – experience
Actuarial gains – demographic assumptions
Actuarial gains – financial assumptions
Past service cost – redundancies
Special termination benefit cost – redundancies
Past service cost – augmentations
Liabilities extinguished on settlements
Medicare subsidy received
Employee contributions
Benefits paid
Exchange adjustments
Acquisition of NGED
Reclassification to held for sale
Closing defined benefit obligations
(69)
(334)
(235)
135
(83)
(88)
(627)
133
3,167
1,387
(5)
(3)
—
—
—
(10)
711
—
—
(1)
(9)
(1)
—
—
(8)
919
—
(7,096)
(46)
4,844
(88)
(252)
(17)
5
818
—
—
—
616
—
—
426
(465)
—
—
(101)
(240)
(24)
100
329
—
—
—
—
—
—
403
(327)
—
12
(37)
(111)
48
10
443
—
—
—
—
(28)
—
153
(191)
—
—
(39)
(100)
107
71
192
—
—
—
—
(24)
—
159
(140)
—
(8)
(194)
(697)
(204)
150
(223)
(428)
(544)
304
4,428
1,908
(5)
(3)
—
616
(28)
(10)
(1)
(9)
(1)
—
(24)
(8)
1,290
1,481
(656)
(467)
—
(7,096)
(46)
4,848
(10,964)
(14,275)
(5,736)
(6,779)
(2,526)
(2,813)
(19,226)
(23,867)
Changes in the value of plan assets
The table below shows the movement in pension assets across our DB plans over the year.
UK pensions
US pensions
US other
post-retirement benefits
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
Total
2023
£m
2022
£m
Opening fair value of plan assets
16,865
14,680
7,263
6,909
2,885
2,799
27,013
24,388
Interest income
Return on plan assets (less than)/in excess of interest
Administration costs
Assets distributed on settlements
Employer contributions
Employee contributions
Benefits paid
Exchange adjustments
Acquisition of NGED
Reclassification to held for sale
Closing fair value of plan assets
Actual return on plan assets
Expected contributions to plans
in the following year
398
(4,250)
(9)
—
197
10
95
684
(11)
—
167
8
(709)
(912)
—
—
76
—
7,662
(5,508)
273
(1,048)
(8)
(571)
76
—
(426)
501
—
—
240
127
(7)
—
116
—
(403)
338
—
(57)
111
(440)
(2)
—
11
—
(153)
196
—
—
95
2
(2)
—
17
—
(159)
136
—
(3)
782
(5,738)
(19)
(571)
284
10
430
813
(20)
—
300
8
(1,288)
(1,474)
697
474
—
76
7,662
(5,568)
12,578
16,865
6,060
7,263
2,608
2,885
21,246
27,013
(3,852)
779
(775)
367
(329)
99
146
36
74
14
97
14
(4,956)
1,243
149
234
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177177
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Notes to the consolidated financial statements continued
25. Pensions and other post-retirement benefits continued
Asset allocations
The allocation of assets by asset class is set out below. Within these asset allocations there is significant diversification across regions, asset
managers, currencies and bond categories.
UK pensions
Equities
Corporate bonds
Government securities
Property
Diversified alternatives
Liability-matching assets
Longevity swap
Cash and cash equivalents
Other (including net current assets and liabilities)
2023
Quoted
£m
Unquoted
£m
Total
£m
654
1,956
762
883
Quoted
£m
1,458
2,741
786
122
2022
Unquoted
£m
474
—
—
Total
£m
1,932
2,741
786
1,002¹
1,124
179
—
—
860¹
680
1,388
1,334
432
1,766
Quoted
£m
555
3,730
1,836
104
—
2021
Unquoted
£m
801
37
—
565¹
712
Total
£m
1,356
3,767
1,836
669
712
475
1,956
762
23
708
1,958²
4,873³
6,831⁴
2,023 ²
6,090³
8,113⁴
1,731 ²
4,133³
5,864⁴
—
145
59
(88)
—
(12)
(88)
145
47
—
477
16
(80)
—
(10)
(80)
477
6
—
34
—
(64)
250
256
(64)
284
256
6,086
6,492
12,578⁵
8,957
7,908
16,865⁵
7,990
6,690
14,680⁵
1. Includes £304 million (2022: £283 million; 2021: £nil) of investments in forestry funds.
2. Consists of pooled funds which invest mainly in fixed interest securities.
3. Includes buy-in policies held by NGUKPS with a total value of £2.1 billion (2022: £2.7 billion; 2021: £4.1 billion).
4. Included within liability-matching assets above is £3.4 billion (2022: £6.6 billion; 2021: £2.5 billion) of repurchase agreements. These are used to increase the market exposure of the
liability-matching portfolios.
5. The fair value of plan assets for NGUKPS Section A includes employer-related investment exposure of £23 million (2022: £32 million; 2021: £nil).
US pensions
Equities
Corporate bonds
Government securities
Property
Diversified alternatives
Infrastructure
Cash and cash equivalents
Other (including net current assets and liabilities)
US other post-retirement benefits
Equities
Corporate bonds
Government securities
Diversified alternatives
Other1
1. Other primarily comprises insurance contracts.
2023
Quoted
£m
Unquoted
£m
154
1,346
2,147
410
—
85
—
16
7
528
514
299
285
265
—
4
Total
£m
1,500
2,675
924
299
370
265
16
11
2022
Quoted
£m
Unquoted
£m
272
1,904
2,311
335
—
142
—
31
12
697
715
295
364
182
—
3
Total
£m
2,176
3,008
1,050
295
506
182
31
15
2021
Quoted
£m
Unquoted
£m
560
2,359
1,547
354
—
167
—
24
12
507
527
264
458
130
—
—
Total
£m
2,919
2,054
881
264
625
130
24
12
2,819
3,241
6,060
3,103
4,160
7,263
2,664
4,245
6,909
2023
Quoted
£m
Unquoted
£m
74
510
1,332
431
100
1
1,938
2
2
9
147
670
Total
£m
584
1,334
433
109
148
Quoted
£m
2022
Unquoted
£m
2021
Total
£m
Quoted
£m
Unquoted
£m
Total
£m
185
723
511
144
—
1,013
1,198
419
1,303
1,722
2
2
120
185
725
513
264
185
13
533
185
—
—
3
172
171
13
536
357
171
2,608
1,563
1,322
2,885
1,150
1,649
2,799
Main defined benefit risks
National Grid underwrites the financial and demographic risks associated with our DB plans. Although the governing bodies have sole responsibility
for setting investment strategies and managing risks, National Grid closely works with and supports the governing bodies of each plan, to assist them
in mitigating the risks associated with their plans and to ensure that the plans are funded to meet their obligations.
178
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Asset allocations
managers, currencies and bond categories.
UK pensions
Equities
Corporate bonds
Government securities
Property
Diversified alternatives
Liability-matching assets
Longevity swap
Cash and cash equivalents
liability-matching portfolios.
US pensions
Equities
Corporate bonds
Government securities
Property
Diversified alternatives
Infrastructure
Cash and cash equivalents
Other (including net current assets and liabilities)
US other post-retirement benefits
Equities
Corporate bonds
Government securities
Diversified alternatives
Other1
1. Other primarily comprises insurance contracts.
Main defined benefit risks
2023
2022
2021
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
£m
475
1,956
762
23
708
—
145
59
£m
179
—
—
860¹
Total
£m
654
1,956
762
883
(88)
—
(12)
(88)
145
47
£m
1,458
2,741
786
122
—
477
16
£m
474
—
—
Total
£m
1,932
2,741
786
1,002¹
1,124
(80)
—
(10)
(80)
477
6
£m
555
3,730
1,836
104
—
—
34
—
£m
801
37
—
565¹
712
(64)
250
256
Total
£m
1,356
3,767
1,836
669
712
(64)
284
256
680
1,388
1,334
432
1,766
1,958²
4,873³
6,831⁴
2,023 ²
6,090³
8,113⁴
1,731 ²
4,133³
5,864⁴
6,086
6,492
12,578⁵
8,957
7,908
16,865⁵
7,990
6,690
14,680⁵
Other (including net current assets and liabilities)
1. Includes £304 million (2022: £283 million; 2021: £nil) of investments in forestry funds.
2. Consists of pooled funds which invest mainly in fixed interest securities.
3. Includes buy-in policies held by NGUKPS with a total value of £2.1 billion (2022: £2.7 billion; 2021: £4.1 billion).
4. Included within liability-matching assets above is £3.4 billion (2022: £6.6 billion; 2021: £2.5 billion) of repurchase agreements. These are used to increase the market exposure of the
5. The fair value of plan assets for NGUKPS Section A includes employer-related investment exposure of £23 million (2022: £32 million; 2021: £nil).
2023
Quoted
Unquoted
£m
£m
154
1,346
2022
Quoted
Unquoted
£m
£m
272
1,904
Total
£m
1,500
2,675
924
299
370
265
16
11
Total
£m
584
1,334
433
109
148
2,147
410
—
85
—
16
7
£m
74
1,332
431
100
1
1,938
528
514
299
285
265
—
4
£m
510
2
2
9
147
670
Total
£m
2,176
3,008
1,050
295
506
182
31
15
Total
£m
725
513
264
185
697
715
295
364
182
—
3
£m
2
2
120
185
2,311
335
—
142
—
31
12
£m
185
723
511
144
—
2021
Quoted
Unquoted
£m
£m
560
2,359
1,547
354
—
167
—
24
12
507
527
264
458
130
—
—
2021
Quoted
Unquoted
£m
£m
13
533
185
—
—
3
172
171
Total
£m
2,919
2,054
881
264
625
130
24
12
Total
£m
13
536
357
171
1,013
1,198
419
1,303
1,722
2,608
1,563
1,322
2,885
1,150
1,649
2,799
National Grid underwrites the financial and demographic risks associated with our DB plans. Although the governing bodies have sole responsibility
for setting investment strategies and managing risks, National Grid closely works with and supports the governing bodies of each plan, to assist them
in mitigating the risks associated with their plans and to ensure that the plans are funded to meet their obligations.
Notes to the consolidated financial statements continued
25. Pensions and other post-retirement benefits continued
25. Pensions and other post-retirement benefits continued
The allocation of assets by asset class is set out below. Within these asset allocations there is significant diversification across regions, asset
Main defined benefit risks continued
The most significant risks associated with the DB plans are:
Main risks
Investment risk
Changes in bond yields
Inflation risk
Member longevity
Counterparty risk
Default risk
Liquidity risk
Currency risk
Description and mitigation
The plans invest in a variety of asset classes, with actual returns likely to differ from the underlying discount rate adopted,
impacting on the funding position of the plan through the net balance sheet asset or liability. Each plan seeks to balance the
level of investment return required with the risk that it can afford to take, to design the most appropriate investment portfolio.
Liabilities will fluctuate as yields change. Volatility of the net balance sheet asset or liability is controlled through liability-
matching strategies. The investment strategies allow for the use of synthetic as well as physical assets to be used to hedge
interest rate risk.
Changes in inflation will affect current and future pensions but are partially mitigated through investing in inflation-matching
assets and hedging instruments as well as bulk annuity buy-in policies. The investment strategies allow for the use of
synthetic as well as physical assets to be used to hedge inflation risk.
Improvements in life expectancy will lead to pension payments being paid for longer than expected and benefits ultimately
being more expensive. This risk has been partly mitigated by scheme investment transactions including a longevity insurance
contract (longevity swap) for NGEG of ESPS and two buy-in policies for Section A of NGUKPS.
This is managed by having a diverse range of counterparties and through having a strong collateralisation process (including
for the longevity swap held by NGEG of ESPS). Measurement and management of counterparty risk is delegated to the
relevant investment managers. For our bulk annuity policies, various termination provisions were introduced in the contracts,
managing our exposure to counterparty risk. The insurers’ operational performance and financial strength are monitored on
a regular basis.
Debt investments are predominantly made in regulated markets in assets considered to be of investment grade. Where
investments are made either in non-investment grade assets or outside of regulated markets, investment levels are kept
to prudent levels and subject to agreed ranges, to control the risk.
The pension plans hold sufficient cash to meet benefit requirements, with other investments being held in liquid or realisable
assets to meet unexpected cash flow requirements. These could include collateral calls relating to the plans’ liability-
matching assets which could result from extreme market movements. Should the plans not have sufficient liquidity to meet
cash flow requirements, they could be forced to take sub-optimal investment decisions such as selling assets at a reduced
price. The plans do not borrow money, or act as guarantor, to provide liquidity to other parties (unless it is temporary).
Fluctuations in the value of foreign denominated assets due to exposure to currency exchange rates are managed through
currency hedging overlay and currency hedging carried out by some of the investment managers.
DB plan investment strategies
The Trustees and RPC, after taking advice from professional investment advisors and in consultation with National Grid, set their key principles,
including expected returns, risk and liquidity requirements. They formulate an investment strategy to manage risk through diversification, taking into
account expected contributions, maturity of the pension liabilities and, in the UK, the strength of the covenant. These strategies allocate investments
between return-seeking assets such as equities and property, and liability-matching assets such as buy-in policies, government securities and
corporate bonds which are intended to protect the funding position.
2,819
3,241
6,060
3,103
4,160
7,263
2,664
4,245
6,909
The approximate investment allocations for our plans at 31 March 2023 are as follows:
2023
2022
Quoted
Unquoted
Quoted
Unquoted
Return-seeking assets
Liability-matching assets
UK pensions
%
US pensions
%
US other post-
retirement benefits
%
24
76
36
64
32
68
The governing bodies generally delegate responsibility for the selection of specific bonds, securities and other investments to appointed investment
managers. Investment managers are selected based on the required skills, expertise in those markets, process and financial security to manage the
investments. Their performance is regularly reviewed against measurable objectives, consistent with each pension plan’s long-term objectives and
accepted risk levels.
The extreme volatility of the UK gilt market during 2022 led to significant liquidity pressures on DB pension schemes, with large collateral calls from
Liability-Driven Investment (LDI) fund managers requiring some schemes to either sell illiquid assets at short notice or reduce their level of hedging.
Whilst these liquidity calls were met by the schemes, the Company provided Section A of NGUKPS with a short-term loan of £125 million to
ensure that any further significant rises in gilt yields would not require a reduction to hedging levels. This loan was repaid in January 2023. Each
of our schemes continues to review its strategy for hedging interest rates and inflation, to ensure it is not exposed to undue risk given further future
market volatility.
In the UK, each of our pension plans has Responsible Investment (RI) Policies, which take into account Environmental, Social and Governance
(ESG) factors and generally incorporate the six UN-backed Principles for Responsible Investment (UNPRI). Each of the Trustee boards believes
that ESG factors can be material to financial outcomes and should therefore be considered alongside other factors. They recognise that their
primary responsibility remains a fiduciary one, i.e. their first duty is to ensure the best possible return on investments with the appropriate level
of risk. However, they also recognise the increasing materiality of ESG factors and that they have a fiduciary and regulatory duty to consider RI,
including ESG factors and their potential impact on the quality and sustainability of long-term investment returns. The principal defined contribution
arrangement in the UK embeds ESG factors in the investment options offered to members. As well as offering a range of self-select ethical funds,
it directly incorporates its Climate Impact Pledge into the default investment option, which acts to align the fund to a carbon net zero future.
Whilst in the US there is no regulatory requirement to have ESG-specific principles embedded in investment policies, our investment managers
often utilise ESG principles to inform their decision-making process.
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Notes to the consolidated financial statements continued
26. Provisions
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the outflow
of economic benefit is probable and where the amount of the obligation can be reliably estimated. Provisions are recognised for the costs of
environmental remediation; decommissioning costs for certain assets that we are required to remove at the end of their useful economic lives;
restructuring costs; and for certain other situations where the above thresholds are met.
Long-term provisions are measured based on management’s best estimates of the likely cash flows, discounted at an appropriate discount rate.
The unwinding of the discount is included within the income statement within finance costs. Short-term provisions are measured at the expected
cash outflow and are not discounted.
At 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Unused amounts reversed
Unwinding of discount
Utilised
Reclassification to held for sale (note 10)
At 31 March 2022
Exchange adjustments
Additions
Unused amounts reversed
Adjustment for change in discount rate¹
Unwinding of discount
Utilised
At 31 March 2023
Current
Non-current
Environmental
£m
Decommissioning
£m
1,700
244
82
158
—
(25)
64
(99)
(3)
1,877
114
142
(38)
(176)
72
(100)
1,891
4
37
37
(4)
6
(26)
(40)
258
5
91
(10)
(48)
10
(9)
297
Other
£m
283
11
228
29
(32)
3
(69)
(49)
404
12
222
(14)
—
6
(176)
454
2023
£m
288
2,354
2,642
Total
provisions
£m
2,227
97
423
66
(61)
73
(194)
(92)
2,539
131
455
(62)
(224)
88
(285)
2,642
2022
£m
240
2,299
2,539
1. In the year, environmental provisions decreased by £176 million as a result of the change in the real discount rate from 0.5% to 1.5% (see note 5 for details). Decommissioning provisions
decreased by £48 million with an associated decrease in the carrying amount of property, plant and equipment of £48 million.
180
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National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
Provisions are recognised where a legal or constructive obligation exists at the reporting date, as a result of a past event, where the outflow
of economic benefit is probable and where the amount of the obligation can be reliably estimated. Provisions are recognised for the costs of
environmental remediation; decommissioning costs for certain assets that we are required to remove at the end of their useful economic lives;
restructuring costs; and for certain other situations where the above thresholds are met.
Long-term provisions are measured based on management’s best estimates of the likely cash flows, discounted at an appropriate discount rate.
The unwinding of the discount is included within the income statement within finance costs. Short-term provisions are measured at the expected
cash outflow and are not discounted.
Reclassification to held for sale (note 10)
At 1 April 2021
Exchange adjustments
Additions
Acquisition of NGED (note 37)
Unused amounts reversed
Unwinding of discount
Utilised
At 31 March 2022
Exchange adjustments
Additions
Unused amounts reversed
Unwinding of discount
Utilised
At 31 March 2023
Adjustment for change in discount rate¹
Current
Non-current
Environmental
Decommissioning
£m
1,700
82
158
—
(25)
64
(99)
(3)
1,877
114
142
(38)
(176)
72
(100)
1,891
£m
244
4
37
37
(4)
6
(26)
(40)
258
5
91
(10)
(48)
10
(9)
297
Other
£m
283
11
228
29
(32)
3
(69)
(49)
404
12
222
(14)
—
6
(176)
454
2023
£m
288
2,354
2,642
Total
provisions
£m
2,227
97
423
66
(61)
73
(194)
(92)
131
455
(62)
(224)
88
(285)
2,539
2,642
2022
£m
240
2,299
2,539
1. In the year, environmental provisions decreased by £176 million as a result of the change in the real discount rate from 0.5% to 1.5% (see note 5 for details). Decommissioning provisions
decreased by £48 million with an associated decrease in the carrying amount of property, plant and equipment of £48 million.
26. Provisions
26. Provisions continued
Environmental provisions
We recognise environmental provisions for the estimated restoration and remediation costs relating to a number of sites owned and managed by
subsidiary undertakings, together with certain US sites that National Grid no longer owns. The environmental provision is as follows:
UK sites
US sites
2023
Real
undiscounted
£m
138
2,006
2,144
Discounted
£m
123
1,768
1,891
Real
discount
rate
1.5 %
1.5 %
Discounted
£m
152
1,725
1,877
2022
Real
undiscounted
£m
160
1,789
1,949
Real
discount
rate
0.5 %
0.5 %
The remediation expenditure in the US is expected to be incurred until 2070, of which the majority relates to three Superfund sites (being sites
where hazardous substances are present as a result of the historical operations of manufactured gas plants in Brooklyn, New York). The weighted
average duration of the cash flows is 11 years. Under the terms of our rate plans, we are entitled to recovery of environmental clean-up costs from
rate payers.
The provision is calculated based on management’s best estimate of the real cash flows that will be required discounted at a real discount rate,
calculated based on the US government bond yield curve and the weighted average life of the provisions. The undiscounted amount is the best
estimate of the actual cash flows that will be required with regard to these uncertainties.
A number of estimation uncertainties affect the calculation of these provisions, including the impact of and possibility of changes to regulations, the
accuracy of site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies, the expected timing and duration
of cash flows, and changes in the real discount rate. These provisions incorporate our best estimate of the financial effect of these uncertainties,
but future changes in any of the assumptions could materially impact the calculation of the provision.
The remediation expenditure in the UK relates to old gas manufacturing sites and also to electricity transmission sites. Cash flows are expected
to be incurred until 2069. The uncertainties regarding the calculation of this provision are similar to those considered in respect of US sites.
Changes in the provision arising from revised estimates, discount rates or changes in the expected timing of expenditure are recognised in the
income statement. We have included sensitivity analysis in note 35. The cost of remediation may also vary from the amounts provided for as
regulations might change or additional work may be required once full site surveys have been conducted. The facts and circumstances relating
to particular cases are evaluated regularly in determining whether an environmental provision should be revised (see note 30).
Decommissioning provisions
We recognise provisions for decommissioning costs for various assets we are required to remove at the end of their lives, including the safe removal
of asbestos for certain of our generation units and the restoration of seabeds in respect of our interconnectors. Provisions to decommission
significant portions of our regulated transmission and distribution assets are not recognised where no legal obligations exist and where a realistic
alternative exists to incurring costs to decommission the assets at the end of their lives. In any case, even if a legal or constructive obligation did exist,
it is not currently determinable when remediation work would take place and therefore no provision would be recorded at this point.
An initial estimate of decommissioning costs attributable to property, plant and equipment is recorded as part of the original cost of the related
property, plant and equipment. Changes in the provision arising from revised estimates, discount rates or changes in the expected timing of
expenditure that relates to property, plant and equipment are recorded as adjustments to their carrying value and depreciated prospectively over
their remaining estimated useful economic lives. Expenditure is expected to be incurred until 2108.
Other provisions
Included within other provisions at 31 March 2023 are the following amounts:
• £182 million (2022: £163 million) of estimated liabilities in respect of past events insured by insurance subsidiary undertakings, including employer
liability claims. In accordance with insurance industry practice, these estimates are based on experience from previous years, but we currently
expect that cash flows will be incurred until 2037;
• £108 million (2022: £121 million) of estimated liabilities in respect of interconnector excess revenues which will be repayable in future reporting
periods in accordance with the cap and floor regime constructed by Ofgem (see note 3). These estimates are based on the respective
interconnectors’ performance against their cumulative caps and cash outflows will be required to settle these liabilities by the financial year
ending 31 March 2028;
• £37 million (2022: £28 million) in respect of onerous lease commitments and rates payable on surplus properties with expenditure expected
to be incurred until 2039;
• £48 million (2022: £26 million) in respect of emissions provisions with expenditure expected to be incurred until 2024; and
• £5 million (2022: £17 million) relating to restructuring provisions, which are recognised when a formal restructuring plan is in place and a valid
expectation has been raised with those affected by it. In 2023, we continued to undertake design and implementation activities in respect of our
cost efficiency programme, which resulted in the recognition of an increased provision of £2 million in the year (2022: £16 million). The income
statement expense relating to the provision has been treated as an exceptional item, and details are provided in note 5.
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Annual Report and Accounts 2022/23
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Notes to the consolidated financial statements continued
27. Share capital
Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares
the Company holds, which are shares that the Company has bought itself, predominantly to actively manage scrip issuances and settle employee
share option and reward plan liabilities.
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.
At 1 April 2021
Issued during the year in lieu of dividends1
At 31 March 2022
Issued during the year in lieu of dividends1
At 31 March 2023
Allotted, called-up and fully paid
Shares million
Nominal value
£m
3,815
89
3,904
26
3,930
474
11
485
3
488
1. The issue of shares under the scrip dividend programme is considered to be a bonus issue under the terms of the Companies Act 2006, and the nominal value of the shares is charged
to the share premium account.
The share capital of the Company consists of ordinary shares of 12204⁄473 pence nominal value each including ADSs. The ordinary shares and ADSs
(each of which represents five ordinary shares) allow holders to receive dividends and vote at general meetings of the Company. The Company holds
treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on
the transfer or sale of ordinary shares.
In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised
share capital.
The Company is conducting a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who
have not had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association.
Under the share forfeiture programme, the shares and dividends associated with shares of untraced members have been forfeited, with the resulting
proceeds transferred to the Company to use in line with the Company’s strategy in relation to corporate responsibility. During the financial year,
the Company received £5 million (2022: £16 million) of proceeds from the sale of untraced shares and derecognised £5 million (2022: £32 million)
of liabilities related to unclaimed dividends, which are reflected in share premium and the income statement respectively.
Treasury shares
At 31 March 2023, the Company held 254 million (2022: 259 million) of its own shares. The market value of these shares as at 31 March 2023
was £2,783 million (2022: £3,038 million).
For the benefit of employees and in connection with the operation of the Company’s various share plans, the Company made the following
transactions in respect of its own shares during the year ended 31 March 2023:
i. During the year, 3 million (2022: 4 million) treasury shares were gifted to National Grid Employee Share Trusts and 2 million (2022: 2 million)
treasury shares were reissued in relation to employee share schemes, in total representing approximately 0.1% (2022: 0.2%) of the ordinary shares
in issue as at 31 March 2023. The nominal value of these shares was £1 million (2022: £1 million) and the total proceeds received were £16 million
(2022: £17 million). National Grid settles share awards under its Long-Term Incentive Plan and the Save As You Earn scheme, by the transfer of
treasury shares to its employee share trusts.
ii. During the year, the Company made payments totalling £4 million (2022: £3 million) to National Grid Employee Share Trusts to enable the
Trustees to make purchases of National Grid plc shares to settle share awards in relation to all employee share plans and discretionary reward
plans. The cost of such purchases is deducted from retained earnings in the period that the transaction occurs.
The maximum number of ordinary shares held in treasury during the year was 259 million (2022: 266 million) representing approximately 6.6%
(2022: 6.8%) of the ordinary shares in issue as at 31 March 2023 and having a nominal value of £32 million (2022: £33 million).
182
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National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
27. Share capital
share option and reward plan liabilities.
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.
Allotted, called-up and fully paid
Shares million
Nominal value
3,815
89
3,904
26
3,930
£m
474
11
485
3
488
Issued during the year in lieu of dividends1
Issued during the year in lieu of dividends1
At 1 April 2021
At 31 March 2022
At 31 March 2023
to the share premium account.
the transfer or sale of ordinary shares.
share capital.
1. The issue of shares under the scrip dividend programme is considered to be a bonus issue under the terms of the Companies Act 2006, and the nominal value of the shares is charged
The share capital of the Company consists of ordinary shares of 12204⁄473 pence nominal value each including ADSs. The ordinary shares and ADSs
(each of which represents five ordinary shares) allow holders to receive dividends and vote at general meetings of the Company. The Company holds
treasury shares but may not exercise any rights over these shares including the entitlement to vote or receive dividends. There are no restrictions on
In line with the provisions of the Companies Act 2006, the Company has amended its Articles of Association and ceased to have authorised
The Company is conducting a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who
have not had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association.
Under the share forfeiture programme, the shares and dividends associated with shares of untraced members have been forfeited, with the resulting
proceeds transferred to the Company to use in line with the Company’s strategy in relation to corporate responsibility. During the financial year,
the Company received £5 million (2022: £16 million) of proceeds from the sale of untraced shares and derecognised £5 million (2022: £32 million)
of liabilities related to unclaimed dividends, which are reflected in share premium and the income statement respectively.
Treasury shares
was £2,783 million (2022: £3,038 million).
At 31 March 2023, the Company held 254 million (2022: 259 million) of its own shares. The market value of these shares as at 31 March 2023
For the benefit of employees and in connection with the operation of the Company’s various share plans, the Company made the following
transactions in respect of its own shares during the year ended 31 March 2023:
i. During the year, 3 million (2022: 4 million) treasury shares were gifted to National Grid Employee Share Trusts and 2 million (2022: 2 million)
treasury shares were reissued in relation to employee share schemes, in total representing approximately 0.1% (2022: 0.2%) of the ordinary shares
in issue as at 31 March 2023. The nominal value of these shares was £1 million (2022: £1 million) and the total proceeds received were £16 million
(2022: £17 million). National Grid settles share awards under its Long-Term Incentive Plan and the Save As You Earn scheme, by the transfer of
treasury shares to its employee share trusts.
ii. During the year, the Company made payments totalling £4 million (2022: £3 million) to National Grid Employee Share Trusts to enable the
Trustees to make purchases of National Grid plc shares to settle share awards in relation to all employee share plans and discretionary reward
plans. The cost of such purchases is deducted from retained earnings in the period that the transaction occurs.
The maximum number of ordinary shares held in treasury during the year was 259 million (2022: 266 million) representing approximately 6.6%
(2022: 6.8%) of the ordinary shares in issue as at 31 March 2023 and having a nominal value of £32 million (2022: £33 million).
Ordinary share capital represents the total number of shares issued which are publicly traded. We also disclose the number of treasury shares
the Company holds, which are shares that the Company has bought itself, predominantly to actively manage scrip issuances and settle employee
Other equity reserves are different categories of equity as required by accounting standards and represent the impact of a number of our historical
transactions or fair value movements on certain financial instruments that the Company holds.
28. Other equity reserves
Other equity reserves comprise the translation reserve (see note 1C), cash flow hedge reserve and the cost of hedging reserve (see note 32), debt
instruments at fair value through other comprehensive income reserve (FVOCI debt) and equity investments at fair value through other comprehensive
income reserve (FVOCI equity) (see note 15), the capital redemption reserve and the merger reserve.
The merger reserve arose as a result of the application of merger accounting principles under the then prevailing UK GAAP, which under IFRS 1 was
retained for mergers that occurred prior to the IFRS transition date. Under merger accounting principles, the difference between the carrying amount
of the capital structure of the acquiring vehicle and that of the acquired business was treated as a merger difference and included within reserves.
The merger reserve represents the difference between the carrying value of subsidiary undertaking investments and their respective capital structures
following the Lattice demerger from BG Group plc and the 1999 Lattice refinancing.
The cash flow hedge reserve will amortise as the committed future cash flows from borrowings are paid or capitalised in fixed assets (as described in
note 32). See note 15 for further detail on FVOCI debt and FVOCI equity reserves; and note 32 in respect of cost of hedging 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 1 April 2020
Exchange adjustments¹
Net gains/(losses) taken to equity
Share of net losses of associates taken to equity
Transferred to profit or loss
Net losses in respect of cash flow hedging
of capital expenditure
Tax
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2021
Exchange adjustments¹
Net losses taken to equity²
Share of net gains of associates taken to equity
Transferred to profit or loss
Net losses in respect of cash flow hedging
of capital expenditure
Tax
Cash flow hedges transferred to the statement
of financial position, net of tax
At 1 April 2022
Exchange adjustments¹
Exchange differences reclassified to the consolidated
income statement on disposal
Net gains/(losses) taken to equity
Share of net gains of associates taken to equity
Transferred to profit or loss
Net gains in respect of cash flow hedging
of capital expenditure
Tax
Cash flow hedges transferred to the statement
of financial position, net of tax
Translation
£m
1,310
(1,345)
—
—
—
—
—
—
(35)
629
—
—
—
—
—
—
594
882
(170)
—
—
—
—
—
—
At 31 March 2023
1,306
Cash flow
hedge
£m
Cost of
hedging
£m
FVOCI
equity
£m
FVOCI
debt
£m
Own
credit
£m
Capital
redemption
£m
Merger
£m
Total
£m
(75)
—
14
1
56
(14)
(13)
(17)
(48)
—
(96)
1
40
(1)
11
8
(85)
—
—
142
1
(136)
10
2
5
(61)
(50)
—
11
—
3
—
8
—
(28)
—
(2)
—
(1)
—
2
—
(29)
—
—
(12)
—
—
—
3
—
(38)
25
—
36
—
—
—
(10)
—
51
—
(70)
—
—
—
19
—
—
—
—
—
—
—
—
—
—
—
31
—
80
—
—
—
—
—
111
—
(11)
—
—
—
3
—
103
—
—
(25)
—
—
—
1
—
79
10
—
(11)
—
—
—
2
—
1
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19
(5,165)
(3,895)
—
—
—
—
—
—
—
19
—
—
—
—
—
—
—
19
—
—
—
—
—
—
—
—
19
—
—
—
—
—
—
—
(1,345)
130
1
59
(14)
(13)
(17)
(5,165)
(5,094)
—
—
—
—
—
—
—
629
(180)
1
39
(1)
35
8
(5,165)
(4,563)
—
882
—
—
—
—
—
—
—
(170)
105
1
(136)
10
6
5
(5,165)
(3,860)
1. The exchange adjustments recorded in the translation reserve comprise a gain of £1,080 million (2022: gain of £754 million; 2021: loss of £1,507 million) relating to the translation of
foreign operations offset by a loss of £198 million (2022: loss of £125 million; 2021: gain of £183 million) relating to borrowings, cross-currency swaps and foreign exchange forward
contracts used to hedge the net investment in non-sterling denominated subsidiaries.
2. In the year ended 31 March 2022, the Group disposed of its equity instruments related to shares held as part of a portfolio of financial instruments which back some long-term employee
liabilities. The equity instruments were previously measured at FVOCI and prior to the disposal the Group recognised a gain of £12 million. The accumulated gain of £82 million
recognised in other comprehensive income in the year ended 31 March 2022 was transferred to retained earnings on disposal.
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Annual Report and Accounts 2022/23
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Annual Report and Accounts 2022/23
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Notes to the consolidated financial statements continued
29. Net debt
We define net debt as the amount of borrowings and financing derivatives less cash and current financial investments.
(a) Composition of net debt
Net debt is comprised as follows:
Cash and cash equivalents (see note 20)
Current financial investments (see note 15)
Borrowings (see note 21)
Financing derivatives1 (see note 17)
1. The financing derivatives balance included in net debt excludes the commodity derivatives (see note 17).
(b) Analysis of changes in net debt
Cash
and cash
equivalents
£m
Notes
At 1 April 2020
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Reclassification to held for sale
At 1 April 2021
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Acquisition of NGED
Reclassification to held for sale³
At 1 April 2022
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Reclassification to held for sale³
At 31 March 2023
Balances at 31 March 2023 comprise:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
6
10
29(c)
6
37
10
29(c)
6
10
2023
£m
2022
£m
163
204
2021
£m
157
2,605
3,145
2,342
(42,985)
(45,465)
(31,220)
(756)
(693)
175
(40,973)
(42,809)
(28,546)
Financial
investments1
£m
Borrowings
£m
Financing
derivatives
£m
1,998
(30,794)
133
73
95
—
(7)
—
—
(4)
429
14
(106)
7
—
—
(2,336)
159
1,710
(946)
(136)
1,123
157
2,342
(31,220)
9
—
5
—
—
44
(11)
204
(48)
—
7
—
—
—
752
(12)
53
43
(15)
69
(87)
(9,993)
286
(652)
(1,177)
34
(8,286)
5,543
3,145
(45,465)
(651)
(18)
61
73
—
(5)
5,268
367
(1,311)
(1,658)
(283)
97
4
31
—
7
—
—
175
262
(604)
—
(59)
—
26
(493)
(693)
455
(348)
—
(170)
—
—
Total2
£m
(28,590)
(1,808)
204
1,597
(932)
(136)
1,119
(28,546)
(8,970)
(330)
(594)
(1,193)
19
(8,147)
4,952
(42,809)
5,024
1
(1,243)
(1,755)
(283)
92
163
2,605
(42,985)
(756)
(40,973)
—
163
—
—
—
2,605
—
—
—
—
(2,955)
263
100
(93)
(40,030)
(1,026)
163
2,605
(42,985)
(756)
263
2,868
(3,048)
(41,056)
(40,973)
1. Cash flows on current financial investments comprise £65 million (2022: £29 million; 2021: £7 million) of interest received and £586 million of cash inflows (2022: £781 million outflows;
2021: £436 million outflows) of net cash flow movements in short-term financial investments, as presented in the consolidated cash flow statement.
2. Includes accrued interest at 31 March 2023 of £401 million (2022: £351 million; 2021: £263 million).
3. Reclassification to held for sale in the year ended 31 March 2022 represented the opening net debt position of the UK Gas Transmission business (see note 10). In the current year the
reclassification to held for sale relates to the disposal of NECO which was not classified as a discontinued operation.
184
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
1. The financing derivatives balance included in net debt excludes the commodity derivatives (see note 17).
(b) Analysis of changes in net debt
29. Net debt
(a) Composition of net debt
Net debt is comprised as follows:
Cash and cash equivalents (see note 20)
Current financial investments (see note 15)
Borrowings (see note 21)
Financing derivatives1 (see note 17)
At 1 April 2020
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Reclassification to held for sale
At 1 April 2021
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Acquisition of NGED
Reclassification to held for sale³
At 1 April 2022
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest income/(charges)
Other non-cash movements
Reclassification to held for sale³
At 31 March 2023
Balances at 31 March 2023 comprise:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
2023
£m
2022
£m
163
204
2021
£m
157
2,605
3,145
2,342
(42,985)
(45,465)
(31,220)
(756)
(693)
175
(40,973)
(42,809)
(28,546)
29(c)
29(c)
6
10
6
37
10
6
10
Cash
and cash
equivalents
£m
Notes
Financial
investments1
£m
Borrowings
£m
1,998
(30,794)
Financing
derivatives
£m
133
157
2,342
(31,220)
73
95
—
(7)
—
—
(4)
9
—
5
—
—
44
(11)
204
(48)
—
7
—
—
—
—
163
—
—
429
14
(106)
7
—
—
752
(12)
53
43
(15)
69
(87)
(651)
(18)
61
73
—
(5)
—
2,605
—
—
(2,336)
159
1,710
(946)
(136)
1,123
(9,993)
286
(652)
(1,177)
34
(8,286)
5,543
5,268
367
(1,311)
(1,658)
(283)
97
—
—
(2,955)
3,145
(45,465)
4
31
—
7
—
—
175
262
(604)
—
(59)
—
26
(493)
(693)
455
(348)
—
(170)
—
—
263
100
(93)
163
2,605
(42,985)
(756)
(40,030)
(1,026)
Total2
£m
(28,590)
(1,808)
204
1,597
(932)
(136)
1,119
(28,546)
(8,970)
(330)
(594)
(1,193)
19
(8,147)
4,952
(42,809)
5,024
1
(1,243)
(1,755)
(283)
92
263
2,868
(3,048)
(41,056)
(40,973)
163
2,605
(42,985)
(756)
(40,973)
1. Cash flows on current financial investments comprise £65 million (2022: £29 million; 2021: £7 million) of interest received and £586 million of cash inflows (2022: £781 million outflows;
2021: £436 million outflows) of net cash flow movements in short-term financial investments, as presented in the consolidated cash flow statement.
2. Includes accrued interest at 31 March 2023 of £401 million (2022: £351 million; 2021: £263 million).
3. Reclassification to held for sale in the year ended 31 March 2022 represented the opening net debt position of the UK Gas Transmission business (see note 10). In the current year the
reclassification to held for sale relates to the disposal of NECO which was not classified as a discontinued operation.
Notes to the consolidated financial statements continued
We define net debt as the amount of borrowings and financing derivatives less cash and current financial investments.
(c) Reconciliation of cash flow from liabilities within net debt to cash flow statement
29. Net debt continued
2023
2022
2021
Borrowings
and other
£m
Financing
derivatives
£m
Borrowings
and other
£m
Financing
derivatives
£m
Borrowings
and other
£m
Financing
derivatives
£m
Cash flows per financing activities section of cash flow statement:
Proceeds received from loans
Repayment of loans
Payments of lease liabilities
Net movements in short-term borrowings
Cash inflows on derivatives
Cash outflows on derivatives
Interest paid
Cash flows per financing activities section of cash flow statement
Adjustments:
Non-net debt-related items
Derivative cash (outflow)/inflow in relation to capital expenditure
Derivative cash inflows per investing section of cash flow statement
Derivative cash outflows per investing section of cash flow statement
11,908
(15,260)
(155)
(511)
—
—
(1,277)
(5,295)
27
—
—
—
Cash flows relating to financing liabilities within net debt
(5,268)
Analysis of changes in net debt:
Borrowings
Financing derivatives
Cash flow movements relating to financing liabilities within net debt
(5,268)
—
(5,268)
—
—
—
—
190
(118)
(153)
(81)
—
(12)
—
(362)
(455)
—
(455)
(455)
12,347
(1,261)
(117)
(11)
—
—
(998)
9,960
33
—
—
—
9,993
9,993
—
9,993
—
—
—
—
20
(114)
(55)
(149)
—
(8)
17
(122)
(262)
—
(262)
(262)
5,150
(1,654)
(107)
(619)
—
—
(711)
2,059
29
—
—
—
2,088
2,088
—
2,088
—
—
—
—
17
(183)
(42)
(208)
—
10
225
(81)
(54)
—
(54)
(54)
(d) Reconciliation of changes in liabilities arising from financing activities
The table below reconciles changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash
changes. For the purposes of this table, the liabilities arising from financing activities are those for which cash flows were, or future cash flows will
be, classified in the consolidated cash flow statement within financing activities. As a result we have separately disclosed the reconciliation below,
excluding derivatives associated with our net investment hedges and derivatives associated with the hedging of capital expenditure, given that
they are both classified in the consolidated cash flow statement within investing activities.
At 1 April 2020
Cash flow1
Fair value gains and losses
Foreign exchange movements
Interest charges
Other non-cash movements
Reclassification to held for sale
At 1 April 2021
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest charges
Other non-cash movements
Acquisition of NGED
Reclassification to held for sale2
At 1 April 2022
Cash flow
Fair value gains and losses
Foreign exchange movements
Interest charges
Other non-cash movements
Reclassification to held for sale2
At 31 March 2023
Notes
Borrowings
£m
(30,794)
6
10
6
37
10
6
(2,336)
159
1,710
(946)
(136)
1,123
(31,220)
(9,993)
286
(652)
(1,177)
34
(8,286)
5,543
(45,465)
5,268
367
(1,311)
(1,658)
(283)
97
Financing
derivatives
£m
228
158
(301)
—
11
—
—
96
149
(472)
—
(54)
—
26
(495)
(750)
81
46
—
(170)
—
—
Total
£m
(30,566)
(2,178)
(142)
1,710
(935)
(136)
1,123
(31,124)
(9,844)
(186)
(652)
(1,231)
34
(8,260)
5,048
(46,215)
5,349
413
(1,311)
(1,828)
(283)
97
(42,985)
(793)
(43,778)
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185185
1. Amounts shown for the year ended 31 March 2021 include financing cash flows attributable to the UK Gas Transmission business which was classified as a discontinued operation
(see notes 1 and 10). In order to reconcile financing cash flows to the consolidated cash flow statement for the year ended 31 March 2021, cash flows from financing activities for both
continuing operations and discontinued operations should be included, along with non-debt related items in note 29(c).
2. Reclassification to held for sale in the year ended 31 March 2022 represented the opening net debt position of the UK Gas Transmission business (see note 10).
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
30. 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 energy purchase agreements and contracts 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.
Contingent assets are disclosed where the Group concludes that an inflow of economic benefits is probable.
Future capital expenditure
Contracted for but not provided1
Energy purchase commitments2
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
Guarantees
Guarantee of subleases for US properties (expire up to 2040)
Guarantees of certain obligations of Grain LNG (expire up to 2025)
Guarantees of certain obligations for construction of HVDC West Coast Link
Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates)
Guarantees of certain obligations of St William Homes LLP (various expiry dates)
Guarantees of certain obligations of National Grid IFA 2 Limited (expected expiry 2023)
Guarantees of certain obligations of National Grid Viking Link Limited (expected expiry 2024)
Other guarantees and letters of credit (various expiry dates)
2023
£m
2022
£m
3,035
2,881
1,391
985
1,057
912
929
1,386
1,366
1,219
1,189
1,088
13,920
19,194
12,266
18,514
219
32
—
281
44
144
1,185
321
2,226
149
31
84
569
44
130
1,177
380
2,564
1. Included within future capital expenditure for the year ended 31 March 2022 was £205 million pertaining to the UK Gas Transmission business.
2. Energy purchase commitments relate to contractual commitments to purchase electricity or gas that are used to satisfy physical delivery requirements to our customers or for energy
that we use ourselves (i.e. normal purchase, sale or usage) and hence are accounted for as ordinary purchase contracts (see note 32(f)). Details of commodity contract derivatives that
do not meet the normal purchase, sale or usage criteria, and hence are accounted for as derivative contracts, are shown in note 17(b).
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.
Contingent liabilities
The Group is subject to national and local laws governing the clean-up of sites used previously in its operations. These laws and associated
regulations require the Group to take future actions to remediate the effects on the environment of the release of chemicals and other substances.
Such contingencies may exist for various sites including manufactured gas plants, power stations and water courses that were impacted by those
activities. The ultimate costs of these clean-ups involve estimation uncertainty as work may be impacted by changing regulations and additional work
may be required once sites have been fully surveyed. The estimated clean-up costs have been provided for in note 26 based upon management’s
best estimate of the likely future cash flows. Whilst the amounts of future possible costs that are not provided for could be material to the Group’s
results in the period when they are recognised, it is not possible to reliably estimate the amounts involved at this time. As many environmental
remediation costs are recoverable through the Group’s rate-setting processes, the Group does not expect these costs to have a material impact
on its liquidity.
186
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Notes to the consolidated financial statements continued
30. Commitments and contingencies
31. Related party transactions
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 energy purchase agreements and contracts 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.
Contingent assets are disclosed where the Group concludes that an inflow of economic benefits is probable.
Related parties include joint ventures, associates, 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.
Future capital expenditure
Contracted for but not provided1
Energy purchase commitments2
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
Guarantees
Guarantee of subleases for US properties (expire up to 2040)
Guarantees of certain obligations of Grain LNG (expire up to 2025)
Guarantees of certain obligations for construction of HVDC West Coast Link
Guarantees of certain obligations of National Grid North Sea Link Limited (various expiry dates)
Guarantees of certain obligations of St William Homes LLP (various expiry dates)
Guarantees of certain obligations of National Grid IFA 2 Limited (expected expiry 2023)
Guarantees of certain obligations of National Grid Viking Link Limited (expected expiry 2024)
Other guarantees and letters of credit (various expiry dates)
2023
£m
2022
£m
3,035
2,881
13,920
19,194
12,266
18,514
1,391
985
1,057
912
929
219
32
—
281
44
144
1,185
321
2,226
1,386
1,366
1,219
1,189
1,088
149
31
84
569
44
130
1,177
380
2,564
1. Included within future capital expenditure for the year ended 31 March 2022 was £205 million pertaining to the UK Gas Transmission business.
2. Energy purchase commitments relate to contractual commitments to purchase electricity or gas that are used to satisfy physical delivery requirements to our customers or for energy
that we use ourselves (i.e. normal purchase, sale or usage) and hence are accounted for as ordinary purchase contracts (see note 32(f)). Details of commodity contract derivatives that
do not meet the normal purchase, sale or usage criteria, and hence are accounted for as derivative contracts, are shown in note 17(b).
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.
Contingent liabilities
The Group is subject to national and local laws governing the clean-up of sites used previously in its operations. These laws and associated
regulations require the Group to take future actions to remediate the effects on the environment of the release of chemicals and other substances.
Such contingencies may exist for various sites including manufactured gas plants, power stations and water courses that were impacted by those
activities. The ultimate costs of these clean-ups involve estimation uncertainty as work may be impacted by changing regulations and additional work
may be required once sites have been fully surveyed. The estimated clean-up costs have been provided for in note 26 based upon management’s
best estimate of the likely future cash flows. Whilst the amounts of future possible costs that are not provided for could be material to the Group’s
results in the period when they are recognised, it is not possible to reliably estimate the amounts involved at this time. As many environmental
remediation costs are recoverable through the Group’s rate-setting processes, the Group does not expect these costs to have a material impact
on its liquidity.
Sales: Goods and services supplied to a pension plan
Sales: Goods and services supplied to joint ventures1
Sales: Goods and services supplied to associates
Sales: Goods and services supplied to subsidiaries of an associate
Purchases: Goods and services received from joint ventures2
Purchases: Goods and services received from associates2
Receivables from joint ventures3
Receivables from associates
Receivables from subsidiaries of an associate
Payables to joint ventures4
Payables to associates
Dividends received from joint ventures5
Dividends received from associates6
2023
£m
—
100
1
6
—
31
58
—
8
19
1
150
32
2022
£m
3
284
—
—
19
41
43
1
—
247
4
123
35
2021
£m
3
79
1
—
35
43
263
—
—
17
3
49
32
1. During the year, £76 million of sales were made to Emerald Energy Venture LLC (2022: £74 million; 2021: £50 million) and a further £7 million and £6 million of sales were made to
NGET/SPT Upgrades Limited (a joint venture) in 2022 and 2021 respectively. Prior to the Group’s disposal of its equity interest in St William Homes LLP in the year ended 31 March
2022, £202 million (2021: £14 million) of property sites were sold to St William Homes LLP.
2. During the year, the Group received goods and services from a number of US associates, both for the transportation of gas and for pipeline services in the US, most notably £22 million
(2022: £38 million; 2021: £41 million) of purchases from Millennium Pipeline Company LLC in the period up until disposal on 7 October 2022. The Group purchased assets of £nil (2022:
£18 million; 2021: £17 million) from BritNed Development Limited. The Group also made purchases of £nil (2022: £0.3 million; 2021: £5 million) from NGET/SPT Upgrades Limited.
3. Amounts receivable from joint ventures include £55 million (2022: £33 million; 2021: £19 million) from Emerald Energy Venture LLC. Amounts receivable in comparative periods
include amounts due from St William Homes LLP, which is no longer a related party of the Group (2022: £nil; 2021: £241 million).
4. Amounts payable to joint ventures in the prior year included £223 million due to Community Offshore Wind, LLC, NGV’s joint venture with RWE Renewables, in respect of a capital
call to NGV following the successful auction of six seabed leases in New York. This was settled in the year ended 31 March 2023.
5. Includes dividends of £84 million (2022: £39 million; 2021: £18 million) received from BritNed Development Limited and £47 million (2022: £77 million; 2021: £25 million) from
Nemo Link Limited.
6. Includes dividends of £16 million (2022: £34 million; 2021: £31 million) received from Millennium Pipeline Company LLC in the period up until disposal on 7 October 2022.
Details of investments in principal subsidiary undertakings, joint ventures and associates are disclosed in note 34, and information relating to pension
fund arrangements is disclosed in note 25. For details of Directors’ and key management remuneration, refer to the Directors’ Remuneration Report
on pages 90 –106 and note 4(c).
