<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 SEPTEMBER 30, 1999
[ ] 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 X No
A description of the registrant's common stock follows:
Description of Shares Outstanding
Registrant Common Stock at October 30, 1999
Yorkshire Power Par Value (POUNDS) 1 Per Share 440,000,002
Group Limited
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARY COMPANIES
<TABLE>
Form 10-Q
<CAPTION>
For The Quarter Ended September 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
<S> <C>
Consolidated Statements of Income 6
Consolidated Balance Sheets 8
Consolidated Statements of Cash Flows 10
Consolidated Statements of Changes in Shareholders' Equity 12
Notes to Consolidated Financial Statements 14
Management's Discussion and Analysis of Results of
Operations and Financial Condition 23
PART II. OTHER INFORMATION
Item 5 Other Information 32
Item 6 Exhibits and Reports on Form 8-K 38
SIGNATURES 39
<PAGE>
Forward Looking Statements
Certain statements in this Form 10-Q under the captions
"Management's Discussion and Analysis of Results of Operations and
Financial Condition", "Other Information" and elsewhere may
constitute forward looking statements. Such forward looking
statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results,
performance or achievements of the Yorkshire Group or any of its
subsidiaries or industry results, to differ materially from any
future results, performance or achievements expressed or implied
by such forward looking statements. Such risks, uncertainties and
other important factors include, among others: general economic
and business conditions in the UK, the Authorized Area and
elsewhere; currency fluctuations; governmental, statutory,
regulatory or administrative initiatives affecting Yorkshire
Group, Yorkshire or the UK electric and gas utilities industries;
general industry trends; competition; the cost and availability of
electricity, gas and other alternative energy sources; changes in
commodity prices, interest rates and hedging costs; changes in
business strategy, development plans or vendor relationships;
availability, terms and deployment of capital; availability of
qualified personnel; increased rates of taxes or other changes in
tax law; changes in, or the failure or inability to comply with,
governmental regulation, including, without limitation,
environmental regulations; Year 2000 issues; the potential
introduction of the Euro; and other factors referenced in this
Form 10-Q. These forward looking statements speak only as of the
date of this Form 10-Q.
<PAGE>
SELECTED DEFINITIONS
When used in this report, the following terms will have the
meaning indicated.
"Authorized Area" means Yorkshire's service area as determined
by its PES license
"British Energy" means British Energy plc
"CFD" means contract for differences
"Economy 7" means electricity tariffs which apply to electricity
that incorporates lower unit charges because it is used during
the seven hours of the night
"ESPS" means Electricity Supply Pension Scheme
"Fiscal Year" means a year ended March 31
"Form 10-K" means the Annual Report on Form 10-K of Yorkshire
Group for Fiscal Year 1999
"Ionica" means Ionica Group plc
"National Power" means National Power plc
"NCE" means New Century Energies, Inc.
"NGC" means the National Grid Company plc, which is wholly owned
by NGG
"NGG" means the National Grid Group plc
"NSP" means Northern States Power Co.
"Ofgem" means Office of Gas and Electricity Markets
"PES" means public electricity supplier
"Pool" means the wholesale trading market for electricity in
England and Wales
"REC" means one of the 12 regional electricity companies in
England and Wales licensed to distribute and supply electricity
"RETA" means Revised Electricity Trading Arrangements
"Supply" means the supply of electricity and gas
"SWALEC" means South Wales Electricity plc, the REC which,
together with Welsh Water, became part of the Hyder plc group
"UK" means the United Kingdom
"US" means the United States of America
"Yorkshire" means Yorkshire Electricity Group plc and its
subsidiaries
"Yorkshire Group" means Yorkshire Power Group Limited and its
subsidiaries
<PAGE>
</TABLE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30, September 30,
1999 1998
(POUNDS) $ (POUNDS)
(See Note 1)
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . 329 542 301
COST OF SALES. . . . . . . . . . . . . . . 233 384 191
GROSS MARGIN . . . . . . . . . . . . . . . 96 158 110
OPERATING EXPENSES:
Maintenance. . . . . . . . . . . . . . . 14 23 15
Depreciation and Amortization. . . . . . 21 34 19
Selling, General and Administrative. . . 29 48 32
INCOME FROM OPERATIONS . . . . . . . . . . 32 53 44
OTHER INCOME (EXPENSE):
Loss on Investment in Ionica . . . . . . - - (5)
Other Income, net. . . . . . . . . . . . 3 5 4
Total Other Income (Expense), net 3 5 (1)
NET INTEREST EXPENSE:
Interest Expense . . . . . . . . . . . . (29) (48) (34)
Interest Income. . . . . . . . . . . . . - - 2
Net Interest Expense . . . . . . . . . . . (29) (48) (32)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . . . . . . . . 6 10 11
PROVISION (CREDIT) FOR INCOME TAXES. . . . - - (1)
INCOME FROM CONTINUING OPERATIONS. . . . . 6 10 12
INCOME FROM DISCONTINUED OPERATION
NET OF INCOME TAXES OF
(POUNDS) - ($-) AND (POUNDS) 1. . . . . . . . - - -
NET INCOME . . . . . . . . . . . . . . . . 6 10 12
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
(UNAUDITED)
<CAPTION>
Six Months Ended
September 30, September 30,
1999 1998
(POUNDS) $ (POUNDS)
(See Note 1)
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . 645 1,062 593
COST OF SALES. . . . . . . . . . . . . . . 452 744 379
GROSS MARGIN . . . . . . . . . . . . . . . 193 318 214
OPERATING EXPENSES:
Maintenance. . . . . . . . . . . . . . . 28 46 31
Depreciation and Amortization. . . . . . 41 68 37
Selling, General and Administrative. . . 58 95 56
INCOME FROM OPERATIONS. . . . . . . 66 109 90
OTHER INCOME (EXPENSE):
Loss on Investment in Ionica . . . . . . - - (11)
Other Income, net. . . . . . . . . . . . 3 5 4
Total Other Income(Expense) , net . 3 5 (7)
NET INTEREST EXPENSE:
Interest Expense . . . . . . . . . . . . (58) (96) (66)
Interest Income. . . . . . . . . . . . . 1 2 3
Net Interest Expense. . . . . . . . (57) (94) (63)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . . . . . . . . 12 20 20
PROVISION (CREDIT) FOR INCOME TAXES. . . . 4 7 (9)
INCOME FROM CONTINUING OPERATIONS. . . . . 8 13 29
INCOME FROM DISCONTINUED OPERATION
NET OF INCOME TAXES OF (POUNDS) - ($-) AND
(POUNDS) 2 . . . . . . . . . . . . . . . - - 3
NET INCOME . . . . . . . . . . . . . . . . 8 13 32
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>
September 30, March 31,
1999 1999
(POUNDS) $ (POUNDS)
(See Note 1)
ASSETS
<S> <C> <C> <C>
FIXED ASSETS:
Property, Plant and Equipment, Net of Accumulated
Depreciation of (POUNDS)125 ($206)and (POUNDS) 96. 1,001 1,648 970
Construction Work in Progress. . . . . . . . . . . . 15 25 15
Total Fixed Assets . . . . . . . . . . . . . 1,016 1,673 985
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 12 20 12
Investments. . . . . . . . . . . . . . . . . . . . . 17 28 26
Accounts Receivable, Less Provision for
Uncollectibles of (POUNDS) 8($13)and(POUNDS) 9. . 106 174 100
Unbilled Revenue . . . . . . . . . . . . . . . . . . 55 91 84
Prepaids and Other . . . . . . . . . . . . . . . . . 41 68 44
Total Current Assets . . . . . . . . . . . . 231 381 266
OTHER ASSETS:
Goodwill, Net of Accumulated Amortization of
(POUNDS)62 ($102) and (POUNDS)50 . . . . . . . . . 913 1,504 925
Investments, Long-term . . . . . . . . . . . . . . . 48 79 51
Prepaid Pension Asset. . . . . . . . . . . . . . . . 107 176 98
Other Non-Current Assets . . . . . . . . . . . . . . 22 36 22
Total Other Assets . . . . . . . . . . . . . 1,090 1,795 1,096
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . 2,337 3,849 2,347
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>
September 30, March 31,
1999 1999
(POUNDS) $ (POUNDS)
(See Note 1)
SHAREHOLDERS' EQUITY AND LIABILITIES
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Share capital, (POUNDS) 1 par value common shares,
440,000,100 authorized and 440,000,002
issued and outstanding . . . . . . . . . . . . . . 440 724 440
Retained Deficit . . . . . . . . . . . . . . . . . . (22) (36) (30)
Total Shareholders' Equity . . . . . . . . . . . . 418 688 410
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . 1,103 1,817 1,103
COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST
SECURITIES OF SUBSIDIARY HOLDING SOLELY JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES. . . . . 168 277 168
OTHER NON-CURRENT LIABILITIES:
Deferred Income Taxes. . . . . . . . . . . . . . . . 224 369 214
Provision for Uneconomic Electricity
and Gas Contracts. . . . . . . . . . . . . . . . . 31 51 30
Other . . . . . . . . . . . . . . . . . . . . . . . 14 23 13
Total Other Non-Current Liabilities. . . . . . . . 269 443 257
CURRENT LIABILITIES:
Current Portion of Long-term Debt. . . . . . . . . . 8 13 8
Short-term Debt. . . . . . . . . . . . . . . . . . . 145 239 142
Accounts Payable . . . . . . . . . . . . . . . . . . 68 112 77
Accrued Liabilities and Deferred Income. . . . . . . 81 133 85
Income Taxes Payable . . . . . . . . . . . . . . . . 30 50 37
Other Current Liabilities. . . . . . . . . . . . . . 47 77 60
Total Current Liabilities. . . . . . . . . . . . . 379 624 409
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . 1,919 3,161 1,937
COMMITMENTS AND CONTINGENCIES (NOTE 4)
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES . . . . . . 2,337 3,849 2,347
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>
Six Months Ended
September 30, September 30,
1999 1998
(POUNDS) $ (POUNDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . 8 13 32
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation of Fixed Asset Investment
Included in Cost of Sales. . . . . . . . 4 7 3
Depreciation and Amortization. . . . . . . 41 68 41
Gain on Sale of Fixed Assets . . . . . . . - - (2)
Gain on Sale of Investment . . . . . . . . (3) (5) -
Loss on Investment in Ionica . . . . . . . - - 11
Deferred Income Taxes. . . . . . . . . . . 10 16 (1)
Changes in Assets and Liabilities:
Receivables and Unbilled Revenue . . . . . 23 38 30
Prepaids and Other Current Assets. . . . . 3 5 (8)
Prepaid Pension Asset. . . . . . . . . . . (9) (15) (10)
Provision for Uneconomic Electricity
and Gas contracts. . . . . . . . . . . . . 1 2 (7)
Other Current Liabilities. . . . . . . . . (13) (21) (5)
Accounts Payable . . . . . . . . . . . . . (9) (15) (8)
Accrued Liabilities and Deferred Income. . (4) (7) 6
Other. . . . . . . . . . . . . . . . . . . (3) (5) (12)
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . 49 81 70
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures . . . . . . . . . . . (63) (104) (70)
Proceeds from Sale of Property,
Plant and Equipment. . . . . . . . . . . - - 4
Net Change in Short-term Investments . . . 9 15 (2)
Proceeds from Sale of Long-term Investment 3 5 -
Other. . . . . . . . . . . . . . . . . . . (1) (2) 1
Net Cash Used in Investing Activities. . (52) (86) (67)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Trust Securities - - 162
Proceeds From Issuance of Long-term Debt . - - 130
Net Change in Short-term Debt. . . . . . . 3 5 (300)
Net Cash Provided (Used) by
Financing Activities . . . . . . . . . 3 5 (8)
DECREASE IN CASH AND CASH EQUIVALENTS. . . . - - (5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12 20 35
CASH AND CASH EQUIVALENTS AT END OF PERIOD 12 20 30
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended
September 30, September 30,
1999 1998
(POUNDS) $ (POUNDS)
Cash Paid for Interest . . . . . . . . . . . 48 79 34
Cash Paid for Income Taxes . . . . . . . . . 1 2 -
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 September 30, 1999:
Share Capital Retained
Shares Amount Deficit Total
(POUNDS) (POUNDS) (POUNDS)
<S> <C> <C> <C> <C>
Balance, July 1, 1999. . . . . . 440,000,002 440 (28) 412
Net Income . . . . . . . . . . . - - 6 6
Balance, September 30, 1999. . . 440,000,002 440 (22) 418
</TABLE>
<TABLE>
<CAPTION>
For the three months ended September 30, 1998:
Unrealized
Profit on
Available
Share Capital For Sale Retained
