energy
ENERGY
FOR
LIFE
Annual Report and Financial Statements 2015
esb.ie
ENERGY
CONTENTS
01
02
03
CHAPTER 1 - STRATEGY AND PERFORMANCE
2
Business Overview
Chairman’s Statement
Chief Executive’s Review ESB at a Glance
Highlights
2
4
6
8
9
Business Model, Risk Report and Strategy
Business Model
Risk Report Strategy
10
12
14
20
Operating and Financial Review
Executive Team
Market Structure and Operating Environment 2015
Key Performance Indicators (KPIs)
Finance Review Generation and Wholesale Markets (G&WM)
ESB Networks
Northern Ireland Electricity Networks (NIE Networks)
Electric Ireland
Innovation
24
26
28
32
34
40
42
44
46
48
Corporate Social Responsibility
Overview
Safety
People
Sustainability
Energy Usage in 2015
Corporate Responsibility Using Our Profits in a Sustainable Way 50
52
53
54
56
58
59
60
CHAPTER 2 - CORPORATE GOVERNANCE
62
The Board in 2015
Board Committees in 2015
Chairman’s Corporate Governance Statement The Board Governance Report Audit and Risk Committee Report
Board Members’ Report
64
66
68
69
77
83
CHAPTER 3 - FINANCIAL STATEMENTS
84
Statement of Board Members’ Responsibilities
Independent Auditor’s Report to the Stockholders of the Electricity
Supply Board (ESB)
Financial Statements
Prompt Payments Act
Glossary
87
88
91
166
167
FOR
LIFE
Since ESB was established in 1927, it has been
providing energy for those life moments, big and
small, profound and every day, where electricity
influences peoples’ lives for the better. This
is achieved not only through the provision of
critical energy infrastructure, but also through
ESB’s contribution to the economy in the form of
investment, taxes, dividends and jobs. In addition
ESB is committed to playing a full role in society
by acting responsibly in how it conducts its
business, working towards a low-carbon future
and supporting the communities in which it works.
ABOUT ESB: ESB was established in 1927 as a corporate
body in the Republic of Ireland under the Electricity (Supply)
Act 1927. With a holding of 95%, ESB is majority owned by the
Irish Government. The remaining 5% is held by the Trustee of an
Employee Share Ownership Plan (ESOP). As a Strong, Diversified,
Vertically Integrated Utility, ESB operates right across the
electricity market: from generation, through transmission and
distribution to supply of customers. In addition, we extract further
value at certain points along this chain; supplying gas, using
our networks to carry fibre for telecommunications and more.
ESB is a leading Irish utility with a regulated asset base (RAB)
of approximately €9 billion, 49% of generation in the all-island
market and supplier of electricity to approximately 1.5 million
customers throughout the island of Ireland. ESB will continue to
grow the scale of its generation, trading and supply businesses
so that it can compete within the all-islands competitive
environment. ESB is focused on providing excellent customer
service and maintaining its financial strength. As at 31 December
2015, ESB Group employed approximately 7,300 people.
ESB Annual Report 2015
KEY FACTS & FIGURES
2015 OPERATING PROFIT*
2015 EBITDA*
€1,342m
1,350m
1,200m
800m
€684m
700m
500m
€635m
€576m
600m
€1,348m
€1,301m
€1,121m
1,050m
900m
€552m
750m
€469m
600m
400m
300m
450m
200m
300m
100m
150m
0m
€1,256m
2011
2012
2013
2014
2015
0m
2011
2012
2013
€83 million
2014
2015
€47 million
*Before exceptional items. See Finance Review page 34.
2015 TOTAL ASSETS
13,500m
2015 NET DEBT
€12,539m €12,600m €12,782m
€12,973m
€13,157m
6,750m
12,000m
6,000m
10,500m
5,250m
9,000m
4,500m
7,500m
3,750m
6,000m
3,000m
4,500m
2,250m
3,000m
1,500m
1,500m
750m
0m
2011
2012
2013
2014
0m
2015
€4,975m
€4,324m
€4,414m
€4,144m
2011
2012
2013
€184 million
GENERATION
All-island market share
€4,639m
2014
2015
€336 million
SUPPLY
All-island market share
ESB
ESB
49%
38%
Other Power
Producers
51%
Other Energy
Suppliers
62%
1
ENERGY
01
STRATEGY AND PERFORMANCE
FOR
EXPLORING
01
STRATEGY AND
PERFORMANCE
BUSINESS
OVERVIEW
Chairman’s Statement
Chief Executive's Review ESB at a Glance
Highlights 4
6
8
9
4
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
5
01
STRATEGY AND PERFORMANCE
CHAIRMAN'S STATEMENT

Ellvena Graham, Chairman
OVERVIEW
2015 has been a solid year for ESB with
profits after tax of €286 million and a return
on capital employed (ROCE) of 6.5%. Profits
benefited from the improved availability
of our generation plant. However, it was
necessary to impair two of our generation
assets; Corby Power Limited as a result of
Competition continues to intensify in both
the generation and supply markets. In 2015,
ESB generated 49% of the electricity
produced in the Single Electricity Market
(SEM) and supplied 38% of the electricity
market in the Republic of Ireland (ROI). To
maintain its market share and customer loyalty,
ESB has introduced new customer centred
offerings such as Smarter Pay As You Go
products and is trialling other similar services
for roll-out in 2016.
ESB GROUP STRATEGY
Despite a relatively stable 2015, changes
in the energy landscape are transforming
practically every part of the electricity value
chain. ESB is responding with significant
investment in innovation in order to stay
relevant and responsive to its customers’
needs.
ESB is conscious of its responsibility to help
find solutions to industry challenges such
as energy security, affordability and climate
change. The decarbonisation of the energy
system at least cost to customers is a priority.
During 2015, ESB continued to grow its
portfolio of renewable generation including
new onshore wind farms in ROI and the
United Kingdom (UK). ESB also entered into
joint ventures with the UK’s Green Investment
Bank to develop a biomass plant on the north
bank of the River Thames in Essex and with
Kingspan to roll-out a solar photovoltaic
offering primarily in Northern Ireland (NI).
DIVIDENDS
ESB paid an interim dividend of €48 million in
October 2015. The Board has recommended
a final dividend payment of €31 million,
bringing the total dividends for 2015 to €79
million and to almost €1.5 billion over the
past ten years.
300
▲
250
200
▲
▲
▲
150
▲
500
100
▲
▲
50
▲
0
0
2006
2007
2008
2009
GOVERNANCE
The Board is committed to the highest
standard of corporate governance to manage
risks and drive growth in the Group. ESB has
put in place appropriate measures to comply
with the Code of Practice for the Governance
of State Bodies, the agreed Government
framework for the effective governance of
State Bodies. In addition ESB complies, on
a voluntary basis, with the UK Corporate
Governance Code and the Irish Corporate
Governance Annex.
1,000
2010
2011
■ PAID IN YEAR
commitment of its employees. I would like
to take this opportunity to thank them and
in particular front-line employees, whose
dedication during the recent storms is to be
highly commended.
2012
▲
2013
2014
CUMULATIVE SINCE 2006
CONCLUSION
In accordance with the provisions of the
Electricity (Supply) Acts 1927–2004,
the Board presents the annual report and
financial statements for the year ended 31
December 2015.
OUTLOOK
Andrew Hastings and Peter O'Sullivan joined
the Board this year.
SAFETY
In 2015, ESB continued to implement the
recommendations of the independent safety
review carried out in 2014 to ensure that an
appropriate safety culture is embedded at all
levels of the organisation.
PEOPLE
Ireland ranks among the top twenty countries
in the world in terms of the reliability of
electricity supply. ESB’s ability to deliver
a high quality service to its customers is
underpinned by the efforts, initiatives and
The energy sector is going through a period
of transition, driven by new technology and
the need to balance energy affordability,
energy security and decarbonisation
objectives. We are making long-term
investment decisions in the context of a
future that is more complex and uncertain
than ever before. However, I am confident
that the ESB Group Strategy to 2025, which
is focused on sustainable innovation to
deliver a broad mix of low-carbon generation
technologies and advanced networks,
together with our ongoing emphasis on cost
efficiency is the right path for ESB and will
ensure that we remain at the forefront of the
energy sector in an all-islands market.
2015
02
Ellvena Graham, Chairman
24 February, 2016
03
FINANCIAL STATEMENTS
I am delighted and honoured to chair
ESB. ESB has a long history of supporting
development and growth in Ireland and
around the world. ESB does this not only
through the provision of critical energy
infrastructure but also through its commitment
to customers, its economic contribution
and the full and positive role it plays in the
communities it serves. Over the past ten
years, ESB has returned almost €1.5 billion in
dividends to the Irish Exchequer.
continued pressure on wholesale electricity
prices in Great Britain (GB) and Coolkeeragh
ESB Limited due to a reduction in the plants
running in the Irish energy market.
kind in Europe.
▲
Cumulative €'m

1,500
▲
350
CORPORATE GOVERNANCE
The energy sector is going
through a period of transition,
driven by new technology and
the need to balance energy
affordability, energy security
and decarbonisation objectives.
We are making long-term
investment decisions in the
context of a future that is more
complex and uncertain than
ever before
A significant milestone in 2015 was the
launch of SIRO, a joint venture with Vodafone,
which will bring 1 gigabit per second (Gbps)
broadband to 500,000 customers in fifty
towns across Ireland using our distribution
network. This is the first deployment of its
DIVIDENDS 2006 – 2015
In year €'m
Development of the electricity network in
ROI and NI continued during the year with
over €629 million invested across the island
of Ireland.
6
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
7
01
CHIEF EXECUTIVE, PAT O’DOHERTY
We are very conscious that
energy affordability remains
an issue for many of our
customers. For the second
year running, we reduced
residential electricity prices
by 2% in advance of the winter
peak when customers need it
most.

world to improve the quality and reliability of
their electricity supply, it has also allowed ESB
access to strategic engineering talent. SIRO,
ESB’s joint venture with Vodafone, commenced
activities, rolling-out fibre broadband to
customers across Ireland using the low-voltage
electricity network.
INVESTING IN A LOW-CARBON FUTURE
Pat O'Doherty, Chief Executive
PERFORMANCE
2015 HIGHLIGHTS
In 2015 progress was made against the ESB
Group Strategy in all parts of the business. In
Generation and Wholesale Markets (G&WM)
there was good progress on the development
of new generation assets including the
completion of Woodhouse, a 20 MW Wind
Farm, ongoing progress on the construction
of Carrington, our 881 MW gas power station
near Manchester and commencement of the
construction of a number of other renewable
projects including biomass, wind and solar.
ESB Networks invested €494 million in
developing the electricity network infrastructure
in ROI. ESB International celebrated its
fortieth anniversary in 2015. Over this time,
it has not only helped countries around the
FOCUS ON AFFORDABILITY
Energy affordability remains an issue for many
of our customers. For the second year running,
Electric Ireland reduced residential electricity
prices by 2% in advance of the winter peak
when customers need it most. From 1 January
2016, we reduced our gas prices for residential
and SME business customers by 2.5%. Electric
Ireland has also established a specialist team
to provide services to people experiencing fuel
affordability issues, such as tailored payment
plans and Smarter Pay As You Go products.
Disconnections continued to fall in 2015 – less
than 30 per 10,000 customers disconnected.
IMPACT OF FALLING OIL AND GAS
PRICES
Electric Ireland has reduced both electricity and
gas prices for residential customers by 4% and
5% respectively over the past two years. We
are committed to continuing to pass through
reductions in wholesale prices to our customers.
Energy suppliers typically hedge their wholesale
fuel costs in advance so as to smooth out prices
for customers and for that reason there is not
an immediate correlation between movements
in wholesale fuel costs and customers' energy
prices, but changes in wholesale fuel prices do
feed into customers' energy prices over time.
Fuel accounts for less than 30% of the full cost
of supplying electricity to a residential customer.
Electric Ireland will not build margin on the back
of decreasing wholesale costs – if prices reduce
further, they will be passed on to customers.
INVESTING IN SKILLS
ESB launched two major recruitment campaigns
in 2015; a graduate programme and an
apprenticeship programme. The intake from
these programmes together with our ongoing
investment in training and development for
existing employees will allow us to acquire
CAPITAL EXPENDITURE
€873
million
SAFETY AS A CORE VALUE
Safety is a core value of ESB and the safety
of employees, contractors, customers and
the public always comes first. In my role as
Chief Executive, I have overall responsibility
for the management of health and safety
in ESB. Safety leadership is shared with
all senior management and in turn with
each manager, supervisor, team leader and
ultimately every employee. Safety leadership
however is just one element of our safety
strategy; it also includes engagement,
compliance and competency focused
initiatives.
ESB’S ROLE IN RIVER MANAGEMENT
ESB operates hydroelectric power
stations on the rivers Shannon, Liffey, Lee,
Erne and Clady. Each of the schemes
was established under legislation, which
places a duty on ESB to operate and
maintain the hydroelectric power stations
and associated reservoirs, dams and
embankments and lands for the purpose
of electricity generation. In carrying out its
duties ESB consults with other stakeholders
who have specific duties or interests in the
management or use of these rivers.
During December 2015 all these rivers
were subject to flood conditions arising
from a sustained period of above average
rainfall across Ireland and, in particular, two
distinct severe rainfall periods associated
with Storms Desmond and Frank. During this
period, ESB were fully engaged with local
authorities and stakeholders. At national level
ESB attended the Government’s National
Co-Ordination Group on a daily basis.
2%
We reduced our residential
electricity prices by 2%
during the year
02
national policy objectives and as well as
providing financial support to organisations,
we actively engage our employees through
volunteering programmes. We also invest
in communities through sponsorships to
promote science, technology, engineering
and maths, as well as sport, arts and cultural
initiatives.
LOOKING AHEAD
Looking ahead, I see further change in the
industry as new technologies emerge and
non-traditional players enter the market.
Upstream, there will be further developments
in low-carbon generation, while downstream,
new products and services will be enabled
by advances in technology and the smart
grid. It is ESB’s intention to collaborate where
possible to accelerate innovation across all
areas of our business, as evidenced by recent
partnerships with Vodafone, Kingspan, Coillte
Teoranta and the Green Investment Bank. The
introduction of the Integrated Single Electricity
Market (I-SEM), due to launch in 2017, will
also present significant challenges for ESB
over the next few years. I am confident that
the commitment and knowledge of ESB’s
employees means that we are well positioned
to address these changes.
SUPPORTING COMMUNITIES
Over the past ten years, ESB has awarded
over €10 million to community based
projects in ROI and NI working in the
areas of suicide prevention, education
and homelessness through our Energy for
Generations Fund. The fund is aligned with
Pat O'Doherty, Chief Executive
24 February, 2016
03
FINANCIAL STATEMENTS
Overall, ESB achieved solid results across
all areas of its business in 2015. Profits were
positively impacted by the improved availability
of our generation plant increasing from 86%
in 2014 to 92% in 2015. Continued pressure
on Great Britain (GB) wholesale electricity
prices and reduced running for gas plants in
the Irish market prompted us to carry out an
impairment review of some of our generation
assets. As a result of this review we incurred an
impairment charge of €104 million relating to
two assets; Corby Power Limited (€58 million)
and Coolkeeragh ESB Limited (€46 million).
We continued to invest in critical infrastructure
in the Republic of Ireland (ROI), Northern
Ireland (NI) and GB including new low-carbon
generation and upgrades to our transmission
and distribution networks. We paid €273
million of dividends to our shareholders
including the final instalment of the special
dividend (€214 million).
ESB is preparing for a decarbonised energy
landscape by investing in new renewable
technologies such as onshore wind and solar
photovoltaic (PV), and developing a more
intelligent network capable of supporting
intermittent distributed generation. Renewable
technologies will make up a bigger proportion of
our generation fleet in the years ahead. However,
while we transition to a low-carbon future,
backup from traditional generation will continue
to be required for the foreseeable future both
to maintain affordability and provide predictable
despatch to offset and facilitate intermittency.
This year, we continued to offer competitive
and innovative products and services to
our customers and were first to the market
with a Smarter Pay As You Go product. We
also expanded into the domestic electricity
market in NI, and have maintained an all-island
market share of 38%. Electric Ireland had
the highest customer satisfaction rating of all
suppliers throughout 2015, as reported by the
Commission for Energy Regulation (CER).
and nurture critical skills for the future and
facilitate growth.
CORPORATE GOVERNANCE

COMPETITIVE AND CUSTOMER
FOCUSED SOLUTIONS
STRATEGY AND PERFORMANCE
CHIEF EXECUTIVE’S REVIEW
8
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
9
01
HIGHLIGHTS
FINANCIAL
OPERATIONAL
CONSTRUCTION
STARTED ON THE
Operating Profit
€531 million
40 mw
EBITDA €1,348 million
0
DESCRIPTION
GENERATION AND
WHOLESALE MARKETS
(G&WM)
Electricity Generation
ESB
NETWORKS
NORTHERN
IRELAND
ELECTRICITY
NETWORKS (NIE
NETWORKS)
Electricity Transmission
and Distribution
ELECTRIC
IRELAND
Electricity
Supply
OTHER
SEGMENTS
Innovation
and Internal
Service
Providers
600
900
1200
1500
RETURN
ON CAPITAL
EMPLOYED
REVENUE
OPERATING
PROFIT
(including
exceptional items)
€1,409m
€137m
€954m
€287m
€301m
€48m
€2,100m
€44m
€278m
€15m
OVER
BILLION
CAPITAL
EXPENDITURE
AVERAGE
EMPLOYEE
NUMBERS
LINK TO OTHER
SECTIONS IN
THIS REPORT
€176m
973
G&WM
Operational Review,
Page 40
€494m
3,204
ESB Networks
Operational
Review,
Page 42
€135m
1,208
NIE Networks
Operational
Review,
Page 44
€11m
346
Electric
Ireland
Operational
Review,
Page 46
€57m
1,574
Innovation
Operational
Review,
Page 48
Total dividends paid of almost
€1.5
billion over the past decade
PASSED ON TO
RESIDENTIAL ELECTRICITY
CUSTOMERS
PRICE REDUCTION TO
RESIDENTIAL GAS CUSTOMERS
ESB AND KINGSPAN
ESTABLISHED A
JOINT VENTURE
TO CONSTRUCT
ROOFTOP SOLAR
PROJECTS
ESB NETWORKS
CONCLUDED ON THE
PRICE REVIEW FOR
THE REGULATORY
PERIOD (2016–2020)
CONSTRUCTION
OF THE
SIRO FIBRE
TO THE BUILDING
NETWORK
COMMENCED IN
THE FIRST TOWNS
Generation
Market Share
ElectricAid raised and spent over
€1.3 MILLION in 2015 on
development and relief projects in
developing countries
THE
ENERGY FOR
GENERATIONS
FUND
DISTRIBUTED
€2 MILLION
02
TO COMMUNITY BASED
INITIATIVES IN IRELAND
49%
OVER
Supply
Market
Share
38%
ENTERED THE
NORTHERN
IRELAND
RESIDENTIAL
MARKET
Accredited with the Customer
Contact Association Global Standard
for the eighth successive year
NATIONAL CUSTOMER
CARE CENTRE
03
VOLUNTEERED
HOURS HAVE BEEN
RECORDED BY
EMPLOYEES
THE ENERGY
EFFICIENCY
OBLIGATION SCHEME
HAS DELIVERED
253
GWH
OF ENERGY
SAVINGS AND
RETURNED OVER
€40
MILLION
TO CUSTOMERS TO DATE
FINANCIAL STATEMENTS
€2
PRICE REDUCTION
2.5%
6.5%
CONTRIBUTION TO
THE IRISH ECONOMY
2%
CORPORATE SOCIAL
RESPONSIBILITY
CORPORATE GOVERNANCE
BUSINESS
SEGMENT
300
TILBURY
GREEN POWER
BIOMASS PLANT
CUSTOMER
AND MARKET
STRATEGY AND PERFORMANCE
ESB AT A GLANCE
ENERGY
STRATEGY AND PERFORMANCE
FOR
FUN
BUSINESS MODEL,
RISK REPORT
AND STRATEGY
Business Model
Risk Report
Strategy 12
14
20
12
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
BUSINESS MODEL
01
PRINCIPAL RISKS 2015
 Transformation and Innovation
 Adjacent Sectors
Macro-Economy and Fuel Markets
 Great Britain (GB) Energy Markets
 Return on Regulated Assets
 Financial Strength
Financial
 Competitive Intensity
 Energy Trading Risk
 Long-Term Results
 Carrington Commercialisation
Regulatory
 Regulatory Outcomes
 Reputation
See page 20 for
Business Environment
TYPES OF CAPITAL
BUSINESS ACTIVITIES
OUTPUTS
1. MANUFACTURED CAPITAL
– To generate and provide energy in a safe and reliable manner
 4,827 MW of generation capacity
O
ver 180,000 km electricity network in ROI
 Over 47,000 km electricity network in NI
Generation and Wholesale Markets (G&WM) See page 40 for G&WM Operating Review
G&WM comprises ESB’s generation, trading and
asset development activities in the Republic of Ireland
(ROI), Northern Ireland (NI) and Great Britain (GB).
€1.3 billion EBITDA
4. HUMAN CAPITAL
– A workforce that is engaged and agile
 Over 7,300 employees
 Safety Leadership Strategy
 Employee development programmes
6. NATURAL CAPITAL
– Bringing sustainable and competitive energy
solutions to all our customers
 404 MW of renewable generation assets
 Recycling rates of above 75%
Electric Ireland – See page 46 for Electric Ireland
Operating Review
Electric Ireland is a leading supplier of electricity
and gas to domestic customers in ROI and has
a substantial market share in the non-domestic
electricity sector in ROI and NI.
Innovation – See page 48 for Innovation
Operating Review
– ESB International
Engineering consulting services
6.5% return on capital employed (ROCE)
02
Contributed over €2 billion to the Irish
economy
Almost €1.5 billion of dividends over the last
decade
49% of all-island generation market share
38% of all-island supply market share
Maintain over 180,000 kilometres of
distribution and transmission network in ROI
Maintain over 47,000 kilometres of distribution
and transmission network in NI
Over 3,200 MW of renewable generation
connected to the grid on an all-island basis
03
FINANCIAL STATEMENTS
5. SOCIAL AND RELATIONSHIP CAPITAL
– To create a relationship based on trust with our key stakeholders
 1.5 million customers
 30,000 hours recorded on volunteering programmes
 Over €10 million distributed to community initiatives over the last decade
 Annual contribution to ElectricAid of circa €1 million
Northern Ireland Electricity Networks (NIE
Networks) – See page 44 for NIE Networks
Operating Review
NIE Networks owns the electricity transmission and
distribution system network in NI and operates the
electricity distribution system network in NI.
STRATEGIC PRIORITIES
CORPORATE GOVERNANCE
3. INTELLECTUAL CAPITAL
– To create value by continuing to innovate
 Innovation generating and implementing new solutions
 Promotion of innovation
 Corporate governance structure
 Project management systems and skills
 To date almost €130 million invested by Novusmodus Fund
ESB Networks – See page 42 for ESB Networks
Operating Review
ESB Networks owns the electricity transmission and
distribution system network in ROI and operates the
electricity distribution system network in ROI.
Strategic
 Disruptive Market / Technology
 Organisational Capability
 Key Infrastructure Delivery
 Industrial Relations Environment
See page 14 for Risk Report
and Principal Risks
DETAILED BELOW ARE THE MAIN CAPITALS THAT ESB USES IN ITS BUSINESS ACTIVITIES TO CREATE VALUE FOR THE GROUP AND
ITS STAKEHOLDERS
2. FINANCIAL CAPITAL
– To create value for our key shareholders
 BBB+ credit rating
 €13.2 billion total assets
 55% gearing
 Liquidity of €1.5 billion
Operational
 Health and Safety
 Cork Flood Case
 Infrastructure Failure
 IT Failure
 Employee Engagement
STRATEGY AND PERFORMANCE
BUSINESS ENVIRONMENT
 Climate and Energy Policy
 Market Integration
 Electricity Demand
13
Rolled out over 2,300 eCar charge points
across ROI
– Novusmodus Fund
€200 million clean technology fund
– Telecoms
Fibre-optic broadband network
– eCars
Operates the national charging infrastructure
for electric vehicles
See page 22 for
Strategic Priorities
14
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
15
01
ESB considers effective risk management to be
essential to the successful achievement of its
strategic objectives.
The Board has the overall responsibility for risk
management and internal control. It has adopted
the ESB Risk Policy, which outlines its risk
management objectives and establishes roles and
responsibilities for the effective management of
risk throughout the Group.
IDENTIFYING PRINCIPAL RISKS
ESB identifies its principal risks through an
annual bottom-up and top-down approach.
The bottom-up exercise is performed by each
business unit. The outputs are fully debated and
considered by the Executive Director and senior
management teams of each business unit and
the responsibility is allocated to risk owners for
managing each of the principal risks.
The top-down process requires a consolidated
view of the Group profile to be developed based
on the inputs received from each business unit
and the considered views of senior managers in
Group wide functions. External risk trends and
drivers also inform the process.
Following the consideration and recommendation
by the Audit and Risk Committee, the identified
principal risks are approved by the Board.
CONSIDERATIONS FOR RISK
IDENTIFICATION
A consolidated view of the Group risk is
developed based on reviewing the following key
inputs:
 ESB Group Strategy to 2025
 Risk appetite statements
 Business plans and budgets
 Annual governance and financial control
reviews
 Business unit risk reviews
 External risk reviews (e.g. National Risk
Assessment, World Economic Forum Global
Risk Review)
 Internal and external auditor perspectives
 External peer research and information
exchange
 Meetings with the Risk Management
Committee, the Executive Director Risk
Forum, the Deputy Chief Executive and Chief
Executive
RESPONSIBILITIES
To support the management and oversight
of risk across the Group, the Risk Policy
requires the establishment and maintenance,
RISK HEAT MAP
The following risk heat map illustrates the relative positioning of principal risks in terms of impact
and likelihood at the end of 2015 and the changes in ranking from the end of 2014.
G–
I–
THE EXECUTIVE DIRECTOR
RISK FORUM
(EXECUTIVE TEAM)
 Advises the Board of its
consideration of overall risk
appetite, risk tolerance and risk
strategy of the Group
 Reviews the annual Group Risk
Plan and recommends it to the
Board for approval
Supports the Board in monitoring
risk exposure against its risk
appetite
Reviews the effectiveness of risk
management and internal control
systems
 Supports the Audit
and Risk Committee in
reviewing the effectiveness
of risk management and
internal control systems
 Assesses the principal risks, annual
Group Risk Plan and the risk appetite
statement for completeness
 Considers whether mitigations are
appropriate and likely to be effective
 Provides assurance to the Audit and Risk
Committee and the Board in fulfilling their
risk management responsibilities
 Monitors risk management processes
and internal control
 Translates risk appetite expectations into
targets and constraints for business units
 Ensures alignment between the Group
Risk Plan, the risk appetite statement and
key business decision-making processes
BUSINESS UNITS
 Embed risk management processes and internal controls
 Identify, assess, measure and mitigate risks
 Report on the effectiveness of measures taken to mitigate risks
 Embed a risk awareness and safety culture
L▲
IMPACT
B–
O–
GROUP RISK MANAGEMENT
COMMITTEE (Chaired by the
Deputy Chief Executive with senior
management from business units)
 Supports the embedding of best
practice risk management
 Reviews and challenges the
Group Risk Plan based on the
risk assessments and plans from
individual business areas and
recommends for approval to the
Executive Director Risk Forum
 Reviews the risk appetite
statement and recommends for
approval
 Conducts a formal mid-year risk
review
E▲
D▲ C–
03
M–
N–
K–
LOW
INTERNAL AUDIT
LOW
Financial
A.Competitive Intensity
B.Energy Trading Risk
C.Long-Term Results
D.Carrington
Commercialisation
LIKELIHOOD
Regulatory
E.Regulatory Outcomes
F.Reputation
02
FINANCIAL STATEMENTS
BOTTOM
UP
F–
H–
BOARD
TOP
DOWN
A▲
J–
AUDIT AND RISK COMMITTEE
ESB’s principal risks and uncertainties
persisted from 2014 into 2015 although with
some movement on the relative ranking of
risks. The Board approved the principal risks
and the detailed Group Risk Plan following
consideration and recommendation by the
Audit and Risk Committee. The principal risks
were included in its risk appetite and mitigation
discussions during the year. The Group
can achieve its strategic objectives with the
effective management of the principal risks.
The risk management framework takes an
enterprise wide approach and consists
of appropriate structures to support risk
management, formal assignment of risk
responsibilities, procedures and systems
for risk identification / assessment /
reporting, plus ongoing monitoring of the
effectiveness of risk mitigation actions and
controls.
RISK MANAGEMENT FRAMEWORK
RISK MANAGEMENT FRAMEWORK
 Overall responsibility for the ESB risk management and internal control system
 Setting strategic objectives and defining risk appetite for the Group
 Monitoring the nature and extent of risk exposure against risk appetite for principal risks
 Sets the tone from the top by providing direction on the importance of risk management and risk management culture
 Ensuring there are adequate systems, resources and expertise for risk management and independent assessment
PRINCIPAL RISKS
to international best practice, of an
appropriate risk management framework.
The Risk Policy explains how the Board, the
Audit and Risk Committee and management
will meet their respective responsibilities with
regard to risk management and internal control.
These responsibilities are detailed on page 14
in the risk management framework.
CORPORATE GOVERNANCE
The Audit and Risk Committee, under delegation
from the Board, monitors the nature and extent of
risk exposure against principal risks and advises the
Board in its consideration of overall risk appetite,
risk tolerance and risk strategy of the Group. Details
of the activities undertaken by the Board and the
Audit and Risk Committee during 2015 in respect
of their risk responsibilities are outlined on page
74. All Board Committees have a role in monitoring
and overseeing risk topics within their areas of
competence and ensuring adequate coverage of
risk oversight on behalf of the Board.
Business units are responsible for identifying,
assessing and managing risks in their respective
areas. At executive level, the Executive Director
Risk Forum and the Group Risk Management
Committee review principal and emerging
risks and ensure the fundamentals of good risk
management are incorporated into decision
making at all levels of the Group.
HIGH
APPROACH TO RISK MANAGEMENT
STRATEGY AND PERFORMANCE
RISK REPORT
Operational
G.Health and Safety
H.Cork Flood Case
I. Infrastructure Failure
J. IT Failure
K.Employee Engagement
HIGH
Strategic
L.Disruptive Market / Technology
M.Organisational Capability
N.Key Infrastructure Delivery
O.Industrial Relations
Environment
▲
INCREASE
– UNCHANGED
▼
DECREASE
16
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
17
PRINCIPAL RISKS
A. Competitive
Intensity
STRATEGIC
PILLAR
TREND/
MOVEMENT
RISK DESCRIPTION
The risk of loss of market share arising from the
level of competitor activity from new and existing
competitors in the residential supply sector.
ASSESSMENT / UPDATE
STRATEGIC RESPONSE
01

