<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period from to
Registrant; State or Other
Commission Jurisdiction of Incorporation; I.R.S Employer
File Number Address; and Telephone Number Identification No.
333-47925 Yorkshire Power Group Limited 84-1393785
(England & Wales)
Wetherby Road
Scarcroft
Leeds LS14 3HS
United Kingdom
011-44-113-289-2123
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ___ No X
A description of the registrant's common stock follows:
Description of Shares Outstanding
Registrant Common Stock at July 31, 1998
Yorkshire Power Par Value (POUND)1 Per Share 440,000,002
Group Limited
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARY COMPANIES
Form 10-Q
For The Quarter Ended June 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Consolidated Statements of Income 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Shareholders' Equity 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
PART II. OTHER INFORMATION
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
<CAPTION> (UNAUDITED)
Three Months Ended
June 30, 1998 June 30, 1997
(POUND) $ (POUND)
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . 303 506 268
COST OF SALES. . . . . . . . . . . . . . . 188 314 172
GROSS MARGIN . . . . . . . . . . . . . . . 115 192 96
OPERATING EXPENSES:
Maintenance. . . . . . . . . . . . . . . 16 27 15
Depreciation and Amortization. . . . . . 20 33 19
Selling, General and Administrative. . . 28 47 30
INCOME FROM OPERATIONS. . . . . . . 51 85 32
OTHER (EXPENSE) INCOME:
Loss on Investment in Ionica . . . . . . (6) (10) -
Other Income, net. . . . . . . . . . . . 0 0 4
Total Other (Expense) Income, net . (6) (10) 4
NET INTEREST EXPENSE:
Interest Expense . . . . . . . . . . . . (33) (55) (28)
Interest Income. . . . . . . . . . . . . 1 2 3
Net Interest Expense . . . . . . (32) (53) (25)
INCOME BEFORE INCOME TAXES . . . . . . . . 13 22 11
(CREDIT) PROVISION FOR INCOME TAXES. . . . (7) (11) 6
NET INCOME . . . . . . . . . . . . . . . . 20 33 5
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
(UNAUDITED)
<CAPTION>
March 31,
June 30, 1998 1998
(POUND) $ (POUND)
(See Note 1)
ASSETS
<S> <C> <C> <C>
FIXED ASSETS:
Property, Plant and Equipment, Net of Accumulated
Depreciation of (POUND)67 ($112) and (POUND)53 . . 1,005 1,678 992
Construction Work in Progress. . . . . . . . . . . . 69 115 68
Total Fixed Assets . . . . . . . . . . . . . 1,074 1,793 1,060
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 31 52 35
Investments. . . . . . . . . . . . . . . . . . . . . 38 63 41
Accounts Receivable, Less Provision for
Uncollectible Accounts of (POUND)6 ($10) and (POUND)6 . 70 117 62
Unbilled Revenue . . . . . . . . . . . . . . . . . . 68 114 78
Other. . . . . . . . . . . . . . . . . . . . . . . . 45 75 50
Total Current Assets . . . . . . . . . . . . 252 421 266
OTHER ASSETS:
Goodwill, Net of Accumulated Amortization of
(POUND)31 ($52) and (POUND)25. . . . . . . . . . . 963 1,608 969
Investments, Long-term . . . . . . . . . . . . . . . 67 112 73
Prepaid Pension Asset. . . . . . . . . . . . . . . . 80 133 75
Other Non-Current Assets . . . . . . . . . . . . . . 27 45 19
Total Other Assets . . . . . . . . . . . . . 1,137 1,898 1,136
Total Assets . . . . . . . . . . . . . . . . . . . . . 2,463 4,112 2,462
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
(UNAUDITED)
<CAPTION>
March 31,
June 30, 1998 1998
(POUND) $ (POUND)
(See Note 1)
SHAREHOLDERS' EQUITY AND LIABILITIES
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Share capital, ?1 par value common shares,
440,000,100 authorized and 440,000,002
issued and outstanding . . . . . . . . . . . . . . 440 734 440
Unrealized Profit on Available for Sale Investments 1 2 -
Retained Deficit . . . . . . . . . . . . . . . . . . (97) (162) (117)
Total Shareholders' Equity . . . . . . . . . . . . 344 574 323
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . 1,030 1,720 1,026
SHORT-TERM DEBT REFINANCED . . . . . . . . . . . . . . 130 217 164
Company-Obligated Mandatorily Redeemable Trust
Securities of Subsidiary Holding Solely Junior
Subordinated Deferrable Interest Debentures (Note 2) 168 280 -
OTHER NON-CURRENT LIABILITIES:
Deferred Income Taxes. . . . . . . . . . . . . . . . 221 369 208