Shares Amount Investments Deficit Total
(POUNDS) (POUNDS) (POUNDS) (POUNDS)
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1998. . . . . . 440,000,002 440 1 (97) 344
Unrealized Profit on Available
For Sale Investments . . . . . - - (1) - (1)
Net Income . . . . . . . . . . . - - - 12 12
Balance, September 30, 1998. . . 440,000,002 440 - (85) 355
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 six months ended September 30, 1999:
Share Capital Retained
Shares Amount Deficit Total
(POUNDS) (POUNDS) (POUNDS)
<S> <C> <C> <C> <C>
Balance, April 1, 1999 . . . . . . . 440,000,002 440 (30) 410
Net Income . . . . . . . . . . . . . - - 8 8
Balance, September 30, 1999 . . . . . 440,000,002 440 (22) 418
For the six months ended September 30, 1998:
Share Capital Retained
Shares Amount Deficit Total
(POUNDS) (POUNDS) (POUNDS)
Balance, April 1, 1998 . . . . . . . 440,000,002 440 (117) 323
Net Income . . . . . . . . . . . . . - - 32 32
Balance, September 30, 1998 . . . . . 440,000,002 440 (85) 355
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
SEPTEMBER 30, 1999
(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, 1999 filed in 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) s 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) s sterling ((POUNDS) ) and in US dollars ($) solely
for the convenience of the reader, at the exchange rate of
(POUNDS) 1 = $1.6469, the closing mid-point in London on
September 30, 1999. 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) s sterling amounts
have been, could have been, or could be converted into US
dollars at that or any other rate of exchange.
On March 30, 1999 the Board of Directors of Yorkshire
Power Group Limited ratified a proposal to change its fiscal
year end from March 31 to December 31. A Transition Report
for the transition period from March 31, 1999 to December
31, 1999 will be reported on Form 10-K.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
2. FINANCING AND RELATED ACTIVITIES
During the six months ended September 30, 1999, Yorkshire
Group canceled Tranche A of its syndicated credit facility.
Tranche A had originally been a (POUNDS) 150 million 364 day
revolving credit with a one-year extension option and had
been reduced to (POUNDS) 100 million in Fiscal Year 1999. For
further details of the syndicated credit facility, see Part
II, Item 7. "Management's Discussion and Analysis of Results
of Operations and Financial Condition" in Form 10-K.
3. NEW ACCOUNTING STANDARD
During the six months ended September 30, 1999, Yorkshire
Group adopted the Financial Accounting Standards Board's
Emerging Issues Task Force Consensus (EITF) 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk
Management Activities". The EITF requires that all energy
trading contracts be marked-to-market. The adoption of the
EITF did not have a material effect on results of operations,
cash flows or financial condition.
4. CONTINGENCIES
LEGAL PROCEEDINGS
Litigation is ongoing with respect to NGC and National
Power's use of actuarial surpluses declared in the ESPS. The
Pension Ombudsman (a UK arbitrator appointed by statute)
issued a "final determination" in favor of complaints made by
members of the ESPS relating to NGC's use of the ESPS surplus
to offset its additional costs of early payment of pensions
as a result of reorganization or redundancy, together with
additional contributions required after a valuation. Under
that determination, the Pension Ombudsman directed NGC to pay
into ESPS the amount of that use of the surplus plus
interest. The Pension Ombudsman's final determination was
challenged in the courts by NGC and National Power, who were
also subject to a similar complaint. The High Court
subsequently ruled that such use of surplus was permissible.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
4. CONTINGENCIES (continued)
On February 10, 1999, the Court of Appeal ruled that the
particular arrangements made by NGC and National Power to
dispose of the surplus, partly by canceling liabilities
relating to pension costs resulting from early retirement,
were invalid as they did not comply fully with the Scheme
Rules and procedures for dealing with surplus at that time.
However, the Court of Appeal did uphold the High Court's
ruling that NGC and National Power could benefit from Pension
Scheme surplus provided that the Scheme Rules allow and that
the interests of the Members are taken into account.
Following a further hearing on May 25 and May 26, 1999 the
Court of Appeal ordered NGC and National Power to pay all
sums properly payable by them to their Group Trustees.
However, enforcement of the order was stayed pending the
outcome of any appeals to the House of Lords. NGC and
National Power have now initiated appeals in the House of
Lords.
Yorkshire has made similar use of actuarial surplus and,
if it is decided by the House of Lords that the sums
concerned are all due to the ESPS, the maximum amount payable
by Yorkshire in respect of its use of surplus is
approximately (POUNDS) 38 million plus interest.
It is now expected that a judgement by the House of Lords
on the NGC and National Power appeals may occur in 2001.
USE OF ESTIMATES
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements. As a result of the transition to a
more competitive utility environment, estimates are required
for revenues and the costs to produce revenues, including bad
debt expense.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
4. CONTINGENCIES (continued)
Electricity generated in England and Wales is sold by
generators and bought by suppliers through the Pool. Charges
are raised on a half hourly basis. Prior to opening the
domestic market to competition on September 14, 1998, all
charges were allocated between suppliers based on actual
meter readings. Charges in respect of residential customers,
whose meters are not read at half hourly intervals, were
allocated to the host PES. Since September 14, 1998, it is
necessary to allocate charges in respect of residential
customers between suppliers based on estimates.
Actual results could differ from the Company's estimates.