The energy supply market remains very active, with
competitors continuing to increase discount levels
to attract new customers
To prevent the risk materialising:
 Provide excellent customer service and deliver competitive price offerings and innovative products to the market to defend market share and differentiate ESB customer
propositions
 Help customers to have greater visibility and control over their energy use through continued development of smart and connected home solutions
 Continued delivery of cost base efficiencies to maintain competitive price
 Increased flexibility through outsource partners to adapt more quickly to changing customer needs
 Focus on digital marketing initiatives / platforms to support and differentiate the Electric Ireland brand
 Build customer loyalty through affinity programmes
 Electric Ireland entered the Northern Ireland (NI) residential market and aims to grow the business further in 2016
STRATEGY AND PERFORMANCE
RISK TITLE
If the risk materialises:
 Renewed focus on competitively priced products and strong customer service
FINANCIAL
B. Energy
Trading Risk
ESB’s profits and market share can be affected by
adverse movements in energy / commodity prices,
or by a material energy trading error.

Power prices in the Single Electricity Market
(SEM), and fuel prices paid by ESB in connection
with its electricity generating activities continue to
experience the volatility seen in recent years
To prevent the risk materialising:
 Market risk is managed through implementation of appropriate trading and risk management strategies in both generation and supply businesses and implementation of a
range of initiatives to increase ESB’s access to energy markets
 Credit risk is managed through trading only with sufficiently rated entities and ensuring acceptable forms of collateral are in place where required
 Operational risk is managed through continued operation of a trading governance framework
 Review of risk appetite and the Trading and Risk Management Strategy in light of market developments
 Ongoing implementation of controls and mitigations, including investment in systems and training
If the risk materialises:
 Amend risk appetite and the Trading and Risk Management Strategy in light of market developments
 Undertake investigation into any trading incident
 Lessons learned reviews
C. Long-Term
Results
Possibility of a credit rating downgrade as a
result of unsatisfactory financial performance
making it difficult to secure adequate funding at
an appropriate cost in order to finance planned
investments and to maintain ESB’s liquidity.
To prevent the risk materialising:
 Business planning target setting from the top down using key financial metrics, focused on ESB Group Strategy to 2025 (ESB Group Strategy) delivery and protecting
financial strength
 Use of business and / or technology specific hurdle rates in business investment decisions to ensure capital expenditure is allocated to those projects that deliver on both
strategic and business performance requirements
 Continue to seek cost efficiencies
 Innovation is tasked with identifying new businesses / technologies to drive future growth opportunities
 Investors and shareholder briefings to update on ESB Group Strategy progress
 Capital allocation being kept under review across the Group
If the risk materialises:
 Amend ESB Group Strategy in order to rebuild financial strength
D. Carrington
Commercialisation
ESB faces a risk that the combination of energy
margin and capacity market revenue available in the
GB market does not adequately remunerate new
build gas plant.
 Carrington opted for a one year contract in the
2015 GB capacity auction, which cleared at
£18/kW (2014: £19.40/kW)

Spreads have increased recently with the
announcement of further GB coal plant retirements
but still remain low
To prevent the risk materialising:
 Continue to implement the GB Market Access Strategy
 Input to consultations and pursue opportunities to engage with policymakers on future policy developments in the GB market
 Project for the commercialisation of Carrington is in place addressing:
– Strategy for the GB capacity auctions
– Trading and Risk Management Strategy
– Ensuring systems and operational processes are delivered to support commissioning and ongoing management of Carrington
– Enhancing the GB trading capability
02
CORPORATE GOVERNANCE

Risk of exceeding regulatory allowances

Volatility in energy prices resulting in low margins in
Generation and Wholesale Markets (G&WM) in the
Republic of Ireland (ROI), NI and Great Britain (GB)

Significant changes in the energy sector driven by
new technology and decarbonisation objectives
If the risk materialises:
 ESB Group Strategy review
F. Reputation
OPERATIONAL
G. Health and
Safety Risk
The principal regulatory risks faced by the Group
originate from the evolving EU’s internal energy
market and climate change obligations, the regulatory
approach to price control reviews in the networks
businesses and licence and competition law
obligations.

The uncertainty of the outcome of the regulatory
price review in NIE Networks Regulatory Period 6
(2017 - 2024) (RP6)

The impact of the Integrated Single Electricity
Market (I-SEM) on the wholesale market design
 Additional requirements arising from the
connection of increased levels of renewables to
the ROI and NI networks
To prevent the risk materialising:
 Experienced project team established in NIE Networks to prepare for and negotiate RP6
 Participate in Regulator led consultation processes on DS3 - an innovative proposal to support increased renewables on the electricity system
 I-SEM programme established to develop ESB positions on regulatory, market and structural issues and to prepare for the transition to a new market design
 Consider regulatory developments as an input into the annual review of the ESB Group Strategy
 Licence monitoring and reporting to Regulators to demonstrate ongoing compliance
If the risk materialises:
 Amend capital and operating cost plans to align with the regulatory outcome
 Report regulatory non-compliance and implement actions to resolve any issues
 Activate communications plans to deal with any issues that may arise
A materialisation of any of the principal risks
could materially damage ESB's reputation and
brand causing stakeholders to lose trust in ESB,
which could undermine support for ESB's Group
Strategy, challenge ESB’s ability to secure finance
at acceptable rates, compromising ESB’s capability
to deliver on capital investment programmes and
resulting in a significant loss of customers.
 A number of severe weather events during the
year including storms and flooding

Ongoing concerns regarding energy price levels

The increased use of social media allows
customers and consumer groups to engage,
share views and take part in direct action and
other campaigns more readily than before
To prevent the risk materialising:
 Pro-active management of principal risks
 Ongoing engagement with media to facilitate open and clear communication
 Actively managing regulatory compliance
 Stakeholder Management Plan
Risk of serious injury or death to employees,
contractors or the general public.

Implementation of the ESB Networks fatality report
recommendations and of the ESB Safety Strategy
remain priorities

The appointment of a new Group Head of Safety,
focused on implementation of ESB Safety Strategy

Public safety and the dangers associated with
electricity networks were prioritised in 2015
To prevent the risk materialising:
 Expedite the roll-out of all elements of the ESB Safety Strategy
 Maintain accreditation of ESB safety management systems to OHSAS 18001
 Implement health and safety initiatives based on analysis of safety performance
 Deliver health and wellbeing initiatives to support employees' physical and mental wellbeing
 Implement public safety awareness campaigns
 Business continuity planning and testing programme in place
03
FINANCIAL STATEMENTS
REGULATORY
E. Regulatory
Outcomes
If the risk materialises:
 Activate Crisis and Stakeholder Management Plans, as appropriate
If the risk materialises:
 Undertake critical incident investigation and reporting
 Lessons learned reviews
H. Cork Flood
Case
Risk that the Court of Appeal upholds the decision
of the High Court in UCC v ESB.
A STRONG, DIVERSIFIED, VERTICALLY INTEGRATED UTILITY

On 5 October 2015, the High Court delivered its
judgement in the case and found ESB 60% liable
for the damage caused and UCC 40% contributory
negligent

ESB has appealed the judgement to the Court of
Appeal – the appeal is expected to be heard in
early 2017
GENERATION / SUPPLY BUSINESSES OF SCALE
ADVANCED NETWORKS
To prevent the risk materialising:
 A multi-disciplinary team is in place to manage the ongoing litigation
If the risk materialises:
 Activate communications plan to update key stakeholders
 Consider the implications of any decision on plant operations
SUSTAINABLE INNOVATION
TRANSFORMED COST STRUCTURE
ENGAGED AND AGILE ORGANISATION
18
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
PRINCIPAL RISKS (Continued)
I. Infrastructure
Failure
STRATEGIC
PILLAR
TREND/
MOVEMENT
RISK DESCRIPTION
The risk of sustained or frequent outages arising
from weather driven incidents or operational
issues resulting in lower revenues and additional
operating costs.
01
ASSESSMENT / UPDATE
STRATEGIC RESPONSE

A number of severe weather events during the year
leading to grid outages

Although generation plant performance was
excellent in 2015, high levels of plant availability
remains a priority
To prevent the risk materialising:
 Networks businesses carry out annual review and update of network security of supply plans
 Ongoing timber-cutting, maintenance and hazard patrol
 Participation at National Emergency Co-Ordination Group for storm and flood related crisis events
 Continuing accreditation to PAS 55 asset management standard for generation and networks assets
 Long-term asset maintenance plan in place for generation assets
 Availability of strategic spares
 Retention of key operational / maintenance skills
If the risk materialises:
 Review of storm damage to inform asset management plans and future price control submissions
 High level of network automation to facilitate automatic and / or remote restoration of supply where possible
 Contingency plans and associated standing instructions available to Network Controllers to facilitate restoration of supply for loss of major plant
 24/7 system manager rotas and customer rotas in place to provide after-hours system management during fault situations and to manage stakeholder interaction post event
or emergency situation
 Identification of the cause of the plant outage and implementation of the necessary maintenance actions and, if required, amendments to ongoing maintenance plan
OPERATIONAL
J. IT Failure
A risk of significant data loss or failure of IT
infrastructure or IT systems, arising from a
successful cyber attack or non-malicious failure.

Business dependency on IT systems and telecoms
has resulted in a continued focus on this risk

A data protection audit of Electric Ireland by the
Office of the Data Protection Commissioner
(ODPC) in 2015 was largely positive with a small
number of improvements identified
To prevent the risk materialising:
 Built-in resilience, including backup and recovery facilities
 Regular review and update of Business Continuity and Disaster Recovery Plans including regular site switching for key systems
 Dedicated and continuous monitoring of cyber risk by the IT Security Team
 Data protection policies in place
 Dedicated data protection manager
 Ongoing data protection training
 The findings from the data protection audit are being shared across the Group and recommendations are being implemented
If the risk materialises:
 Activate communications plans prepared for key stakeholders depending on incident e.g. ODPC for data breach
 Share findings and knowledge from incidents to manage future risks
A risk of low employee morale, loss of productivity,
a risk of an increasing attrition rate with consequent
loss of key skills and ultimately a failure to deliver on
the ESB Group Strategy.

Responses to the staff survey highlighted that
there are some areas for improvement in relation to
employee engagement
02
CORPORATE GOVERNANCE
K. Employee
Engagement
To prevent the risk materialising:
 Increase the use of focus groups to allow employees address areas of concern
 Provide alternative communication channels for employees e.g. social media
 Implement recommendations arising from the staff survey
 Review of decision making and approval processes to support agile decision making
 Engaging with employees to inform them of the link between their roles and the ESB Group Strategy
 The ESB Staff Innovation Recognition Awards
If the risk materialises:
 Resource a team with the required skills and capabilities to develop and implement an action plan to address the failure
 Initiate an immediate engagement plan which:
– Increases the priority for all line managers to engage with employees
– Communicates key messages focusing on the future prospects of the Group
L. Disruptive
Market /
Technology

Momentum increasing in relation to the
development of new energy technologies
Failure to attract new talent, or to retain and develop
existing talent could result in a deterioration in
business performance or impact on the ability to
deliver the ESB Group Strategy as ESB has a high
dependency on the technical competency of its
management / employees.

As the economy recovers, retention and recruitment
of certain specialist employees continues to be
challenging
To prevent the risk materialising:
 Implementation of innovation strategy road maps
 Knowledge transfer between Novusmodus, the Emerging Energy Technologies Group and business units
 Identifying external collaboration opportunities through joint ventures e.g. Kingspan ESB, SIRO
 Showcasing emerging technology potential at the ESB Powering Potential Expo and other events
If the risk materialises:
 Amend the ESB Group Strategy and formulate a decision on whether to enter, acquire or consider any additional investment needs
 Re-organise the businesses and divert investment to alternative technologies or business models
To prevent the risk materialising:
 Deliver the People Strategy, which is centred on employee engagement and incudes development of an appropriate reward model
 Detailed Group Resource Plan in place which highlights resource requirements in the short-to-medium term
 Implement succession planning within each business unit
 Graduate recruitment and development to support business growth
 Provide innovators with the time and resources to pursue their ideas
If the risk materialises:
 Review options for short-term resourcing (e.g. contracting or partnering) for critical capabilities or skillsets
 Review options for short-term redeployment of resources to key vacancies, based on key skill sets from previous roles and, in parallel, fast-track training of replacements for
the critical roles within the businesses
N. Key
Infrastructure
Delivery
O. Industrial
Relations
Environment
Failure to deliver key infrastructure on time or to
budget could lead to losses, not delivering on
planned returns, and failure to deliver the ESB
Group Strategy.
A risk of industrial action, arising from failure to
agree a new sustainable reward model.
A STRONG, DIVERSIFIED, VERTICALLY INTEGRATED UTILITY