Provision for Uneconomic Electricity
and Gas Contracts. . . . . . . . . . . . . . . . . 81 135 84
Other . . . . . . . . . . . . . . . . . . . . . . . 12 20 15
Total Other Non-current Liabilities. . . . . . . . 314 524 307
CURRENT LIABILITIES:
Current Portion of Long-term Debt. . . . . . . . . . 5 8 5
Short-term Debt. . . . . . . . . . . . . . . . . . . 177 296 319
Accounts Payable . . . . . . . . . . . . . . . . . . 83 139 82
Accrued Liabilities and Deferred Income. . . . . . . 53 88 63
Income Taxes Payable . . . . . . . . . . . . . . . . 28 47 40
Windfall Tax Payable . . . . . . . . . . . . . . . . 67 112 67
Other Current Liabilities. . . . . . . . . . . . . . 64 107 66
Total Current Liabilities. . . . . . . . . . . . . 477 797 642
Total Liabilities. . . . . . . . . . . . . . . . . . . 2,119 3,538 2,139
COMMITMENTS AND CONTINGENCIES (NOTE 4)
Total Shareholders' Equity and Liabilities . . . . . . 2,463 4,112 2,462
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30, 1998 June 30, 1997
(POUND) $ (POUND)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income . . . . . . . . . . . . . . . . . 20 33 5
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation and Amortization. . . . . . . 20 33 19
Loss on Investment in Ionica . . . . . . . 6 10 -
Deferred Income Taxes. . . . . . . . . . . 13 22 5
Changes in Assets and Liabilities:
Receivables and Unbilled Revenue . . . . . 2 3 35
Prepaid Pension Asset. . . . . . . . . . . (5) (8) (3)
Accounts Payable . . . . . . . . . . . . . 1 2 (4)
Other. . . . . . . . . . . . . . . . . . . (24) (40) 3
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . 33 55 60
Cash Flows From Investing Activities:
Capital Expenditures . . . . . . . . . . . (31) (52) (23)
Proceeds from Sale of Property,
Plant and Equipment. . . . . . . . . . . 4 7 -
Purchase of Yorkshire Electricity Group plc - - (1,474)
Other. . . . . . . . . . . . . . . . . . . 4 7 5
Net Cash Used in Investing Activities. . (23) (38) (1,492)
Cash Flows From Financing Activities:
Proceeds From Issuance of Trust Securities 162 270 -
Proceeds From Issuance of Common Stock . . - - 436
Receipt of Capital Contribution. . . . . . - - 4
Net Change in Short-term Debt. . . . . . . (176) (294) 951
Net Cash (Used)Provided by Financing Activities (14) (24) 1,391
Decrease in Cash and Cash Equivalents. . . . (4) (7) (41)
Beginning of Quarter Cash and Cash Equivalents 35 59 221
End of Quarter Cash and Cash Equivalents . . 31 52 180
</TABLE
<PAGE>
</TABLE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30, 1998 June 30, 1997
(POUND) $ (POUND)
<S> <C> <C> <C>
Cash Paid for Interest . . . . . . . . . . . 14 23 11
Cash Paid for Income Taxes . . . . . . . . . - - 6
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions, except shares)
(UNAUDITED)
<CAPTION>
For the three months ended June 30, 1998:
Unrealized
Profit on
Available
Share Capital For Sale Retained
Shares Amount Investments Deficit Total
(POUND) (POUND) (POUND) (POUND)
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1998 . . . . . 440,000,002 440 - (117) 323
Unrealized Profit on Available
for Sale Investments. . . . . . - - 1 - 1
Net Income . . . . . . . . . . . - 20 20
Balance, June 30, 1998 . . . . . 440,000,002 440 1 (97) 344
For the three months ended June 30, 1997:
Shares
Subscribed
Share Capital But Not Retained
Shares Amount Yet Issued Earnings Total
(POUND) (POUND) (POUND) (POUND)
Balance, April 1, 1997 . . . . . 2 - - - -
Issuance of ordinary shares . . 436,000,000 436 - - 436
Receipt of Capital Contribution - - 4 - 4
Net Income . . . . . . . . . . . - - - 5 5
Balance, June 30, 1997 . . . . . 436,000,002 436 4 5 445
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements should
be read in conjunction with the audited financial statements
for the Fiscal Year ended March 31, 1998 (the "1998 Audited
Financial Statements") filed in Yorkshire Power Group
Limited's Annual Report on Form 10-K for the Fiscal Year
ended March 31, 1998 (the "Form 10-K"). In the opinion of
management, the financial statements reflect all adjustments
(consisting of only normal recurring accruals) which are
necessary for a fair presentation of the results of
operations for interim periods.
