RWE npower's Consolidated Segmental Statement

Year End 2010

RWE npower's Consolidated Segmental Statement (CSS) for 2010 (below) is provided as required by Ofgem's Electricity and Gas Supply Licences Condition 19A and Electricity Generation Licence Condition 16B. These licence conditions require an explanation of how the revenues, costs and profits reported in the CSS can be reconciled to UK statutory accounts or to the consolidated group accounts.

In accordance with these licence conditions the CSS is prepared from the individual statutory accounts of the legal entities of the RWE npower group that held a generation or supply licence and engaged in generation or supply activities during the year ended 31st December 2010. As RWE npower is exempt, under Section 400 of the Companies Act 2006, from preparing and filing Consolidated Financial Accounts, the CSS is an aggregation of these individual Statutory Accounts which are prepared under United Kingdom Generally Accepted Accounting Principles (UK GAAP). These Statutory Accounts are subject to audit by independent, external auditors. Information on the entities included in the CSS is detailed in Section 2 below and the full reconciliation to the underlying UK GAAP Statutory Accounts is provided in Section 5 below.

  Unit Generation Electricity Supply Gas Supply Aggregate Supply Business
Domestic Non Domestic Domestic Non Domestic
Total revenue £M 742 1,763 2,728 1,542 189 6,222
Revenue from sale of electricity and gas £M 733 1,763 2,728 1,542 189 6,222
Other revenue £M 9 - - - - -
 
Total Operating Costs £M 392 1,864 2,654 1,509 181 6,208
Direct fuel costs £M 28 957 1,747 817 120 3,641
Other direct costs £M 84 540 780 381 31 1,732
Indirect Costs £M 280 367 127 311 30 835
WACO E/G £/MWh, p/th N/A 59.61 51.87 51.7 51.7 N/A
 
EBITDA £M 350 (101) 74 33 8 14
Depreciation and amortisation £M (139) (47) (15) (39) (3) (104)
Generation plant impairment £M (249) - - - - -
EBIT £M (38) (148) 59 (6) 5 (90)
 
Volume TWh, Therms 32.6 16.1 33.7 1,579,510,083 232,124,051 N/A

1. BACKGROUND

  • Following the Office of Gas and Electricity Markets' (Ofgem's) Energy Supply Probe, one of the objectives of which was to create greater transparency of financial information, the energy regulator introduced a Financial Information Reporting Licence Condition into the electricity generation, gas supply and electricity supply licences on 21st October 2009.
  • Ofgem's Electricity Supply and Gas Supply Licences Condition 19A and Electricity Generation Licence Condition 16B require Relevant Licensees (in effect companies including affiliates) generating electricity and supplying electricity and/or gas to more than 50,000 customers to; "prepare and publish on their websites a Consolidated Segmental Statement in respect of information relating to the revenues, costs and profits of their activities in the generation and supply of electricity and gas".
  • The Consolidated Segmental Statement (CSS) must be prepared and published no later than six months after the end of the licensee's financial year.
  • RWE Npower plc (the Company) and its subsidiary companies meet the criteria. Therefore the Company has prepared and published the CSS in accordance with the licence conditions for the year ended 31st December 2010.

2. SCOPE OF ENTITIES INCLUDED IN THE TEMPLATE

  • The Consolidated Segmental Statement (CSS) aggregates the revenues and costs attributable to the generation, electricity and gas supply activities of all subsidiaries and affiliates of RWE Npower plc that held either; an electricity generation, an electricity supply, or a gas supply licence andengaged in electricity generation or gas/electricity supply activities during the year ended 31st December 2010.
  • RWE Npower plc (the Company) directly owns and manages a fleet of ten fossil fuel fired power stations located across England and Wales. Through its subsidiary companies it also:
    • Operates a small fleet of Combined Heat and Power (CHP) plants.
    • Manages and operates the supply of gas, electricity and related home and energy services to domestic and non-domestic customers.
  • The ultimate parent company is RWE AG, a company incorporated in Germany.
  • The list of legal entities that held a generation or supply licence andengaged in electricity generation or gas/electricity supply activities during the year ended 31st December 2010 is summarised in the table below:
Legal Entity Name Registered Number
RWE Npower plc 3892782
Npower Cogen Trading Ltd 2745602
Npower Ltd 3653277
Npower Commercial Gas Ltd 3768856
Npower Gas Ltd 2999919
Electricity Plus Supply Ltd 5199936
Gas Plus Supply Ltd 5199935
Npower Northern Ltd 3432100
Npower Direct Ltd 3782443
Npower Yorkshire Ltd 3937808
  • The operating assets of Npower Cogen Trading Ltd were sold to a third party on 3rd March 2010.  The CSS incorporates the earnings of the entity (that specifically relate to the generation and supply of electricity) up to the date of sale of the assets.  Following the disposal the entity did not engage in any trading activity and was dormant for the remainder of the year.
  • Some of the legal entities listed above also engage in commercial activities that do not relate to the generation of electricity or the supply of gas/electricity to domestic and non-domestic customers.  We refer to these activities as "out of scope" and the revenues and costs attributable to these activities are excluded from the CSS.  Examples of such "out of scope" activities include:
    • Home Energy services including boiler installation and maintenance.
    • Engineering and technical consultancy provided to third parties.
  • The CSS does not include subsidiaries of RWE Npower plc that hold either electricity generation or gas/electricity supply licences but which were dormant and had no trading activities during the year ended 31st December 2010.