Carrington construction is nearing completion
 Woodhouse Wind Farm construction completed
during the year
 Commencement of construction of a number of
renewable projects
 ESB Networks and NIE Networks capital
expenditures are in line with targets
 Complex planning and consenting processes,
contractor management and safety vigilance
continue to be areas of focus
To prevent the risk materialising:
 Joint Project Management Office established with EirGrid to streamline delivery of transmission projects
 ESB Networks Renewables Forum established to manage delivery of renewable programme
 Project management function in place to oversee the development and construction of projects
 Medium-term wind project delivery plan, aligned to ESB Group Strategy along with portfolio of early stage wind development sites for longer-term delivery identified
 Continue to develop longer-term generation options
 The Group continued to engage with the Group
of Unions during 2015 on pay and conditions for
current and future employees
 No agreement had been reached by year end, both
sides will continue to engage in 2016
To prevent the risk materialising:
 Industrial processes and procedures being fully utilised to reach a successful conclusion
 Ongoing engagement with employees about the proposed agreement
GENERATION / SUPPLY BUSINESSES OF SCALE
ADVANCED NETWORKS
If the risk materialises:
 Work to achieve as full a financial recovery as possible for assets delivered late
 Purchase operating assets
 Pursue joint venture options
If the risk materialises:
 Utilise internal resolution mechanisms and procedures to address specific issues
 Initiate crisis management and contingency planning arrangements
SUSTAINABLE INNOVATION
TRANSFORMED COST STRUCTURE
ENGAGED AND AGILE ORGANISATION
03
FINANCIAL STATEMENTS
STRATEGIC
M. Organisational
Capability
Failure to respond to disruptive market / technology
developments could result in the loss of significant
market share in both retail and wholesale markets,
having an adverse effect on profitability, challenging
ESB's delivery of its strategic goal of sustainable
innovation and undermining ESB's reputation as a
leading Irish technology / engineering company.
STRATEGY AND PERFORMANCE
RISK TITLE
19
20
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ESB Annual Report 2015
21
01
STRATEGIC PLANNING PROCESS
Strategic Performance Indicators (SPIs) have
been developed to track ESB’s performance
in delivering the ESB Group Strategy to
2025; they are core to the annual strategic
performance review. The Strategic Planning
Process commences with detailed discussions
with the Executive Directors and their business
units in preparation for engagement with and
final review by the Board.
THE BUSINESS ENVIRONMENT
A summary of the key business environment
factors that currently impact on the ESB Group
Strategy are set out below:
The long-term need to decarbonise
European and global societies to
address the threat of worldwide climate change
will present an enduring challenge to and
opportunity for the energy sector over future
decades.
In December 2015, the United Nations (UN)
unanimously agreed to a global agreement on
climate change. The Paris Agreement sets a
commitment to keep global temperature rises
to well below 2°C with a target of 1.5°C. An
ongoing cycle of five-year reviews of national
contributions has been agreed, so although
currently the total contributions are not expected
to keep global temperature rises below 2°C,
these reviews can accelerate the ambition and
collective effort to meet the targets.
In the short-term, under the 2020 framework,
there are also legally binding targets at national
levels to decrease carbon emissions for sectors
such as transport, agriculture and buildings. The
electricity sector is already legally committed to
emission reductions under the EU’s Emissions
Trading Scheme (ETS) and is on track to achieve
these. There are also targets to increase the
proportion of energy from renewable sources.
The Republic of Ireland (ROI) and the United
Kingdom (UK) have set targets for the proportion
of electricity from renewable sources of 40% and
30% respectively.
Ireland’s commitments to reduce greenhouse gas
emissions in transport, heating and agriculture
and a framework for citizen engagement and
evidence-based policies to get there. ESB’s
Group Strategy is broadly in alignment with this
long-term decarbonisation vision and with the
direction of travel of UK policy.
IRELAND'S GREEN
HOUSE GAS EMISSIONS
Other
[Non ETS]
Electricity
Generation
19%
6%
Heat
Other
[ETS]
15%
8%
The UK in late 2015 announced a reduction in
renewable subsidies and an intention to close
all coal-fired generation stations by 2025, to
be replaced mainly by gas-fired and nuclear
generation.
In ROI, the Government, in late 2015, published
its White Paper on energy: Ireland’s Transition
to a Low-Carbon Future. Contained within the
document is a focus on the challenge of meeting
The traditional relationship between
economic growth and electricity
consumption is changing. Economic recession
has contributed to a reduction in electricity
usage but the pace of economic recovery is not
expected to be exactly matched by electricity
growth. Factors such as energy efficiency,
driven by both improvements in technology and
Governmental policies, will dampen growth in
electricity demand while national and international
climate change targets could create new demand
for electricity from sectors such as transport and
heat (which have large energy requirements and
need to reduce their carbon impact).
4
TRANSFORMATION AND
INNOVATION
Transport
19%
Agriculture
33%
ETS1 (27%; 16MT)
NON ETS (73%; 42 MT)
1 ETS – EU'S EMISSIONS TRADING SCHEME
2
MARKET INTEGRATION
While the broad direction of travel towards the
2050 vision is relatively clear, the technology
and policy choices that Europe needs to arrive
at a sustainable and secure energy system at a
reasonable cost are not clear. At present there is
no single or simple solution for achieving this.
3
ELECTRICITY DEMAND
The integration of European energy
markets is a major policy priority for
European and national authorities across the
continent. This priority has been reflected in
both a regulatory policy to enhance the ability to
trade power and gas between different national
market systems and in the construction of
physical electricity and gas interconnection to
allow this to happen. Such integration has the
power to transform the competitive environment
within which ESB operates – changing ESB's
generation and supply businesses from relatively
significant players within the Single Electricity
Market (SEM), to a player with much smaller
shares in a pan-European market which is
dominated by larger, mostly pan-European
utilities.
The utility sector faces transformation from
a combination of energy technology,
IT-enabled and IT-led innovations, energy
efficiency, different business models, changing
customer behaviour and expectations. The
sources of change may be multiple, small-scale
and dispersed rather than a single catalyst and
there is no certainty as to the pace, timing or scale
of such transformation. ESB has expertise in this
area and is active directly and indirectly in many
areas of transformation and innovation.
5
ADJACENT SECTORS
Electricity generation is already on an
agreed path to full decarbonisation yet in
Ireland for example it still only represents one fifth
of total energy use nationally. It is clear that for
society as a whole to reduce its climate impact,
then other sectors must also decarbonise.
ESB believe that greater use of electricity has
a major role to play, particularly in sectors such
as transport and heat as these sectors must
inevitably move to reduce their carbon impact.
Communications infrastructure is arguably now
as central to a modern economy and society
as electricity. ESB has over many years used
its internal expertise and resources to serve the
commercial telecoms market in Ireland. SIRO,
the joint venture with Vodafone will provide high
speed, fibre-optic based communications, initially
to fifty towns throughout Ireland. There are
many other areas in Ireland, mostly rural, which
have been identified as having an inadequate
broadband service. There is a real challenge
for policymakers to put in place a national plan
to bridge this digital divide in Ireland which is
realistic and achievable.
6
MACRO-ECONOMY AND FUEL
MARKETS
The significant improvements in both
the ROI and UK economies in 2014 remained
throughout 2015 and this recovery is projected to
continue, however the energy sector is not seeing
the benefits of this recovery. The outlook remains
more challenging with regard to wider European
economic performance.
Fuel sources and projects whether traditional
(e.g. coal, gas), unconventional (e.g. shale gas)
or renewable (e.g. wind) are all being affected by
the ongoing global oversupply of traditional fuel
sources - see page 30 for further information on
global commodity prices in 2015.
7
significantly impacted in the short-to-medium
term even in the event of the UK exiting the EU.
8
RETURN ON REGULATED
ASSETS
The long-term nature of network
investments is an emerging strategic issue
as the uncertainty around the level of future
returns increases. This is related not only
to current price controls but to the fact that
long-term recovery of large-scale investments
face multiple regulatory review periods in
a context where changing demand and
disruption may impact the future use of such
assets.
9
FINANCIAL STRENGTH
ESB’s profitability impacts on its credit
strength, gearing levels and the amount
available for future capital investments. ESB’s
ownership of regulated networks brings
associated large-scale investment obligations,
so while it still has a presence across the
energy value chain it remains strongly weighted
towards regulated network assets.
02
GREAT BRITAIN (GB)
ENERGY MARKETS
In GB, the gap between supply and
demand has never been as tight as this winter
and last year’s capacity auction process did
little to achieve the desired result of securing
significant, new, large scale capacity. The stated
intent to remove coal generation from the system
by the middle of the next decade, the ongoing
delays in developing new nuclear plants and
the strength of the economy are supportive of
ESB’s view that, the UK energy market offers the
best potential for long-term growth within the
EU. Ultimately though, this will be dependent on
appropriate energy policy and pricing - see page
30 for further information on GB electricity prices
in 2015.
The uncertainty surrounding a potential exit by
the UK from the EU is likely to remain until 2017.
While ESB has investments in the UK such as
Carrington and the networks investment in NI,
ESB’s conclusion based on a review of possible
scenarios, is that these investments would not be
03
FINANCIAL STATEMENTS
1
CLIMATE AND ENERGY POLICY
Current EU policy is to reduce total greenhouse
gas emissions by 80 - 95% by 2050, compared to
1990 levels. The Irish Government has set a target
of an 80% reduction in emissions in electricity,
transport and the built environment by 2050 with
carbon neutrality in agriculture and land use. The
UK Government has also set a target of an 80%
reduction in emissions by 2050. In the medium
term, the EU has adopted a 2030 objective of
a 40% reduction in greenhouse gas emissions.
Each Member State will have a single annual
binding target for greenhouse gases in agriculture,
transport and buildings. From 2021, there will be
an Energy Union Governance Process which will
provide for national long-term plans and tracking
of progress on greenhouse gases and on EU-level
renewable and efficiency goals.
CORPORATE GOVERNANCE
ESB’s approach to strategic planning includes
the following two components:
 A Business Environment Review is conducted
annually using both internal and external
expertise to identify and understand those
factors that impact most on the direction
of the ESB Group Strategy to 2025 (ESB
Group Strategy)
 A Strategic Performance Review is also
completed annually during which the Group’s
performance and path towards delivering
the ESB Group Strategy is assessed and if
necessary, corrections are agreed
STRATEGY AND PERFORMANCE
STRATEGY
22
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23
01
THE ESB GROUP STRATEGY TO 2025 AND PROGRESS AGAINST KEY STRATEGIC PERFORMANCE
INDICATORS
2015 BUSINESS ENVIRONMENT
OVERARCHING THEMES
STRATEGIC PRIORITIES
Three overarching themes link the business
environment and the ESB Group Strategy:
1.Uncertainty and Change
ESB is operating in an environment that is
unprecedented in terms of both the scale of
uncertainty and the potential pace of change.
This uncertainty is evident at economic, sectoral,
policy and market levels.
3.Financial Strength
Underpinning ESB’s capacity to deliver on the
ESB Group Strategy and to adapt and respond
to a changing environment is maintaining its
financial strength through a disciplined approach
to managing costs, investments and risks.
THE ESB GROUP STRATEGY TO 2025
Development of the ESB Group Strategy is
based on a vision of being Ireland’s foremost
energy company competing successfully in the
all-islands market.
2.
Market Integration
3.
Electricity Demand
4.
Transformation and Innovation
Uncertainty
and Change
6.
Macro-Economy and
Fuel Markets
7.
Adaptable and
Responsive
Financial
Strength
 Manufactured
 Financial
 Intellectual
 Human
 Social and
Relationship
 Natural
Financial Strength
BBB + rating
A- rating
EBITDA
€1,348 million
€2,400 million
Generation / Supply Businesses of Scale
In response to the integration of ROI, NI
and GB electricity markets, ESB will grow
the scale and capabilities of its generation,
trading and supply businesses so that they
can compete within this new all-islands competitive
environment. Recognising the long-term imperative to
decarbonise society, ESB will also invest to reduce
the carbon intensity of its power generation fleet and
increase the role of renewable energy in its fuel mix, in
line with the overall market and public policy.
 Manufactured
Total generation
capacity (MW)
4,827 MW
7,000 MW
All–islands
generation market
share (% output)
4%
7%
Renewable capacity
as % of total
generation capacity
13%
26%
Advanced Networks
ESB will work to deliver high quality and
affordable electricity networks for its
customers in both the ROI and NI. This will
include investment to underpin social and
economic development, security of supply and the
achievement of climate change targets.
 Manufactured
Regulated Asset
Base (RAB)
€9 billion
€14 billion
Smart meters /
grids
Project decisions to be made by CER
in 2016 on foot of their cost benefit
analysis review
CER requirements fully
implemented
 Natural
Wind energy
connected
Connections at end of 2015 now at
between 67% – 75% of the 2020
target range*
Deliver network
connections to support
target of 40% renewable
energy by 2020
 Manufactured
Emerging
 Financial
Businesses
Novusmodus
– Plan to fully realise Novusmodus
Fund by 2021
– Ongoing investment and support for
portfolio companies
– Maximising learning transfer to new
ESB businesses
eCars
– Charging infrastructure installed and
enhanced for commercial operations
– Consulting on new pricing model
SIRO
– SIRO joint venture with Vodafone
launched June 2015
– SIRO connecting first customers
across Ireland
ESB International
– Review of ESB International services
and targets undertaken
– Updating offering to reflect changing
customer needs
Sustainable Innovation
Recognising that forces such as
decarbonisation, competition and
technological evolution will dramatically
change the operating context, ESB will
innovate to create and grow new opportunities in areas
directly adjacent to its core businesses.
 Financial
 Intellectual
 Human
 Social and
Relationship
 Natural
 Financial
 Intellectual
 Human
 Social and
 Intellectual
 Human
 Social and
Relationship
 Natural
8.
Return on Regulated Assets
Financial Strength
Progress against these priorities has been made
to date and is tracked using agreed SPIs - see
page 23 for further detail.
Transformed Cost Structure
Increased competition, an uncertain
economic environment and the need to
fund future growth will require ESB to
operate with even greater efficiency. ESB will
enhance the cost-effectiveness of its business so that it
can survive and prosper in this new context.
 Financial
Engaged and Agile Organisation
The delivery of the ESB Group Strategy
will require an organisation that is flexible,
highly motivated and adaptable. ESB will
create a dynamic workplace that stimulates
and engages its people and that can respond quickly
and effectively to change.
 Financial
GENERATION / SUPPLY BUSINESSES OF SCALE
ADVANCED NETWORKS
Exploit new investment
opportunities and
and significantly
increase ESB
International
external income
03
Cost base
€270 million in annual recurring cost
savings achieved against a target of
€280 million
Competitive
cost structure
Safety
58 LTIs (Employees and Contractors)
New Safety Organisation Structure
established
New Safety IT system (SHIELD)
delivered in 2015
Zero injuries
Engagement
Staff survey completed
High levels of
engagement and
performance
Change
New reward model for new entrants
Fast, locally driven change
 Human
 Social and
Relationship
 Intellectual
 Human
 Social and
Relationship
*Subject to verification
For the short-to-medium term priorities, see pages 40 to 49 for business unit detail.
A STRONG, DIVERSIFIED, VERTICALLY INTEGRATED UTILITY
02
Relationship
GB Energy Markets
9.
2025 TARGET
A Strong Diversified VIU
ESB sees vertical integration as providing
balance and adaptability in the context of
such uncertain environments. ESB creates
value by managing and developing a
portfolio of investments across the energy value
chain. It also seeks to exploit its assets and expertise
in related adjacent markets. Through disciplined
financial management of business units, ESB retains
the flexibility to respond to external changes in the
environment.
5.
Adjacent Sectors
2015
SUSTAINABLE INNOVATION
TRANSFORMED COST STRUCTURE
ENGAGED AND AGILE ORGANISATION
FINANCIAL STATEMENTS
The delivery of this vision is focused on the
overall goal of being a Strong, Diversified,
Vertically Integrated Utility (VIU). To deliver
this goal the following five priorities have been
identified:
 Generation / Supply Businesses of Scale
 Advanced Networks
 Sustainable Innovation
 Transformed Cost Structure
 Engaged and Agile Organisation
Climate and Energy Policy
STRATEGIC
PERFORMANCE
INDICATORS (SPIs)
CORPORATE GOVERNANCE
2.Adaptable and Responsive
Given such uncertainty about both the scale
and pace of change in aspects that impact
its business so fundamentally, ESB needs
to be both adaptable in terms of its strategic
direction and innovative to changes in the
environment, which would necessitate such a
change. Accordingly the ESB Group Strategy
seeks flexibility and diversity across a range of
dimensions, including the spread of businesses
across the energy value chain; a presence in
ROI and UK; a generation portfolio with a mix of
fuel types; and an openness to opportunities in
adjacent sectors.
1.
TYPES OF
CAPITAL
STRATEGY AND PERFORMANCE
THE LINK BETWEEN THE BUSINESS
ENVIRONMENT AND THE ESB GROUP
STRATEGY
STRATEGY AND PERFORMANCE
ENERGY
FOR
WORK
OPERATING AND
FINANCIAL REVIEW
Executive Team
Market Structure and
Operating Environment 2015 Key Performance Indicators (KPIs)
Finance Review Generation and Wholesale
Markets (G&WM) ESB Networks Northern Ireland Electricity
Networks (NIE Networks) Electric Ireland Innovation 26
28
32
34
40
42
44
46
48
26
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27
01
STRATEGY AND PERFORMANCE
EXECUTIVE TEAM
The Executive Team focuses on the ESB Group Strategy, technological and commercial developments, programme execution,
financial and competitive performance, people development, organisational development and Group-wide policies.
Jerry O’Sullivan
John Redmond
Donal Flynn
Paddy Hayes
Pat O’Doherty was appointed as Chief Executive
in December 2011. Prior to this he headed
up ESB’s largest businesses as Executive
Director ESB International, Managing Director
ESB Networks and Executive Director ESB
Power Generation. He holds primary and
masters degrees in engineering from University
College Dublin. He completed the Advanced
Management Programme at Harvard Business
School. He is a trustee of The Conference Board
of the United States and a director of Energy UK.
Jerry O’Sullivan was appointed Deputy Chief
Executive in October 2014. Prior to this he was
Managing Director, ESB Networks Ltd. He joined
ESB in 1981 and held a number of positions
in Power Station Construction, Distribution and
Transmission, Retail, Contracting, Marketing
and Customer Service. He was appointed
Head of Network Services in 2002 and Head of
Sustainability and Network Systems in 2008. He
holds a degree in civil engineering from University
College Cork.
John Redmond was appointed Company
Secretary in 2002. He was previously Group
Secretary and Senior Vice President Corporate
affairs of GPA Group plc. and subsequently
Company Secretary of debis AirFinance BV (an
associate of Daimler Chrysler) and of the SEC
registered Airplanes Ltd. From 1980 to 1988,
he worked in the Department of Foreign Affairs
and the Department of Finance. He is a graduate
of Maynooth University and holds postgraduate
qualifications in corporate governance from
Napier University, Edinburgh and from University
College Dublin. He became a Fellow of the
Institute of Chartered Secretaries in 1997.
Donal Flynn was appointed Group Finance
Director in August 2010. Prior to joining ESB
Donal worked in Airtricity and was its Chief
Financial Officer from February 2008 when SSE
acquired Airtricity. Donal worked in a number of
finance roles with General Electric from 1998 to
2003. He qualified as a chartered accountant with
Arthur Andersen. Donal holds a bachelor's degree
in commerce and a master’s degree in accounting
from University College Galway and University
College Dublin, respectively.
Paddy Hayes was appointed Executive Director,
Generation and Wholesale Markets in June 2012.
Previously he held various senior management
positions in ESB including Head of Independent
Generation and Manager Energy Portfolio.
Prior to joining ESB in 1999, Paddy worked
in a number of roles with British Steel. He is a
chartered engineer and holds a master’s degree
in engineering from University College Dublin and
an MBA from the University of Warwick, UK.
02
CORPORATE GOVERNANCE
Pat O’Doherty
EXECUTIVE TEAM
Pat O’Doherty
Chief Executive
Jerry O’Sullivan
Deputy Chief Executive
Donal Flynn
Group Finance
Marguerite Sayers
Jim Dollard
Paul Mulvaney
Pat Naughton
Marguerite Sayers was appointed Managing
Director, ESB Networks Ltd. in November 2014.
An electrical engineer by profession, she joined the
Group in 1992 and has experience of working in
various technical and managerial positions in ESB.
She has a degree in electrical engineering from
University College Cork, a diploma in accounting
and finance from University of Limerick and a
diploma in project management from University
College Cork. Previously, she held the roles in ESB
Networks of Customer Service Manager for Dublin
South and Head of Asset Development. She was
Generation Manager in Generation and Wholesale
Markets where she was responsible for ESB’s
generation portfolio.
Jim Dollard was appointed to the position of
Executive Director for Business Service Centre
(BSC) and Electric Ireland in July 2013. An
accountant, Jim began his career at ESB in 1992
and has held a number of senior management
positions throughout the Group. Jim holds a
bachelor's degree in commerce from University
College Dublin.
Paul Mulvaney was appointed Executive Director,
Innovation in October 2014. Paul joined ESB
in 1985 and has held a number of senior
management positions, including Manager Great
Island and Moneypoint Generation Stations, Group
Manager Coal / Oil / Gas Stations, Asset Manager
Power Generation and Programme Manager
Corporate Change. He was appointed Managing
Director of eCars in 2009 and Head of Distribution
and Customer Service, ESB Networks in 2012.
Paul holds a degree in mechanical engineering
and has completed the advanced management
programme at the IESE Business School in the
University of Navarra, Spain.
Pat Naughton was appointed Executive Director
Group People and Sustainability in 2012. A
mechanical engineer by profession, Pat has worked
in a variety of roles since joining the Group in 1978.
He previously held senior positions as HR Manager
ESB Energy International, Manager Strategy and
Portfolio Development ESB Energy International
and Manager of Hydro Stations, ESB Power
Generation.
Paddy Hayes
Generation and
Wholesale Markets
Marguerite Sayers
ESB Networks
Jim Dollard
BSC and Electric Ireland
Paul Mulvaney
Innovation
Pat Naughton
Group People and
Sustainability
03
FINANCIAL STATEMENTS
John Redmond
Company Secretary
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01
Energy Policy and Regulation
Energy policies are set by the Minister for
Communications, Energy and Natural Resources
in ROI and the Minister for Enterprise, Trade and
Investment in NI. Energy policy and regulation are
heavily influenced by European Union (EU) law.
The Commission for Energy Regulation (CER) is
the independent regulator of the energy market
in ROI. The Northern Ireland Authority for Utility
Regulation (NIAUR) is the independent regulator of
the energy market in NI.
Single Electricity Market (SEM)
The SEM is the single wholesale market (pool) for
electricity in ROI and NI. SEM is a mandatory gross
Integrated Single Electricity Market (I-SEM)
I-SEM will address a number of emerging
issues for the current market design, resulting
from changes in generation, demand and
interconnection. Efficient implementation of the
EU Target Model, which is a set of harmonised
arrangements for cross-border trading of wholesale
energy and balancing services across Europe, is
the main driver for the introduction of I-SEM. I-SEM
is expected to replace SEM in October 2017. In
response to these proposed changes, ESB has
established I-SEM programmes to ensure that the
business is ready for new market arrangements.
In response to binding national and European
targets, EirGrid Group began a multi-year
programme, known as, Delivering a Secure,
Sustainable Electricity System (DS3). The aim of
the DS3 Programme is to meet the challenges of
operating the electricity system in a secure manner
while achieving the 2020 renewable electricity
targets. The DS3 Programme is designed to
ensure that the power system can securely
operate with increasing amounts of variable nonsynchronous renewable generation (e.g. wind)
over the coming years.
Electricity Networks
The electricity transmission system is a
high-voltage network for the transmission of
bulk electricity supplies. The distribution system
delivers electricity to individual customers over
the 38kV / medium / low voltage networks. In
ROI, ESB owns the transmission and distribution
system network and operates the electricity
distribution system network, EirGrid operates
the transmission system network. In NI Northern
Ireland Electricity Networks (NIE Networks)
owns the electricity transmission and distribution
system network and operates the electricity
distribution system network. System Operator
for Northern Ireland (SONI) operates the
transmission system network.
Interconnection
For geographical reasons, the electricity
transmission systems on the island of Ireland
are isolated compared to systems in mainland
Europe and in Great Britain (GB). The Moyle
Interconnector links the electricity grids of NI
s
Wholesale Market
s
s
s
s
Suppliers
Suppliers
pay
SMP
s
s
Generators
receive
SMP
Customers
consume
power
Customers
pay
suppliers
s
Retail Market
The SEM generation sector comprises
approximately 12,785 MW of capacity
connected to the system on an all-island
basis. The capacity connected to the system
includes a mix of older generation plants
alongside modern combined cycle gas turbine
(CCGT) plants and renewable energy sources
such as wind power. These stations generate
electricity from fuels such as gas, coal and
oil as well as indigenous resources including
hydro, wind, peat and biomass.
Customers
s
TOTAL INTERCONNECTOR IMPORTS
Bord Gais
Danske
Cenergise
3%
Viridian
7%
1%
Electroroute
27%
7%
Erova
1%
02
SSE
8%
ESB
34%
RWE
12%
TOTAL INTERCONNECTOR EXPORTS
Bord Gais
3%
Cenergise
3%
SSE
29%
Danske
20%
ESB
4%
03
Erova
2015 saw good availability of baseload
thermal generation in SEM, with gas and coal
continuing to dominate generating fuels in
the market. SSE's new Great Island CCGT
unit in County Wexford went into commercial
operation in April 2015 which removed 240
MW of oil units from the system and replaced
it with 464 MW of gas.
4%
ELECTRICITY GENERATION BY FUEL TYPE
Electroroute
37%
Interconnector
8%
Wind
21%
Peat
8%
Hydro
3%
Gas
39%
Coal
21%
FINANCIAL STATEMENTS
Pool
s
s
Generators
Suppliers
take power
at SMP
Electricity Generation
SEM has 2,963 MW of wind installed which
is key to the Government’s target for 40% of
electricity to be generated from renewable
resources by 2020. Wind contributed to 21%
of generation in 2015, up from 18% in 2014,
with a maximum wind output of 2,514 MW
being recorded in January 2015. ESB was
responsible for 49% of generation in SEM
in 2015.
SINGLE ELECTRICITY MARKET (SEM)
Generators
submit
bids
and Scotland through submarine cables
running between converter stations in NI
and Scotland. The link has a capacity of 500
MW. The East-West Interconnector links
the electricity transmission system in ROI to
the electricity transmission system in Wales,
enabling two-way transmission of electricity.
The East-West Interconnector runs between
Deeside in north Wales and Woodland,
County Meath in ROI. Approximately 260
kilometres in length, the underground and
undersea links have the capacity to transport
530 MW. ESB is an active participant in the
interconnectors and was responsible for
34% of total imports and 4% of total exports
during 2015.
CORPORATE GOVERNANCE
The structure of the electricity market in ROI and
NI can be divided into four segments: generation,
transmission, distribution and supply. Electricity
generation and supply are open to full competition
throughout the island of Ireland. Electricity
transmission and distribution are regulated
monopolies in ROI and NI, with the respective
regulator determining the allowed revenue for the
price review period (five years).
pool, so all generators have to sell and suppliers
have to buy power through the pool. The pool sets
the spot price for electricity, known as the System
Marginal Price (SMP) every half hour. Generators
also receive separate payments for the provision
of stable generation capacity through the capacity
payment mechanism. Price volatility in the pool is
managed by generators and suppliers entering into
fixed financial contracts (contracts for differences).
STRATEGY AND PERFORMANCE
MARKET STRUCTURE AND
OPERATING ENVIRONMENT 2015
1. OVERVIEW OF THE ELECTRICITY
MARKETS STRUCTURE IN THE
REPUBLIC OF IRELAND (ROI) AND
NORTHERN IRELAND (NI)
29
30
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31
01
STRATEGY AND PERFORMANCE
COMMODITY PRICES 2015
THE GLOBAL ENERGY MARKETS
Gas Prices
Coal Prices
Coal prices decreased this year falling from
$67/tonne at the beginning of the year to a low
of $47/tonne by December. The downward
movement has been driven by a combination of
an oversupplied global coal market, weak demand
from coal consuming countries and falling oil
prices.
Carbon Prices
Carbon prices increased throughout the year
especially during the second and third quarter
when the highest price in a three year period
was recorded at €8.70/tonne. Carbon price
In 2015, 76% of generation was met by fossil
fuels, predominately gas and coal. With gas
CCGT units being the most efficient units on the
system, the wholesale gas price is very closely
linked to the SMP. Year on year, the 2015 SMP
has decreased by 10%, which has been driven
by the fall in gas prices and coal prices and
increased renewables in the market.
The GB capacity auction took place in
December 2015 for 2019 with 46.35 GW
(2014: 49.30 GW) of capacity procured at a
clearing price of £18/kW (2014: £19.40/kW).
ESB withdrew its Corby plant before the auction
cleared. ESB’s new CCGT, Carrington secured
a one year contract. See page 40 for more detail
in relation to the auction.
100
€/MWh
The System Marginal Price (SMP) in SEM is
made up of two components, the short-run
marginal cost of production (SRMC) which is the
cost of fuel (typically 75%) and uplift, which is the
recovery of start-up and no-load costs - these
are fixed costs which do not vary with the level of
output (typically 25%).
80
60
02
40
20
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
UK BASELOAD (£/MWh)
50
45
The year started off with very volatile prices
following Storm Rachel leading to price highs of
€740/MWh on 11 March 2015 to lows of
€0/MWh on 9 and 12 March 2015. Summer
prices were more stable, reflecting falling
commodities, good system availability and low
wind. Winter prices were unseasonably low,
with higher than normal temperatures reducing
demand and winter storms increasing the amount
of wind on the system. The Christmas period
again saw very volatile prices during Storm Eva
with highs of €412/MWh on 17 December 2015
to lows of €0/MWh on 19 December 2015. The
year closed out with an average price of €50.83/
MWh (2014: €56.63/MWh).
GB Electricity Prices
GB power prices decreased throughout the year.
The fall in prices was driven by falling fuel (coal
and gas) prices. The fall in fuel prices was more
than offset by the increase in Carbon Price Floor
(a measure introduced as part of the Electricity
Market Reform to incentivise low-carbon
investment), which increased from £9.55/tonne to
£18.08/tonne in April 2015. The year began with
some volatile prices, as temperatures fell below
normal, increasing prices towards the end of the
40
35
30
25
20
Jan
03
FINANCIAL STATEMENTS
The global gas market in 2015 was oversupplied,
due to increased availability of Liquefied Natural
Gas (LNG) and higher than normal temperatures,
which put downward pressure on price, falling
from 50p/therm to 31p/therm throughout the year.
120
SEM Wholesale Electricity Prices
GAS, COAL AND CARBON
10
80
8
60
6
40
4
20
2
Jan
Coal ($/Tonne)
Feb
Mar
Apr
Carbon (€/Tonne)
May
Jun
Jul
NBP Gas (p/Therm)
Aug
Sep
Oct
Nov
Dec
Carbon €/Tonne
2. OPERATING ENVIRONMENT
SMP (€/MWh)
CORPORATE GOVERNANCE
In addition to ESB’s generation interests, ESB
is active in all sectors of the gas market from
residential to large commercial and is one of the
biggest gas shippers on the island.
ESB is continuing to grow in the electricity and
gas markets and key developments in 2015
included the commercial operation of Woodhouse
Wind Farm in County Waterford, contract
signing for Tilbury biomass plant in Essex and the
continued build of the Carrington CCGT plant
near Manchester. Supporting this activity ESB
Trading has a full trading capability up to real
time with a 24 hour trading presence in gas and
electricity markets.
first quarter. The rest of the year prices decreased,
in line with the fall in fuel prices. The 2015 average
price was £40.21/MWh a decrease of 4% on
2014 prices.
£/MWh
The electricity and gas markets in GB, ROI and
NI are linked in two ways, firstly through gas
being used for electricity generation and secondly
through the physical interconnection of electricity
and gas networks. In common with a number of
other companies in the Irish market ESB is active
in both Irish and GB markets in gas and electricity.
movements are strongly linked to policy decisions
and implementation at an EU level rather than
commodity prices.
Gas P/Therm/coal $/Tonne
Electricity Trading
ESB Annual Report 2015 - Energy for Life
32
ESB Annual Report 2015
KEY PERFORMANCE
INDICATORS (KPIS)
01
Net Debt (€‘m)
4,639
2,000
4,000
1,342
1,301
4,975
4,144
960
850
2,000
873
90%
825
2014
0
2015
2013
2014
2015
750
89%
400
2014
DEFINITION
STRATEGIC RELEVANCE
PERFORMANCE
STRATEGIC
PRIORITY
EBITDA
Earnings before interest,
taxation, depreciation,
impairment, amortisation and
exceptional items
EBITDA is a key measure of the cash
generated in the Group during the year which
is then available for strategic investments,
repayment of debt and dividend payments.
The increase in EBITDA in
2015 is related to the improved
availability of generation plant. For
further detail see finance review
page 36.
Net Debt
Borrowings and other debt net
of cash and cash equivalents
Net debt is a measure of how leveraged the
Group is and if it is line with its key covenants.
Net debt continues to grow as ESB partly
funds its capital investment programmes with
borrowings.
Net debt continues to increase
as ESB progresses its capital
investment programme, which is
being partly financed by additional
borrowings. For further detail see
finance review page 36.
Capital
Expenditure
Additions for property, plant
and equipment, intangible
assets and financial asset
investments
ESB is in a period of significant capital
investment for both its Networks businesses
and Generation and Wholesale Markets
(G&WM). This is so that ESB can develop
the electricity network and compete within
the all-island environment.
The decrease in capital
expenditure in 2015 relates to
a reduction in the spend on the
Carrington CCGT as it nears
completion. For further detail see
finance review page 37.
CUSTOMER AND MARKET
Residential Customer Satisfaction
100%
50%
40%
37%
37%
38%
89%
90%
Brand Awareness
100%
83%
84%
82%
2013
2014
Percentage of the time in the year
that generation plant was available
to produce electricity, whether they
generated or not
Delivering strong operational
performance across ESB's
generation plant through
best practice operations and
maintenance and timely completion
of overhauls is critical to ESB's
commercial performance.
Plant availability has improved
on 2014 due to improved
availability across the fleet most
notably in Moneypoint (915
MW coal plant) which had a
number of significant outages
in 2014.
MW Renewable
Operational
Total MW’s of renewable generation
where the assets have reached their
commercial operation date
Renewable generation is key to
ESB's objective to reduce the
carbon intensity of its generation
fleet.
The increase of 20 MW relates
to Woodhouse Wind Farm
which went into commercial
operation during 2015.
Customer
Minutes Lost
(CMLs) ESB
Networks
The average duration of interruptions
(planned and fault) for all customers
during the year
The reliability of the grid and
minimising interruptions to
customers is of key importance to
ESB.
The increase in minutes lost in
2015 relates to a significant
maintenance programme
undertaken in 2015.
95%
Headcount
20%
20%
2013
2014
DEFINITION
STRATEGIC RELEVANCE
Market Share
Total Single Electricity Market
(SEM) all-island market share
Retention and growth of market share is key Through a continued focus on
to ESB so that it can compete within the
competitively price products and
all-island competitive environment.
strong customer service Electric
Ireland has marginally increased
overall market share to 38%.
ESB strives to provide excellent customer
Customer satisfaction has reduced
service and introduce new initiatives to
due to increased competition and
improve their customer experience in order the high level of discounts being
to retain market share.
offered by competitors.
Brand
Awareness
Awareness of Electric Ireland as an
Energy Supplier (Source: IPSOS
Customer Survey Results)
Maintain the Electric Ireland brand as the
leading energy supply brand in Ireland.
A STRONG, DIVERSIFIED, VERTICALLY INTEGRATED UTILITY
Employee LTIs
PERFORMANCE
2015
STRATEGIC
PRIORITY
Continued to be strong at 95% as
a result of marketing, sponsorship
and promotional campaigns during
the year.
GENERATION / SUPPLY BUSINESSES OF SCALE
7,490
7,149
7,305
40
ADVANCED NETWORKS
30
3,000
20
1,500
10
0
03
51
50
4,500
KPI
Provides a measure of residential
customer satisfaction
(Source: Research Perspective
Monthly Survey Results)
02
FINANCIAL STATEMENTS
10%
Residential
Customer
Satisfaction
STRATEGIC
PRIORITY
60
6,000
0%
2015
PEOPLE
95%
40%
2015
2014
Plant
Availability
40%
2014
2013
PERFORMANCE
20%
2013
0
2015
80%
80%
0%
2014
STRATEGIC RELEVANCE
60%
2015
2013
DEFINITION
60%
2014
370
2015
50
KPI
30%
2013
100
384
380
7,500
0%
384
CORPORATE GOVERNANCE
KPI
158
86%
86%
2015
84%
Market Share
146
150
127
390
2013
200
404
88%
800
2013
Customer Minutes Lost
(CMLs)
410
92%
92%
900
500
0
MW Renewable Operational
1,000
950
1,348
1,000
Plant Availability
94%
6,000
2,500
1,500
Capital Expenditure (€‘m)
STRATEGY AND PERFORMANCE
OPERATIONAL
FINANCIAL
EBITDA (€‘m)
33
2013
2014
0
2015
30
29
2013
2014
2015
KPI
DEFINITION
STRATEGIC RELEVANCE
PERFORMANCE
Headcount
Average number of employees in the
year including temporary employees
employed by ESB
Employee
LTIs
Employee LTIs are work-related
injuries that involve an absence of at
least one day (not including the day
the injury occurred)
The delivery of the strategy will
require an organisation that is of a
certain scale and is flexible, highly
motivated and adaptable.
Safety is a core value of the Group.
ESB continue to focus on reducing
risks in the business that gives rise
to injuries.
The increase in headcount is to ensure
effective succession planning. 179
apprentices and graduates were
recruited during the year.
The number of LTIs in 2015 is lower than
2014 as ESB focuses on reducing risks
in the business that give rise to injurious
incidents.
SUSTAINABLE INNOVATION
TRANSFORMED COST STRUCTURE
STRATEGIC
PRIORITY
ENGAGED AND AGILE ORGANISATION
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OPERATING COSTS