OFGEM PRICE CONTROL REVIEW
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - The Electric
Utility Industry in Great Britain - Distribution of
Electricity - Price Control" and to Form 10-Q for the quarter
ended June 30, 1999, "Notes to the Consolidated Financial
Statements, Note 8" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition: Draft Price
Proposal" for a discussion of Ofgem's initial proposals on
the distribution price control review published in August
1999. Yorkshire responded to this consultation on September
17, 1999, expressing various concerns with the analysis used
by Ofgem. Yorkshire also commented that the methodology used
failed to justify the magnitude of the price cuts proposed
and suggested a more suitable methodology. In addition,
Yorkshire pointed out that there were areas where additional
cost allowances were required, including business separation
and the introduction of metering competition.
On October 8, 1999, Ofgem issued an update to its August
proposals on the distribution price control review. This
update proposed a 15% reduction in allowed revenue for
Yorkshire and a further 8% transfer of costs to Yorkshire's
electricity supply business. Ofgem proposed that the X factor
would continue to be 3%. The overall reduction in
distribution revenues would be 23% based on these updated
proposals.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
4. CONTINGENCIES (continued)
Ofgem's October 8, 1999 document also released further
details on business separation, including making an allowance
for separation costs of (POUNDS) 7.5 million per PES over the
next 5 years (included within the above referenced allowed
revenue reduction). Ofgem propose that electricity supply
would receive an allowance of (POUNDS) 200,000 per year for
separation costs. This appears to be in addition to the
distribution allowance.
Ofgem expects to publish its final proposals on the
distribution price control review at the end of November
1999.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1 "Business - The Electric
Utility Industry in Great Britain - Supply of Electricity -
Current Electricity Supply Price Regulation" for information
relating to the electricity supply price control review. On
October 8, 1999, Ofgem issued draft electricity supply price
proposals. Key features of the proposals are:-
- - Retention of a supply price cap for domestic consumers
which would apply for a further two years from April
2000 until March 2002. Ofgem proposed that the cap
would not apply to small industrial and commercial
customers where the market was sufficiently
competitive.
- - A reduction in the price cap for domestic electricity
prices which would lead to an average fall in Great
Britain of 9.9% for customers on standard domestic
tariffs and 6.5% for those on Economy 7 tariffs.
- - PESs will be encouraged to price below the price caps
if generation prices fall as expected after the
introduction of new electricity trading arrangements
and if the UK government lifts its restricted consents
policy towards gas fired power stations.
These proposals would mean that in the year commencing
April 2000 and ending in March 2001 the real price reduction
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
4. CONTINGENCIES (continued)
for Yorkshire's supply business will be 10.7% (of which 7.3%
is due to lower distribution charges arising from the
distribution price control review) on the standard domestic
tariff. The proposed price reduction for customers on the
Economy 7 tariff will not have a significant impact on
Yorkshire. For the year commencing April 2001 and ending in
March 2002 there is a proposed nominal price freeze. The
proposed reductions to the standard domestic and Economy 7
tariffs will put pressure on PESs either to pass similar
reductions to direct debit and prompt payment customers or to
reduce the discounts given to those customers. The former
would result in a loss of revenue while the latter may result
in a loss of customers.
Yorkshire has commented on the draft electricity supply
price proposals and is engaged in on-going discussions with
Ofgem with respect to such proposals. Ofgem expect to
publish final proposals on the supply price control review at
the end of November 1999.
If a REC does not consent to Ofgem's proposed PES Licence
amendment resulting from either the distribution or the
supply price control review, then the Regulator may refer the
proposals to the Competition Commission. Following the
publication of the Competition Commission's report, the
Regulator shall make appropriate modifications to the REC's
PES Licence.
Yorkshire Group's management continues to evaluate the
impact of the Ofgem distribution and supply price proposals.
Management intends to take all available opportunities to
increase revenues and reduce costs to mitigate the
consequences of the anticipated distribution and supply price
reductions. If Yorkshire Group is unable to offset the
impact of the anticipated price reductions, there could be a
material adverse effect on Yorkshire Group's results of
operations, cash flows and financial condition.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
5. IONICA
Yorkshire Group's investment in Ionica was sold during
Fiscal Year 1999. See Note 7 to the audited financial
statements included in Form 10-K for further details.
6. DISCONTINUED OPERATIONS - GENERATION BUSINESSES
As part of pre-existing plans to reduce debt, Yorkshire's
generation business was disposed of during Fiscal Year 1999.
Proceeds of (POUNDS) 136 million were received (net of fees and
cash disposed of), in respect of the sale, which were used to
reduce debt. A gain on sale of (POUNDS) 24 million, net of
income taxes of (POUNDS) 31 million was included in net income
for Fiscal Year 1999.
7. BUSINESS SEGMENTS
Yorkshire Group is primarily engaged in two businesses:
electricity distribution, which involves the transmission of
electricity across its network to end users, and supply,
which involves bulk purchase of electricity and gas for
delivery to its customers. These businesses form the basis
for the identification of reportable segments as shown below.
Included in "Other" are insignificant operating subsidiaries
as well as various corporate activities, and non-allocated
corporate assets.
Management evaluates segment performance based on segment
income from operations, which is shown below.
Intersegment sales primarily represent sales from the
distribution business to the Supply business for use of the
distribution network.
The results attributable to the generation business for
Fiscal Year 1999, which has been treated as a discontinued
operation, are excluded from the segment information shown
below.
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
7. BUSINESS SEGMENTS (continued)
<CAPTION>
Information technology support activities for Yorkshire
Group have been included in the results reported for the
Supply business from April 1, 1999. The segment information
for the six months ended September 30, 1998 has been
reclassified to conform to current period presentation.
A summary of information about Yorkshire Group's
operations by segments follows (in millions):
Six Months Ended September 30, 1999
Distribution Supply Other Eliminations Consolidated
and non-
allocated
items
(POUNDS) (POUNDS) (POUNDS) (POUNDS) (POUNDS)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers 39 601 4 1 645
Intersegment sales 113 19 1 (133) -
Income (loss) from
operations 69 13 (4) (12) 66
Total assets 998 376 2,638 (1,675) 2,337
Six Months Ended September 30, 1998
Distribution Supply Other Eliminations Consolidated
and non-
allocated
items
(POUNDS) (POUNDS) (POUNDS) (POUNDS) (POUNDS)
Revenues from
external customers 26 561 6 - 593
Intersegment sales 121 29 11 (161) -
Income (loss) from
operations 67 36 - (13) 90
Total assets 924 350 2,880 (1,683) 2,471
</TABLE>
<PAGE>
YORKSHIRE POWER GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
7. BUSINESS SEGMENTS (continued)
Non-allocated items within total assets consist solely of
goodwill of (POUNDS) 913 million at September 30, 1999 and
(POUNDS) 957 million at September 30, 1998.