The consolidated financial statements of Yorkshire Power
Group Limited and its subsidiaries ("Yorkshire Group") are
presented in pounds sterling and in conformity with
accounting principles generally accepted in the United
States of America.
The consolidated balance sheets, income statements,
statements of cash flows and certain information in the
notes to the consolidated financial statements are presented
in pounds sterling (?) and in US dollars ($) solely for the
convenience of the reader, at the exchange rate of (?) 1 =
$1.6695, the noon buying rate in New York City for cable
transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank Of New York on June 30,
1998. This presentation has not been translated in
accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation." No representation
is made that the pounds sterling amounts have been, could
have been, or could be converted into US dollars at that or
any other rate of exchange.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
2. FINANCING AND RELATED ACTIVITIES
Yorkshire Capital Trust I, (the "Trust"), is a statutory
business trust wholly owned by Yorkshire Power Group Limited,
created for the sole purpose of issuing trust securities and
investing the proceeds in an equivalent amount of Junior
Subordinated Deferrable Interest Debentures, Series A due
2038 (the "Debentures") to be issued by Yorkshire Power
Finance Limited ("Yorkshire Finance"), a subsidiary of
Yorkshire Power Group Limited. On June 9, 1998 the Trust
issued 11,000,000 shares of 8.08% Trust Securities at the
liquidation amount of $25 per Trust Security. The Trust
invested the $275 million proceeds in an equivalent amount of
Debentures, of Yorkshire Finance. Yorkshire Finance in turn
loaned the net proceeds to Yorkshire Power Group Limited.
Substantially all of the Trust's assets will consist of the
Debentures.
The Trust Securities are subject to mandatory redemption
upon payment of the Debentures at maturity or upon
redemption. The Debentures are redeemable, in whole or in
part at the option of Yorkshire Finance or at any time upon
the occurrence of certain events. Yorkshire Power Group
Limited considers that the mechanisms and obligations
relating to the Trust Securities issued for its benefit,
taken together, constitute a full and unconditional guarantee
by it of the Trust's payment obligations with respect to the
Trust Securities.
The net proceeds of the issue were used for the repayment
of short term debt.
Yorkshire Group's credit facility with Union Bank of Switzerland
(the "1997 Credit Facility") matured on July 30, 1998 and has been
refinanced by a (POUND)550 million syndicated credit facility. This
credit facility consists of four tranches which are: Tranche A a
(POUND)150 million 364 day revolving credit with a one-year term out
option; Tranche B a (POUND)130 million 5 year term loan; Tranche C a
(POUND)50 million 5 year revolving credit facility and Tranche D a (POUND)220
million 5 year revolving credit facility. Tranches A and B have
been drawn down to repay the 1997 Credit Facility and Tranches C
and D have replaced existing committed bank facilities. Tranche B
is classified as short term debt refinanced in Yorkshire Group's
consolidated balance sheet
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income" was adopted by
Yorkshire Group in the first quarter of Fiscal Year 1999.