2015 has been a solid year for ESB. After tax profits are up from €215 million to €286 million
and ROCE is up from 6.0% to 6.5%. At the core of this pick up in performance is the improved
availability of our generation plant from 86% to 92%. ESB also finished the year with a strong
liquidity position of €1.5 billion.
Donal Flynn, Group Finance Director

2015
€'m
2014
€’m
2013
€’m
2012
€'m
2011
€'m
3,364
3,293
3,445
3,295
2,995
Operating profit before exceptional items
635
552
684
576
469
Adjusted profit before taxation3
381
307
450
351
283
1,348
1,301
1,342
1,256
1,121
873
960
825
765
883
4,975
4,639
4,144
4,414
4,324
55%
53%
48%
53%
52%
13,157
12,973
12,782
12,600
12,539
Revenue and other operating income before exceptional items1
2
EBITDA excluding exceptional items4
Capital expenditure
Net debt
Gearing (%)5
Total assets
Before the following exceptional items: 2015: impairment charge (€104 million). 2014: profit on asset disposal (€38 million) and non-cash gain (€94 million). 2013: profit on asset disposal
(€95 million).
1
Before the following exceptional items: 2015: impairment charge (€104 million). 2014: profit on asset disposal (€38 million) and non-cash gain (€94 million). 2013: profit on asset disposal
(€95 million). 2012: staff exit costs (€161 million).
2
3
Adjusted profit before tax: The profit before tax figure adjusted for exceptional items and the fair value movements on interest rate swaps.
Before the following exceptional items: 2015: impairment charge (€104 million). 2014: profit on asset disposal (€38 million) and non-cash gain (€94 million). 2013: profit on asset disposal
(€95 million). 2012: staff exit costs (€161 million).
4
Excludes joint ventures.
OPERATING PROFIT BEFORE
EXCEPTIONAL ITEMS:
€635 million
PROFIT AFTER TAX:
€286 million
CAPITAL EXPENDITURE:
€873 million
2015 DIVIDENDS:
€79 million
1
OPERATING COSTS SAVINGS
ACHIEVED SINCE 2010:
€270 million
1
See note 17 for dividend details
Revenue and other income
2014
€’m
Revenue and other operating income before
exceptional items at €3,364 million has
increased by €71 million compared to 2014
(€3,293 million).
700
3,293
(2,741)
Operating profit
635
552
Exceptional items
(104)
132
531
684
(245)
(243)
Fair value movements on
financial instruments
30
(225)
200
Share of equity accounted
investees loss
(9)
(2)
100
Profit before tax
307
214
0
Tax (charge) / credit
(21)
1
Profit after tax
286
215
Net finance costs
684
731
Employee costs
421
414
Operating and maintenance costs
475
451
Impairment (exceptional item in 2015)
104
50
2,833
2,741
Total operating costs including impairment
EXCEPTIONAL ITEMS
The 2015 exceptional items relate to the impairment
and are described in operating costs above.
OPERATING PROFIT AFTER
EXCEPTIONAL ITEMS
Operating profit after exceptional items has
decreased by €153 million. The decrease is
driven by the following:
Exceptional gains in the prior year 2014 (€132
million). These gains related to:
– The profit on disposal of ESB’s interest
in Bizkaia Energia SL and ESBI Facility
Management España SL to an affiliate of
ArcLight Capital Partners, LLC (€38 million).
The proceeds from the sale of these assets
were used to fund part of the special dividend
of €400 million agreed with the Government in
2012.
– The non-cash gain reflecting the fair value of
ESB’s 50% share in SIRO with Vodafone (€94
million).
Higher impairment costs in 2015 of €54
million.
Higher operating costs in 2015 (excluding
impairment) of €38 million – see operating
costs for further detail.
Offset by higher gross margin in 2015 of €71
million primarily in G&WM driven by improved
availability in the generation plant (2015: 92%
v 2014: 86%).
The movement in operating profit between
2014 and 2015 is set out in the reconciliation of
operating profit 2014 to 2015 in Figure 4.
132
600
3,364
Operating profit after
exceptional items
1,095
745
FIGURE 4: RECONCILIATION OF OPERATING PROFIT 2014 TO 2015
(2,729)
Operating costs
1,088
Depreciation and amortisation
REVENUE
FIGURE 2: SUMMARISED INCOME
STATEMENT
2015
€’m
2014
€’m
The increase is driven by improved availability in
Generation and Wholesale Markets (G&WM)
and new large contracts in Electric Ireland.
54
38
500
71
531
400
300
Operating
Profit
2014
Impact of
Exceptional
Items 2014
Higher
Impairment
Charges 2015
Higher
Operating
Costs 2015
Higher
Availability
2015
Operating
Profit
2015
02
03
FINANCIAL STATEMENTS
HIGHLIGHTS
f’millions
5
A detailed breakdown of the operating costs by
business segment is provided in note 2.
Fuel and other energy costs
2015
€’m
CORPORATE GOVERNANCE
FIGURE 1: FIVE-YEAR SUMMARY
FIGURE 3: OPERATING COSTS INCLUDING IMPAIRMENT
Overall operating costs at €2,833 million have
increased by €92 million.
Fuel and other energy costs have marginally
decreased by €7 million on 2014 levels driven
by lower gas costs.
Depreciation at €745 million is up €14 million
on 2014 due to the larger asset base in 2015.
Employee costs at €421 million are up €7
million on 2014 as a result of an increase in
headcount.
Operating and maintenance costs have
increased by €24 million. This has been driven
by higher operating costs in Northern Ireland
Electricity Networks (NIE Networks) associated
with the strengthening of GBP. Excluding the
impact of foreign exchange these costs are flat.
Following impairment reviews of the generation
assets it was decided to recognise an
impairment charge of €104 million in relation
to Corby Power Limited (€58 million) and
Coolkeeragh ESB Limited (€46 million). These
impairment charges reflect lower Great Britain
(GB) wholesale electricity prices in 2015 as
well as a lower market running for Coolkeeragh.
Further detail in relation to these impairments is
included in notes 4 and 10.
STRATEGY AND PERFORMANCE
FINANCE REVIEW
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STRATEGY AND PERFORMANCE
EBITDA
FIGURE 7: SUMMARISED CASH FLOW STATEMENT
EBITDA excluding exceptional items for 2015 at
€1,348 million is €47 million higher than 2014. This
increase is driven by higher energy margins offset by
higher operating costs excluding depreciation.
2014
€’m
EBITDA (excluding exceptional items)
1,348
1,301
ADJUSTED PROFIT BEFORE TAXATION
Provision utilisation and other movements
(185)
(64)
Adjusted profit before taxation has increased by
€74 million to €381 million (2014: €307 million).
This increase is driven primarily by the higher
gross margin as described previously.
Interest and tax
(306)
(299)
857
938
7
61
(786)
(920)
FIGURE 5: RECONCILIATION OF
ADJUSTED PROFIT BEFORE TAXATION
2015
€’m
2014
€’m
307
214
Exceptional items
104
(132)
Fair value movement on
interest rate swaps
(30)
225
Adjusted profit before
taxation
381
307
Profit before taxation
FIGURE 6: TOTAL FINANCE COSTS
Other
Net cash outflow from investing activities
2014
€’m
206
199
Financing charges
40
45
Finance income
(1)
(1)
Net finance costs
245
243
Inflation Linked Interest
Rate Swaps
(30)
245
-
(20)
215
468
33
28
(746)
(831)
494
176
135
68
2015
02
Total: €873 million
448
340
102
70
2014
Net cash outflow from financing activities
The increase in net interest on borrowings
relates to the impact of strengthening GBP on
GBP interest payments and higher debt levels.
In 2014 the Group and its counterparty banks,
agreed a restructuring of the inflation linked
swaps. This, associated with the low interest rate
environment in the UK, resulted in a significant
negative fair value movement in 2014. The slight
recovery in interest rates in 2015 resulted in a
positive fair value movement this year. Further
detail is included in note 20.
TAXATION
Higher tax charge of €21 million primarily due
to a lower deferred tax credit year on year
(2% change in UK tax rate).
(124)
(338)
(13)
(231)
Total: €960 million
SEGMENTAL PERFORMANCE
The Group is organised into five main
reportable segments or strategic divisions,
which are managed separately. Details on
the financial performance of the business
segments are included in the business unit
review sections pages 40 to 47 and in
note 2.
NET DEBT AND GEARING
The increase in net debt to €5.0 billion in
2015 from €4.6 billion in 2014 reflects
continued capital investment, finance costs,
the weakening of the euro and dividend
payments in 2015.
The gearing level of 55% is 2% higher than
2014 reflecting higher net debt. During the
year total assets increased to €13.2 billion
from €13.0 billion, reflecting the ongoing
capital investment programme of the Group.
■ ESB NETWORKS
■ GENERATION & WHOLESALE MARKETS
■ NIE NETWORKS
CAPITAL EXPENDITURE
TREASURY MANAGEMENT
Capital expenditure totalled €873 million in
2015, this is a decrease of €87 million on 2014
investment levels.
FRAMEWORK FOR TREASURY AND
TRADING OPERATIONS
Capital investment in the networks businesses
continued in 2015 with €629 million invested
in the networks infrastructure in the Republic
of Ireland (ROI) and Northern Ireland (NI). This
expenditure is based on the five-year capital
expenditure programmes agreed with the
respective regulators in ROI and NI.
Expenditure in G&WM in 2015 includes €93
million invested in the construction of the
Carrington CCGT power station in Great Britain
(GB), a decrease of €168 million on 2014
as the plant nears completion. This project is
expected to reach commercial operation in
2016. A further €83 million has been invested
in the generation business, of which €66 million
relates to plant overhauls and €17 million to
renewable projects.
The main financial risks faced by the Group
relate to:
Liquidity and maintenance of access to the
debt markets
Foreign exchange volatility
Interest rate movements on the Group’s
existing and projected future debt portfolio
Fuel commodity price movements
Counterparty credit exposure
Operational risk, including exposure to fraud
and error
Group Treasury is responsible for the day-to-day
treasury activities of the Group, and therefore
for the management, in whole or in part, for each
of these financial risks. Some of these risks
can be mitigated through the use of derivative
financial instruments, and where appropriate such
instruments are executed in compliance with the
■ OTHER SEGMENTS
specifications of the Minister for Finance issued
under the Financial Transactions of Certain
Companies and Other Bodies Act 1992.
This Act enables ESB to enter into derivative
contracts to eliminate or reduce the risk of loss
arising from changes in interest rates, currency,
commodity prices or other factors similar in
nature. IAS 39 hedge accounting is applied to
the Group’s derivative positions where possible.
Where derivative instruments held do not qualify
for hedge accounting, they are nevertheless
regarded as good economic hedges.
The Finance and Investment Committee of the
Board is updated on an ongoing basis on key
treasury matters. Group Treasury’s approach
to the management of the key financial risks of
ESB is set out in note 26.
03
FINANCIAL STATEMENTS
2015
€’m
Total finance costs
Capital expenditure
Financing charges have reduced as a result of a
decrease in the discount rate used to calculate
them.
Total finance costs for 2015 are €253 million
lower than 2014 charges
Fair value losses on
financial instruments
Sale proceeds
Net decrease in cash
TOTAL FINANCE COSTS
Net interest on borrowings
Net cash inflow from operating activities
FIGURE 8: CAPITAL EXPENDITURE
CORPORATE GOVERNANCE
2015
€’m
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01
In June 2015 ESB issued a €500 million
fixed-rate bond at a coupon rate of
2.125%, which will mature in June 2027.
The majority of the proceeds were used to
buy back a portion of a €600 million five
year 6.25% bond issued in September
2012. This successful bond placement and
buy-back helped the Group to extend the
average maturity of its long-term debt at very
competitive rates.
The Group’s debt management strategy
targets a debt portfolio profile with a diverse
mix of counterparties, funding sources and
maturities. Structured non-recourse and
limited recourse financing is used where
appropriate, taking into account funding costs
and the need for risk mitigation. All borrowing
a minimum of 50% fixed (or inflation linked) at
all times. Currently 77% of the Group’s debt
is fixed to maturity and another 15% is inflation
linked.
COMMODITY PRICE RISK
ESB’s funding position reflects its underlying
financial strength and credit ratings of at
least BBB+ (or equivalent) from all three major
agencies. ESB’s debt maturity profile as set out
in Figure 9 on page 39 is in a positive position,
particularly in the context of strong ongoing
EBITDA performance (€1.3 billion in 2015)
and liquidity of €1.5 billion (between cash and
undrawn committed facilities) at 31 December
2015. The Group continues to proactively
manage its borrowings repayment profile and
maintains its ability to fund in the future through
close ongoing engagement with its banks,
investors and credit rating agencies.
The volatility of the fuel prices required for
ESB’s electricity generation activities is a
feature of the business. The resulting exposures
to fuel price movements on future earnings are
managed by ESB on a selective hedging basis.
ESB has entered into forward commodity price
contracts in relation to gas, coal and carbon
emissions allowances for up to three years
ahead in order to reduce the Group’s exposure
to movements in wholesale electricity prices
arising from such commodity price fluctuations.
The Group’s supply business, Electric Ireland,
provides a natural hedge in this regard.
COUNTERPARTY CREDIT RISK
FOREIGN EXCHANGE AND
INTEREST RATE RISK MANAGEMENT
The vast majority of the Group’s business
is located in the Republic of Ireland (ROI
and the United Kingdom (UK). Accordingly,
operating and investing cash flows are mainly
denominated in either euro or sterling. The
main exception to this are coal purchases,
which are generally denominated in US
dollars. Foreign currency exposures are
managed using currency derivatives such as
forward purchase contracts.
The Group’s policy is to finance its euro
denominated business by borrowing directly
in euro or to convert any foreign currency
borrowing to euro through the use of
derivative instruments. Investments in the UK
(including NIE Networks, and the Carrington
power plant currently under construction)
are generally funded by sterling denominated
debt. Approximately 58% of ESB’s debt is
denominated in euro, with the remaining 42%
in GBP.
The Group’s interest rate policy is to maintain
a significant majority of its debt at fixed (or
inflation linked) interest rate to maturity, with
The Group is exposed to credit risk from the
counterparties with whom it holds its bank
accounts and transacts within financial and
commodity markets. The Group’s policy is
to limit exposure to counterparties based on
assessments of credit risk. Exposures and
related limits are subject to ongoing review
and monitoring in each business unit, and, on
a Group-wide basis, by the Group Trading
Committee (GTC). Dealing activities are
controlled by establishing dealing mandates
with counterparties.
In general, counterparty credit limits set by the
GTC are closely linked to the credit rating of
each counterparty as determined by the leading
credit rating agencies, although other factors,
including security provided and the legal
structure of the transaction, may also be taken
into account. The limit set for a counterparty is
the amount by which the sum of the settlement
amount, the mark to market value and the
potential future exposure may not be exceeded,
and these positions are reviewed on a regular
(up to daily) basis.
FUTURE OUTLOOK
The rapidly changing economic and regulatory
environment, and volatility in market prices,
continue to pose challenges to the delivery
of ESB’s programme of energy infrastructure
investment, and other targets set out in the
ESB Group Strategy. In order to position itself
to successfully adapt to these challenges, over
the past twelve months the Group has taken the
opportunity to significantly improve its liquidity
position, to address spikes in its debt maturity
profile, and to reduce the cost of borrowings.
Future operating cash flows arising from electricity
revenues and associated fuel procurement
and foreign currency requirements have been
appropriately hedged to mitigate risk.
Building on the progress of the past year, the
Group’s treasury management strategy is to
continue to develop and avail of opportunities
to support the growth and transformation of the
Group, through ensuring access to funding at
the best available cost and duration, and through
robust processes to identify and manage risk in
an increasingly complex environment.
02
FIGURE 9: ESB DEBT MATURITY PROFILE AT 31 DECEMBER 2015
€900m
€750m
€600m
03
€450m
FINANCIAL STATEMENTS
Following these transactions, the weighted
average interest rate on the Group’s portfolio
of outstanding borrowings at 31 December
2015 was 5.4%, and the weighted average
duration of such borrowings as at that date
was six years. Group Treasury will continue
to actively manage its debt maturity profile
to secure its liquidity position, and to further
reduce the average rate and increase the
average tenor of the Group’s debt portfolio.
facilities are in compliance with the Electricity
Acts and relevant regulatory requirements and
Group Treasury maintains diversity in ESB’s
lender base in order to achieve a strategic
spread of risk.
CORPORATE GOVERNANCE
The Group’s funding operations are of
strategic importance and support capital
expenditure, the refinancing of maturing debt
and the maintenance of adequate liquidity.
To this end, a number of milestones were
achieved in 2015 to secure the funding and
liquidity position of the Group. In January
2015, the Group’s Revolving Credit Facility,
agreed in February 2013, was amended
and extended. The amendment, agreed
with a group of fourteen leading Irish and
international banks, increased the size of the
facility from €1.40 billion to €1.44 billion,
combined with a significant reduction in
pricing. The facility provides ESB with a very
substantial level of standby liquidity for the next
five years, with an option for a further two year
extension, to 2022.
STRATEGY AND PERFORMANCE
FUNDING AND LIQUIDITY
€300m
€150m
€0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
After 2026
■ EUROBONDS (ESB AND NIE NETWORKS) ■ PRIVATE PLACEMENT ■ LONG-TERM BANK BORROWINGS ■ PROJECT FINANCE DEBT
40
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ESB Annual Report 2015
41
UPDATE ON 2015 PRIORITIES AND PRIORITIES FOR 2016
2015 PRIORITY
2016 PRIORITY
Maintaining a healthy and injury-free workplace, building
on the 4You programme, embedding the Process
Safety Project and seeking further improvement in the
application of ESB’s Safety Leadership Framework.
 G&WM deepened the 4You approach
 Delivered phase one of the Process Safety Programme
 Strengthened the application of ESB’s Safety
Leadership Framework
 Continuing to maintain a healthy and injury-free
workplace, increasing safety assurance
Safely progressing construction and commissioning
of the 881 MW Carrington Power Station near
Manchester and completing the construction of the 20
MW wind farm at Woodhouse in Waterford.
 Safe completion of the Woodhouse Wind Farm
 Construction progressed on Carrington
 Safe completion of a number of JV solar rooftop
projects
 Safely completing Carrington, progressing Tilbury,
wind and solar projects, to deliver an increasingly
diverse range of energy assets and to reduce
carbon intensity
Delivering strong commercial and operational
performance across ESB’s generation plant through
best practice operations and maintenance and timely
completion of overhauls.
 Solid commercial performance underpinned by
excellent operational performance from both generation
and trading
 Retention of accreditation to PAS 55, the International
Asset Management Standard
 Significant investment in existing assets together
with a continued focus on further innovation and
performance improvement in generation and
trading
Commencing construction of additional renewable
projects supporting the reduction of the carbon intensity
of generation and continuing to develop diverse
renewable and thermal growth options.
 Step change in the number of renewable assets under
construction, including wind, waste wood biomass and
rooftop solar
 Additional renewable projects while continuing to
develop diverse renewable and thermal growth
options
Building on G&WM’s new trading systems and
risk management capability and preparing for the
introduction of the I-SEM electricity wholesale market
in 2017.
 New portfolio optimisation and risk management
capabilities delivered
 Enhanced trading capability made possible through
improved systems, processes and an innovative
organisation
 The trading of Carrington and the design of
new trading processes and wholesale products
appropriate to the I-SEM structure
OPERATIONAL
GENERATION AND WHOLESALE
MARKETS (G&WM)

2015 was a positive year for Generation and Wholesale
Markets. There was good progress on the development and
construction of new assets, while strong performance from
both trading and generation underpinned an operating profit
(before exceptional items) of €241 million on a turnover of
€1.4 billion. After the exceptional charge of €104 million for
impairments operating profit is at €137 million.

Paddy Hayes, Executive Director, Generation and Wholesale Markets
2015
€137 million
2014 €162 million
(€25 million)
CAPITAL EXPENDITURE
2015
€176 million
2014 €340 million
(€164 million)
OVERVIEW
With a strong focus on safety, G&WM
delivers value by:
Providing wholesale and traded products
to meet market needs
 Offering system services to support
robust and reliable electricity grids
 Optimising the operation of the ESB
generation portfolio
 Delivering new generation assets to drive
decarbonisation of electricity
 Acting positively in communities local
to construction projects and operating
assets
G&WM’s operating profit (including exceptional
items) at €137 million is down €25 million on 2014.
This reflects an improvement in gross margin of
€72 million related to strong plant availability offset
by a €5 million increase in operating costs together
with additional impairment charges in 2015 of €54
million, compared to an exceptional gain in 2014
(€38 million) relating to the sale of a 50% stake in
Bizkaia Energia SL and ESBI Facility Management
España SL.
The G&WM 2015 total impairment charge of
€104 million consists of a charge of €58 million
for Corby Power Limited resulting from forecast
wholesale electricity prices together with a charge
of €46 million for Coolkeeragh ESB Limited
related to a reduction of the plant’s running in the
energy market.
Capital expenditure was €164 million lower,
reflecting a reduction in the investment in the
Carrington plant as it nears completion.
Asset Delivery
The new Integrated Single Electricity Market
(I-SEM) proposed by regulators and due to
launch in quarter 4, 2017, will result in a very
significant change to the business environment for
SEM generation and trading operations. A project
has been mobilised to ensure that G&WM is fully
engaged in the process and will be ready for the
market change.
The UK Government’s Electricity Market Reform
(EMR) programme continues and the second GB
capacity auction took place in December 2015.
G&WM accepted a one year capacity contract for
Carrington for the year 2019 / 20, but withdrew
Corby’s capacity before the auction cleared.
Corby bid into a National Grid tender for
additional Supplemental Balancing Reserve
capacity for the winters of 2016 / 17 and
2018 / 19, and was successful in being awarded
a contract extension for that period.
OPERATING ENVIRONMENT
The operating environment was challenging in
both GB and the SEM during 2015. Although
there was a slight growth in SEM electricity
demand, gas prices reduced, in turn reducing
SEM electricity prices and putting downward
pressure on margins from coal and hydro plants.
These adverse market movements were mitigated
to some extent by longer-term hedges and this
also moderated the impact lower gas prices
had on margins from gas plants. G&WM’s
performance benefited also from excellent
generation plant availability and output during
2015 with strong performance from all assets.
 Woodhouse Wind Farm (20 MW) was completed
and went into commercial operation
 Over 500 kW of rooftop solar projects have
been built by the Kingspan ESB joint venture (JV)
primarily in Northern Ireland (NI)
Asset Construction
The 881 MW Carrington combined cycle gas
turbine (CCGT) plant near Manchester started
commissioning and is nearing completion, with
commercial operation planned for 2016
Construction started on the 40 MW Tilbury
Green Power biomass plant, located in Essex, a
JV with the UK's Green Investment Bank and the
Scandinavian Contractors BWSC & AET
Construction has started on Raheenleagh Wind
Farm (35 MW in County Wicklow) – a JV with
Coillte Teoranta
Initial engineering works have started on several
other wind farms in ROI and NI
Asset Development
PROGRESS ON STRATEGIC
OBJECTIVES
G&WM is responsible for identifying
and developing opportunities to enhance and
expand ESB’s generation portfolio, in order to
build a balanced, low-carbon generation portfolio
in the all-islands market, as part of ESB's strategic
ambition of delivering Generation / Supply
Businesses of Scale.
There was good progress on this objective during
2015, with the development, construction and
delivering of a number of new generation assets.
 Development consent was secured for a 1,500
MW CCGT plant in Knottingley, GB
 An agreement was signed with Coriolis Energy,
a specialist independent wind farm development
company, securing access to a development
pipeline of wind projects in Scotland
 ESB’s development pipeline also continues to
grow, with a number of wind projects due to move
from development to construction between 2016
and 2020
G&WM'S CUSTOMERS
renewables and reduce the carbon intensity
of generation. The absolute levels of CO2 from
G&WM’s SEM generation plants are in line with
2014 and remain lower than 2005 by circa. 37%.
G&WM continues to offer a variety of traded
contracts to all supply companies in the SEM on
a non-discriminatory basis via an over-the-counter
trading platform. These contracts provide all
suppliers with the opportunity to hedge their power
purchases, which enables them to better mitigate
against power price volatility risk for their residential
and commercial customers.
G&WM continue to invest in its Fisheries
Conservation Programmes, which includes
operating three salmon conservation hatcheries,
a comprehensive river restoration programme
and the juvenile and silver eel trap and transport
programmes. These programmes are directed at
improving fish stocks and natural river habitats.
(to the value of €66 million) in the existing
generation portfolio during 2015
PEOPLE
At 973, employee numbers in G&WM remain
similar to 2014 and almost 20% lower than in 2011.
Operating with these numbers while maintaining the
safe and effective performance of the business and
delivering the ESB Group Strategy continued to be
a key focus during 2015.
Safety is of fundamental importance and G&WM’s
safety improvement programme during 2015
included the behavioural safety approach (4You)
and implemented the first phase of a significant
process safety project.
All locations within G&WM are covered by
an externally audited OHSAS certified safety
management system for which accreditation was
maintained. G&WM retained their Excellence
Through People accreditation.
SUSTAINABILITY
Investment in Existing Assets
 G&WM continued to make significant investments
02
G&WM operates its business with a focus on
minimising environmental impact, aiming to increase
ENERGY FOR LIFE
ESB Wind Community Funds
G&WM’s wind community funds support a wide
range of projects, helping make a difference
to the everyday lives of local residents in the
communities where G&WM build and operate
wind farms. Some examples of projects G&WM
supported in 2015 include:
 Arigna Mining Experience – a community
group, near wind farms at Tullynahaw and
Garvagh Glebe, established to develop an
innovative tourism heritage attraction in the
Arigna valley in north Roscommon; and
 Aglish Community First Responders – a
community based group, near Woodhouse
Wind Farm, established to provide
community first response services in
advance of the arrival of the ambulance
service which is 25 minutes away.
03
FINANCIAL STATEMENTS
The G&WM business develops, operates
and trades ESB’s electricity generation
assets. The portfolio consists of 4,827 MW
of thermal and renewable generation assets
in operation across the Single Electricity
Market (SEM) and Great Britain (GB), with
a further 1,017 MW under construction.
FINANCIAL PERFORMANCE
STRATEGIC
CORPORATE GOVERNANCE
OPERATING PROFIT
Thermal generation assets operate under strict
environmental legislation and G&WM has been
preparing for the introduction of the Industrial
Emissions Directive (IED), which came into
force in January 2016. This involved making
choices about the longer term operating
regimes for a number of older generation plants
and these decisions have been registered with
the relevant regulatory authorities. A major
environmental investment of €353 million was
completed in Moneypoint coal station by 2010
in order to be able to meet the standards of
the IED.
01
STRATEGY AND PERFORMANCE
2015 PROGRESS
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UPDATE ON 2015 PRIORITIES AND PRIORITIES FOR 2016
2015 PRIORITY
2016 PRIORITY
Ensuring the health and safety of employees, contractors and
the public and given the nature of electricity, ESB Networks
understands the complexity of its safety challenge.
 External specialists were engaged during
2015 to carry out an independent survey
of ESB Networks’ safety culture
 Launched a number of new safety
campaigns and initiatives
 Continuation of the strategy to ensure the health and
safety of employees, contractors and the public
Continue to work closely with CER to deliver the customer
service targets contained in the regulatory determination
in line with the Customer Service Improvement Plan
(2013–2016).
 Customer satisfaction ratings continued
to be ahead of target
 Examine emerging trends in electricity networks across
Europe and develop strategic plans accordingly, in order
to effectively position ESB Networks for future industry
changes
OPERATIONAL
ESB NETWORKS