3. TREATMENT OF JOINT VENTURES

The company has a 50% Joint Venture interest in Horizon Nuclear Power Ltd, a company engaged in the development of a new generation of nuclear power stations in the United Kingdom. The Joint Venture Company does not hold a generation or supply licence and has no trading activities relating to the generation or supply of electricity. Accordingly the Company's share of the profit/loss of the Joint Venture Company is not incorporated in the template.

4. REVENUES, COSTS AND PROFIT

As already referenced the CSS is an aggregation of the individual Statutory Accounts of the relevant legal entities that hold a generation or supply licence which engaged in generation or supply activities in the year ended 31st December 2010.

4.1 GENERATION

Revenue from the sale of electricity and gas.

  • Our Generation business transfers capability to RWE Supply and Trading GmbH (RWEST) via an arms length asset tolling agreement.
  • In exchange for a capability fee, the asset tolling agreement provides RWEST in general with the option to deliver fuel to our power stations and have this converted into electricity. The fee is based on the option value derived from the forward markets at the time of the capability transfer. Transfer typically takes place 1 to 2 years ahead of time.
  • Thus, the bulk of the revenue of the business represents the sale of asset capability rather than the sale of electricity.
  • Other elements included within this category comprise post option income, ancillary services and balancing mechanism income and CHP electricity sales.

Other Revenues

  • The main element relates to other revenues from CHP stations that hold a generation supply licence.

Electricity/Gas Costs

  • As described above, under the asset tolling agreement operated in the UK, the Generation business does not procure gas or coal. Therefore fuel purchase costs principally relate to CHP generation activities, which are outside the asset tolling agreement.

Other Direct Costs

  • Primarily relates to carbon certificate purchases and non-fuel direct costs relating to CHP generation. In accordance with guidance issued by Ofgem in relation to the 2010 CSS template, Balancing Services Use of System Charges (BSUoS) have been identified and classified in other direct costs.

Indirect Costs

  • Comprise of directly attributable station operating and maintenance costs and the Generation segment's share of common costs.
  • The basis of allocation of these common costs across the segments is described in section 4.3 below.

Generation Plant Impairment

  • This represents a £249m impairment loss in respect of certain of the Company's coal and oil fired generating plants.  During the period through to expected closure of the plants there has been a sharp decline in the margins forecast to be earned on coal and oil generation due to fundamental changes in the UK energy market over this period.
  • As a consequence of these market factors the estimated recoverable amount of the respective plant, on a continuing ("value in use") basis, was below the net book value of the assets.

WACO (E)/(G)

  • As described above, under the asset tolling agreement the Generation segment does not procure gas or coal. Therefore 'Weighted Average Cost of Fuel' is not applicable.

4.2 RETAIL

Revenues

  • Comprises of sales of electricity and gas to our domestic and non-domestic energy customers. Revenue is stated net of Value Added Tax (VAT) and discounts offered to our customers.

Electricity/Gas Costs

  • Reflects the costs of procuring electricity and gas to meet customer requirements. This includes the cost of any transmission and distribution losses suffered as well as balancing and shaping costs incurred.
  • These costs are captured at source between gas and electricity and then analysed between domestic and non-domestic based on the specific demand characteristics of the customer base. The weighted average cost differs between domestic and non-domestic because of different hedging approaches, particularly for flexible risk management products. The take up of these products varies between the domestic and non-domestic customers.
  • Our Retail business fulfils its wholesale commodity requirements via RWEST on an arms length basis.

Other Direct Costs

  • Comprises of:
    • Network costs, including electricity distribution/transmission and gas transportation costs and BSUoS charges.
    • Costs relating to the fulfilment of the Company's Carbon Emission Reduction Target (CERT), and Community Energy Saving Programme (CESP) obligations.

Indirect Costs

  • Costs that are directly attributable to a segment are charged to that segment in the CSS.
  • Customer service costs (such as billing, customer service and metering) are allocated across the segments on the basis of an activity based costing methodology.
  • Overheads and costs which are not directly attributable to supply segments are allocated between the domestic, non-domestic, gas and electricity segments in proportion to the indirect costs that are directly attributable from the costing methodology referred to in the point above.

Depreciation and amortisation

  • The depreciation and amortisation charge of the supply segments includes £70m of goodwill amortisation as charged in the individual Statutory Accounts. The amortisation relates to Goodwill carried in the balance sheets of Npower Northern Ltd, Npower Direct Ltd and Npower Yorkshire Ltd that arose on the acquisition of the Northern, Midlands and Yorkshire regional supply businesses during the late 1990's and early 2000's. The Goodwill is being amortised on a straight line basis over 20 years and will be fully amortised by 31st December 2021.