SFAS No. 130 established the standards for reporting and
displaying components of "comprehensive income," which is
the total of net income and all transactions not included in
the net income affecting equity except those with
shareholders. The difference between Comprehensive Income and
Net Income of (POUND)1 million was due to an increase in Ionica's
fair value over recorded book value.
In the first quarter of Fiscal Year 1999 Yorkshire Group
adopted the American Institute of Certified Public
Accountants' Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP requires the capitalization and
amortization of certain costs of acquiring or developing
internal use computer software. The adoption of the SOP did
not have a material effect on results of operations, cash
flows or financial condition.
4. CONTINGENCIES
Yorkshire Group continues to be involved in certain other
matters discussed in the Fiscal Year 1998 Financial
Statements Note 5 and Management's Discussion and Analysis of
Results of Operations and Financial Condition.
5. IONICA
Reference is made to Note 7 to the 1998 Audited Financial
Statements. Yorkshire Group charged an unrealized loss of (POUND)6
million to the Income Statement in first quarter of Fiscal
Year 1999 to write down Yorkshire Group's investment in
Ionica Group plc ("Ionica") to management's estimate of fair
value.
Ionica announced on August 3, 1998 that it had not as yet
obtained further equity investment. As a result the market
value of Yorkshire Group's investment in Ionica fell to (POUND)6
million, which is (POUND)3 million below the book value of the
investment at June 30, 1998. Management are currently
evaluating the fall in the market value of Yorkshire Group's
investment in Ionica to assess if it is "other than
temporary".
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
First Quarter Fiscal Year 1999 vs. First Quarter Fiscal Year
1998
Results of Operations
Net income increased by (POUND)15 million (300%) from (POUND)5
million to (POUND)20 million due primarily to the following: the
settlement of earlier years tax liabilities resulting in a
(POUND)12 million release of tax provisions; changes in the
regulation of supply business revenues and increases in
electricity and gas supply margins due to reduced purchase
costs. These were partly offset by increased interest expense
and a write down in the investment in Ionica.
Income statement line items which changed significantly
were:
Increase ( Decrease)
(POUND) %
in millions
Operating Revenues 35 13
Gross Margin 19 20
Loss on Investment in Ionica (6) N/A
Other Income (4) (100)
Interest Expense (5) (18)
Provision for Income Taxes 13 216
The increase in operating revenues is largely due to the
signing of new electricity contracts with Non-Franchise
Supply Customers in April 1998 and the commencement of
residential gas sales in Fiscal Year 1999. In addition,
beginning with Fiscal Year 1999 there was a change in the
regulation of supply business revenues in that the Supply
Price Control Formula covering supply of electricity to
Franchise Supply Customers ended and was replaced by supply
regulation based on maximum tariffs for residential and
smaller business electricity customers in Yorkshire's
Franchise Area (Yorkshire's service area as determined by its
PES license) whose annual consumption is under 12,000 kWh.
Consequently, accruals to reduce operating revenues to the
regulated amount which were made in the first quarter of
Fiscal Year 1998 were not required in the first quarter of
Fiscal Year 1999.
<PAGE>
Gross margin increased partly as a result of changes in
the regulation of supply business revenues mentioned above,
and also partly due to increases in electricity and gas
supply margins resulting from reduced purchase costs.
Management have further written down the investment in
Ionica to their estimate of fair value by charging an
unrealized loss of (POUND)6 million before taxes. This is in
addition to the (POUND)41 million charged in the Fiscal Year 1998,
bringing the book value down to (POUND)8 million. The reduction in
fair value of the investment was recognized by management as
"other than temporary" following an announcement by Ionica on
May 22, 1998 that Ionica had been unsuccessful in negotiating
release of credit lines from providers of bank finance and
had been advised to obtain further equity investment prior to
seeking further bank funding. As at June 30, 1998 the share
price had increased and management recognized an unrealized
profit on the investment in Ionica of (POUND)1 million, bringing
the book value to (POUND)9 million. On August 3, 1998 Ionica
announced that it had not as yet obtained further equity
investment and as a result the market value of Yorkshire
Group's investment in Ionica fell to (POUND)6 million, which
management are currently evaluating to assess if it is "other
than temporary".