The €494 million of new investment in network
assets during 2015 brings the total investment in critical
electricity network infrastructure over the last five years
to €2.2 billion, helping to facilitate a more sustainable
energy environment for Ireland, as well as supporting
economic growth through providing stable, safe and
reliable electricity supply to homes and industries.
Marguerite Sayers, Managing Director, ESB Networks Limited
OPERATING PROFIT
€287million
2014 €293 million
(€6 million)
CAPITAL EXPENDITURE
2015
€494 million
2014 €448 million
€46 million
REGULATED ASSET BASE (RAB)
2015
€7.4 billion
2014 €7.1 billion
€0.3 billion
OVERVIEW
During 2015, ESB Networks achieved
reaccreditation for its asset management
systems through ISO 55001 certification
and for its safety management systems
through OHSAS accreditation. These
external accreditations are important in
providing assurance that the business
is being run consistently to high external
benchmarks.
ESB Networks operating profit for 2015 at
€287 million is down €6 million on 2014.
The decrease relates to lower regulated
tariff income.
Capital expenditure at €494 million is up
by €46 million on 2014. The increase
is related to additional spend on the
distribution network system.
OPERATING ENVIRONMENT
Economic recovery has continued during
2015 in both the house building and
business sectors with both experiencing
increasing volumes of new connections,
with connections up 8% on 2014. Further
modest growth is expected in 2016.
The amount of wind generation connected
to the electricity network in ROI has
exceeded 2,400 MW and continues to
increase annually. Ireland is on track to
achieving the national target of providing
40% of its electricity needs from renewable
resources by 2020.
During 2015, ESB Networks engaged
with the Commission for Energy Regulation
(CER) to agree the regulated revenues
for the next Price Review Period (2016
- 2020). The ESB Networks’ submission
sought to ensure that it could finance the
substantial planned investment programme,
whilst maintaining excellent customer
service at an affordable price. The final
determination has been published and
ESB Networks is satisfied that it has a
reasonable framework under which it can
continue to deliver a safe and reliable
network.
Health and Safety
ESB Networks is fully committed to ensuring the
health and safety of employees, contractors and the
public. As part of the ESB Safety Strategy, ESB
Networks engaged external specialists during 2015
to carry out an independent survey of ESB Networks’
safety culture. This assessment has confirmed that
the approach and activities being taken in the safety
strategy are correct and has made recommendations
on how to further improve safety plans. All employees
were briefed on the findings of this survey.
Electricity Infrastructure
Investment and Growth
The focus of the 2015 investment in the transmission
network was on continuing the reinforcement of the
transmission system to facilitate the connection of
new renewable electricity generation. ESB Networks
also continued to invest in the electricity distribution
network to improve reliability of supply and ensure the
safety of the network.
Further progress was made on completing a
major €400 million project in the South-West,
which includes five new 220/110kV stations
at Kilpaddogue, Ballyvouskill, Knockanure,
Ballinanhulla and Moneypoint
Progress has been made on a number of major
customer connections – some of these are still
at planning while some are in construction
A new 14 kilometre 110kV line project from Trien
to a new station at Cloghboola was completed,
220 kilometres of transmission line were
refurbished and 80 kilometres of transmission
lines was uprated, as part of the Grid 2025
Transmission Reinforcement Programme
A refurbishment project for Old Street Woodland 400kV circuits also commenced
Network reinforcement and refurbishment
expenditure of €202 million including HV
station investment and extensive MV/LV network
refurbishment
Smart Metering Programme
The detailed design and procurement stage is in
progress, focusing on designing changes to the
 Launch a website that will facilitate a number of additional
services for customers online
 Continue to work closely with SIRO to ensure a smooth
roll-out of the fibre infrastructure in towns across Ireland
STRATEGIC
Achieving an acceptable revenue determination for 2016 2020. It is expected that CER will make a decision on the
PR4 submission in mid-2015, which will set the allowed
revenue for ESB Networks for the period 2016 - 2020.
This will determine ESB Networks ability to support the
development of the electricity network in 2016 - 2020.
 PR4 was concluded in December 2015
and ESB Networks is satisfied that it has
a reasonable framework under which it
can continue to deliver a safe and reliable
network
 Deliver the first year of the PR4 capital and maintenance
programmes, while developing the framework for ongoing
monitoring of PR4 performance
Efficiently deliver the critical infrastructure required to support
the ongoing growth of the Irish economy.
 Good progress during the year on both
transmission and distribution projects
 Efficiently deliver the critical infrastructure required to
support the ongoing growth of the Irish economy
To be a recognised leader in the area of energy and
environmental sustainability and develop an integrated Smart
Networks Strategy to enable national targets to be met.
 Input into the Smart Metering policies that
the CER published during 2015
 To be a recognised leader in the area of energy and
environmental sustainability and develop an integrated Smart
Networks Strategy to enable national targets to be met
market, finalising technology specifications and
conducting procurement processes for the meter and
communications products and services necessary
to deliver the programme. Following substantial input
from ESB Networks and other industry players, the
CER published two sets of policy decisions in July and
December 2015. A final decision on this programme is
expected during 2016.
Customer Value
The Network Access Agreement between ESB and
SIRO (ESB's joint venture with Vodafone, for the
roll-out of fibre broadband to customers across
Ireland using the distribution network) came into effect
during 2015. This agreement allows SIRO to deploy
fibre infrastructure on certain ESB Networks’ assets
in return for an access fee, which in turn reduces
charges to electricity customers. Using the network
in this innovative way demonstrates ESB Networks’
commitment to delivering best value for electricity
customers, while maintaining the rights to primacy of
network for electricity purposes.
ESB NETWORKS’ CUSTOMERS
ESB Networks continues to improve its service to all
electricity customers and suppliers.
During 2015, ESB Networks provided a range of
services to electricity suppliers, 310,644 site switches
were facilitated, 17,012 new residential and business
connections were carried out and ESB Networks
continued to support customers experiencing financial
hardship by installing 12,319 Pay As You Go meters.
connections continues to be above target, at 80%.
ESB Network’s National Customer Care Centre
(NCCC) continues to maintain its very high
customer service levels with customer satisfaction
levels at 90%. Expanding customer communication
channels to make it easier for customers to contact
ESB Networks and to receive information is
an important part of its Customer Service
Improvement Plan. ESB Networks Twitter feed
@esbnetworks continues to grow its followers
and, along with the PowerCheck App, it is a critical
channel to provide customers with information on
safety, planned and fault outages and estimated
restoration times.
In 2015, ESB Networks put in place a Vulnerable
Customer Policy, which outlines how it can assist
customers who have registered as vulnerable with
their electricity supplier.
The safety of the public in relation to electricity is an
important element of customer communications. In
2015, ESB Networks launched a number of new
campaigns and initiatives including the Stay Safe,
Stay Clear schools programme, increased radio
advertising and social media campaigns.
PEOPLE
ESB Networks’ employees are central to
successfully implementing its business strategy.
This ethos is reflected by the importance placed
on the ongoing development of employees in
2015. During the year, ESB Networks recruited
Overall customer satisfaction with ESB Networks across 120 network technician apprentices, reflecting
a range of activities including meter reading, and new
its commitment to ensuring ESB Networks has
the requisite resources and skills to maintain and
enhance the network.
SUSTAINABILITY
During 2015, ESB Networks maintained
external accreditation to ISO 14001: 2004 –
the International Standard for Environmental
Management Systems. A total of 222 MW
of wind farm capacity was connected to the
transmission system in 2015 – bringing total
renewable MWs connected to the grid to over
2,700 MW. ESB Networks plan to connect a
further 500 MW of renewable energy in 2016.
ENERGY FOR LIFE
Apprenticeship Programme
ESB has a long history of involvement
in offering apprenticeships resulting in
qualifications mainly in electrical and
mechanical trades. The Group announced
in 2015 that it is to recruit three hundred
apprentices over the next five years as part
of a large scale recruitment and development
programme. This represents a €40 million
investment in the training and development of
ESB’s future workforce. The apprenticeship
system has been part of ESB’s philosophy
and ethos and the investment in
apprenticeships and in-career training is
critical to ensuring that ESB has the requisite
skills available for it to maintain, develop and
enhance the electricity system so that it meets
the needs of modern Ireland.
02
03
FINANCIAL STATEMENTS
ESB Networks builds, owns and maintains
a transmission and distribution network of
over 180,000 kilometres in the Republic of
Ireland (ROI). The business invested €494
million (net of customer contributions) in
constructing new network in 2015, bringing
the total investment over the last five years to
€2.2 billion. During 2015, €111 million was
spent on maintaining the existing network.
FINANCIAL PERFORMANCE
The key strategic objective relating to
ESB Networks is the delivery of Advanced Networks.
During 2015, ESB Networks made progress in a
number of areas relating to this objective:
CORPORATE GOVERNANCE
2015

PROGRESS ON STRATEGIC
OBJECTIVES
01
STRATEGY AND PERFORMANCE
2015 PROGRESS
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UPDATE ON 2015 PRIORITIES AND PRIORITIES FOR 2016
2015 PROGRESS
2016 PRIORITY
Ensuring the health and safety of employees, contractors
and the general public will continue to be NIE Networks' top
priority.
 No lost time incidents
 ISO OHSAS accreditation
 Ensure the health and safety of employees, contractors
and the general public and achieve a zero-harm work
environment through implementation of injury and
accident-free initiatives
Consistently providing high standards in network
performance and customer service.
 Customer and generation connections
brought into one business to improve delivery
 Enhanced online services for customers
 Think Customer initiative launched
 Roll-out of Think Customer initiative
OPERATIONAL
 Deliver a high level of generation connections
 Opening connections to competition

Re-naming as Northern Ireland Electricity Networks
Limited (NIE Networks) clarifies for customers the
company’s role as the electricity networks provider in
Northern Ireland.

Jerry O’Sullivan, Deputy Chief Executive
2015
€48 million
2014 €56 million
(€8 million)
CAPITAL EXPENDITURE
2015
€135 million
2014 €102 million
€33 million
REGULATED ASSET BASE (RAB)
2015
£1.3 billion
2014 £1.3 billion
Nil
NIE Networks is responsible for the transmission
and distribution of electricity from generators
to every home, farm and business in Northern
Ireland (NI). NIE Networks employees work 24/7
to plan, build, repair and develop the electricity
network and operate the distribution network to
keep the lights on for customers. NIE Networks
is also responsible for metering and provides
metering information to all electricity suppliers. It
develops and reconfigures the electricity network
to facilitate the connection of further renewable
generation.
As required under its regulatory licences, NIE
Networks is an independent business within ESB
with its own Board of Directors, management and
employees.
NIE Networks operating profit for 2015
amounted to €48 million a reduction of €8
million on 2014 reflecting lower regulated tariff
income and higher operating costs associated
with depreciation charges on the increasing
asset base.
Capital expenditure at €135 million is €33
million higher than 2014 related to the
strengthening of GBP and a ramp up in the
capital investment programme to deliver the
outputs required in the RP5 determination.
OPERATING ENVIRONMENT
In 2010, under the Strategic Energy Framework
(SEF), the NI Assembly set a target of
achieving 40% of electricity consumption from
renewable sources by 2020, with an interim
target of 20% by 2015. By the end of 2015
renewable generation connected represented
approximately 24% of total electricity generation
in NI. Government support through the Northern
Ireland Renewable Obligation (NIRO) scheme
was a key enabler of this achievement and a
mid-term review of the SEF is underway.
NIE Networks is currently responsible for
construction of all connections to the electricity
network. The Utility Regulator (UR) announced
the introduction of contestability (the opening
of the market to other providers) for all new
networks connections which will bring
competition from independent connection
providers. NIE Networks is engaging with the UR
to enable the first phase of opening the market
to competition by May 2016, followed by full
market opening by the end of 2017.
The capital expenditure programme was ramped
up to deliver the outputs specified in the network
investment plan for RP5, particularly regarding
asset replacement and progress is on track
to deliver those specified outputs. Further
renewable generation was connected to the
network.
During 2015, NIE Networks invested €135
million (net of customer contributions) primarily
on the refurbishment and replacement of worn
transmission and distribution assets to improve
the reliability of supply and ensure the safety of
the network for customers. Key projects included:
the construction of the new 110/33kV substation
in Belfast due for completion in mid-2016;
significant progress with the refurbishment
of three 275/110kV substations and major
refurbishment commenced at two existing
110/33kV substations.
Further network development was undertaken to
facilitate the connection of additional renewable
generation, including the completion of a new
275/110kV substation at Tamnamore and
the commencement of construction of three
110/33kV wind farm cluster substations.
A major programme to replace and update 25%
of customers’ meters by 2017 commenced.
With the anticipated closure of the NIRO scheme,
there was a significant increase in demand for
renewable generation connections, particularly
small-scale wind generation. NIE Networks worked
with the UR and the renewables industry to address
the increased demand for the benefit of customers.
There was increased engagement with key
stakeholders including a consultation programme
with customers and other stakeholders on
 Further development of financial reporting systems
 Maintain labour costs in line with appropriate
benchmark
 Enhance leadership capability
STRATEGIC
Further ramp up of network investment programme to
replace worn / aged assets and to facilitate connection of
renewable generation within regulatory allowances.
 Network investment programme on target
 Completion of major substation at
Tamnamore
 Keep on target to deliver network investment
programme for RP5
 Construction of three new wind farm cluster
substations
Continuing investment in employees to enhance the
organisation’s capability through further employee
development programmes, increased employee engagement
and empowerment and extended educational outreach.
 IET accreditation of development programme
for engineers
 Increase in employee numbers particularly in
network connections
Engaging effectively with key stakeholders including
regulators, renewables industry groups, Confederation of
British Industry (CBI) and large energy users.
 Significant engagement with customers
and other stakeholders to inform investment
priorities for RP6
 Increased employee engagement
 Further recruitment
 Continued effective engagement with key stakeholders
 Complete RP6 stakeholder consultation programme
 Submit business plan for RP6 to the UR
their views on the company’s current service
level and what they would like delivered in the
future. These views will be taken into account in
developing the business plan for the next price
control period (RP6), from 2017 to 2024, which
will be submitted to the UR in mid-2016.
Investment in NIE Networks’ key resource, its
people, has continued with extensive employee
engagement activity, employee development
opportunities and recruitment.
NIE NETWORKS' CUSTOMERS
Customers’ expectations of service continue
to increase. Against the backdrop of a ramp
up in the network investment programme, NIE
Networks continued to manage outages required
for essential maintenance and development in
order to minimise the occasions and length of
time that customers are off supply. The average
number of customer minutes lost due to planned
outages was 66, representing an increase on the
previous year. The average number of minutes
lost due to faults in the distribution network was
65, an increase on the previous year reflecting
faults due to storm damage. The number of
complaints taken up by the Consumer Council
for NI on behalf of customers remained low, at
only four complaints. A new customer service
initiative, Think Customer, was launched in the
autumn.
Customers increasingly wish to use the website
and social media to engage with the business.
New online services continued to be rolled out,
including a video advising what to do in the event
of a power cut. The new company name was
launched to help clarify when customers should
contact NIE Networks.
PEOPLE
Ensuring the safety of employees, contractors
and the general public continued to be the
number one value at the heart of all NIE Networks
operations. The aim is to provide a zero-harm
working environment where risks to health
and safety are assessed and controlled. There
have been no safety incidents resulting in lost
working time for employees since September
2014, showing the commitment of employees to
maintaining the highest standards of safety.
Further to the accreditation by the UK
Commission for Employment and Skills with the
Investors in People Gold Standard in early 2015,
the NIE Networks’ development programme for
engineers was accredited by the Institution of
Engineering and Technology (IET).
SUSTAINABILITY
During the year, two large-scale wind farms,
three hundred small-scale renewable generation
projects and several hundred micro-generation
projects were connected to the network, together
providing an additional 90 MW of renewable
generation in 2015. By the end of the year, there
was a total of 840 MW of renewable generation
connected, representing around 24% of total
electricity generation in NI. The installed capacity
of renewable electricity generation connected in
NI per customer was ranked as the highest in the
UK (based on 2014 figures).
ENERGY FOR LIFE
Educating Children
in Electricity Safety
Electricity is needed by the whole community
and NIE Networks is dedicated to educating
children from a young age on electricity and
its dangers.
NIE Networks has been involved in the
development of a dedicated safety training
facility for children and young people, known
as RADAR (Risk Avoidance and Danger
Awareness Resource). NIE Networks has
built an overhead line and a ground-mounted
substation complete with special effects to
simulate the sound and light associated with
accidental contact with electrical apparatus.
A total of 10,000 children and young people
are expected to visit RADAR during 2016.
02
03
FINANCIAL STATEMENTS
OVERVIEW
FINANCIAL PERFORMANCE
A key strategic objective for
NIE Networks is the delivery of the network
investment plan under the regulatory period 5
(RP5) price control. During 2015, NIE Networks
made progress on a number of areas relating to
this objective.
 New methods developed to monitor costs
against price control allowances
 Organisational structure re-aligned
CORPORATE GOVERNANCE
OPERATING PROFIT
PROGRESS ON STRATEGIC
OBJECTIVES
NIE Networks will strive to operate within the expenditure
allowances set in the price control, delivering cost
efficiencies and performance improvements where possible
01
STRATEGY AND PERFORMANCE
NORTHERN IRELAND
ELECTRICITY NETWORKS
(NIE NETWORKS)
2015 PRIORITY
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UPDATE ON 2015 PRIORITIES AND PRIORITIES FOR 2016
2015 PRIORITY
2015 PROGRESS
2016 PRIORITY
ELECTRIC IRELAND
Deliver innovative products and services that
provide customers with excellent value for money.
 First to market with a Smarter PAYG product for residential
customers
Provide excellent customer service and
introduce new initiatives to improve the customer
experience.
Maintain the Electric Ireland brand as the leading
energy supply brand in Ireland.
 New mobile enabled website
 New online residential and business account management
facility
 Continued sponsorship of a number of sporting, cultural and
charity events
 Launch of Smarter Living brand campaign to highlight Electric
Ireland’s brand promise of delivering simple ideas that make life
better
 Entered the NI residential market

Electric Ireland remains committed to providing value for all customers and I was delighted to announce
a 2% reduction in our residential electricity prices in November 2015, following on from a similar reduction
in 2014, both ahead of the winter peak demand period. Combined with gas price reductions totalling 5%
during 2015, it means that on average an Electric Ireland dual fuel customer has seen savings of over €90 per
annum since November 2014. Electric Ireland will continue to monitor energy markets and will pass through
price savings to the customer as soon as the opportunity arises. 2015 also saw Electric Ireland bring a number
of new and innovative products and services to our customers, such as Smarter Pay As You Go, aimed at
improving customer experience and empowerment.