Non-allocated items within income (loss) from operations
consist principally of amortization of goodwill of (POUNDS) 12
million in the six months ended September 30 for both 1999
and 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Second Quarter of the Nine Month Period Ending December 31,
1999 vs. Second Quarter Fiscal Year 1999
And
Six Months Ended September 30, 1999 vs. Six Months Ended
September 30, 1998
RESULTS OF OPERATIONS
Net income for the year to date period decreased by (POUNDS)
24 million (75%) from (POUNDS) 32 million to (POUNDS) 8 million.
There was a decrease in net income of (POUNDS) 6 million (50%)
in the second quarter from (POUNDS) 12 million to (POUNDS) 6
million. This is due primarily to the following: a decrease
in gross margin attributable to the gas and electricity
supply businesses and an increase in marketing and customer
service costs related to the opening up of the competitive
market in the supply business. In addition, there was a
favorable adjustment to tax liabilities of (POUNDS) 12 million
in the first quarter of Fiscal Year 1999, compared with a
favorable adjustment of (POUNDS) 4 million in the second quarter
of the current accounting period. These were partly offset
by reduced interest expense, a reduction in costs associated
with Year 2000 modifications and a write down in the
investment in Ionica of (POUNDS) 11 million in the first six
months of Fiscal Year 1999.
Income statement line items that changed significantly
were:
Increase ( Decrease)
Second Quarter Year to Date
(POUNDS) % (POUNDS) %
Operating Revenues 28 9 52 9
Gross Margin (14) (13) (21) (10)
Loss on Investment
in Ionica (5) (100) (11) (100)
Selling, General and
Administrative (3) (9) 2 4
Expenses
Interest Expense (5) (15) (8) (12)
Provision (Credit)
for Income Taxes 1 100 13 144
Electricity supply operating revenues have increased
primarily as a result of growth in the volume supplied to the
non-residential electricity supply market.
Revenues attributable to the distribution business have
increased due to growth in the level of electrical
contracting work undertaken and an increase in external
revenues for the use of the distribution network due to the
opening up of competition in the domestic electricity supply
market.
Gross margin for the electricity supply business has
decreased. Higher electricity pool prices and price
competition in the non-residential sector have offset
increased sales volumes to both residential and non-
residential customers. Furthermore, Yorkshire's portfolio of
energy contracts is structured so that, compared to Fiscal
Year 1999, higher CFD costs are incurred in summer months,
with comparatively lower CFD costs anticipated in winter
months.
Although the number of residential gas supply customers
increased, sales volumes were below expectations partly due
to the effect of warmer weather. Gross margin percentages for
the gas supply business have decreased as lower than expected
sales volumes led to the sale of excess gas at reduced
margins.
Yorkshire Group sold its investment in Ionica during the
last quarter of Fiscal Year 1999. The loss recognized in
respect of a reduction in fair value of the investment was
(POUNDS) 11 million in the first six months of Fiscal Year 1999
((POUNDS) 5 million of which was in the second quarter). For
further details on the Ionica investment, see Note 7 to the
audited financial statements included in Form 10-k.
The increase in selling, general and administrative costs
for the year to date period resulted from an increase in
costs associated with marketing initiatives to win and retain
customers since the full opening of the electricity supply
market to competition and a one-time profit on the sale of
distribution assets of (POUNDS) 2 million in the first quarter
of Fiscal Year 1999. This was partly offset by a reduction
in costs incurred in relation to Year 2000 modifications and
a reduction in costs associated with the development of new
systems to facilitate competition, as the majority of
projects have now been completed.
The decrease in selling, general and administrative costs
in the quarter ended September 30, 1999 compared with the
quarter ended September 30, 1998 is primarily due to a
reduction in costs incurred in relation to Year 2000
modifications and a reduction in costs associated with the
development of new systems to facilitate competition.
The decrease in interest expense resulted from the
application of the proceeds from the sale of the generation
business during Fiscal Year 1999 to reduce the debt of
Yorkshire Group, in addition to lower interest rates in the
UK during both the six month and the three month period ended
September 30, 1999.
The first six months of Fiscal Year 1999 was favorably
affected by a (POUNDS) 12 million settlement of prior years' tax
liabilities which was recognized in the first quarter,
compared with a favorable adjustment of (POUNDS) 4 million in
the second quarter of the period ended September 30, 1999.
The effective tax rate in both periods has been increased by
the amortization of goodwill, which is not deductible for UK
income tax purposes.
FINANCIAL CONDITION
During the six month period ended September 30, 1999,
Yorkshire Group canceled Tranche A of its syndicated credit
facility. Tranche A had originally been a (POUNDS) 150 million
364 day revolving credit with a one-year extension option and
had been reduced to (POUNDS) 100 million in Fiscal Year 1999.
For further details of the syndicated credit facility, see
Part II, Item 7. "Management's Discussion and Analysis of
Results of Operations and Financial Condition" in Form 10-K.
LEGAL PROCEEDINGS
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 3. "Legal Proceedings" and to
Form 10-Q for the quarter ended June 30, 1999, Part II, Item
5. "Other Information - Legal Proceedings" for details of
ongoing litigation with respect to other corporations' use of
actuarial surpluses declared in the ESPS. Yorkshire made
similar use of actuarial surplus and, if it is decided by the
House of Lords that the sums concerned are all due to the
ESPS, the maximum amount payable by Yorkshire in respect of
its use of surplus is approximately (POUNDS) 38 million plus
interest.
It is now expected that a judgement by the House of Lords
on the NGC and National Power appeals may be later than first
anticipated; possibly in 2001.