32. Financial risk management
Our activities expose us to a variety of financial risks including credit risk, liquidity risk, capital risk, currency risk, interest rate risk, inflation risk
and commodity price risk. Our risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential
volatility of financial performance from these risks. We use financial instruments, including derivative financial instruments, to manage these risks.
Risk management related to financing activities is carried out by a central treasury department under policies approved by the Finance Committee
of the Board. The objective of the treasury department is to manage funding and liquidity requirements, including managing associated financial risks,
to within acceptable boundaries. The Finance Committee provides written principles for overall risk management and written policies covering the
following specific areas: foreign exchange risk, interest rate risk, credit risk, liquidity risk, use of derivative financial instruments and non-derivative
financial instruments, and investment of excess liquidity. The Finance Committee has delegated authority to administer the commodity price risk
policy and credit policy for US-based commodity transactions to the Energy Procurement Risk Management Committee and the National Grid
USA Board of Directors. Details of key activities in the current year are set out in the Finance Committee report on page 89.
We have exposure to the following risks, which are described in more detail below:
• credit risk;
• liquidity risk;
• currency risk;
• interest rate risk;
• commodity price risk;
• valuation risk; and
• capital risk.
Where appropriate, derivatives and other financial instruments used for hedging currency and interest rate risk exposures are formally designated
as fair value, cash flow or net investment hedges as defined in IFRS 9. Hedge accounting allows the timing of the profit or loss impact of qualifying
hedging instruments to be recognised in the same reporting period as the corresponding impact of hedged exposures. To qualify for hedge
accounting, documentation is prepared specifying the risk management objective and strategy, the component transactions and methodology
used for measurement of effectiveness.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
Hedge accounting relationships are designated in line with risk management activities further described below. The categories of hedging entered
into are as follows:
• currency risk arising from our forecast foreign currency transactions (capital expenditure or revenues) is designated in cash flow hedges;
• currency risk arising from our net investments in foreign operations is designated in net investment hedges; and
• currency and interest rate risk arising from borrowings are designated in cash flow or fair value hedges.
Critical terms of hedging instruments and hedged items are transacted to match on a 1:1 ratio by notional values. Hedge ineffectiveness can
nonetheless arise from inherent differences between derivatives and non-derivative instruments and other market factors including credit,
correlations, supply and demand, and market volatilities. Ineffectiveness is recognised in the remeasurements component of finance income and
costs (see note 6). Hedge accounting is discontinued when a hedging relationship no longer qualifies for hedge accounting.
Certain hedging instrument components are treated separately as costs of hedging with the gains and losses deferred in a component of other equity
reserves and released systematically into profit or loss to correspond with the timing and impact of hedged exposures, or released in full to finance
costs upon an early discontinuation of a hedging relationship.
Refer to sections (c) currency risk and (d) interest rate risk below for further details on hedge accounting.
(a) Credit risk
We are exposed to the risk of loss resulting from counterparties’ default on their commitments including failure to pay or make a delivery on a
contract. This risk is inherent in our commercial business activities. Exposure arises from derivative financial instruments, deposits with banks and
financial institutions, trade receivables and committed transactions with wholesale and retail customers.
Treasury credit risk
Counterparty risk arises from the investment of surplus funds and from the use of derivative financial instruments. As at 31 March 2023, the following
limits were in place for investments and derivative financial instruments held with banks and financial institutions:
Triple ‘A’ G7 sovereign entities (AAA)
Triple ‘A’ vehicles (AAA)
Triple ‘A’ range institutions and non-G7 sovereign entities (AAA)
Double ‘A+’ G7 sovereign entities (AA+)
Double ‘A’ range institutions (AA)
Single ‘A’ range institutions (A)
Maximum limit
£m
Utilisation of
maximum limit
£m
Long-term limit
£m
Utilisation of
long-term limit
£m
2,502
500
2,275
2,275
—
—
—
—
1,877
—
1,706
1,706
—
—
—
—
1,365 to 1,820
27 to 238
1,024 to 1,365
455 to 910
8 to 498
341 to 682
18 to 222
6 to 340
The maximum limit applies to all transactions, including long-term transactions. The long-term limit applies to transactions which mature in
more than 12 months’ time.
As at 31 March 2023 and 2022, we had a number of exposures to individual counterparties. In accordance with our treasury policies, counterparty
credit exposure utilisations are monitored daily against the counterparty credit limits. Counterparty credit ratings and market conditions are reviewed
continually with limits being revised and utilisation adjusted, if appropriate. Management does not expect any significant losses from non-performance
by these counterparties. Further information on financial investments subject to impairment provisioning is included in note 15.
Commodity credit risk
The credit policy for US-based commodity transactions is owned by the Finance Committee to the Board, which establishes controls and
procedures to determine, monitor and minimise the credit exposure to counterparties.
Wholesale and retail credit risk
Our principal commercial exposure in the UK is governed by the credit rules within the regulated code: Connection and Use of System Code. This
sets out the level of credit relative to the RAV for each credit rating. In the US, we are required to supply electricity and gas under state regulations.
Our policies and practices are designed to limit credit exposure by collecting security deposits prior to providing utility services, or after utility services
have commenced if certain applicable regulatory requirements are met. Collection activities are managed on a daily basis. Sales to retail customers
are usually settled in cash, cheques, electronic bank payments or by using major credit cards. We are committed to measuring, monitoring,
minimising and recording counterparty credit risk in our wholesale business. The utilisation of credit limits is regularly monitored, and collateral is
collected against these accounts when necessary.
In March 2020, the Group’s US distribution business temporarily ceased certain cash collection and termination activities in response to regulatory
instructions following the COVID-19 pandemic. At the time this resulted in the recognition of expected credit losses. Cash collection and customer
termination activities resumed in New England and New York during the year ended 31 March 2022. In the years ended 31 March 2023 and 2022,
the Group’s US distribution business has also been supported by certain government and state COVID-19 funding programmes, which has been
factored into the assessment of expected credit losses for the year (see note 19 for further details).
188
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32. Financial risk management continued
32. Financial risk management continued
(a) Credit risk continued
Offsetting financial assets and liabilities
The following tables set out our financial assets and liabilities which are subject to offset and to enforceable master netting arrangements or similar
agreements. The tables show the amounts which are offset and reported net in the statement of financial position. Amounts which cannot be offset
under IFRS, but which could be settled net under terms of master netting arrangements if certain conditions arise, and with collateral received or
pledged, are presented to show National Grid’s net exposure.
Financial assets and liabilities on different transactions would only be reported net in the balance sheet if the transactions were with the same
counterparty, a currently enforceable legal right of offset exists and the cash flows were intended to be settled on a net basis.
Amounts which do not meet the criteria for offsetting on the statement of financial position, but could be settled net in certain circumstances,
principally relate to derivative transactions under ISDA agreements, where each party has the option to settle amounts on a net basis in the event
of default of the other party.
Commodity contract derivatives that have not been offset on the balance sheet may be settled net in certain circumstances under ISDA or North
American Energy Standards Board (NAESB) agreements.
For bank account balances and bank overdrafts, there are no ‘Gross amounts offset’ under cash pooling arrangements (2022: £nil). Our UK bank
accounts for National Grid subsidiaries previously participated in GBP, EUR and USD Composite Accounting System overdraft facilities subject
to offsetting gross and net overdraft limits. EUR and USD offsetting arrangements were discontinued in the year ended 31 March 2021 and GBP
offsetting arrangements have no impact as at 31 March 2023 and 2022. In the US, no offsetting arrangements exist, and cash transactions are
settled through National Grid USA Service Company, Inc. (Service Company) bank accounts with subsequent intercompany payables and
receivables reported by subsidiaries with the Service Company.
The gross amounts offset for trade payables and receivables, which are subject to general terms and conditions, are insignificant.
Notes to the consolidated financial statements continued
Hedge accounting relationships are designated in line with risk management activities further described below. The categories of hedging entered
into are as follows:
• currency risk arising from our forecast foreign currency transactions (capital expenditure or revenues) is designated in cash flow hedges;
• currency risk arising from our net investments in foreign operations is designated in net investment hedges; and
• currency and interest rate risk arising from borrowings are designated in cash flow or fair value hedges.
Critical terms of hedging instruments and hedged items are transacted to match on a 1:1 ratio by notional values. Hedge ineffectiveness can
nonetheless arise from inherent differences between derivatives and non-derivative instruments and other market factors including credit,
correlations, supply and demand, and market volatilities. Ineffectiveness is recognised in the remeasurements component of finance income and
costs (see note 6). Hedge accounting is discontinued when a hedging relationship no longer qualifies for hedge accounting.
Certain hedging instrument components are treated separately as costs of hedging with the gains and losses deferred in a component of other equity
reserves and released systematically into profit or loss to correspond with the timing and impact of hedged exposures, or released in full to finance
costs upon an early discontinuation of a hedging relationship.
Refer to sections (c) currency risk and (d) interest rate risk below for further details on hedge accounting.
(a) Credit risk
Treasury credit risk
We are exposed to the risk of loss resulting from counterparties’ default on their commitments including failure to pay or make a delivery on a
contract. This risk is inherent in our commercial business activities. Exposure arises from derivative financial instruments, deposits with banks and
financial institutions, trade receivables and committed transactions with wholesale and retail customers.
Counterparty risk arises from the investment of surplus funds and from the use of derivative financial instruments. As at 31 March 2023, the following
limits were in place for investments and derivative financial instruments held with banks and financial institutions:
Maximum limit
£m
Utilisation of
maximum limit
Long-term limit
£m
Utilisation of
long-term limit
2,502
500
2,275
2,275
£m
—
—
—
—
1,877
—
1,706
1,706
£m
—
—
—
—
1,365 to 1,820
27 to 238
1,024 to 1,365
455 to 910
8 to 498
341 to 682
18 to 222
6 to 340
Triple ‘A’ range institutions and non-G7 sovereign entities (AAA)
Triple ‘A’ G7 sovereign entities (AAA)
Triple ‘A’ vehicles (AAA)
Double ‘A+’ G7 sovereign entities (AA+)
Double ‘A’ range institutions (AA)
Single ‘A’ range institutions (A)
more than 12 months’ time.
The maximum limit applies to all transactions, including long-term transactions. The long-term limit applies to transactions which mature in
As at 31 March 2023 and 2022, we had a number of exposures to individual counterparties. In accordance with our treasury policies, counterparty
credit exposure utilisations are monitored daily against the counterparty credit limits. Counterparty credit ratings and market conditions are reviewed
continually with limits being revised and utilisation adjusted, if appropriate. Management does not expect any significant losses from non-performance
by these counterparties. Further information on financial investments subject to impairment provisioning is included in note 15.
The credit policy for US-based commodity transactions is owned by the Finance Committee to the Board, which establishes controls and
procedures to determine, monitor and minimise the credit exposure to counterparties.
Commodity credit risk
Wholesale and retail credit risk
Our principal commercial exposure in the UK is governed by the credit rules within the regulated code: Connection and Use of System Code. This
sets out the level of credit relative to the RAV for each credit rating. In the US, we are required to supply electricity and gas under state regulations.
Our policies and practices are designed to limit credit exposure by collecting security deposits prior to providing utility services, or after utility services
have commenced if certain applicable regulatory requirements are met. Collection activities are managed on a daily basis. Sales to retail customers
are usually settled in cash, cheques, electronic bank payments or by using major credit cards. We are committed to measuring, monitoring,
minimising and recording counterparty credit risk in our wholesale business. The utilisation of credit limits is regularly monitored, and collateral is
collected against these accounts when necessary.
In March 2020, the Group’s US distribution business temporarily ceased certain cash collection and termination activities in response to regulatory
instructions following the COVID-19 pandemic. At the time this resulted in the recognition of expected credit losses. Cash collection and customer
termination activities resumed in New England and New York during the year ended 31 March 2022. In the years ended 31 March 2023 and 2022,
the Group’s US distribution business has also been supported by certain government and state COVID-19 funding programmes, which has been
factored into the assessment of expected credit losses for the year (see note 19 for further details).
At 31 March 2023
Assets
Financing derivatives
Commodity contract derivatives
Liabilities
Financing derivatives
Commodity contract derivatives
At 31 March 2022
Assets
Financing derivatives
Commodity contract derivatives
Liabilities
Financing derivatives
Commodity contract derivatives
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Annual Report and Accounts 2022/23
Related amounts
available to be offset but
not offset in statement
of financial position
Gross
carrying
amounts
£m
Gross
amounts
offset
£m
Net amount
presented in
statement of
financial
position
£m
Financial
instruments
£m
Cash
collateral
received/
pledged
£m
Net amount
£m
298
289
587
(991)
(22)
(1,013)
—
—
—
—
—
—
298
289
587
(991)
(22)
(1,013)
(136)
(8)
(144)
136
8
144
(426)
—
(426)
—
(55)
(50)
(105)
771
3
774
669
107
231
338
(84)
(11)
(95)
243
189189
Gross
carrying
amounts
£m
Gross
amounts
offset
£m
Net amount
presented in
statement of
financial
position
£m
363
66
429
(1,119)
(174)
(1,293)
—
—
—
—
—
—
363
66
429
(1,119)
(174)
(1,293)
Related amounts
available to be offset but
not offset in statement
of financial position
Financial
instruments
£m
Cash
collateral
received/
pledged
£m
Net amount
£m
83
38
121
(234)
(127)
(361)
(240)
(204)
(28)
(232)
204
28
232
(76)
—
(76)
681
19
700
624
(864)
—
(864)
—
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
32. Financial risk management continued
(b) Liquidity risk
Our policy is to determine our liquidity requirements by the use of both short-term and long-term cash flow forecasts. These forecasts are
supplemented by a financial headroom analysis which is used to assess funding requirements for at least a 24-month period and maintain
adequate liquidity for a continuous 12-month period.
We believe our contractual obligations, including those shown in commitments and contingencies in note 30, can be met from existing cash
and investments, operating cash flows and other financing that we reasonably expect to be able to secure in the future, together with the use
of committed facilities if required.
Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information
by the issuing entity, restrictions on disposals and financial covenants, such as restrictions on the level of subsidiary indebtedness and interest
coverage. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s
discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets.
The following is a payment profile of our financial liabilities and derivatives:
At 31 March 2023
Non-derivative financial liabilities
Borrowings, excluding lease liabilities
Interest payments on borrowings1
Lease liabilities
Other non-interest-bearing liabilities
Contingent consideration
Derivative financial liabilities
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Derivative financial assets
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
At 31 March 2022
Non-derivative financial liabilities
Borrowings, excluding lease liabilities
Interest payments on borrowings1
Lease liabilities
Other non-interest-bearing liabilities
Contingent consideration
Derivative financial liabilities
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Derivative financial assets
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Less than
1 year
£m
1 to 2
years
£m
2 to 3
years
£m
More than
3 years
£m
Total
£m
(2,433)
(1,220)
(118)
(4,232)
(19)
(2,722)
(1,244)
(102)
(416)
—
(2,614)
(33,866)
(41,635)
(1,148)
(15,301)
(18,913)
(86)
—
—
(610)
—
—
(916)
(4,648)
(19)
1,174
2,154
2,381
7,364
13,073
(1,461)
(2,483)
(2,705)
(8,335)
(14,984)
11
(126)
4,757
(4,679)
48
(11)
9
(35)
701
(676)
11
(6)
1
(11)
745
(719)
—
(3)
—
(1)
21
(173)
3,299
9,502
(3,183)
(9,257)
—
—
59
(20)
(8,309)
(4,809)
(4,159)
(50,633)
(67,910)
Less than
1 year
£m
1 to 2
years
£m
2 to 3
years
£m
More than
3 years
£m
Total
£m
(11,589)
(1,322)
(2,468)
(28,119)
(43,498)
(970)
(132)
(3,979)
(37)
3,149
(3,401)
1
(29)
4,512
(4,405)
234
(52)
(928)
(96)
(336)
(8)
(883)
(12,525)
(15,306)
(79)
—
—
(366)
—
—
(673)
(4,315)
(45)
1,008
(1,189)
2,075
(2,336)
4,726
10,958
(5,468)
(12,394)
1
2
316
(282)
37
(8)
—
(1)
1,427
(1,313)
3
(3)
—
—
464
(405)
—
—
2
(28)
6,719
(6,405)
274
(63)
(16,698)
(2,805)
(3,578)
(41,693)
(64,774)
1. The interest on borrowings is calculated based on borrowings held at 31 March without taking account of future issues. Floating rate interest is estimated using a forward interest rate
curve as at 31 March. Payments are included on the basis of the earliest date on which the Company can be required to settle.
2. The receipts and payments line items for derivatives comprise gross undiscounted future cash flows, after considering any contractual netting that applies within individual contracts.
Where cash receipts and payments within a derivative contract are settled net, and the amount to be received/(paid) exceeds the amount to be paid/(received), the net amount is
presented within derivative receipts/(payments).
190
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National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
32. Financial risk management continued
(b) Liquidity risk
Our policy is to determine our liquidity requirements by the use of both short-term and long-term cash flow forecasts. These forecasts are
supplemented by a financial headroom analysis which is used to assess funding requirements for at least a 24-month period and maintain
adequate liquidity for a continuous 12-month period.
We believe our contractual obligations, including those shown in commitments and contingencies in note 30, can be met from existing cash
and investments, operating cash flows and other financing that we reasonably expect to be able to secure in the future, together with the use
of committed facilities if required.
Our debt agreements and banking facilities contain covenants, including those relating to the periodic and timely provision of financial information
by the issuing entity, restrictions on disposals and financial covenants, such as restrictions on the level of subsidiary indebtedness and interest
coverage. Failure to comply with these covenants, or to obtain waivers of those requirements, could in some cases trigger a right, at the lender’s
discretion, to require repayment of some of our debt and may restrict our ability to draw upon our facilities or access the capital markets.
The following is a payment profile of our financial liabilities and derivatives:
At 31 March 2023
Non-derivative financial liabilities
Borrowings, excluding lease liabilities
Interest payments on borrowings1
Lease liabilities
Other non-interest-bearing liabilities
Contingent consideration
Derivative financial liabilities
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Derivative financial assets
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
At 31 March 2022
Non-derivative financial liabilities
Borrowings, excluding lease liabilities
Interest payments on borrowings1
Lease liabilities
Other non-interest-bearing liabilities
Contingent consideration
Derivative financial liabilities
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Derivative financial assets
Financing derivatives – receipts2
Financing derivatives – payments2
Commodity contract derivatives – receipts2
Commodity contract derivatives – payments2
Less than
1 year
£m
1 to 2
years
£m
2 to 3
years
£m
More than
3 years
£m
Total
£m
(2,433)
(1,220)
(118)
(4,232)
(19)
(2,722)
(1,244)
(102)
(416)
—
(2,614)
(33,866)
(41,635)
(1,148)
(15,301)
(18,913)
(86)
—
—
(610)
—
—
(916)
(4,648)
(19)
1,174
2,154
2,381
7,364
13,073
(1,461)
(2,483)
(2,705)
(8,335)
(14,984)
11
(126)
4,757
(4,679)
48
(11)
9
(35)
701
(676)
11
(6)
1
(11)
745
(719)
—
(3)
—
(1)
21
(173)
3,299
9,502
(3,183)
(9,257)
—
—
59
(20)
(8,309)
(4,809)
(4,159)
(50,633)
(67,910)
Less than
1 year
£m
1 to 2
years
£m
2 to 3
years
£m
More than
3 years
£m
Total
£m
(11,589)
(1,322)
(2,468)
(28,119)
(43,498)
(970)
(132)
(3,979)
(37)
3,149
(3,401)
1
(29)
4,512
(4,405)
234
(52)
(928)
(96)
(336)
(8)
1
2
316
(282)
37
(8)
(883)
(12,525)
(15,306)
(79)
—
—
(366)
—
—
(673)
(4,315)
(45)
1,008
(1,189)
2,075
(2,336)
4,726
10,958
(5,468)
(12,394)
—
(1)
1,427
(1,313)
3
(3)
—
—
464
(405)
—
—
2
(28)
6,719
(6,405)
274
(63)
(16,698)
(2,805)
(3,578)
(41,693)
(64,774)
1. The interest on borrowings is calculated based on borrowings held at 31 March without taking account of future issues. Floating rate interest is estimated using a forward interest rate
curve as at 31 March. Payments are included on the basis of the earliest date on which the Company can be required to settle.
2. The receipts and payments line items for derivatives comprise gross undiscounted future cash flows, after considering any contractual netting that applies within individual contracts.
Where cash receipts and payments within a derivative contract are settled net, and the amount to be received/(paid) exceeds the amount to be paid/(received), the net amount is
presented within derivative receipts/(payments).
32. Financial risk management continued
(c) Currency risk
National Grid operates internationally with mainly pound sterling as the functional currency for the UK companies and US dollar for the
US businesses. Currency risk arises from three major areas: funding activities, capital investment and related revenues, and holdings in foreign
operations. This risk is managed using financial instruments including derivatives as approved by policy, typically cross-currency interest rate swaps,
foreign exchange swaps and forwards.
Funding activities – our policy is to borrow in the most advantageous market available. Foreign currency funding gives rise to risk of volatility in the
amount of functional currency cash to be repaid. This risk is reduced by swapping principal and interest back into the functional currency of the
issuer. All foreign currency debt and transactions are hedged except where they provide a natural offset to assets elsewhere in the Group.
Capital investment and related revenues – capital projects often incur costs or generate revenues in a foreign currency, most often euro transactions
done by the UK business. Our policy for managing foreign exchange transaction risk is to hedge contractually committed foreign currency cash flows
over a prescribed minimum size, typically by buying euro forwards to hedge future expenditure and selling euro forwards to hedge future revenues.
For hedges of forecast cash flows our policy is to hedge a proportion of highly probable cash flows.
Holdings in foreign operations – we are exposed to fluctuations on the translation into pounds sterling of our foreign operations. The policy for
managing this translation risk is to issue foreign currency debt or to replicate foreign debt using derivatives that pay cash flows in the currency of
the foreign operation. The primary managed exposure arises from dollar denominated assets and liabilities held by our US operations, with a smaller
euro exposure in respect of joint venture investments.
Derivative financial instruments were used to manage foreign currency risk as follows:
Cash and cash equivalents
Financial investments
Sterling
£m
96
1,031
2023
Dollar
£m
53
1,574
Euro
£m
14
—
Other
£m
—
—
Total
£m
163
2,605
Sterling
£m
111
1,725
2022
Dollar
£m
93
1,420
Euro
£m
—
—
Other
£m
—
—
Total
£m
204
3,145
Borrowings
(14,473)
(11,045)
(15,741)
(1,726)
(42,985)
(22,910)
(7,052)
(14,118)
(1,385)
(45,465)
Pre-derivative position
(13,346)
(11,031)
(14,114)
(1,726)
(40,217)
(21,074)
(7,052)
(12,605)
(1,385)
(42,116)
Derivative effect
Net debt position
(6,751)
10,733
(6,476)
1,738
(756)
(1,378)
6,849
(7,570)
1,406
(693)
(20,097)
(298)
(20,590)
12
(40,973)
(22,452)
(203)
(20,175)
21
(42,809)
The exposure to dollars largely relates to our net investment hedge activities and exposure to euros largely relates to hedges for our future
non-sterling capital expenditure and associated revenues.
The currency exposure on other financial instruments is as follows:
Trade and other receivables
Trade and other payables
Other non-current liabilities
Sterling
£m
448
(1,624)
(147)
2023
Dollar
£m
1,881
(2,629)
(269)
Euro
£m
—
—
—
Other
£m
—
—
—
Total
£m
2,329
(4,253)
(416)
Sterling
£m
407
(1,459)
(90)
2022
Dollar
£m
1,788
(2,554)
(253)
Euro
£m
—
—
—
Other
£m
—
—
—
Total
£m
2,195
(4,013)
(343)
The carrying amounts of other financial instruments are denominated in the above currencies, which in most instances are the functional currency
of the respective subsidiaries. Our exposure to dollars is due to activities in our US subsidiaries. We do not have any other significant exposure to
currency risk on these balances.
Hedge accounting for currency risk
Where available, derivatives transacted for hedging are designated for hedge accounting. Economic offset is qualitatively determined because the
critical terms (currency and volume) of the hedging instrument match the hedged exposure. If a forecast transaction was no longer expected to
occur, the cumulative gain or loss previously reported in equity would be transferred to the income statement. This has not occurred in the current
or comparative years.
Cash flow hedging of currency risk of capital expenditure and revenues is designated as hedging the exposure to movements in the spot translation
rates only. The timing of forecast transactions is not designated as a hedged risk. Gains and losses on hedging instruments arising from forward
points and foreign currency basis spreads are excluded from designation and are recognised immediately in profit or loss, along with any hedge
ineffectiveness. On recognition of the hedged purchase or sale in the financial statements, the associated hedge gains and losses, deferred in the
cash flow hedge reserve in other equity reserves, are transferred out of reserves and included with the recognition of the underlying transaction.
Where a non-financial asset or a non-financial liability results from a forecast transaction or firm commitment being hedged, the amounts deferred
in reserves are included directly in the initial measurement of that asset or liability.
Net investment hedging is also designated as hedging the exposure to movements in spot translation rates only: spot-related gains and losses
on hedging instruments are presented in the cumulative translation reserve within other equity reserves to offset gains or losses on translation of
the hedged balance sheet exposure. Any ineffectiveness is recognised immediately in the income statement. Amounts deferred in the cumulative
translation reserve with respect to net investment hedges are subsequently recognised in the income statement in the event of disposal of the
overseas operations concerned. Any remaining amounts deferred in the cost of hedging reserve are also released to the income statement.
Hedges of foreign currency funding are designated as cash flow hedges or fair value hedges of forward exchange risk (hedging both currency
and interest rate risk together, where applicable). Gains and losses arising from foreign currency basis spreads are excluded from designation
and are treated as a cost of hedging, deferred initially in other equity reserves and released into profit or loss over the life of the hedging
relationship. Hedge accounting for funding is described further in the interest rate risk section below.
190
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National Grid plc
Annual Report and Accounts 2022/23
191191
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
32. Financial risk management continued
(d) Interest rate risk
National Grid’s interest rate risk arises from our long-term borrowings. Our interest rate risk management policy is to seek to minimise total financing
costs (being interest costs and changes in the market value of debt). Hedging instruments principally consist of interest rate and cross-currency
swaps that are used to translate foreign currency debt into functional currency and to adjust the proportion of fixed rate and floating rate in the
borrowings portfolio to within a range set by the Finance Committee of the Board. The benchmark interest rates hedged are currently based on
LIBOR for USD and Sterling Overnight Index Average (SONIA) for GBP.
LIBOR is being replaced as an interest rate benchmark by alternative reference rates in certain currencies including our functional currencies, USD
and GBP, and foreign currencies in which we operate. This impacts contracts including financial liabilities that pay LIBOR-based cash flows, and
derivatives that receive or pay LIBOR-based cash flows. The change in benchmark also affects discount rates which will impact the valuations of
certain liabilities. We have disclosed our exposure to LIBOR on our derivative portfolio in note 17, on our borrowings in note 21 and on our hedging
arrangements in note 32(e). We are managing the risk by transitioning LIBOR cash flows to alternative reference rates on our affected contracts in
line with the relevant jurisdictions. The migration project is under way, with all affected contracts where we previously paid or received GBP LIBOR
amended in the prior year (see note 21). The Finance Committee of the Board has delegated to the treasury department the authority to determine
which benchmarks are the most appropriate. A combination of LIBOR and the successor benchmarks, primarily GBP SONIA and USD Secured
Overnight Financing Rate (SOFR), will be used in the portfolio during the migration period.
We also consider inflation risk and hold some inflation-linked borrowings. We believe that these provide a partial economic offset to the inflation
risk associated with our UK inflation-linked revenues.
The table in note 21 sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk before taking into
account interest rate swaps.
Net debt was managed using derivative financial instruments to hedge interest rate risk as follows:
Fixed rate
£m
Floating
rate
£m
2023
Inflation
linked
£m
Cash and cash equivalents
Financial investments
53
—
110
2,569
—
—
Other1
£m
—
36
Total
£m
163
2,605
Fixed rate
£m
Floating
rate
£m
2022
Inflation
linked
£m
82
—
118
3,107
—
—
Other1
£m
4
38
Total
£m
204
3,145
Borrowings
(36,631)
(1,744)
(4,610)
—
(42,985)
(30,616)
(10,484)
(4,365)
—
(45,465)
Pre-derivative position
(36,578)
935
(4,610)
36
(40,217)
(30,534)
(7,259)
(4,365)
42
(42,116)
Derivative effect
Net debt position
4,213
(4,869)
(100)
—
(756)
2,860
(3,366)
(187)
—
(693)
(32,365)
(3,934)
(4,710)
36
(40,973)
(27,674)
(10,625)
(4,552)
42
(42,809)
1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments.
Hedge accounting for interest rate risk
Borrowings paying variable or floating rates expose National Grid to cash flow interest rate risk, partially offset by cash held at variable rates. Where
a hedging instrument results in paying a fixed rate, it is designated as a cash flow hedge because it has reduced the cash flow volatility of the hedged
borrowing. Changes in the fair value of the derivative are initially recognised in other comprehensive income as gains or losses in the cash flow hedge
reserve, with any ineffective portion recognised immediately in the income statement.
Borrowings paying fixed rates expose National Grid to fair value interest rate risk. Where the hedging instrument pays a floating rate, it is designated
as a fair value hedge because it has reduced the fair value volatility of the borrowing. Changes in the fair value of the derivative and changes in the fair
value of the hedged item in relation to the risk being hedged are both adjusted on the balance sheet and offset in the income statement to the extent
the fair value hedge is effective, with the residual difference remaining as ineffectiveness.
Both types of hedges are designated as hedging the currency and interest rate risk arising from changes in forward points. Amounts accumulated in
the cash flow hedge reserve (cash flow hedges only) and the deferred cost of hedging reserve (both cash flow and fair value hedges) are reclassified
from reserves to the income statement on a systematic basis as hedged interest expense is recognised. Adjustments made to the carrying value of
hedged items in fair value hedges are similarly released to the income statement to match the timing of the hedged interest expense.
When hedge accounting is discontinued, any remaining cumulative hedge accounting balances continue to be released to the income statement
to match the impact of outstanding hedged items. Any remaining amounts deferred in the cost of hedging reserve are released immediately to the
income statement as finance costs.
The Group early-adopted Phase I of IFRS Interest Rate Benchmark Reform amendments related to hedge accounting with effect from 1 April 2019,
and Phase II with effect from 1 April 2020. The amendments impact our fair value hedging relationships where derivative cash flows will have been
transitioned from paying LIBOR to paying an alternative reference rate. The hedged risk must be re-documented to reflect this, and allow existing
hedge designations to continue unchanged during the period of uncertainty relating to the timing and method of benchmark migrations. This
process completed for sterling LIBOR contracts in the prior year but remains in progress for US dollar contracts as at 31 March 2023.
The amendments will be applied until the earliest point in time of the Group’s contracts that reference LIBOR being amended, the hedging
relationship being formally discontinued or formal market conventions ending uncertainty being published and widely adopted. If amended cash
flows do not cause a hedging relationship to be discontinued, then the amendments will cease to be applied only when that relationship is
discontinued under IFRS 9.
The IFRS amendments impact fair value and cash flow hedges of interest rate risk and related hedging instruments, and certain net investment
hedges that use cross-currency interest rate swaps to pay a foreign currency floating rate and receive a functional currency floating rate. The notional
values of hedging instruments, for each type of hedging relationship impacted, are shown in the hedge accounting tables in note 32(e). These
amounts also correspond to the exposures designated as hedged.
192
192
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
32. Financial risk management continued
(d) Interest rate risk
National Grid’s interest rate risk arises from our long-term borrowings. Our interest rate risk management policy is to seek to minimise total financing
costs (being interest costs and changes in the market value of debt). Hedging instruments principally consist of interest rate and cross-currency
swaps that are used to translate foreign currency debt into functional currency and to adjust the proportion of fixed rate and floating rate in the
borrowings portfolio to within a range set by the Finance Committee of the Board. The benchmark interest rates hedged are currently based on
LIBOR for USD and Sterling Overnight Index Average (SONIA) for GBP.
LIBOR is being replaced as an interest rate benchmark by alternative reference rates in certain currencies including our functional currencies, USD
and GBP, and foreign currencies in which we operate. This impacts contracts including financial liabilities that pay LIBOR-based cash flows, and
derivatives that receive or pay LIBOR-based cash flows. The change in benchmark also affects discount rates which will impact the valuations of
certain liabilities. We have disclosed our exposure to LIBOR on our derivative portfolio in note 17, on our borrowings in note 21 and on our hedging
arrangements in note 32(e). We are managing the risk by transitioning LIBOR cash flows to alternative reference rates on our affected contracts in
line with the relevant jurisdictions. The migration project is under way, with all affected contracts where we previously paid or received GBP LIBOR
amended in the prior year (see note 21). The Finance Committee of the Board has delegated to the treasury department the authority to determine
which benchmarks are the most appropriate. A combination of LIBOR and the successor benchmarks, primarily GBP SONIA and USD Secured
Overnight Financing Rate (SOFR), will be used in the portfolio during the migration period.
We also consider inflation risk and hold some inflation-linked borrowings. We believe that these provide a partial economic offset to the inflation
risk associated with our UK inflation-linked revenues.
The table in note 21 sets out the carrying amount, by contractual maturity, of borrowings that are exposed to interest rate risk before taking into
account interest rate swaps.
Net debt was managed using derivative financial instruments to hedge interest rate risk as follows:
Cash and cash equivalents
Financial investments
53
—
110
2,569
—
—
Fixed rate
£m
Floating
rate
£m
2023
Inflation
linked
£m
Other1
£m
—
36
Total
£m
163
2,605
Fixed rate
£m
Floating
rate
£m
2022
Inflation
linked
£m
82
—
118
3,107
—
—
Other1
£m
4
38
Total
£m
204
3,145
Borrowings
(36,631)
(1,744)
(4,610)
—
(42,985)
(30,616)
(10,484)
(4,365)
—
(45,465)
Pre-derivative position
(36,578)
935
(4,610)
36
(40,217)
(30,534)
(7,259)
(4,365)
42
(42,116)
Derivative effect
Net debt position
4,213
(4,869)
(100)
—
(756)
2,860
(3,366)
(187)
—
(693)
(32,365)
(3,934)
(4,710)
36
(40,973)
(27,674)
(10,625)
(4,552)
42
(42,809)
1. Represents financial instruments which are not directly affected by interest rate risk, such as investments in equity or other similar financial instruments.
Hedge accounting for interest rate risk
Borrowings paying variable or floating rates expose National Grid to cash flow interest rate risk, partially offset by cash held at variable rates. Where
a hedging instrument results in paying a fixed rate, it is designated as a cash flow hedge because it has reduced the cash flow volatility of the hedged
borrowing. Changes in the fair value of the derivative are initially recognised in other comprehensive income as gains or losses in the cash flow hedge
reserve, with any ineffective portion recognised immediately in the income statement.
Borrowings paying fixed rates expose National Grid to fair value interest rate risk. Where the hedging instrument pays a floating rate, it is designated
as a fair value hedge because it has reduced the fair value volatility of the borrowing. Changes in the fair value of the derivative and changes in the fair
value of the hedged item in relation to the risk being hedged are both adjusted on the balance sheet and offset in the income statement to the extent
the fair value hedge is effective, with the residual difference remaining as ineffectiveness.
Both types of hedges are designated as hedging the currency and interest rate risk arising from changes in forward points. Amounts accumulated in
the cash flow hedge reserve (cash flow hedges only) and the deferred cost of hedging reserve (both cash flow and fair value hedges) are reclassified
from reserves to the income statement on a systematic basis as hedged interest expense is recognised. Adjustments made to the carrying value of
hedged items in fair value hedges are similarly released to the income statement to match the timing of the hedged interest expense.
When hedge accounting is discontinued, any remaining cumulative hedge accounting balances continue to be released to the income statement
to match the impact of outstanding hedged items. Any remaining amounts deferred in the cost of hedging reserve are released immediately to the
income statement as finance costs.
The Group early-adopted Phase I of IFRS Interest Rate Benchmark Reform amendments related to hedge accounting with effect from 1 April 2019,
and Phase II with effect from 1 April 2020. The amendments impact our fair value hedging relationships where derivative cash flows will have been
transitioned from paying LIBOR to paying an alternative reference rate. The hedged risk must be re-documented to reflect this, and allow existing
hedge designations to continue unchanged during the period of uncertainty relating to the timing and method of benchmark migrations. This
process completed for sterling LIBOR contracts in the prior year but remains in progress for US dollar contracts as at 31 March 2023.
The amendments will be applied until the earliest point in time of the Group’s contracts that reference LIBOR being amended, the hedging
relationship being formally discontinued or formal market conventions ending uncertainty being published and widely adopted. If amended cash
flows do not cause a hedging relationship to be discontinued, then the amendments will cease to be applied only when that relationship is
discontinued under IFRS 9.
The IFRS amendments impact fair value and cash flow hedges of interest rate risk and related hedging instruments, and certain net investment
hedges that use cross-currency interest rate swaps to pay a foreign currency floating rate and receive a functional currency floating rate. The notional
values of hedging instruments, for each type of hedging relationship impacted, are shown in the hedge accounting tables in note 32(e). These
amounts also correspond to the exposures designated as hedged.
32. Financial risk management continued
(e) Hedge accounting
In accordance with the requirements of IFRS 7, certain additional information about hedge accounting is disaggregated by risk type and hedge
designation type in the tables below:
Year ended 31 March 2023
Consolidated statement of comprehensive income
Net gains/(losses) in respect of:
Cash flow hedges
Cost of hedging
Net investment hedges
Transferred to profit or loss in respect of:
Cash flow hedges
Cost of hedging
Reclassification of foreign currency translation reserve¹
Consolidated statement of changes in equity
Other equity reserves – cost of hedging balances
Consolidated statement of financial position
Derivatives – carrying value of hedging instruments²
Assets – current
Assets – non-current
Liabilities – current
Liabilities – non-current
Profiles of the significant timing, price and rate
information of hedging instruments
Maturity range
Spot foreign exchange range:
GBP:USD
GBP:EUR
EUR:USD
Interest rate range:
GBP
USD
Fair value hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency risk
£m
Net investment hedges
£m
—
4
—
—
—
—
136
4
—
(136)
—
—
(11)
(12)
—
25
(43)
(559)
—
166
(39)
(248)
10
—
—
—
—
—
—
6
1
(6)
(1)
—
(24)
(198)
—
1
373
(27)
52
—
—
(15)
Aug 2023 – Sep 2044
Jul 2024 – Nov 2040
Apr 2023 – May 2029
Jun 2023 – Sep 2027
n/a
1.11 – 1.20
1.13 – 1.17
1.30 – 1.66
1.08 – 1.24
1.13 – 1.15
SONIA +84bps/+374bps
0.976% – 7.410%
LIBOR +68bps/
SOFR +126bps
2.095% – 3.864%
1.20 – 1.36
1.10 – 1.20
1.18 – 1.22
1.12 – 1.13
n/a
n/a
n/a
n/a
n/a
n/a
1. The reclassification of the net investment hedge on the disposals of NECO and Millennium Pipeline Company LLC has been included within Other operating income.
2. The use of derivatives may entail a derivative transaction qualifying for more than one hedge type designation under IFRS 9. Therefore, the derivative amounts in the table above are
grossed up by hedge type, whereas they are presented net at an instrument level in the statement of financial position.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
(e) Hedge accounting continued
Year ended 31 March 2022
Consolidated statement of comprehensive income
Net gains/(losses) in respect of:
Cash flow hedges
Cost of hedging
Net investment hedges
Transferred to profit or loss in respect of:
Cash flow hedges
Cost of hedging
Consolidated statement of changes in equity
Other equity reserves – cost of hedging balances
Consolidated statement of financial position
Derivatives – carrying value of hedging instruments1
Assets – current
Assets – non-current
Liabilities – current
Liabilities – non-current
Profiles of the significant timing, price and rate
information of hedging instruments
Maturity range
Spot foreign exchange range:
GBP:USD
GBP:EUR
EUR:USD
Interest rate range:
GBP
USD
Fair value hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency risk
£m
Net investment hedges
£m
—
(7)
—
—
1
(15)
—
49
(21)
(310)
(103)
16
—
43
—
(16)
—
67
(22)
(303)
(1)
—
—
—
—
—
1
1
(37)
(8)
—
(7)
(125)
—
(2)
(3)
10
82
(16)
—
Jul 2022 – Sep 2044
Jun 2022 – Nov 2040
Apr 2022 – Feb 2027
Sep 2022 – Sep 2027
n/a
1.11 – 1.24
1.13 – 1.17
1.30 – 1.66
1.08 – 1.24
1.13 – 1.15
SONIA +84bps/+374bps
0.976% – 7.410%
LIBOR –68bps/+115bps
2.095% – 3.864%
1.34 – 1.41
1.04 – 1.19
n/a
n/a
n/a
1.22 – 1.34
1.18
n/a
n/a
n/a
1. The use of derivatives may entail a derivative transaction qualifying for more than one hedge type designation under IFRS 9. Therefore, the derivative amounts in the table above are
grossed up by hedge type, whereas they are presented net at an instrument level in the statement of financial position.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
(e) Hedge accounting continued
Fair value hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency and
interest rate risk
£m
Cash flow hedges of
foreign currency risk
£m
Net investment hedges
£m
Year ended 31 March 2022
Consolidated statement of comprehensive income
Net gains/(losses) in respect of:
Cash flow hedges
Cost of hedging
Net investment hedges
Transferred to profit or loss in respect of:
Cash flow hedges
Cost of hedging
Consolidated statement of changes in equity
Other equity reserves – cost of hedging balances
Consolidated statement of financial position
Derivatives – carrying value of hedging instruments1
Assets – current
Assets – non-current
Liabilities – current
Liabilities – non-current
Profiles of the significant timing, price and rate
information of hedging instruments
Maturity range
Spot foreign exchange range:
GBP:USD
GBP:EUR
EUR:USD
GBP
USD
Interest rate range:
—
(7)
—
—
1
(15)
—
49
(21)
(310)
(103)
16
—
43
—
(16)
—
67
(22)
(303)
(1)
—
—
—
—
—
1
1
(37)
(8)
—
(7)
(125)
—
(2)
(3)
10
82
(16)
—
1.18
n/a
n/a
n/a
Jul 2022 – Sep 2044
Jun 2022 – Nov 2040
Apr 2022 – Feb 2027
Sep 2022 – Sep 2027
n/a
1.11 – 1.24
1.13 – 1.17
1.30 – 1.66
1.08 – 1.24
1.13 – 1.15
SONIA +84bps/+374bps
0.976% – 7.410%
LIBOR –68bps/+115bps
2.095% – 3.864%
1.34 – 1.41
1.04 – 1.19
n/a
n/a
n/a
1. The use of derivatives may entail a derivative transaction qualifying for more than one hedge type designation under IFRS 9. Therefore, the derivative amounts in the table above are
grossed up by hedge type, whereas they are presented net at an instrument level in the statement of financial position.
32. Financial risk management continued
(e) Hedge accounting continued
The following tables show the effects of hedge accounting on financial position and year-to-date performance for each type of hedge.
These tables also present notional values of hedging instruments (and equal hedged exposures) impacted by IFRS 9 Interest Rate Benchmark
Reform amendments.
(i) Fair value hedges of foreign currency and interest rate risk on recognised borrowings:
As at 31 March 2023
Balance of fair value hedge
adjustments in borrowings
Change in value used for
calculating ineffectiveness
Hedge type
Foreign currency and interest rate risk on borrowings1,2
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
(4,779)
789
(43)
398
(351)
47
1. The carrying value of the hedged borrowings is £4,042 million, of which £511 million is current and £3,531 million is non-current.
2. Included within the hedging instrument notional balance is £859 million impacted by Interest Rate Benchmark Reform amendments which are still to be transitioned.
As at 31 March 2022
Balance of fair value hedge
adjustments in borrowings
Change in value used for
calculating ineffectiveness
Hedge type
Foreign currency and interest rate risk on borrowings1,2
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
(3,362)
437
(55)
340
(301)
39
1. The carrying value of the hedged borrowings was £2,966 million, of which £nil was current and £2,966 million was non-current.
2. Included within the hedging instrument notional balance was £2,556 million impacted by Interest Rate Benchmark Reform amendments with £806 million still to be transitioned.
(ii) Cash flow hedges of foreign currency and interest rate risk:
As at 31 March 2023
Hedge type
Balance in cash flow hedge
reserve
Change in value used for
calculating ineffectiveness
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
1.22 – 1.34
Foreign currency and interest rate risk on borrowings
Foreign currency risk on forecast cash flows
(9,357)
(537)
(73)
(3)
—
—
149
(35)
(154)
35
(5)
—
As at 31 March 2022
Balance in cash flow hedge reserve
Change in value used for
calculating ineffectiveness
Hedge type
Foreign currency and interest rate risk on borrowings1
Foreign currency risk on forecast cash flows
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
(6,287)
(835)
(48)
(40)
—
1
74
18
(74)
(18)
—
—
1. Included within the hedging instrument notional balance was £100 million impacted by Interest Rate Benchmark Reform amendments.
(iii) Net investment hedges of foreign currency risk:
As at 31 March 2023
Hedge type
Balance in translation reserve
Change in value used for
calculating ineffectiveness
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
Currency risk on foreign operations
(3,095)
(129)
(2,457)
198
(198)
—
As at 31 March 2022
Hedge type
Currency risk on foreign operations1
Balance in translation reserve
Change in value used for
calculating ineffectiveness
Hedging instrument
notional
£m
Continuing
hedges
£m
Discontinued
hedges
£m
Hedged item
£m
Hedging
instrument
£m
Hedge
ineffectiveness
£m
(3,489)
(125)
(2,643)
125
(125)
—
1. Included within the hedging instrument notional balance was £nil impacted by Interest Rate Benchmark Reform amendments.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
(f) Commodity price risk
We purchase electricity and gas to supply our customers in the US and to meet our own energy needs. Substantially all our costs of purchasing
electricity and gas for supply to customers are recoverable at an amount equal to cost. The timing of recovery of these costs can vary between
financial periods leading to an under- or over-recovery within any particular year that can lead to large fluctuations in the income statement. We
follow approved policies to manage price and supply risks for our commodity activities.
Our energy procurement risk management policy and delegations of authority govern our US commodity trading activities for energy transactions.
The purpose of this policy is to ensure we transact within pre-defined risk parameters and only in the physical and financial markets where we or
our customers have a physical market requirement. In addition, state regulators require National Grid to manage commodity risk and cost volatility
prudently through diversified pricing strategies. In some jurisdictions we are required to file a plan outlining our strategy to be approved by regulators.
In certain cases, we might receive guidance with regard to specific hedging limits.
Energy purchase contracts for the forward purchase of electricity or gas that are used to satisfy physical delivery requirements to customers, or for
energy that the Group uses itself, meet the expected purchase or usage requirements of IFRS 9. They are, therefore, not recognised in the financial
statements until they are realised. Disclosure of commitments under such contracts is made in note 30.
US states have introduced a variety of legislative requirements with the aim of increasing the proportion of our electricity that is derived from
renewable or other forms of clean energy. Annual compliance filings regarding the level of Renewable Energy Certificates (and other similar
environmental certificates) are required by the relevant department of utilities. In response to the legislative requirements, National Grid has entered
into long-term, typically fixed-price, energy supply contracts to purchase both renewable energy and environmental certificates. We are entitled to
recover all costs incurred under these contracts through customer billing.
Under IFRS, where these supply contracts are not accounted for as leases, they are considered to comprise two components, being a forward
purchase of power at spot prices and a forward purchase of environmental certificates at a variable price (being the contract price less the spot
power price). With respect to our current contracts, neither of these components meets the requirement to be accounted for as a derivative.
The environmental certificates are currently required for compliance purposes, and at present there are no liquid markets for these attributes.
Furthermore, this component meets the expected purchase or usage exemption of IFRS 9. We expect to enter into an increasing number of
these contracts in order to meet our compliance requirements in the short to medium term. In future, if and when liquid markets develop, and
to the extent that we are in receipt of environmental certificates in excess of our required levels, this exemption may cease to apply and we
may be required to account for forward purchase commitments for environmental certificates as derivatives at fair value through profit and loss.
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
32. Financial risk management continued
(f) Commodity price risk
We purchase electricity and gas to supply our customers in the US and to meet our own energy needs. Substantially all our costs of purchasing
electricity and gas for supply to customers are recoverable at an amount equal to cost. The timing of recovery of these costs can vary between
financial periods leading to an under- or over-recovery within any particular year that can lead to large fluctuations in the income statement. We
follow approved policies to manage price and supply risks for our commodity activities.
Our energy procurement risk management policy and delegations of authority govern our US commodity trading activities for energy transactions.
The purpose of this policy is to ensure we transact within pre-defined risk parameters and only in the physical and financial markets where we or
our customers have a physical market requirement. In addition, state regulators require National Grid to manage commodity risk and cost volatility
prudently through diversified pricing strategies. In some jurisdictions we are required to file a plan outlining our strategy to be approved by regulators.
In certain cases, we might receive guidance with regard to specific hedging limits.
Energy purchase contracts for the forward purchase of electricity or gas that are used to satisfy physical delivery requirements to customers, or for
energy that the Group uses itself, meet the expected purchase or usage requirements of IFRS 9. They are, therefore, not recognised in the financial
statements until they are realised. Disclosure of commitments under such contracts is made in note 30.
US states have introduced a variety of legislative requirements with the aim of increasing the proportion of our electricity that is derived from
renewable or other forms of clean energy. Annual compliance filings regarding the level of Renewable Energy Certificates (and other similar
environmental certificates) are required by the relevant department of utilities. In response to the legislative requirements, National Grid has entered
into long-term, typically fixed-price, energy supply contracts to purchase both renewable energy and environmental certificates. We are entitled to
recover all costs incurred under these contracts through customer billing.
Under IFRS, where these supply contracts are not accounted for as leases, they are considered to comprise two components, being a forward
purchase of power at spot prices and a forward purchase of environmental certificates at a variable price (being the contract price less the spot
power price). With respect to our current contracts, neither of these components meets the requirement to be accounted for as a derivative.
The environmental certificates are currently required for compliance purposes, and at present there are no liquid markets for these attributes.
Furthermore, this component meets the expected purchase or usage exemption of IFRS 9. We expect to enter into an increasing number of
these contracts in order to meet our compliance requirements in the short to medium term. In future, if and when liquid markets develop, and
to the extent that we are in receipt of environmental certificates in excess of our required levels, this exemption may cease to apply and we
may be required to account for forward purchase commitments for environmental certificates as derivatives at fair value through profit and loss.