Other income of (POUND)4 million in the first quarter of
Fiscal Year 1998 was a one-time profit on the sale of shares
in National Grid Group plc and other dividends received.
The increase in interest expense arises from the debt in
connection with Yorkshire Group's acquisition of Yorkshire
Electricity Group plc being drawn down in installments during
the first quarter of Fiscal Year 1998.
The first quarter of Fiscal Year 1999 was favorably
affected by a (POUND)12 million settlement of earlier years' tax
liabilities. The effective income tax rate decreased from 55%
in the first quarter of Fiscal Year 1998 to (54)% in the
first quarter of Fiscal Year 1999. The effective income tax
rate in both quarters has been increased by the amortization
of goodwill, which is not deductible for UK income tax
purposes.
<PAGE>
Financial Condition
During the first quarter of Fiscal Year 1999 Yorkshire
Capital Trust I, a statutory business trust wholly owned by
Yorkshire Power Group Limited, issued 11,000,000 shares of
8.08% Trust Securities at the liquidation amount of $25 per
Trust Security. The proceeds of $275,000,000 were invested in
an equivalent amount of 8.08% Junior Subordinated Deferrable
Interest Debentures, Series A due June 30, 2038 issued by
Yorkshire Finance. Yorkshire Finance in turn loaned the net
proceeds to Yorkshire Power Group Limited, which repaid short
term debt.
Yorkshire Group's credit facility with Union Bank of
Switzerland (the "1997 Credit Facility") matured on July 30,
1998 and has been refinanced by a (POUND)550 million syndicated
credit facility. This credit facility consists of four
tranches which are: Tranche A a (POUND)150 million 364 day
revolving credit with a one-year term out option; Tranche B a
(POUND)130 million 5 year term loan; Tranche C a (POUND)50 million 5 year
revolving credit facility and Tranche D a (POUND)220 million 5 year
revolving credit facility. Tranches A and B have been drawn
down to repay the 1997 Credit Facility and Tranches C and D
have replaced existing committed bank facilities.
On July 31, 1998, the UK government enacted a change in
tax law, reducing the rate of corporation tax on income from
31% to 30%. The impact of the reduction in corporation tax
rates will result in a one-time reduction in deferred income
tax liabilities and a corresponding reduction in income tax
expense of approximately (POUND)6 million which is expected in the
second quarter of Fiscal Year 1999.
Yorkshire Group is currently evaluating its business
systems to determine the extent to which modifications are
required to prevent problems related to the year 2000, and
the resources which will be required to make such
modifications. Yorkshire Group has established a dedicated
team to coordinate and control all date conformity work
within a structured program framework. Yorkshire Group
estimates that the total costs associated with year 2000
modifications will be approximately (POUND)26 million, of which (POUND)17
million will be expensed as incurred, and (POUND)9 million will be
capitalized. The amount expensed to date is (POUND)4 million, with
(POUND)2 million being expensed the first quarter of Fiscal Year 1999.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to Form 10-K, Part I. Item 1.
"Business - The Electric Utility Industry in Great Britain -
Regulation Under The Electricity Act" for a discussion of a
consultation paper on the separation of distribution and
supply businesses issued by the Director General of
Electricity Supply in Great Britain (the "Regulator") for
public electricity suppliers ("PES's") and the future
treatment of metering and meter reading.
Responses to this consultation paper were requested by
June 15, 1998. In its June 1998 response to this consultation
paper, Yorkshire Electricity Group plc ("Yorkshire")
supported separate licenses allowing separate regulation of
supply and distribution activities, but opposed the measures
proposed by the Office Of Electricity Regulation ("OFFER")
on ownership and stringent operating separation. In opposing
such measures, Yorkshire, among other things, questioned
whether the potentially high costs of implementing such
measures were justified. Yorkshire concluded that its
position is consistent with the UK Government's proposals in
the UK Government's Green Paper of March 1998 entitled "A
Fair Deal For Consumers: Modernizing The Framework For
Utility Regulation" ("March Green Paper") and the position
of other PESs.
The Regulator intends to have a further consultation on
separation of businesses in the latter part of 1998 and to
outline proposals on separation of businesses in September
1998. The Regulator intends any revised definitions of
distribution, supply and metering responsibilities to be
taken into account in setting price controls and revising
charging arrangements scheduled for 2000.