MARKET RISKS
Yorkshire Group has certain market risks inherent in its
business activities, arising from the purchase and sale of
electricity and gas, changes in foreign currency exchange
rates and interest rates. Market risk represents the risk of
loss that may impact Yorkshire Group due to adverse changes
in market prices and rates.
Yorkshire Group's exposure to commodity price variability
and risks arising from changes in foreign currency exchange
rates and interest rates has not changed significantly since
March 31, 1999. For further details, see Part II, Item 7A.
"Quantitative and Qualitative Disclosures About Market Risk"
in Form 10-K.
OFGEM PRICE CONTROL REVIEW
As part of a review of PES distribution price controls,
Ofgem published draft price proposals for the 14 regional
electricity distribution businesses on August 12, 1999, to be
effective for the five year period commencing April 2000.
On October 8, 1999, Ofgem issued an update to its August
proposals on the distribution price control review. This
update proposed a 15% reduction in allowed revenue for
Yorkshire and a further 8% transfer of costs to Yorkshire's
electricity supply business. Ofgem proposed that the X factor
would continue to be 3%. The overall reduction in
distribution revenues would be 23% based on these updated
proposals.
Ofgem's October 8, 1999 document also released further
details on business separation, including making an allowance
for separation costs of (POUNDS) 7.5 million per PES over the
next 5 years (included within the above referenced allowed
revenue reduction). Ofgem propose that electricity supply
would receive an allowance of (POUNDS) 200,000 per year for
separation costs. This appears to be in addition to the
distribution allowance.
Ofgem expects to publish its final proposals on the
distribution price control review at the end of November
1999.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1 "Business - The Electric
Utility Industry in Great Britain - Supply of Electricity -
Current Electricity Supply Price Regulation" for information
relating to the electricity supply price control review. On
October 8, 1999, Ofgem issued draft electricity supply price
proposals. Key features of the proposals are:-
- - Retention of a supply price cap for domestic consumers
which would apply for a further two years from April
2000 until March 2002. Ofgem proposed that the cap
would not apply to small industrial and commercial
customers where the market was sufficiently
competitive.
- - A reduction in the price cap for domestic electricity
prices which would lead to an average fall in Great
Britain of 9.9% for customers on standard domestic
tariffs and 6.5% for those on Economy 7 tariffs.
- - PESs will be encouraged to price below the price caps
if generation prices fall as expected after the
introduction of new electricity trading arrangements
and if the UK government lifts its restricted consents
policy towards gas fired power stations.
These proposals would mean that in the year commencing
April 2000 and ending in March 2001 the real price reduction
for Yorkshire's supply business will be 10.7% (of which 7.3%
is due to lower distribution charges arising from the
distribution price control review) on the standard domestic
tariff. The proposed price reduction for customers on the
Economy 7 tariff will not have a significant impact on
Yorkshire. For the year commencing April 2001 and ending in
March 2002 there is a proposed nominal price freeze. The
proposed reductions to the standard domestic and Economy 7
tariffs will put pressure on PESs either to pass similar
reductions to direct debit and prompt payment customers or to
reduce the discounts given to those customers. The former
would result in a loss of revenue while the latter may result
in a loss of customers.
Yorkshire has commented on the draft electricity supply
price proposals and is engaged in on-going discussions with
Ofgem with respect to such proposals. Ofgem expect to
publish final proposals on the supply price control review at
the end of November 1999.
If a REC does not consent to Ofgem's proposed PES Licence
amendment resulting from either the distribution or the
supply price control review, then the Regulator may refer the
proposals to the Competition Commission. Following the
publication of the Competition Commission's report, the
Regulator shall make appropriate modifications to the REC's
PES Licence.
Yorkshire Group's management continues to evaluate the
impact of the Ofgem distribution and supply price proposals.
Management intends to take all available opportunities to
increase revenues and reduce costs to mitigate the
consequences of the anticipated distribution and supply price
reductions. If Yorkshire Group is unable to offset the
impact of the anticipated price reductions, there could be a
material adverse effect on Yorkshire Group's results of
operations, cash flows and financial condition.
YEAR 2000 ISSUES
A potentially world-wide problem has arisen with computer
programs and micro-processing chips due to the method used to
represent the year part of a date. This may lead systems and
equipment to interpret incorrectly dates falling after
December 31, 1999. In addition, certain systems may fail to
detect that the Year 2000 is a leap year.
Company State of Readiness:
Yorkshire Group has established a program which tests,
repairs or replaces, as necessary, both computer hardware and
software including mainframe, servers, applications, and
embedded chips including those in the electricity
distribution network.
Work has been prioritized in accordance with business
risk. The highest priority has been given to those
activities which potentially impact on safety and/or
continuity of electricity supply to customers.
Testing and remediation of these highest priority systems
are now complete.
The problem is also being addressed with third parties
with whom Yorkshire Group has material relationships,
including suppliers, generators, customers and government
organizations and regulators. Assurances have been sought
from such parties regarding their state of Year 2000
readiness. However these third parties nonetheless represent
a risk that cannot be assessed with precision or controlled
with certainty.
Yorkshire Group has been actively involved in national
forums with other members of the electricity industry and
other utilities (such as gas, telecommunications and water)
to share good practice and to provide consolidated
information to the UK Department of Trade and Industry and to
the UK Electricity Industry Regulator regarding progress.
Yorkshire Group's program has been independently assessed
on behalf of the Regulator who in his report found that the
assessment has not identified any risks of material
disruption to the infrastructure process at Yorkshire Group.
<PAGE>
<TABLE>
Progress on readiness of critical systems (those that
affect safety and/or continuity of supply of electricity to
customers, or would have a material impact on Yorkshire
Group) is shown below.
<CAPTION>
I T Systems Non-I T Systems
Year 2000 Program Completion Completion
Phases Date/ Date/
Estimated Estimated
Completion Percentage Completion Percentage
Date Complete Date Complete
<S> <C> <C> <C> <C>
Program Initiation Phase
Mobilization of the October 30, 100% October 30, 100%
Program, including 1997 1997
establishing awareness,
structure and budgets and:
Performance of High Level
Business Impact Analysis
including establishing key
issues for each business
area.