Jim Dollard, Executive Director for Business Service Centre and Electric Ireland
REVENUE
€2,100 million
2014 €2,057 million
€43 million
OPERATING PROFIT
2015
€44 million
2014 €64 million
(€20 million)
OVERVIEW
FINANCIAL PERFORMANCE
Revenue in Electric Ireland in 2015 was €2,100
million, an increase of 2% compared to 2014
driven by an increase in overall Single Electricity
Market (SEM) market share. Electric Ireland’s
overall market share increased by 1% during
2015 to 38% driven by strong performance in the
Industrial and Commercial market sector.
Electric Ireland reported an operating profit of
€44 million, which represents an operating profit
OPERATING ENVIRONMENT
Electric Ireland operates in one of the most
dynamic and competitive energy retail markets
in Europe, evidenced by the number of new
suppliers to enter the market in recent years and
the high customer switching levels.
Despite another new supplier entering the
residential marketplace in 2015 and a number
of high profile marketing campaigns launched
by existing competitors, Electric Ireland has
continued to compete effectively in this
environment through a continued focus on
competitively priced products and strong
customer service and has marginally increased
overall market share to 38%.
PROGRESS ON STRATEGIC
OBJECTIVES
In pursuit of the strategic objective
to be a Supply Business of Scale, Electric
Ireland is aiming to continue to be the leading
energy supplier in the ROI market offering
smart and innovative solutions to homes and
businesses. This is being achieved by providing
competitive offerings, excellent customer
service and new and innovative products to
meet customer needs.
ELECTRIC IRELAND'S CUSTOMERS
The customer remains central to everything that
Electric Ireland does. In addition to reducing
prices and launching new and innovative
products, such as Smarter Pay As You Go
(PAYG), Electric Ireland has also delivered a
number of key customer service improvements
with the aim of maintaining its position of having
the highest customer satisfaction ratings of all
energy suppliers.
With continued focus on a quality customer
service offering Electric Ireland maintained its
high levels of customer satisfaction and had
the highest levels of customer satisfaction of all
electricity suppliers during 2015, as reported by
the Commission for Energy Regulation (CER).
In addition, Electric Ireland continued to deliver
service levels in line with Customer Charter and
Customer Service Codes of Practice.
 Early identification of customers with a higher risk
of having payment difficulties and be proactive in
offering suitable products and payment plans
02
STRATEGIC
Invest in the development of a digital platform
so customers can increasingly avail of services
online.
 New mobile enabled website complimented with new residential
and business online account management facilities
Develop innovative solutions for homes and
businesses to become more energy efficient.
 Energy Efficiency Incentive Scheme which has delivered 15
GWh of energy savings to date and returned over €1 million to
customers
 Expanded the range of smart home products and services
 Established I-SEM and Smart Metering Programme project
teams to support and influence design and roll-out of these
significant market developments
Engage with the CER and all stakeholders
regarding key developments in the market (e.g.
the Integrated Single Electricity Market (I-SEM)
and the National Smart Metering Programme) for
the benefit of the consumer.
A continued focus on the customer experience
and improvements in the digital capability of the
business remains one of Electric Ireland’s top
service priorities for 2016.
PEOPLE
With the increasing use of web, email and
social media channels, customers are engaging
with Electric Ireland in new ways. To meet the
changing requirements of customers and with a
strong focus on customer empowerment and selfservice, Electric Ireland launched a new mobile
website during the year. This was complimented
by a new business online account management
facility, which provides business customers
with enhanced information in relation to energy
consumption and costs and a new e-billing portal
for residential customers.
 Support Electric Ireland customers and their
communities through sponsorships and corporate
social responsibility initiatives
 Continue to enhance the value offered to all
customers (existing and new) and to honour the
commitment to pass through further energy price
reductions where possible
A key element in the successful delivery of Electric
Ireland’s strategic and operational priorities is
the capability, knowledge and performance of
employees. A continued strong focus on employee
development and targeted recruitment across a
range of disciplines and activities will ensure that
Electric Ireland continues to provide competitive
offerings, excellent customer service and new
and innovative products to meet customer
needs. In 2015, Electric Ireland recruited more
than thirty new employees with a range of skills
and experience, including data analytics, digital
expertise and marketing, to support the business
in the delivery of its strategic objectives.
SUSTAINABILITY
Electric Ireland is conscious of operating its
business in a sustainable and environmentally
responsible way. The internal business activities
are certified to ISO 14001 standard and Electric
Ireland actively works with customers to assist
them in improving the sustainability of their
homes and businesses through the efficient use
of the energy provided to them. This is achieved
through a mixture of promotional campaigns,
providing tips and insights on the efficient use
of energy right through to detailed energy audits
and consultations tailored to particular customer
usage and requirements.
Electric Ireland also delivers energy savings as
part of the National Energy Efficiency Obligation
Programme. In 2015, Electric Ireland assisted
local authorities and housing associations
around the country to improve the energy
efficiency of social housing through a variety
of measures including attic and wall insulation,
heating system improvements and heating
control upgrades.
Electric Ireland is rewarding customers who
undertake measures to improve the energy
efficiency of their homes through its Energy
Efficiency Incentive Scheme, which gives
customers additional discounts on their bills.
Electric Ireland has pioneered the introduction
of Smart Heating Controls, offered as part of
price plans to assist customers in managing their
energy requirements. Electric Ireland has also
assisted business customers in reviewing their
 Ongoing focus on customer convenience,
empowerment and control through continued
development of the digital service capability across
the entire customer experience journey
 Maintain Electric Ireland’s market leading position
through the delivery of its energy efficiency targets
and providing customers with new products and
services to help reduce their carbon footprint
 Ensure that the customer interest is central to the
design of I-SEM and the Smart Metering Programme
energy consumption and significant savings
have been made through the introduction of new
technologies ranging from lighting upgrades to
energy consumption improvements.
ENERGY FOR LIFE
Smarter PAYG
In 2015, Electric Ireland launched a new
brand campaign around the theme of
Smarter Living. Electric Ireland promise that
through understanding their customers, they
will provide simple ideas that make life better.
In response to listening to their customers'
needs, in October 2015, Electric Ireland
launched a new PAYG electricity product for
customers, Smarter PAYG.
Smarter PAYG is the most advanced
PAYG electricity product in the market. It
has an in-home display which supplies live
data on electricity usage, customers can
also compare their usage by day, week or
month and set daily usage targets as well
as choosing how they want to pay through
scheduled top ups, automatic top ups or text
and online options.
03
FINANCIAL STATEMENTS
Electric Ireland is the retail arm of ESB, supplying
electricity, gas and energy services to customers
across the island of Ireland. With over 1.5 million
customers and an electricity all-island market
share of 38%, Electric Ireland serves all market
segments, from domestic households to large
industrial and commercial businesses, in both the
Republic of Ireland (ROI) and Northern Ireland
(NI). With a strong focus on customer service,
providing value for all customers and contributing
to communities across the country, Electric
Ireland is recognised as a leading retail brand by
Irish consumers and businesses.
In 2015, Electric Ireland sought clarification on
the calculation of regulated renewables revenue
it received. This resulted in a rebate on some of
these revenues and accounts for €12 million of
the year on year decrease. The remaining €8
million movement reflects the lower margin and
more competitive environment in 2015 compared
with 2014.
During 2015, Electric Ireland delivered effectively
on its strategic goals with a number of notable
achievements in the following areas:
Value for customers
New products and markets
Excellent customer service and care
 Sponsorship of Team Ireland in the 2016 Rio
Olympics
CORPORATE GOVERNANCE
2015
margin of less than 2% and is down €20 million
from 2014 levels.
Deliver value for money for customers by focusing  Reduced electricity prices by 2% in November 2015 following
on retaining a competitive and flexible cost base.
on from a similar reduction in 2014, in both cases ahead of the
winter peak
 Announced a 2.5% reduction in gas unit rates from 1 January
2016 following on from a similar reduction in April 2015
Work proactively with customers in offering
 Established a specialist team in the Customer Care Service
payment options to facilitate debt repayment.
Centre to offer a range of services to customers experiencing
fuel affordability issues
 Disconnections continued to fall in 2015 – less than 30 per
10,000 customers disconnected.
 Continue to innovate for the benefit of customers
through the delivery of new smart and innovative
products and services
 Roll-out of enhanced interactive voice response
(IVR) system
01
STRATEGY AND PERFORMANCE
OPERATIONAL
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49
UPDATE ON 2015 PRIORITIES AND PRIORITIES FOR 2016
2015 PROGRESS
2016 PRIORITY
Both ESB International and Telecoms will continue
to grow their external customer base and revenues
by offering tailored products and services to existing
markets while looking for opportunities to expand into
new territories.
 ESB International has had significant customer wins
in the Middle East and Africa
 Telecoms launched the Metro Express product to
improve its offering to customers connecting data
centres around Dublin
 Both ESB International and Telecoms will continue
to support their external customers and will seek to
increase their revenues by developing new products
for existing (and new) customers
Novusmodus will continue to manage and support
its investment portfolio building value for ESB both
financially and in the development of new products and
services.
 Novusmodus has made additional investments in its
portfolio and has successfully disposed of its interest
in Lumicity
Insight from markets and technologies reviewed by
Novusmodus has led to the creation of a number of
new business areas within ESB
 Novusmodus will continue to focus on building and
realising value in its investment portfolio as well as
supporting development of options for new business
for ESB
eCars will complete the national charge point
infrastructure roll-out and begin the implementation of
commercial offerings using the network.
 eCars has completed its charge point roll-out
and has completed an upgrade of its customer
processes
 eCars have taken over the responsibility for the
operation, maintenance and development of the
charge point network in NI
 eCars will begin the implementation of a commercial
offering on its national charge point infrastructure
while exploring other opportunities in the
electromobility sector outside Ireland
Evaluate the emerging technologies and business
models relevant to ESB and develop plans to ensure
that these can be transformed into commercial
products and services for ESB.
 Dedicated teams have been established to pursue
key strategic roadmaps – identifying new products
and services to be offered by ESB - with work
already underway on new offerings for 2016
 Emerging Energy Technologies will introduce new
commercial products to ESB’s core markets to
respond to changing customer requirements
SIRO will establish commercial operations and
significantly increase the pace and scale of roll-out to
target communities across ROI.
 SIRO has commenced activities and is deploying
its fibre to the building offering in selected locations
around Ireland
 SIRO will continue to accelerate its roll-out to offer
its unique product set through more retailers across
more of the premises targeted
Develop relationships and collaborate with external
partners to create new opportunities to commercialise
new initiatives for ESB.
 Small Business Innovation Research (SBIR)
programme initiated with SEAI and Enterprise Ireland
to support development of electric vehicle charging
solution for multi-tenant dwellings
 Continue collaboration with external partners
OPERATIONAL
INNOVATION

Change is the nature of the business in which
we work. The energy sector is in a constant state of
discovery and reinvention. The only option is to adapt,
advance and thrive and because of this, innovation is
an imperative. In ESB, innovation is about collaborating
internally and externally, asking questions about how
we can work smarter and grow our business with new
products and services.

Paul Mulvaney, Executive Director, Innovation
ESB International
Offers a full range of engineering,
operations and maintenance solutions, as
well as consultancy services to the global
energy market
Novusmodus
€200 million clean technology and
renewable energy fund that invests in
renewable energy and energy efficiency
sectors
Telecoms
Owns fibre-optic broadband network and
a network of independent mobile phone
towers
SIRO, fibre to the building JV
with Vodafone
eCars
Operates the national charging
infrastructure for electric vehicles and
provides commercial services in the
electromobility sector internationally
OVERVIEW
Innovation is focused on driving the
organisation to generate and implement new
solutions to deliver growth opportunities and
positive transformation in the lives of ESB
customers.
2015 was an important year for Innovation with
further investment in developing new business
opportunities and collaborations, which will
improve service offerings into the future.
Individual business areas such as ESB
International and ESB Telecoms continued to
trade strongly and win new customer contracts
and the SIRO JV commenced the roll-out of its
wholesale fibre-optic network.
OPERATING ENVIRONMENT
The businesses in Innovation operate in competitive
markets and are responding to that challenge.
ESB International celebrates forty years in
business this year but is continuing to adapt
its customer offering to incorporate new
technologies and is winning new customers as a
result. ESB International continues to see a strong
demand for its services.
Telecoms operate in an Irish fibre and towers
wholesale market which is seeing significant
consolidation. It is working with its customers
to design their future networks to ensure that
its unique position as a provider, with a national
tower infrastructure integrated with a national
fibre network, is fully utilised. Telecoms has also
launched new product offerings, including a
Metro Express product to improve its offering to
customers connecting data centres around Dublin.
Novusmodus continues to invest in and support
its portfolio companies and is moving to realise
PROGRESS ON STRATEGIC
OBJECTIVES
Sustainable Innovation is the key
strategic objective across the Innovation business
lines, with Innovation also playing an active role
in promoting this objective across the other
business units in ESB.
Innovation is focusing on the following areas in
relation to Sustainable Innovation.
Transformational Technologies
New technologies have revolutionised the energy
industry. The customers of today are not like
the customers of the past. They want greener
solutions, faster connections and more flexibility.
Through dedicated teams, ESB is investing in
developing solutions that harness the power
of solar, wind, wave and storage to meet those
needs and provide commercial offerings for ESB
customers.
ESB’s People Power the Future
Innovation is looking at new ways to tap into
people’s capability to bring new thinking to the
organisation. Across ESB, all of its businesses are
working to ensure that new ideas and solutions
are brought to fruition for ESB and its customers.
The achievements of employees were showcased
at the ESB Staff Innovation Recognition Awards
where fifty finalists competed for ten awards out
of a total of five hundred submissions.
Powerful Collaborations
Through strategic partnerships with other leading
organisations, ESB shares knowledge, ideas
and experience. New collaborations are being
developed to expand into new areas and grow
revenue streams with the work to further deepen
STRATEGIC
the offering to commercial customers such
as Dublin Airport Authority (DAA). Innovation
are also supporting the first Small Business
Innovation Research (SBIR) programme with
SEAI and Enterprise Ireland (to develop new
solutions for electric vehicle charging in multitenant dwellings).
INNOVATION'S CUSTOMERS
The barriers to entry in the energy industry
are falling and new competitors are entering
the marketplace as a result. This changing
landscape has focused ESB’s priority on
developing new services in collaboration
with other companies to offer value-added
competitive solutions to its customers.
markets and have been working with those
customers to support their needs as the
industry evolves and consolidates.
eCars has completed the implementation of a
new management system for its infrastructure
in 2015 as well as improving the quality of the
charge posts and charge post sites. In addition,
eCars have taken over the responsibility for the
operation, maintenance and development of
the charge point network in Northern Ireland
(NI) and now supports an integrated system,
which enables seamless cross-border charging
for the growing number of electric vehicles in
Ireland.
PEOPLE
ESB International has had significant customer
wins in the Middle East and Africa and is
targeting further growth in these markets, where
its utility experience can support solutions for
other utility operators.
Telecoms have existing relationships with all of
the providers in the Irish wholesale telecoms
In a changing industry, the calibre of its
workforce is a critical factor in ensuring that
ESB has the skills to respond to the challenges
and opportunities presented to it. As well as
continuing to invest in existing teams and their
capabilities, Innovation will continue to recruit
talented employees to support its own business
requirements as well as those of the Group.
02
ENERGY FOR LIFE
ESB Staff Innovation
Recognition Awards
Innovation is not just part of what ESB
does; it is what defines ESB, which is why
in 2015 ESB celebrated its own innovators
though the ESB Staff Innovation Recognition
Awards. These awards recognise the
achievements of employees who have
demonstrated new thinking and developed
creative solutions to challenges across the
Group. These solutions show the quality,
depth and commitment of ESB’s employees
to improving the business and delivering
benefits to customers.
Overall Winner of the ESB Staff
Innovation Recognition Awards World’s First Sub-Sea Cable Repair
A multidisciplinary team successfully
implemented the world’s first undersea cable
repair on the Moyle Interconnector between
NI and Scotland using a specially developed
submersible habitat. This innovative approach
substantially reduced the cost and duration
of the repair and is the subject of a patent
application.
03
FINANCIAL STATEMENTS
Emerging energy technologies
Supporting development of a range of
technologies and business models to meet
changing energy customer and market
needs
The ESB Powering Potential Expo, a major
technology event, showcased ESB’s perspective
on the future in energy, telecoms and transport
and how ESB is responding to the changes
in customers’ energy needs. ESB also held its
inaugural ESB Staff Innovation Recognition
Awards to recognise the creative solutions
developed by teams and individuals that have
added real value to the Group.
eCars has upgraded and improved its
infrastructure in 2015 and has been working with
vehicle manufacturers and other stakeholders to
support the expected increase in electric vehicle
numbers across the island of Ireland.
CORPORATE GOVERNANCE
INNOVATION BUSINESS LINES
value from some of its investments as evidenced
by its disposal of Lumicity in 2015. Novusmodus
will continue to target new investment in
renewable energy / cleantech and continue to be
an important source for new thinking and potential
business opportunities.
01
STRATEGY AND PERFORMANCE
2015 PRIORITY
STRATEGY AND PERFORMANCE
ENERGY
FOR
DREAMS
CORPORATE SOCIAL
RESPONSIBILITY
Overview Safety People Sustainability Energy Usage in 2015
Corporate Responsibility Using Our Profits in a Sustainable Way 52
53
54
56
58
59
60
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01
SAFETY
OVERVIEW

ESB’s priorities in maintaining and developing the
right team of employees are:
Making a long-term commitment to employees,
giving them the time to build their skills and the
We are committed to fostering respect in
the workplace and to developing an inclusive
workforce based on merit and ability. It is a
guiding Group philosophy to develop and
nurture all employees, to provide training and
skills learning, offering interesting career paths
and upskilling opportunities. We also support
our employees in terms of the maintenance of
their physical and mental health, our extensive
wellbeing programme was recognised by
Chambers Ireland in their 2015 Corporate Social
Responsibility Awards.
We are committed to the highest standards of
environmental management and to proactively
addressing the challenges of climate change. We
implement programmes across our operations
to promote energy and resource efficiency,
and, in addition, develop new environmentally
driven product and process innovation and new
business opportunities.
We believe that continued sustainable business
success is built on maintaining excellent
relationships with all stakeholders. We were very
pleased to be re-accredited by Business in the
Community to the Business Working Responsibly
Mark this year for a further three year period to
2018.
We also recognise a wider responsibility beyond
our core business activities in the communities in
which we operate. In 2015 we have supported
over 190 organisations though our ESB Energy
for Generations Fund in the areas of education,
suicide prevention and homelessness. Our
work with Pieta House on their Darkness Into
Light annual suicide awareness walk was
also recognised by Chambers Ireland at their
Corporate Social Responsibility (CSR) Awards
this year.
Finally, our employees have recorded over 30,000
hours of volunteering with charities throughout
Ireland and we are proud to support them in their
efforts.

Pat Naughton
Executive Director,
Group People and Sustainability
The Chief Executive has overall responsibility
for the management of health and safety in
ESB. Functional responsibility is shared with
all senior management and, in turn, with each
manager, supervisor, team leader and every
employee. The Board has a Health, Safety and
Environment Committee, which monitors safety
performance on matters of policy and strategy
and overall health and safety performance of
the Group.
All ESB business units have safety management
systems in place, many of which are certified
to the OHSAS 18001:2007 standard or
equivalent. ESB rigorously enforces safety
policies and standards to achieve the ultimate
target of an incident and injury free environment.
SAFETY PERFORMANCE IN 2015
There were no fatalities to employees or
contractors arising from ESB activities in 2015.
ESB completed a safety cultural assessment
survey involving all employees in ESB Networks
business and have developed a detailed
strategy to implement recommendations arising
100
95
90
80
70
ESB completed the implementation of a new
Environment, Health and Safety System, which
supports a risk-based approach across the
Group. The new system replaces a number
of separate incident and audit recording
systems in each business unit and will facilitate
easier recording and tracking of all safety and
environmental incidents across ESB.
Regrettably, a member of the public was fatally
injured in June 2015 in an electrical incident
involving use of an extended telescopic hedge
trimming device that came into contact with an
overhead electricity line.
60
51
50
02
40
29
30
30
20
10
0
2004
2013
2014
2015
27
28
Contractor LTIs
100
90
87
80
LOST-TIME INJURIES (LTIs)
There has been a steady reduction in
employee and contractor LTIs since 2004.
The number of LTIs in 2015 (58) is lower than
2014 (78) however it represents an increase
on the number in both 2013 (43) and in 2012
(37). While the majority of these injuries were
of low severity, the significant increase in LTIs
in recent years is a cause for concern as ESB
continues to focus on reducing risks in the
business that give rise to injurious incidents.
The most common causes of LTIs are slips
and trips, handling, lifting and use of tools and
equipment.
HIGH-POTENTIAL INCIDENTS
The safety programme in 2015 has focused on
the implementation of the Safety Leadership
Strategy based on the four pillars of leadership,
competence, compliance and engagement and
each business area models its local health and
safety programme on these four pillars.
Employees LTIs
In addition to focusing on LTIs, ESB
categorises all injurious incidents and near
misses with a particular focus on high-potential
incidents that could lead to more serious
outcomes. All high-potential incidents and LTIs
are investigated to determine the root cause
of each incident. The most significant safety
risks arising from high-potential incidents for
ESB remain electricity, driving and transport,
working at height and use of tools and
equipment.
70
60
50
40
30
20
14
03
10
0
2004
2013
2014
2015
Total LTIs
200
180
182
160
140
120
100
78
80
58
60
43
40
20
0
2004
2013
2014
2015
FINANCIAL STATEMENTS
We undertake this work in an ever-more
challenging and complex business environment.
Our businesses are under significant competitive
and regulatory pressure and we need to ensure
that we have the right reward model to ensure
that we can continue to sustain our organisation
over the longer term. We have made significant
progress in this regard during 2015. We have
engaged with our employees on the various
employment models operating in the business,
and have put in place a new reward model for
new entrants that will, overtime, become a single
fit-for-purpose, sustainable total reward package
supporting greater integration within our business
and the quality employment that has always been
the hallmark of ESB.
opportunity to advance their careers
Ensuring effective succession planning,
particularly in the context of a workforce where
up to two thousand of our current employees
are set to retire over the next decade
Recognising that the most effective employees
over the long-term are those who are able to
maintain a good balance between their working
and family lives
Taking steps to ensure a balanced and diverse
set of candidates for roles within ESB
Making ESB a great place to work, therefore
retaining engaged, motivated and committed
people and attracting a strong and diverse
number of quality applicants for new roles
from the survey. ESB also continued to make
progress in other business units on improving
its safety performance in key risk areas of the
business including process safety, managing
contractors and the safety of the public who
use its services.
CORPORATE GOVERNANCE
ESB is fully committed to protecting the health
and safety of employees, contractors and
the people it serves. Safety is a core value
of the Group and the safety of employees,
contractors, customers and the public always
comes first. ESB believes that all operational
processes can be designed and operated in an
inherently safe manner. This belief guides the
approach to safety across all business activities
and is reinforced through strong and visible
leadership throughout ESB. Pride is taken in
safety achievements and an open and proactive
health and safety culture is promoted with the
full involvement of all.
Pat Naughton, Executive Director,
Group People and Sustainability
I want to acknowledge the contribution
of all of our people across the Group to the
continued success of our business in 2015.
Their dedication ensures that we can provide
a reliable, sustainable and value for money
electricity service, for all our customers. We are
committed to delivering this work to the highest
safety standards. The safety of our employees,
our customers and the public is a core value for
us and all our operations are informed by our
four pillars of safety: leadership, competence,
compliance and engagement.
STRATEGY AND PERFORMANCE
OVERVIEW
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01
ESB PEOPLE STRATEGY
DEVELOPING PEOPLE
There is a number of integrated human resource
processes embedded in the organisation which
ensures that ESB delivers its Group Strategy.
Resource Planning
Resource planning in ESB focuses on identifying
the number of employees required and the
capability these employees need for the successful
delivery of ESB’s Group Strategy. During the
process the gap between the current number and
capability and future requirements is identified.
Action plans are agreed and implemented to
ensure that these gaps are bridged.
ESB is committed to developing all its employees
so that they have the skills and competencies
to be effective in their current role and to build
a career in the organisation based on their
requirements and the organisation’s requirements.
Building employee capability continues to be a
strategically important activity as ESB seeks to
manage its different business environments and
the challenges each poses. The Group’s Annual
Performance and Development Process provides
the platform for the identification and delivery of
targeted learning and development solutions.
Effective development is based on specified
competencies that align with the needs of each
individual and the Group.
Manager Development
Following the development of the Management
ESB continued its investment in developing
the skill set of its managers and in building a
high performance culture. The focus in 2015
was on the middle and front line / team leader /
supervisor levels through a three day Leadership
Communications Programme, with a focus on
performance conversations skills.
The CPD Accreditation Award, for the period
from 1 June 2015 to 1 June 2018, was made
to the Chief Executive and Executive Director of
Group People and Sustainability at an event in
July 2015. This award recognises ESB as a best
practice organisation with regard to the support
provided to its engineers to further their continuing
professional development (CPD) through its HR
systems and practices.
ESB continues to run the Human Resource
Management (HRM) for Line Managers
Programme, this programme develops people
management capability among line managers.
This programme is accredited by the Chartered
Institute of Personnel and Development (CIPD).
In addition, ESB held a competitive process,
which was open to all employees in order to select
a number of candidates who will be supported to
undertake a part-time MBA.
Graduate and Apprentice Recruitment
and Development
Almost sixty new recruits (from all disciplines)
commenced a three year graduate programme in
September 2015. The development programme
includes a centrally managed induction event, work
assignments, off-the-job business specific training,
personal skills development and mandatory training,
supported by a mentoring relationship.
The Group announced in 2015 that it is to recruit
three hundred apprentices over the next five
years as part of a large scale recruitment and
development programme.
EMPLOYEE HEALTH AND WELLBEING
ESB is strongly committed to supporting
employees in maintaining good health and
wellbeing. ESB’s Health and Wellbeing
Programme is focused on supporting employees
to reach their full potential in the workplace
through the promotion of good mental, physical
and emotional wellbeing. It is focused on
providing proactive health programmes that offer
information and advice to employees to help
them to create and maintain a healthy lifestyle.
The programme also provides effective remedial
support as employees face ill health and other
personal life challenges through an occupational
health medical service, an Employee Assistance
Programme, psychological counselling and
through a range of other wellbeing support
measures.
Positive mental and physical health promotion
among ESB employees was acknowledged
with the achievement of the Chambers Ireland
Excellence in the Workplace CSR Award in 2015.
ESB’s employee health and wellbeing focus for
the year has been on:
Developing effective physical and mental health
policies that support good health and wellbeing
in the workplace
Promoting increased physical activity through
competitions and get active health challenges
Revamping the ESB health and wellbeing
website, providing easier access and regular
updates on health topics
Proactive Health Programmes
ESB’s health maintenance programmes are
focused on prevention and keeping employees
well by providing opportunities for them to
lead healthier and more active lives. While it is
recognised that stress may be an integral part of
everyday life, the availability of active workplace
stress awareness programmes are crucial to
supporting employees in dealing with these
challenges and minimising the impact on their
wellbeing. Some of the programmes and initiatives
available to ESB employees during the year were:
Seminars and workshops for 3,000 employees
on positive mental health for teams, personal
stress management, suicide awareness,
nutrition advice, back care and financial
awareness
A Pedometer Challenge competition where
eighty three teams walked in excess of 20,670
kilometres
Cardio-vascular and bowel screening
programmes along with a flu vaccination
programme
DIVERSITY AND INCLUSION
ESB continues to create and provide a positive
and inclusive work environment through building,
understanding and awareness of the benefits of a
diverse and inclusive workforce for the individual
and the organisation. ESB’s Equality and Diversity
Policies are regularly reviewed, in line with
legislation and best practice and aim to support
a culture of inclusion, respect and dignity for the
individual in the workplace and for the customers
it serves. Having a diverse and inclusive work
environment plays an increasingly important part
in ESB’s ability to attract, retain and develop key
skills and talent.
Key initiatives in 2015 included:
Sponsorship of Gay Lesbian Equality Network
(GLEN) Diversity Professional Networking
Evening and GLEN’s Workplace Equality Index
Inaugural Awards
The ESB Traineeship Programme for People
with Disabilities is now in its tenth year
2014
2015
7,149
7,305
23%
22%
Average Number of Employees
Female
02
Management Level Female
19%
19%
Full Time
94%
94%
5%
5%
Employees with Disabilities
Introduction of managing successful
maternity transitions through ESB’s Maternity
Positive Programme
Supporting working parents through ESB's
Positive Parenting Programme
Promoting an alternative dispute resolution
mechanism – through case management and
independent mediation service
A Joint Equality Council whose members
are a cross-section of employees and union
representatives and includes a disability and
lesbian, gay, bisexual and transgender (LGBT)
representative
Continuing to exceed the 3% National
Disability Authority (NDA) target of employing
employees with disabilities
Business unit diversity groups, that continue
to raise awareness at local level by integrating
equality and diversity practices and initiatives
for employees and customers
EMPLOYEE ENGAGEMENT
EMPLOYEE ENGAGEMENT RESULTS
ESB provides information to its employees
in a variety of ways, including its intranet
sites, email, twitter, social media, text
and video messages as well as through
business unit specific briefings.
81%
68%
In 2015 employees were invited to
participate in a survey which allows
ESB measure engagement levels and
compare with other large companies
and performance in the previous survey.
The feedback from the survey is used
by ESB to improve how it engages with
employees.
94%
87%
I’m proud to work in ESB
I believe that ESB expects me
to behave in an ethical manner
and work with integrity
Good communication between
me and my line manager
Management in my team /
workgroup are committed to
safety in the workplace
03
FINANCIAL STATEMENTS
Employee Development
Development Framework in 2014 a Managing
People in ESB - Managers Guide was developed
to support managers in understanding their roles,
associated competencies and development options.
CORPORATE GOVERNANCE
The capabilities and commitment of
ESB’s employees helps set ESB apart.
In 2015, the ESB People Strategy continued to
provide the focus and direction for many human
resource initiatives and actions. The strategy
is designed to support the overall ESB Group
Strategy objective of developing an Engaged
and Agile Organisation. In order to achieve this
objective the following four areas are focused on:
Developing people
Employee health and wellbeing
Diversity and inclusion
Employee engagement
STRATEGY AND PERFORMANCE
PEOPLE
56
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ESB Annual Report 2015
57
SUSTAINABILITY
01
STRATEGY AND PERFORMANCE
ESB is in the third full year of the ESB Group Strategy. Under the strategy, ESB is investing in low-carbon generation, building smart networks and maximising
the efficiency of the business. The sustainability strategy supports the ESB Group Strategy, and reflects ESB’s determination to build a successful business in
the long term as it moves to decarbonise its generation activities by 2050. ESB is focused on maintaining the highest levels of environmental management and
sustainability in all aspects of its operations in order to minimise its impact on the environment and enhance the reputation of ESB as an exemplar organisation.
PROGRESS ON SUSTAINABILITY OBJECTIVES
ESB’s Sustainability reporting underwent a transition in 2015 in line with the update to the Sustainability Reporting Guidelines as issued by the Global
Reporting Initiative (develops and disseminates globally applicable sustainability reporting guidelines). As part of this transition a materiality process was
undertaken, which identified the issues of greatest material importance to the business in the context of sustainability. The strategic sustainability objectives
align with the material issues and the five priorities of the ESB Group Strategy to 2025. The progress on these objectives in 2015 is detailed below.
A copy of the Sustainability Report is available from the ESB website, www.esb.ie
ESB GROUP
STRATEGIC PRIORITIES
ISSUES OF MATERIAL
IMPORTANCE TO ESB
RELATED STRATEGIC SUSTAINABILITY OBJECTIVES
2015 PROGRESS
Development of
low-carbon portfolio

Reduce air emissions (SOx, NOx) per GWh and CO2 emissions to 343g/KWh from ESB's

Market conditions continued to favour coal generation in 2015 with ESB’s total CO2 emissions remaining in line with 2014 at 9.2 million tonnes and
generation portfolio by 2025

Increase renewable energy sources in ESB's generation portfolio to 26% by 2025
Energy efficiency
and affordability for
customers
Develop resilient
networks and facilitate
renewables

Influence carbon policy at national and EU level

Work with customers to improve their energy efficiency and demand response through the
introduction of smart home technologies.