32. Financial risk management continued
(g) Fair value analysis
Included in the statement of financial position are financial instruments which are measured at fair value. These fair values can be categorised into
hierarchy levels that are representative of the inputs used in measuring the fair value. The best evidence of fair value is a quoted price in an actively
traded market. In the event that the market for a financial instrument is not active, a valuation technique is used.
Assets
Investments held at FVTPL
Investments held at FVOCI1
Financing derivatives
Commodity contract derivatives
Liabilities
Financing derivatives
Commodity contract derivatives
Contingent consideration2
2023
2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
1,764
—
—
—
1,764
—
—
—
—
1,764
—
407
341
62
810
(997)
(134)
—
(1,131)
(321)
452
2,216
2,292
—
22
4
407
363
66
—
—
—
478
3,052
2,292
(122)
(1,119)
(40)
(19)
(181)
297
(174)
(19)
(1,312)
1,740
—
—
—
—
2,292
—
413
298
238
949
(804)
(15)
—
(819)
130
417
2,709
—
—
51
413
298
289
468
3,709
(187)
(7)
(41)
(235)
233
(991)
(22)
(41)
(1,054)
2,655
1. Investments held includes instruments which meet the criteria of IFRS 9 or IAS 19.
2. Contingent consideration relates to the acquisition of National Grid Renewables.
Level 1:
Financial instruments with quoted prices for identical instruments in active markets.
Level 2:
Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments
in inactive markets, and financial instruments valued using models where all significant inputs are based directly or indirectly on
observable market data.
Level 3:
Financial instruments valued using valuation techniques where one or more significant inputs are based on unobservable market data.
Our Level 1 financial investments and liabilities held at fair value are valued using quoted prices from liquid markets and primarily comprise
investments in short-term money market funds.
Our Level 2 financial investments held at fair value primarily include bonds with a tenor greater than one year and are valued using quoted prices
for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets. Alternatively, they are valued using
models where all significant inputs are based directly or indirectly on observable market data.
Our Level 2 financing derivatives include cross-currency, interest rate and foreign exchange derivatives. We value these by discounting all future
cash flows by externally sourced market yield curves at the reporting date, taking into account the credit quality of both parties. These derivatives
can be priced using liquidly traded interest rate curves and foreign exchange rates, and therefore we classify our vanilla trades as Level 2 under
the IFRS 13 framework.
Our Level 2 commodity contract derivatives include over-the-counter gas and power swaps as well as forward physical gas deals. We value our
contracts based on market data obtained from the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) where monthly
prices are available. We discount based on externally sourced market yield curves at the reporting date, taking into account the credit quality of both
parties and liquidity in the market. Our commodity contracts can be priced using liquidly traded swaps. Therefore, we classify our vanilla trades as
Level 2 under the IFRS 13 framework.
Our Level 3 financing derivatives include inflation-linked swaps, where the market is illiquid. In valuing these instruments, we use in-house valuation
models and obtain external valuations to support each reported fair value.
Our Level 3 commodity contract derivatives primarily consist of our forward purchases of electricity and gas that we value using proprietary models.
Derivatives are classified as Level 3 where significant inputs into the valuation technique are neither directly nor indirectly observable (including our
own data, which are adjusted, if necessary, to reflect the assumptions market participants would use in the circumstances).
Our Level 3 investments include equity investments accounted for at fair value through profit and loss. These equity holdings are part of our
corporate venture capital portfolio held by National Grid Partners and comprise a series of relatively small, early-stage non-controlling minority
interest unquoted investments where prices or valuation inputs are unobservable. Fourteen equity investments (out of thirty-one) are fair valued
based on the latest transaction price (a price within the last 12 months), either being the price we paid for the investments, marked to a latest
round of funding and adjusted for our preferential rights or based on an internal model. In addition, we have seventeen investments without a
transaction in the last 12 months that underwent an internal valuation process.
The internal valuation process utilises a range of valuation techniques including the Black-Scholes Murton Option Pricing Model (OPM Backsolve)
where the latest round of funding is within the last 12 months. Between 12 and 18 months a blend between OPM Backsolve and other techniques
are utilised such as proxy group revenue multiples, discounted cash flow, comparable company analysis and probability weighted expected return
approach in order to triangulate a valuation. After 18 months the valuation is based on these alternative methods as the last fundraising price is no
longer a reliable basis for valuation.
Our Level 3 investments also include our investment in Sunrun Neptune 2016 LLC, which is accounted for at fair value through profit and loss.
The investment is fair valued by discounting expected cash flows using a weighted average cost of capital specific to Sunrun Neptune 2016 LLC.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
(g) Fair value analysis continued
The changes in value of our Level 3 financial instruments are as follows:
At 1 April
Net gains/(losses) for the year1,2
Purchases
Settlements
At 31 March
Financing derivatives
Commodity contract
derivatives
2023
£m
(187)
87
—
—
2022
£m
(183)
(4)
—
—
(100)
(187)
2023
£m
44
(18)
(56)
(6)
(36)
2022
£m
(12)
56
17
(17)
44
Other3
2023
£m
376
(2)
59
—
433
2022
£m
183
102
93
(2)
376
Total
2023
£m
233
67
3
(6)
297
2022
£m
(12)
154
110
(19)
233
1. Gain of £87 million (2022: £4 million loss) is attributable to derivative financial instruments held at the end of the reporting period and has been recognised in finance costs in the
consolidated income statement.
2. Loss of £41 million (2022: £27 million gain) is attributable to commodity contract derivative financial instruments held at the end of the reporting period and have been recognised in other
operating costs in the consolidated income statement.
3. Other comprises our investments in Sunrun Neptune 2016 LLC and the investments made by National Grid Partners, which are accounted for at fair value through profit and loss as well
as the contingent consideration arising from the acquisition of National Grid Renewables. Net gains and losses are recognised within finance income and costs in the consolidated
income statement.
The impacts on a post-tax basis of reasonably possible changes in significant Level 3 assumptions are as follows:
10% increase in commodity prices1
10% decrease in commodity prices1
+10% market area price change
-10% market area price change
+20 basis points change in Limited Price Inflation (LPI) market curve²
-20 basis points change in LPI market curve²
+20 basis point increase between Retail Price Index & Consumer Price Index
-20 basis point decrease between Retail Price Index & Consumer Price
Index
+50 basis points change in discount rate
-50 basis points change in discount rate
+10% change in venture capital price
-10% change in venture capital price
Financing derivatives
Commodity contract
derivatives
2023
£m
2022
£m
2023
£m
—
—
—
—
(53)
51
43
(38)
—
—
—
—
—
—
—
—
(84)
82
—
—
—
—
—
—
5
(6)
—
—
—
—
—
—
—
—
—
—
2022
£m
9
(8)
—
—
—
—
—
—
—
—
—
—
Other3
2023
£m
2022
£m
—
—
—
—
—
—
—
—
(9)
10
28
(28)
—
—
—
—
—
—
—
—
(10)
10
—
—
1. Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed in note 35.
2. A reasonably possible change in assumption of other Level 3 derivative financial instruments is unlikely to result in a material change in fair values.
3. The investments acquired in the period were on market terms, and sensitivity is considered insignificant at 31 March 2023.
The impacts disclosed above were considered on a contract-by-contract basis with the most significant unobservable inputs identified.
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Notes to the consolidated financial statements continued
32. Financial risk management continued
(g) Fair value analysis continued
The changes in value of our Level 3 financial instruments are as follows:
Net gains/(losses) for the year1,2
At 1 April
Purchases
Settlements
At 31 March
Financing derivatives
Commodity contract
derivatives
2023
£m
(187)
87
—
—
2022
£m
(183)
(4)
—
—
(100)
(187)
2023
£m
44
(18)
(56)
(6)
(36)
2022
£m
(12)
56
17
(17)
44
Other3
2023
£m
376
(2)
59
—
433
2022
£m
183
102
93
(2)
376
Total
2023
£m
233
67
3
(6)
297
2022
£m
(12)
154
110
(19)
233
1. Gain of £87 million (2022: £4 million loss) is attributable to derivative financial instruments held at the end of the reporting period and has been recognised in finance costs in the
2. Loss of £41 million (2022: £27 million gain) is attributable to commodity contract derivative financial instruments held at the end of the reporting period and have been recognised in other
3. Other comprises our investments in Sunrun Neptune 2016 LLC and the investments made by National Grid Partners, which are accounted for at fair value through profit and loss as well
as the contingent consideration arising from the acquisition of National Grid Renewables. Net gains and losses are recognised within finance income and costs in the consolidated
consolidated income statement.
operating costs in the consolidated income statement.
income statement.
The impacts on a post-tax basis of reasonably possible changes in significant Level 3 assumptions are as follows:
Financing derivatives
Commodity contract
derivatives
2023
£m
2022
£m
2023
£m
Other3
2023
£m
2022
£m
10% increase in commodity prices1
10% decrease in commodity prices1
+10% market area price change
-10% market area price change
+20 basis points change in Limited Price Inflation (LPI) market curve²
-20 basis points change in LPI market curve²
+20 basis point increase between Retail Price Index & Consumer Price Index
-20 basis point decrease between Retail Price Index & Consumer Price
Index
+50 basis points change in discount rate
-50 basis points change in discount rate
+10% change in venture capital price
-10% change in venture capital price
—
—
—
—
(53)
51
43
(38)
—
—
—
—
—
—
—
—
(84)
82
—
—
—
—
—
—
2022
£m
9
(8)
—
—
—
—
—
—
—
—
—
—
5
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9)
10
28
(28)
—
—
—
—
—
—
—
—
(10)
10
—
—
1. Level 3 commodity price sensitivity is included within the sensitivity analysis disclosed in note 35.
2. A reasonably possible change in assumption of other Level 3 derivative financial instruments is unlikely to result in a material change in fair values.
3. The investments acquired in the period were on market terms, and sensitivity is considered insignificant at 31 March 2023.
The impacts disclosed above were considered on a contract-by-contract basis with the most significant unobservable inputs identified.
32. Financial risk management continued
(h) Capital risk management
The capital structure of the Group consists of shareholders’ equity, as disclosed in the consolidated statement of changes in equity, and net debt
(note 29). National Grid’s objectives when managing capital are: to safeguard our ability to continue as a going concern; to remain within regulatory
constraints of our regulated operating companies; and to maintain an efficient mix of debt and equity funding, thus achieving an optimal capital
structure and cost of capital. We regularly review and manage the capital structure as appropriate in order to achieve these objectives.
Maintaining appropriate credit ratings for our operating and holding companies is an important aspect of our capital risk management strategy
and balance sheet efficiency. We monitor our balance sheet efficiency using several metrics including retained cash flow/net debt (RCF/debt),
regulatory gearing and interest cover. For the year ended 31 March 2023, these metrics for the Group were 9.3% (2022: 8.9%), 71% (2022: 81%)
and 3.8x (2022: 4.7x), respectively – see pages 54 and 245. We believe these are consistent with the current credit ratings for National Grid plc
in respect of the main companies of the Group, based on guidance from the rating agencies. Regulatory gearing at 31 March 2022 was higher
than our long-run projections due to the fact that we were only part way through the transactions making up our strategic pivot.
We monitor the RAV gearing within National Grid Electricity Transmission plc (NGET) and National Grid Electricity Distribution plc (NGED). This
is calculated as net debt expressed as a percentage of RAV, and indicates the level of debt employed to fund our UK regulated businesses. It is
compared with the level of RAV gearing indicated by Ofgem as being appropriate for these businesses, at around 55% to 65%. We also monitor
net debt as a percentage of rate base for our US operating companies, comparing this with the allowed rate base gearing inherent within each
of our agreed rate plans, typically around 50%.
As part of the Group’s debt financing arrangements, we are subject to a number of financial covenants associated with existing borrowings and
facility arrangements:
• the requirement to maintain subsidiary indebtedness relating to non-US and US subsidiaries (excluding National Grid North America Inc.) limiting
the total indebtedness in absolute terms to £35 billion for non-US subsidiaries and $35 billion for US subsidiaries. As at 31 March 2023, headroom
on these covenants exceeds £10 billion;
• The Articles of Association of National Grid plc limit Group total borrowings less cash and short-term investments in absolute terms to £55 billion.
As at 31 March 2023 headroom on the limit exceeds £10 billion;
• interest cover ratios relating to the NGED companies within the Group requiring a consolidated EBITDA to interest payable of not less than 3:1.
These covenants range in outturn from 3.5:1 to 5.2:1 at the reporting date; and
• net debt to RAV gearing covenants limiting gearing to 85% of RAV for each NGED operating company. As at 31 March 2023, actual gearing
of less than 60% is reported for all impacted companies.
We consider the risk of breaching these covenants as remote given the level of headroom present.
The majority of our regulated operating companies in the US and the UK are subject to certain restrictions on the payment of dividends by
administrative order, contract and/or licence. The types of restrictions that a company may have that would prevent a dividend being declared
or paid unless they are met include:
• the requirement to notify by certification to regulators and certain lenders;
• dividends must be approved in advance by the relevant US state regulatory commission;
• the subsidiary must have one or two recognised rating agency credit ratings of at least investment grade depending on contractual requirements;
• dividends must be limited to cumulative retained earnings, including pre-acquisition retained earnings and in line with relevant company legislation;
• the securities of National Grid plc must maintain an investment grade credit rating, and if that rating is the lowest investment grade bond rating it
cannot have a negative watch/review for downgrade notice by a credit rating agency;
• the subsidiary must not carry out any activities other than those permitted by the licences;
• the subsidiary must not create any cross-default obligations or give or receive any intra-group cross-subsidies;
• the percentage of equity compared with total capital of the subsidiary must remain above certain levels; and
• in the case of NGED, the percentage of debt compared with total RAV of the subsidiary must remain below 85%.
These restrictions are subject to alteration in the US as and when a new rate case or rate plan is agreed with the relevant regulatory bodies for
each operating company and, in the UK, through the normal licence review process.
As most of our business is regulated, at 31 March 2023 the majority of our net assets are subject to some of the restrictions noted above. These
restrictions are not considered to be significantly onerous, nor do we currently expect they will prevent the planned payment of dividends in future
in line with our dividend policy.
All the above requirements are monitored on a regular basis in order to ensure compliance. The Group has complied with all externally imposed
capital requirements to which it is subject.
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Notes to the consolidated financial statements continued
33. Borrowing facilities
To support our liquidity requirements and provide backup to commercial paper and other borrowings, we agree committed credit facilities with
financial institutions over and above the value of borrowings that may be required. These committed credit facilities are undrawn.
At 31 March 2023, we had bilateral committed credit facilities of £5,616 million (2022: £5,978 million). In addition, we had committed credit facilities
from syndicates of banks of £887 million at 31 March 2023 (2022: £936 million). An analysis of the maturity of these undrawn committed facilities
is shown below:
Undrawn committed borrowing facilities expiring:
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
2023
£m
42
4,361
2,100
—
—
—
2022
£m
—
936
4,373
1,605
—
—
6,503
6,914
Of the unused facilities at 31 March 2023, £6,461 million (2022: £6,823 million) is available for liquidity purposes, while £42 million (2022: £91 million)
is available as backup to specific US borrowings.
Subsequent to 31 March 2023, the following undrawn facilities were renegotiated or cancelled:
• £42 million of the undrawn syndicated facilities due to mature in less than one year were renegotiated on 24 April 2023 with no uplift in the amount
and a new expiry date of 31 May 2028;
• £750 million of the undrawn bilateral facilities due to mature in one to two years were renegotiated on 5 May 2023 with no uplift in the amount and
a new expiry date of 31 May 2026;
• £3,526 million of the undrawn bilateral facilities due to mature in one to two years and £2,060 million of the undrawn bilateral facilities due to
mature in two to three years were renegotiated on 3 April 2023, into £5,377 million bilateral facilities with an expiry date of 3 April 2026 and
£1,810 million syndicated facility with an expiry date of 3 April 2028; and
• £85 million of the undrawn bilateral facilities due to mature in one to two years and £40 million of the undrawn bilateral facilities due to mature in
two to three years were cancelled on 10 May 2023.
The comparative balances include a facility of £350 million related to National Grid Gas plc, a company which was disposed of in the current year.
In addition, we have the following facilities which are not included in the table above:
• for the separately regulated business of National Grid Electricity System Operator Limited, the Group has a facility of £550 million (2022:
£550 million). This facility is not available as Group general liquidity support;
• the Group continues to have access to Export Credit Agreements (ECAs) funding specific projects totalling £1,530 million (2022: £1,396 million),
of which £460 million (2022: £489 million) is undrawn; and
• as of 31 March 2023 the Group had a loan facility of £nil (2022: £8,250 million) to finance the consideration to acquire NGED (see note 37), of
which £nil (2022: £8,179 million) was drawn down as at 31 March 2023. In the current year, the Group used the proceeds generated from the
sales of NECO and the UK Gas Transmission business to fully repay the bridge facility.
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Notes to the consolidated financial statements continued
To support our liquidity requirements and provide backup to commercial paper and other borrowings, we agree committed credit facilities with
financial institutions over and above the value of borrowings that may be required. These committed credit facilities are undrawn.
At 31 March 2023, we had bilateral committed credit facilities of £5,616 million (2022: £5,978 million). In addition, we had committed credit facilities
from syndicates of banks of £887 million at 31 March 2023 (2022: £936 million). An analysis of the maturity of these undrawn committed facilities
Undrawn committed borrowing facilities expiring:
is shown below:
Less than 1 year
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
2023
£m
42
4,361
2,100
—
—
—
2022
£m
—
936
4,373
1,605
—
—
6,503
6,914
Of the unused facilities at 31 March 2023, £6,461 million (2022: £6,823 million) is available for liquidity purposes, while £42 million (2022: £91 million)
is available as backup to specific US borrowings.
Subsequent to 31 March 2023, the following undrawn facilities were renegotiated or cancelled:
• £42 million of the undrawn syndicated facilities due to mature in less than one year were renegotiated on 24 April 2023 with no uplift in the amount
• £750 million of the undrawn bilateral facilities due to mature in one to two years were renegotiated on 5 May 2023 with no uplift in the amount and
and a new expiry date of 31 May 2028;
a new expiry date of 31 May 2026;
• £3,526 million of the undrawn bilateral facilities due to mature in one to two years and £2,060 million of the undrawn bilateral facilities due to
mature in two to three years were renegotiated on 3 April 2023, into £5,377 million bilateral facilities with an expiry date of 3 April 2026 and
£1,810 million syndicated facility with an expiry date of 3 April 2028; and
• £85 million of the undrawn bilateral facilities due to mature in one to two years and £40 million of the undrawn bilateral facilities due to mature in
two to three years were cancelled on 10 May 2023.
The comparative balances include a facility of £350 million related to National Grid Gas plc, a company which was disposed of in the current year.
In addition, we have the following facilities which are not included in the table above:
• for the separately regulated business of National Grid Electricity System Operator Limited, the Group has a facility of £550 million (2022:
£550 million). This facility is not available as Group general liquidity support;
• the Group continues to have access to Export Credit Agreements (ECAs) funding specific projects totalling £1,530 million (2022: £1,396 million),
of which £460 million (2022: £489 million) is undrawn; and
• as of 31 March 2023 the Group had a loan facility of £nil (2022: £8,250 million) to finance the consideration to acquire NGED (see note 37), of
which £nil (2022: £8,179 million) was drawn down as at 31 March 2023. In the current year, the Group used the proceeds generated from the
sales of NECO and the UK Gas Transmission business to fully repay the bridge facility.
33. Borrowing facilities
34. Subsidiary undertakings, joint ventures and associates
While we present consolidated results in these financial statements as if we were one company, our legal structure is such that there are a
number of different operating and holding companies that contribute to the overall result. This structure has evolved through acquisitions as
well as regulatory requirements to have certain activities within separate legal entities.
Subsidiary undertakings
A list of the Group’s subsidiaries as at 31 March 2023 is given below. The entire share capital of subsidiaries is held within the Group except where
the Group’s ownership percentages are shown. These percentages give the Group’s ultimate interest and therefore allow for the situation where
subsidiaries are owned by partly owned intermediate subsidiaries. Where subsidiaries have different classes of shares, this is largely for historical
reasons, and the effective percentage holdings given represent both the Group’s voting rights and equity holding. Shares in National Grid (US)
Holdings Limited, National Grid (US) Investments 2 Limited*, National Grid Hong Kong Limited*, National Grid Luxembourg SARL and NGG Finance
plc are held directly by National Grid plc. All other holdings in subsidiaries are owned by other subsidiaries within the Group. All subsidiaries are
consolidated in the Group’s financial statements.
Principal Group companies are identified in bold. These companies are incorporated and principally operate in the countries under which they
are shown. All entities incorporated in the US are taxed in the US on their worldwide income other than where indicated in the footnotes below.
Other entities are tax resident in their jurisdiction of incorporation other than where indicated in the footnotes below.
Incorporated in England and Wales
Registered office: 1–3 Strand, London, WC2N 5EH, UK (unless stated otherwise in footnotes).
Birch Sites Limited
Carbon Sentinel Limited
Central Networks Trustees Limited1
Droylsden Metering Services Limited
Gridcom Limited
Hyder Profit Sharing Trustees Limited1
Icelink Interconnector Limited
Kelston Properties 2 Limited1
Lattice Group Employee Benefit Trust Limited
Lattice Group Limited
Lattice Group Trustees Limited
Natgrid Limited2*
NatGrid One Limited2*
NatgridTW1 Limited
National Grid (US) Holdings Limited3
National Grid (US) Investments 2 Limited2*
National Grid (US) Investments 4 Limited3
National Grid (US) Partner 1 Limited3
National Grid Carbon Limited
National Grid Commercial Holdings Limited
National Grid Continental Limited
National Grid Distributed Energy Limited
National Grid Electricity Distribution (East Midlands) plc1
National Grid Electricity Distribution (South Wales) plc1
National Grid Electricity Distribution (South West) plc1
National Grid Electricity Distribution (West Midlands) plc1
National Grid Electricity Distribution Generation Limited1
National Grid Electricity Distribution Holdings Limited1
National Grid Electricity Distribution Investment Holdings Limited1
National Grid Electricity Distribution Investments Limited1
National Grid Electricity Distribution Midlands Limited1
National Grid Electricity Distribution Network Holdings Limited1
National Grid Electricity Distribution plc1
National Grid Electricity Distribution Property Investments Limited1
National Grid Electricity Group Trustee Limited
National Grid Electricity System Operator Limited
National Grid Electricity Transmission plc
National Grid Energy Metering Limited
National Grid Grain LNG Limited
National Grid Helicopters Limited1
National Grid Holdings Limited3
National Grid Holdings One plc
National Grid Hydrogen Limited
National Grid IFA 2 Limited
National Grid Interconnector Holdings Limited
National Grid Interconnectors Limited
National Grid International Limited3
National Grid Lion Link Limited
National Grid Nautilus Limited
National Grid North Sea Link Limited
National Grid Offshore Limited
National Grid Partners Limited
National Grid Plus Limited
National Grid Property Holdings Limited
National Grid Smart Limited
National Grid Telecoms Limited1
National Grid Thirty Six Limited2*
National Grid Twelve Limited
National Grid Twenty Eight Limited
National Grid Twenty Seven Limited
National Grid Twenty Three Limited2*
National Grid UK Limited
National Grid UK Pension Services Limited
National Grid Ventures Limited
National Grid Viking Link Limited
National Grid William Limited
NG Nominees Limited
NGC Employee Shares Trustee Limited
NGG Finance plc
Ngrid Intellectual Property Limited
Port Greenwich Limited
Sheet Road Management Company Limited (51%)4
South Wales Electricity Share Scheme Trustees Limited1
Supergrid Electricity Limited2*
Supergrid Energy Transmission Limited2*
Supergrid Limited2*
Thamesport Interchange Limited
The National Grid Group Quest Trustee Company Limited
The National Grid YouPlan Trustee Limited2*
Transco Limited
Warwick Technology Park Management Company (No 2) Limited (60.56%)5
Western Power Pension Trustee Limited1
WPD Share Scheme Trustees Limited1
WPD WEM Holdings Limited1
WPD WEM Limited1
WW Share Scheme Trustees Limited1
1. Registered office: Avonbank, Feeder Road, Bristol, Avon, BS2 0TB.
2. Registered office: C/o Interpath Limited, 10 Fleet Place, London, EC4M 7RB.
3. Companies where National Grid plc has issued guarantees over the liabilities of the companies as at 31 March 2023 and for which the companies are taking the exemption from the
requirements of an audit for their individual financial statements as permitted by section 479A of the Companies Act.
4. Registered office: Netley Old Hall Farm, Dorrington, Shrewsbury, United Kingdom, SY5 7JY.
5. Registered office: Shire Hall, PO Box 9, Warwick, CV34 4RL.
*
In liquidation.
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Annual Report and Accounts 2022/23
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Notes to the consolidated financial statements continued
34. Subsidiary undertakings, joint ventures and associates continued
Subsidiary undertakings continued
Incorporated in the US
Registered office: National Registered Agents, Inc., 1209 Orange Street, Wilmington, DE 19801, USA (unless stated otherwise in footnotes).
Apple River Solar, LLC
Armenia Solar, LLC
Ashland Solar, LLC
Athens Solar, LLC
Autauga Solar, LLC
Banner Solar, LLC
Bazile Creek Wind Farm, LLC
Bee Hollow Solar, LLC
Bell Plaine Solar, LLC
Benevolent Solar, LLC
Blaze Solar, LLC
Blevins Solar, LLC
Blue Ridge Wind, LLC
Blue Spring Solar, LLC
Blues Solar, LLC
Bluewater Solar, LLC
Boone Solar, LLC
Boston Gas Company1
Bridges Solar, LLC
Brock Solar, LLC
Broken Bridge Corp.2
Brook Trout Solar, LLC
Burley Solar, LLC
Burlington Solar, LLC
Burr Ridge Wind, LLC
Cage Ranch Solar II, LLC
Cage Ranch Solar III, LLC
Cage Ranch Solar, LLC
Caldwell Solar II, LLC
Caldwell Solar, LLC
Canby Solar, LLC
Cass Wind Farm, LLC
Cattle Ridge Wind Farm 2, LLC
Cedar Grove Solar, LLC
Centennial Solar, LLC
Charter Oak Solar, LLC
Clay Boswell Solar, LLC
Clear Creek Solar, LLC
Clermont Solar, LLC
Clinton County Solar, LLC
Coles Solar, LLC
Compass Prairie Wind, LLC
Conestoga Wind, LLC
Creekview Solar, LLC
Crocker Wind Farm 2, LLC
Dakota Hills Wind Farm, LLC
Deatsville Solar, LLC
Deer Trail Solar, LLC
Dodson Creek Solar, LLC
Donnellson Solar, LLC
Elburn Solar, LLC
Eldena Solar, LLC
Elk Creek Solar 2, LLC
Elk Creek Solar, LLC
EUA Energy Investment Corporation1
Exie Solar, LLC
Falls City Solar, LLC
Fillmore County Solar Project, LLC
Firstview Wind Farm, LLC
Fort Solar, LLC
Front Range Wind Farm, LLC
Galaxy Solar, LLC
Golden Solar, LLC
Goldendale Solar, LLC
Goldenrod Wind Farm, LLC
Goldfinch Solar, LLC
Grand Junction Solar, LLC
Granite State Power Link LLC3
Grant Solar 2, LLC
Grant Solar, LLC
Grayson Solar, LLC
Greenbrier Creek Solar, LLC
Greensky Solar, LLC
Greenwood Solar, LLC
Grid NY LLC4
Grindstone Wind Farm, LLC5
Hale County Solar, LLC
Hansford Energy Storage, LLC
Harmony Solar ND 2, LLC
Harmony Solar ND, LLC
Harrington Solar, LLC
202
202
Hartley Solar, LLC
Hearth Solar, LLC
Hill River Solar, LLC
Honeybee Solar, LLC
Hoosier Solar, LLC
Hoskins Solar, LLC
Illumination Solar, LLC
Innovation Solar, LLC
Itasca Energy Development, LLC6
Itasca Energy Services, LLC
Jack Rabbit Wind, LLC
Jackson County Solar, LLC
KeySpan CI Midstream Limited3
KeySpan Energy Corporation4
KeySpan Energy Services Inc.3
KeySpan Gas East Corporation4
KeySpan International Corporation3
KeySpan MHK, Inc.3
KeySpan Midstream, Inc.3
KeySpan Plumbing Solutions, Inc.4
Kit Fox Storage, LLC
Knox Solar, LLC
Kota Storage, LLC
KSI Contracting, LLC3
KSI Electrical, LLC3
KSI Mechanical, LLC3
Lake Charlotte Solar, LLC
Lakeside Solar, LLC
Land Management & Development, Inc.4
Landwest, Inc.4
Lansing Solar, LLC
Las Moras Storage, LLC
Leola Wind Farm, LLC
Liberty Solar, LLC
Livingston County Solar, LLC
Long Mount Storage, LLC
Lordsburg Solar, LLC
Louisa Solar, LLC
Louise Solar Project, LLC
Lowlands Solar, LLC
Lydia Solar, LLC
Marion County Solar, LLC
Massachusetts Electric Company1
Maverick Wind Farm, LLC
Meadowlands Solar, LLC
Metrowest Realty LLC3
Miller Creek Solar, LLC
Millers Ferry Solar, LLC
Morgan County Solar, LLC
Morning Glory Solar, LLC6
Muddy Creek Solar, LLC
Mustang Ridge Wind Farm, LLC
Mystic Steamship Corporation7
Nantucket Electric Company1
National Grid Development Holdings Corp.3
National Grid Electric Services LLC4
National Grid Energy Management LLC3
National Grid Energy Services LLC3
National Grid Energy Trading Services LLC4
National Grid Engineering & Survey Inc.4
National Grid Generation LLC4
National Grid Generation Ventures LLC4
National Grid Glenwood Energy Center, LLC3
National Grid IGTS Corp.4
National Grid Insurance USA Ltd8
National Grid Islander East Pipeline LLC3
National Grid LNG GP LLC3
National Grid LNG LLC3
National Grid LNG LP LLC3
National Grid Millennium LLC3
National Grid NE Holdings 2 LLC1
National Grid North America Inc.3
National Grid Partners Inc.4
National Grid Partners LLC3
National Grid Port Jefferson Energy Center LLC3
National Grid Renewables Development, LLC
National Grid Renewables E Wind, LLC6
National Grid Renewables Operations, LLC3
National Grid Renewables Projects, LLC6
National Grid Renewables Stutsman, LLC
National Grid Renewables, LLC3
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
34. Subsidiary undertakings, joint ventures and associates continued
Subsidiary undertakings continued
Incorporated in the US
Registered office: National Registered Agents, Inc., 1209 Orange Street, Wilmington, DE 19801, USA (unless stated otherwise in footnotes).
Bazile Creek Wind Farm, LLC
Apple River Solar, LLC
Armenia Solar, LLC
Ashland Solar, LLC
Athens Solar, LLC
Autauga Solar, LLC
Banner Solar, LLC
Bee Hollow Solar, LLC
Bell Plaine Solar, LLC
Benevolent Solar, LLC
Blaze Solar, LLC
Blevins Solar, LLC
Blue Ridge Wind, LLC
Blue Spring Solar, LLC
Blues Solar, LLC
Bluewater Solar, LLC
Boone Solar, LLC
Boston Gas Company1
Bridges Solar, LLC
Brock Solar, LLC
Broken Bridge Corp.2
Brook Trout Solar, LLC
Burley Solar, LLC
Burlington Solar, LLC
Burr Ridge Wind, LLC
Cage Ranch Solar II, LLC
Cage Ranch Solar III, LLC
Cage Ranch Solar, LLC
Caldwell Solar II, LLC
Caldwell Solar, LLC
Canby Solar, LLC
Cass Wind Farm, LLC
Cattle Ridge Wind Farm 2, LLC
Cedar Grove Solar, LLC
Centennial Solar, LLC
Charter Oak Solar, LLC
Clay Boswell Solar, LLC
Clear Creek Solar, LLC
Clermont Solar, LLC
Clinton County Solar, LLC
Coles Solar, LLC
Compass Prairie Wind, LLC
Conestoga Wind, LLC
Creekview Solar, LLC
Crocker Wind Farm 2, LLC
Dakota Hills Wind Farm, LLC
Deatsville Solar, LLC
Deer Trail Solar, LLC
Dodson Creek Solar, LLC
Donnellson Solar, LLC
Elburn Solar, LLC
Eldena Solar, LLC
Elk Creek Solar 2, LLC
Elk Creek Solar, LLC
EUA Energy Investment Corporation1
Exie Solar, LLC
Falls City Solar, LLC
Fillmore County Solar Project, LLC
Firstview Wind Farm, LLC
Fort Solar, LLC
Front Range Wind Farm, LLC
Galaxy Solar, LLC
Golden Solar, LLC
Goldendale Solar, LLC
Goldenrod Wind Farm, LLC
Goldfinch Solar, LLC
Grand Junction Solar, LLC
Granite State Power Link LLC3
Grant Solar 2, LLC
Grant Solar, LLC
Grayson Solar, LLC
Greenbrier Creek Solar, LLC
Greensky Solar, LLC
Greenwood Solar, LLC
Grid NY LLC4
Grindstone Wind Farm, LLC5
Hale County Solar, LLC
Hansford Energy Storage, LLC
Harmony Solar ND 2, LLC
Harmony Solar ND, LLC
Harrington Solar, LLC
202
Hartley Solar, LLC
Hearth Solar, LLC
Hill River Solar, LLC
Honeybee Solar, LLC
Hoosier Solar, LLC
Hoskins Solar, LLC
Illumination Solar, LLC
Innovation Solar, LLC
Itasca Energy Development, LLC6
Itasca Energy Services, LLC
Jack Rabbit Wind, LLC
Jackson County Solar, LLC
KeySpan CI Midstream Limited3
KeySpan Energy Corporation4
KeySpan Energy Services Inc.3
KeySpan Gas East Corporation4
KeySpan International Corporation3
KeySpan MHK, Inc.3
KeySpan Midstream, Inc.3
KeySpan Plumbing Solutions, Inc.4
Kit Fox Storage, LLC
Knox Solar, LLC
Kota Storage, LLC
KSI Contracting, LLC3
KSI Electrical, LLC3
KSI Mechanical, LLC3
Lake Charlotte Solar, LLC
Lakeside Solar, LLC
Landwest, Inc.4
Lansing Solar, LLC
Las Moras Storage, LLC
Leola Wind Farm, LLC
Liberty Solar, LLC
Livingston County Solar, LLC
Long Mount Storage, LLC
Lordsburg Solar, LLC
Louisa Solar, LLC
Louise Solar Project, LLC
Lowlands Solar, LLC
Lydia Solar, LLC
Marion County Solar, LLC
Massachusetts Electric Company1
Maverick Wind Farm, LLC
Meadowlands Solar, LLC
Metrowest Realty LLC3
Miller Creek Solar, LLC
Millers Ferry Solar, LLC
Morgan County Solar, LLC
Morning Glory Solar, LLC6
Muddy Creek Solar, LLC
Land Management & Development, Inc.4
Mustang Ridge Wind Farm, LLC
Mystic Steamship Corporation7
Nantucket Electric Company1
National Grid Development Holdings Corp.3
National Grid Electric Services LLC4
National Grid Energy Management LLC3
National Grid Energy Services LLC3
National Grid Energy Trading Services LLC4
National Grid Engineering & Survey Inc.4
National Grid Generation LLC4
National Grid Generation Ventures LLC4
National Grid Glenwood Energy Center, LLC3
National Grid IGTS Corp.4
National Grid Insurance USA Ltd8
National Grid Islander East Pipeline LLC3
National Grid LNG GP LLC3
National Grid LNG LLC3
National Grid LNG LP LLC3
National Grid Millennium LLC3
National Grid NE Holdings 2 LLC1
National Grid North America Inc.3
National Grid Partners Inc.4
National Grid Partners LLC3
National Grid Port Jefferson Energy Center LLC3
National Grid Renewables Development, LLC
National Grid Renewables E Wind, LLC6
National Grid Renewables Operations, LLC3
National Grid Renewables Projects, LLC6
National Grid Renewables Stutsman, LLC
National Grid Renewables, LLC3
34. Subsidiary undertakings, joint ventures and associates continued
Subsidiary undertakings continued
National Grid Services Inc.3
National Grid US 6 LLC3,†
National Grid US LLC3
National Grid USA Service Company, Inc.1
National Grid USA3
NEES Energy, Inc.1
New England Electric Transmission Corporation2
New England Energy Incorporated1
New England Hydro Finance Company, Inc. (53.704%)1
New England Hydro-Transmission Corporation (53.704%)2
New England Hydro-Transmission Electric Company, Inc. (53.704%)1
New England Power Company1
Newport America Corporation9
Newton Solar, LLC
NG Renewables Energy Marketing, LLC3
NG Renewables Energy Services, LLC
NGNE LLC3
NGV Emerald Energy Venture Holdings, LLC3
NGV OSW Holdings, LLC3
NGV US Distributed Energy Inc.3
NGV US Transmission Inc.3
NGV US, LLC3
Niagara Mohawk Energy, Inc.3
Niagara Mohawk Holdings, Inc.4
Niagara Mohawk Power Corporation4
Niobrara Wind, LLC
NM Properties, Inc.4
Noble Solar, LLC10
Nordic VOS, LLC
North East Transmission Co., Inc.3
North Fork Wind, LLC
Northeast Renewable Link LLC3
Opinac North America, Inc.3
Pennington Solar, LLC
Peony Solar, LLC
Philadelphia Coke Co., Inc.3
Pierce County Solar, LLC
Pike County Solar, LLC
Pipestone Solar, LLC
Plum Creek Wind Farm 2, LLC
Plum Creek Wind Farm, LLC
Port of the Islands North, LLC4
Portage Solar, LLC
Prairie Oasis Solar, LLC
Prairie Rose Wind 2, LLC6
Prosperity Wind Farm 2, LLC
Prosperity Wind Farm, LLC
Red Rock Solar SD, LLC
Regal Solar 2, LLC
Regal Solar, LLC
River North Solar, LLC
Robertson Solar, LLC
Rock Ridge Wind Farm, LLC
Rolling Hills Solar, LLC
Royal Solar 2, LLC
Royal Solar, LLC
Royerton Solar, LLC
Saginaw Bay Solar, LLC
Saltillo Storage, LLC
Sandstone Creek Solar 2, LLC
Sandstone Creek Solar, LLC
Sapphire Sky Wind Farm, LLC
Sherco Solar 2, LLC6
Sherco Solar 3, LLC
Silver City Solar, LLC
Simpson Solar, LLC
Spotlight Solar, LLC
Spring Brook Solar, LLC
Spring River Solar, LLC
Stony Brook Wind, LLC
Stony Point Solar, LLC
Stove Creek Solar, LLC
Sturgis Solar, LLC
Summit Lake Solar, LLC
Sunbeam Solar, LLC
Sunrise Solar, LLC
Sycamore Creek Solar, LLC
Tejano Storage, LLC
Thacker Solar, LLC
The Brooklyn Union Gas Company4
Torchlight Solar, LLC6
Transgas Inc.1
Tri-City Solar, LLC
Uintah Solar, LLC
Unbridled Solar, LLC
Upper Hudson Development, Inc.4
Valley Solar, LLC
Vermont Green Line Devco, LLC (90%)3
Vibrant Solar, LLC
Violet Storage, LLC
Virgo Community Solar Gardens, LLC6
Virtue Solar, LLC
Vivid Solar, LLC
Wallowa Solar, LLC
Wayfinder Group, Inc.1
Wheatfield Solar, LLC
White Elm Wind Farm, LLC
Wildcat Ridge Wind Farm, LLC
Wildhorse Creek Solar, LLC
Willard Solar, LLC
Williams County Solar, LLC
Wiregrass Solar, LLC
Woodlands Solar, LLC
Worthington Solar, LLC
Yellowhammer Solar, LLC
Young County Solar, LLC
National Grid plc
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34. Subsidiary undertakings, joint ventures and associates continued
Subsidiary undertakings continued
Incorporated in Australia
Registered office: Level 7, 330 Collins Street, Melbourne, VIC 3000, Australia
National Grid Australia Pty Limited
Incorporated in Hong Kong
Registered office: 5/F, Manulife Place, 348 Kwun Tong Road, Kowloon, Hong Kong
National Grid Hong Kong Limited*†
Incorporated in Canada
Registered office: Stewart McKelvey LLP, c/o Charles Reagh, Queen’s Marque,
600-1741 Lower Water Street, Halifax, Nova Scotia, B3J 0J2, Canada
Incorporated in the Isle of Man
Registered office: Third Floor, St George’s Court, Upper Church Street,
Douglas, IM1 1EE, Isle of Man, UK
KeySpan Energy Development Co.
Incorporated in Guernsey
Registered office: 1st & 2nd Floors Elizabeth House, Les Ruettes Brayes,
St Peter Port, GY1 1EW, Guernsey, Channel Islands
NG Electricity Distribution Limited†
Registered office: PO Box 155, Mill Court, La Charroterie, St. Peter Port, GY1 4ET,
Guernsey, Channel Islands
Aztec Insurance Limited
National Grid Insurance Company (Isle of Man) Limited
NGT Holding Company (Isle of Man) Limited*†
Incorporated in Luxembourg
Registered office: 412F, Route d’Esch, L-2086, Luxembourg, Grand Duchy
of Luxembourg
National Grid Luxembourg SARL
1. Registered office: Corporation Service Company, 84 State Street, Boston MA 02109, USA.
2. Registered office: Corporation Service Company, 10 Ferry Street, Suite 313, Concord NH 03301, USA.
3. Registered office: Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808, USA.
4. Registered office: Corporation Service Company, 80 State Street, Albany NY 12207, USA.
5. Registered office: National Registered Agents, Inc., 30600 Telegraph Road, Suite 2345, Bingham Farms, MI 48025-5720, USA.
6. Registered office: National Grid Renewables Development, LLC, 8400 Normandale Lake Blvd. Suite 1200, Bloomington, MN 55437, USA.
7. Registered office: The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801, USA.
8. Registered office: AON Insurance Managers USA, Inc., 165 Broadway, One Liberty Plaza, New York, NY, 10006, USA.
9. Registered office: Corporation Service Company, 222 Jefferson Boulevard, Suite 200, Warwick RI 02888, USA.
10. Registered office: National Registered Agents, Inc., 1999 Bryan Street, Dallas, Dallas County TX 75201, USA.
*
† Entity is tax resident in the United Kingdom.
In liquidation.
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
Subsidiary undertakings continued
Incorporated in Australia
Incorporated in Hong Kong
Registered office: Level 7, 330 Collins Street, Melbourne, VIC 3000, Australia
Registered office: 5/F, Manulife Place, 348 Kwun Tong Road, Kowloon, Hong Kong
Registered office: Stewart McKelvey LLP, c/o Charles Reagh, Queen’s Marque,
Registered office: Third Floor, St George’s Court, Upper Church Street,
600-1741 Lower Water Street, Halifax, Nova Scotia, B3J 0J2, Canada
Douglas, IM1 1EE, Isle of Man, UK
National Grid Australia Pty Limited
Incorporated in Canada
KeySpan Energy Development Co.
Incorporated in Guernsey
Registered office: 1st & 2nd Floors Elizabeth House, Les Ruettes Brayes,
St Peter Port, GY1 1EW, Guernsey, Channel Islands
NG Electricity Distribution Limited†
Registered office: PO Box 155, Mill Court, La Charroterie, St. Peter Port, GY1 4ET,
Guernsey, Channel Islands
Aztec Insurance Limited
National Grid Hong Kong Limited*†
Incorporated in the Isle of Man
National Grid Insurance Company (Isle of Man) Limited
NGT Holding Company (Isle of Man) Limited*†
Registered office: 412F, Route d’Esch, L-2086, Luxembourg, Grand Duchy
Incorporated in Luxembourg
of Luxembourg
National Grid Luxembourg SARL
1. Registered office: Corporation Service Company, 84 State Street, Boston MA 02109, USA.
2. Registered office: Corporation Service Company, 10 Ferry Street, Suite 313, Concord NH 03301, USA.
3. Registered office: Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808, USA.
4. Registered office: Corporation Service Company, 80 State Street, Albany NY 12207, USA.
5. Registered office: National Registered Agents, Inc., 30600 Telegraph Road, Suite 2345, Bingham Farms, MI 48025-5720, USA.
6. Registered office: National Grid Renewables Development, LLC, 8400 Normandale Lake Blvd. Suite 1200, Bloomington, MN 55437, USA.
7. Registered office: The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801, USA.
8. Registered office: AON Insurance Managers USA, Inc., 165 Broadway, One Liberty Plaza, New York, NY, 10006, USA.
9. Registered office: Corporation Service Company, 222 Jefferson Boulevard, Suite 200, Warwick RI 02888, USA.
10. Registered office: National Registered Agents, Inc., 1999 Bryan Street, Dallas, Dallas County TX 75201, USA.
*
In liquidation.
† Entity is tax resident in the United Kingdom.
34. Subsidiary undertakings, joint ventures and associates continued
34. Subsidiary undertakings, joint ventures and associates continued
Joint ventures
A list of the Group’s joint ventures as at 31 March 2023 is given below.
All joint ventures are included in the Group’s financial statements using
the equity method of accounting.
Associates
A list of the Group’s associates as at 31 March 2023 is given below.
Unless otherwise stated, all associates are included in the Group’s
financial statements using the equity method of accounting.
Incorporated in England and Wales
Registered office: 1–3 Strand, London, WC2N 5EH, UK (unless stated otherwise
in footnotes).
Incorporated in England and Wales
Registered office: National Grid House, Warwick Technology Park, Gallows Hill,
Warwick, CV34 6DA
BritNed Development Limited (50%)*
National Places LLP (50%)1
Nemo Link Limited (50%)
NGET/SPT Upgrades Limited (50%)†
Incorporated in the US
Registered office: Corporation Service Company, 251 Little Falls Drive,
Wilmington, DE 19808, USA (unless stated otherwise in footnotes).
Community Offshore Wind, LLC (previously Bight Wind Holdings LLC) (27.27%)2
Clean Energy Storage Systems LLC (50%)
Emerald Energy Venture LLC (51%)
Island Park Energy Center, LLC (50%)
Islander East Pipeline Company, LLC (50%)2
LI Energy Storage System, LLC (50%)
LI Solar Generation, LLC (50%)
Incorporated in France
Registered office: 1 Terrasse Bellini, Tour Initiale, TSA 41000 – 9291,
Paris La Defense, CEDEX, France
GasT TopCo Limited
Joint Radio Company Limited (25%)3**
Incorporated in the US
Registered office: Corporation Service Company, 251 Little Falls Drive,
Wilmington, DE 19808, USA (unless stated otherwise in footnotes).
Clean Line Energy Partners LLC (32%)3
Connecticut Yankee Atomic Power Company (19.5%)4
Direct Global Power Inc. (26%)3
Energy Impact Fund LP (9.41%)5
KHB Venture LLC (33.33%)6
Maine Yankee Atomic Power Company (24%)7
New York Transco LLC (28.3%)8
NYSEARCH RMLD, LLC (22.63%)
The Hive IV, LLC (28.2%)3
Yankee Atomic Electric Company (34.5%)9
Incorporated in Belgium
Registered office: Avenue de Cortenbergh 71, 1000 Brussels, Belgium
IFA2 (50%)
Coreso SA (15.84%)
Other investments
A list of the Group’s other investments as at 31 March 2023 is given
below.
Incorporated in England and Wales
Registered office: 1 More London Place, London SE1 2AF, UK
Energis plc (33.06%)‡
Registered office: Third Floor, Northumberland House, 303–306 High Holborn,
London, WC1V 7JZ
Electralink Limited (27.04%)
1. Registered office: 80 Cheapside, London, EC2V 6EE, UK.
2. Registered office: The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801, USA.
3. Registered office: Friars House, Manor House Drive, Coventry, CV1 2TE, UK.
4. Registered office: Carla Pizzella, 362 Injun Hollow Road, East Hampton CT 06424-3099, USA.
5. Registered office: Harvard Business Services, Inc., 16192 Coastal Highway, Lewes DE 19958, USA.
6. Registered office: c/o de maximis, inc., 135 Beaver Street, 4th Floor, Waltham MA 02452, USA.
7. Registered office: Joseph D Fay, 321 Old Ferry Road, Wiscasset ME 04578, USA.
8. Registered office: Corporation Service Company, 80 State Street, Albany NY 12207, USA.
9. Registered office: Karen Sucharzewski, 49 Yankee Road, Rowe MA 01367, USA.
* National Grid Interconnector Holdings Limited owns 284,500,000 €0.20 C Ordinary shares and one £1.00 Ordinary A share.
** National Grid Electricity Transmission plc owns one £0.50 A Ordinary share.
† National Grid Electricity Transmission plc owns 50 £1.00 A Ordinary shares.
‡
In administration.
Our interests and activities are held or operated through the subsidiaries, joint arrangements or associates as disclosed above. These interests
and activities (and their branches) are established in – and subject to the laws and regulations of – these jurisdictions.
The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 supported by
guarantees issued by National Grid plc over their liabilities for the year ended 31 March 2023:
Company name
National Grid Holdings Limited
National Grid International Limited
National Grid (US) Holdings Limited
National Grid (US) Investments 4 Limited
National Grid (US) Partner 1 Limited
Company number
3096772
2537092
2630496
3867128
4314432
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35. Sensitivities
In order to give a clearer picture of the impact on our results or financial position of potential changes in significant estimates and assumptions,
the following sensitivities are presented. These sensitivities are based on assumptions and conditions prevailing at the year end and should
be used with caution. The effects provided are not necessarily indicative of the actual effects that would be experienced because our actual
exposures are constantly changing.
The sensitivities in the tables below show the potential impact in the income statement (and consequential impact on net assets) for a reasonably
possible range of different variables each of which has been considered in isolation (i.e. with all other variables remaining constant). There are a
number of these sensitivities which are mutually exclusive, and therefore if one were to happen another would not, meaning a total showing how
sensitive our results are to these external factors is not meaningful.
The sensitivities included in the tables below broadly have an equal and opposite effect if the sensitivity increases or decreases by the same amount
unless otherwise stated.
(a) Sensitivities on areas of estimation uncertainty
The table below sets out the sensitivity analysis for certain areas of estimation uncertainty set out in note 1F. These estimates are those that have
a significant risk of resulting in a material adjustment to the carrying values of assets and liabilities in the next year. Note that the sensitivity analysis
for the useful economic lives of our gas network assets is included in note 13.