Project Scoping Phase
Sizing the problems, March 31, 100% May 31, 100%
including gathering 1998 1998
detailed inventory
information and
additional risk analysis
and:
Determining costed
business solutions,
including examination of
options to achieve date
conformance in the time
required.
Project Delivery Phase
Management of the September 30, 100% April 13, 100%
implementation cycle and 1999 1999
delivery of the project.
</TABLE>
Costs to Address the Company's Year 2000 Issue
Yorkshire Group has expended (POUNDS) 15 million to September
30, 1999 on the Year 2000 Program and estimates spending an
additional (POUNDS) 2 million to sustain Year 2000 readiness.
Of this (POUNDS) 17 million, approximately (POUNDS) 14 million will
be expensed as incurred and (POUNDS) 3 million will be
capitalized. Yorkshire Group has funded these expenditures
through internal sources. Although significant, the cost of
becoming Year 2000 ready is not expected to have a material
impact on Yorkshire Group's results of operations, cash flows
or financial condition.
<PAGE>
Risks of the Company's Year 2000 Issues
Yorkshire Group has carried out a detailed series of tests
to minimize the possibility of service or business
interruption related to Year 2000 issues. Yorkshire Group
believes, based on the current tests, that the distribution
system will be able to distribute electricity after December
31, 1999. The results of these tests increase confidence,
but do not guarantee error free operations.
The applications posing the greatest business risk to
Yorkshire Group's operations should they experience Year 2000
problems are the power distribution systems,
telecommunications systems, energy trading systems and
billing systems. The potential problems related to erroneous
processing by, or failure of, these systems are power service
interruptions to customers, interrupted revenue collection
and poor customer relations.
Due to the complexity of the problem and the
interdependent nature of systems, if Yorkshire Group's
corrective actions, and/or the actions of others not
affiliated with Yorkshire Group, fail for critical
applications, Year 2000 - related issues may materially
adversely affect Yorkshire Group.
Year 2000 Contingency Plans
Yorkshire Group has well established contingency plans
that have been tested. These plans have been reviewed to
develop additional procedures to deal specifically with
situations that could arise in relation to the Year 2000
problem.
EUROPEAN MONETARY UNION
On January 1, 1999, 11 European Union countries formed an
economic and monetary union and introduced a single currency,
the Euro. Although the UK did not join at this time, the UK
Government has indicated that it may join in the future.
Management is currently assessing the effort required to
prepare Yorkshire Group for the potential introduction of the
Euro in the UK.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - Yorkshire Group
and the US Parents - AEP" for details of the planned merger
of AEP and CSW. Assuming the receipt of all required
approvals, the merger is now expected to be completed in the
first half of 2000.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I Item 1. "Business - Yorkshire Group
and the US Parents - NCE" for details of the planned merger
of NCE and NSP. Assuming the receipt of all required
approvals, the merger is now expected to be completed in the
latter part of 2000.
Reference is made to Form 10-Q for the quarter ended June
30, 1999, Part II, Item 5. "Other Information" which notes
British Energy's bid for the electricity and gas supply
businesses of SWALEC. On September 23, 1999, the UK
government announced its decision not to refer this bid to
the Competition Commission. Both British Energy and SWALEC
have given assurances that they will agree to changes in
their PES Licences in relation to the separation of
electricity distribution and supply businesses.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - The Electric
Utility Industry in Great Britain - Distribution of
Electricity - Price Control" and to Form 10-Q for the quarter
ended June 30, 1999, "Notes to the Consolidated Financial
Statements, Note 8" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition: Draft Price
Proposal" for a discussion of Ofgem's initial proposals on
the distribution price control review published in August
1999. Yorkshire responded to this consultation on September
17, 1999, expressing various concerns with the analysis used
by Ofgem. Yorkshire also commented that the methodology used
failed to justify the magnitude of the price cuts proposed
and suggested a more suitable methodology. In addition,
Yorkshire pointed out that there were areas where additional
cost allowances were required, including business separation
and the introduction of metering competition.
On October 8, 1999, Ofgem issued an update to its August
proposals on the distribution price control review. This
update proposed a 15% reduction in allowed revenue for
Yorkshire and a further 8% transfer of costs to Yorkshire's
electricity supply business. Ofgem proposed that the X factor
would continue to be 3%. The overall reduction in
distribution revenues would be 23% based on these updated
proposals.
Ofgem's October 8, 1999 document also released further
details on business separation, including making an allowance
for separation costs of (POUNDS) 7.5 million per PES over the
next 5 years (included within the above referenced allowed
revenue reduction). Ofgem propose that electricity supply
would receive an allowance of (POUNDS) 200,000 per year for
separation costs. This appears to be in addition to the
distribution allowance.
Ofgem expects to publish its final proposals on the
distribution price control review at the end of November
1999.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - The Electric
Utility Industry in Great Britain - Supply of Electricity -
Current Electricity Supply Price Regulation" for information
relating to the electricity supply price control review. On
October 8, 1999, Ofgem issued draft electricity supply price
proposals. Key features of the proposals are:-
- - Retention of a supply price cap for domestic consumers
which would apply for a further two years from April
2000 until March 2002. Ofgem proposed that the cap
would not apply to small industrial and commercial
customers where the market was sufficiently
competitive.
- - A reduction in the price cap for domestic electricity
prices which would lead to an average fall in Great
Britain of 9.9% for customers on standard domestic
tariffs and 6.5% for those on Economy 7 tariffs.
- - PESs will be encouraged to price below the price caps
if generation prices fall as expected after the
introduction of new electricity trading arrangements
and if the UK government lifts its restricted consents
policy towards gas fired power stations.
These proposals would mean that in the year commencing
April 2000 and ending in March 2001 the real price reduction
for Yorkshire's supply business will be 10.7% (of which 7.3%
is due to lower distribution charges arising from the
distribution price control review) on the standard domestic
tariff. The proposed price reduction for customers on the
Economy 7 tariff will not have a significant impact on
Yorkshire. For the year commencing April 2001 and ending in
March 2002 there is a proposed nominal price freeze. The
proposed reductions to the standard domestic and Economy 7
tariffs will put pressure on PESs either to pass similar
reductions to direct debit and prompt payment customers or to
reduce the discounts given to those customers. The former
would result in a loss of revenue while the latter may result
in a loss of customers.