Achieve Sustainable Energy Authority of Ireland (SEAI) Better Energy Targets
renewable projects:
– Woodhouse Wind Farm (20 MW) entered commercial operation
– Early construction / development of wind farms in the Republic of Ireland (ROI) and the United Kingdom (UK)
– Tilbury biomass project (40 MW) commenced construction
– Entered into a joint venture (JV) with Kingspan to install solar photovoltaic (PV) generation systems on rooftops

Compliance with applicable environmental legislation was reported by all business units. An ongoing process of engagement with the Environmental
Protection Agency (EPA) and Northern Ireland Environment Agency (NIEA) is in place on relevant environmental matters.

Engagement with stakeholders on carbon policy issues in the lead up to the December 2015 Paris Agreement.

Electric Ireland through the Energy Efficiency Incentive Scheme has delivered 15 GWh of energy savings to date and returned over €1 million to
customers

The Energy Efficiency Obligation Scheme has delivered some 253 GWh (against a 3 year target of 420 GWh) of energy savings for its customers
in 2015 and returned over €40 million in cost savings to customers to date, as well as €6 million directly from Electric Ireland in the form of grants,
incentives and credits.

Reduce transmission and distribution losses on the all-island network

Facilitate the connection of renewable energy onto the all-island network

1,198 kilometres of network were converted from 10kV to 20kV during 2015 reducing distribution losses.

An additional 312 MW of wind generation was connected to the grid on an all-island basis in 2015, bringing the total renewable MWs connected to

Maintain ESB's position as a world leader in smart networks implementation

The ESB RealValue smart network project will see the installation of a storage solution and profile metering in 800 homes in Ireland and the installation

Implement smart metering to meet the future needs of customers, ESB and stakeholders

Following substantial input from ESB Networks and other industry players the Commission for Energy Regulation (CER) published two sets of policy
02
CORPORATE GOVERNANCE

Maintain compliance with applicable laws on the journey towards a low-carbon economy
carbon intensity increasing by 14.0g/kWh to 590g/kWh, however the emissions have decreased by circa. 37% from 2005 levels.

At the end of 2015, renewable energy sources in ESB's generation portfolio is 13%. During the year significant progress was made on the following
the grid to over 3,200 MW.
of advanced monitoring and control capability in medium voltage (MV) substations associated with the trial.
decisions in July and December 2015. A final decision on the programme is expected in 2016.
Evolution of emerging
technologies
points

Explore the potential to use ESB’s network infrastructure to deliver broadband on a commercial
basis

Invest in emerging clean energy and energy efficiency sector

Assess business opportunities in emerging clean technology areas such as energy storage,
carbon capture storage (CCS), ocean energy and solar PV

Reduce ESB's internal CO2 carbon footprint by improving the energy efficiency of ESB's
buildings, reducing fuel used in its vehicle fleet and promoting sustainable travel for employees

Drive improvements in environmental management and ESB's impact on biodiversity

Reduce waste streams, increase recycling and reduce waste going to landfill

Reduce water usage

Achieve Public Sector Energy Efficiency targets to 2020

Across ROI, eCars has rolled out over 2,300 charge points and has taken over the responsibility for the operation, maintenance and development of the
charge point network in NI.

SIRO, ESB’s JV with Vodafone, commenced the building of its wholesale fibre to the building broadband network in six towns in 2015.
03

The Novusmodus Fund, currently manages investments in seven companies in the clean technology sector.

Over 500 kW of rooftop solar projects have been built by Kingspan ESB JV, primarily in NI.

ESB has reduced its primary energy use in its operations by 24.7%, 53 GWh primary energy equivalent (PEE), since the baseline period
(2006 - 2008 average).

All business units now operate under externally ISO 14001: 2004 certified environmental management systems

Recycling rates generally above 75% and diversion from landfill rates above 93%.

Thirty nine meters are now installed in ESB Networks' depots, which have driven a focus on reducing water usage.

The 2015 Public Sector energy efficiency performance reports ESB as having delivered 24.7% energy savings since baseline. This is in line with the
objective of a 33% improvement in energy efficiencies by 2020.
Financial performance
Impact on society

See page 60 for detail on how ESB is using its profits in a sustainable way.

Engage with employees to promote sustainability in the workplace, in the community and in the
home

Establish an overall ESB Corporate Responsibility Programme which promotes volunteering and
monitor its impact

Communicate progress both internally and externally against sustainability targets on a regular
basis to enhance the reputation of ESB

Work with employees and suppliers to embed sustainable procurement within each business unit

Health and safety
A STRONG, DIVERSIFIED, VERTICALLY INTEGRATED UTILITY
GENERATION / SUPPLY BUSINESSES OF SCALE
ADVANCED NETWORKS

Sustainable innovation award category as part of the ESB Staff Innovation Recognition Awards.

The Energy for Generations Fund has contributed over €10 million in the past decade to community based projects around the country. To the end of
December 2015, over 30,000 volunteered hours had been recorded by ESB employees.

Progress updates are published every six months and on an annual basis a sustainability report is prepared.

Ongoing roll-out of sustainability workshops as part of the specification and pre-tender requirements process for tenders in excess of €5 million.

See page 53 for details on safety.
SUSTAINABLE INNOVATION
TRANSFORMED COST STRUCTURE
ENGAGED AND AGILE ORGANISATION
FINANCIAL STATEMENTS
Operational energy
efficiency
Environmental
management

Promote electric vehicles in Ireland through installing a national network of public smart charging
58
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
59
01
ENERGY USAGE IN 2015
The prevailing market conditions continue to
favour coal generation, due to the lower fuel
cost and the demand for affordable electricity.
Increased generation from coal in 2015
increased ESB's overall carbon intensity to 590
gCO2/kWh with 2015 emissions of 9.2 million
tonnes CO2 in line with 2014. Within the EU
Emissions Trading System (ETS), ESB does not
receive any free allocations in Phase III of the
ETS. ESB purchases EU Allowances (EUAs) at
market price in the secondary over the counter
(OTC) market. All of ESB’s EUAs are purchased
at market price from third-party participants.
Against the baseline consumption (2006 2008 average), ESB has delivered a 24.7%
improvement in its PEE consumption. This is in
line with the Government objective for the public
sector of a 33% improvement in energy efficiency
by 2020.
Steps to deliver this target in ESB in 2015
included:
Energy efficiency upgrades programme
prioritising buildings and depots to improve
ENERGY SOURCE
2014
2015
10,596
13,106
11,989
7,791
ESB has a long track record of being actively
involved in the communities in which it works. It seeks
to empower and enrich the lives of individuals and
communities across Ireland through its corporate
social responsibility programme. ESB offers its
support through grants, sponsorship, partnerships
and knowledge transfer from its employees to
individuals and communities.
Coal (GWh)
Natural Gas (GWh)
ENERGY FOR GENERATIONS CORPORATE
RESPONSIBILTY FUND
Peat (GWh)
4,951
4,676
543
631
Oil (GWh)
PRIMARY ENERGY EQUIVALENT CONSUMPTION FROM ESB OPERATIONS
(NON-GENERATION)
ENERGY SOURCE
2006 - 2008
Avg.* GWh
2015
GWh
CHANGE
GWh
Electricity
39
28
(11)
Electricity Primary Energy Equivalent
96
63
(33)
- Natural Gas
1
1
–
- Heating Oil
–
–
–
- Diesel
70
50
(20)
Total Fossil Fuels
71
51
(20)
Renewable Energy
–
–
–
167
114
(53)
Fossil Fuels
Total Primary Energy Equivalent
*Baseline reflects calculations for compliance with Sustainable Energy Authority of Ireland (SEAI) Public Sector Monitoring and Reporting.
2015 figures for PEE as reported in annual report 2015 on Public Sector Energy Efficiency Performance.
energy performance
Continued trial installations of electric
heat pumps and other renewable energy
technologies in office buildings as part of the
Better Energy Programme
Installation and operation of solar photovoltaic
(PV) roof top project at the ESB Networks'
Leopardstown Depot
Installation of advanced controls for exterior
lighting
Promotion of sustainability to encourage
behavioural change amongst employees with
respect to using energy efficiently
Use of electric vehicles in the fleet and electric
auxiliary equipment and continued use of
biofuels
Fleet renewal programme has replaced in
the region of one thousand five hundred less
energy efficient vehicles
Continued use of web-based meeting /
communications facility to avoid the need for
business travel
As a leading Irish organisation with deep roots in the
community dating back to 1927, ESB is committed
to playing a role in addressing some of the key social
issues facing Ireland today. In December 2015,
ESB celebrated ten years of charity funding and in
celebration of this milestone brought together a panel
of leading experts to discuss the future of Corporate
Social Responsibility. With over 400 community and
voluntary organisations supported with €10 million
of ESB funding in the past decade, ESB know that
their investment has made some real impacts across
the island of Ireland. ESB’s aim with the Energy for
Generations Fund is to maximise the impact of its
investment by taking a more strategic approach to
affect change. In 2015, €2 million was awarded
to projects primarily in the areas of educational
disadvantage, suicide prevention and homelessness
and employee volunteering.
Educational Disadvantage
ESB supports a number of organisations including
TechSpace, a national programme to promote
science, technology, engineering and maths to
young people across the country. ESB also supports
An Cosán’s Virtual Community College and is the
national partner of Business in the Community’s Time
to Read programme.
Suicide and Homelessness
ESB has supported suicide prevention and the
alleviation of homelessness since 2005, following
the consultation with employees. The Energy for
Generation Fund, managed by a cross-company
Committee, disburses direct grants to applicant
organisations throughout the country.
Employee Volunteering Support
The Fund also provides support to ESB employees
who volunteer in their own communities. Any
employee who volunteers for over twenty hours with
a charity can request that ESB donates €250 to that
organisation. There has been a good response to
this initiative, with donations being made to a wide
range of charities including Capuchin Day Centre,
Age Action, Scouts and Girl Guide Groups and
Daisyhouse Housing. To the end of December 2015,
over 30,000 volunteered hours have been recorded
by employees.
WIND FARM COMMUNITY FUND
ESB actively supports the communities in the vicinity
of its wind farms. In 2015, ESB committed over
€500,000 to a diverse range of community projects
in the Republic of Ireland (ROI), Northern Ireland (NI)
and Great Britain (GB).
SPONSORSHIP
The Group manages an active sponsorship portfolio
in the following areas:
 Promoting young people in sport, through the
Electric Ireland GAA minor hurling and football
championships, Ireland’s under 20’s rugby and
Team Ireland for the Olympics
 Supporting the Darkness into Light sponsored
walk / run for Pieta House - in 2015, Electric
Ireland was awarded Chambers Ireland
Excellence in Communication Award for this
 Supporting charities through Powering Kindness,
an initiative which encourages people to do a
simple act of kindness and bank it in favour of one
of three charities
 Supporting the arts and music through
sponsorships of Feis Ceoil, Electric Picnic and the
National Gallery
 Supporting the development of skills in science,
technology and engineering through partnerships
with Science Gallery Dublin, City Spectacular and
Engineers Ireland
INTERNATIONAL CSR
ElectricAid is the social justice and development
charity of ESB and EirGrid employees and pensioners.
The charity, although strongly supported by ESB
(ESB currently matches employee and pensioner
contributions on a 2:3 basis), is owned and controlled
by its two thousand six hundred contributing members.
In 2015, ElectricAid raised and spent €1.33 million on
one hundred and sixty four separate development and
relief projects in Ireland and in forty one developing
countries. ElectricAid committed over €153,000
in twenty seven separate funding initiatives for
emergency relief in Ireland, Afghanistan, Kenya, Nepal,
Pakistan, Syria and the refugee crisis in Europe.
BUSINESS WORKING RESPONSIBLY MARK
2015 saw ESB receive its third accreditation to
Ireland's only independently validated corporate
responsibility standard, the Business Working
Responsibly Mark. It is awarded by Business in the
Community Ireland (BITCI); the non-profit organisation
dedicated to corporate responsibility and is audited by
the National Standards Authority (NSA). It is based on
ISO 26000: 2010 and is valid for three years.
ELECTICAID FUNDINGS BY CATEGORY 2015
Energy and
Microfinance
Elderly and
Disabilities
Orphans and Vulnerable
Children and Human Rights
6%
3%
5%
Agriculture and
Income Generation
26%
Healthcare
and Facilities
16%
02
€1.33
million
Emergency
Responses
12%
Sanitation and
Infrastructure
17%
Education and Training
15%
03
FINANCIAL STATEMENTS
In relation to the remaining energy use, the
amount of energy used by ESB in its buildings
constitutes the most significant portion, followed
by that used in fleet and in private cars used
on company business. The bulk of the energy
used is attributable to space heating. Internal
use accounted for 114 GWh primary energy
equivalent (PEE) in non-generation activities
(baseline 167 GWh).
ENERGY CONSUMPTION FROM ESB OPERATIONS (GENERATION)
CORPORATE GOVERNANCE
EU Energy Efficiency Regulations S.I. No. 426
of 2014 requires ESB to disclose its annual
energy usage, together with the initiatives being
undertaken to improve energy performance. ESB
monitors and reports on energy consumption
against its baseline (2005 for generation, 20062008 average for operations) and is committed
to continuing the drive towards improved energy
performance. Electricity generation accounts for
over 90% of ESB’s use of energy. In 2015, ESB
consumed 26,204 GWh of fossil fuel energy in
generating electricity in the Republic of Ireland
(ROI).
CORPORATE RESPONSIBILITY
STRATEGY AND PERFORMANCE
ENERGY USAGE IN 2015
60
ESB Annual Report 2015 - Energy for Life
USING OUR PROFITS IN
A SUSTAINABLE WAY
PROFITS
Investment
Customer Service
Employment
Investing almost €1 billion per annum
to facilitate a more sustainable energy
environment as well as supporting
economic growth through providing
stable, safe, and reliable electricity
supply to homes and businesses.
Developing new and innovative
products and services for customers
aimed at improving customer
experience and empowerment.
Making a long-term commitment to
employees, giving them the time to
build their skills and the opportunity
to advance their careers. Supporting
jobs through contractor and supplier
service contracts.
Seeks to empower and enrich the
lives of individuals and communities
through the corporate social
responsibility programme.
Capital
Spend
2015:
Customer
Satisfaction
2015:
Recruitment of
Apprentices and
Graduates during 2015:
Corporate Social Responsibility
Spend in the past decade:
Over
€873
Million
84%
179
Supporting
Communities
€10
Million
Taxes
Return to Shareholder
Debt Investors
Annual payments across various
tax headings.
ESB delivers an annual dividend
to its shareholder currently at 35%,
38% in 2016, and 40% in 2017.
Payment of interest and principal to
ESB's debt investors.
Total
Taxes
2015: Over
Total
Dividends Paid
2015:
Total Interest
and Principal
2015: Over
€500
Million
€273
Million
€600
Million
ENERGY
FOR
CREATING
02
CORPORATE GOVERNANCE
02
CORPORATE
GOVERNANCE
The Board in 2015
Board Committees in 2015 Chairman’s Corporate Governance Statement The Board Governance Report Audit and Risk Committee Report Board Members' Report 64
66
68
69
77
83
64
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ESB Annual Report 2015
65
01
STRATEGY AND PERFORMANCE
THE BOARD IN 2015
1
■AUDIT AND RISK COMMITTEE
2
3
6
7
8
4
5
9
10
11
■HEALTH, SAFETY AND ENVIRONMENT
COMMITTEE
02
■FINANCE AND INVESTMENT
COMMITTEE
1Ellvena Graham
■■
2Pat O’Doherty
■■
Appointment to the Board: January 2013
as Board member and December 2011 as Chief
Executive.
Length of service: Three years as Board member.
Career experience: Holds primary and masters
degrees in engineering from University College
Dublin. Completed the Advanced Management
Programme at Harvard Business School. Headed
up ESB’s largest businesses as Executive
Director ESB International, Managing Director
ESB Networks and Executive Director ESB
Power Generation.
External appointments: Trustee of The
Conference Board of the United States and a
director of Energy UK.
3Anne Butler
■
Appointment to the Board: November 2012.
Length of service: Three years and two months.
Career experience: Chartered engineer. Worked
in engineering consultancy for the Dublin Local
Authorities and as a founding Director (Executive)
of the Environmental Protection Agency. Former
President of the Institution of Engineers and is a
member of the Irish Academy of Engineering.
External appointments: Served on a number of
boards including the National Roads Authority
(NRA), Ordinance Survey Ireland (OSI), Dublin
Institute of Technology (DIT) and REPAK.
4Dave Byrne
■
Appointment to the Board: January 2011
under the Worker Participation (State Enterprises)
Act 1977.
Length of service: Five years.
Career experience: Member of a team that is
now part of ESB’s Business Service Centre
organisation and previously worked in Customer
Supply (now Electric Ireland).
External appointments: President of ESB
Officers Association (ESBOA) until April 2010
and then appointed as the Group of Union’s
representative in Central Partnership.
5
Andrew Hastings ■ ■ ■
Appointment to the Board: July 2015.
Length of service: Six months.
Career experience: CEO position of Barclays
Bank Ireland plc until March 2015, which included
responsibility for Northern Ireland. Fellow of the
Institute of Banking and a Chartered Director.
CEO of BNP Paribas Ireland from 2007 to 2011.
External appointments: Director of Elavon
Financial Services Limited, the Dublin-based
subsidiary of US Bancorp and a Director of
Carrick Laurel Consulting Limited. Partner with
AP Partners and consultant to London - based
Valuation Consulting LLP.
6Sean Kelly
■
Appointment to the Board: January 2011
under the Worker Participation (State Enterprises)
Act 1977.
Length of service: Five years.
Career experience: Joined ESB in 1997 as an
apprentice network technician.
External appointments: Chairperson of the
ESB Defined Benefit Superannuation Committee
and Training Officer for the National Worker
Directors Group. Sean is also a member of the
Mediators' Institute of Ireland.
7
Seamus Mallon ■
Appointment to the Board: February 2006
and reappointed in May 2011.
Length of service: Nine years and ten months.
Career experience: Elected to the Armagh
District Council, the Northern Ireland Assembly
and the Northern Ireland Convention. Member of
Seanad Éireann and MP for Newry and Armagh
at Westminster. Deputy Leader of the SDLP and
Deputy First Minister of Northern Ireland.
8Tony Merriman
■
Appointment to the Board: January 2007
under the Worker Participation (State Enterprises)
Act 1977.
Length of service: Nine years.
Career experience: Joined ESB as a network
technician in 1979. Served as an officer with the
ESB Group of Unions.
External appointments: Board member of ESB
ESOP Trustee Limited and Chairman of the
National Worker Directors Group.
9Noreen O’Kelly
■■
Appointment to the Board: April 2013.
Length of service: Two years and eight months.
Career experience: Chartered accountant trained
with KPMG. Held a number of senior positions in
Independent News and Media Group including
Head of Treasury and Group Secretary. In 2002,
she was appointed Company Secretary of C&C
Group. Consultant on corporate governance.
External appointments: Director / Chair of Audit
Committee of Rehab Group, Director / Chair of
Audit Committee of Barretstown Gang Camp
Fund Limited and external member of the Audit
Committee of the Institute of Technology, Sligo.
10Peter O’Sullivan
■
Appointment to the Board: January
2015 under the Worker Participation (State
Enterprises) Act 1977.
Length of service: One year.
Career experience: Joined ESB as a
network technician in 1980. Formerly Safety
Representative in Kerry / West Cork.
External appointments: Former President of
Network Technicians’ Association, negotiation
member of Group of Unions. Board member of
ESOP Trustee Limited.
11Noreen Wright
■■
Appointment to the Board: June 2011.
Length of service: Four years and six months.
Career experience: Called to the Bar of Northern
Ireland in 1976. Worked in the electricity
industry for 25 years and held a number of senior
management posts in both Northern Ireland
Electricity plc and Viridian plc including Company
Secretary and Head of Legal Services.
External appointments: Lay Magistrate, member
of both the Industrial and Fair Employment
Tribunals of Northern Ireland and the Northern
Ireland Valuation Tribunal. Director of both
Springvale Training Limited and Co-operation
Ireland Limited. Trustee of Garfield Weston Trust.
03
FINANCIAL STATEMENTS
Appointment to the Board: October 2010
and appointed as Chairman with effect from
July 2015.
Length of service: Five years and three months
(five months as Chairman).
Career experience: Ellvena has over 30 years'
experience in banking, most recently at Executive
Management level within Ulster Bank, where
she was Head of Ulster Bank in Northern Ireland
and Managing Director of SME Banking across
the island of Ireland. Prior to that, Ellvena held
the position of Chief Operating Officer for Ulster
Bank Group. Having finished her executive role
in 2015, Ellvena has been appointed as a
Non-Executive Director of Ulster Bank with
effect from February 2016.
External appointments: Chairman of the
Economic Advisory Group (EAG) in Northern
Ireland, Board member of the Northern Ireland
Chamber of Commerce and Industry and a
member of the Advisory Board of the Women's
Executive Network in Ireland. Fellow of the
Institute of Banking.
CORPORATE GOVERNANCE
■REMUNERATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
66
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67
01
STRATEGY AND PERFORMANCE
BOARD COMMITTEES IN 2015
AUDIT AND RISK COMMITTEE
The Committee held nine meetings during 2015. The members of the Committee and the number of meetings attended are set out below:
MEMBERS
Noreen O’Kelly, Chairman
Anne Butler (to September 2015)
Ellvena Graham (to September 2015)
Andrew Hastings (from September 2015)
Noreen Wright (from September 2015)
LENGTH OF SERVICE
2 years and six months
2 years and 9 months
2 years and 6 months
3 months
3 months
MEETINGS ATTENDED
9
6
6
4
4
Activities undertaken by the Committee in 2015 are outlined in the Audit and Risk Committee Report on page 77.
REMUNERATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Committee held three meetings during 2015. The members of the Committee and the number of meetings attended are set out below:
MEMBERS
Ellvena Graham, Chairman
Andrew Hastings (from September 2015)
Noreen Wright
LENGTH OF SERVICE
4 years
3 months
4 years
MEETINGS ATTENDED
3
1
3
Key Activities of the Remuneration and Management Development Committee in 2015
HEALTH, SAFETY AND ENVIRONMENT COMMITTEE
The Committee held five meetings during 2015. The members of the Committee and the number of meetings attended are set out below:
LENGTH OF SERVICE
8 years and 11 months
9 years and 8 months
2 years and 6 months
4 years and 1 month
3 months
3 months
MEETINGS ATTENDED
5
5
3
5
2
2
Key Activities of the Health, Safety and Environment Committee in 2015

Safety performance including review of major safety incidents, lost time incidents (LTIs), high
Performance Updates
potential safety incidents and key risks in the business

Review of the following safety plans:
Safety Plans
– ESB Networks
– Generation and Wholesale Markets (G&WM)
– Innovation
– Dam Safety
– Public Safety
– ESB Fisheries

Approval of the ESB Group Health, Safety and Wellbeing Strategy
Health and Wellbeing

Received a briefing on the Road Safety Strategy
Road Safety

Received a briefing on the environmental management in G&WM
Environmental
The Committee held three meetings during 2015. As from September 2015, regulatory issues are reported directly to the Board and the Regulation
Committee has been discontinued. The members of the Committee and the number of meetings attended are set out below:
MEMBERS
Noreen Wright, Chairman (to September 2015)
Dave Byrne (to September 2015)
Seamus Mallon (to September 2015)
Sean Kelly (to September 2015)
LENGTH OF SERVICE
3 years and 9 months
3 years and 7 months
8 years and 8 months
2 years and 6 months
MEETINGS ATTENDED
3
2
3
3
Key Activities of the Regulation Committee in 2015
Integrated Single Electricity Market (I-SEM)
Freedom of Information Act
Networks Price Control Review 4 (PR4)
EU’s Wholesale Electricity Market Transparency
Regulations (REMIT)
EU’s European Market Infrastructure Regulations (EMIR)

Received a briefing on the I-SEM Programme
White Paper on Energy

Received an update on the White Paper covering the Government focus and priorities and
UK Competition and Markets Authority Provisional Report

Considered the implications for the Irish market and ESB

Received an update on the Freedom of Information Act and considered its application to ESB
 Received an update on the ESB submission, CER response and associated issues / risks

Received a briefing on the obligations imposed by REMIT on wholesale energy trading
activities

Received a briefing on the regulatory framework, role of the Central Bank of Ireland and
the ESB approach to compliance
considered the potential implications for ESB
Succession Planning