Pensions and other post-retirement benefit liabilities (pre tax)²:
UK discount rate change³
US discount rate change³
UK inflation rate change⁴
UK long-term rate of increase in salaries change
US long-term rate of increase in salaries change
UK change to life expectancy at age 655
US change to life expectancy at age 65
Assumptions
used¹
2023
Income
statement
£m
1%
1%
1%
1%
1%
one year
one year
29
26
8
4
4
2
3
Assumed US healthcare cost trend rates change
1%
24
Environmental provision:
Change in the real discount rate
Change in estimated future cash flows
1.0%
20%
159
378
Net
assets
£m
1,264
977
933
50
57
441
344
324
159
378
Assumptions
used
2022
Income
statement
£m
0.5%
0.5%
0.5%
0.5%
0.5%
one year
one year
12
16
11
4
3
4
3
1%
24
0.5%
10%
81
188
Net
assets
£m
1,002
650
733
88
41
635
444
414
81
188
1. We have increased the assumption used in our sensitivity analysis this year from 0.5% to 1.0% in light of the recent quantum of market movements.
2. The changes shown are a change in the annual pension and other post-retirement benefit service charge and change in the defined benefit obligations.
3. A change in the discount rate is likely to occur as a result of changes in bond yields and as such would be expected to be offset to a significant degree by a change in the value
of the bond assets held by the plans. In the UK, there would also be a £188 million (2022: £164 million) net assets offset from the buy-in policies, where the accounting value of
the buy-in asset is set equal to the associated liabilities.
4. The projected impact resulting from a change in RPI reflects the underlying effect on pensions in payment, pensions in deferment and resultant increases in salary assumptions.
The buy-in policies would have a £164 million (2022: £119 million) net assets offset to the above.
5. In the UK, the buy-in policies and the longevity swap entered into would have a £136 million (2022: £111 million) net assets offset to the above.
Pensions and other post-retirement benefits assumptions
Sensitivities have been prepared to show how the defined benefit obligations and annual service costs could potentially be impacted by changes
in the relevant actuarial assumption that were reasonably possible as at 31 March 2023. In preparing sensitivities, the potential impact has been
calculated by applying the change to each assumption in isolation and assuming all other assumptions remain unchanged. This is with the exception
of RPI in the UK where the corresponding change to increases to pensions in payment, increases to pensions in deferment and increases in salary
are recognised.
206
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Notes to the consolidated financial statements continued
35. Sensitivities
35. Sensitivities continued
The sensitivities included in the tables below broadly have an equal and opposite effect if the sensitivity increases or decreases by the same amount
in foreign currencies are all constant and on the basis of the hedge designations in place at 31 March 2023 and 2022 respectively;
(b) Sensitivities on financial instruments
We are further required to show additional sensitivity analysis under IFRS 7 and these are shown separately in the subsequent table due to the
additional assumptions that are made in order to produce meaningful sensitivity disclosures. The analysis is prepared assuming the amount of
liability outstanding at the reporting date was outstanding for the whole year.
Our net debt as presented in note 29 is sensitive to changes in market variables, primarily being UK and US interest rates, the UK inflation rate
and the dollar to sterling exchange rate. These impact the valuation of our borrowings, deposits and derivative financial instruments. The analysis
illustrates the sensitivity of our financial instruments to reasonably possible changes in these market variables.
The following main assumptions were made in calculating the sensitivity analysis for continuing operations:
• the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives portfolio, and the proportion of financial instruments
• the statement of financial position sensitivity to interest rates relates to items presented at their fair values: derivative financial instruments; our
investments measured at FVTPL and FVOCI; and our liability measured at FVTPL. Further debt and other deposits are carried at amortised cost
and so their carrying value does not change as interest rates move;
• the sensitivity of interest expense to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative
instruments;
• changes in the carrying value of derivatives from movements in interest rates of designated cash flow hedges are assumed to be recorded fully
within equity; and
• changes in the carrying value of derivative financial instruments designated as net investment hedges from movements in interest rates are
presented in equity as costs of hedging, with a one-year release to the income statement. The impact of movements in the dollar to sterling
exchange rate is recorded directly in equity.
Financial risk (post tax):
UK inflation change²
UK interest rates change
US interest rates change
US dollar exchange rate change³
2023
Assumptions
used¹
Income
statement
£m
Other equity
reserves
£m
Assumptions
used
2022
Income
statement
£m
Other equity
reserves
£m
1%
1%
1%
10%
35
34
14
51
—
361
50
291
0.5%
0.5%
0.5%
10%
18
41
4
43
—
134
8
397
1. 1% has been used for sensitivity analysis this year as opposed to 0.5% in the prior year, due to the quantum of market rate movements during the year which mean it is considered that
1% is a more appropriate measure for the year ended 31 March 2023.
2. Excludes sensitivities to LPI curve. Further details on sensitivities are provided in note 32(g).
3. The other equity reserves impact does not reflect the exchange translation in our US subsidiaries’ net assets. It is estimated this would change by £1,680 million (2022: £1,670 million) in
the opposite direction if the dollar exchange rate changed by 10%.
Our commodity contract derivatives are sensitive to price risk. Additional sensitivities in respect to commodity price risk and to our derivative fair
values are as follows:
Commodity price risk (post tax):
Increase in commodity prices
Decrease in commodity prices
Assets and liabilities carried at fair value (post tax):
Fair value change in derivative financial instruments¹
Fair value change in commodity contract derivative liabilities
1. The effect of a 10% change in fair value assumes no hedge accounting.
Assumptions
used
2023
Income
statement
£m
Net
assets
£m
Assumptions
used
2022
Income
statement
£m
10%
10%
10%
10%
49
(40)
(60)
(8)
49
(40)
(60)
(8)
10%
10%
10%
10%
53
(54)
(55)
20
Net
assets
£m
53
(54)
(55)
20
In order to give a clearer picture of the impact on our results or financial position of potential changes in significant estimates and assumptions,
the following sensitivities are presented. These sensitivities are based on assumptions and conditions prevailing at the year end and should
be used with caution. The effects provided are not necessarily indicative of the actual effects that would be experienced because our actual
exposures are constantly changing.
The sensitivities in the tables below show the potential impact in the income statement (and consequential impact on net assets) for a reasonably
possible range of different variables each of which has been considered in isolation (i.e. with all other variables remaining constant). There are a
number of these sensitivities which are mutually exclusive, and therefore if one were to happen another would not, meaning a total showing how
sensitive our results are to these external factors is not meaningful.
unless otherwise stated.
(a) Sensitivities on areas of estimation uncertainty
The table below sets out the sensitivity analysis for certain areas of estimation uncertainty set out in note 1F. These estimates are those that have
a significant risk of resulting in a material adjustment to the carrying values of assets and liabilities in the next year. Note that the sensitivity analysis
for the useful economic lives of our gas network assets is included in note 13.
Pensions and other post-retirement benefit liabilities (pre tax)²:
UK discount rate change³
US discount rate change³
UK inflation rate change⁴
UK long-term rate of increase in salaries change
US long-term rate of increase in salaries change
UK change to life expectancy at age 655
US change to life expectancy at age 65
Environmental provision:
Change in the real discount rate
Change in estimated future cash flows
Assumptions
used¹
2023
Income
statement
£m
Assumptions
used
2022
Income
statement
£m
1%
1%
1%
1%
1%
one year
one year
29
26
8
4
4
2
3
0.5%
0.5%
0.5%
0.5%
0.5%
one year
one year
12
16
11
4
3
4
3
1.0%
20%
159
378
0.5%
10%
81
188
Net
assets
£m
1,264
977
933
50
57
441
344
324
159
378
Net
assets
£m
1,002
650
733
88
41
635
444
414
81
188
Assumed US healthcare cost trend rates change
1%
24
1%
24
1. We have increased the assumption used in our sensitivity analysis this year from 0.5% to 1.0% in light of the recent quantum of market movements.
2. The changes shown are a change in the annual pension and other post-retirement benefit service charge and change in the defined benefit obligations.
3. A change in the discount rate is likely to occur as a result of changes in bond yields and as such would be expected to be offset to a significant degree by a change in the value
of the bond assets held by the plans. In the UK, there would also be a £188 million (2022: £164 million) net assets offset from the buy-in policies, where the accounting value of
the buy-in asset is set equal to the associated liabilities.
4. The projected impact resulting from a change in RPI reflects the underlying effect on pensions in payment, pensions in deferment and resultant increases in salary assumptions.
The buy-in policies would have a £164 million (2022: £119 million) net assets offset to the above.
5. In the UK, the buy-in policies and the longevity swap entered into would have a £136 million (2022: £111 million) net assets offset to the above.
Pensions and other post-retirement benefits assumptions
Sensitivities have been prepared to show how the defined benefit obligations and annual service costs could potentially be impacted by changes
in the relevant actuarial assumption that were reasonably possible as at 31 March 2023. In preparing sensitivities, the potential impact has been
calculated by applying the change to each assumption in isolation and assuming all other assumptions remain unchanged. This is with the exception
of RPI in the UK where the corresponding change to increases to pensions in payment, increases to pensions in deferment and increases in salary
are recognised.
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Notes to the consolidated financial statements continued
36. Additional disclosures in respect of guaranteed securities
Niagara Mohawk Power Corporation, a wholly owned subsidiary of the Group, has issued preferred shares that are listed on a US national
securities exchange and are guaranteed by National Grid plc. This guarantor commits to honour any liabilities should the company issuing
the debt have any financial difficulties. In order to provide debt holders with information on the financial stability of the company providing the
guarantee, we are required to disclose individual financial information for this company. We have chosen to include this information in the
Group financial statements rather than submitting separate standalone financial statements.
The following summarised financial information is given in respect of Niagara Mohawk Power Corporation as a result of National Grid plc’s guarantee,
dated 29 October 2007, of Niagara Mohawk Power Corporation’s 3.6% and 3.9% issued preferred shares, which amount to £19 million ($23 million).
National Grid plc’s guarantee of Niagara Mohawk Power Corporation’s preferred shares is full and unconditional. There are no restrictions on the
payment of dividends by Niagara Mohawk Power Corporation or limitations on National Grid plc’s guarantee of the preferred shares, and there are
no factors that may affect payments to holders of the guaranteed securities.
The following summarised financial information for National Grid plc and Niagara Mohawk Power Corporation is presented on a combined basis
and is intended to provide investors with meaningful and comparable financial information, and is provided pursuant to the adoption of Rule 13-01
of Regulation S-X in lieu of the separate financial statements of Niagara Mohawk Power Corporation.
Summarised financial information is presented, on a combined basis, as at 31 March 2023. The combined amounts are presented under IFRS
measurement principles. Intercompany transactions between National Grid plc and Niagara Mohawk Power Corporation have been eliminated.
Investments in other non-issuer and non-guarantor subsidiaries are included at cost, subject to impairment.
Summarised financial information for the year ended 31 March 2023 – IFRS
Combined statement of financial position
Non-current loans to other subsidiaries
Non-current assets
Current loans to other subsidiaries
Current assets
Current loans from other subsidiaries
Current liabilities
Non-current loans from other subsidiaries
Non-current liabilities
Net assets1
Equity
Combined income statement – continuing operations
Revenue
Operating costs
Operating profit
Other income from other subsidiaries
Other income and costs, including taxation
Profit after tax
1. Excluded from net assets above are investments in other consolidated subsidiaries with a carrying value of £14,488 million.
National Grid plc and
Niagara Mohawk
Power Corporation
combined
£m
124
11,385
15,382
1,610
(6,181)
(1,563)
(2,096)
(12,463)
6,198
6,198
3,601
(3,463)
138
1,691
(157)
1,672
208
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the consolidated financial statements continued
36. Additional disclosures in respect of guaranteed securities
37. Acquisitions
Niagara Mohawk Power Corporation, a wholly owned subsidiary of the Group, has issued preferred shares that are listed on a US national
securities exchange and are guaranteed by National Grid plc. This guarantor commits to honour any liabilities should the company issuing
the debt have any financial difficulties. In order to provide debt holders with information on the financial stability of the company providing the
guarantee, we are required to disclose individual financial information for this company. We have chosen to include this information in the
Group financial statements rather than submitting separate standalone financial statements.
The following summarised financial information is given in respect of Niagara Mohawk Power Corporation as a result of National Grid plc’s guarantee,
dated 29 October 2007, of Niagara Mohawk Power Corporation’s 3.6% and 3.9% issued preferred shares, which amount to £19 million ($23 million).
National Grid plc’s guarantee of Niagara Mohawk Power Corporation’s preferred shares is full and unconditional. There are no restrictions on the
payment of dividends by Niagara Mohawk Power Corporation or limitations on National Grid plc’s guarantee of the preferred shares, and there are
no factors that may affect payments to holders of the guaranteed securities.
The following summarised financial information for National Grid plc and Niagara Mohawk Power Corporation is presented on a combined basis
and is intended to provide investors with meaningful and comparable financial information, and is provided pursuant to the adoption of Rule 13-01
of Regulation S-X in lieu of the separate financial statements of Niagara Mohawk Power Corporation.
Summarised financial information is presented, on a combined basis, as at 31 March 2023. The combined amounts are presented under IFRS
measurement principles. Intercompany transactions between National Grid plc and Niagara Mohawk Power Corporation have been eliminated.
Investments in other non-issuer and non-guarantor subsidiaries are included at cost, subject to impairment.
Summarised financial information for the year ended 31 March 2023 – IFRS
Business combinations are accounted for using the acquisition method. The identifiable assets acquired and liabilities assumed are recognised
at their fair values at the acquisition date.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the amount recognised for any non-controlling
interest and the acquisition-date fair values of any previously held interest in the acquiree over the fair value of the identifiable assets acquired
and liabilities assumed at the acquisition date.
Acquisition-related costs are expensed as incurred and included within other operating costs.
Acquisition of NGED
On 14 June 2021, National Grid plc acquired 100% of the share capital of PPL WPD Investments Limited (WPD), the holding company of National
Grid Electricity Distribution plc (formerly known as Western Power Distribution plc), which is the UK’s largest electricity distribution network operator.
The acquisition, along with the two disposals disclosed in note 10, strategically pivots National Grid’s UK portfolio towards electricity, in order to
significantly enhance National Grid’s role in the delivery of the UK’s net zero targets, given that electricity distribution is expected to see a high level
of asset growth as a result of the ongoing energy transition.
The total cash consideration for the transaction was £7.9 billion, all of which was paid upfront, with no further contingent or deferred consideration
payable. As a result of the acquisition, one of NGED’s existing borrowing facilities became repayable immediately due to a change in control clause
within the original borrowing agreement. The borrowing facility was immediately replaced with an intercompany loan of £350 million from National
Grid plc. National Grid funded the transaction price and the new intercompany loan by taking out a bridge financing facility (see note 33) that was
fully repaid substantially with the proceeds from the disposals of NECO and the UK Gas Transmission business in the year ended 31 March 2023.
The fair values of the assets and liabilities following the finalisation of the purchase price allocation in the prior year are set out below:
Non-current assets
Property, plant and equipment
Other intangible assets
Pension assets
Other non-current assets
Total non-current assets
Current assets
Trade and other receivables
Financial and other investments
Cash
Other current assets
Total current assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax
Contract liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Total identifiable net assets
Goodwill
Total consideration transferred
Satisfied by:
Cash consideration
Total consideration transferred
208
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Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
IFRS book
value at
acquisition
£m
Fair value
adjustments
£m
Fair value
£m
14,077
(4,026)
10,051
49
402
27
1,714
1,763
164
—
566
27
14,555
(2,148)
12,407
268
69
44
42
423
—
—
—
—
—
268
69
44
42
423
14,978
(2,148)
12,830
(730)
(531)
(35)
(1,296)
(5,967)
(1,013)
(2,706)
(56)
(9,742)
(11,038)
3,940
1,254
5,194
—
48
—
48
(730)
(483)
(35)
(1,248)
(1,589)
(7,556)
224
2,706
(21)
1,320
1,368
(780)
3,467
2,687
(789)
—
(77)
(8,422)
(9,670)
3,160
4,721
7,881
7,881
7,881
209209
Combined statement of financial position
Non-current loans to other subsidiaries
Non-current assets
Current loans to other subsidiaries
Current assets
Current liabilities
Current loans from other subsidiaries
Non-current loans from other subsidiaries
Non-current liabilities
Net assets1
Equity
Revenue
Operating costs
Operating profit
Other income from other subsidiaries
Other income and costs, including taxation
Profit after tax
Combined income statement – continuing operations
1. Excluded from net assets above are investments in other consolidated subsidiaries with a carrying value of £14,488 million.
National Grid plc and
Niagara Mohawk
Power Corporation
combined
£m
124
11,385
15,382
1,610
(6,181)
(1,563)
(2,096)
(12,463)
6,198
6,198
3,601
(3,463)
138
1,691
(157)
1,672
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Notes to the consolidated financial statements continued
37. Acquisitions continued
Acquisition of NGED continued
The goodwill arising from the acquisition represents the future expected growth in the NGED business, the benefits that are expected to be achieved
as a result of the combination of the two businesses and the expertise of the management team acquired. No component of goodwill qualifies for
recognition as a separate tangible or intangible asset. The goodwill is not deductible for tax purposes and at the acquisition date, there were no
material contingent liabilities.
The fair value step down of property, plant and equipment related primarily to the distribution network assets and was calculated with reference
to estimated future forecast cash flows of the existing asset base. The fair value adjustment is expected to amortise over approximately 59 years,
representing the remaining useful economic lives of the assets. The intangible assets recognised of £1,714 million relate to regulatory licences
acquired which provide the right to operate and invest in the relevant network that operates as a monopoly in the licensed geographical area.
The fair value of the regulatory licences was estimated by subtracting goodwill and property, plant and equipment-related cash flows from the
overall business cash flows. The fair value of borrowings acquired was estimated by discounting the contractual cash flows at a market cost
of debt, taking into account the debt margin observed on NGED’s listed debt.
The fair value of trade and other receivables of £270 million includes trade receivables with a fair value of £86 million and accrued income of
£139 million. The gross contractual amount for trade receivables due is £103 million, of which £17 million was expected to be uncollectible.
Total acquisition-related costs of £110 million were recognised within other operating costs, within exceptional items and remeasurements in
the consolidated income statement, of which £15 million was recognised in the year ended 31 March 2021 and £95 million in the year ended
31 March 2022.
NGED generated revenues of £1,468 million and profit before tax of £781 million for the period from 14 June 2021 to 31 March 2022. If the
acquisition had occurred on 1 April 2021, the Group’s consolidated revenue and consolidated profit before tax from continuing operations for
the 12 months ended 31 March 2022 would have been £18,806 million and £3,600 million respectively.
38. Post balance sheet events
In the period between 1 April 2023 and 17 May 2023, there have been no significant post balance sheet events.
210
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National Grid plcAnnual Report and Accounts 2022/23 Notes to the consolidated financial statements continued
Company accounting policies
37. Acquisitions continued
Acquisition of NGED continued
The goodwill arising from the acquisition represents the future expected growth in the NGED business, the benefits that are expected to be achieved
as a result of the combination of the two businesses and the expertise of the management team acquired. No component of goodwill qualifies for
recognition as a separate tangible or intangible asset. The goodwill is not deductible for tax purposes and at the acquisition date, there were no
material contingent liabilities.
The fair value step down of property, plant and equipment related primarily to the distribution network assets and was calculated with reference
to estimated future forecast cash flows of the existing asset base. The fair value adjustment is expected to amortise over approximately 59 years,
representing the remaining useful economic lives of the assets. The intangible assets recognised of £1,714 million relate to regulatory licences
acquired which provide the right to operate and invest in the relevant network that operates as a monopoly in the licensed geographical area.
The fair value of the regulatory licences was estimated by subtracting goodwill and property, plant and equipment-related cash flows from the
overall business cash flows. The fair value of borrowings acquired was estimated by discounting the contractual cash flows at a market cost
of debt, taking into account the debt margin observed on NGED’s listed debt.
The fair value of trade and other receivables of £270 million includes trade receivables with a fair value of £86 million and accrued income of
£139 million. The gross contractual amount for trade receivables due is £103 million, of which £17 million was expected to be uncollectible.
Total acquisition-related costs of £110 million were recognised within other operating costs, within exceptional items and remeasurements in
the consolidated income statement, of which £15 million was recognised in the year ended 31 March 2021 and £95 million in the year ended
31 March 2022.
NGED generated revenues of £1,468 million and profit before tax of £781 million for the period from 14 June 2021 to 31 March 2022. If the
acquisition had occurred on 1 April 2021, the Group’s consolidated revenue and consolidated profit before tax from continuing operations for
the 12 months ended 31 March 2022 would have been £18,806 million and £3,600 million respectively.
38. Post balance sheet events
In the period between 1 April 2023 and 17 May 2023, there have been no significant post balance sheet events.
We are required to include the standalone balance sheet of our ultimate Parent Company, National Grid plc, under the Companies Act 2006.
This is because the publicly traded shares are actually those of National Grid plc (the ‘Company’) and the following disclosures provide additional
information to shareholders.
A. Basis of preparation
National Grid plc is the Parent Company of the National Grid Group,
which is engaged in the transmission and distribution of electricity and
gas in Great Britain and northeastern US. The Company is a public
limited company, limited by shares. The Company is incorporated and
domiciled in England, with its registered office at 1–3 Strand, London,
WC2N 5EH.
The financial statements of National Grid plc for the year ended
31 March 2023 were approved by the Board of Directors on 17 May
2023. The Company meets the definition of a qualifying entity under
Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council. Accordingly, these individual financial statements
of the Company have been prepared in accordance with Financial
Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101).
In preparing these financial statements the Company applies the
recognition and measurement requirements of International Financial
Reporting Standards (IFRS) as adopted by the UK, but makes
amendments where necessary in order to comply with the provisions
of the Companies Act 2006 and sets out below where advantage of
the FRS 101 disclosure exemptions has been taken.
These individual financial statements have been prepared on a historical
cost basis, except for the revaluation of financial instruments, and are
presented in pounds sterling, which is the currency of the primary
economic environment in which the Company operates. The
comparative financial information has also been prepared on this basis.
These individual financial statements have been prepared on a going
concern basis, which presumes that the Company has adequate
resources to remain in operation and that the Directors intend it to
do so, for at least one year from the date the financial statements
are signed. As the Company is part of a larger group it participates
in the Group’s centralised treasury arrangements and so shares
banking arrangements with its subsidiaries. The Company is expected
to generate positive cash flows or be in a position to obtain liquidity
via its committed credit facilities to continue to operate for the
foreseeable future.
In accordance with the exemption permitted by section 408 of the
Companies Act 2006, the Company has not presented its own profit
and loss account or statement of comprehensive income.
The following exemptions from the requirements of IFRS have been
applied in the preparation of these financial statements of the Company
in accordance with FRS 101:
• a cash flow statement and related notes;
• disclosures in respect of transactions with wholly-owned subsidiaries;
• disclosures in respect of capital management; and
• the effects of new but not yet effective IFRS standards.
B. Fixed asset investments
Investments held as fixed assets are stated at cost less any provisions
for impairment. Investments are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount may not
be recoverable. Impairments are calculated such that the carrying value
of the fixed asset investment is the lower of its cost or recoverable
amount. Recoverable amount is the higher of its fair value less costs
of disposal and its value-in-use. The Company accounts for common
control transactions at cost.
C. Tax
Current tax for the current and prior periods is provided at the amount
expected to be paid or recovered using the tax rates and tax laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full on temporary differences which result
in an obligation at the balance sheet date to pay more tax, or the right
to pay less tax, at a future date, at tax rates expected to apply when
the temporary differences reverse based on tax rates and tax laws that
have been enacted or substantively enacted by the balance sheet date.
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 assets are recognised to the extent that it is regarded
as more likely than not that they will be recovered. Deferred tax assets
and liabilities are not discounted.
D. Foreign currencies
Transactions in currencies other than the functional currency of the
Company are recorded at the rates of exchange prevailing on the dates
of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at
closing exchange rates. Gains and losses arising on retranslation of
monetary assets and liabilities are included in the profit and loss account.
E. Financial instruments
The Company’s accounting policies are the same as the Group’s
accounting policies under IFRS, namely IAS 32 ‘Financial Instruments:
Presentation’, IFRS 9 ‘Financial Instruments’ and IFRS 7 ‘Financial
Instruments: Disclosures’. The Company applies these policies only
in respect of the financial instruments that it has, namely investments,
derivative financial instruments, debtors, cash at bank and in hand,
borrowings and creditors.
The policies are set out in notes 15, 17, 19, 20, 21 and 22 to the
consolidated financial statements. The Company is taking the exemption
for financial instruments disclosures, because IFRS 7 disclosures are
given in notes 32 and 35 to the consolidated financial statements.
The exemption from disclosing key management personnel
compensation has not been taken as there are no costs borne by the
Company in respect of employees, and no related costs are recharged
to the Company.
F. Hedge accounting
The Company applies the same accounting policy as the Group in
respect of fair value hedges and cash flow hedges. This policy is set
out in note 32 to the consolidated financial statements.
As the consolidated financial statements of National Grid plc, which are
available from the registered office, include the equivalent disclosures,
the Company has also taken the exemptions under FRS 101 in respect
of certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and
the disclosures required by IFRS 7 ‘Financial Instruments: Disclosures’.
There are no areas of judgement or key sources of estimation
uncertainty that are considered to have a significant effect on the
amounts recognised in the financial statements.
The balance sheet has been prepared in accordance with the
Company’s accounting policies approved by the Board and
described below.
G. Parent Company guarantees
The Company has guaranteed the repayment of the principal sum,
any associated premium and interest on specific loans due by certain
subsidiary undertakings primarily to third parties. Such guarantees are
accounted for by the Company as insurance contracts. In the event of
default or non-performance by the subsidiary, a liability is recorded in
accordance with IAS 37.
210
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National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report Company accounting policies continued
H. Share awards to employees of subsidiary
undertakings
The issuance by the Company to employees of its subsidiaries of a grant
over the Company’s options represents additional capital contributions
by the Company to its subsidiaries. An additional investment in
subsidiaries results in a corresponding increase in shareholders’ equity.
The additional capital contribution is based on the fair value of the option
at the date of grant, allocated over the underlying grant’s vesting period.
Where payments are subsequently received from subsidiaries, these are
accounted for as a return of a capital contribution and credited against
the Company’s investments in subsidiaries. The Company has no
employees except for the Group’s Non-executive Directors (refer to
the Directors’ Remuneration Report on page 101).
I. Dividends
Interim dividends are recognised when they are paid to the Company’s
shareholders. Final dividends are recognised when they are approved
by shareholders.
J. Directors’ remuneration
Full details of Directors’ remuneration are disclosed on pages
90 – 106.
212
212
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23 Company accounting policies continued
H. Share awards to employees of subsidiary
undertakings
The issuance by the Company to employees of its subsidiaries of a grant
over the Company’s options represents additional capital contributions
by the Company to its subsidiaries. An additional investment in
subsidiaries results in a corresponding increase in shareholders’ equity.
The additional capital contribution is based on the fair value of the option
at the date of grant, allocated over the underlying grant’s vesting period.
Where payments are subsequently received from subsidiaries, these are
accounted for as a return of a capital contribution and credited against
the Company’s investments in subsidiaries. The Company has no
employees except for the Group’s Non-executive Directors (refer to
the Directors’ Remuneration Report on page 101).
I. Dividends
by shareholders.
Interim dividends are recognised when they are paid to the Company’s
shareholders. Final dividends are recognised when they are approved
J. Directors’ remuneration
Full details of Directors’ remuneration are disclosed on pages
90 – 106.
Company balance sheet
as at 31 March
Fixed assets
Investments
Current assets
Debtors (amounts falling due within one year)¹
Debtors (amounts falling due after more than one year)¹
Investments
Cash at bank and in hand
Total current assets
Creditors (amounts falling due within one year)
Net current assets
Total assets less current liabilities
Creditors (amounts falling due after more than one year)
Net assets
Equity
Share capital
Share premium account
Cash flow hedge reserve
Cost of hedging reserve
Other equity reserves
Profit and loss account
Total shareholders’ equity
Notes
2023
£m
2022
£m
1
2
2
5
3
3
7
8
14,480
14,432
15,369
28,255
201
599
55
207
1,368
45
16,224
29,875
(6,701)
(23,721)
9,523
6,154
24,003
20,586
(7,755)
(4,407)
16,248
16,179
488
1,302
(53)
2
517
485
1,300
(15)
(3)
469
13,992
16,248
13,943
16,179
1. Comparative amounts have been re-presented to reflect a correction to the prior year classification of an amount owed by a subsidiary undertaking.
The Company’s profit after tax for the year was £1,644 million (2022: £2,371 million profit). Profits available for distribution by the Company to
shareholders were £13.9 billion at 31 March 2023. The financial statements of the Company on pages 211 – 217 were approved by the Board
of Directors on 17 May 2023 and were signed on its behalf by:
John Pettigrew Chief Executive
Andy Agg Chief Financial Officer
National Grid plc
Registered number: 4031152
212
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
213213
National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Company statement of changes in equity
for the years ended 31 March
At 1 April 2021
Profit for the year1
Other comprehensive profit/(loss) for the year
Transferred (from)/to equity (net of tax)
Total comprehensive (loss)/profit for the year
Other equity movements
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share awards to employees of subsidiary undertakings
Equity dividends
At 31 March 2022
Profit for the year1
Other comprehensive profit/(loss) for the year
Transferred (from)/to equity (net of tax)
Total comprehensive (loss)/profit for the year
Other equity movements
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share awards to employees of subsidiary undertakings
Equity dividends
At 31 March 2023
Share
capital
£m
474
—
Share
premium
account
£m
1,296
—
—
—
11
—
—
—
—
—
—
(12)
—
16
—
—
485
—
1,300
—
—
—
3
—
—
—
—
—
—
(3)
—
5
—
—
Cash flow
hedge
reserve
£m
Cost of
hedging
reserve
£m
Other
equity
reserves
£m
Profit
and loss
account
£m
Total
shareholders’
equity
£m
(3)
—
(12)
(12)
—
—
—
—
—
(15)
—
(38)
(38)
—
—
—
—
—
(15)
—
12
12
—
—
—
—
—
(3)
—
5
5
—
—
—
—
—
2
426
12,480
14,658
—
2,371
2,371
—
—
—
—
—
43
—
—
—
2,371
2,371
—
17
(3)
—
(1)
17
13
43
(922)
(922)
469
13,943
16,179
—
1,644
1,644
—
—
—
—
—
48
—
—
(33)
1,644
1,611
—
16
(4)
—
—
16
1
48
(1,607)
(1,607)
517
13,992
16,248
488
1,302
(53)
1. Included within profit for the year is dividend income from subsidiaries of £1,691 million (2022: £2,500 million).
2. Included within the share premium account are costs associated with scrip dividends.
214
214
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
At 1 April 2021
Profit for the year1
Other comprehensive profit/(loss) for the year
Transferred (from)/to equity (net of tax)
Total comprehensive (loss)/profit for the year
Other equity movements
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share awards to employees of subsidiary undertakings
Equity dividends
At 31 March 2022
Profit for the year1
Other comprehensive profit/(loss) for the year
Transferred (from)/to equity (net of tax)
Total comprehensive (loss)/profit for the year
Other equity movements
Scrip dividend-related share issue2
Issue of treasury shares
Transactions in own shares
Share awards to employees of subsidiary undertakings
Equity dividends
At 31 March 2023
Share
capital
£m
474
—
Share
premium
account
£m
1,296
—
485
—
1,300
—
—
—
11
—
—
—
—
—
—
3
—
—
—
—
—
—
(12)
—
16
—
—
—
—
(3)
—
5
—
—
(3)
—
(12)
(12)
—
—
—
—
—
(15)
—
(38)
(38)
—
—
—
—
—
(15)
—
12
12
—
—
—
—
—
(3)
—
5
5
—
—
—
—
—
2
426
12,480
14,658
—
2,371
2,371
—
—
2,371
2,371
—
—
—
—
—
43
—
—
—
—
—
—
48
—
(922)
(922)
469
13,943
16,179
—
1,644
1,644
—
(33)
1,644
1,611
—
17
(3)
—
—
16
(4)
—
(1)
17
13
43
—
16
1
48
1. Included within profit for the year is dividend income from subsidiaries of £1,691 million (2022: £2,500 million).
2. Included within the share premium account are costs associated with scrip dividends.
488
1,302
(53)
517
13,992
16,248
(1,607)
(1,607)
Company statement of changes in equity
for the years ended 31 March
Notes to the Company financial statements
Cash flow
hedge
reserve
£m
Cost of
hedging
reserve
£m
Other
equity
reserves
£m
Profit
and loss
account
£m
shareholders’
Total
equity
£m
1. Fixed asset investments
Cost at 1 April 2021
Additions
Cost at 31 March 2022
Additions
Cost at 31 March 2023
Provision at 1 April 2021
Charge for the year
Provision at 1 April 2022
Charge for the year
Provision at 31 March 2023
Net book value at 31 March 2023
Net book value at 31 March 2022
Shares in
subsidiary
undertakings
£m
16,809
43
16,852
48
16,900
(2,420)
—
(2,420)
—
(2,420)
14,480
14,432
During the year, there was a capital contribution of £48 million (2022: £43 million) which represents the fair value of equity instruments granted to
subsidiaries’ employees arising from equity-settled employee share schemes.
The Company’s direct subsidiary undertakings as at 31 March 2023 were as follows: National Grid (US) Holdings Limited, National Grid (US)
Investments 2 Limited*, National Grid Hong Kong Limited*, National Grid Luxembourg SARL and NGG Finance plc. The names of indirect subsidiary
undertakings, joint ventures and associates are included in note 34 to the consolidated financial statements.
The Directors believe that the carrying value of the investments is supported by the fair value of their underlying net assets.
* In liquidation.
2. Debtors
Amounts falling due within one year
Derivative financial instruments (note 4)
Amounts owed by subsidiary undertakings¹
Other debtors
Amounts falling due after more than one year
Derivative financial instruments (note 4)
Amounts owed by subsidiary undertakings¹
Deferred tax
2023
£m
2022
£m
82
65
15,285
28,179
2
11
15,369
28,255
60
124
17
201
81
120
6
207
1. Comparative amounts have been re-presented to reflect a correction to the prior year classification of an amount owed by a subsidiary undertaking.
The carrying values stated above are considered to represent the fair values of the assets. For the purposes of the impairment assessment, loans
to subsidiary undertakings are considered low credit risk as the subsidiaries are solvent and are covered by the Group’s liquidity arrangements.
A reconciliation of the movement in deferred tax in the year is shown below:
At 1 April 2021
Charged to equity
At 31 March 2022
Charged to equity
At 31 March 2023
Deferred tax
£m
4
2
6
11
17
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Annual Report and Accounts 2022/23
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Annual Report and Accounts 2022/23
215215
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Notes to the Company financial statements continued
3. Creditors
Amounts falling due within one year
Borrowings (note 6)
Derivative financial instruments (note 4)
Amounts owed to subsidiary undertakings
Other creditors
Amounts falling due after more than one year
Borrowings (note 6)
Derivative financial instruments (note 4)
Amounts owed to subsidiary undertakings
Amounts owed to subsidiary undertakings falling due after more than one year are repayable as follows:
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
The carrying values stated above are considered to represent the fair values of the liabilities.
4. Derivative financial instruments
The fair values of derivative financial instruments are as follows:
2023
£m
2022
£m
402
131
9,029
129
6,138
14,512
30
51
6,701
23,721
5,344
315
2,096
7,755
439
999
—
658
—
2,091
266
2,050
4,407
—
421
998
—
631
2,096
2,050
Assets
£m
82
60
142
2023
Liabilities
£m
(131)
(315)
(446)
Total
£m
(49)
(255)
(304)
Assets
£m
65
81
146
2022
Liabilities
£m
(129)
(266)
(395)
Total
£m
(64)
(185)
(249)
Amounts falling due within one year
Amounts falling due after more than one year
For each class of derivative, the notional contract1 amounts are as follows:
Cross-currency interest rate swaps
Foreign exchange forward contracts
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the balance sheet date.
5. Investments
Investments in short-term money funds
Restricted balances – collateral
2023
£m
2022
£m
(8,232)
(5,034)
(10,213)
(12,322)
(18,445)
(17,356)
2023
£m
492
107
599
2022
£m
1,164
204
1,368
216
216
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Notes to the Company financial statements continued
3. Creditors
Amounts falling due within one year
Borrowings (note 6)
Derivative financial instruments (note 4)
Amounts owed to subsidiary undertakings
Other creditors
Amounts falling due after more than one year
Borrowings (note 6)
Derivative financial instruments (note 4)
Amounts owed to subsidiary undertakings
In 1 to 2 years
In 2 to 3 years
In 3 to 4 years
In 4 to 5 years
More than 5 years
Amounts owed to subsidiary undertakings falling due after more than one year are repayable as follows:
The carrying values stated above are considered to represent the fair values of the liabilities.
4. Derivative financial instruments
The fair values of derivative financial instruments are as follows:
Amounts falling due within one year
Amounts falling due after more than one year
For each class of derivative, the notional contract1 amounts are as follows:
Assets
£m
82
60
142
2023
Liabilities
£m
(131)
(315)
(446)
Total
£m
(49)
(255)
(304)
Assets
£m
65
81
146
2022
Liabilities
£m
(129)
(266)
(395)
Total
£m
(64)
(185)
(249)
1. The notional contract amounts of derivatives indicate the gross nominal value of transactions outstanding at the balance sheet date.
Cross-currency interest rate swaps
Foreign exchange forward contracts
5. Investments
Investments in short-term money funds
Restricted balances – collateral
2023
£m
2022
£m
402
131
9,029
129
6,138
14,512
30
51
6,701
23,721
5,344
315
2,096
7,755
439
999
—
658
—
2,091
266
2,050
4,407
—
421
998
—
631
2,096
2,050
2023
£m
2022
£m
(8,232)
(5,034)
(10,213)
(12,322)
(18,445)
(17,356)
2023
£m
492
107
599
2022
£m
1,164
204
1,368
6. Borrowings
The following table analyses the Company’s total borrowings:
Amounts falling due within one year
Bank loans
Bonds
Commercial paper
Amounts falling due after more than one year
Bank loans
Bonds
Total borrowings
The maturity of total borrowings is as follows:
Total borrowings are repayable as follows:
Less than 1 year
In 3 to 4 years
In 4 to 5 years
More than 5 years
2023
£m
66
28
308
402
106
5,238
5,344
5,746
2022
£m
8,206
4
819
9,029
—
2,091
2,091
11,120
2023
£m
2022
£m
402
563
387
4,394
5,746
9,029
—
—
2,091
11,120
The notional amount of borrowings outstanding as at 31 March 2023 was £5,931 million (2022: £11,215 million).
7. Share capital
The called-up share capital amounting to £488 million (2022: £485 million) consists of 3,930,371,661 ordinary shares of 12204/473 pence each
(2022: 3,904,074,348 ordinary shares of 12204/473 pence each). For further information on share capital, refer to note 27 of the consolidated
financial statements.
8. Shareholders’ equity and reserves
At 31 March 2023, the profit and loss account reserve stood at £13,992 million (2022: £13,943 million) of which profits available for distribution
by the Company to shareholders were £13.9 billion (2022: £12.2 billion).
For further details of dividends paid and payable to shareholders, refer to note 9 of the consolidated financial statements.
9. Parent Company guarantees
The Company has guaranteed the repayment of the principal sum, any associated premium and interest on specific loans due by certain subsidiary
undertakings primarily to third parties. At 31 March 2023, the sterling equivalent amounted to £2,117 million (2022: £2,084 million). The guarantees
are for varying terms from less than one year to open-ended.
In addition, as part of the sectionalisation of the National Grid UK Pension Scheme on 1 January 2017, a guarantee of £1 billion has been provided to
Section A. This payment is contingent on insolvency or on failure to pay pensions obligations to Section A and can be claimed against National Grid
plc, National Grid Holdings One plc or Lattice Group Limited (up to £1 billion in total). Refer to note 25 of the consolidated financial statements.
10. Audit fees
The audit fee in respect of the Parent Company was £33,000 (2022: £31,000). Fees payable to Deloitte for non-audit services to the Company are
not required to be disclosed as they are included within note 4 to the consolidated financial statements.
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National Grid plcAnnual Report and Accounts 2022/23Strategic ReportCorporate Governance Financial StatementsAdditional InformationFinancial StatementsStrategic Report
Additional
Information
The business in detail
UK regulation
US regulation
Internal control and risk factors
Disclosure controls
Internal control over financial reporting
Risk factors
Shareholder information
Articles of Association
Depositary payments to the Company
Documents on display
Events after the reporting period
Exchange controls
Share information
Material interests in shares
Shareholder analysis
Taxation
UK stamp duty and stamp duty reserve tax (SDRT)
Other disclosures
All-employee share plans
Change of control provisions
Code of Ethics
Conflicts of interest
Corporate governance practices: differences from
New York Stock Exchange (NYSE) listing standards
Directors’ indemnity and Officers’ Liability Insurance
Employees
Human rights
Unresolved SEC staff comments
Property, plant and equipment and borrowings
Listing Rule 9.8.4 R cross-reference table
Political donations and expenditure
Material contracts
Research, development and innovation activity
Other unaudited financial statements
Commentary on consolidated financial information
Definitions and glossary of terms
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The business in detail
UK regulation
Our licences to participate in transmission,
distribution and interconnection activities are
established under the Electricity Act 1989.
These require us to develop, maintain and
operate economic and efficient networks
and to facilitate competition in the supply of
electricity in GB. They also give us statutory
powers, including the right to bury our pipes
or cables under public highways and the ability
to use compulsory powers to purchase land
so we can conduct our business.
Our licensed activities are regulated by Ofgem,
which has a statutory duty under the Electricity
Act 1989 to protect the interests of consumers.
To protect consumers from the ability of
companies to set unduly high prices, Ofgem
has established price controls that limit the
amount of revenue such regulated businesses
can earn. In setting price controls, Ofgem must
have regard to the need to secure that licence
holders are able to finance their obligations
under the Electricity Act 1989. This should
give us a level of revenue for the duration of
the price control that is sufficient to meet our
statutory duties and licence obligations with
a reasonable return on our investments.
Licensees and other affected parties can
appeal price controls or within period licence
modifications which have errors, including in
respect of financeability.
The transmission and distribution businesses
follow the RIIO (revenue = incentives +
innovation + outputs) framework established
by Ofgem. There are multiple price controls
under this framework, including:
• RIIO-T1 (electricity transmission, April 2013
– March 2021);
• RIIO-T2 (electricity transmission, April 2021
– March 2026);
• RIIO-ED1 (electricity distribution, April 2015
– March 2023); and
• RIIO-ED2 (electricity distribution, April 2023
– March 2028).
While the RIIO-T1 period has finished, and
confirmation of the delivered outputs and
performance levels was reported through the
annual reporting process in July 2021, there
is a close-out process ongoing to finalise
adjustments to allowed revenues in respect
of a few licence condition obligations for the
RIIO-T1 period; this is expected to conclude
during 2023.
A number of assumptions are necessary in
setting allowances for the outputs that we will
deliver, including the volumes of work that will
be needed and the price of the various external
inputs required to achieve them. Consequently,
there are a number of uncertainty mechanisms
within the RIIO framework designed to protect
consumers and network companies by
avoiding the need to set allowances when
future needs and costs are uncertain.
Where we under- or over-spend the allowed
totex for reasons that are not covered by
uncertainty mechanisms, there is a ‘sharing’
factor. This means we share the under- or
over-spend with customers through an
adjustment to allowed revenues in future years.
This sharing factor provides an incentive for
us to provide the outputs efficiently, as we are
able to keep a portion of savings we make,
with the remainder benefitting our customers.
Likewise, it provides a level of protection for
us if we need to spend more than allowances.
Alongside this, there are several specific areas
where companies can submit further claims for
new allowances within the period, for instance
to enable net zero.
Allowed revenue to fund totex costs is split
between RIIO ‘fast’ and ‘slow’ money
categories using specified ratios that are fixed
for the duration of the price control. Fast money
represents the amount of totex we are able
to recover in the year of expenditure. Slow
money is added to our RAV – effectively the
regulatory IOU.
For more details on the sharing factors under
RIIO for our transmission businesses, please
see the tables on page 221.
In addition to fast money, each year we are
allowed to recover regulatory depreciation,
i.e. a portion of the RAV, and a return on the
outstanding RAV balance. The RAV is also
indexed to a measure of inflation, using CPIH
in RIIO-T2. For RIIO-T2, regulatory depreciation
for ET continues on a straight-line depreciation
methodology over 45 years. We are also
allowed to collect additional revenues related
to non-controllable costs and incentives.
In addition to totex sharing, RIIO incentive
mechanisms can increase or decrease our
allowed revenue to reflect our performance
against various other measures related to our
outputs. For example, in RIIO-T2 there are
rewards and penalties for performance against
incentives. These incentive payments are
a function of allowed revenue and could
result in potential upsides for UK ET of up
to £15 million and downsides in the region
of £47 million, therefore incentivising us to
deliver the agreed outputs.
Our UK ET, UK ED and Electricity System
Operator (ESO) businesses operate under four
separate price controls, which cover our roles
as Transmission Owner (TO) and System
Operator (SO) in electricity, and our electricity
distribution activities. UK ET fulfils the TO
function for electricity, the ESO fulfils the
SO function for electricity and UK ED fulfils
electricity distribution activities.
In addition to these four regulated network
price controls, there is also a tariff cap
price control applied to regulation of our
electricity interconnector interests.
Since 1 April 2019, the ESO has been a legally
separate business within the Group. This
means it operates under its own licence and
has a separate set of regulatory arrangements,
along with strict ringfences for information.
UK ED operates under one regulatory
framework, the RIIO-ED model. Distribution
network operators (DNOs) in the UK are
natural monopolies and to ensure value for
money for consumers UK ED is regulated
by Ofgem. The operations are regulated
under the distribution licence which sets the
requirements that UK ED needs to deliver for
its customers. In addition to the base level of
revenue which the DNOs are allowed to earn,
there are incentives to innovate and deliver
various outputs relating to customer service,
network performance, the environment,
connections and efficiency. The achievement
or not of targets in relation to these activities
can result in rewards or penalties.
More information on the regulation of the ESO,
UK ED and interconnectors is given in separate
sections below.
RIIO price controls
The building blocks of the RIIO price controls
are broadly similar to the price controls
historically used in the UK. There are, however,
some significant differences in the mechanics
of the calculations.
Under RIIO, the outputs we deliver are explicitly
articulated and our allowed revenues are linked
to their delivery, although some outputs and
deliverables have only a reputational impact or
are linked to legislation. These outputs reflect
what our stakeholders have told us they want
us to deliver and were determined through an
extensive consultation process, which gave
stakeholders a greater opportunity to influence
the decisions.
Using information we have submitted, along
with independent assessments, including for
RIIO-T2 an Independent User Group (IUG)
report, Ofgem determines the efficient level
of expected costs necessary for these
deliverables to be achieved. Under RIIO this is
known as ‘totex’, which is a component of total
allowable expenditure and is broadly the sum
of what was defined in previous price controls
as operating expenditure (opex) and capital
expenditure (capex).
National Grid plc
Annual Report and Accounts 2022/23
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The business in detail continued
The RIIO-ED1 price control
From 1 April 2015, Ofgem set an eight-year
electricity price control (known as RIIO-ED1).
UK ED submitted an outputs-based business
plan for the RIIO-ED1 period (2015 – 2023),
which was accepted by Ofgem as “well
justified” and could therefore “fast-track”
all four UK ED licensed areas; the only DNO
group to be fast-tracked. UK ED’s modified
licences took effect from 1 April 2015. Our 76
commitments within the RIIO-ED1 business
plan fall within the following six categories:
safety, reliability, environment, connections,
customer satisfaction and social obligations.
These price controls include a number of
mechanisms designed to help achieve their
objectives. These include financial incentives
that encourage us to:
• efficiently deliver, through investment and
maintenance, the network outputs that
customers and stakeholders require,
including reliable supplies, new connections
and infrastructure capacity; and
• innovate so we can continuously improve
the services we provide to our customers,
stakeholders and communities.
Regulation of UK ED: RIIO-ED2
RIIO-ED2, covering the period April 2023
to March 2028, is the second price control
to be set under the RIIO model. The final
submission of our business plan was made
on 1 December 2021 and Ofgem’s Final
Determination was published on 30 November
2022. Following the acceptance of the Final
Determination we have prepared a RIIO-ED2
delivery plan which sets out how we will
continue to improve on our already industry-
leading standards while adapting to the
changing needs of our customers and the
environment in which we operate. Our
business plan for RIIO-ED1, 2015 – 2023, was
ambitious and industry leading. Building on this
impressive platform, we have listened to our
stakeholders and will deliver an even bolder
set of stretching commitments for RIIO-ED2,
driving a smart, sustainable energy revolution
for the communities we serve. The RIIO-ED2
delivery plan contains 420 ambitious core
commitments and more than 400 wider
commitments, all designed to achieve four
crucial outcomes for our customers:
Affordability: We will continue to deliver the
highest standards of safety, reliability and
customer service that customers have come
to expect from us. Power cuts will be at their
lowest ever levels and customer satisfaction
will be at its highest at over 93%. Crucially we
will achieve all of this while keeping our portion
of the average domestic customer bill affordable.
Sustainability: We will support the
UK’s ambitions to achieve net zero carbon
emissions by 2050, driving crucial changes in
energy usage and customer green behaviour.
We will set the benchmark by achieving net
zero in our own operations by 2030 (excluding
engineering network losses and Scope 3
emissions) and we will ensure the network is
ready to enable local authorities to achieve
similar ambitions in their regions.
Connectability: A lack of network capacity
should not be a barrier for our customers.
We will ensure that the network can cater for
up to 1.5 million additional EVs, 600,000 heat
pumps and a significant increase in renewable
generation over the next five years.
Vulnerability: We will deliver a first class
programme of inclusive support. This will
include offering 600,000 smart energy action
plans for vulnerable customers each year,
ensuring no one is left behind in a smart future.
We will also more than double our ground
breaking fuel poverty support to deliver over
£60 million of savings for 113,000 fuel poor
customers over the course of RIIO-ED2.
Regulation of UK ET: RIIO-T2
The RIIO-T2 price control started on 1 April
2021 and builds on the framework established
for RIIO-T1. For example, it introduces a range
of new mechanisms to facilitate the transition
to net zero, continues support for innovation,
incentivises us to deliver outputs and service
quality with ambitious targets aligned to our
customers’ and stakeholders’ requirements
and increases the opportunity to secure new
funding within the price control period.