Yorkshire has commented on the draft electricity supply
price proposals and is engaged in on-going discussions with
Ofgem with respect to such proposals. Ofgem expect to
publish final proposals on the supply price control review at
the end of November 1999.
If a REC does not consent to Ofgem's proposed PES Licence
amendment resulting from either the distribution or the
supply price control review, then the Regulator may refer the
proposals to the Competition Commission. Following the
publication of the Competition Commission's report, the
Regulator shall make appropriate modifications to the REC's
PES Licence.
Yorkshire Group's management continues to evaluate the
impact of the Ofgem distribution and supply price proposals.
Management intends to take all available opportunities to
increase revenues and reduce costs to mitigate the
consequences of the anticipated distribution and supply price
reductions. If Yorkshire Group is unable to offset the
impact of the anticipated price reductions, there could be a
material adverse effect on Yorkshire Group's results of
operations, cash flows and financial condition.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item I. "Business - The Electric
Utility Industry in Great Britain - Regulation under the
Electricity Act - Regulatory Developments - Review of Energy
Sources for Power Generation; Review of Electricity
Arrangements" for details of the programme to deliver and
implement RETA.
On August 3, 1999, Ofgem set out detailed proposals for
new wholesale electricity trading arrangements in England and
Wales to replace the Pool. This document provided the basis
upon which the programme could enter its implementation
phase.
Yorkshire responded to this consultation on September 7,
1999, commenting that it was imperative that decisions are
expedited to ensure individual market participants are given
sufficient time to prepare appropriate internal processes and
control systems in good time for the opening of the new
market.
A joint consultation response was published by Ofgem and
the UK government on October 21, 1999, in anticipation of
legislation to establish the new electricity trading
arrangements ("NETA"). This document included many of the
original proposals and the full impact of these is currently
being assessed by Yorkshire.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - The Electric
Utility Industry in Great Britain - Regulation under the
Electricity Act - Social Action Plan" and also to Form 10-Q
for the quarter ended September 30, 1999, Part II, Item 5.
"Other Information" for details of Ofgem's proposals to
strengthen its social action plans and Yorkshire's response
to this consultation.
On October 5, 1999, Ofgem published a further consultation
document on this issue: "Social Action Plan: A Framework
Document". This document set out a framework for action by
Ofgem, the industry and other interested parties to work to
alleviate fuel poverty. The document proposed changes to PES
Licences and also the licences of gas suppliers which would
oblige all electricity and gas suppliers to offer payment
methods that suited the needs of their customers and took
special account of disadvantaged customers.
Responses to the consultation have been requested by
November 15, 1999, and it is expected that the framework
timetable will be finalised and published by Ofgem by the end
of 1999.
In July 1999 the UK government published recommendations
regarding future support and development of new and renewable
energy. Consultation findings included:-
- - Any obligation to supply electricity from renewable
sources should rest with suppliers; and
- - Renewable energy should be exempt from the proposed
Climate Change Levy. VAT and other areas of taxation
should not disadvantage development in this sphere.
There is no indication within the report of what action
the UK government will take with regard to these findings.
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 1. "Business - The Electric
Utility Industry in Great Britain - Regulation under the
Electricity Act - Licences - Modification to Licences" for
details of "ring-fencing" PES Licence modifications proposed
by the Regulator in February 1998. On September 17, 1999,
these ring-fencing modifications took effect.
The September PES Licence amendments also included the
change in Yorkshire's fiscal year end from March 31 to
December 31.
On October 13, 1999, the UK government announced that it
would legislate to give effect to its various proposals for
the reform of the regulatory regimes for the electricity,
gas, water and telecommunications sectors. The proposed
legislation will include the following:-
- - a new primary duty for regulators to exercise their
functions in the manner best calculated to protect the
interests of consumers, wherever possible and
appropriate through promoting effective competition;
- - a requirement for all regulators, in performing the new
primary duty, to pay particular regard to the interests
of low income consumers, the chronically sick, the
disabled, pensioners and consumers in rural areas;
- - a requirement for separate licensing of electricity
supply and distribution, and the introduction of a bar
on electricity supply and distribution licences being
held by the same legal person (which effectively means
that the electricity supply and distribution businesses
of current PES's would be put into separate companies);
- - provisions to underpin NETA;
- - the replacement of individual regulators by regulatory
boards and a requirement for the regulators to give
reasons for key decisions, to publish and consult on
their forward work programmes and to establish a code
of practice on their consultation and decision-making
procedures;
- - powers for all regulators to be able to impose monetary
penalties on companies for past and ongoing breaches of
licence conditions and other specified requirements;
- - a duty on each of the regulators, in the exercise of
their statutory functions, to have regard to guidance
issued by UK government ministers on the social and
environmental objectives relevant to their sector; and
- - broad enabling powers for UK government ministers to
make regulations to promote energy efficiency, and the
generation of electricity from renewable sources.
Yorkshire is currently assessing the impact of these
provisions on the Company.
Comments on these draft provisions have been invited by
November 15, 1999.
LEGAL PROCEEDINGS
Reference is made to Form 10-K for the Fiscal Year ended
March 31, 1999, Part I, Item 3. "Legal Proceedings" and to
Form 10-Q for the quarter ended June 30, 1999, Part II, Item
5. "Other Information - Legal Proceedings" for details of
ongoing litigation with respect to other corporations' use of
actuarial surpluses declared in the ESPS. Yorkshire made
similar use of actuarial surplus and, if it is decided by the
House of Lords that the sums concerned are all due to the
ESPS, the maximum amount payable by Yorkshire in respect of
its use of surplus is approximately (POUNDS) 38 million plus
interest.
It is now expected that a judgement by the House of Lords
on the NGC and National Power appeals may occur in 2001.
<PAGE>
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 September 30, 1999.
<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
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jul-1-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1.6469
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0
168
<COMMON> 440
<OTHER-SE> (22)
<TOTAL-LIABILITY-AND-EQUITY> 2,337
<SALES> 329
<TOTAL-REVENUES> 329
<CGS> 233
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<OTHER-EXPENSES> 59
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<INCOME-PRETAX> 6
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