Operating performance
We aim for operational excellence by performing to the highest standards of safety, efficiency and reliability and by improving customer service. By delivering on our capital investment plans we can create value through organic growth.
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Safety
Safety is paramount.
Our most important goals are: to ensure that members of the public are not injured as a direct result of our operations; to deliver a working environment where there are zero work-related injuries and illnesses; to reduce gas leaks on our distribution networks; and to improve the health of our employees so they are fit for work every day.
We use a range of lagging and leading indicators to monitor our performance against our safety objectives including members of the public injured as a direct result of our operations; employee lost time injury frequency rate; kilometres of gas distribution mains replaced in the UK; and employee sickness absence rate.
Safety and health performance relating to KeySpan are excluded from the metrics set out below. This is because the acquisition took place part way through the year and so would include a period when National Grid was not in control of the operations acquired.
During 2007/08, we have reviewed the critical safety risks across our business, ensuring they are effectively managed. To support this, we have developed a programme for improving safety performance in National Grid: ‘Trusted to Work Responsibly’. This renewed approach builds upon our well established safety procedures and reinforces the need for individual and collective ownership of safety performance. It recognises that our workforce is well trained and should be trusted to deliver their work in the right way – the safe way. It was launched across National Grid in October 2007 and followed by the publication and implementation of Golden Rules that encompass all our businesses. These set consistent standards for good safety behaviours but are interpreted so that they reflect the risk profiles of different parts of the business and reinforce a culture whereby safety becomes second nature. We have also reinforced our approach to process safety. During 2007/08, we have reviewed the risk profile of our gas assets and have completed a culture survey to find out the views of employees on process safety. We have also trained our Executive Directors and senior managers on process safety and issued a new commitment statement agreed by the Board.
Public safety
Injuries to members of the public
Number
* Includes fatalities, injuries requiring the person to attend hospital and, in the UK, any other injuries reportable under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR)
** Excludes operations acquired with KeySpan. These will be included from 2008/09 onwards
During 2007/08, 36 members of the public were injured as a direct result of our operations compared with 28 during 2006/07 and 20 in 2005/06. There was 1 public fatality resulting from a road traffic accident in the US.
Gas safety
We discuss our performance relating to consumer gas safety in the Gas Distribution section.
Employee safety
We have clarified our definition of employee lost time injuries in order to align our approach to recording employee acute lost time injuries, chronic injuries and occupational ill health cases in the UK and the US. As a consequence, we are restating down the total employee lost time injuries for 2006/07 from 142 to 97 and the corresponding employee lost time injury frequency rate from 0.34 to 0.24. A more detailed explanation for the restatement is available on our website.
During 2007/08, 88 of our employees received injuries that resulted in them taking time off work, compared with 97 in 2006/07 and 117 (number not restated) in 2005/06.
If the US lost time injuries are recorded under US Occupational Safety & Health Administration (OSHA) definition, as in previous years, the total number of lost time injuries in 2007/08 is 140, compared with 142 and 117 in the previous two years. Similarly, the employee lost time injury frequency rate is 0.38 compared with 0.34 and 0.28 in 2006/07 and 2005/06 respectively.
Since joining National Grid in August 2007, 42 lost time injuries have been sustained by our employees acquired with KeySpan.
Employee lost time injuries track our progress towards our target of zero work-related injuries. However, our employee lost time injury frequency rate provides a more accurate indicator of year-on-year performance as it takes into account changing employee numbers resulting from acquisitions and disposals. Employee lost time injuries per 100,000 hours worked was 0.24 in 2007/08 compared with 0.24 and 0.28 (number not restated) in the two previous years.
Employee lost time injury frequency rate
Per 100,000 hours worked
* 2006/07 restated to align UK and US reporting of lost time injuries
** Excludes operations acquired with KeySpan. These will be included from
2008/09 onwards
Employee lost time injuries
Number
* 2006/07 restated to align UK and US reporting of lost time injuries
** Excludes operations acquired with KeySpan. These will be included from
2008/09 onwards
In our 2008 employee engagement survey, 71% of respondents felt confident that safety concerns or issues raised would be addressed, compared with 79% in the 2006 survey. In 2008, 73% of respondents also considered that National Grid never compromises safety in order to meet other goals (2006: not measured).
Employee health
Employee sickness absence rate
%
* Excludes operations acquired with KeySpan. These will be included from 2008/09 onwards
We are committed to protecting employees’ health during work activities. We have continued to develop our risk based approach and instigated further programmes of support for employees with musculoskeletal conditions. Across the business, employees have engaged in well-being and education programmes designed to encourage good lifestyle choices. Approaches to health promotion across National Grid are currently being reviewed with the aim of establishing and delivering an effective well-being programme encompassing health education, fitness and nutrition, work/life balance and health management and disease prevention.