The IUG includes a cross-section of the energy
industry and represents the interests of
consumers, environmental and public interest
groups, as well as large-scale and small-scale
customers. It was established in July 2018 to
ensure stakeholders are at the heart of our
decision-making processes and our plan is
fully reflective of customers’, consumers’ and
other stakeholders’ requirements. The IUG
has an enduring role in RIIO-T2 with three key
focus areas:
• scrutinise and challenge the periodic
business plans;
• monitor, interrogate and help the business
to enhance transparency of performance
against commitments; and
• act as a ‘critical friend’ for strategy,
culture and processes in key areas
such as stakeholder engagement,
innovation, customers, consumers
and responsible business.
Competition in onshore
transmission
The UK Government is set to legislate to enable
competition in onshore electricity networks
using measures brought forward through
the Energy Bill. However, Ofgem announced
17 ASTI projects exempt from competition
to avoid the slowing of progress towards
energy security and decarbonisation targets.
Notwithstanding, Ofgem continues to pursue
competition in transmission, it published its
decision to proceed with the implementation
of the Early Competition model in March 2022
and has instructed the ESO to progress work
in preparation to launch the Early Competition
process pending regulation.
We have consistently advocated for
competition in electricity transmission where
there is a clear consumer benefits case, and
this continues to be our position. We note
that there has been an intention to introduce
competition into electricity transmission for
several years and the challenges facing us
moving forward are very different from what
was envisaged when this policy started. It is
important that this broader landscape shift,
recognised through the recent ASTI decisions
published by Ofgem, is considered when
assessing the potential benefit of applying
a competitive model. Ofgem, through ASTI,
recognises that there is a need for accelerated
delivery to meet government decarbonisation
commitments and that this drives a very
different approach to project regulation,
incentivisation and supply chain engagement
and contracting. This must be considered
when thinking about the potential consumer
impact of competition.
We continue to work with Ofgem, ESO, DESNZ
and the industry to develop early competition
where it can be demonstrated to be beneficial
to consumers. We are continuously learning
how to improve in the energy supplier market
and must ensure the network sector remains
resilient to external changes. Any new entrant
must be held to a consistent set of standards
of financial and operational resilience, with
proper oversight from Ofgem. This will protect
our critical infrastructure and ensure that the
costs of poor performance or failure are not
socialised amongst taxpayers or consumers.
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Key parameters from Ofgem’s RIIO-ED1 determination for UK ED
and RIIO-T2 for UK ET
UK ED
UK ET
Allowed Return on Equity (RoE)1
6.40% (real, relative to RPI) at 65% gearing)
Allowed debt funding
Based on 10-year trailing average of iBoxx series
Depreciation of RAV
Straight-line 45-year depreciation
4.25% (real, relative to CPIH), at 55% gearing
(which is broadly equivalent to 4.55% at 60% gearing)
Calculated and updated each year using an
extending ‘trombone-like’ trailing average of iBoxx
Utilities 10+ year index (increases from 10 years for
2021/22 to 14 years for 2025/26), plus 25bps
additional borrowing costs
No change in policy: straight line over 45 years
for post-2021 RAV additions, with pre-2021 RAV
additions as per RIIO-T1
Notional gearing
65%
55%
Split between fast/slow money
80% capitalisation rate in RIIO-ED1
Sharing factor
Core baseline totex in 2018/19 prices (cumulative
for the eight years of RIIO-ED1 and five years
of RIIO-T2)
70%
£8.1 billion
Fast: RIIO-T2 baseline 22%;
RIIO-T2 uncertainty mechanisms 15%
Slow: RIIO-T2 baseline 78%;
TO uncertainty mechanisms 85%
33%
£5.8 billion
1. The cost of equity in RIIO-T2 is subject to annual adjustments that are calculated using the Capital Asset Pricing Model, through indexation of the ‘risk-free rate’ parameter. The 4.25%
and 4.55% figures shown in this row are Ofgem’s estimates of the average allowed RoE over the five years of RIIO-T2, as given in the RIIO-T2 Price Control Financial Model published
in November 2021.
Regulation of the ESO
A primary goal of ESO legal separation in
April 2019 was to increase transparency of
our activities and help minimise any perceived
conflicts of interest with the ESO as part
of National Grid plc. More recently, the UK
government has committed to the creation of
a Future System Operator (FSO) as part of the
draft Energy Bill, which will be at the heart of
GB’s energy system and the delivery of net zero.
Due to its unique role within industry, the
ESO has a bespoke regulatory framework,
with the five-year RIIO-2 period being split into
a number of smaller business plan periods.
During the last financial year the ESO had
submitted its second business plan, based
on stakeholder feedback and setting out the
ESO’s mission, ambitions and planned
activities. The business plan 2 period will
run from April 2023 to March 2025.
The ESO’s funding uses a pass-through
mechanism (where all efficiently incurred costs
can be recovered through regulated revenues),
and the ESO has the flexibility to deviate from
its published plans, delivering additional
activities where there is an opportunity to
benefit consumers. The RIIO-2 regulatory
framework includes a return on RAV but also
provides additional non-RAV funding for roles
and risks that are not linked to an asset base.
There is no totex incentive mechanism for the
ESO in RIIO-2, which means that the ESO has
greater flexibility to adjust spending in order to
deliver its ambitious business plan and
maximise consumer benefit.
ESO performance continues to be assessed
via an evaluative incentive approach and
the value has been set for the business
plan 1 period as a total maximum reward
of £30 million and maximum penalty of
£12 million for the two-year period. As part
of this incentive scheme, a Performance Panel
of industry stakeholders scores the ESO on its
performance, informing the reward or penalty
awarded by Ofgem at the end of the two-year
business plan 1 period.
Interconnectors regulation
Interconnectors derive their revenues from
sales of capacity to users who wish to move
power between market areas with different
prices. From 1 January 2021, interconnectors
to the UK are no longer governed by
European legislation, and the operation of
these interconnectors is governed by individual
sets of access rules which are agreed by
regulators at each end of the link. This does
not affect the fundamental business model
for interconnectors.
Under UK legislation, interconnection
businesses must be separate from the
transmission businesses.
There is a range of different regulatory models
available for interconnector projects. These
involve various levels of regulatory intervention,
ranging from fully merchant (where the project
is fully reliant on sales of interconnector
capacity) to cap and floor.
The cap and floor regime is now the regulated
route for interconnector investment in GB and
may be sought by project developers who do
not qualify for, or do not wish to apply for,
exemptions from UK and European legislation
which would facilitate a merchant development.
Multi-purpose interconnectors (MPIs) combine
interconnection with offshore wind. Ofgem has
established a pilot scheme and is developing
the regulatory regime for these assets.
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The business in detail continued
US regulation
Regulators
In the US, public utilities’ retail transactions are
regulated by state utility commissions which
serve as economic regulators, approving cost
recovery and authorised rates of return. The
state commissions establish the retail rates to
recover the cost of transmission and distribution
services within their jurisdictions. They also serve
the public interest by making sure utilities provide
safe and reliable services at just and reasonable
prices. The commissions establish service
standards and approve public utility mergers and
acquisitions. State commissions are also asked
to approve a variety of programmes and costs
related to state energy and climate goals.
The Federal Energy Regulatory Commission
(FERC) regulates wholesale transactions for
utilities, such as interstate transmission and
wholesale electricity sales, including rates for
these services, at the federal level. FERC also
regulates public utility holding companies and
centralised service companies, including those
of our US businesses.
Regulatory process
The US regulatory regime is premised on
allowing the utility the opportunity to recover
its cost of service and earn a reasonable return
on its investments as determined by each
commission. Utilities submit formal rate filings
(rate cases) to the relevant state regulator when
additional revenues are necessary to provide
safe, reliable service to customers. Additionally,
utilities can be compelled to file a rate case, either
due to complaints filed with the commission or at
the commission’s own discretion.
US regulatory revenue requirement
The rate case is typically litigated with parties
representing customers and other interests. The
utility is required to prove that the requested rate
change is just and reasonable, and the requested
rate plan can span multiple years. In the states
where we operate, it can typically take 9 –
13 months for the commission to render a final
decision, although, in some instances, rules allow
for longer negotiation periods which may extend
the length of the rate case proceeding. Unlike the
state processes, FERC, as the federal regulator,
has no specified timeline for adjudicating a rate
case; typically it makes a final decision
retroactively when the case is completed.
Gas and electricity rates are established from
a revenue requirement, or cost of service,
equal to the utility’s total cost of providing
distribution or delivery services to its
customers, as approved by the commission
in the rate case. This revenue requirement
includes operating expenses, depreciation,
taxes, and a fair and reasonable return on
shareholder capital invested in certain
components of the utility’s regulated asset
base or ‘rate base’.
The final revenue requirement and rates for
service are approved in the rate case decision.
The revenue requirement is derived from
a comprehensive study of the utility’s total
costs during a representative 12-month period,
referred to as a test year. Each commission has
its own rules and standards for adjustments to
the test year. These may include forecast
capital investments and operating costs.
Our rate plans
Each operating company has a set of rates
for service. We have three electric distribution
companies: Niagara Mohawk Power
Corporation, with operations in upstate
New York, Massachusetts Electric Company
and Nantucket Electric Company, each with
operations in Massachusetts.
Our distribution operating companies have
revenue-decoupling mechanisms that delink
their revenues from the quantity of energy
delivered and billed to customers. These
mechanisms remove the natural disincentive
utility companies have for promoting and
encouraging customer participation in energy-
efficiency programmes that lower energy
end-use and distribution volumes.
We bill our customers for their use of electricity
and gas services. Customer bills typically cover
the cost of the commodity (electricity or gas
delivered) and charges covering our delivery
service. Our customers are allowed to select
an unregulated competitive supplier for the
commodity component of electricity and gas
utility services.
A substantial proportion of our costs, in
particular electricity and gas commodity
purchases, are pass-through costs, fully
recoverable from our customers. We recover
pass-through costs through making separate
charges to customers, designed to recover
those costs with no profit. We adjust the
charges from time to time, often annually to
make sure that any over- or under-recovery
of these costs is returned to, or recovered
from, our customers.
Capex and RoE
Cost of service
X allowed
RoE
RoE
Interest
X cost
of debt
A
B
C
D
E
F
G
H
I
J
A Rate base
B Debt
C Equity
D Return
E Controllable costs
F Non-controllable costs
G Depreciation
H Taxes
I Lagged recoveries
J Allowed revenue
222
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Annual Report and Accounts 2022/23
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Our rate plans are designed to a specific
allowed RoE, by reference to an allowed
operating expense level and rate base.
Some rate plans include earnings-sharing
mechanisms that allow us to retain
a proportion of the earnings above our
allowed RoE, achieved through improving
efficiency, with the balance benefitting
customers. In addition, our performance
under certain rate plans is subject to service
performance targets. We may be subject to
monetary penalties in cases where we do
not meet those targets.
Our FERC-regulated transmission companies
use formula rates (instead of periodic stated
rate cases) to set rates annually that recover
their cost of service. Through the use of annual
true-ups, formula rates recover our actual
costs incurred and the allowed RoE based on
the actual transmission rate base each year.
We must make annual formula rate filings
documenting the revenue requirement that
customers can review and challenge.
Revenue for our wholesale transmission
businesses in New England and New York
is collected from wholesale transmission
customers. These are typically other utilities
and include our own New England electricity
distribution businesses. With the exception
of upstate New York, which continues to
combine retail transmission and distribution
rates to end-use customers, these wholesale
transmission costs are generally incurred
by distribution utilities on behalf of their
customers. They are fully recovered as
a pass-through from end-use customers,
as approved by each state commission.
Our Long Island generation plants sell
capacity to the Long Island Power Authority
(LIPA) under 15-year and 25-year power
supply agreements and within wholesale
tariffs approved by FERC. Through the use
of cost-based formula rates, these long-term
contracts provide a similar economic effect
to cost-of-service rate regulation.
One measure used to monitor the performance
of our regulated businesses is a comparison
of achieved RoE to allowed RoE. However,
this measure cannot be used in isolation, as
several factors may prevent us from achieving
the allowed RoE. These include financial
market conditions, regulatory lag (e.g. the time
period after a rate or expense is approved for
recovery but before we collect the same from
customers) and decisions by the regulator
preventing cost recovery in rates
from customers.
We work to increase achieved RoE through:
• productivity improvements;
• positive performance against incentives
or earned savings mechanisms, such as
available energy-efficiency programmes; and
• filing a new rate case when achieved returns
are lower than those the Company could
reasonably expect to attain through a new
rate case.
US regulatory filings
The objectives of our rate case filings are to
make sure we have the right cost of service
and are able to earn a fair and reasonable
rate of return, while providing a safe, reliable
and economical service. To achieve these
objectives and reduce regulatory lag, we have
been successful in many cases in obtaining
relief, such as:
• revenue-decoupling mechanisms;
• capital trackers;
• commodity-related bad debt true-ups;
• pension and other post-employment benefit
true-ups, separately from base rates; and
• performance-based frameworks such as
incentives and multi-year plans.
We explain these terms in the table on page 224.
Below, we summarise significant, recent
developments in rate filings and the
regulatory environment.
• A joint proposal setting forth a three-year
rate plan for KEDNY and KEDLI was
approved by the New York State Public
Service Commission (NYPSC) in
August 2021.
• A joint proposal, setting forth a three-year
rate plan for Niagara Mohawk, was approved
by the NYPSC in January 2022.
• An amended settlement agreement
setting forth a three-year rate plan for
The Narragansett Electric Company was
approved by the Rhode Island Public
Utilities Commission (RIPUC) in August 2018.
The multi-year rate plan includes an interim
fourth year, effective 1 September 2021.
In November 2018, we made a full rate case
filing for Massachusetts Electric which resulted
in a five-year performance-based ratemaking
plan in September 2019. In November 2020,
we made a full rate case filing for Boston Gas
resulting in a five-year performance-based
ratemaking plan in September 2021.
Massachusetts
Massachusetts Electric and
Nantucket Electric rate cases
We filed a rate case for Massachusetts Electric
and Nantucket Electric with the Massachusetts
Department of Public Utilities (MADPU) on
15 November 2018 with new rates effective on
1 October 2019. The Massachusetts Electric
rate case was the first for Massachusetts
Electric and Nantucket Electric since the case
was filed in 2015. It updated the electric
companies’ rates to more closely align
revenues with the cost of service and bring
their earned RoEs closer to the allowed RoE.
New rates were approved with an allowed
RoE of 9.6% on an equity ratio of 53.5%.
The MADPU approved a five-year
performance-based ratemaking plan, which
adjusts distribution rates annually based on
a predetermined formula. As part of its
decision, the MADPU required a management
audit addressing the Company’s strategic
planning processes, staffing decisions and
its relationship to National Grid USA Service
Company, among other items.
Boston Gas Company rate case
On 30 September 2021, the MADPU issued
an order in Boston Gas Company’s most
recent rate case. The MADPU decision:
(1) allowed an increase in base revenues of
$144.86 million, as compared with the request
for $220.74 million; (2) authorised an RoE of
9.70%, raised from the previous RoE of 9.5%;
(3) authorised a capital structure of 53.44%
equity and 46.56% debt; and (4) allowed for
recovery of the costs of 133 new, incremental
full-time employees. The decision also
approved the Boston Gas Company’s
proposed five-year performance-based
ratemaking plan which adjusts distribution
rates annually based on a predetermined
formula. Boston Gas Company had
also presented its Future of Heat proposals
to address Massachusetts’ ambitious
greenhouse gas emissions reduction goals.
These proposals are innovative programmes
and demonstration projects that the Boston
Gas Company has developed to reduce
emissions, promote gas demand response,
and encourage the development of sustainable
heating options and new technologies to
advance low-carbon heating solutions.
Ultimately, the MADPU elected to remove our
Future of Heat proposals from the rate case
without prejudice for their consideration as
part of other proceedings. Subsequently, on
15 December 2021, the MADPU approved the
Boston Gas Company’s geothermal district
energy demonstration programme for five
years with a budget of $15.6 million.
New York
Downstate New York 2023 rate cases
KEDNY and KEDLI filed rate cases with the
NYPSC on 28 April 2023 seeking to increase
delivery revenues by $414 million and
$228 million respectively for the year ending
31 March 2025. The filings proposes capital
investments of more than $1.67 billion for
KEDNY and KEDLI in the first rate year
to modernise KEDNY and KEDLI’s gas
infrastructure to implement safety
improvements, enhance reliability and
resilience, replace ageing and leak-prone
facilities and reduce methane emissions.
We aim to update our allowed revenues to
reflect our cost of service more closely while
maintaining affordable energy for customers.
The rate cases align with our 2050 vision
to support a sustainable and affordable
path towards a low-carbon energy future.
Additionally, the rate filings included proposals
to expand low-income and energy-efficiency
programmes, fund hydrogen blending and
renewable natural gas projects, and enhance
customer service. The companies filed
three additional years of data to facilitate
the possibility of a multi-year settlement.
Our current rate plan will be applicable
until this rate proceeding concludes.
National Grid plc
Annual Report and Accounts 2022/23
223
The business in detail continued
Summary of US price controls and rate plans
9
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Massachusetts Gas
Federal Energy
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Interconnector/Other4
New England Power
Long Island Generation
$7,045m 48:52
9.0% 8.1%
$1,800m 48:52
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$6,048m 48:52
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$3,774m 48:52
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$3,106m 53:47
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$59m
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1. Both transmission and distribution, excluding stranded costs.
2. KeySpan Energy Delivery New York (the Brooklyn Union Gas Company).
3. KeySpan Energy Delivery Long Island (KeySpan Gas East Corporation).
4. Equity ratio and Return on Equity values are for the Canadian Interconnector only.
Rate filing made
New rates effective
Rate plan ends
Rates continue indefinitely
Multi-year rate plan
Feature in place
P Feature partially in place
†Revenue decoupling
A mechanism that removes the link between a utility’s revenue and sales volume so
that the utility is indifferent to changes in usage. Revenues are reconciled to a revenue
target, with differences billed or credited to customers. This allows the utility to support
energy efficiency.
§Commodity-related bad debt true-up
A mechanism that allows a utility to reconcile commodity-related bad debt either to
actual commodity-related bad debt or to a specified commodity-related bad debt
write-off percentage. For electricity utilities, this mechanism also includes
working capital.
‡Capital tracker
A mechanism that allows the recovery of the revenue requirement of incremental capital
investment above that embedded in base rates, including depreciation and a return on
the incremental investment.
◊Pension/OPEB true-up
A mechanism that reconciles the actual non-capitalised costs of pension and other
post-employment benefits (OPEB) and the actual amount recovered in base rates.
The difference may be amortised and recovered over a period or deferred for a future
rate case.
224
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Internal control and risk factors
Disclosure controls
Our management, including the Chief
Executive and Chief Financial Officer, have
evaluated the effectiveness of the design
and operation of our disclosure controls
and procedures as at 31 March 2023.
Our disclosure controls and procedures are
designed to provide reasonable assurance
of achieving their objectives; however, their
effectiveness has limitations, including
the possibility of human error and the
circumvention or overriding of the controls
and procedures.
Even effective disclosure controls and
procedures provide only reasonable
assurance of achieving their objectives.
Based on the evaluation, the Chief Executive
and Chief Financial Officer concluded that
the disclosure controls and procedures are
effective to provide reasonable assurance
that information required for disclosure in
the reports that we file and submit under the
Securities Exchange Act 1934 is recorded,
processed, summarised and reported as
and when required and that such information
is accumulated and communicated to our
management, including the Chief Executive
and Chief Financial Officer, as appropriate,
to allow timely decisions regarding disclosure.
Internal control over
financial reporting
Our management, including the Chief
Executive and Chief Financial Officer, have
carried out an evaluation of our internal
control over financial reporting pursuant to
the Disclosure Guidance and Transparency
Rules (DTR) and section 404 of the Sarbanes–
Oxley Act. As required by section 404,
management is responsible for establishing
and maintaining an adequate system of
internal control over financial reporting (as
defined in Rules 13(a) – 5(f) and 15(d) – 15(f)
under the Securities Exchange Act 1934).
Our internal control over financial reporting
is designed to provide reasonable assurance
regarding the reliability of financial reporting
and the preparation of financial statements
for external purposes, in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal
control over financial reporting may not
prevent or detect misstatements. Also,
projections of any evaluation of effectiveness
to future periods are subject to the risk that
controls may become inadequate because
of changes in conditions, or that the degree
of compliance with the policies or procedures
may deteriorate.
Management’s evaluation of the effectiveness
of the Company’s internal control over
financial reporting was based on the revised
Internal Control – Integrated Framework 2013
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Using this evaluation, management concluded
that our internal control over financial
reporting was effective as at 31 March 2023.
Deloitte LLP, which has audited our
consolidated financial statements for the year
ended 31 March 2023, has also audited the
effectiveness of our internal control over
financial reporting.
During the year, there were no changes that
have materially affected, or are reasonably
likely to materially affect, our internal control
over financial reporting.
Risk factors
Management of our risks is an important
part of our internal control environment, as
we describe on pages 225 – 228. In addition
to the principal risks listed, we face a number
of inherent risks that could have a material
adverse effect on our business, financial
condition, results of operations and
reputation, as well as the value and liquidity
of our securities. Any investment decision
regarding our securities and any
forward-looking statements made by us
should be considered in the light of these
risk factors and the cautionary statement
set out on page 260. An overview of the key
inherent risks we face is provided below.
Risk factors
Law, regulation and political and economic uncertainty
Changes in law or regulation, or decisions by governmental bodies
or regulators and increased political and economic uncertainty,
could materially adversely affect us.
Decisions or rulings concerning the following (as examples) could have a material
adverse impact on our results of operations, cash flows, the financial condition
of our businesses and the ability to develop those businesses in the future:
Most of our businesses are utilities or networks subject to regulation by
governments and other authorities. Changes in law or regulation or regulatory
policy and precedent (including changes arising as a result of the UK’s exit from
the European Union), as well as legislation introduced to facilitate the attainment
of net zero emissions targets, and decisions of governmental bodies or regulators
in the countries or states in which we operate could materially adversely affect us.
We may fail to deliver any one of our customer, investor and wider stakeholder
propositions due to increased political and economic uncertainty.
If we fail to respond to or meet our own commitments as a leader in relation to
climate change and the energy transition, we may be unable to influence future
energy policy and deliver our strategy.
• the implementation of the RIIO-T2 and RIIO-ED2 price controls; whether
licences, approvals or agreements to operate or supply are granted, amended
or renewed; whether consents for construction projects are granted in a timely
manner; or whether there has been any breach of the terms of a licence,
approval or regulatory requirement; and
• timely recovery of incurred expenditure or obligations; the ability to pass
through commodity costs; a decoupling of energy usage and revenue, and
other decisions relating to the impact of general economic conditions on us,
our markets and customers; implications of climate change and of advancing
energy technologies; whether aspects of our activities are contestable; and the
level of permitted revenues and dividend distributions for our businesses and
in relation to proposed business development activities.
For further information, see pages 219 – 223, which explain our regulatory
environment in detail.
National Grid plc
Annual Report and Accounts 2022/23
225
Internal control and risk factors continued
Potentially harmful activities
Aspects of the work we do could potentially harm employees,
contractors, members of the public or the environment.
Potentially hazardous activities that arise in connection with our business include:
the generation, transmission and distribution of electricity; and the storage,
transmission and distribution of gas. Electricity and gas utilities also typically use
and generate hazardous and potentially hazardous products and by-products.
In addition, there may be other aspects of our operations that are not currently
regarded or proved to have adverse effects but could become so.
A significant safety or environmental incident, or the failure of our safety processes
or of our occupational health plans, as well as the breach of our regulatory or
contractual obligations or our climate change targets, could materially adversely
affect our results of operations and our reputation.
Safety is a fundamental priority for us, and we commit significant resources
and expenditure to ensure process safety; to monitoring personal safety,
occupational health and environmental performance; and to meeting our
obligations under negotiated settlements.
Infrastructure and IT systems
We may suffer a major network failure or interruption, or may not be
able to carry out critical operations due to the failure of infrastructure,
data or technology or a lack of supply.
Operational performance could be materially adversely affected by: a failure to
maintain the health of our assets or networks; inadequate forecasting of demand;
and inadequate record keeping or control of data or failure of information systems
and supporting technology. This, in turn, could cause us to fail to meet agreed
standards of service, incentive and reliability targets, or be in breach of a licence,
approval, regulatory requirement or contractual obligation. Even incidents that
do not amount to a breach could result in adverse regulatory and financial
consequences, as well as harming our reputation.
Where demand for electricity or gas exceeds supply, including where we do
not adequately forecast and respond to disruptions in energy supplies, and
our balancing mechanisms are not able to mitigate this fully, a lack of supply
to consumers may damage our reputation.
In addition to these risks, we may be affected by other potential events that
are largely outside our control, weather (including as a result of climate change
and major storms), unlawful or unintentional acts of third parties, insufficient
or unreliable supply, or force majeure.
Pandemics and epidemics
We face risks related to health epidemics and other outbreaks.
As seen in the context of COVID-19, pandemics and their associated counter-
measures may affect countries, communities, supply chains and markets,
including the UK and our service territory in the US. The spread of such
pandemics could have adverse effects on our workforce, which could affect
our ability to maintain our networks and provide service. In addition, disruption
of supply chains could adversely affect our systems or networks.
Pandemics can also result in extraordinary economic circumstances in our
markets which could negatively affect our customers’ ability to pay our invoices
in the US or the charges payable to the system operators for transmission services
in the UK. Measures such as the suspension of debt collection and customer
termination activities across our service area in response to such pandemics
are likely to result in near-term lower customer collections, and could result
in increasing levels of bad debt and associated provisions.
Business performance
We are subject to laws and regulations in the UK and US governing health and
safety matters to protect the public and our employees and contractors, who
could potentially be harmed by these activities, as well as laws and regulations
relating to pollution, the protection of the environment, and the use and disposal
of hazardous substances and waste materials.
These expose us to costs and liabilities relating to our operations and properties,
including those inherited from predecessor bodies, whether currently or formerly
owned by us, and sites used for the disposal of our waste.
The cost of future environmental remediation obligations is often inherently difficult
to estimate, and uncertainties can include the extent of contamination, the
appropriate corrective actions and our share of the liability. We are increasingly
subject to regulation in relation to climate change and are affected by requirements
to reduce our own carbon emissions (including our own commitment to reduce
our greenhouse gas emissions to net zero by 2050) as well as to enable reduction
in energy use by our customers. If more onerous requirements are imposed or our
ability to recover these costs under regulatory frameworks changes, this could
have a material adverse impact on our business, reputation, results of operations
and financial position.
Weather conditions can affect financial performance, and severe weather that
causes outages or damages infrastructure, together with our actual or perceived
response, could materially adversely affect operational and potentially business
performance and our reputation.
Malicious attack, sabotage or other intentional acts, including breaches of our
cyber security, may also damage our assets (which include critical national
infrastructure) or otherwise significantly affect corporate activities and, as
a consequence, have a material adverse impact on our reputation, business,
results of operations and financial condition.
Unauthorised access to, or deliberate breaches of, our IT systems may also
lead to manipulation of our proprietary business data or customer information.
Unauthorised access to private customer information may make us liable
for a violation of data privacy regulations. Even where we establish business
continuity controls and security against threats to our systems, these may
not be sufficient.
The extent to which pandemics may affect our liquidity, business, financial
condition, results of operations and reputation will depend on future
developments, which are highly uncertain and cannot be predicted. This will
depend on the severity of the relevant pandemic, the scope, duration, cost
to National Grid and overall economic impact of actions taken to contain it
or treat its effects.
Current and future business performance may not meet our expectations
or those of our regulators and shareholders.
Earnings maintenance and growth from our regulated gas and electricity
businesses will be affected by our ability to meet or exceed efficiency targets
and service quality standards set by, or agreed with, our regulators.
If we do not meet these targets and standards, or if we are not able to deliver
our rate plans strategy successfully, we may not achieve the expected benefits,
our business may be materially adversely affected and our performance, results
of operations and reputation may be materially harmed and we may be in breach
of regulatory or contractual obligations.
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Growth and business development activity
Failure to respond to external market developments and execute our
growth strategy may negatively affect our performance. Conversely,
new businesses or activities that we undertake alone or with partners
may not deliver target outcomes and may expose us to additional
operational and financial risk.
We may also be liable for the past acts, omissions or liabilities of companies
or businesses we have acquired, which may be unforeseen or greater than
anticipated. In the case of joint ventures, we may have limited control over
operations and our joint venture partners may have interests that diverge
from our own.
Failure to grow our core business sufficiently and have viable options for new
future business over the longer term, or failure to respond to the threats and
opportunities presented by emerging technology or innovation (including for
the purposes of adapting our networks to meet the challenges of increasing
distributed energy resources), could negatively affect the Group’s credibility
and reputation and jeopardise the achievement of intended financial returns.
Our business development activities, including the NGED acquisition, the NECO
sale, the NGT sale and the delivery of our growth ambition, involve acquisitions,
disposals, joint ventures, partnering and organic investment opportunities, such
as development activities relating to changes to the energy mix and the integration
of distributed energy resources and other advanced technologies. These are
subject to a wide range of both external uncertainties (including the availability of
potential investment targets and attractive financing and the impact of competition
for onshore transmission in both the UK and US) and internal uncertainties
(including actual performance of our existing operating companies and our
business planning model assumptions and ability to integrate acquired businesses
effectively). As a result, we may suffer unanticipated costs and liabilities and
other unanticipated effects.
Financing and liquidity
An inability to access capital markets at commercially acceptable
interest rates could affect how we maintain and grow our businesses.
Our businesses are financed through cash generated from our ongoing
operations, bank lending facilities and the capital markets, particularly the
bond markets.
Most of the debt we issue is rated by credit rating agencies, and changes to these
ratings may affect both our borrowing capacity and borrowing costs. In addition,
restrictions imposed by regulators may also limit how we service the financial
requirements of our current businesses or the financing of newly acquired or
developing businesses.
Financial markets can be subject to periods of volatility and shortages of liquidity,
for example as a result of unexpected political or economic events, pandemics
or the conflict in Ukraine. If we were unable to access the capital markets or other
sources of finance at commercially acceptable rates for a prolonged period, our
cost of financing may increase, the discretionary and uncommitted elements of
our proposed capital investment programme may need to be reconsidered and
the manner in which we implement our strategy may need to be reassessed.
Such events could have a material adverse impact on our business, results of
operations and prospects.
Some of our regulatory agreements impose lower limits for the long-term
unsecured debt credit ratings that certain companies within the Group must hold
or the amount of equity within their capital structures, including a limit requiring
the company to hold an investment-grade long-term senior unsecured debt
credit rating.
Exchange rates, interest rates and commodity price indices
Changes in foreign currency rates, interest rates or commodity
prices could materially impact earnings or our financial condition.
We have significant operations in the US and are therefore subject to the
exchange rate risks normally associated with non-UK operations, including
the need to translate US assets, liabilities, income and expenses into sterling
(our reporting currency).
The occurrence of any of these events could have a material adverse impact on
our results of operations or financial condition, and could also impact our ability
to enter into other transactions.
In addition, some of our regulatory arrangements impose restrictions on the
way we can operate. These include regulatory requirements for us to maintain
adequate financial resources within certain parts of our operating businesses
and may restrict the ability of National Grid plc and some of our subsidiaries to
engage in certain transactions, including paying dividends, lending cash and
levying charges.
The inability to meet such requirements, or the occurrence of any such
restrictions, may have a material adverse impact on our business and
financial condition.
Our debt agreements and banking facilities contain covenants, including those
relating to the periodic and timely provision of financial information by the issuing
entity, restrictions on disposals and financial covenants, such as restrictions
on the level of subsidiary indebtedness.
Failure to comply with these covenants, or to obtain waivers of those
requirements, could in some cases trigger a right, at the lender’s discretion,
to require repayment of some of our debt and may restrict our ability to draw
upon our facilities or access the capital markets.
In addition, our results of operations and net debt position may be affected
because a significant proportion of our borrowings, derivative financial instruments
and commodity contracts are affected by changes in interest rates, commodity
price indices and exchange rates, in particular the dollar-to-sterling exchange rate.
Furthermore, our cash flow may be materially affected as a result of settling
hedging arrangements entered into to manage our exchange rate, interest rate
and commodity price exposure, or by cash collateral movements relating to
derivative market values, which also depend on the sterling or US dollar exchange
rate into the euro and other currencies.
National Grid plc
Annual Report and Accounts 2022/23
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Internal control and risk factors continued
Post-retirement benefits
We may be required to make significant contributions to fund pension
and other post-retirement benefits.
Actual performance of scheme assets may be affected by volatility in debt and
equity markets.
We participate in a number of pension schemes that together cover substantially
all our employees. In both the UK and US, such schemes include various large
defined benefit schemes where the scheme assets are held independently of
our own financial resources.
Changes in these assumptions or other factors may require us to make additional
contributions to these pension schemes which, to the extent they are not
recoverable under our price controls or state rate plans, could materially adversely
affect the results of our operations and financial condition.
In the US, we also have other post-retirement benefit schemes. Estimates of the
amount and timing of future funding for the UK and US schemes are based on
actuarial assumptions and other factors, including: the actual and projected
market performance of the scheme assets; future long-term bond yields; average
life expectancies; and relevant legal requirements.
Customers, suppliers and counterparties
Customers, suppliers and counterparties may not perform
their obligations.
Our operations are exposed to the risk that customers, suppliers, banks and other
financial institutions, and others with whom we do business, will not satisfy their
obligations, which could materially adversely affect our financial position.
This risk is significant where our subsidiaries have concentrations of receivables
from gas and electricity utilities and their affiliates, as well as industrial customers
and other purchasers, and may also arise where customers are unable to pay us
as a result of increasing commodity prices or adverse economic conditions.
Employees and others
We may fail to attract, develop and retain employees with the
competencies (including leadership and business capabilities),
values and behaviours required to deliver our strategy and vision
and ensure they are engaged to act in our best interests.
Our ability to implement our strategy depends on the capabilities and performance
of our employees and leadership at all levels of the business. Our ability to
implement our strategy and vision may be negatively affected by the loss of key
personnel or an inability to attract, integrate, engage and retain appropriately
qualified personnel (including people with the skills to help us deliver on our net
zero commitments) or if significant disputes arise with our employees.
To the extent that counterparties are contracted or physical commodities (gas
and electricity) and they experience events that impact their own ability to deliver,
we may suffer supply interruption as described in Infrastructure and IT systems
on page 226.
In addition, the Company may be impacted by supply chain disruptions and
shortages of materials, equipment, labour and other resources that are critical
to the Group’s business operations, including the delivery of major projects.
Long lead times for replacement parts could restrict the availability and delay
the construction, maintenance or repair of items that are needed to support the
Group’s normal operations and may result in prolonged customer outages which
could in turn lead of unrecovered costs for such services interruptions. Demand
for electric equipment is increasing due to utilities’ efforts to meet clean energy
goals and in order to prepare for more frequent extreme weather events at a time
when manufacturing capacity and supply are decreasing. Prices of materials,
equipment, transportation and other resources have increased as a result of these
supply chain disruptions and shortages and may furthermore continue to increase
as a result of inflation.
There is also a risk to us where we invest excess cash or enter into derivatives
and other financial contracts with banks or other financial institutions. Banks that
provide us with credit facilities may also fail to perform under those contracts.
As a result, there may be a material adverse effect on our business, financial
condition, results of operations and prospects.
There is a risk that an employee or someone acting on our behalf may breach our
internal controls or internal governance framework, or may contravene applicable
laws and regulations. This could have an impact on the results of our operations,
our reputation and our relationship with our regulators and other stakeholders.
Index to Directors’ Report and other disclosures, as required under the
Companies Act 2006
AGM
Articles of Association
Audit information
Board of Directors
Business model
Change of control provisions
Code of Ethics
Conflicts of interest
Directors’ indemnity
Directors’ service contracts and letters
of appointment
Directors’ share interests
Diversity
Dividends
Events after the reporting period
Financial instruments
Future developments
Greenhouse gas emissions
Human rights
Important events affecting the Company during
the year
Internal control
Internal control over financial reporting
Listing Rule 9.8.4 R cross-reference table
Material interests in shares
Colleagues
Political donations and expenditure
Research, development and innovation activity
Risk management
Share capital
78
229
109
70
4
235
235
235
235
98
81
259
230
102
164
12
15
35 & 236
10
18
225
237
231
37
237
237
18
182
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Shareholder information
Articles of Association
The following description is a summary of the
material terms of our Articles of Association
(Articles) and applicable English law. It is
a summary only and is qualified in its entirety
by reference to the Articles.
The Articles set out the Company’s internal
regulations. Copies are available on our
website at nationalgrid.com/corporate-
governance and upon request. Amendments
to the Articles have to be approved by at least
75% of those voting at a general meeting of
the Company. Subject to company law and
the Articles, the Directors may exercise all the
powers of the Company. They may delegate
authorities and decision making and the
day-to-day management to individual Executive
Directors and committees on page 68.
General
The Company is incorporated under the name
National Grid plc and is registered in England
and Wales with registered number 4031152.
Under the Companies Act 2006, the
Company’s objects are unrestricted.
Directors
Under the Articles, a Director must disclose
any personal interest in a matter and may not
vote in respect of that matter, subject to certain
limited exceptions. As permitted under the
Companies Act 2006, the Articles allow
non-conflicted Directors to authorise a conflict
or potential conflict for a particular matter.
In doing so, the non-conflicted Directors must
act in a way they consider, in good faith, will
be most likely to promote the success of the
Company for the benefit of the shareholders
as a whole.
The Directors (other than a Director acting in
an executive capacity) are paid fees for their
services. In total, these fees must not exceed
£2 million per year or any higher sum decided
by an ordinary resolution at a general meeting
of shareholders. In addition, special pay may
be awarded to a Director who acts in an
executive capacity, serves on a committee,
performs services which the Directors consider
to extend beyond the ordinary duties of
a Director, devotes special attention to the
business of the Company, or goes or lives
abroad on the Company’s behalf. Directors
may also receive reimbursement for expenses
properly incurred, and may be awarded
pensions and other benefits. The
compensation awarded to the Executive
Directors is determined by the Remuneration
Committee. Further details of Directors’
remuneration are set out in the Directors’
Remuneration Report (see pages 94 – 106).
The Directors may exercise all the powers of
National Grid to borrow money. However, the
aggregate principal amount of all the Group’s
borrowings outstanding at any time must
not exceed £55 billion or any other amount
approved by shareholders by an ordinary
resolution at a general meeting.
Directors can be appointed or removed by the
Board or shareholders at a general meeting.
Directors must stand for election at the first
AGM following their appointment to the Board
and the Articles provide, in line with market
practice, that they must be recommended by
the Board or the Company must have received
written confirmation of their willingness to act
as Director. Each Director must retire at least
every three years, although they will be eligible
for re-election. In accordance with best
practice introduced by the UK Corporate
Governance Code 2018 (the Code), all
Directors wishing to continue in office currently
offer themselves for re-election annually. No
person is disqualified from being a Director or
is required to vacate that office by reason of
attaining a maximum age.
A Director is not required to hold shares in
National Grid plc in order to qualify as a Director.
Rights, preferences
and restrictions
Dividend rights
National Grid may not pay any dividend
otherwise than out of profits available for
distribution under the Companies Act 2006
and other applicable provisions of English law.
In addition, as a public company, the Company
may only make a distribution if, at the time of
the distribution, the amount of its net assets
is not less than the aggregate of its called-up
share capital and undistributable reserves
(as defined in the Companies Act 2006), and to
the extent that the distribution does not reduce
the amount of those assets to less than that
aggregate. Ordinary shareholders and
American Depositary Share (ADS) holders
receive dividends.
Subject to these points, shareholders may,
by ordinary resolution, declare dividends in
accordance with the respective rights of the
shareholders, but not exceeding the amount
recommended by the Board. The Board may
pay interim dividends if it considers that the
Company’s financial position justifies the
payment. Any dividend or interest unclaimed
for 12 years from the date when it was
declared or became due for payment will be
forfeited and revert to the Company, and the
Articles clarify that the Company may use such
unclaimed dividends for the Company’s benefit
as the Directors may think fit.
Voting rights
Subject to any rights or restrictions attached
to any shares and to any other provisions of
the Articles, at any general meeting on a show
of hands, every shareholder who is present
in person will have one vote and, on a poll,
every shareholder will have one vote for every
share they hold. On a show of hands or poll,
shareholders may cast votes either personally
or by proxy. A proxy need not be a shareholder.
Under the Articles, all substantive resolutions at
a general meeting must be decided on a poll
and the Articles further provide that voting on
resolutions at a general meeting that is held at
least in part using an electronic platform must
be decided on a poll. Ordinary shareholders
and ADS holders can vote at general meetings.
Liquidation rights
In a winding up, a liquidator may (in each case
with the sanction of a special resolution passed
by the shareholders and any other sanction
required under English law): (1) divide among
the shareholders the whole or any part of
National Grid’s assets (whether the assets
are of the same kind or not) – the liquidator
may, for this purpose, value any assets and
determine how the division should be carried
out as between shareholders or different
classes of shareholders; or (2) transfer any
part of the assets to Trustees on trust for the
benefit of the shareholders as the liquidator
determines. In neither case will a shareholder
be compelled to accept assets upon which
there is a liability.
Restrictions
There are no restrictions on the transfer or sale
of ordinary shares. Some of the Company’s
employee share plans, details of which are
contained in the Directors’ Remuneration
Report, include restrictions on the transfer of
ordinary shares while the ordinary shares are
subject to the plan. Where, under an employee
share plan operated by the Company,
participants are the beneficial owners of the
ordinary shares but not the registered owner,
the voting rights may be exercised by the
registered owner at the direction of the
participant. Treasury shares do not attract
a vote or dividends.
Variation of rights
Subject to applicable provisions of English law,
the rights attached to any class of shares of
National Grid may be varied or cancelled.
This must be with the written consent of the
holders of three quarters in nominal value of
the issued shares of that class, or with the
sanction of a special resolution passed at
a separate meeting of the holders of the
shares of that class.
General meetings
AGMs must be convened each year within
six months of the Company’s accounting
reference date upon 21 clear days’ advance
written notice. Under the Articles, any other
general meeting may be convened provided
at least 14 clear days’ written notice is given,
subject to annual approval of shareholders.
In certain limited circumstances, the Company
can convene a general meeting by shorter
notice. The notice must specify, among
other things, the nature of the business to be
transacted and the place, the date and the time
of the meeting. The 2023 AGM will be held as
a combined physical and electronic meeting.
Please ensure you continue to monitor our
website at nationalgrid.com/investors for
any updates to the arrangements for the AGM.
Rights of non-residents
There are no restrictions under the Articles that
would limit the rights of persons not resident
in the UK to vote in relation to ordinary shares.
National Grid plc
Annual Report and Accounts 2022/23
229
Shareholder information continued
Depositary payments to the Company
The Bank of New York Mellon (the Depositary) reimburses the Company for certain expenses it incurs in relation to the ADS programme.
The Depositary also pays the standard out-of-pocket maintenance costs for the ADSs, which consist of the expenses for the mailing of annual and
interim financial reports, printing and distributing dividend cheques, the electronic filing of US federal tax information, mailing required tax forms,
stationery, postage, facsimiles and telephone calls. It also reimburses the Company for certain investor relationship programmes or special investor
relations promotional activities. There are limits on the amount of expenses for which the Depositary will reimburse the Company, but the amount
of reimbursement is not necessarily tied to the amount of fees the Depositary collects from investors.
For the period 18 May 2022 to 17 May 2023, the Company received a total of $1,659,900.30 in reimbursements from the Depositary consisting
of $108,783.00, $1,038,864.75 received on 2 June 2022 and 29 December 2022 respectively. Fees that are charged on cash dividends will be
apportioned between the Depositary and the Company.
Any questions from ADS holders should be directed to the Depositary at the contact details on page 259.
Description of securities other than equity securities: Depositary fees and charges
The Depositary collects fees by deducting them from the amounts distributed or by selling a portion of distributable property for:
• delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from
intermediaries acting for them; and
• making distributions to investors (including, it is expected, cash dividends).
The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
The Company’s Deposit agreement under which the ADSs are issued allows a fee of up to $0.05 per ADS to be charged for any cash distribution
made to ADS holders, including cash dividends. ADS holders who receive cash in relation to the 2022/23 final dividend will be charged a fee of
$0.02 per ADS by the Depositary prior to distribution of the cash dividend.
Persons depositing or withdrawing shares must pay:
For:
$5.00 per 100 ADSs
(or portion of 100 ADSs)
Registration or transfer fees
Expenses of the Depositary
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property;
cancellation of ADSs for the purpose of withdrawal, including if the Deposit agreement terminates; and
distribution of securities distributed to holders of deposited securities that are distributed by the Depositary
to ADS holders.
Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when
they deposit or withdraw shares.
Cable, telex and facsimile transmissions (when expressly provided in the Deposit agreement); and converting
foreign currency to dollars.
Taxes and other governmental charges the
Depositary or the Custodian has to pay on any
ADS or share underlying an ADS, for example stock
transfer taxes, stamp duty or withholding taxes
As necessary.
Documents on display
National Grid is subject to the US Securities and Exchange Commission (SEC) reporting requirements for foreign companies. The Company’s Form
20-F and other filings can be viewed on the website as well and the SEC website at sec.gov.
Events after the reporting period
There were no events after the reporting period.
Exchange controls
There are currently no UK laws, decrees or regulations that restrict the export or import of capital, including, but not limited to, foreign exchange
control restrictions, or that affect the remittance of dividends, interest or other payments to non-UK resident holders of ordinary shares except as
otherwise set out in Taxation on pages 233 and 234 and except in respect of the governments of and/or certain citizens, residents or bodies of
certain countries (described in applicable Bank of England Notices or European Union Council Regulations in force as at the date of this document).
230
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Share information
National Grid ordinary shares are listed on the London Stock Exchange under the symbol NG. The ADSs are listed on the New York Stock Exchange
under the symbol NGG.
As at 17 May 2023, the share capital of the Company consists of ordinary shares of 12204⁄473 pence nominal value each and ADSs, which represent
five ordinary shares each.
Disclosure of interests
Under the Companies Act 2006, National Grid may, by written notice, require a person whom it has reasonable cause to believe to be or to have
been, in the last three years, interested in its shares to provide additional information relating to that interest. Under the Articles, failure to provide
such information may result in a shareholder losing their rights to attend, vote or exercise any other right in relation to shareholders’ meetings.
Other than as stated below as far as we are aware, there are no persons with significant direct or indirect holdings in the Company. Information
provided pursuant to FCA’s Disclosure Guidance and Transparency Rules (DTR) is published on the Regulatory Information Service and on the
Company’s website.
The UK City Code on Takeovers and Mergers imposes strict disclosure requirements regarding dealings in the securities of an offeror or offeree
company, and also on their respective associates, during the course of an offer period. Other regulators in the UK, US and elsewhere may have,
or assert, notification or approval rights over acquisitions or transfers of shares.
Material interests in shares
As at 31 March 2023, National Grid plc had received notice, under the DTRs, in respect of the following holdings of 3% or more of the voting rights
in its issued ordinary share capital:
BlackRock, Inc.
The Capital Group Companies, Inc.
Number of ordinary shares
% of voting rights1
Date of last notification of interest
255,529,542
182,521,721
7.04
4.99
6 December 2021
8 September 2022
1. This number is calculated in relation to the issued share capital at the time the holding was disclosed.
As at 17 May 2023, no further notifications have been received.
The rights attached to ordinary shares are detailed on page 228. All ordinary shares and all major shareholders have the same voting rights.
The Company is not, to the best of its knowledge, directly or indirectly controlled.
Authority to purchase shares
Shareholder approval was given at the 2022 AGM to purchase up to 10% of the Company’s share capital (being 364,670,529 ordinary shares).
The Directors will seek shareholder approval to renew this authority at the 2023 AGM.
In some circumstances, the Company may find it advantageous to have the authority to purchase its own shares in the market, where the Directors
believe this would be in the interests of shareholders generally. The Directors believe that it is an important part of the financial management of the
Company to have the flexibility to repurchase issued shares to manage its capital base, including actively managing share issuances from the
operation of the scrip dividend scheme. It is expected that repurchases to manage share issuances under the scrip dividend scheme will not exceed
2.5% of the issued share capital (excluding treasury shares) per annum.
When purchasing shares, the Company has taken, and will continue to take, into account market conditions prevailing at the time, other investment
and financing opportunities, and the overall financial position of the Company.
At the 2022 AGM, the Company sought authority to purchase ordinary shares in the capital of the Company as part of the management of the
dilutive effect of share issuances under the scrip dividend scheme. During the year, the Company did not purchase any of its own shares.
Shares held in Treasury purchased in prior years1
Shares purchased and held in Treasury during the year
Shares transferred from Treasury during the year
(to employees under employee share plans)
Number of shares
259,131,220
–
£32,213,352.51²
–
Total nominal value
% of called up share capital
5,282,293
£656,657.14
Maximum number of shares held in Treasury during the year4
259,131,220
£32,213,352.51²
1. Called-up share capital: 3,904,074,348 ordinary shares as at 31 March 2022.
2. Nominal value: 12204⁄473 pence per ordinary share.
3. Called-up share capital: 3,930,371,661 ordinary shares as at the date of this report.
4. Maximum number of shares held in Treasury during the year as at 31 March 2023.
As at 17 May 2023, the Company held 252,193,931 ordinary shares as treasury shares. This represented 6.42% of the Company’s called-up
share capital.
National Grid plc
Annual Report and Accounts 2022/23
6.64¹
–
0.133
6.593
231
Shareholder information continued
Authority to allot shares
Shareholder approval was given at the 2022 AGM to allot shares of up to one third of the Company’s share capital. The Directors are seeking this
same level of authority this year. The Directors consider that the Company will have sufficient flexibility with this level of authority to respond to market
developments and that this authority is in line with investor guidelines.
The Directors currently have no intention of issuing new shares or of granting rights to subscribe for or convert any security into shares. This is except
in relation to, or in connection with, the operation and management of the Company’s scrip dividend scheme and the exercise of options under the
Company’s share plans. No issue of shares will be made that would effectively alter control of the Company without the sanction of shareholders in
a general meeting.
The Company expects to actively manage the dilutive effect of share issuance arising from the operation of the scrip dividend scheme. In some
circumstances, additional shares may be allotted to the market for this purpose under the authority provided by this resolution. Under these
circumstances, it is expected that the associated allotment of new shares (or rights to subscribe for or convert any security into shares) will not
exceed 1% of the issued share capital (excluding treasury shares) per annum.
Dividend waivers
The Trustee of the National Grid Employee Share Trust, which is independent of the Company, waived the right to dividends paid during the year.
They have also agreed to waive the right to future dividends, in relation to the ordinary shares and ADSs held by the trust.