Reference is made to Form 10-K Part I. Item 1. "Business
- - The Electric Utility Industry in Great Britain - Regulation
Under The Electricity Act" for a discussion of a UK
Government review of energy sources for power generation. On
June 25, 1998, the UK Government issued a consultation paper
on its review of energy sources for power generation. The
preliminary general conclusions of the review were:
1. There are basic flaws in the existing electricity
market arrangements which need to be corrected to ensure that
the UK Government can achieve its policy of diverse, secure
and sustainable energy supplies at competitive prices for
consumers, while protecting the environment; and
2. The prices for electricity consumers have been
excessive and, in the absence of restrictions, a decrease of
at least 10% in wholesale electricity prices should be
possible in the medium term.
Problems identified during the review included:
1. Despite the fact of substantial new gas entry into the
market, competition has not significantly increased nor has
the price of electricity decreased as expected;
2. Although the wholesale trading market for electricity
in England and Wales ("the Pool") ensures that electricity
is available to all when needed, it has led to distortions
which have affected the choice of energy sources for power
stations; such distortions have favored gas plants which are
operated inflexibly over flexible coal plants and have led to
an increase in construction of gas-fired stations to the
detriment of coal-fired stations;
3. Given that electricity cannot be stored, gas fired
stations must be modified to provide for the ability to
produce electricity on demand, similar to coal-fired
capacity;
4. Independent consultants have focused on several
technical issues that must be reviewed if there is to be
further growth in gas-fired combined cycle gas turbine
generation; and
5. As a result of the distorted market, dependence on gas
could increase, which raises concerns over diversity and
security of supply of energy power generation.
The UK Government's statement notes that the Regulator
has identified significant problems in the Pool and market
structure. He recommended (i) reforming the electricity
trading arrangements to ensure that all plants play a full
role in competition and (ii) addressing the market power of
the major generators.
The UK Government agrees with the necessity of reforming
the market structure but noted that the time needed for such
reform could be lengthy. Accordingly, the UK Government
proposes to apply a stricter policy on power station consents
while the reform agenda is addressed.
Yorkshire submitted its response to the consultation
document on July 20, 1998. In general, Yorkshire supported
the UK Government's overall objective to develop secure,
diverse and sustainable supplies of energy at competitive
prices and agreed that energy policy should be consistent
with a competitive industrial sector and the long term energy
needs of the UK. Yorkshire agreed with the UK Government's
proposal to reform the electricity trading arrangements and
to reduce the market power of the two major generators, but
expressed its concern at the prospect of a more strict
consent policy for gas-fired generation projects. Yorkshire
urged that the review be completed as swiftly as possible and
that the final measures taken not interfere with the
commercial development of competitive generation projects.
Reference is made to Form 10-K, Part I. Item 1.
"Business - The Electric Utility Industry in Great Britain -
Regulation Under The Electricity Act" for a discussion of
the March Green Paper. On July 27, 1998 the UK Government
published its response (the "July Response") to the
consultation on the March Green Paper.
The UK Government intends to introduce legislation to set
a long term stable regulatory framework for the next decade
which is designed to ensure lower prices and high quality
service for customers at home and in businesses.
The July Response included a number of significant
conclusions of the UK Government. Among the more significant
conclusions are the retention of "RPI-X" as the fundamental
basis of price regulation, with potential refinement to
reflect the March Green Paper principles on price regulation;
regulators should have a new primary duty to protect the
interests of consumers, while ensuring that regulated
companies can finance their functions; the electricity and
gas regulators should be replaced as soon as possible with a
single energy regulator and OFFER and the Office of Gas
Regulation should be merged; and legislation should be
introduced to provide for separate licenses for the supply
and the distribution of electricity.
The UK Government has stated that whilst it intends to
introduce legislation to implement these proposals as soon as
Parliamentary time permits, further consultation is required
in some areas.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
YORKSHIRE POWER GROUP LIMITED
BY: /s/ Armando A. Pena
Armando A. Pena
Chief Financial Officer and Director
Date: August 13, 1998
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