4.3 COMMON COSTS BETWEEN GENERATION AND RETAIL

The costs relating to Central Corporate functions and pension deficit repair payments have been allocated across the Generation and Supply segments on the basis of specific cost drivers that include headcount and membership of the pension scheme. The Supply segments share of the central corporate costs is allocated between its sub-segments on the basis described in section 4.2 above.

5. RECONCILIATION OF CSS EARNINGS BEFORE INTEREST AND TAX (EBIT) TO THE UK STATUTORY ACCOUNTS FOR THE YEAR ENDING 31ST DECEMBER 2010

  • The table below sets out a reconciliation of the EBIT along with revenues (Turnover) and costs (Total Costs) for the Year Ending 31st December 2010 (as presented in the Consolidated Segmental Statement) to the aggregation of the Statutory Accounts of the legal entities detailed in Section 2 above.
  • As previously mentioned, RWE Npower Holdings plc, the holding company of RWE Npower plc, is exempt under Section 400 of the Companies Act 2006 from preparing and filing Consolidated Financial Statements.  Therefore, the Consolidated Segmental Statement is an aggregation of the individual Statutory Accounts of the legal entities that held a generation or supply licence and engaged in electricity generation or gas/electricity supply activities during the year ended 31st December 2010.
  • Excluded from the CSS EBIT are:
    • (£35m) of earnings from out of scope activities and transactions (see section 2.)
    • (£132m) of intercompany transactions. These are excluded as they do not relate to either generation or supply activities, and would be eliminated on full consolidation.
    • £54m of exceptional costs that do not directly relate to the ongoing activities of the Company's operations.  They are of a one-off or non-operating nature and relate to activities such as organisational restructuring and staff severance.
£M Turnover Total Costs EBIT
Turnover, Costs & EBIT per Statutory accounts 7,161 (7,176) (15)
Remove "Out of Scope" earnings/transactions (231) 196 (35)
Remove intercompany transactions - (132) (132)
Remove Exceptional Costs - 54 54
Reclassification of BSUoS charges due to Ofgem requirement 34 (34) -
Turnover, Costs & EBIT per Ofgem CSS 6,964 (7,092) (128)

6. ADDITIONAL INFORMATION TO USERS OF THE CSS

  • As already described in Section 5 above, the CSS is an aggregation of the individual Statutory Accounts of the relevant legal entities.
  • The Company's contributions to its Defined Benefit (DB) pension schemes (including deficit repair payments agreed with the Pension Scheme Trustees) are recognised directly in the Statutory Profit and Loss Account as and when paid.  This is because the Company cannot identify the respective share of the underlying assets and liabilities of its DB scheme on a reasonable and consistent basis across the various legal entities.  Thus the DB pension scheme is accounted for as a multi-employer scheme under FRS 17 (Retirement Benefits) and therefore the contributions are charged directly to other operating costs within the Statutory Accounts (and within indirect costs within the CSS).
  • If consolidated accounts were prepared, the Defined Benefit pension schemes would have been accounted for as a single employer scheme under FRS 17.  To assist users of the CSS in better understanding the impact of the different accounting treatment that would have been applied if consolidated accounts were prepared, we have summarised the impact on reported EBIT in the table below.
£M Generation Supply - Electricity Supply - Gas Total Supply memo Total
Domestic Non Domestic Domestic Non Domestic
EBIT per CSS as reported (38) (148) 59 (6) 5 (90) (128)
Impact on EBIT if DB scheme accounted for as a single employer scheme rather than as a multi employer scheme 16 12 4 10 1 27 43
Adjusted CSS EBIT (for info only) (22) (136) 63 4 6 (63) (85)
  • Since RWE AG (RWE npower's ultimate Parent Company) reports under International Financial Reporting Standards (IFRS), RWE npower reports its results to RWE AG under IFRS. The Operating result of the RWE npower group disclosed in the Annual Report of RWE AG for the year ended 31st December 2010 was Euro 272m (equivalent to GBP233m). The Operating result disclosed in the Annual Report is EBIT A(earnings before interest, tax and amortisation) and excludes exceptional items. The main differences between the CSS template (which requires the reporting of EBIT) prepared under UK GAAP and the Operating result disclosed in the RWE AG Annual Report are:
    • The inclusion on the face of the CSS template of the (£249m) impairment loss explained in section 4.1 above. The impairment loss is classified as an exceptional cost in the RWE AG Annual Report and is therefore not reflected in the Operating result.
    • The inclusion of UK GAAP amortisation in the Supply segment as explained in section 4.2 above. The CSS template specifically requires the inclusion of amortisation.
    • The accounting treatment applied to the Company's Defined Benefit pension scheme as described in detail in the paragraph above.