Under the Company’s ADS programme, the right to dividends in relation to the ordinary shares underlying the ADSs was waived during the year,
under an arrangement whereby the Company pays the monies to satisfy any dividends separately to the Depositary for distribution to ADS holders
entitled to the dividend. This arrangement is expected to continue for future dividends.
Shareholder analysis
The following table includes a brief analysis of shareholder numbers and shareholdings as at 31 March 2023:
Number of
shareholders
% of
shareholders¹
1 – 50
51 – 100
101 – 500
501 – 1,000
1,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
1,000,001+
Total
1. Percentages have been rounded to two decimal places.
133,094
169,101
288,283
41,714
38,696
1,576
200
450
126
302
672,939
19.78
25.13
42.84
6.11
5.75
0.23
0.03
0.07
0.02
0.04
100
Number
of shares
4,157,136
11,896,842
60,682,474
28,569,926
94,664,166
29,140,980
14,322,138
106,989,883
91,290,722
3,488,657,394
3,930,371,661
% of
shares1
0.11
0.30
1.54
0.73
2.41
0.74
0.36
2.72
2.32
88.76
100
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Taxation
This section provides information about
certain US federal income tax and UK tax
consequences for US Holders (defined below)
of owning ADSs and ordinary shares. A US
Holder is the beneficial owner of ADSs or
ordinary shares who:
• is for US federal income tax purposes
(1) an individual citizen or resident of the US;
(2) a corporation created or organised under
the laws of the US, any state thereof or the
District of Columbia; (3) an estate, the
income of which is subject to US federal
income tax without regard to its source;
or (4) a trust, if a court within the US is able
to exercise primary supervision over the
administration of the trust and one or more
US persons have the authority to control all
substantial decisions of the trust, or the trust
has elected to be treated as a domestic
trust for US federal income tax purposes;
• is not resident in the UK for UK tax
purposes; and
• does not hold ADSs or ordinary shares in
connection with the conduct of a business
or the performance of services in the UK
or otherwise in connection with a branch,
agency or permanent establishment in
the UK.
This section is not a comprehensive
description of all the US federal income tax and
UK tax considerations that may be relevant to
any particular investor (including consequences
under the US alternative minimum tax or net
investment income tax). Neither does it
address state, local or other tax laws. National
Grid has assumed that shareholders, including
US Holders, are familiar with the tax rules
applicable to investments in securities generally
and with any special rules to which they may
be subject. This discussion deals only with
US Holders who hold ADSs or ordinary shares
as capital assets. It does not address the tax
treatment of investors who are subject to
special rules. Such investors may include:
• financial institutions;
• insurance companies;
• dealers in securities or currencies;
• investors who elect mark-to-market
treatment;
• entities treated as partnerships or other
pass-through entities and their partners;
• individual retirement accounts and other
tax-deferred accounts;
• tax-exempt organisations;
• investors who own (directly or indirectly)
10% or more of our shares (by vote or value);
• investors who hold ADSs or ordinary
shares as a position in a straddle, hedging
transaction or conversion transaction;
• individual investors who have ceased to be
resident in the UK for a period of five years
or less;
• persons who have ceased to be US citizens
or lawful permanent residents of the US; and
• US Holders whose functional currency is not
the US dollar.
The statements regarding US and UK tax laws
and administrative practices set forth below are
based on laws, treaties, judicial decisions and
regulatory interpretations that were in effect
on the date of this document. These laws and
practices are subject to change without notice,
potentially with retroactive effect. In addition,
the statements set forth below are based on
the representations of the Depositary and
assume that each party to the Deposit
agreement will perform its obligations
thereunder in accordance with its terms.
US Holders of ADSs generally will be treated as
the owners of the ordinary shares represented
by those ADSs for US federal income tax
purposes. For the purposes of the Tax
Convention, the Estate Tax Convention and
UK tax considerations, this discussion
assumes that a US Holder of ADSs will be
treated as the owner of the ordinary shares
represented by those ADSs. HMRC has stated
that it will continue to apply its long-standing
practice of treating a holder of ADSs as holding
the beneficial interest in the ordinary shares
represented by the ADSs; however, we note
that this is an area of some uncertainty and
may be subject to change.
US Holders should consult their own advisors
regarding the tax consequences of buying,
owning and disposing of ADSs or ordinary
shares depending on their particular
circumstances, including the effect of any
state, local or other tax laws.
Taxation of dividends
The UK does not currently impose a withholding
tax on dividends paid to US Holders.
US Holders should assume that any cash
distribution paid by the Depositary for ADSs
with respect to ADSs or ordinary shares will
be reported as dividend income for US federal
income tax purposes. While dividend income
received from non-US corporations is generally
taxable to a non-corporate US Holder as
ordinary income for US federal income tax
purposes, dividend income received by
a non-corporate US Holder from us generally
will be taxable at the same favourable rates
applicable to long-term capital gains provided
(1) either: (a) we are eligible for the benefits of
the Tax Convention or (b) ADSs or ordinary
shares are treated as ‘readily tradable’ on an
established securities market in the US; and
(2) we are not, for our taxable year during
which the dividend is paid or the prior year,
a passive foreign investment company for US
federal income tax purposes, and certain other
requirements are met. We expect that our
shares will be treated as ‘readily tradable’ on
an established securities market in the US as
a result of the trading of ADSs on the New York
Stock Exchange (NYSE). We also believe we
are eligible for the benefits of the Tax Convention.
Based on our audited financial statements
and the nature of our business activities, we
believe that we were not treated as a Passive
Foreign Investment Company (PFIC) for US
federal income tax purposes with respect to
our taxable year ended 31 March 2023.
In addition, based on our current expectations
regarding the value and nature of our assets,
the sources and nature of our income and
the nature of our business activities, we do
not anticipate becoming a PFIC in the
foreseeable future.
Dividends received by corporate US Holders
with respect to ADSs or ordinary shares will not
be eligible for the dividends-received deduction
that is generally allowed to corporations.
Taxation of capital gains
Subject to specific rules relating to assets that
derive at least 75% of their value from UK land,
US Holders will not be subject to UK taxation
on any capital gain realised on the sale or other
disposition of ADSs or ordinary shares.
Provided that we are not a PFIC for any taxable
year during which a US Holder holds their
ADSs or ordinary shares, upon a sale or other
disposition of ADSs or ordinary shares, a US
Holder generally will recognise a capital gain
or loss for US federal income tax purposes that
is equal to the difference between the US dollar
value of the amount realised on the sale or
other disposition and the US Holder’s adjusted
tax basis in the ADSs or ordinary shares.
Such capital gain or loss generally will be
long-term capital gain or loss if the ADSs or
ordinary shares were held for more than one
year. For non-corporate US Holders, long-term
capital gain is generally taxed at a lower rate
than ordinary income. A US Holder’s ability
to deduct capital losses is subject to
significant limitations.
US information reporting and
backup withholding tax
Dividend payments made to US Holders and
proceeds paid from the sale, exchange,
redemption or disposal of ADSs or ordinary
shares to US Holders may be subject to
information reporting to the US Internal
Revenue Service. Such payments may
be subject to backup withholding taxes if the
US Holder fails to provide an accurate taxpayer
identification number or certification of exempt
status or fails to comply with applicable
certification requirements.
US Holders should consult their tax advisors
about these rules and any other reporting
obligations that may apply to the ownership
or disposition of ADSs or ordinary shares.
Such obligations include reporting
requirements related to the holding
of certain foreign financial assets.
National Grid plc
Annual Report and Accounts 2022/23
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Shareholder information continued
The Depositary will generally be liable for the
stamp duty or SDRT. Under the terms of the
Deposit agreement, the Depositary will charge
any tax payable by the Depositary or the
Custodian (or their nominees) on the deposit
of ordinary shares to the party to whom the
ADSs are delivered against such deposits.
If the stamp duty is not a multiple of £5, the
duty will be rounded up to the nearest multiple
of £5.
UK inheritance tax
An individual who is domiciled in the US for
the purposes of the Estate Tax Convention and
who is not a UK national for the purposes of
the Estate Tax Convention will generally not
be subject to UK inheritance tax in respect
of 1) the ADSs or ordinary shares on the
individual’s death or 2) a gift of the ADSs or
ordinary shares during the individual’s lifetime.
This is not the case where the ADSs or
ordinary shares are part of the business
property of the individual’s permanent
establishment in the UK or relate to a fixed
base in the UK of an individual who performs
independent personal services.
Special rules apply to ADSs or ordinary shares
held in trust.
In the exceptional case where the ADSs or
shares are subject both to UK inheritance tax
and to US federal gift or estate tax, the Estate
Tax Convention generally provides for the tax
paid in the UK to be credited against tax paid
in the US or vice versa.
Capital gains tax (CGT) for
UK resident shareholders
You can find CGT information relating to
National Grid shares for UK resident
shareholders on the Investors section
of our website. Share prices on specific
dates are also available on our website.
UK stamp duty and stamp
duty reserve tax (SDRT)
Transfers of ordinary shares
SDRT at the rate of 0.5% of the amount or
value of the consideration will generally be
payable on any agreement to transfer ordinary
shares that is not completed using a duly
stamped instrument of transfer (such as
a stock transfer form).
The SDRT liability will be cancelled where an
instrument of transfer is executed and duly
stamped before the expiry of the six-year
period beginning with the date on which the
agreement is made. If a claim is made within
the specified period, any SDRT which has
been paid will be refunded. SDRT is due
whether or not the agreement or transfer is
made or carried out in the UK and whether
or not any party to that agreement or transfer
is a UK resident.
Purchases of ordinary shares completed using
a stock transfer form will generally result in
a UK stamp duty liability at the rate of 0.5%
(rounded up to the nearest £5) of the amount
or value of the consideration. Paperless
transfers under the CREST paperless
settlement system will generally be liable to
SDRT at the rate of 0.5%, and not stamp duty.
SDRT is generally the liability of the purchaser,
and UK stamp duty is usually paid by the
purchaser or transferee.
Transfers of ADSs
No UK stamp duty will be payable on the
acquisition or transfer of existing ADSs or
beneficial ownership of ADSs (in each case
in the form of ADRs), provided that any
instrument of transfer or written agreement
to transfer is executed outside the UK and
remains at all times outside the UK.
An agreement for the transfer of ADSs in the
form of ADRs will not result in an SDRT liability.
A charge to stamp duty or SDRT may arise
on the transfer of ordinary shares to the
Depositary or The Bank of New York Mellon
as agent of the Depositary (the ‘Custodian’).
The rate of stamp duty or SDRT will generally
be 1.5% of the value of the consideration or, in
some circumstances, the value of the ordinary
shares concerned. However, there is no 1.5%
SDRT charge on the issue of ordinary shares
(or, where it is integral to the raising of new
capital, the transfer of ordinary shares) to the
Depositary or the Custodian.
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Annual Report and Accounts 2022/23
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Other disclosures
All-employee share plans
The Company has a number of all-employee
share plans as described below, which
operated during the year. These allow UK-
or US-based employees to participate in
tax-advantaged plans and to become
shareholders in National Grid.
UK Sharesave
UK employees are eligible to participate in the
Sharesave Plan. Under this plan, participants
may contribute between £5 and £500 each
month, for a fixed period of three years, five
years or both. Contributions are taken from
net salary. At the end of the fixed period,
participants may use their savings to purchase
ordinary shares in National Grid plc at a 20%
discounted option price, which is set at the
time of each Sharesave launch.
UK Share Incentive Plan (SIP)
UK employees are eligible to participate in the
SIP. Contributions up to £150 per month are
deducted from participants’ gross salary and
used to purchase National Grid plc ordinary
shares each month. The shares are placed
in a UK resident trust and are available to the
individual with tax advantages after a five-
year period.
US Employee Stock Purchase
Plan (ESPP)
Employees of National Grid’s participating
US companies are eligible to participate in the
ESPP (commonly referred to as a 423b plan).
Eligible employees have the opportunity to
purchase ADSs in National Grid on a monthly
basis at a 15% discounted price. Under the
plan, employees may contribute up to 20% of
base pay each year, up to a maximum annual
contribution of $25,000, to purchase ADSs.
US Incentive Thrift Plan
The Thrift Plan is open to all US employees
of participating National Grid companies; this
is a tax-advantaged savings plan (commonly
referred to as a 401(k) plan). This is a defined
contribution (DC) pension plan that gives
participants the opportunity to invest up to
applicable federal salary limits. The federal
limits for calendar year 2022 were: for
pre-tax contributions or Roth 401(k) after tax
contributions, a maximum of 50% of salary
limited to $20,500 for those under the age of
50 and $27,000 for those aged 50 and above;
and for post-tax contributions, up to 15%
of salary. The total amount of employee
contributions (pre tax, Roth 401(k) and after
tax) could not exceed 50% of compensation.
The total amount of employee and employer
contributions collectively were subject to the
federal annual contribution limit of $61,000
for those under the age of 50 and $67,500 for
those aged 50 and above. For the calendar
year 2023, participants may invest up to
the applicable federal salary limits: for
pre-tax contributions or Roth 401(k) after tax
contributions, this is a maximum of 50% of
salary limited to $22,500 for those under the
age of 50 and $30,000 for those aged 50 and
above; for post-tax contributions, this is up to
15% of salary.
The total amount of employee contributions
(pre tax, Roth 401(k) and after tax) could not
exceed 50% of compensation. The total
amount of employee and employer
contributions collectively were subject to the
federal annual contribution limit of $66,000
for those under the age of 50 and $73,500 for
those aged 50 and above. New contributions
or exchanges into the National Grid ADR Fund
within the plan is limited to 20% of a participant’s
account balance.
Change of control provisions
No compensation would be paid for loss of
office of Directors on a change of control of the
Company. As at 31 March 2023, the Company
had borrowing facilities of £5.0 billion available
to it with a number of banks, which, on
a change of control of the Company following
a takeover bid, may alter or terminate. Of the
facilities, £0.1 billion was drawn as at 31 March
2023. All of the Company’s share plans contain
provisions relating to a change of control.
Outstanding awards and options would
normally vest and become exercisable on
a change of control, subject to the satisfaction
of any performance conditions at that time.
In the event of a change of control of the
Company, a number of governmental and
regulatory consents or approvals are likely to
be required, arising from laws or regulations of
the UK or the US. Such consents or approvals
may also be required for acquisitions of equity
securities that do not amount to a change
of control.
No other agreements that take effect, alter
or terminate upon a change of control of
the Company following a takeover bid are
considered to be significant in terms of their
potential impact on the business as a whole.
Code of Ethics
In accordance with US legal requirements,
the Board has adopted a Code of Ethics.
The Code of Ethics is available on our website
(where any amendments or waivers will also
be posted). There were no amendments to, or
waivers of, our Code of Ethics during the year.
Conflicts of interest
In accordance with the Companies Act 2006,
the Board has a policy and procedure in
place for the disclosure and authorisation
(if appropriate) of actual and potential conflicts
of interest. The Board continues to monitor
and note possible conflicts of interest that
each Director may have, including a review
on appointment. The Directors are regularly
reminded of their continuing obligations in
relation to conflicts, and are required to review
and confirm their external interests annually.
Corporate governance
practices: differences from
NYSE listing standards
The Company is listed on the NYSE and is
therefore required to disclose differences in its
corporate governance practices adopted as
a UK listed company, compared with those
of a US company. The corporate governance
National Grid plc
Annual Report and Accounts 2022/23
practices of the Company are primarily based
on the requirements of the Code but
substantially conform to those required
of US companies listed on the NYSE.
The following is a summary of the significant
ways in which the Company’s corporate
governance practices differ from those
followed by US companies under section
303A of the Corporate Governance Standards
of the NYSE.
The NYSE rules and the Code apply different
tests for the independence of Board members.
The NYSE rules require a separate nominating/
corporate governance committee composed
entirely of independent directors. There is
no requirement for a separate corporate
governance committee in the UK. Under the
Company’s corporate governance policies,
all Directors on the Board discuss and
decide upon governance issues, and the
People & Governance Committee makes
recommendations to the Board with regard
to certain responsibilities of a corporate
governance committee.
The NYSE rules require listed companies
to adopt and disclose corporate governance
guidelines. While the Company reports
compliance with the Code in each Annual
Report and Accounts, the UK requirements do
not require the Company to adopt and disclose
separate corporate governance guidelines.
The NYSE rules require a separate audit
committee composed of at least three
independent members. While the Company’s
Audit & Risk Committee exceeds the NYSE’s
minimum independent Non-executive Director
membership requirements, it should be noted
that the quorum for a meeting of the Audit &
Risk Committee, of two independent Non-
executive Directors, is less than the minimum
membership requirements under the
NYSE rules.
The NYSE rules require a compensation
committee composed entirely of independent
directors, and prescribe criteria to evaluate the
independence of the committee’s members
and its ability to engage external compensation
advisors. While the Code prescribes different
independence criteria, the Non-executive
Directors on the Company’s Remuneration
Committee have each been deemed
independent by the Board under the NYSE
rules. Although the evaluation criteria for
appointment of external advisors differ under
the Code, the Remuneration Committee
is solely responsible for the appointment,
retention and termination of such advisors.
Directors’ indemnity &
Directors’ and Officers’
Liability insurance
The Company has arranged, in accordance
with the Companies Act 2006 and the Articles,
qualifying third-party indemnities against
financial exposure that Directors may incur
in the course of their professional duties.
Equivalent qualifying third-party indemnities
were, and remain, in force for the benefit of
235
Other disclosures continued
those Directors who stood down from the
Board in prior financial years for matters arising
when they were Directors of the Company.
Alongside these indemnities, the Company
places Directors’ and Officers’ liability
insurance cover for each Director. To the extent
appropriate and required, similar indemnities
have also been given to Directors of subsidiary
and other associated companies, who also
benefit from Directors’ and Officers’ liability
insurance cover.
Employees
We negotiate with recognised unions.
It is our policy to maintain well-developed
communications and consultation programmes
and there have been no material disruptions to
our operations from labour disputes during the
past three years. National Grid believes that it
can conduct its relationships with trade unions
and employees in a satisfactory manner.
Further details on the Company’s colleagues
can be found on page 34.
Human rights
We launched our RBC in October 2020
focusing on five key areas. One of the areas
is our people and our commitment to ensuring
all our people are treated fairly and given the
opportunity to thrive at work. As a responsible,
purpose-led company, the way in which we
conduct ourselves allows us to build trust
with the people we work with by doing things
in the right way, building our reputation as
a responsible and ethical company that our
stakeholders want to do business with and
our employees want to work for.
Our employees are at the heart of what we do,
which is why we’re one of 167 companies that
participated in the 2022 Workforce Disclosure
Initiative (WDI). National Grid have completed
the WDI survey for the past three years and
we continue to enhance our data year-on-year
obtaining a scorecard of 84% overall for our
2022 submission, above the Utilities sector
average. We obtained 100% in a number of key
sections including Supply Chain Transparency,
Responsible Sourcing and Supply Chain
Working Conditions and received a special
mention in the ‘Workforce action’ category
at the WDI 2022 Workforce Transparency
Awards in February 2023.
National Grid does not have direct operations
in countries of high concern with respect
to human rights and we currently do not
have a specific policy relating to human
rights. However, respect for human rights is
incorporated into our employment practices
and our values and our approach to
addressing potential human rights risks is
detailed in our Modern Slavery Statement,
which can be found on our website. We
treat everyone fairly and equally, without
discrimination. Respecting others and valuing
DEI are integral to our Code of Ethics and
we provide unconscious bias training to all
our people to build awareness of cultural
differences and the importance of diversity,
and the necessity of achieving equity and
inclusion. Our Global Supplier Diversity Policy
We aim to maintain fairness across the
organisation for pay and make sure our pay
practices do not show bias. In the US, we pay
all our employees at least the minimum wage
or above the minimum wage requirements.
In the UK, we are accredited Living Wage
Foundation employers. Our commitment to our
direct employees extends to our contractors
and the work they do on behalf of National Grid
and is actively promoted through our supply
chain and embedded in our contract terms
and conditions and contract management
discussions. We believe that everyone should
be appropriately rewarded for their time and
effort. We also go above the Living Wage
Foundation accreditation requirements and
voluntarily pay our trainees/apprentices the real
Living Wage. We undertake a real Living Wage
review and produce a report to the Living
Wage Foundation each year to ensure
continued alignment. This includes an increase
to individual internal salaries as required and
annual communication of the new real Living
Wage rates to our supply chain. We include
a review of implementation of the real Living
Wage in supply chain contracts where low
wages could be a risk, including our catering,
cleaning, waste management and main
construction contracts.
Our Supplier Code of Conduct is updated and
communicated to our suppliers annually and
clearly sets out our expectations to share our
commitment to respecting, protecting and
promoting human rights. This includes
alignment to the UN Guiding Principles, the
10 Principles of the UNGC, the International
Labour Organization (ILO) minimum standards,
the Ethical Trading Initiative (ETI) Base Code,
the UK Modern Slavery Act 2015, the US
Victims of Trafficking and Violence Protection
Act 2000, the US Department of State Guiding
Principles to Combat Human Trafficking and,
for our UK suppliers, the requirements of the
Living Wage Foundation.
Unresolved SEC
staff comments
There are no unresolved SEC staff comments
required to be reported.
Property, plant,
equipment and borrowings
This information can be found in note 13 to
the financial statements (Property, plant and
equipment) on pages 157 – 159, and note 21
Borrowings on pages 169 – 171.
outlines our commitments and expectation
that DEI is embedded in all aspects of business
in our supply chain.
We acknowledge that there may be potential
risks in our wider supply chain, and we
recognise that the relationship we have with
our suppliers can influence how they support
our commitment to acting responsibly.
We produce an annual Modern Slavery
Statement which outlines the actions we take
to assess potential risk in our wider operations
and take actions to address this. This includes
working collaboratively in the sector through
a number of membership organisations to build
awareness and capability in the supply chain.
We publish our Statement on the Home Office
modern slavery registry and encourage our
suppliers to publish a Statement on modern
slavery regardless of whether this is a legal
obligation to do so.
We have engaged with Churches, Charities
and Local Authorities (CCLA) Investment
Management Limited, which established
‘Find it, Fix it, Prevent it’ as a collaborative
investor engagement programme with the
aim to use the leverage of investors to help
companies ‘find, fix and prevent’ modern
slavery in their supply chain. In 2022, we
provided feedback on CCLA’s approach to
developing a benchmarking report of the FTSE
100 companies and we welcomed the plans
to publish the report to improve corporate
engagement and drive positive change.
We are signatories to the UK Construction
Protocol, which is a joint agreement with many
of the largest firms in the UK construction
sector focused on eradicating modern slavery
and exploitation in the building industry. We are
also founding signatory members of the People
Matter Charter which was created to help
organisations up and down the supply chain
to bring challenges related to decent work
together into one workforce strategy. The
Charter has eight commitments that can apply
to any organisation of any size including
aspects supporting human rights.
We are members of the United Nations Global
Compact (UNGC) Modern Slavery Working
Group and take part in a peer review of our
Modern Slavery Statement to share best
practice and identify areas for improvement.
We are actively involved in Utilities Against
Slavery, which is a collaborative initiative
governed by the non-governmental
organisation Slave-Free alliance aimed at
working together to eradicate slavery and
exploitation in the UK utilities sector and its
supply chains. Through this we continue to
work with the Supply Chain Sustainability
School to deliver a training and awareness
to our shared network of suppliers.
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Research, development
and innovation activity
Indications of our activities in the field research
and development are provided throughout the
Strategic Report and the Directors’ report.
For example, in our business unit sections on
pages 28 to 32, you can read about our work
reducing and replacing the use of SF6 in our
UK ET business; in UK ED, our Take Charge
innovation project is facilitating rapid charging
of EVs; further development of FLISR in NE
is enabling us to respond better to regional
storms; and in NY Smart Path Connect is
unlocking the power of renewable energy for
our customers, while HyGrid is demonstrating
the use of hydrogen in our gas networks on
Long Island; our Electric Highways Study,
co-authored with CALSTART, RMI, Geotab and
Stable Auto, together with the plan being
developed for medium and heavy-duty corridor
charging, will be a first-of-its-kind blueprint for
fast charging deployment for commercial
vehicles across the northeastern US. Further
examples of our innovation activity can also be
found as examples of our strategy pillars on
pages 12 and 13. Investment in research and
development during the year for the Group was
£23 million (2021/22: £11 million). We only
disclose directly incurred expenditure, and not
those amounts our partners contribute to joint
or collaborative projects. Collaborating across
the industry has played a crucial role in our
ability to develop new programmes and deliver
value to our stakeholders throughout 2022/23.
Listing Rule 9.8.4 R cross-reference table
Information required to be disclosed by LR 9.8.4 R (starting on page indicated):
Interest capitalised
Page 143
Publication of unaudited financial information
Not applicable
Details of long-term incentive schemes
Pages 100, 101 and 182
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non-pre-emptive issues of equity for cash
Not applicable
Not applicable
Not applicable
Item (7) in relation to major subsidiary undertakings
None
Parent participation in a placing by a listed subsidiary
Not applicable
Contracts of significance
Page 237
Provision of services by a controlling shareholder
Not applicable
Shareholder waivers of dividends
Shareholder waivers of future dividends
Page 232
Page 232
Agreements with controlling shareholders
Not applicable
Material contracts
On 14 June 2021, we completed the
acquisition of WPD (now known as NGED) from
PPL (the ‘NGED Acquisition’) and subsequently
completed the sale of NECO to PPL on 24 May
2022 (the ‘NECO Sale’), which was conditional
on the NGED Acquisition. On 31 January 2023,
we completed the sale of a 60% equity stake
in National Grid Gas, our UK Gas Transmission
and Metering businesses, (now known as
National Gas Transmission) to a consortium
comprising Macquarie Infrastructure and
Real Assets and British Colombia Investment
Management Corporation (the ‘NGT Sale’).
Under an option agreement entered into as
part of the NGT Sale, the consortium also
has an option, on broadly similar terms, to
purchase the remaining 40% equity stake
in National Gas Transmission. The option
agreement in connection with this transaction
is an outstanding material contract for
the Company.
In connection with the NGED Acquisition, the
Company entered into a £8.25 billion term loan
facility and a £1.105 billion revolving loan facility
term with Barclays Bank plc and Goldman
Sachs as lenders and lead arrangers (‘the
Bridge Loan’). On 31 January 2023, the Bridge
Loan was repaid in full.
In addition, each of our Executive Directors has
a service agreement and each Non-executive
Director has a letter of appointment. Apart
from these, no contract (other than contracts
entered into in the ordinary course of business)
has been entered into by the Group within the
two years immediately preceding the date
of this report that is, or may be, material; or
which contains any provision under which any
member of the Group has any obligation or
entitlement which is material to the Group at
the date of this report.
Political donations
and expenditure
At this year’s AGM, the Directors will again
seek authority from shareholders, on
a precautionary basis, for the Company and
its subsidiaries to make donations to registered
political parties and other political organisations
and/or incur political expenditure as such
terms are defined in the Companies Act 2006.
In each case, donations will be in amounts
not exceeding £125,000 in aggregate. The
definitions of these terms in the Companies Act
2006 are very wide. As a result, this can cover
bodies such as those concerned with policy
review, law reform and the representation of
the business community (for example trade
organisations). It could include special interest
groups, such as those involved with the
environment, which the Company and its
subsidiaries might wish to support, even
though these activities are not designed to
support or influence support for a particular
party. The Companies Act 2006 states that
all-party parliamentary groups are not political
organisations for these purposes, meaning the
authority to be sought from shareholders is
not relevant to interactions with such groups.
The Company has no intention of changing
its current practice of not making political
donations or incurring political expenditure
within the ordinary meaning of those words.
This authority is, therefore, being sought to
ensure that none of the Company’s activities
inadvertently infringe these rules.
National Grid made no political donations and
did not incur any political expenditure during
the year, as such terms are defined for the
purposes of the Companies Act 2006 and the
Political Parties, Elections and Referendums
Act 2000. National Grid US’s affiliated New
York and federal political action committees
(PAC) made political donations in the US
totalling $54,550 during the year. National Grid
US’s affiliated New York PAC (NYPAC) was
funded partly by contributions from National
Grid US and certain of its subsidiaries and
partly by voluntary employee contributions.
National Grid US’s affiliated federal PAC
was funded wholly by voluntary employee
contributions. The NYPAC did not receive
any corporate contribution during the past
fiscal year.
National Grid plc
Annual Report and Accounts 2022/23
237
Other unaudited financial information
Alternative performance measures/non-IFRS reconciliations
Within the Annual Report, a number of financial measures are presented. These measures have been categorised as alternative performance
measures (APMs), as per the European Securities and Markets Authority (ESMA) guidelines and the Securities and Exchange Commission (SEC)
conditions for use of non-GAAP financial measures.
An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined
under IFRS. The Group uses a range of these measures to provide a better understanding of its underlying performance. APMs are reconciled to
the most directly comparable IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs derived from IFRS: net revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the ‘adjusted profit measures’ section below, net debt, capital investment, funds from operations (FFO), FFO
interest cover and retained cash flow (RCF)/adjusted net debt. For each of these we present a reconciliation to the most directly comparable IFRS
measure. We present ‘constant currency’ comparative period performance and capital investment by applying the current year average exchange
rate to the relevant US dollar amounts in the comparative periods presented, to remove the year-on-year impact of foreign exchange translation.
We also have a number of APMs derived from regulatory measures which have no basis under IFRS; we call these Regulatory Performance
Measures (RPMs). They comprise: Group RoE, operating company RoE, regulated asset base, regulated financial performance, regulatory gearing,
Asset Growth, Value Added, including Value Added per share and Value Growth. These measures include the inputs used by utility regulators
to set the allowed revenues for many of our businesses.
We use RPMs to monitor progress against our regulatory agreements and certain aspects of our strategic objectives. Further, targets for certain
of these performance measures are included in the Company’s Annual Performance Plan (APP) and LTPP and contribute to how we reward our
employees. As such, we believe that they provide close correlation to the economic value we generate for our shareholders and are therefore
important supplemental measures for our shareholders to understand the performance of the business and to ensure a complete understanding of
Group performance.
As the starting point for our RPMs is not IFRS, and these measures are not governed by IFRS, we are unable to provide meaningful reconciliations
to any directly comparable IFRS measures, as differences between IFRS and the regulatory recognition rules applied have built up over many years.
Instead, for each of these we present an explanation of how the measure has been determined and why it is important, and an overview as to why
it would not be meaningful to provide a reconciliation to IFRS.
Alternative performance measures
Net revenue
Net revenue is revenue less pass-through costs, such as UK system balancing costs and gas and electricity commodity costs in the US. Pass-
through costs are fully recoverable from our customers and are recovered through separate charges that are designed to recover those costs with
no profit. Where revenue received or receivable exceeds the maximum amount permitted by our regulatory agreement, adjustments will be made to
future prices to reflect this over-recovery. No liability is recognised, as such an adjustment to future prices relates to the provision of future services.
Similarly, no asset is recognised where a regulatory agreement permits adjustments to be made to future prices in respect of an under-recovery.
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Sales between segments
2023
Pass-
through
costs
£m
(217)
(418)
(4,152)
(2,095)
(2,957)
—
—
—
Gross
revenue
£m
1,987
2,045
4,690
4,427
6,994
1,341
317
(142)
2022
2021
Net
revenue
£m
Gross
revenue1
£m
1,770
1,627
538
2,332
4,037
1,341
317
(142)
2,035
1,482
3,455
4,550
5,561
1,024
192
(39)
Pass-
through
costs
£m
(152)
(125)
(3,215)
(2,050)
(2,161)
—
—
—
Net
revenue
£m
1,883
1,357
240
2,500
3,400
1,024
192
(39)
Gross
revenue
£m
1,974
—
2,018
4,214
4,605
786
78
(10)
Pass-
through
costs
£m
(151)
—
(1,911)
(1,784)
(1,469)
—
—
—
Total – continuing operations
21,659
(9,839)
11,820
18,260
(7,703)
10,557
13,665
(5,315)
Discontinued operations
1,604
(658)
946
1,362
(397)
965
1,114
(233)
Total
23,263
(10,497)
12,766
19,622
(8,100)
11,522
14,779
(5,548)
1. Excluding exceptional income.
Net
revenue
£m
1,823
—
107
2,430
3,136
786
78
(10)
8,350
881
9,231
Adjusted profit measures
In considering the financial performance of our business and segments, we use various adjusted profit measures in order to aid comparability of
results year-on-year. The various measures are presented on pages 54 – 59 and reconciled below.
Adjusted results – these exclude the impact of exceptional items and remeasurements that are treated as discrete transactions under IFRS and
can accordingly be classified as such. This is a measure used by management that is used to derive part of the incentive target set annually for
remunerating certain Executive Directors, and further details of these items are included in note 5 to the financial statements.
Underlying results – further adapts our adjusted results for continuing operations to take account of volumetric and other revenue timing differences
arising due to the in-year difference between allowed and collected revenues, including revenue incentives, as governed by our rate plans in the US
or regulatory price controls in the UK (but excluding totex-related allowances and adjustments or allowances for pension deficit contributions). For
2022/23, as highlighted on page 239, our underlying results exclude £30 million (2022: £16 million) of timing differences as well as £258 million
(2022: £163 million) of major storm costs (as costs exceeded our $100 million threshold in both 2022/23 and 2021/22). We expect to recover major
storm costs incurred through regulatory mechanisms in the US.
Constant currency – the adjusted profit measures are also shown on a constant currency basis to show the year-on-year comparisons excluding
any impact of foreign currency translation movements.
238
238
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information
Alternative performance measures/non-IFRS reconciliations
Within the Annual Report, a number of financial measures are presented. These measures have been categorised as alternative performance
measures (APMs), as per the European Securities and Markets Authority (ESMA) guidelines and the Securities and Exchange Commission (SEC)
conditions for use of non-GAAP financial measures.
An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined
under IFRS. The Group uses a range of these measures to provide a better understanding of its underlying performance. APMs are reconciled to
the most directly comparable IFRS financial measure where practicable.
The Group has defined the following financial measures as APMs derived from IFRS: net revenue, the various adjusted operating profit, earnings and
earnings per share metrics detailed in the ‘adjusted profit measures’ section below, net debt, capital investment, funds from operations (FFO), FFO
interest cover and retained cash flow (RCF)/adjusted net debt. For each of these we present a reconciliation to the most directly comparable IFRS
measure. We present ‘constant currency’ comparative period performance and capital investment by applying the current year average exchange
rate to the relevant US dollar amounts in the comparative periods presented, to remove the year-on-year impact of foreign exchange translation.
We also have a number of APMs derived from regulatory measures which have no basis under IFRS; we call these Regulatory Performance
Measures (RPMs). They comprise: Group RoE, operating company RoE, regulated asset base, regulated financial performance, regulatory gearing,
Asset Growth, Value Added, including Value Added per share and Value Growth. These measures include the inputs used by utility regulators
to set the allowed revenues for many of our businesses.
We use RPMs to monitor progress against our regulatory agreements and certain aspects of our strategic objectives. Further, targets for certain
of these performance measures are included in the Company’s Annual Performance Plan (APP) and LTPP and contribute to how we reward our
employees. As such, we believe that they provide close correlation to the economic value we generate for our shareholders and are therefore
important supplemental measures for our shareholders to understand the performance of the business and to ensure a complete understanding of
Group performance.
As the starting point for our RPMs is not IFRS, and these measures are not governed by IFRS, we are unable to provide meaningful reconciliations
to any directly comparable IFRS measures, as differences between IFRS and the regulatory recognition rules applied have built up over many years.
Instead, for each of these we present an explanation of how the measure has been determined and why it is important, and an overview as to why
it would not be meaningful to provide a reconciliation to IFRS.
Alternative performance measures
Net revenue
Net revenue is revenue less pass-through costs, such as UK system balancing costs and gas and electricity commodity costs in the US. Pass-
through costs are fully recoverable from our customers and are recovered through separate charges that are designed to recover those costs with
no profit. Where revenue received or receivable exceeds the maximum amount permitted by our regulatory agreement, adjustments will be made to
future prices to reflect this over-recovery. No liability is recognised, as such an adjustment to future prices relates to the provision of future services.
Similarly, no asset is recognised where a regulatory agreement permits adjustments to be made to future prices in respect of an under-recovery.
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Sales between segments
2023
Pass-
through
costs
£m
(217)
(418)
(4,152)
(2,095)
(2,957)
—
—
—
Gross
revenue
£m
1,987
2,045
4,690
4,427
6,994
1,341
317
(142)
2022
2021
Net
revenue
£m
Gross
revenue1
£m
1,770
1,627
538
2,332
4,037
1,341
317
(142)
2,035
1,482
3,455
4,550
5,561
1,024
192
(39)
Pass-
through
costs
£m
(152)
(125)
(3,215)
(2,050)
(2,161)
—
—
—
Net
revenue
£m
1,883
1,357
240
2,500
3,400
1,024
192
(39)
Gross
revenue
£m
1,974
—
2,018
4,214
4,605
786
78
(10)
Pass-
through
costs
£m
(151)
—
(1,911)
(1,784)
(1,469)
—
—
—
Total – continuing operations
21,659
(9,839)
11,820
18,260
(7,703)
10,557
13,665
(5,315)
Discontinued operations
1,604
(658)
946
1,362
(397)
965
1,114
(233)
Total
23,263
(10,497)
12,766
19,622
(8,100)
11,522
14,779
(5,548)
Net
revenue
£m
1,823
—
107
2,430
3,136
786
78
(10)
8,350
881
9,231
1. Excluding exceptional income.
Adjusted profit measures
In considering the financial performance of our business and segments, we use various adjusted profit measures in order to aid comparability of
results year-on-year. The various measures are presented on pages 54 – 59 and reconciled below.
Adjusted results – these exclude the impact of exceptional items and remeasurements that are treated as discrete transactions under IFRS and
can accordingly be classified as such. This is a measure used by management that is used to derive part of the incentive target set annually for
remunerating certain Executive Directors, and further details of these items are included in note 5 to the financial statements.
Underlying results – further adapts our adjusted results for continuing operations to take account of volumetric and other revenue timing differences
arising due to the in-year difference between allowed and collected revenues, including revenue incentives, as governed by our rate plans in the US
or regulatory price controls in the UK (but excluding totex-related allowances and adjustments or allowances for pension deficit contributions). For
2022/23, as highlighted on page 239, our underlying results exclude £30 million (2022: £16 million) of timing differences as well as £258 million
(2022: £163 million) of major storm costs (as costs exceeded our $100 million threshold in both 2022/23 and 2021/22). We expect to recover major
storm costs incurred through regulatory mechanisms in the US.
Constant currency – the adjusted profit measures are also shown on a constant currency basis to show the year-on-year comparisons excluding
any impact of foreign currency translation movements.
Reconciliation of statutory, adjusted and underlying profits from continuing operations
at actual exchange rates
Year ended 31 March 2023
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax
Year ended 31 March 2022
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax
Year ended 31 March 2021
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax
Statutory
£m
Exceptionals and
remeasurements
£m
993
1,069
237
1,132
541
957
(50)
4,879
(1,460)
171
3,590
(876)
2,714
Statutory
£m
1,055
909
5
764
1,095
283
260
4,371
(1,022)
92
3,441
(1,258)
2,183
Statutory
£m
1,080
—
(53)
614
695
181
(116)
2,401
(795)
58
1,664
(360)
1,304
2
22
1
(424)
200
(467)
81
(585)
(54)
19
(620)
241
(379)
Exceptionals and
remeasurements
£m
12
—
2
(21)
(315)
3
(239)
(558)
(59)
56
(561)
589
28
Exceptionals and
remeasurements
£m
14
—
(7)
(3)
(30)
4
48
26
(70)
8
(36)
26
(10)
Adjusted
£m
995
1,091
238
708
741
490
31
4,294
(1,514)
190
2,970
(635)
2,335
Adjusted
£m
1,067
909
7
743
780
286
21
3,813
(1,081)
148
2,880
(669)
2,211
Adjusted
£m
1,094
—
(60)
611
665
185
(68)
2,427
(865)
66
1,628
(334)
1,294
Timing
£m
Major storm
costs
£m
112
139
(207)
39
(53)
—
—
30
—
—
30
(4)
26
Timing
£m
85
(22)
47
32
(126)
—
—
16
—
—
16
3
19
—
—
—
72
186
—
—
258
—
—
258
(70)
188
Major storm
costs
£m
—
—
—
111
52
—
—
163
—
—
163
(42)
121
Timing
£m
Major storm
costs
£m
(42)
—
130
11
12
—
—
111
—
—
111
(23)
88
—
—
—
105
45
—
—
150
—
—
150
(39)
111
Underlying
£m
1,107
1,230
31
819
874
490
31
4,582
(1,514)
190
3,258
(709)
2,549
Underlying
£m
1,152
887
54
886
706
286
21
3,992
(1,081)
148
3,059
(708)
2,351
Underlying
£m
1,052
—
70
727
722
185
(68)
2,688
(865)
66
1,889
(396)
1,493
238
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
239239
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
Reconciliation of adjusted and underlying earnings from continuing operations at constant currency
Year ended 31 March 2022
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax
Attributable to non-controlling interests
Earnings
Earnings per share (pence)
Year ended 31 March 2021
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Share of post-tax results of joint ventures and associates
Profit before tax
Tax
Profit after tax
Attributable to non-controlling interests
Earnings
Earnings per share (pence)
Adjusted
at actual
exchange rate
£m
1,067
909
7
743
780
286
21
3,813
(1,081)
148
2,880
(669)
2,211
(1)
2,210
61.4
Adjusted
at actual
exchange rate
£m
1,094
—
(60)
611
665
185
(68)
2,427
(865)
66
1,628
(334)
1,294
(1)
1,293
36.7
Constant currency
adjustment
£m
—
—
—
81
85
5
1
172
(55)
4
121
(32)
89
—
89
2.5
Constant currency
adjustment
£m
—
—
—
63
68
3
2
136
(66)
4
74
(19)
55
—
55
1.6
At constant currency
Adjusted
£m
1,067
909
7
824
865
291
22
3,985
(1,136)
152
3,001
(701)
2,300
(1)
2,299
63.9
At constant currency
Adjusted
£m
1,094
—
(60)
674
733
188
(66)
2,563
(931)
70
1,702
(353)
1,349
(1)
1,348
38.3
Timing
£m
85
(22)
47
35
(140)
—
—
5
—
—
5
6
11
—
11
0.3
Major storm
costs
£m
—
—
—
123
58
—
—
181
—
—
181
(47)
134
—
134
3.7
Timing
£m
Major storm
costs
£m
(42)
—
130
12
13
—
—
113
—
—
113
(23)
90
—
90
2.6
—
—
—
116
50
—
—
166
—
—
166
(43)
123
—
123
3.4
Underlying
£m
1,152
887
54
982
783
291
22
4,171
(1,136)
152
3,187
(742)
2,445
(1)
2,444
67.9
Underlying
£m
1,052
—
70
802
796
188
(66)
2,842
(931)
70
1,981
(419)
1,562
(1)
1,561
44.3
240
240
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
Reconciliation of adjusted and underlying earnings from continuing operations at constant currency
At constant currency
Adjusted
at actual
exchange rate
£m
1,067
Constant currency
adjustment
Major storm
costs
£m
Underlying
£m
1,152
Share of post-tax results of joint ventures and associates
Year ended 31 March 2022
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Profit before tax
Tax
Profit after tax
Attributable to non-controlling interests
Earnings
Earnings per share (pence)
Year ended 31 March 2021
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England
New York
National Grid Ventures
Other
Total operating profit
Net finance costs
Profit before tax
Tax
Profit after tax
Attributable to non-controlling interests
Earnings
Earnings per share (pence)
Share of post-tax results of joint ventures and associates
£m
—
—
—
81
85
5
1
172
(55)
4
121
(32)
89
—
89
2.5
£m
—
—
—
63
68
3
2
136
(66)
4
74
(19)
55
—
55
1.6
Adjusted
£m
1,067
909
7
824
865
291
22
3,985
(1,136)
152
3,001
(701)
2,300
(1)
2,299
63.9
Adjusted
£m
1,094
—
(60)
674
733
188
(66)
2,563
(931)
70
1,702
(353)
1,349
(1)
1,348
38.3
Timing
£m
85
(22)
47
35
(140)
—
—
5
—
—
5
6
11
—
11
0.3
(42)
—
130
12
13
—
—
113
—
—
113
(23)
90
—
90
2.6
—
—
—
123
58
—
—
181
—
—
181
(47)
134
—
134
3.7
—
—
—
116
50
—
—
166
—
—
166
(43)
123
—
123
3.4
887
54
982
783
291
22
4,171
(1,136)
152
3,187
(742)
2,445
(1)
2,444
67.9
—
70
802
796
188
(66)
2,842
(931)
70
1,981
(419)
1,562
(1)
1,561
44.3
909
7
743
780
286
21
3,813
(1,081)
148
2,880
(669)
2,211
(1)
2,210
61.4
—
(60)
611
665
185
(68)
2,427
(865)
66
1,628
(334)
1,294
(1)
1,293
36.7
At constant currency
Adjusted
at actual
exchange rate
£m
1,094
Constant currency
adjustment
Timing
£m
Major storm
costs
£m
Underlying
£m
1,052
Earnings per share calculations from continuing operations – at actual exchange rates
The table below reconciles the profit after tax from continuing operations as per the previous tables back to the earnings per share from continuing
operations for each of the adjusted profit measures. Earnings per share is only presented for those adjusted profit measures that are at actual
exchange rates, and not for those at constant currency.
Year ended 31 March 2023
Statutory
Adjusted
Underlying
Year ended 31 March 2022
Statutory
Adjusted
Underlying
Year ended 31 March 2021
Statutory
Adjusted
Underlying
Profit
after tax
£m
2,714
2,335
2,549
Profit
after tax
£m
2,183
2,211
2,351
Profit
after tax
£m
1,304
1,294
1,493
Non-
controlling
interest
£m
Profit after tax
attributable to
shareholders
£m
—
—
—
2,714
2,335
2,549
Non-
controlling
interest
£m
Profit after tax
attributable to
shareholders
£m
(1)
(1)
(1)
2,182
2,210
2,350
Non-
controlling
interest
£m
Profit after tax
attributable to
shareholders
£m
(1)
(1)
(1)
1,303
1,293
1,492
Weighted
average
number of
shares
millions
3,659
3,659
3,659
Weighted
average
number of
shares
millions
3,599
3,599
3,599
Weighted
average
number of
shares
millions
3,523
3,523
3,523
Earnings
per share
pence
74.2
63.8
69.7
Earnings
per share
pence
60.6
61.4
65.3
Earnings
per share
pence
37.0
36.7
42.4
240
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
241241
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
Reconciliation of total Group statutory operating profit to adjusted earnings (including and excluding the
impact of timing and major storm costs)
Year ended 31 March
Continuing operations
Adjusted operating profit
Adjusted net finance costs
Share of post-tax results of joint ventures and associates
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Attributable to non-controlling interests
Adjusted earnings from continuing operations
Exceptional items after tax
Remeasurements after tax
Including timing
and major storm costs
2023
£m
2022
£m
4,294
(1,514)
190
2,970
(635)
2,335
—
3,813
(1,081)
148
2,880
(669)
2,211
(1)
2021
£m
2,427
(865)
66
1,628
(334)
1,294
(1)
Excluding timing
and major storm costs
2023
£m
2022
£m
4,582
(1,514)
190
3,258
(709)
2,549
—
3,992
(1,081)
148
3,059
(708)
2,351
(1)
2021
£m
2,688
(865)
66
1,889
(396)
1,493
(1)
2,335
2,210
1,293
2,549
2,350
1,492
619
(240)
(320)
292
(52)
62
619
(240)
(320)
292
(52)
62
Earnings from continuing operations
2,714
2,182
1,303
2,928
2,322
1,502
Discontinued operations
Adjusted operating profit
Adjusted net finance costs
Share of post-tax results of joint ventures and associates
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Attributable to non-controlling interests
Adjusted earnings from discontinued operations
Exceptional items and gain on disposal after tax
Remeasurements after tax
Earnings from discontinued operations
Total Group (continuing and discontinued operations)
Adjusted operating profit
Adjusted net finance costs
Share of post-tax results of joint ventures and associates
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Attributable to non-controlling interests
Adjusted earnings from continuing and discontinued operations
Exceptional items after tax
Remeasurements after tax
Total Group earnings from continuing and discontinued operations
714
(295)
—
419
(99)
320
—
320
4,811
(48)
5,083
5,008
(1,809)
190
3,389
(734)
2,655
—
2,655
5,430
(288)
7,797
654
(218)
—
436
(92)
344
—
344
(163)
(10)
171
4,467
(1,299)
148
3,316
(761)
2,555
(1)
499
(77)
—
422
(82)
340
—
340
(5)
2
337
2,926
(942)
66
2,050
(416)
1,634
(1)
2,554
1,633
(483)
282
(57)
64
2,353
1,640
702
(295)
—
407
(97)
310
—
310
4,811
(48)
5,073
5,284
(1,809)
190
3,665
(806)
2,859
—
2,859
5,430
(288)
8,001
734
(218)
—
516
(107)
409
—
409
(163)
(10)
236
4,726
(1,299)
148
3,575
(815)
2,760
(1)
595
(77)
—
518
(100)
418
—
418
(5)
2
415
3,283
(942)
66
2,407
(496)
1,911
(1)
2,759
1,910
(483)
282
(57)
64
2,558
1,917
Reconciliation of adjusted EPS to statutory earnings (including and excluding the impact of timing
and major storm costs)
Year ended 31 March
Adjusted EPS from continuing operations
Exceptional items and remeasurements after tax from continuing operations
EPS from continuing operations
Adjusted EPS from discontinued operations
Exceptional items and remeasurements after tax from discontinued operations
EPS from discontinued operations
Total adjusted EPS from continuing and discontinued operations
Total exceptional items and remeasurements after tax from continuing
and discontinued operations
Total Group EPS from continuing and discontinued operations
Including timing
and major storm costs
Excluding timing
and major storm costs
2023
pence
63.8
10.4
74.2
8.7
130.2
138.9
72.5
140.6
213.1
2022
pence
61.4
(0.8)
60.6
9.6
(4.8)
4.8
71.0
(5.6)
65.4
2021
pence
36.7
0.3
37.0
9.7
(0.1)
9.6
46.4
0.2
46.6
2023
pence
69.7
10.4
80.1
8.5
130.2
138.7
78.2
140.6
218.8
2022
pence
65.3
(0.8)
64.5
11.4
(4.8)
6.6
76.7
(5.6)
71.1
2021
pence
42.4
0.3
42.7
11.8
(0.1)
11.7
54.2
0.2
54.4
242
242
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
Reconciliation of total Group statutory operating profit to adjusted earnings (including and excluding the
impact of timing and major storm costs)
Earnings from continuing operations
2,714
2,182
1,303
2,928
2,322
1,502
Share of post-tax results of joint ventures and associates
Attributable to non-controlling interests
Adjusted earnings from continuing operations
Year ended 31 March
Continuing operations
Adjusted operating profit
Adjusted net finance costs
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Exceptional items after tax
Remeasurements after tax
Discontinued operations
Adjusted operating profit
Adjusted net finance costs
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Share of post-tax results of joint ventures and associates
Attributable to non-controlling interests
Adjusted earnings from discontinued operations
Exceptional items and gain on disposal after tax
Remeasurements after tax
Earnings from discontinued operations
Total Group (continuing and discontinued operations)
Share of post-tax results of joint ventures and associates
Adjusted operating profit
Adjusted net finance costs
Adjusted profit before tax
Adjusted tax
Adjusted profit after tax
Exceptional items after tax
Remeasurements after tax
Attributable to non-controlling interests
Including timing
and major storm costs
2023
£m
2022
£m
4,294
(1,514)
190
2,970
(635)
2,335
—
3,813
(1,081)
148
2,880
(669)
2,211
(1)
Excluding timing
and major storm costs
2023
£m
2022
£m
4,582
(1,514)
190
3,258
(709)
2,549
—
3,992
(1,081)
148
3,059
(708)
2,351
(1)
2,335
2,210
1,293
2,549
2,350
1,492
619
(240)
(320)
292
619
(240)
(320)
292
2021
£m
2,427
(865)
66
1,628
(334)
1,294
(1)
(52)
62
499
(77)
—
422
(82)
340
—
340
(5)
2
337
2,926
(942)
66
2,050
(416)
1,634
(1)
(57)
64
2021
pence
36.7
0.3
37.0
9.7
(0.1)
9.6
46.4
0.2
46.6
2021
£m
2,688
(865)
66
1,889
(396)
1,493
(1)
(52)
62
595
(77)
—
518
(100)
418
—
418
(5)
2
415
3,283
(942)
66
2,407
(496)
1,911
(1)
(57)
64
2021
pence
42.4
0.3
42.7
11.8
(0.1)
11.7
54.2
0.2
54.4
702
(295)
—
407
(97)
310
—
310
4,811
(48)
5,073
5,284
(1,809)
190
3,665
(806)
2,859
—
2,859
5,430
(288)
8,001
2023
pence
69.7
10.4
80.1
8.5
130.2
138.7
78.2
140.6
218.8
734
(218)
—
516
(107)
409
—
409
(163)
(10)
236
4,726
(1,299)
148
3,575
(815)
2,760
(1)
(483)
282
2022
pence
65.3
(0.8)
64.5
11.4
(4.8)
6.6
76.7
(5.6)
71.1
714
(295)
—
419
(99)
320
—
320
4,811
(48)
5,083
5,008
(1,809)
190
3,389
(734)
2,655
—
2,655
5,430
(288)
7,797
2023
pence
63.8
10.4
74.2
8.7
130.2
138.9
72.5
140.6
213.1
654
(218)
—
436
(92)
344
—
344
(163)
(10)
171
4,467
(1,299)
148
3,316
(761)
2,555
(1)
(483)
282
2022
pence
61.4
(0.8)
60.6
9.6
(4.8)
4.8
71.0
(5.6)
65.4
Adjusted earnings from continuing and discontinued operations
2,554
1,633
2,759
1,910
Total Group earnings from continuing and discontinued operations
2,353
1,640
2,558
1,917
Reconciliation of adjusted EPS to statutory earnings (including and excluding the impact of timing
and major storm costs)
Including timing
and major storm costs
Excluding timing
and major storm costs
Exceptional items and remeasurements after tax from continuing operations
Year ended 31 March
Adjusted EPS from continuing operations
EPS from continuing operations
Adjusted EPS from discontinued operations
Exceptional items and remeasurements after tax from discontinued operations
EPS from discontinued operations
Total adjusted EPS from continuing and discontinued operations
Total exceptional items and remeasurements after tax from continuing
and discontinued operations
Total Group EPS from continuing and discontinued operations
Timing and regulated revenue adjustments
As described on pages 219 – 224, our allowed revenues are set in accordance with our regulatory price controls or rate plans. We calculate the
tariffs we charge our customers based on the estimated volume of energy we expect will be delivered during the coming period. The actual volumes
delivered will differ from the estimate. Therefore, our total actual revenue will be different from our total allowed revenue. These differences are
commonly referred to as timing differences. If we collect more than the allowed revenue, adjustments will be made to future prices to reflect this
over-recovery, and if we collect less than the allowed level of revenue, adjustments will be made to future prices to reflect the under-recovery. In the
US, a substantial portion of our costs are pass-through costs (including commodity and energy-efficiency costs) and are fully recoverable from our
customers. Timing differences between costs of this type being incurred and their recovery through revenue are also included in timing. The amounts
calculated as timing differences are estimates and subject to change until the variables that determine allowed revenue are final.