We continue to be active participants in the UK Business in the Community ‘Action on Health’ and influential members of the Energy Networks Association’s Occupational Health Committee.
2.46% of available work days were lost due to sickness absence in 2007/08 compared with 2.48% in 2006/07 and 2.38% in 2005/06.
Contractor safety
There was a decrease in the number of contractor lost time injuries from 131 in 2006/07 to 105 in 2007/08. The majority of these occurred on construction activities.
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Efficiency
By improving efficiency, we can constrain the cost of our operations borne by customers and improve returns to shareholders. We review our operations continually to identify opportunities to improve the operational productivity of our assets and our employees, and to identify areas in which we can reduce costs or restrict cost increases. Planning ahead is essential in our approach to maintaining and improving efficiency.
Our primary method of measuring improvements in efficiency is through our financial performance.
We have continued to transform National Grid in line with our strategy of being more focused, more integrated and more disciplined. We have now created a shared service organisation covering both the UK and the US that supports all of our lines of business.We have also begun integrating the operations acquired with KeySpan in the US with our lines of business, which we believe will enable us to achieve significant synergies.
Information on our financial performance during the year is set out under financial performance.
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Reliability
Our principal operations are critical to the functioning of the economies we serve. The reliability of our energy networks is one of our highest priorities after safety.
We use business specific reliability performance indicators to measure our reliability performance.
Our approach to maintaining and improving reliability involves: investing in infrastructure and systems to provide the operational tools and techniques necessary to manage our assets and operations to high standards and investing in the renewal of assets; investing in the skills and capabilities of our people to give them the ability to operate our networks to a high degree of service excellence; and maintaining a constant focus on reliability as one of our principal objectives, ensuring we are proactive about planning to ensure reliability and that we react quickly to factors that could compromise reliability.
Overall we continued to meet or exceed agreed performance targets. However, in upstate New York, we significantly improved the number of times the average customer was without power during 2007, but we still incurred a penalty of $13.2 million (£6.6 million). We are seeing improved performance as a result of our comprehensive reliability improvement programme, which will involve investment of over $930 million (£470 million) over the next five years.
More information on the reliability of each of our businesses is included in the business sections Gas Distribution, Transmission and Electricity Distribution & Generation.
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Customer service
Our objective is to impress our customers with the quality of the services we provide, with our responsiveness when things go wrong and with our dedication to continued improvement.
We use business specific service quality performance measures to measure our performance in this area.
In addition to our plans to improve reliability, in particular for our US electricity distribution networks, we plan to improve the way we interact with our customers. We aim to achieve this by enhancing or replacing the systems we use, providing our employees with the training, empowerment and support they need to deliver, and by improving the quality of our internal and customer communications.
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Capital investment
Capital investment is one of the principal drivers to future growth, as the majority of the capital investment we make enables us to earn an increased financial return.
The principal measure we use to monitor organic investment is capital expenditure, which includes investment in property, plant & equipment as well as in internally created intangible assets such as software.
Our capital investment plans reflect changing energy infrastructure requirements.
Our capital investment programme in our regulated businesses is based on an assessment of what is needed to maintain or improve the performance of our regulated networks or to extend those networks where required to serve new sources of energy or to reflect changes in customer demand. This usually takes place within defined regulatory frameworks that permit us to earn a return on allowed investments. Capital investment in our non-regulated businesses is based on the financial return that we expect to generate.
Our total annual capital expenditure is expected to be in the order of £3 billion per year over the medium term, a substantial increase over levels in previous years.
Capital expenditure
£ million
In the UK, there is increasing dependency on gas imports and plans for significant expansion of renewable energy sources, as well as the need to increase the rate of asset replacement in electricity transmission as assets built in the 1960s and 1970s approach the end of their useful lives. The UK transmission price controls for the next five years include an allowance of £4.4 billion for investment in our electricity and gas networks. This investment is to respond to changing sources of energy and to replace our ageing assets.
Investment is being made in New England to deliver the regional expansion plan and in upstate New York to address asset replacement requirements and to increase the safety and reliability of the network.
Grain LNG’s second phase of development was announced in March 2005 and is expected to be completed during 2008. Further investment of £310 million in a third phase was confirmed in May 2007, with construction beginning in June 2007. Cumulative investment has now reached £519 million out of planned investment of approximately £830 million for all three phases. Phases I and II are underpinned by long-term contracts signed with BP, Centrica, Gaz de France and Sonatrach. Phase III also has long-term contracts for capacity with E.ON, Iberdrola and Centrica.