Our continuing operating profit for the year includes a total estimated in-year under-collection of £30 million (2022: £16 million under-collection, or
£5 million under-collection at constant currency). For continuing operations, our closing balance at 31 March 2023 was £64 million over-recovered.
Excluding discontinued operations, there was a cumulative under-recovery of £246 million at 31 March 2023 (2022: under-recovery of £190 million)
in the UK. In the US, cumulative timing over-recoveries at 31 March 2023 were £310 million (2022: £326 million over-recovery). The total
estimated in-year over- or under-collection excludes opening balance adjustments related to estimates or finalisation of balances as part of
regulatory submissions.
In addition to the timing adjustments described above, as part of the RIIO price controls in the UK, outperformance against allowances as a result
of the totex incentive mechanism, together with changes in output-related allowances included in the original price control, will almost always be
adjusted in future revenue recoveries, typically starting in two years’ time. We also receive revenues in relation to certain costs incurred or expected
to be incurred (for example pension deficit contributions), with differences between revenues received and cost incurred adjusted in future revenue
recoveries, e.g. after a triennial actuarial pension funding valuation has been concluded. Our current IFRS revenues and earnings include these
amounts that relate to certain costs incurred in prior years or that will need to be repaid or recovered in future periods. Such adjustments will
form an important part of the continuing difference between reported IFRS results and underlying economic performance based on our
regulatory obligations.
For our UK regulated businesses as a whole (including discontinued operations), timing and regulated revenue adjustments totalled a return
of £32 million in the year (2022: £190 million return). In the US, accumulated regulatory entitlements cover a range of different areas, with the
most significant being environmental remediation and pension assets, as well as deferred storm costs. All regulatory entitlements are recoverable
(or repayable) over different periods, which are agreed with the regulators to match the expected payment profile for the liabilities. New England
and New York in-year over/(under)-recovery and all New England and New York balances have been translated using the average exchange rate
of $1.22 for the year ended 31 March 2023.
1 April 2022 opening balance1
(Under)/over-recovery
Disposals
31 March 2023 closing balance
to (recover)/return2
1 April 2021 opening balance1
(Under)/over-recovery
31 March 2022 closing balance
to (recover)/return2
1 April 2020 opening balance1
Over/(under)-recovery
31 March 2021 closing balance
to (recover)/return2
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System Operator
£m
New England
£m
New York
£m
Continuing
£m
Discontinued
£m
(95)
(112)
—
22
(139)
—
(129)
207
—
(343)
(39)
(17)
656
53
—
111
(30)
(17)
(160)
12
148
Total
£m
(49)
(18)
131
(207)
(117)
78
(399)
709
64
—
64
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System Operator
£m
New England
£m
New York
£m
Continuing
£m
Discontinued
£m
—
(85)
(85)
—
22
22
(80)
(47)
(295)
(35)
516
140
141
(5)
(76)
(80)
(127)
(330)
656
136
(156)
UK Electricity
Transmission
£m
UK Electricity
Distribution
£m
UK Electricity
System Operator
£m
New England
£m
New York
£m
Continuing
£m
Discontinued
£m
(52)
42
(10)
—
—
—
70
(130)
(282)
(12)
531
(13)
267
(113)
(60)
(294)
518
154
16
(96)
(80)
Total
£m
65
(85)
(20)
Total
£m
283
(209)
74
1. Opening balances have been restated to reflect the finalisation of calculated over/(under)-recoveries in the UK and the US.
2. The closing balance (including discontinued operations) at 31 March 2023 was £59 million over-recovered (translated at the closing rate of $1.23:£1). 31 March 2022 was £45 million
under-recovered (translated at the closing rate of $1.31:£1). 31 March 2021 was £48 million over-recovered (translated at the closing rate of $1.38:£1).
242
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Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
243243
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
Capital investment
‘Capital investment’ or ‘investment’ refer to additions to property, plant and equipment and intangible assets, and contributions to joint ventures and
associates during the period. We also include the Group’s investments by National Grid Partners during the period, which are classified for IFRS
purposes as non-current financial assets in the Group’s consolidated statement of financial position.
Investments made in previous years to our St William Homes LLP arrangement were excluded based on the nature of that joint venture arrangement.
We typically contributed property assets to the joint venture in exchange for cash and accordingly did not consider these transactions to be in the
nature of capital investment.
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England1
New York
National Grid Ventures
Other
Group capital expenditure – continuing1
Equity investment, funding contributions and loans to joint ventures
and associates2
Investments in financial assets (National Grid Partners)
Group capital investment – continuing1
Discontinued operations
Group capital investment – total
At actual exchange rates
At constant currency
2023
£m
1,303
1,220
108
1,677
2,454
709
13
2022
£m
1,195
899
108
1,561
1,960
452
10
7,484
6,185
197
59
7,740
301
8,041
461
93
6,739
261
7,000
change
9%
36%
—%
7%
25%
57%
30%
21%
2023
£m
1,303
1,220
108
1,677
2,454
709
13
2022
£m
1,195
899
108
1,731
2,174
456
10
7,484
6,573
(57) %
(37) %
15%
15%
15%
197
59
7,740
301
8,041
512
103
7,188
261
7,449
change
9%
36%
—%
(3) %
13%
55%
30%
14%
(62) %
(43) %
8%
15%
8%
1. New England capital investment for 2022/23 includes £53 million of additions for NECO, which, although part of continuing operations, is also classified as an ‘asset held for sale’ under
IFRS. As such it is not included within additions to PP&E and intangibles in notes 2, 12 and 13 to the financial statements. Group capital expenditure for continuing operations excluding
NECO additions for 2022/23 was £7,431 million (2022: £6,185 million).
2. Excludes £nil (2022: £25 million) equity contribution to the St William Homes LLP joint venture.
Net debt
See note 29 the financial statements on page 185 for the definition and reconciliation of net debt.
244
244
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
‘Capital investment’ or ‘investment’ refer to additions to property, plant and equipment and intangible assets, and contributions to joint ventures and
associates during the period. We also include the Group’s investments by National Grid Partners during the period, which are classified for IFRS
purposes as non-current financial assets in the Group’s consolidated statement of financial position.
Investments made in previous years to our St William Homes LLP arrangement were excluded based on the nature of that joint venture arrangement.
We typically contributed property assets to the joint venture in exchange for cash and accordingly did not consider these transactions to be in the
nature of capital investment.
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
New England1
New York
National Grid Ventures
Other
Equity investment, funding contributions and loans to joint ventures
and associates2
Investments in financial assets (National Grid Partners)
Group capital investment – continuing1
Discontinued operations
Group capital investment – total
At actual exchange rates
At constant currency
2023
£m
1,303
1,220
108
1,677
2,454
709
13
197
59
7,740
301
8,041
2022
£m
1,195
899
108
1,561
1,960
452
10
461
93
6,739
261
7,000
change
9%
36%
—%
7%
25%
57%
30%
21%
(57) %
(37) %
15%
15%
15%
2023
£m
1,303
1,220
108
1,677
2,454
709
13
197
59
7,740
301
8,041
2022
£m
1,195
899
108
1,731
2,174
456
10
512
103
7,188
261
7,449
change
9%
36%
—%
(3) %
13%
55%
30%
14%
(62) %
(43) %
8%
15%
8%
Group capital expenditure – continuing1
7,484
6,185
7,484
6,573
1. New England capital investment for 2022/23 includes £53 million of additions for NECO, which, although part of continuing operations, is also classified as an ‘asset held for sale’ under
IFRS. As such it is not included within additions to PP&E and intangibles in notes 2, 12 and 13 to the financial statements. Group capital expenditure for continuing operations excluding
NECO additions for 2022/23 was £7,431 million (2022: £6,185 million).
2. Excludes £nil (2022: £25 million) equity contribution to the St William Homes LLP joint venture.
Net debt
See note 29 the financial statements on page 185 for the definition and reconciliation of net debt.
Capital investment
Funds from operations and interest cover
FFO are the cash flows generated by the operations of the Group. Credit rating metrics, including FFO, are used as indicators of balance
sheet strength.
Year ended 31 March
Interest expense (income statement)
Hybrid interest reclassified as dividend
Capitalised interest
Pensions interest adjustment
Unwinding of discount on provisions
Pension interest
Interest charge (discontinued operations)
Adjusted interest expense
Net cash inflow from operating activities
Interest received on financial instruments
Interest paid on financial instruments
Dividends received
Working capital adjustment
Excess employer pension contributions
Hybrid interest reclassified as dividend
Add back accretions
Difference in net interest expense in income statement to cash flow
Difference in current tax in income statement to cash flow
Current tax related to prior periods
Cash flow from discontinued operations
Other fair value adjustments
Funds from operations (FFO)
FFO interest cover ((FFO + adjusted interest expense)/adjusted interest expense)
1. Numbers for 2022 and 2021 reflect the calculations for the total Group as based on the published accounts for the respective years.
2023
£m
1,680
(39)
249
11
(88)
85
—
1,898
6,343
65
2022¹
£m
1,146
(38)
152
11
(73)
—
218
1,416
5,490
40
(1,430)
(1,053)
190
(286)
116
39
483
(395)
(281)
—
555
—
166
(361)
99
38
241
(177)
72
(35)
668
—
2021¹
£m
977
(38)
131
(16)
(78)
—
—
976
4,461
16
(835)
80
(312)
116
38
—
(138)
(67)
8
—
22
5,399
5,188
3.8x
4.7x
3,389
4.5x
Retained cash flow/adjusted net debt
RCF/adjusted net debt is one of two credit metrics that we monitor in order to ensure the Group is generating sufficient cash to service its debts,
consistent with maintaining a strong investment-grade credit rating. We calculate RCF/adjusted net debt applying the methodology used by Moody’s,
as this is one of the most constrained calculations of credit worthiness. The net debt denominator includes adjustments to take account of the equity
component of hybrid debt.
Year ended 31 March
Funds from operations (FFO)
Hybrid interest reclassified as dividend
Ordinary dividends paid to shareholders
RCF
Borrowings
Less:
50% hybrid debt
Cash and cash equivalents
Financial and other investments
Underfunded pension obligations
Borrowings in held for sale
Collateral – cash received under collateral agreements2
Adjusted net debt (includes pension deficit)
RCF/adjusted net debt
1. Numbers for 2022 and 2021 reflect the calculations for the total Group as based on the published accounts for that year.
2. Below agency threshold to adjust in 2023 and 2022, 2021 not restated.
2023
£m
5,399
(39)
(1,607)
3,753
42,985
(1,049)
(126)
(1,764)
292
—
—
20221
£m
5,188
(38)
(922)
4,228
45,465
(1,027)
(190)
(2,292)
326
5,234
—
20211
£m
3,389
(38)
(1,413)
1,938
32,339
(1,032)
(157)
(1,768)
467
—
(582)
40,338
9.3 %
47,516
29,267
8.9 %
6.6 %
244
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
245245
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
Regulatory performance measures
Regulated financial performance – UK
Regulatory financial performance is a pre-interest and tax measure, starting at segmental operating profit and making adjustments (such as
the elimination of all pass-through items included in revenue allowances and timing) to approximate regulatory profit for the UK regulated activities.
This measure provides a bridge for investors between a well-understood and comparable IFRS starting point and through the key adjustments
required to approximate regulatory profit. This measure also provides the foundation to calculate Group RoE.
Under the UK RIIO regulatory arrangements the Company is incentivised to deliver efficiencies against cost targets set by the regulator. In total, these
targets are set in terms of a regulatory definition of combined total operating and capital expenditure, also termed ‘totex’. The definition of totex
differs from the total combined regulated controllable operating costs and regulated capital expenditure as reported in this statement according to
IFRS accounting principles. Key differences are capitalised interest, capital contributions, exceptional costs, costs covered by other regulatory
arrangements and unregulated costs.
For the reasons noted above, the table below shows the principal differences between the IFRS operating profit and the regulated financial
performance, but is not a formal reconciliation to an equivalent IFRS measure.
UK Electricity Transmission
Year ended 31 March
Adjusted operating profit
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 2% CPIH (2021: 3% RPI) long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
UK Electricity Distribution
Year ended 31 March
Adjusted operating profit
Less non-regulated profits
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 3% RPI long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
UK Electricity System Operator
Year ended 31 March
Adjusted operating profit
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 2% CPIH (2021: 3% RPI) long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
2023
£m
995
107
73
309
(536)
37
(44)
68
2022
£m
2021
£m
1,067
1,094
82
26
287
(433)
(44)
(42)
75
59
53
418
(434)
57
(41)
110
1,009
1,018
1,316
2023
£m
1,091
(46)
88
65
277
(506)
11
(157)
22
845
2023
£m
238
(223)
(4)
7
32
(2)
(11)
—
37
2022
£m
909
(51)
(42)
28
198
(358)
17
(111)
9
599
2022
£m
7
31
(4)
5
27
(24)
(10)
—
32
2021
£m
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2021
£m
(60)
129
7
6
(5)
(29)
(13)
1
36
246
246
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Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
Regulatory performance measures
Regulated financial performance – UK
Regulatory financial performance is a pre-interest and tax measure, starting at segmental operating profit and making adjustments (such as
the elimination of all pass-through items included in revenue allowances and timing) to approximate regulatory profit for the UK regulated activities.
This measure provides a bridge for investors between a well-understood and comparable IFRS starting point and through the key adjustments
required to approximate regulatory profit. This measure also provides the foundation to calculate Group RoE.
Under the UK RIIO regulatory arrangements the Company is incentivised to deliver efficiencies against cost targets set by the regulator. In total, these
targets are set in terms of a regulatory definition of combined total operating and capital expenditure, also termed ‘totex’. The definition of totex
differs from the total combined regulated controllable operating costs and regulated capital expenditure as reported in this statement according to
IFRS accounting principles. Key differences are capitalised interest, capital contributions, exceptional costs, costs covered by other regulatory
arrangements and unregulated costs.
For the reasons noted above, the table below shows the principal differences between the IFRS operating profit and the regulated financial
performance, but is not a formal reconciliation to an equivalent IFRS measure.
RAV indexation – 2% CPIH (2021: 3% RPI) long-run inflation
Regulatory vs IFRS depreciation difference
UK Electricity Transmission
Year ended 31 March
Adjusted operating profit
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
UK Electricity Distribution
Year ended 31 March
Adjusted operating profit
Less non-regulated profits
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 3% RPI long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
UK Electricity System Operator
Year ended 31 March
Adjusted operating profit
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 2% CPIH (2021: 3% RPI) long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
UK Gas Transmission
Year ended 31 March
Adjusted operating profit
Less non-regulated profits
Movement in regulatory ‘IOUs’
Deferred taxation adjustment
RAV indexation – 2% CPIH (2021: 3% RPI) long-run inflation
Regulatory vs IFRS depreciation difference
Fast money/other
Pensions
Performance RAV created
Regulated financial performance
Regulated financial performance – US
New England
Year ended 31 March
Adjusted operating profit
Provision for bad and doubtful debts (COVID-19), net of recoveries1
Major storm costs
Timing
Depreciation adjustment2
US GAAP pension adjustment
Regulated financial performance
2023
£m
714
(129)
(24)
28
109
(331)
(1)
(9)
5
2022
£m
654
(150)
72
13
126
(281)
(4)
—
3
362
433
2023
£m
708
—
72
39
(18)
34
835
2022
£m
743
—
111
32
(67)
11
830
1,009
1,018
1,316
1. New England financial performance includes an adjustment reflecting our expectation for future recovery of COVID-19-related provision for bad and doubtful debts.
2. The depreciation adjustment relates to the impact of the cessation of depreciation for NECO under IFRS following reclassification as held for sale.
New York
Year ended 31 March
Adjusted operating profit
Provision for bad and doubtful debts (COVID-19), net of recoveries¹
Major storm costs
Timing
US GAAP pension adjustment
Regulated financial performance
2023
£m
741
(21)
186
(53)
11
864
2022
£m
780
—
52
(126)
66
772
2021
£m
499
(157)
34
12
189
(88)
25
(34)
(23)
457
2021
£m
611
(7)
105
11
—
2
722
2021
£m
665
127
45
12
1
850
1. New York financial performance includes an adjustment reflecting the impact of our in-year recovery (2021: expectation for future recovery) in respect of COVID-19-related provision for
bad and doubtful debts.
1,067
1,094
2023
£m
995
107
73
309
(536)
37
(44)
68
2023
£m
1,091
(46)
88
65
277
(506)
11
(157)
22
845
2023
£m
238
(223)
(4)
7
32
(2)
(11)
—
37
2022
£m
82
26
287
(433)
(44)
(42)
75
2022
£m
909
(51)
(42)
28
198
(358)
17
(111)
9
599
2022
£m
7
31
(4)
5
27
(24)
(10)
—
32
2021
£m
59
53
418
(434)
57
(41)
110
2021
£m
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2021
£m
(60)
129
7
6
(5)
(29)
(13)
1
36
246
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
247247
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
Total regulated financial performance
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
UK Gas Transmission
New England
New York
Total regulated financial performance
2023
£m
2022
£m
2021
£m
1,009
1,018
1,316
845
37
362
835
864
599
32
433
830
772
n/a
36
457
722
850
3,952
3,684
3,381
New England and New York timing, major storms costs and movement in UK regulatory ‘IOUs’ – Revenue related to performance in one
year may be recovered in later years. Where revenue received or receivable exceeds the maximum amount permitted by our regulatory agreement,
adjustments will be made to future prices to reflect this over-recovery. No liability is recognised under IFRS, as such an adjustment to future prices
relates to the provision of future services. Similarly, no asset is recognised under IFRS where a regulatory agreement permits adjustments to be
made to future prices in respect of an under-recovery. In the UK, this is calculated as the movement in other regulated assets and liabilities.
Performance RAV – UK performance efficiencies are in part remunerated by the creation of additional RAV which is expected to result in future
earnings under regulatory arrangements. This is calculated as in-year totex outperformance multiplied by the appropriate regulatory capitalisation
ratio and multiplied by the retained company incentive sharing ratio.
Pension adjustment – Cash payments against pension deficits in the UK are recoverable under regulatory contracts. In US regulated operations,
US GAAP pension charges are generally recoverable through rates. Revenue recoveries are recognised under IFRS but payments are not charged
against IFRS operating profits in the year. In the UK this is calculated as cash payments against the regulatory proportion of pension deficits in the
UK regulated business, whereas in the US it is the difference between IFRS and US GAAP pension charges.
2% CPIH and 3% RPI RAV indexation – Future UK revenues are expected to be set using an asset base adjusted for inflation. This is calculated
as UK RAV multiplied by 2% long-run CPIH inflation assumption under RIIO-2 and a 3% long-run RPI inflation assumption under RIIO-1.
UK deferred taxation adjustment – Future UK revenues are expected to recover cash taxation cost including the unwinding of deferred taxation
balances created in the current year. This is the difference between: (1) IFRS underlying EBITDA less other regulatory adjustments; and (2) IFRS
underlying EBITDA less other regulatory adjustments less current taxation (adjusted for interest tax shield) then grossed up at full UK statutory
tax rate.
Regulatory depreciation – US and UK regulated revenues include allowance for a return of regulatory capital in accordance with regulatory
assumed asset lives. This return does not form part of regulatory profit.
Fast/slow money adjustment – The regulatory remuneration of costs incurred is split between in-year revenue allowances and the creation of
additional RAV. This does not align with the classification of costs as operating costs and fixed asset additions under IFRS accounting principles.
This is calculated as the difference between IFRS classification of costs as operating costs or fixed asset additions and the regulatory classification.
Regulated asset base
The regulated asset base is a regulatory construct, based on predetermined principles not based on IFRS. It effectively represents the invested
capital on which we are authorised to earn a cash return. By investing efficiently in our networks, we add to our regulated asset base over the long
term, and this in turn contributes to delivering shareholder value. Our regulated asset base comprises our regulatory asset value in the UK plus
our rate base in the US.
Maintaining efficient investment in our regulated asset base ensures we are well positioned to provide consistently high levels of service to our
customers and increases our revenue allowances in future years. While we have no specific target, our overall aim is to achieve between 6% and
8% growth in regulated asset base each year through continued investment in our networks in both the UK and US.
In the UK, the way in which our transactions impact RAV is driven by principles set out by Ofgem. In a number of key areas these principles differ
from the requirements of IFRS, including areas such as additions and the basis for depreciation. Further, our UK RAV is adjusted annually for inflation.
RAV in each of our retained UK businesses has evolved over the period since privatisation in 1990 and, as a result, historical differences between
the initial determination of RAV and balances reported under UK GAAP at that time still persist. In the case of UK ED, differences arise as the result
of acquisition fair value adjustments (where PP&E at acquisition has been valued above RAV). Due to the above, substantial differences exist in
the measurement bases between RAV and an IFRS balance metric, and therefore it is not possible to provide a meaningful reconciliation between
the two.
In the US, rate base is a regulatory measure determined for each of our main US operating companies. It represents the value of property and other
assets or liabilities on which we are permitted to earn a rate of return, as set out by the regulatory authorities for each jurisdiction. The calculations
are based on the applicable regulatory agreements for each jurisdiction and include the allowable elements of assets and liabilities from our US
companies. For this reason, it is not practical to provide a meaningful reconciliation from the US rate base to an equivalent IFRS measure. However,
we include the calculation below.
‘Total regulated and other balances’ for our UK regulated businesses include the under- or over-recovery of allowances that those businesses target
to collect in any year, which are based on the regulator’s forecasts for that year. Under the UK price control arrangements, revenues will be adjusted
in future years to take account of actual levels of collected revenue, costs and outputs delivered when they differ from those regulatory forecasts.
In the US, other regulatory assets and liabilities include regulatory assets and liabilities which are not included in the definition of rate base, including
working capital where appropriate.
‘Total regulated and other balances’ for NGV and other businesses includes assets and liabilities as measured under IFRS, but excludes certain
assets and liabilities such as pensions, tax, net debt and goodwill. This included a £101 million deferred balance for separation and transaction costs
incurred in 2021/22 related to the sale of NECO and UK Gas Transmission, which has been released to offset against the proceeds received on
disposal of these businesses in 2022/23.
248
248
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National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
Total regulated financial performance
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
UK Gas Transmission
New England
New York
Total regulated financial performance
3,952
3,684
3,381
New England and New York timing, major storms costs and movement in UK regulatory ‘IOUs’ – Revenue related to performance in one
year may be recovered in later years. Where revenue received or receivable exceeds the maximum amount permitted by our regulatory agreement,
adjustments will be made to future prices to reflect this over-recovery. No liability is recognised under IFRS, as such an adjustment to future prices
relates to the provision of future services. Similarly, no asset is recognised under IFRS where a regulatory agreement permits adjustments to be
made to future prices in respect of an under-recovery. In the UK, this is calculated as the movement in other regulated assets and liabilities.
Performance RAV – UK performance efficiencies are in part remunerated by the creation of additional RAV which is expected to result in future
earnings under regulatory arrangements. This is calculated as in-year totex outperformance multiplied by the appropriate regulatory capitalisation
ratio and multiplied by the retained company incentive sharing ratio.
Pension adjustment – Cash payments against pension deficits in the UK are recoverable under regulatory contracts. In US regulated operations,
US GAAP pension charges are generally recoverable through rates. Revenue recoveries are recognised under IFRS but payments are not charged
against IFRS operating profits in the year. In the UK this is calculated as cash payments against the regulatory proportion of pension deficits in the
UK regulated business, whereas in the US it is the difference between IFRS and US GAAP pension charges.
2% CPIH and 3% RPI RAV indexation – Future UK revenues are expected to be set using an asset base adjusted for inflation. This is calculated
as UK RAV multiplied by 2% long-run CPIH inflation assumption under RIIO-2 and a 3% long-run RPI inflation assumption under RIIO-1.
UK deferred taxation adjustment – Future UK revenues are expected to recover cash taxation cost including the unwinding of deferred taxation
balances created in the current year. This is the difference between: (1) IFRS underlying EBITDA less other regulatory adjustments; and (2) IFRS
underlying EBITDA less other regulatory adjustments less current taxation (adjusted for interest tax shield) then grossed up at full UK statutory
tax rate.
Regulatory depreciation – US and UK regulated revenues include allowance for a return of regulatory capital in accordance with regulatory
assumed asset lives. This return does not form part of regulatory profit.
Fast/slow money adjustment – The regulatory remuneration of costs incurred is split between in-year revenue allowances and the creation of
additional RAV. This does not align with the classification of costs as operating costs and fixed asset additions under IFRS accounting principles.
This is calculated as the difference between IFRS classification of costs as operating costs or fixed asset additions and the regulatory classification.
Regulated asset base
our rate base in the US.
The regulated asset base is a regulatory construct, based on predetermined principles not based on IFRS. It effectively represents the invested
capital on which we are authorised to earn a cash return. By investing efficiently in our networks, we add to our regulated asset base over the long
term, and this in turn contributes to delivering shareholder value. Our regulated asset base comprises our regulatory asset value in the UK plus
Maintaining efficient investment in our regulated asset base ensures we are well positioned to provide consistently high levels of service to our
customers and increases our revenue allowances in future years. While we have no specific target, our overall aim is to achieve between 6% and
8% growth in regulated asset base each year through continued investment in our networks in both the UK and US.
In the UK, the way in which our transactions impact RAV is driven by principles set out by Ofgem. In a number of key areas these principles differ
from the requirements of IFRS, including areas such as additions and the basis for depreciation. Further, our UK RAV is adjusted annually for inflation.
RAV in each of our retained UK businesses has evolved over the period since privatisation in 1990 and, as a result, historical differences between
the initial determination of RAV and balances reported under UK GAAP at that time still persist. In the case of UK ED, differences arise as the result
of acquisition fair value adjustments (where PP&E at acquisition has been valued above RAV). Due to the above, substantial differences exist in
the measurement bases between RAV and an IFRS balance metric, and therefore it is not possible to provide a meaningful reconciliation between
the two.
assets or liabilities on which we are permitted to earn a rate of return, as set out by the regulatory authorities for each jurisdiction. The calculations
are based on the applicable regulatory agreements for each jurisdiction and include the allowable elements of assets and liabilities from our US
companies. For this reason, it is not practical to provide a meaningful reconciliation from the US rate base to an equivalent IFRS measure. However,
we include the calculation below.
‘Total regulated and other balances’ for our UK regulated businesses include the under- or over-recovery of allowances that those businesses target
to collect in any year, which are based on the regulator’s forecasts for that year. Under the UK price control arrangements, revenues will be adjusted
in future years to take account of actual levels of collected revenue, costs and outputs delivered when they differ from those regulatory forecasts.
In the US, other regulatory assets and liabilities include regulatory assets and liabilities which are not included in the definition of rate base, including
working capital where appropriate.
‘Total regulated and other balances’ for NGV and other businesses includes assets and liabilities as measured under IFRS, but excludes certain
assets and liabilities such as pensions, tax, net debt and goodwill. This included a £101 million deferred balance for separation and transaction costs
incurred in 2021/22 related to the sale of NECO and UK Gas Transmission, which has been released to offset against the proceeds received on
disposal of these businesses in 2022/23.
2023
£m
2022
£m
1,009
1,018
1,316
845
37
362
835
864
599
32
433
830
772
2021
£m
n/a
36
457
722
850
Year ended 31 March
(£m at constant currency)
UK Electricity Transmission
UK Electricity Distribution
UK Electricity System Operator
UK Gas Transmission (excluding metering)
New England
New York
Total regulated
National Grid Ventures and other businesses (including discontinued metering business in 2022)
RAV, rate base or
other business assets
Total regulated
and other balances
2023
£m
2022¹
£m
20232,3
£m
20221,2,3
£m
17,072
15,471
16,912
15,242
10,773
360
—
7,907
15,131
51,243
6,604
9,248
297
6,561
9,860
13,768
55,205
5,374
10,756
282
—
10,080
16,184
54,214
6,712
9,299
442
6,669
11,774
14,646
58,072
4,566
Total Group regulated and other balances
57,847
60,579
60,926
62,638
1. Figures relating to prior periods have, where appropriate, been re-presented at constant currency, for segmental reorganisation, opening balance adjustments following the completion
of the UK regulatory reporting pack process and finalisation of US balances.
2. Includes totex-related regulatory IOUs of £502 million (2022: £271 million), over-recovered timing balances of £246 million (2022: £346 million under-recovered) and under-recovered
legacy balances related to previous price controls of £0 million (2022: £9 million).
3. Includes assets for construction work-in-progress of £2,319 million (2022: £2,139 million), other regulatory assets related to timing and other cost deferrals of £771 million (2022:
£759 million) and net working capital liabilities of £136 million (2022: £277 million).
New England and New York rate base and other total regulated and other balances for 31 March 2022 have been re-presented in the table above
at constant currency. At actual currency the values were £11.1 billion and £13.7 billion respectively.
Group RoE
Group RoE provides investors with a view of the performance of the Group as a whole compared with the amounts invested by the Group in
assets attributable to equity shareholders. It is the ratio of our regulatory financial performance to our measure of equity investment in assets.
It therefore reflects the regulated activities as well as the contribution from our non-regulated businesses together with joint ventures and non-
controlling interests.
We use Group RoE to measure our performance in generating value for our shareholders, and targets for Group RoE are included in the incentive
mechanisms for executive remuneration within both the APP and LTPP schemes.
Group RoE is underpinned by our regulated asset base. For the reasons noted above, no reconciliation to IFRS has been presented, as we do not
believe it would be practical. However, we do include the calculations below.
Calculation: Regulatory financial performance including a long-run inflation assumption (3% RPI for RIIO-1; 2% CPIH for RIIO-2), less adjusted
interest and adjusted taxation divided by equity investment in assets:
• adjusted interest removes accretions above long-run inflation rates, interest on pensions, capitalised interest in regulated operations and unwind
of discount rate on provisions;
• adjusted taxation adjusts the Group taxation charge for differences between IFRS profit before tax and regulated financial performance less
adjusted interest; and
• equity investment in assets is calculated as the total opening UK regulatory asset value, the total opening US rate base plus goodwill plus opening
net book value of National Grid Ventures and other activities (excluding certain amounts such as pensions, tax and commodities) and our share of
joint ventures and associates, minus opening net debt as reported under IFRS restated to the weighted average sterling–dollar exchange rate for
the year.
In the US, rate base is a regulatory measure determined for each of our main US operating companies. It represents the value of property and other
Tax on adjustments
Year ended 31 March
Regulated financial performance
Operating profit of other activities – continuing operations
Operating profit of other activities – discontinued operations
Group financial performance
Share of post-tax results of joint ventures and associates1
Non-controlling interests
Adjusted total Group interest charge (including discontinued)
Total Group tax charge (including discontinued)
Total Group financial performance after interest and tax
Opening rate base/RAV
Opening other balances
Opening goodwill
Opening capital employed
Opening net debt
Opening equity
Group RoE
1. 2023 includes £12 million in respect of the Group’s 40% retained minority interest in National Gas Transmission.
2023
£m
3,952
595
113
4,660
202
—
(1,546)
(734)
7
2,589
55,558
5,410
12,253
73,221
(49,691)
23,530
11.0 %
2022
£m
3,684
330
150
4,164
148
(1)
(1,191)
(761)
43
2,402
41,043
4,864
5,266
51,173
(30,072)
21,101
2021
£m
3,381
144
157
3,682
66
(1)
(882)
(416)
(175)
2,274
39,552
3,984
5,295
48,831
(27,398)
21,433
11.4 %
10.6 %
248
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
249249
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
UK and US regulated RoE
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Gas Transmission
New England
New York
Regulatory Debt:
Equity assumption
55/45
65/35
60/40
Avg. 45/55
Avg. 52/48
Achieved
Return on Equity
Base or Allowed
Return on Equity
2023
%
7.5
13.2
7.8
8.3
8.6
2022
%
7.7
13.6
7.8
8.3
8.8
2023
%
6.3
9.6
6.6
9.9
8.9
2022
%
6.3
9.6
6.6
9.8
8.9
UK businesses’ regulated RoEs
UK regulated businesses’ RoEs are a measure of how the businesses are performing against the assumptions used by our UK regulator. These
returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the cost of
debt assumed by the regulator, and that inflation is equal to a long-run assumption of 3% RPI under RIIO-1 and 2% CPIH under RIIO-2. They are
calculated by dividing elements of out/under-performance versus the regulatory contract (i.e. regulated financial performance disclosed above) by
the average equity RAV in line with the regulatory assumed capital structure and adding to the base allowed RoE.
These are important measures of UK regulated businesses’ performance, and our operational strategy continues to focus on these metrics. These
measures can be used to determine how we are performing under the RIIO framework and also help investors to compare our performance with
similarly regulated UK entities. Reflecting the importance of these metrics, they are also key components of the APP scheme.
The respective businesses’ UK RoEs are underpinned by their RAVs. For the reasons noted above, no reconciliation to IFRS has been presented,
as we do not believe it would be practical.
US businesses’ regulated RoEs
US regulated businesses’ RoEs are a measure of how the businesses are performing against the assumptions used by the US regulators.
This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated
capital structure and allowed cost of debt. The returns are divided by the average rate base (or where a reported rate base is not available, an
estimate based on rate base calculations used in previous rate filings) multiplied by the adjudicated equity portion in the regulatory adjudicated
capital structure.
These are important measures of our New England and New York regulated businesses’ performance, and our operational strategy continues to
focus on these metrics. This measure can be used to determine how we are performing and also helps investors compare our performance with
similarly regulated US entities. Reflecting the importance of these metrics, they are also key components of the APP scheme.
The New England and New York businesses’ returns are based on a calculation which gives proportionately more weighting to those businesses
which have a greater rate base. For the reasons noted above, no reconciliations to IFRS for the RoE measures have been presented, as we do not
believe it would be practical to reconcile our IFRS balance sheet to the equity base.
The table below shows the principal differences between the IFRS result of the New England and New York segments, and the ‘returns’ used to
derive their respective US jurisdictional RoEs. In outlining these differences, we also include the aggregated business results under US GAAP for
New England and New York jurisdictions.
In respect of 2021/22 and 2020/21, this measure is the aggregate operating profit of our US OpCo entities’ publicly available financial statements
prepared under US GAAP for the New England and New York jurisdictions respectively. For 2022/23, this measure represents our current estimate,
since local financial statements have yet to be prepared.
Underlying IFRS operating profit for New England segment
Underlying IFRS operating profit for New York segment
Weighted average £/$ exchange rate
2023
£m
819
874
2022
£m
886
706
2021
£m
727
722
$1.216
$1.348
$1.341
250
250
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
UK and US regulated RoE
Year ended 31 March
UK Electricity Transmission
UK Electricity Distribution
UK Gas Transmission
New England
New York
UK businesses’ regulated RoEs
Regulatory Debt:
Equity assumption
55/45
65/35
60/40
Avg. 45/55
Avg. 52/48
Achieved
Return on Equity
Base or Allowed
Return on Equity
2023
%
7.5
13.2
7.8
8.3
8.6
2022
%
7.7
13.6
7.8
8.3
8.8
2023
%
6.3
9.6
6.6
9.9
8.9
2022
%
6.3
9.6
6.6
9.8
8.9
UK regulated businesses’ RoEs are a measure of how the businesses are performing against the assumptions used by our UK regulator. These
returns are calculated using the assumption that the businesses are financed in line with the regulatory adjudicated capital structure, at the cost of
debt assumed by the regulator, and that inflation is equal to a long-run assumption of 3% RPI under RIIO-1 and 2% CPIH under RIIO-2. They are
calculated by dividing elements of out/under-performance versus the regulatory contract (i.e. regulated financial performance disclosed above) by
the average equity RAV in line with the regulatory assumed capital structure and adding to the base allowed RoE.
These are important measures of UK regulated businesses’ performance, and our operational strategy continues to focus on these metrics. These
measures can be used to determine how we are performing under the RIIO framework and also help investors to compare our performance with
similarly regulated UK entities. Reflecting the importance of these metrics, they are also key components of the APP scheme.
as we do not believe it would be practical.
US businesses’ regulated RoEs
US regulated businesses’ RoEs are a measure of how the businesses are performing against the assumptions used by the US regulators.
This US operational return measure is calculated using the assumption that the businesses are financed in line with the regulatory adjudicated
capital structure and allowed cost of debt. The returns are divided by the average rate base (or where a reported rate base is not available, an
estimate based on rate base calculations used in previous rate filings) multiplied by the adjudicated equity portion in the regulatory adjudicated
capital structure.
These are important measures of our New England and New York regulated businesses’ performance, and our operational strategy continues to
focus on these metrics. This measure can be used to determine how we are performing and also helps investors compare our performance with
similarly regulated US entities. Reflecting the importance of these metrics, they are also key components of the APP scheme.
The New England and New York businesses’ returns are based on a calculation which gives proportionately more weighting to those businesses
which have a greater rate base. For the reasons noted above, no reconciliations to IFRS for the RoE measures have been presented, as we do not
believe it would be practical to reconcile our IFRS balance sheet to the equity base.
The table below shows the principal differences between the IFRS result of the New England and New York segments, and the ‘returns’ used to
derive their respective US jurisdictional RoEs. In outlining these differences, we also include the aggregated business results under US GAAP for
New England and New York jurisdictions.
In respect of 2021/22 and 2020/21, this measure is the aggregate operating profit of our US OpCo entities’ publicly available financial statements
prepared under US GAAP for the New England and New York jurisdictions respectively. For 2022/23, this measure represents our current estimate,
since local financial statements have yet to be prepared.
Underlying IFRS operating profit for New England segment
Underlying IFRS operating profit for New York segment
Weighted average £/$ exchange rate
2023
£m
819
874
2022
£m
886
706
2021
£m
727
722
$1.216
$1.348
$1.341
The respective businesses’ UK RoEs are underpinned by their RAVs. For the reasons noted above, no reconciliation to IFRS has been presented,
Regulatory earnings used to determine US RoE
Underlying IFRS operating profit for US segments
Adjustments to convert to US GAAP as applied in our US OpCo entities
Adjustment in respect of customer contributions
Pension accounting differences1
Environmental charges recorded under US GAAP
Storm costs and recoveries recorded under US GAAP
Removal of partial year Rhode Island in year of disposal
Other regulatory deferrals, amortisation and other items
Results for US regulated OpCo entities, aggregated under US GAAP2
Adjustments to determine regulatory operating profit used in US RoE
Adjustment for COVID-19-related provision for bad and doubtful debts3
Net other
Regulatory operating profit
Pensions1
Regulatory interest charge
Regulatory tax charge
New England
2023
$m
2022
$m
995
1,194
(26)
39
(3)
(54)
(65)
(217)
669
—
113
782
(17)
(176)
(159)
430
(35)
14
3
(75)
—
(253)
848
—
71
919
7
(227)
(179)
520
2021
$m
974
(28)
8
(14)
(86)
—
58
New York
2023
$m
2022
$m
1,060
951
(34)
12
58
(39)
—
86
(30)
88
42
(8)
—
46
2021
$m
969
(31)
(2)
(94)
(27)
—
43
912
1,143
1,089
858
(44)
(14)
854
(31)
(221)
(155)
447
(171)
171
—
85
171
(16)
1,143
1,174
1,013
219
(339)
(279)
744
107
(316)
(263)
702
(13)
(314)
(185)
501
1. Following a change in US GAAP accounting rules, an element of the pensions charge is reported outside operating profit with effect from 2019.
2. Based on US GAAP accounting policies as applied by our US regulated OpCo entities.
3. US RoE included an adjustment reflecting our expectation for future recovery of COVID-19-related bad and doubtful debt costs in 2020/21. The adjustment is being unwound as
regulated assets are recognised in respect of the same debts in our US GAAP accounts.
US equity base (average for the year)
US jurisdiction RoE
New England
New York
2023
$m
5,155
8.3 %
2022
$m
6,253
8.3 %
2021
$m
5,960
7.5 %
2023
$m
8,670
8.6 %
2022
$m
7,946
8.8 %
2021
$m
7,452
6.7 %
Information on differences between IFRS and regulatory balances
There are certain significant assets and liabilities included in our IFRS balance sheet, which are treated differently in the analysis below and to which
we draw readers’ attention. Our UK OpCo RAVs are different to the IFRS carrying value of PP&E and intangibles in these entities. This is a result of
the annual indexation (inflationary uplift) adjustment applied to RAV compared with the IFRS value of these assets (which are held at amortised cost)
or in the case of UK ED, the result of acquisition fair value adjustments (where PP&E at acquisition has been valued above RAV). In addition, under
IFRS we recognise liabilities in respect of US environmental remediation costs, and pension and OPEB costs. For regulatory purposes, these are not
shown as obligations because we are entitled to full recovery of costs through our existing rate plans. The impact of US tax reform in 2017/18 which
resulted in a reduction in IFRS deferred tax liabilities, and from a regulatory perspective remains as a future obligation, results in a regulatory liability
within US rate base. In our Value Added calculation, we recognised an asset in 2021/22 to reflect expected future recovery of £202 million
COVID-19-related provision for bad and doubtful debts. In 2022/23 the expected recovery of these bad debts has been recognised as a regulated
asset in our US operating companies. Regulatory IOUs which reflect net over- or under-recoveries compared with our regulatory allowances are
treated within this table as obligations but do not qualify for recognition as liabilities (or assets) under IFRS. The decrease in regulatory assets and
other balances and the decrease in net debt as a result of the disposals of NECO and our UK Gas Transmission and Metering business along with
associated transaction costs have been excluded when calculating the in-year Value Added for 2022/23. However, these balances are included
within amounts reported as at 31 March 2022. Adjusted net debt movements exclude movements on derivatives which are designated in cash flow
hedging arrangements and for which there is no corresponding movement in total assets and other balances. Within our Value Added calculation,
total assets and other balances, goodwill and adjusted net debt movement all exclude the impact of reclassifications to held for sale for the UK Gas
business in 2021/22. Separation and transaction costs related to the disposal of these entities are also excluded from in-year 2021/22 Value Added
and have been released to offset against the proceeds on disposal of these businesses received during 2022/23.
Asset growth, Value Added, Value Added per share and Value Growth
To help readers’ assessment of the financial position of the Group, the table below shows an aggregated position for the Group, as viewed from
a regulatory perspective. The asset growth and Value Added measures included in the table below are calculated in part from financial information
used to derive measures sent to and used by our regulators in the UK and US, and accordingly inform certain of the Group’s regulatory performance
measures, but are not derived from, and cannot be reconciled to, IFRS. These alternative performance measures include regulatory assets and
liabilities and certain IFRS assets and liabilities of businesses that were classified as held for sale under IFRS 5.
Asset growth is the annual percentage increase in our RAV and rate base and other business balances (including the assets of NGV and NG
Partners) calculated at constant currency.
Value Added is a measure that reflects the value to shareholders of our cash dividend and the growth in National Grid’s regulated and non-regulated
assets (as measured in our regulated asset base, for regulated entities), and corresponding growth in net debt. It is a key metric used to measure our
performance and underpins our approach to sustainable decision making and long-term management incentive arrangements.
Value Added is derived using our regulated asset base and, as such, it is not practical to provide a meaningful reconciliation from this measure to an
equivalent IFRS measure due to the reasons set out for our regulated asset base. However, the calculation is set out below. Value Added per share is
calculated by dividing Value Added by the weighted average number of shares (3,659 million) set out in note 8 to the financial statements.
Value Growth of 12.4% (2022: 12.8%) is derived from Value Added by adjusting Value Added to normalise for our estimate of the long-run inflation
rate (3% RPI for RIIO-1 and our RPI-linked net debt; 2% CPIH for RIIO-2). In 2023, the numerator for Value Growth was £2,902 million (2022:
£2,730 million). The denominator is Group equity as used in the Group RoE calculation, adjusted for foreign exchange movements.
250
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Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
251251
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Other unaudited financial information continued
The tables below include related balances and net debt up to the dates of disposal for NECO and the UK Gas Transmission and Metering business,
despite being reclassified as held for sale under IFRS.
£m
UK RAV
US rate base
Total RAV and rate base
National Grid Ventures and other
Total assets (used to calculate asset growth)
UK other regulated balances2
US other regulated balances3
Other balances
Total assets and other balances
Cash dividends
Adjusted net debt movement1
Value Added
2022/23
Disposal
of NECO
and UK Gas
Transmission1
31 March 2023
31 March 2022
Value Added
Change
28,205
23,038
51,243
6,604
57,847
(255)
3,226
108
60,926
(6,989)
(2,476)
(9,465)
(143)
(9,608)
(141)
(250)
1,239
(8,760)
31,577
23,628
55,205
5,374
60,579
75
2,792
(808)
62,638
11 %
8 %
10 %
26 %
11 %
3,617
1,886
5,503
1,373
6,876
(189)
684
(323)
7,048
1,607
(3,848)
4,807
1. The disposal of NECO on 25 May 2022 and UK Gas Transmission on 31 January 2023 resulted in an increase in assets which has been excluded from the total change in the
year used to calculate asset growth and Value Added for 2022/23. The decrease in RAV and rate base and other regulated balances relating to the businesses disposed along
with the net debt disposed and cash proceeds received (plus associated transaction costs) are excluded from the total adjusted net debt movement in the year used to calculate
asset growth and Value Added.
2. Includes totex-related regulatory IOUs of £502 million, under-recovered timing balances of £246 million.
3. Includes assets for construction work-in-progress of £2,319 million, other regulatory assets related to timing and other cost deferrals of £771 million and net working capital
liabilities of £136 million.
£m
UK RAV
US rate base
Total RAV and rate base
National Grid Ventures and other
Total assets (used to calculate asset growth)
UK other regulated balances2
US other regulated balances3
Other balances
Total assets and other balances
Cash dividends
Adjusted net debt movement1
Value Added
31 March 2022
Acquisition
of WPD1
31 March 2021
Value Added
2021/22
31,593
22,178
53,771
5,226
58,997
84
2,621
(878)
8,476
—
8,476
—
8,476
230
—
(168)
20,876
20,687
41,563
4,920
46,483
(140)
1,995
(336)
60,824
8,538
48,002
2,241
1,491
3,732
306
4,038
(6)
626
(374)
4,284
922
(1,373)
3,833
Change
11 %
7 %
9 %
6 %
9 %
1. The acquisition of WPD on 14 June 2021 resulted in an increase in assets which has been excluded from the total change in the year used to calculate asset growth and Value
Added for 2021/22. The increase in goodwill and intangible licence recognised on the acquisition of WPD and the associated fair value of net debt acquired and cash proceeds
(along with associated transaction costs) are excluded from the total adjusted net debt movement in the year used to calculate asset growth and Value Added.
2. Includes totex-related regulatory IOUs of £271 million, under-recovered timing balances of £346 million and under-recovered legacy balances related to previous price controls
of £9 million.
3. Includes assets for construction work-in-progress of £2,139 million, other regulatory assets related to timing and other cost deferrals of £759 million and net working capital liabilities
of £277 million.
Figures relating to prior periods have, where appropriate, been re-presented at constant currency, for opening balance adjustments following the
completion of the UK regulatory reporting pack process and finalisation of US balances.
Regulatory gearing
Regulatory gearing is a measure of how much of our investment in RAV and rate base and other elements of our invested capital (including our
investments in NGV, UK property and other assets and US other assets) is funded through debt. Comparative amounts as at 31 March 2022 are
presented at historical exchange rates and have not been restated for opening balance adjustments.
As at 31 March
UK RAV
US rate base
Other invested capital included in gearing calculation
Total assets included in gearing calculation
Net debt (including 100% of hybrid debt and held for sale)
Group gearing (based on 100% of net debt including held for sale)
Group gearing (excluding 50% of hybrid debt from net debt) including held for sale
2023
£m
28,205
23,038
6,604
57,847
2022
£m
31,593
22,178
5,226
58,997
(40,973)
(48,043)
71 %
69 %
81 %
80 %
change
(10% pts)
(11% pts)
252
252
National Grid plc
Annual Report and Accounts 2022/23
National Grid plcAnnual Report and Accounts 2022/23
Other unaudited financial information continued
Commentary on consolidated financial statements
for the year ended 31 March 2022
The tables below include related balances and net debt up to the dates of disposal for NECO and the UK Gas Transmission and Metering business,
despite being reclassified as held for sale under IFRS.
In compliance with SEC rules, we present a summarised analysis of movements in the income statement and an analysis of movements in
adjusted operating profit (for the continuing Group) by operating segment. This should be read in conjunction with the 31 March 2023 Financial
review included on pages 53 – 65.
An exceptional deferred tax charge of £458 million was made in 2021/22
arising as a result of the UK corporation tax rate change, effective from
April 2023.
Remeasurement gains of £392 million were recognised on commodity
contracts in 2021/22 compared with gains of £34 million in 2020/21.
Finance costs for the year ended 31 March 2021 included a net gain
of £59 million on financial remeasurements of derivative financial
instruments and financial assets at fair value through profit or loss,
compared to a net gain of £70 million on financial remeasurements
in 2020/21.
Joint ventures and associates
Share of post-tax results of joint ventures and associates before
exceptional items for 2021/22 were £148 million compared with
£66 million in 2020/21, principally due to higher revenues in our
BritNed and Nemo Link interconnector joint ventures in the UK.
Profit after tax from discontinued operations
Adjusted profit after tax from discontinued operations was broadly flat
year on year at £344 million in 2021/22 compared with £340 million
in 2020/21. Statutory profit after tax from discontinued operations
also included exceptional operating costs and remeasurements of
£29 million in 2021/22 compared with £3 million in 2020/21. The
statutory tax charge in 2021/22 included a £145 million exceptional
item related to deferred tax charges for the change in the UK
corporation tax rate.
Adjusted earnings and EPS from continuing
operations
Adjusted earnings and adjusted EPS, which exclude exceptional items
and remeasurements, are provided to reflect the Group’s results on
an ‘adjusted profit’ basis, described further in note 5. See page 148
for a reconciliation of adjusted basic EPS to EPS.
The above earnings performance translated into adjusted EPS in
2021/22 of 61.4p, compared with 36.7p in 2020/21. Including
discontinued operations, adjusted EPS in 2021/22 of 71.0p,
compared with 46.4p in 2020/21.
Exchange rates
Our financial results are reported in sterling. Transactions for our US
operations are denominated in dollars, so the related amounts that
are reported in sterling depend on the dollar to sterling exchange rate.
The table below shows the average and closing exchange rates of
sterling to US dollars.
Weighted average (income statement)
1.35
1.34
Year end
(statement of financial position)
1.31
1.38
1 %
5 %
2021/22
2020/21
% change
The movement in foreign exchange during 2021/22 has resulted in
a £69 million decrease in revenue, a £7 million decrease in adjusted
operating profit and a £8 million decrease in underlying operating profit.
Analysis of the income statement
for the year ended 31 March 2022
Revenue
Revenue from continuing operations for the year ended 31 March 2022
increased by £4,595 million to £18,260 million. Revenues were driven
by a £1,437 million increase in UK Electricity System Operator (mainly as
a result of higher balancing service pass-through costs), a £1,482 million
increase from having acquired a new business, WPD (UK Electricity
Distribution), during the year, a £956 million increase in New York and
a £336 million increase in New England (mainly from higher commodity
pass-through costs, but also rate increases and year-on-year timing net
over-recoveries). Revenue from NGV increased by £238 million, related
to higher interconnector income. Other activities revenues increased,
driven by NG Partners gains and higher property site sales.
Operating costs
Operating costs from continuing activities for the year ended 31 March
2022 of £14,447 million were £3,209 million higher than prior year. This
increase in costs excludes the exceptional items and remeasurements
impacts, which is discussed below. Operating costs were driven by
higher UK Electricity System Operator balancing service pass-through
costs up £1,277 million and increased gas and electricity purchases
(mostly on behalf of our US customers) up £924 million, with the
underlying cause of both of these being higher global energy prices.
Higher depreciation as a result of continued asset investment was
up £345 million compared with 2020/21. The acquisition of WPD (UK
Electricity Distribution) in June 2021 increased other costs (excluding
depreciation) by £415 million. Provisions for bad and doubtful debts of
£167 million were recorded in the year, £158 million lower than 2020/21,
principally as a result of the adverse impact of COVID-19 in 2020/21.
Net finance costs
Net finance costs (excluding remeasurements) for 2021/22 were
£1,081 million, up £216 million, driven by interest costs of £130 million
for debt acquired with WPD (UK Electricity Distribution), £99 million
of interest and fees for £8 billion of borrowings used to finance the
acquisition, a £145 million impact of higher inflation on RPI-linked
debt and higher borrowings from organic asset growth, partly offset
by favourable non-debt interest income (pensions, capitalised interest
and other interest income on US investments) compared with 2020/21.
Tax
The tax charge on profits before exceptional items and remeasurements
of £669 million was £335 million higher than 2020/21. This was mainly
related to the impact of the acquisition of WPD (UK Electricity
Distribution) resulting in a higher level of profit before tax in 2021/22
compared with 2020/21. The tax charge in 2021/22 included additional
deferred tax charges in the UK for the change in the UK corporation tax
rate and the unitary state deferred tax remeasurement related to the sale
of our Rhode Island business in the US.
Exceptional items and remeasurements
In 2021/22, exceptional items included £417 million of gains related
to disposal of our investment in St William and a US environmental
insurance recovery of £38 million, partly offset by a £66 million charge
(2021: £50 million) in relation to our new operating model implementation
costs and a £223 million (2021: £24 million) charge in relation to
transaction and separation costs (principally in relation to the acquisition
of WPD and the planned disposal of NECO and the UK Gas
Transmission business). In 2020/21 a £14 million credit relating to the
release of environmental provisions for one of our Superfund sites for
which the original provision was treated as an exceptional item.
1. The disposal of NECO on 25 May 2022 and UK Gas Transmission on 31 January 2023 resulted in an increase in assets which has been excluded from the total change in the
year used to calculate asset growth and Value Added for 2022/23. The decrease in RAV and rate base and other regulated balances relating to the businesses disposed along
with the net debt disposed and cash proceeds received (plus associated transaction costs) are excluded from the total adjusted net debt movement in the year used to calculate
2. Includes totex-related regulatory IOUs of £502 million, under-recovered timing balances of £246 million.
3. Includes assets for construction work-in-progress of £2,319 million, other regulatory assets related to timing and other cost deferrals of £771 million and net working capital
£m
UK RAV
US rate base
Total RAV and rate base
National Grid Ventures and other
Total assets (used to calculate asset growth)
UK other regulated balances2
US other regulated balances3
Other balances
Total assets and other balances
Cash dividends
Adjusted net debt movement1
Value Added
asset growth and Value Added.
liabilities of £136 million.
£m
UK RAV
US rate base
Total RAV and rate base
National Grid Ventures and other
Total assets (used to calculate asset growth)
UK other regulated balances2
US other regulated balances3
Other balances
Total assets and other balances
Cash dividends
Adjusted net debt movement1
Value Added
31 March 2023
31 March 2022
Value Added
Change
2022/23
Disposal
of NECO
and UK Gas
Transmission1
28,205
23,038
51,243
6,604
57,847
(255)
3,226
108
60,926
(6,989)
(2,476)
(9,465)
(143)
(9,608)
(141)
(250)
1,239
(8,760)
31,577
23,628
55,205
5,374
60,579
75
2,792
(808)
62,638
31 March 2022
31 March 2021
Value Added
Acquisition
of WPD1
2021/22
8,476
—
8,476
—
8,476
230
—
(168)
20,876
20,687
41,563
4,920
46,483
(140)
1,995
(336)
31,593
22,178
53,771
5,226
58,997
84
2,621
(878)
60,824
8,538
48,002
11 %
8 %
10 %
26 %
11 %
Change
11 %
7 %
9 %
6 %
9 %
3,617
1,886
5,503
1,373
6,876
(189)
684
(323)
7,048
1,607
(3,848)
4,807
2,241
1,491
3,732
306
4,038
(6)
626
(374)
4,284
922
(1,373)
3,833
1. The acquisition of WPD on 14 June 2021 resulted in an increase in assets which has been excluded from the total change in the year used to calculate asset growth and Value
Added for 2021/22. The increase in goodwill and intangible licence recognised on the acquisition of WPD and the associated fair value of net debt acquired and cash proceeds
(along with associated transaction costs) are excluded from the total adjusted net debt movement in the year used to calculate asset growth and Value Added.
2. Includes totex-related regulatory IOUs of £271 million, under-recovered timing balances of £346 million and under-recovered legacy balances related to previous price controls
3. Includes assets for construction work-in-progress of £2,139 million, other regulatory assets related to timing and other cost deferrals of £759 million and net working capital liabilities
Figures relating to prior periods have, where appropriate, been re-presented at constant currency, for opening balance adjustments following the
completion of the UK regulatory reporting pack process and finalisation of US balances.
Regulatory gearing is a measure of how much of our investment in RAV and rate base and other elements of our invested capital (including our
investments in NGV, UK property and other assets and US other assets) is funded through debt. Comparative amounts as at 31 March 2022 are
presented at historical exchange rates and have not been restated for opening balance adjustments.
of £9 million.
of £277 million.
Regulatory gearing
As at 31 March
UK RAV
US rate base
Other invested capital included in gearing calculation
Total assets included in gearing calculation
Net debt (including 100% of hybrid debt and held for sale)
Group gearing (based on 100% of net debt including held for sale)
Group gearing (excluding 50% of hybrid debt from net debt) including held for sale
2023
£m
28,205
23,038
6,604
57,847
2022
£m
31,593
22,178
5,226
58,997
(40,973)
(48,043)
71 %
69 %
81 %
80 %
change
(10% pts)
(11% pts)
252
National Grid plc
Annual Report and Accounts 2022/23
National Grid plc
Annual Report and Accounts 2022/23
253253
National Grid plcAnnual Report and Accounts 2022/23Corporate Governance Financial StatementsStrategic ReportAdditional Information
Commentary on consolidated financial statements
for the year ended 31 March 2022 continued
Analysis of the adjusted operating profit by
segment for the year ended 31 March 2022
UK Electricity Transmission
For 2021/22, revenue in the UK Electricity Transmission segment
increased by £61 million to £2,035 million, but adjusted operating profit
decreased by £27 million to £1,067 million. Revenue was higher under
the first year of RIIO-T2, with indexation and lower totex capitalisation
rates (increased ‘fast money’) offsetting lower returns and no repeat of
the adverse MOD adjustment in the final year of RIIO-T1. Revenue
increased despite £127 million adverse year-on-year timing movements,
mainly from under-recoveries of pass-through costs, inflation true-ups
and also the return of prior period balances. Regulated controllable
costs were higher as a result of additional workload agreed for RIIO-T2,
inflationary increases and the non-recurrence of favourable credits in
2020/21, which more than offset efficiency savings and the absence
of prior period COVID-19-related costs. The increase in depreciation
and amortisation reflects continued investment. Other costs were higher,
mainly related to a £10 million settlement related to Western Link.
Capital expenditure increased by £211 million compared with 2020/21
to £1,195 million primarily due to LPT2 and Hinkley Seabank, partly
offset by lower Smartwires spend.
UK Electricity Distribution
This business (previously called WPD) was acquired by National Grid
in June 2021. For the 9.5 months owned during 2021/22, it generated
revenue of £1,482 million and adjusted operating profit of £909 million.
Capital expenditure for the period owned in 2021/22 was £899 million.
UK Electricity System Operator
For 2021/22, revenue in the UK Electricity System Operator segment
increased by £1,437 million to £3,455 million but this was principally
as the result of higher pass-through costs, which increased from
£1,911 million in 2020/21 to £3,215 million in 2021/22 (principally
reflecting higher balancing service costs due to increased global energy
prices and higher intervention costs required to balance the grid).
Excluding pass-through costs, net revenue was £133 million higher,
as the result of £47 million timing under-recoveries in 2021/22 compared
to £130 million under-recoveries in 2020/21 (mainly favourable TNUoS
recoveries, pass through costs and inflation true-ups). Regulated
controllable costs including pensions were £33 million higher from
increased workload to deliver RIIO-2. Depreciation and amortisation
was £37 million higher due to investment in transformational IT systems
and asset impairments.
Capital expenditure increased by £20 million compared with 2020/21, as
a result of investment in IT projects including infrastructure and security.
New England
Revenue in the New England segment increased by £336 million to
£4,550 million. Of this increase, £266 million was due to an increase
in commodity pass-through costs charged on to customers, and
£21 million was due to year-on-year timing movements as a result of
under-collection of revenues compared with our regulatory allowances
in 2021/22. Adjusted operating profit increased by £132 million (22%)
to £743 million. Excluding pass-through costs and timing swings,
underlying net revenue increased by £91 million (4%) principally reflecting
increased rates in Massachusetts Gas and Massachusetts Electric.
Regulated controllable costs were broadly flat with increased workload
and inflationary impacts being offset by efficiency savings. Provisions
for bad and doubtful debts were £82 million lower, following the high
charge in 2020/21 as a result of the impact of COVID-19 restrictions on
our collection activities. Depreciation and amortisation was £24 million
lower mainly due to NECO being classified as held for sale for the whole
of 2021/22. Other costs were £44 million higher as a result of
environmental provision increases and higher customer-funded works.
New York
Revenue in the New York segment increased by £956 million to
£5,561 million. Of this increase, £692 million was due to an increase
in commodity pass-through costs charged on to customers and
a £138 million increase due to year-on-year timing movements
(as a result of year-on-year over-collection of revenues compared
with our regulatory allowances). Adjusted operating profit increased by
£115 million (17%) to £780 million. Excluding pass-through costs and
timing swings, underlying net revenue increased by £126 million (4%)
principally from the benefits of rate case increases in KEDNY, KEDLI
and Niagara Mohawk. Regulated controllable costs were lower with
increased workload and IT costs and also inflationary impacts more
than offset by cost efficiency savings, favourable credits in 2021/22
and the non-recurrence of costs arising in 2020/21. Provisions for bad
and doubtful debts decreased by £111 million, driven by 2020/21’s
additional provisions for receivables related to the impact of COVID-19.
Depreciation and amortisation increased due to the growth in assets
and the accelerated depreciation of certain gas assets and IT systems.
Other costs were higher due to an increase in environmental provisions
(mostly driven by inflation), increased property taxes, cost of removal and
customer-funded work, partly offset by a historical property tax refund.
Capital expenditure increased by £222 million to £1,960 million, as
a result of accelerated leak-prone pipe replacement work in our gas
businesses, investment in Northwest Nassau connection, higher
investment in our electric assets to reinforce the network and increase
capacity and reliability, investment in SmartPath Connect and Energy
Highway, and decreased COVID-19 restrictions compared with 2020/21.
National Grid Ventures (NGV)
Revenue in the NGV segment increased by £238 million to
£1,024 million, driven by higher interconnector revenues, which
benefitted from a full year’s contribution from IFA2 and earlier than
expected commissioning of NSL, along with higher commodity prices
and increased revenues in our onshore renewables in the US. These
were partly offset by a write-down for assets damaged by a fire at
Sellindge in September 2021, which caused an unplanned outage
for our IFA interconnector.
Capital investment in NGV was significantly higher than in 2020/21,
with continued investment in the Viking Link interconnector (Denmark),
increased spend on our Grain LNG facility, partly offset by completion of
the NSL interconnector (Norway) this year, but a £373 million step up in
US Ventures’ capital investment, including purchase of an over 3 GW
potential offshore wind seabed lease in New York.
Other activities
In 2021/22, adjusted operating profit of £21 million compared with net
losses of £68 million in 2020/21, including benefits from NG Partners fair
value gains and the release of an aged liability for unclaimed dividends
in the Group. Capital investment was higher driven by £93 million NG
Partners investments in 2021/22 compared with £38 million in 2020/21,
partly offset by £16 million lower spend in our UK property business.
Discontinued operations – UK Gas Transmission
and Metering
In 2021/22, revenue in the UK Gas Transmission segment increased
by £252 million to £1,374 million and adjusted operating profit increased
by £155 million to £654 million. Revenue was impacted by £164 million
higher pass-through costs and £16 million favourable year-on-year
timing swings. Net revenue (adjusted for timing) was £72 million higher,
reflecting new prices under RIIO-T2 and the impact of the change to
CPIH and regulatory depreciation profile change under the new price
control. Regulated controllable costs (including pensions) and other
costs were £29 million higher, principally from customer-funded works.
Depreciation and amortisation was £96 million lower due to being
classified as held for sale in 2021/22.
Capital expenditure increased by £124 million to £1,561 million,
reflecting higher spend on gas assets driven by decreased COVID-19
restrictions compared with 2020/21 and higher investment in electric
assets related to asset condition.
Capital expenditure increased by £57 million to £261 million,
mainly related to non-load spend, with increased work at St Fergus,
Peterborough and Huntingdon compressor stations, increased
investment at Hatton and higher cyber spend compared with 2020/21.
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Definitions and glossary of terms
Our aim is to use plain English in this Annual Report and Accounts. However,
where necessary, we do use a number of technical terms and abbreviations.
We summarise the principal ones below, together with an explanation of their
meanings. The descriptions below are not formal legal definitions. Alternative
and regulatory performance measures are defined on pages 238 – 252.
A
Adjusted interest
A measure of the interest charge of the Group,
calculated by making adjustments to the Group
reported interest charge.
Adjusted net debt
A measure of the indebtedness of the Group,
calculated by making adjustments to the Group
reported borrowings, including adjustments
made to include elements of pension deficits
and exclude elements of hybrid debt financing.
C
Called-up share capital
Shares (common stock) that have been issued
and have been fully paid for.
Capital tracker
In the context of our US rate plans, this is
a mechanism that allows the recovery of the
revenue requirement of incremental capital
investment above that embedded in base
rates, including depreciation, property taxes
and a return on the incremental investment.
Adjusted results (also referred to as
headline results)
Financial results excluding the impact of
exceptional items and remeasurements that
are treated as discrete transactions under
IFRS and can accordingly be classified as
such. This is a measure used by National Grid
management that forms part of the incentive
target set annually for remunerating certain
Executive Directors, and further details of
these items are included in note 5 to the
financial statements.
American Depositary Shares (ADSs)
Securities of National Grid listed on the NYSE
each of which represents five ordinary shares.
They are evidenced by American Depositary
Receipts or ADRs.
Annual General Meeting (AGM)
Meeting of shareholders of the Company
held each year to consider ordinary and special
business as provided in the Notice of AGM.
ASTI
The Accelerated Strategic Transmission
Investment framework to connect 50GW
of offshore generation by 2030, announced
by Ofgem in December 2022.
B
Board
The Board of Directors of the Company
(for more information, see pages 70 and 71).
bps
Basis point (bp) is a unit that is equal to
1/100th of 1% and is typically used to denote
the movement in a percentage-based metric
such as interest rates or RoE. A 0.1% change
in a percentage represents 10 basis points.
BritNed
BritNed Development Limited, a joint venture
company in which National Grid and TenneT,
the Dutch national transmission system
operator, each hold 50% of the shares.
Carbon capture usage and storage
(CCUS)
The process of capturing carbon dioxide (CO2)
for the purpose of recycling it for further usage
and/or determining safe and permanent
storage options for it.
Carrying value
The amount at which an asset or a liability is
recorded in the Group’s statement of financial
position and the Company’s balance sheet.
Child risk
A management team or directorate level
owned or managed risk that has a supportive
or contributing relationship to a GPR or other
risk at a higher escalation level.
The Company, the Group, National Grid,
we, our or us
We use these terms to refer to either National
Grid plc itself or to National Grid plc and/or
all or certain of its subsidiaries, depending
on context.
Consolidated financial statements
Financial statements that include the results
and financial position of the Company and
its subsidiaries together as if they were
a single entity.
Constant currency
Constant currency basis refers to the reporting
of the actual results against the results for the
same period last year, which, in respect of any
US$ currency denominated activity, have been
translated using the average US$ exchange
rate for the year ended 31 March 2023, which
was $1.2156 to £1. The average rate for the
year ended 31 March 2022 was $1.3483 to
£1, and for the year ended 31 March 2021
was $1.3410 to £1. Assets and liabilities as at
31 March 2022 have been retranslated at the
closing rate at 31 March 2023 of $1.2337 to £1.
The closing rate for the balance sheet date
31 March 2022 was $1.3144 to £1.
Contingent liabilities
Possible obligations or potential liabilities
arising from past events for which no provision
has been recorded, but for which disclosure
in the financial statements is made.
COP26
The 26th UN Climate Change Conference
of the Parties which the UK hosted at the
Scottish Event Campus in Glasgow from
1 – 12 November 2021. The climate talks
brought together heads of state, climate
experts and campaigners to agree coordinated
action to tackle climate change. The Company
was a principal partner of COP26.
COP27
The 27th UN Climate Change Conference
of the Parties held in Sharm El Sheikh in Egypt
in November 2022 at which the Company gave
various keynote speeches.
CPIH
The UK Consumer Prices Index including
Owner Occupiers’ Housing Costs as published
by the Office for National Statistics.
D
DB
Defined benefit, relating to our UK or US (as the
context requires) final salary pension schemes.
Deferred tax
For most assets and liabilities, deferred tax
is the amount of tax that will be payable or
receivable in respect of that asset or liability
in future tax returns as a result of a difference
between the carrying value for accounting
purposes in the statement of financial position
or balance sheet and the value for tax
purposes of the same asset or liability.
DESNZ
The Department for Energy Security and
Net Zero, the UK government department
established in February 2023 and focused on
the energy portfolio of the former Department
for Business, Energy and Industrial
Strategy (BEIS).
Deposit agreement
The amended and restated Deposit agreement
entered into between National Grid plc, the
Depositary and all the registered holders from
time to time of ADRs, pursuant to which ADSs
have been issued, dated 23 May 2013, and any
related agreement.
Depositary
The Bank of New York Mellon acting as
ADS Depositary.
National Grid plc
Annual Report and Accounts 2022/23
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Definitions and glossary of terms continued
Derivative
A financial instrument or other contract where
the value is linked to an underlying index, such
as exchange rates, interest rates or commodity
prices. In most cases, we exclude contracts for
the sale or purchase of commodities that are
used to supply customers or for our own needs
from this definition.
Directors/Executive Directors/
Non-executive Directors
The Directors/Executive Directors and
Non-executive Directors of the Company,
whose names are set out on pages 70 and 71
of this document.
Distributed energy resources (DER)
Decentralised assets, generally located behind
the meter, covering a range of technologies
including solar, storage, electric vehicle
charging, district heating, smart street lighting
and combined heat and power.
Diversity, equity and inclusion (DEI)
National Grid is committed to creating a work
environment where people are treated fairly
and where everyone feels respected, valued
and empowered to reach their full potential.
Our mission is to build a business that
represents, reflects and celebrates the
cultures and communities we serve.
Dollars or $
Except as otherwise noted, all references to
dollars or $ in this Annual Report and Accounts
relate to the US currency.
Dth
Decatherm, being an amount of energy
equal to 1 million British thermal units (BTUs),
equivalent to approximately 293 kWh.
E
Earnings per share (EPS)
Profit for the year attributable to equity
shareholders of the Company allocated
to each ordinary share.
Electricity System Operator (ESO)
The party responsible for the long-term
strategy, planning and real-time operation
(balancing supply and demand) of the
electricity system in Great Britain.
Employee engagement
A key performance indicator (KPI), based on
the percentage of favourable responses to
certain indicator questions repeated in each
employee survey. It is used to measure how
employees think, feel and act in relation to
National Grid. Research shows that a highly
engaged workforce leads to increased
productivity and employee retention. We
use employee engagement as a measure
of organisational health in relation to
business performance.
Employee Resource Group (ERG)
A voluntary, employee-led group whose
aim is to foster a diverse, inclusive workplace,
aligned with the organisations they serve.
Estate Tax Convention
The convention between the US and the UK for
the avoidance of double taxation with respect
to estate and gift taxes.
H
HMRC
HM Revenue & Customs, the UK tax authority.
EU
The EU is the economic and political union of
27 member states located in Europe. The UK
left the European Union on 31 January 2020.
Exchange Act
The US Securities Exchange Act 1934,
as amended.
F
FERC
The US Federal Energy Regulatory Commission.
Finance lease
A lease where the asset is treated as if it was
owned for the period of the lease, and the
obligation to pay future rentals is treated as
if they were borrowings. Also known as
a capital lease.
Financial year
For National Grid this is an accounting year
ending on 31 March. Also known as
a fiscal year.
FRS
A UK Financial Reporting Standard as issued
by the UK Financial Reporting Council (FRC).
It applies to the Company’s individual financial
statements on pages 211 to 217, which are
prepared in accordance with FRS 101.
Funds from Operations (FFO)
A measure used by the credit rating agencies
of the operating cash flows of the Group after
interest and tax but before capital investment.
G
Grain LNG
National Grid Grain LNG Limited.
Great Britain (GB)
England, Wales and Scotland.
Green capital investment (green capex)
Capital expenditure invested in decarbonisation
of energy systems and considered to be
aligned with the principles of the EU Taxonomy
legislation at the date of reporting.
Group Principal Risk (GPR)
A principal risk faced by the Company as
monitored and assessed by the Board, details
of which are set out on pages 20 to 24.
Group Value Growth
Group Value Growth is Group-wide Value
Added expressed as a proportion of Group
equity. See page 258 for an explanation of
Value Added.
Group-wide Value Added
Normalised for assumed long-run inflation
expressed as a proportion of Group equity.
GW
Gigawatt, an amount of power equal to
1 billion watts (109 watts).
GWh
Gigawatt hours, an amount of energy
equivalent to delivering 1 billion watts
(109 watts) of power for a period of one hour.
HVDC
High-voltage, direct-current electric power
transmission that uses direct current for the
bulk transmission of electrical power, in
contrast to the more common alternating
current systems.
I
IAS or IFRS
An International Accounting Standard (IAS)
or International Financial Reporting Standard
(IFRS), as issued by the International Accounting
Standards Board (IASB). IFRS is also used as
the term to describe international generally
accepted accounting principles as a whole.
Individual financial statements
Financial statements of a company on its own,
not including its subsidiaries or joint ventures
and associates.
Interest cover
A measure used by the credit rating agencies,
calculated as FFO plus adjusted interest,
divided by adjusted interest.
J
Joint venture (JV)
A company or other entity that is controlled
jointly with other parties.
K
KEDLI
KeySpan Gas East Corporation, also known
as KeySpan Energy Delivery Long Island.
KEDNY
The Brooklyn Union Gas Company, also
known as KeySpan Energy Delivery New York.
KPI
Key performance indicator.
kW
Kilowatt, an amount of power equal to
1,000 watts.
L
LIPA
The Long Island Power Authority.
LNG
Liquefied natural gas is natural gas that has
been condensed into a liquid form, typically
at temperatures at or below -161°C (-258°F).
Lost time injury (LTI)
An incident arising out of National Grid’s
operations that leads to an injury where the
employee or contractor normally has time
off for the following day or shift following the
incident. It relates to one specific (acute)
identifiable incident which arises as a result
of National Grid’s premises, plant or activities,
and was reported to the supervisor at the time
and was subject to appropriate investigation.
Lost time injury frequency rate (LTIFR)
The number of lost time injuries (LTIs) per
100,000 hours worked in a 12-month period.
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M
MADPU
The Massachusetts Department of
Public Utilities.
MPI
Multi-purpose interconnector, combining
interconnection with off-shore wind.
MW
Megawatt, an amount of power equal to
1 million watts (106 watts).
MWh
Megawatt hours, an amount of energy
equivalent to delivering 1 million watts
(106 watts) of power for a period of one hour.
N
National Grid Partners (NGP)
The Company’s venture investment and
innovation business established in
November 2018.
National Grid Renewables (NGR)
This business, which includes the renewables
development company formerly known as
Geronimo, is a leading developer of wind and
solar generation based in Minneapolis in the
US. National Grid acquired Geronimo in
July 2019.
National Grid Ventures (NGV)
The Company’s division that operates outside
its core UK and US Regulated businesses,
comprising a broad range of activities in the UK
and US, including National Grid Renewables,
electricity interconnectors, the Grain LNG
terminal and energy metering, as well as being
tasked with investment in adjacent businesses
and distributed energy opportunities.
NECO
The Narragansett Electric Company, National
Grid’s electricity transmission and distribution
service provider to, as well as a natural gas
distribution company in, Rhode Island.
NECO Sale
The sale by National Grid to PPL of its
subsidiary, The Narragansett Electric
Company, which completed in May 2022.
Nemo Link
Nemo Link Limited, a joint venture company
in which National Grid and Elia, the Belgian
national transmission system operator, each
hold 50% of the shares.
Net zero
Net zero means that a person, legal entity
(such as a company), country or other body’s
own emissions of greenhouse gases are either
zero or that its remaining greenhouse gas
emissions are balanced by schemes to offset,
through the removal of an equivalent amount
of greenhouse gases from the atmosphere,
such as planting trees or using technology
like carbon capture and storage.
New England
The term refers to a region within the
Northeastern US that includes the states
of Connecticut, Maine, Massachusetts,
New Hampshire, Rhode Island and Vermont.
National Grid’s New England operations are
primarily in the states of Massachusetts and
Rhode Island.
NGED Acquisition
The acquisition by National Grid of Electricity
Distribution (formerly know as WPD), which
completed on 14 June 2021.
NGT Sale
The sale, agreed by the Company and
announced on 27 March 2022, of a 60%
equity stake in its UK Gas Transmission and
legacy metering businesses to a consortium
comprising Macquarie Infrastructure and Real
Assets (MIRA) and British Columbia Investment
Management Corporation which completed on
31 January 2023. The consortium also has an
option on broadly similar terms to purchase the
remaining 40%.
Northeastern US
The Northeastern region of the US,
comprising the states of Connecticut, Maine,
Massachusetts, New Hampshire, New Jersey,
New York, Pennsylvania, Rhode Island
and Vermont.
NYPSC
The New York Public Service Commission.
O
Ofgem
The UK Office of Gas and Electricity Markets
is part of the UK Gas and Electricity Markets
Authority (GEMA), which regulates the energy
markets in the UK.
OPEB
Other post-employment benefits.
Ordinary shares
Voting shares entitling the holder to part
ownership of a company. Also known as
common stock. National Grid’s ordinary shares
have a nominal value of 12204⁄473 pence following
the share consolidation approved at the
General Meeting of the Company held on
19 May 2017.
P
Paris Agreement
The agreement, also known as the Paris
Climate Accord, within the United Nations
Framework Convention on Climate Change
dealing with greenhouse gas emissions
mitigation, adaptation and finance starting
in 2020, and adopted by consensus
on 12 December 2015.
PPL
PPL Corporation, a US energy company
headquartered in Pennsylvania.
Price control
The mechanism by which Ofgem sets
restrictions on the amounts of revenue we are
allowed to collect from customers in our UK
businesses. The allowed revenues are intended
to cover efficiently incurred operational
expenditure, capital expenditure and financing
costs, including a Return on Equity invested.
R
Rate base
The base investment on which the utility is
authorised to earn a cash return. It includes the
original cost of facilities, minus depreciation,
an allowance for working capital and
other accounts.
Rate plan
The term given to the mechanism by which
a US utility regulator sets terms and conditions
for utility service, including, in particular, tariffs
and rate schedules. The term can mean
a multi-year plan that is approved for
a specified period, or an order approving
tariffs and rate schedules that remain in effect
until changed as a result of future regulatory
proceedings. Such proceedings can be
commenced through a filing by the utility
or on the regulator’s own initiative.
Regulated controllable 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.
Regulatory asset value (RAV)
The value ascribed by Ofgem to the capital
employed in the relevant licensed business.
It is an estimate of the initial market value of
the regulated asset base at privatisation, plus
subsequent allowed additions at historical
cost, 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 the effects of inflation.
Regulatory IOUs
Net under/over-recoveries of revenue from
output-related allowance changes, the totex
incentive mechanism, legacy price control cost
true-up and differences between allowed and
collected revenues.
Retained cash flow (RCF)
A measure of the cash flows of the Group used
by the credit rating agencies. It is calculated as
funds from operations less dividends paid and
costs of repurchasing scrip shares.
Revenue decoupling
The term given to the elimination of the
dependency of a utility’s revenue on the
volume of gas or electricity transported.
The purpose of decoupling is to encourage
energy-efficiency programmes by eliminating
the disincentive a utility otherwise has to
such programmes.
RIIO
Revenue = Incentives + Innovation + Outputs,
the regulatory framework for energy networks
issued by Ofgem.
RIIO-T1
The eight-year regulatory framework for
transmission networks that was implemented
in the eight-year price controls started on
1 April 2013.
National Grid plc
Annual Report and Accounts 2022/23
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Definitions and glossary of terms continued
RIIO-T2
The five-year regulatory framework for
transmission networks issued by Ofgem
which started on 1 April 2021.
RIIO-ED1
The eight-year regulatory framework for
electricity distribution networks issued by
Ofgem which started on 1 April 2015.
RIIO-ED2
The five-year regulatory framework for
electricity distribution networks issued by
Ofgem which started on 1 April 2023.
RPI
The UK retail price index as published by
the Office for National Statistics.
S
Scope 1 greenhouse gas emissions
Scope 1 emissions are direct greenhouse gas
emissions that occur from sources that are
owned or controlled by the Company. Examples
include emissions from combustion in owned
or controlled boilers, furnaces, vehicles, etc.
Scope 2 greenhouse gas emissions
Scope 2 emissions are greenhouse gas
emissions from the generation of purchased
electricity consumed by the Company.
Purchased electricity is defined as electricity,
heat, steam or cooling that is purchased or
otherwise brought into the organisational
boundary of the Company. Scope 2 emissions
physically occur at the facility where electricity
is generated.
Scope 3 greenhouse gas emissions
Scope 3 emissions are indirect greenhouse gas
emissions as a consequence of the operations of
the Company, but are not owned or controlled by
the Company, such as emissions from third-
party logistics providers, waste management
suppliers, travel suppliers, employee commuting
and combustion of sold gas by customers.
SEC
The US Securities and Exchange Commission,
the financial regulator for companies with
registered securities in the US, including
National Grid and certain of its subsidiaries.
SF6
Sulphur hexafluoride is an inorganic,
colourless, odourless and non-flammable
greenhouse gas. SF6 is used in the electricity
industry as a gaseous dielectric medium for
high-voltage circuit breakers, switchgear and
other electrical equipment. The Kyoto Protocol
estimated that the global warming potential
over 100 years of SF6 is 23,900 times more
potent than that of CO2.
Share premium
The difference between the amount shares are
issued for and the nominal value of those shares.
Strategic Infrastructure (SI)
The Group’s new business unit, effective
1 April 2023, which will deliver UK ET projects
through the ASTI framework.
Subsidiary
A company or other entity that is controlled by
National Grid plc.
Swaption
A swaption gives the buyer, in exchange for
an option premium, the right, but not the
obligation, to enter into an interest-rate swap
at some specified date in the future. The terms
of the swap are specified on the trade date of
the swaption.
T
Task Force on Climate-related Financial
Disclosures (TCFD)
A body established in 2015 comprising
31 members from across the G20, whose role
is to develop recommendations for more
informed investment and enable stakeholders
to better understand the concentrations of
carbon-related assets in the financial sector
and the financial system’s exposures to
climate-related risk.
Tax Convention
The income tax convention between the
US and the UK.
Taxes borne
Those taxes that represent a cost to the
Company and are reflected in our results.
Taxes collected
Those taxes that are generated by our
operations but do not affect our results.
We generate the commercial activity giving rise
to these taxes and then collect and administer
them on behalf of tax authorities.
TCFD recommendations or
recommended disclosures
The 11 recommended disclosures set out
in the June 2017 TCFD report entitled
‘Recommendations of the Task Force on
Climate-related Financial Disclosures’.
Tonne
A unit of mass equal to 1,000 kilogrammes,
equivalent to approximately 2,205 pounds.
Tonnes carbon dioxide equivalent (tCO2e)
A measure of greenhouse gas emissions
in terms of the equivalent amount of
carbon dioxide.
Totex
Total expenditure, comprising capital and
operating expenditure.
Treasury shares
Shares that have been repurchased but not
cancelled. These shares can then be allotted
to meet obligations under the Company’s
employee share schemes.
U
UK
The United Kingdom, comprising England,
Wales, Scotland and Northern Ireland.
UK Corporate Governance Code
(the ‘Code’)
Guidance, issued by the Financial Reporting
Council in 2018, on how companies should be
governed, applicable to UK listed companies,
including National Grid, in respect of reporting
periods starting on or after 1 January 2019.
UK Electricity Distribution (UK ED)
National Grid’s UK electricity distribution
business, formerly known as WPD,
comprising Western Power Distribution Holding
Company Limited and its subsidiaries. The
group is the UK’s largest electricity distribution
business and includes four distribution
network operators.
UK Electricity Transmission (UK ET)
National Grid’s UK electricity transmission
business.
UK GAAP
Generally accepted accounting practices in the
UK. These differ from IFRS and from US GAAP.
UK Gas Transmission (UK GT)
National Grid’s UK gas transmission business.
Underlying EPS
Underlying results for the year attributable to
equity shareholders of the Company allocated
to each ordinary share.
Underlying results
The financial results of the Company, adjusted
to exclude the impact of exceptional items and
remeasurements that are treated as discrete
transactions under IFRS and can accordingly
be classified as such, and to take account of
volumetric and other revenue timing differences
arising due to the in-year difference between
allowed and collected revenues as well as
major storm costs (where these are above
$100 million threshold in a given year).
US
The United States of America, its territories and
possessions; any state of the United States
and the District of Columbia.
US GAAP
Generally accepted accounting principles in the
US. These differ from IFRS and from UK GAAP.
US state regulators
(state utility commissions)
In the US, public utilities’ retail transactions are
regulated by state utility commissions, including
the New York Public Service Commission
(NYPSC), and the MADPU.
V
Value Added
Value Added is a measure to capture the value
created through investment attributable to
equity holders, being the change in total
regulated and non-regulated assets including
goodwill (both at constant currency) plus the
cash dividend paid in the year plus share
repurchase costs less the growth in net debt
(at constant currency). This is then presented
on an absolute and a per share basis.
Value Growth
Value Growth is the Value Added, adjusted to
normalise for a 3% long-run RPI inflation rate,
expressed as a proportion of Group equity.
See page 60.
258
National Grid plc
Annual Report and Accounts 2022/23
Want more information or help?
Equiniti
For queries about ordinary shares:
0800 169 7775
This is a Freephone number from
landlines within the UK; mobile costs
may vary. Lines are open 8.30am to
5.30pm, Monday to Friday, excluding
public holidays. If calling from outside
the UK: +44 (0) 800 169 7775. Calls
from outside the UK will be charged
at the applicable international rate.
Visit help.shareview.co.uk for
information regarding your
shareholding (from here you will also
be able to email a query securely).
National Grid Share Register
Equiniti
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA
The Bank of New York
Mellon
For queries about ADS:
1-800-466-7215
If calling from outside the US:
+1-201-680-6825
www.mybnymdr.com
Email:
shrrelations@cpushareownerservices.com
BNY Mellon Shareowner Services
P.O. Box 43006
Providence RI 02940-3078
Further information about National Grid,
including share price and interactive
tools, can be found on our website:
nationalgrid.com/investors
National Grid plc
Annual Report and Accounts 2022/23
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Beware of share fraud
Investment scams are often sophisticated and difficult to spot. Shareholders are advised to be
wary of any unsolicited advice or offers, whether over the telephone, through the post or by email.
If you receive any unsolicited communication, please check that the company or person
contacting you is properly authorised by the Financial Conduct Authority (FCA) before getting
involved. Be ScamSmart and visit fca.org.uk/scamsmart. You can report calls from unauthorised
firms to the FCA by calling 0800 111 6768.
Financial calendar
The following dates have been announced or are indicative:
18 May 2023
1 June 2023
2 June 2023
8 June 2023
10 July 2023
12 July 2023 (5pm London time)
9 August 2023
9 November 2023
22 November 2023
23 November 2023
2022/23 full-year results
Ordinary shares and ADRs go ex-dividend for 2022/23
final dividend
Record date for 2022/23 final dividend
Scrip reference price announced for 2022/23
final dividend
2023 AGM
Scrip election date for 2022/23 final dividend
2022/23 final dividend paid to qualifying shareholders
2023/24 half-year results
ADRs go ex-dividend for 2023/24 interim dividend
Ordinary shares go ex-dividend for 2023/24
interim dividend
Record date for 2023/24 interim dividend
Scrip reference price announced
24 November 2023
30 November 2023
11 December 2023 (5pm London time) Scrip election date for 2023/24 interim dividend
11 January 2024
2023/24 interim dividend paid to qualifying shareholders
Dividends
The Directors are recommending a final dividend
of 37.60 pence per ordinary share ($2.3459
per ADS) to be paid on 9 August 2023 to
shareholders on the register as at 2 June 2023.
Further details on dividend payments can be
found on page 230. If you live outside the UK,
you may be able to request that your dividend
payments are converted into your local currency.
Under the Deposit agreement, a fee of up to
$0.05 per ADS can be charged for any cash
distribution made to ADS holders, including cash
dividends. ADS holders who receive cash in
relation to the 2022/23 final dividend will be
charged a fee of $0.02 per ADS by the Depositary
prior to the distribution of the cash dividend.
Chequeless dividends: Since August
2022, all National Grid dividends will be
paid directly into bank or building society
accounts for ordinary shareholders.
Please make sure you have completed
and returned a bank mandate form.
Benefits include the following:
• Your dividend reaches your account on
the payment day.
• It is a more efficient and secure way
of receiving your payment
• It helps reduce the volume of paper in
dividend mailing
Scrip dividends: Elect to receive your
dividends as additional shares: Join our
scrip dividend scheme; no stamp duty or
commission to pay.
Electronic communications
Please register at shareview.co.uk.
It only takes a few minutes to register – just
have your 11-digit Shareholder Reference
Number to hand. You will be sent an
Activation Code to complete registration.
Once you have registered, you can elect to
receive your shareholder communications
electronically.
Registered office
National Grid plc was incorporated on 11 July
2000. The Company is registered in England
and Wales No. 4031152, with its registered
office at 1–3 Strand, London WC2N 5EH.
Share dealing
Postal share dealing: Equiniti offers our
European Economic Area resident
shareholders a share dealing service by post.
This service is available to private shareholders
resident within the European Economic Area,
the Channel Islands or the Isle of Man. If you
hold your shares in CREST, you are not eligible
to use this service. For more information and to
obtain a form, please visit shareview.co.uk or
call Equiniti on 0800 169 7775.
Internet and telephone share dealing:
Equiniti also offers telephone and online share
dealing at live prices. For full details, together
with terms and conditions, please visit shareview.
co.uk. You can call Equiniti on 0345 603 7037 for
further details, or to arrange a trade. Lines are
open Monday to Friday, 8.00am to 4.30pm for
dealing, and until 6.00pm for enquiries.
ShareGift: If you only have a small number
of shares that would cost more for you to sell
than they are worth, you may wish to consider
donating them to ShareGift. ShareGift is
a registered charity (No. 1052686) which
specialises in accepting such shares as
donations. For more information, visit
sharegift.org or contact Equiniti.
Individual Savings Accounts (ISAs):
ISAs for National Grid shares are available
from Equiniti. For more information, call Equiniti
on 0345 0700 720 or visit eqi.co.uk.
259
Cautionary statement
This document comprises the Annual Report
and Accounts for the year ended 31 March
2023 for National Grid plc and its subsidiaries.
It contains the Directors’ Report and Financial
Statements, together with the independent
auditor’s report thereon, as required by the
Companies Act 2006. The Directors’ Report,
comprising pages 1 – 106 and 218 – 260 has
been drawn up in accordance with the
requirements of English law, and liability in
respect thereof is also governed by English
law. In particular, the liability of the Directors
for these reports is solely to National Grid.
This document contains certain statements
that are neither reported financial results nor
other historical information. These statements
are forward-looking statements within the
meaning of section 27A of the Securities Act
of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended.
These statements include information with
respect to our financial condition, our results of
operations and businesses, strategy, plans and
objectives. Words such as ‘aims’, ‘anticipates’,
‘expects’, ‘should’, ‘intends’, ‘plans’, ‘believes’,
‘outlook’, ‘seeks’, ‘estimates’, ‘targets’, ‘may’,
‘will’, ‘continue’, ‘project’ and similar
expressions, as well as statements in the future
tense, identify forward-looking statements.
This document also references climate-related
targets and climate-related risks which differ
from conventional financial risks in that they are
complex, novel and tend to involve projection
over long-term scenarios which are subject
to significant uncertainty and change.
These forward-looking statements and targets
are not guarantees of our future performance
and are subject to assumptions, risks and
uncertainties that could cause actual future
results to differ materially from those
expressed in or implied by such forward-
looking statements and targets. Many of these
assumptions, risks and uncertainties relate to
factors that are beyond our ability to control or
estimate precisely, such as changes in laws or
regulations, including any arising as a result of
the United Kingdom’s exit from the European
Union; announcements from and decisions by
governmental bodies or regulators, including
those relating to the RIIO-T2 and RIIO-ED2
price controls and proposals for the future of
system operation in the United Kingdom; the
timing of construction and delivery by third
parties of new generation projects requiring
connection; breaches of, or changes in,
environmental, climate change, and health
and safety laws or regulations, including
breaches or other incidents arising from the
potentially harmful nature of our activities;
network failure or interruption, the inability
to carry out critical non-network operations,
and damage to infrastructure, due to adverse
weather conditions, including the impact of
major storms as well as the results of climate
change, due to counterparties being unable
to deliver physical commodities, or due to
the failure of or unauthorised access to or
deliberate breaches of our IT systems and
supporting technology; failure to adequately
forecast and respond to disruptions in energy
supply; performance against regulatory targets
and standards and against our peers with the
aim of delivering stakeholder expectations
regarding costs and efficiency savings, as well
as against targets and standards designed
to deliver net zero; and customers and
counterparties (including financial institutions)
failing to perform their obligations to the
Company. Other factors that could cause
actual results to differ materially from those
described in this document include fluctuations
in exchange rates, interest rates and
commodity price indices; restrictions and
conditions (including filing requirements) in
our borrowing and debt arrangements, funding
costs and access to financing; regulatory
requirements for us to maintain financial
resources in certain parts of our business and
restrictions on some subsidiaries’ transactions,
such as paying dividends, lending or levying
charges; the delayed timing of recoveries and
payments in our regulated businesses
and whether aspects of our activities are
contestable; the funding requirements and
performance of our pension schemes and
other post-retirement benefit schemes; the
failure to attract, develop and retain employees
with the necessary competencies, including
leadership and business capabilities, and any
significant disputes arising with our employees
or breaches of laws or regulations by our
employees; the failure to respond to market
developments, including competition for
onshore transmission; the threats and
opportunities presented by emerging
technology; the failure by the Company to
respond to, or meet its own commitments
as a leader in relation to, climate change
development activities relating to energy
transition, including the integration of
distributed energy resources; and the need
to grow our business to deliver our strategy,
as well as incorrect or unforeseen assumptions
or conclusions (including unanticipated costs
and liabilities) relating to business development
activity, including the integration of UK ED, the
NECO Sale and NGT Sale, and joint ventures.
For further details regarding these and other
assumptions, risks and uncertainties that may
affect National Grid, please read the Strategic
Report and the risk factors on pages 18 – 24
of this document. In addition, new factors
emerge from time to time and we cannot
assess the potential impact of any such factor
on our activities or the extent to which any
factor, or combination of factors, may cause
actual future results to differ materially from
those contained in any forward-looking
statement. Except as may be required by law
or regulation, the Company undertakes no
obligation to update any of its forward-looking
statements, which speak only as of the date
of this document.
The contents of any website references in this
document do not form part of this document.
260
National Grid plc
Annual Report and Accounts 2022/23
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offsets carbon emissions through the purchase
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value land.
Through protecting standing forests under
threat of clearance, carbon is locked in that
would otherwise be released. These protected
forests are then able to continue absorbing
carbon from the atmosphere, referred to as
REDD (Reduced Emissions from Deforestation
and forest Degradation). This is now
recognised as one of the most cost-effective
and swiftest ways to arrest the rise in
atmospheric CO2 and global warming effects.
Additional to the carbon benefits is the flora
and fauna this land preserves, including
a number of species identified as at risk
of extinction on the International Union
for Conservation of Nature’s Red List
of Threatened Species.
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