Reviewed and considered the CEO / Executive Director Team (EDT) succession plan
FINANCE AND INVESTMENT COMMITTEE
The Committee held six meetings during 2015. The members of the Committee and the number of meetings attended are set out below:
MEMBERS
Ellvena Graham, Chairman
Dave Byrne
Pat O’Doherty
Tony Merriman (to September 2015)
Andrew Hastings (from September 2015)
Sean Kelly (from September 2015)
Noreen O’Kelly (from September 2015)
LENGTH OF SERVICE
2 years and 9 months
2 years and 9 months
2 years and 9 months
2 years and 6 months
3 months
3 months
3 months
MEETINGS ATTENDED
6
6
6
2
3
3
3
Key Activities of the Finance and Investment Committee in 2015

Reviewed and considered:
Financial Performance Reporting
– Quarter end results and year end forecasts
– Quarterly capital expenditure report
– Quarterly loans, swaps and bonds report

Reviewed and considered:
– Budget and the five-year business plan

Reviewed and considered:
Investment Proposals
– Joint venture agreement for the roof top solar business in Northern Ireland (NI) and Republic of
Ireland (ROI)
– Renewables investments
– Generation asset overhaul and investment programme
– Redevelopment of ESB Head Office
– Participation in the Great Britain (GB) capacity auction

Reviewed and considered:
Performance Updates
– GB capacity auction results
– Raheenleagh Wind Farm
– Novusmodus Fund performance
– ESB trading risk position
The responsibilities of the Committees
are set out on page 70.
02
03
FINANCIAL STATEMENTS
REGULATION COMMITTEE

Reviewed performance against 2014 targets

Set 2015 targets
CORPORATE GOVERNANCE
MEMBERS
Tony Merriman, Chairman
Seamus Mallon
Noreen Wright (to September 2015)
Pat O’Doherty
Peter O’Sullivan (from September 2015)
Anne Butler (from September 2015)
Chief Executive Targets
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01
sets out the governance framework agreed by
Government for the internal management and
the internal and external reporting relationships
of State Bodies. ESB continuously reviews and
updates its policies and procedures to ensure
compliance with the State Code and a report on
such compliance is made annually to the Audit
and Risk Committee.
A detailed description of our governance
compliance is set out on pages 69 to 76.
Ellvena Graham, Chairman

COMPLIANCE WITH CORPORATE
GOVERNANCE CODES
ESB in pursuit of its governance objectives
complies with the Code of Practice for the
Governance of State Bodies (the State Code)
and to the maximum extent possible with the
UK Code. ESB has put in place the appropriate
measures to comply with the State Code which
BOARD EVALUATION
The Board continually strives to improve its
effectiveness. We do this on an informal ongoing
basis by discussion among Board members
and feedback to the Chairman and Company
Secretary. We also undertake a formal evaluation
annually and a mid-year review. The results of
the Board evaluation in respect of 2015 are
described on page 72.
BOARD AND COMMITTEE CHANGES
Andrew Hastings joined the Board as an
Independent Board member in July 2015. Andrew
has extensive experience at senior management
and Board levels. Peter O’Sullivan joined the
Board as a Worker Board member in January
2015. Peter has been working in ESB since
1980 and brings a wide knowledge of ESB
and its business to the Board. As a result of
Board membership changes, the Committee
membership was amended during the year and
With the publication in September 2014 of the
Financial Reporting Council's (FRC) Guidance on
Risk Management, Internal Control and Related
Financial and Business Reporting there has been
a focus on the adequacy of the processes that
companies use to manage their portfolio of risks.
The Group’s risk process has been reviewed to
ensure it is consistent with these latest guidelines
and improvements have been implemented as a
result.
EXTERNAL AUDITOR
As the current contract with ESB’s external
auditor is due to expire after the audit of the 2016
results, the Board has commenced the tender
process for the audit of 2017 onwards. This
process is due to be completed in the second
half of 2016. The Board has been keeping
developments at EU level in regard to audit tenure
under close review. Taking account of these
developments and market practice in the Republic
of Ireland (ROI) and the United Kingdom (UK),
a decision was taken to select a new external
auditor in the tender process. The Board would
like to record their sincere thanks to KPMG for
many years of excellent service to ESB. Further
details on the tender process are set out on
page 82.
CONCLUSION
Good governance is good business and is built
on competency, transparency and accountability.
In pursuit of our goal of strong and sustainable
growth, the Board and management remain
committed to achieving that transparency and
accountability in all we do.

Ellvena Graham, Chairman
24 February, 2016
PRINCIPLES OF GOVERNANCE
ESB in pursuit of its governance objectives complies
with the Code of Practice for the Governance of
State Bodies (the State Code) and to the maximum
extent possible with the UK Corporate Governance
Code 2014 (the UK Code). The UK Code sets
out five key principles of governance: Leadership,
Effectiveness, Accountability, Remuneration and
Relations with Shareholders.
1. LEADERSHIP
in their biographies on pages 64 to 65. The
Board is confident that all its members have the
knowledge, ability and experience to perform the
functions required of a Board member.
The Board’s primary role is to exercise objective
and informed judgement in determining the
ESB Group Strategy, to ensure there is a strong
management team in place to execute and
Legal
THE BOARD
The Board provides the leadership of the Group
and, either directly or through the operation of
Committees, applies independent judgement on
matters of strategy, performance, resources and
governance. During 2015, the Board comprised
the Board members detailed on pages 64 to 65
of whom the Chairman, the Chief Executive and
the Independent Board members were appointed
by Government and the four Worker Board
members were appointed pursuant to the Worker
Participation (State Enterprises) Act 1977. The
Board size and structure is governed by the
Electricity Supply Acts 1927 - 2004 and by the
Worker Participation (State Enterprises) Acts.
The Board has determined that those Board
members (details on pages 64 to 65) were
independent during 2015. This determination
took account of the relevant provisions of the UK
Code regarding Board members' independence
in character and judgement and the absence
of relationships or circumstances which could
compromise Board members’ independence. In
light of these factors the Board is satisfied of the
independence of the Board members identified
above.
 A diverse and deep range of skills and
experiences around the boardroom table
 Processes to ensure that all of the Board
LENGTH OF TENURE
BOARD EXPERIENCE
(Independent Board members)
17%
monitor business performance and to maintain
a framework of prudent and effective controls
to mitigate risk. Two critical factors determine
how the Board is equipped to fulfil those duties
and obligations successfully:
Engineering
17%
6-10
0-2
years
years
18%
27%
Politics
17%
3-5
years
Finance
55%
49%
COMPOSITION OF BOARD (Gender)
INDEPENDENCE OF BOARD
Non-Independent
Board members
Female
36%
50%
BOARD MEMBERSHIP
The ESB Board in 2015 brought diverse
experience, independence and challenge to
support effective decision making. The range
of Board members’ experience in engineering,
finance, legal, politics and in ESB is set out
Male
64%
02
03
FINANCIAL STATEMENTS
Good governance provides the foundation
for long-term value creation and is a core focus
for the ESB Board and for me as Chairman. In
this regard, and in line with the UK Corporate
Governance Code 2014 (the UK Code), we
see our responsibilities including setting the
Group’s strategic aims, providing the leadership
to put them into effect and both supporting
and challenging management to get the
best outcomes for ESB and its stakeholders.
Management have the knowledge and expertise
for the operational requirements of the business.
It is not the role of the Board to duplicate that.
However, we do question and monitor in the
light of ESB’s values and strategic direction. In
our view, the best decisions are made through
this dynamic interchange between Board and
management.
ESB has adopted its own Code of Ethics which
sets out our approach to responsible and ethical
business behaviour. The underlying principle of
the Code of Ethics is that employees best serve
ESB by adhering to the highest standards of
integrity, loyalty, fairness and confidentiality and by
meeting all legal and regulatory requirements.
RISK
THE BOARD
GOVERNANCE REPORT
CORPORATE GOVERNANCE
ESB also conforms as far as possible and on a
voluntary basis to the Irish Corporate Governance
Annex (the Irish Annex). We do this to adhere as
closely as possible to listed company governance
standards.
details of the revised Committees and their
membership are set out on pages 66 to 67 of this
report.
STRATEGY AND PERFORMANCE
CHAIRMAN’S CORPORATE
GOVERNANCE STATEMENT
Independent Board
members
50%
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01
STRATEGY AND PERFORMANCE
THE WAY WE ARE STRUCTURED
Our organisation is structured to allow for effective and efficient decision-making with clear accountability.
CHAIRMAN
Ellvena Graham
 Leading the Board
 Determining the Board agenda
 Ensuring its effectiveness and facilitating full
participation by each Board member
 Ensuring effective communication with the
Group’s owners and stakeholders
CHIEF EXECUTIVE
Pat O’Doherty
SENIOR
INDEPENDENT
BOARD MEMBER
Noreen Wright
Executive leadership
of the Group’s
business
Implementation of the
Group’s strategies
and policies
Maintaining a close
working relationship
with the Chairman
Leading the Executive
Team
Health, Safety
and Environment
Committee
To advise the
Board on health,
safety and
environmental
matters
Remuneration
and Management
Development Committee
To advise the Board on all
aspects of the remuneration
of the Chief Executive
To approve any changes to
the remuneration of Worker
Board members
To set the remuneration
of the Executive Team
following consultation with
the Chief Executive
To monitor the development
of current and future
leaders of ESB
Assists the Chairman in
ensuring that all Board
members have full and
timely access to all relevant
information
Is responsible for ensuring
that correct Board procedures
are followed and advises
the Board on corporate
governance matters
Liaison between Board and
Executive Team
Finance and Investment
Committee
Review capital structure
and capital expenditure
proposals
Review treasury and
energy trading policies and
procedures
Review investment and
divestment proposals
aimed at ensuring the
positioning of ESB for
future success, consistent
with the strategy approved
by the Board
ROLE OF THE BOARD
The Board is responsible for the long-term
success of ESB and decisions are only made
after the necessary level of information has
been made available to Board members and
with due consideration of the risks identified
through the risk management process.
The Board has reserved the following key
decisions for its own consideration:
 Approval of ESB Group Strategy, annual
budgets and annual and interim financial
statements
 Review of operational and financial
performance
 Approval of major capital expenditure
 Overall review of Group health and safety
performance
 Appointment of the Chief Executive
 Appointments to the Executive Team on the
recommendation of the Chief Executive
 Appointment of the Company Secretary
 Major acquisitions, disposals or retirements
 Determining the nature and extent of the
principal risks the Group is willing to take in
achieving its strategic objectives including
the Group Risk Appetite Statement
Biographical details of the Chairman, Chief
Executive and Senior Independent Director can
be found on pages 64 to 65.
Biographical details of the Company Secretary
can be found on page 26.
EXECUTIVE DIRECTOR TEAM
Seven Executive Directors
 Leadership and control of the Group
BOARD MEETINGS
The Board meets monthly (with the exception
of August) and meets on other occasions as
necessary. The Board is responsible for reviewing
the operational and financial performance of the
Group and for ensuring effective internal control
and risk management. The Board has a formal
schedule of matters specifically reserved to it for
decision. The matters reserved to the Board are
described on page 70.
The Board has delegated authority to
management for decisions in the normal course
of business subject to specified limits and
thresholds.
The Board members, in the furtherance of their
duties, may take independent professional advice,
at the expense of ESB. All Board members
have access to the advice and services of the
Company Secretary. Insurance cover is in place
to protect Board members and officers against
liability arising from legal actions taken against
them in the course of their duties. An induction
programme is in place to familiarise new Board
members with the operations of the Group
and a continuing development programme is in
place for all Board members. There is ongoing
financial and operational reporting to the Board
and papers are sent to each member on a timely
basis before the Board meetings. The Board
papers include the minutes of Board Committee
meetings.
The Board is satisfied that the Chairman
and each of the Board members committed
sufficient time during the year to enable them to
fulfil their duties as Board members of ESB.
TIME SPENT ON EACH ACTIVITY
BY THE BOARD
Strategy
16%
Finance
15%
People
19%
02
Operations
30%
Governance
and Risk
Management
20%
EXAMPLES OF MATTERS CONSIDERED AND / OR APPROVED BY THE BOARD
STRATEGY
OPERATIONS

Strategy review and update

Chief Executive operations report

Energy policy and market updates

Health and safety reports

Material potential acquisitions and disposals

Energy trading updates

Competitor activity

Plant overhauls programme

Capital investment evaluations
03

Performance of Novusmodus Fund
FINANCIAL STATEMENTS
Audit and Risk
Committee
To assist the
Board with its
responsibilities in
relation to:
– Financial
reporting
– Internal
control and risk
management
– Compliance,
whistle-blowing
and fraud
– External and
internal auditors
Act as a sounding
board for the
Chairman
Serving as an
intermediary for the
other Board members
COMPANY SECRETARY
John Redmond
The State Code provides that the Chairman
may engage with Government on succession
and this provides an opportunity for ensuring
an appropriate mix of skills and experience on
the Board.
2. EFFECTIVENESS
CORPORATE GOVERNANCE
BOARD
Chairman, five independent Board members, four worker Board members and the Chief Executive
 Responsible for the long-term success of ESB and for its overall judgement
on matters of strategy, performance, resources and governance
members develop a good understanding
of the Group’s operations and external
environment and are therefore well placed to
make informed decisions
FINANCE
GOVERNANCE AND RISK MANAGEMENT

Annual and half-yearly published results

Group Risk Appetite Statement and Group Risk Plan

Quarterly financial performance and forecasts

Effectiveness of risk management and internal control

Annual budget and five-year business plan

Internal audit plan for the year

Dividends

Board evaluation

Capital market funding - €500 million bond issue in June 2015

Extension of appointment of external auditor

Credit rating agency updates

Change of Committee members for 2015

Cost of capital and hurdle rates for new investments

Committee Terms of Reference

Actuarial and minimum funding standard valuations for ESB’s Republic of
Ireland (ROI) Pension Fund
PEOPLE

Staff survey results

Review of changes to the Employee Scheme Ownership Plan (ESOP)
market

Industrial relations negotiations on a new reward model
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01
BOARD COMMITTEES
There were 11 General Board meetings and
2 Special Board meetings during 2015. The
number opposite each name below represents
the attendance by each Board member during
the year.
Four Committees of the Board assist in the
discharge of its responsibilities and the Board
delegates specific responsibilities to those
Board Committees as set out in their Terms of
Reference. The Committees assist the Board by
giving more detailed consideration to business,
operational, financial and governance issues
and they report to the Board with any necessary
recommendations.
BOARD MEMBERS 2015
General Special
Board
Board
Meetings Meetings
11
2
Anne Butler*
11
2
Dave Byrne^
10
1
Andrew Hastings*1
4
2
Sean Kelly^
11
2
Seamus Mallon*
9
2
Tony Merriman^
11
2
Noreen O’Kelly*
11
2
Peter O’Sullivan^
11
2
Noreen Wright*
11
1
Pat O’Doherty
11
* Independent Board members
^ Worker Board members
1
Appointed July 2015
2
As a result of Board changes, the Committee
membership was amended during the year and
details of the revised Committees and their
membership are set out on pages 66 to 67 of
this report.
BOARD EVALUATION
The Board conducts an annual evaluation of its
own performance and that of its Committees.
This evaluation is undertaken in order to comply
with the State Code and, so far as possible,
with the UK Code. The evaluation relates to the
Board’s collective performance and not to the
individual performance of Board members. The
purpose of the evaluation is to review the Board’s
own operation and to identify ways to improve
its effectiveness. It also helps to identify specific
skills required or desirable in Board members
and this can be advised to Government by
The evaluation is led by the Chairman, supported
by the Company Secretary. The evaluation
consists of a questionnaire and based on Board
members’ replies, a report is made to the Board
on the outcome with proposed actions to address
issues raised. Implementation is reviewed at
mid-year. An independent evaluation is conducted
every three years or so and the last independent
evaluation took place in 2013.
In addition, the Chairman meets with Board
members including the Senior Independent
Board member for an open exchange among
Board members concerning the efficiency and
effectiveness of the Board.
3. ACCOUNTABILITY
 ESB’s policies and disclosures in relation
to remuneration of the Chief Executive are
in accordance with applicable Government
COMPLIANCE WITH CORPORATE
GOVERNANCE CODES
guidelines. The details of Board members’
remuneration on page 76 do not include
amounts paid to the four Worker Board
members as employees of ESB (as such pay
is neither increased nor decreased because
of their membership of the Board), but do
include amounts paid to them by way of fees.
 The Board evaluation process has not to date
evaluated the individual performance of Board
members as the Board does not have a formal
role in determining its own composition.
 The Board Chairman is also Chairman of the
Remuneration and Management Development
Committee given the importance of
compliance by ESB with Government policy
in this area and the role of the Chairman as
the primary interface with Government.
 There is currently one vacancy on the Board
and as a result, only half of the Board,
excluding the Chairman, is independent.
ESB complies with the State Code, which sets
out principles of corporate governance, which
the Boards of State Bodies are required to
observe. ESB also complies with the corporate
governance and other obligations imposed
by the Ethics in Public Office Act, 1995, the
Standards in Public Office Act, 2001 and the
Regulation of Lobbying Act, 2015.
ESB conforms as far as possible and on a
voluntary basis, to the UK Code. ESB supports
the provisions of the UK Code and voluntarily
complies with them as far as possible. The UK
Code is available on the Financial Reporting
Council’s (FRC) website.
BOARD APPOINTMENTS
As Board appointments are a matter for
Government or for election by employees, ESB
does not undertake an evaluation of individual Board
members. However, the Chairman does engage
with Government in advance of Board appointments
about the specific skills that are required on
the Board. Board appointments conform to the
Guidelines on Appointments to State Boards as
published by the Department of Public Expenditure
and Reform in November 2014.
ESB also complies, as far as possible, with the
Irish Corporate Governance Annex (the Irish
Annex).
FINANCIAL AND BUSINESS REPORTING
The UK Code consists of principles (main and
supporting) and provisions. Companies listed on
the Irish Stock Exchange are required, as part of
the Listing Rules, to describe how they apply the
principles of the UK Code, whether the Group
has complied with all relevant provisions and the
of non-compliance.
INTERNAL CONTROL
RECOMMENDATIONS FROM BOARD EVALUATION
ESB is a statutory corporation established
under the Electricity (Supply) Act 1927 as
2014 RECOMMENDATIONS
ACTIONS TAKEN IN 2015
comply with the UK Code or the Irish Annex. As
1. BOARD MEETINGS
Board arrangements and information should include more focus
on strategic issues in the Board papers
Business location and informal meetings of Board and Committees
stated above, ESB supports the principles and

Ongoing review of Board agenda to ensure appropriate strategic
issues / industry developments feature regularly and strategic issues
were highlighted on all Board papers

Group sites were chosen as locations for meetings in 2015 and site
visits took place
2. APPOINTMENTS TO THE BOARD
Board and its Committees need to have the right mix of people, skills,
experience, diversity, independence and knowledge
amended and, accordingly, is not obliged to

Committee membership was reviewed and restructured during 2015

Necessary skills and experience are identified in the specification for
Board members
provisions of the UK Code and the Irish Annex
and voluntarily complies with them subject to the
following exceptions:
 Appointments to the Board are a matter for
Government and accordingly ESB does not
have a nomination committee.
 Board members are appointed for terms
of five years or four years in the case of
Worker Board members and therefore are
not subject to re-election to the Board at
lesser intervals.
The Board has overall responsibility for the
Group’s system of internal control and for
monitoring its effectiveness. The system
of internal control is designed to provide
reasonable but not absolute assurance against
the risk of material misstatement or loss. In order
to discharge that responsibility in a manner
which ensures compliance with legislation
and regulations, the Board has established an
organisational structure with clear operating
and reporting procedures, lines of responsibility,
authorisation limits, segregation of duties and
delegated authority.
The Group uses the integrated internal control
framework as developed by the Committee
ESB has in place a strong internal control
framework, which includes the following:
 A code of ethics that requires all Board
members and employees to maintain the
highest ethical standards in conducting
business
Clearly defined organisational structure,
with defined authority limits and reporting
mechanisms to higher levels of management
and to the Board which support the
maintenance of a strong control environment
 A corporate governance framework which
includes risk analysis, financial control review
and formal annual governance compliance
statements by the management of business
lines
 A comprehensive set of policies and
procedures relating to operational and financial
controls
 Large capital projects require the approval of
the Board and are closely monitored on an
ongoing basis by the Finance and Investment
Committee – they can also be subject to
post- completion audits
 Comprehensive budgeting systems with an
annual budget approved by the Board
 A comprehensive system of financial reporting
 Cumulative actual results and key performance
indicators are reported against budget and
considered by the Board on a monthly basis
– any significant changes and / or material
adverse variances are questioned by the Board
and remedial action taken where appropriate
 A confidential helpline service to provide
employees with a confidential and if required,
anonymous means to report fraud or ethical
concerns
These controls are reviewed systematically by
Group Internal Audit. In these reviews, emphasis
is focused on areas of greater risk as identified by
risk analysis.
02
03
FINANCIAL STATEMENTS
related Irish Annex and to provide an explanation
The Board recognises its responsibility for
preparing the annual report and financial
statements and to present a fair balanced and
understandable assessment of the Group’s
position and prospects. The Board members’
responsibilities regarding financial statements and
going concern are set out on page 87.
of Sponsoring Organisations of the Treadway
Commission (COSO) as guidance for designing,
implementing and conducting internal control
and assessing its effectiveness. The COSO
framework was first released in 1992 and
updated in 2013.
CORPORATE GOVERNANCE
Ellvena Graham
the Chairman for consideration when making
appointments.
STRATEGY AND PERFORMANCE
ATTENDANCE AT MEETINGS IN 2015
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Operations
Reporting
Compliance
RISK MANAGEMENT
Effective risk management is critical to the
achievement of ESB’s strategic objectives and
the long-term sustainable growth of its business.
The rapid changes taking place in ESB makes it
all the more important to continuously reassess
risks and have clear strategies to manage them.
The Board has overall responsibility for the
Group’s approach to risk.
Control En
vironment
Risk Asse
ssment
Control Act
ivities
Entity
Division
Operating Unit
Function
Monitoring
Activities
ESB INTERNAL CONTROL
FRAMEWORK
Control Environment
1. Demonstrates commitment to control
and ethical values
2. Exercises oversight responsibility
3. Establishes structure, authority and
responsibility
4. Demonstrates commitment to competence
5. Enforces accountability
Risk Assessment
6. Specifies suitable objectives
7. Identifies and analyses risk
8. Assesses fraud risk
9. Identifies and analyses significant change
Specifically the Board is responsible for:
 Ensuring that an adequate process designed
to identify the principal risks and uncertainties is
in place
 Embedding an appropriate risk culture
throughout the Group
 Oversight of the risk management and crisis
management processes
 Assessment of the likely effectiveness of
management's mitigation measures and controls
The Board has carried out a robust assessment
of the principal risks facing the Group, including
those that would threaten its business model,
future performance, solvency and liquidity. A
The Board is aware that it must lead by example
in shaping and supporting the Group values
that underpin the approach to risk. It also wants
to ensure that sufficient risk management skills
and capabilities are available in the business
and that the knowledge and experience of all
the employees in ESB who understand the risks
associated with operations is utilised. Regular
reporting has helped the Board to stay abreast of
emerging risks and uncertainties.
Risk appetite may also vary over time and the Board
has explicitly considered the level of this appetite
and any deviation from its stated appetite for risk
that the Group is prepared to accept in respect of
specific risks. The propensity to take risk is always
balanced by a focus on exercising control.
ACTIVITIES UNDERTAKEN BY THE BOARD AND THE AUDIT AND RISK COMMITTEE
DURING 2015 IN RESPECT OF ITS RISK RESPONSIBILITIES
DETAIL
Risk Appetite Statement and
Risk Plan
Control Activities
10. Selects and develops control activities
11. Selects and develops general controls
over activities
12. Deploys through policies and procedures
The Audit and Risk Committee recommended the Group Risk
Appetite Statement and the Group Risk Plan 2015 and details of
emerging risks 2016 - 2019 for Board approval
Risk Update on Data
Protection / Cyber Attack
Received an update on the IT security risk covering data protection
and cyber attack issues
Information and Communication
13. Uses relevant information
14. Communicates internally
15. Communicates externally
World Economic Forum
(WEF) Global Risk Report
Received a briefing on the WEF Global risks 2015 and considered
the implications for ESB
FRC Guidance on Risk
Management
Reviewed details of ESB's compliance with the FRC's Guidance on
Risk Management
National Risk Assessment
Plan
Received a briefing on the plan which emphasised the importance
of clarity at a national level of risk ownership and considered the
specific responsibilities of ESB
National Level Emergency /
Critical Response
Received a briefing on the role of ESB as one of the key agencies
in a major emergency affecting disruption to energy supply – the
briefing also covered the role of the Government Task Force on
Emergency Planning and the Office of Emergency Planning
Generation Asset Assurance
Reviewed the risk appetite in relation to plant availability across the
generation portfolio – the operational and safety implications of the
current approach were also considered
High Impact Low Probability
(HILP) Deep Dive
Visited Telecoms Services ESB Networks for a presentation on the
HILP risks of the business
Monitoring Activities
16. Conducts ongoing and / or separate evaluations
17. Evaluates and communicates
deficiencies
The Group uses the integrated internal control
framework as developed by Committee of
Sponsoring Organisations of the Treadway
Commission (COSO) as a guidance for internal
control.
The Board retains the overall responsibility for
internal control and risk management. During
2015, the Board has directly and through
the delegated authority to the Audit and Risk
Committee, reviewed the effectiveness of the
Group’s system of internal control covering
financial, operational and compliance controls
and risk management systems for 2015 and will
ensure a similar review is performed in 2016.
The process used by the Board and the Audit and
Risk Committee to review the effectiveness of the
system of internal control includes:
 A designated risk management function in ESB
 Review and consideration of the half-yearly risk
review process and regular risk management
updates
 Independent advice on the adequacy of the
current risk management process in operation
in ESB
 Review and consideration of certifications
from management of satisfactory and effective
operation of systems of internal control, both
financial and operational
A review of the programme of Group Internal
Audit and consideration of their findings and
reports
 Group Internal Audit also report regularly
on the status of implementation of
recommendations raised previously from their
own reports and reports from the external
auditor
 A review of reports of the external auditor,
KPMG, which contain details of work carried
out on the key audit risks
On the basis of this review, the Board confirms
the following for 2015:
 There is an ongoing process for identifying,
evaluating and managing the principal risks of
the Group
 Systems of internal control have been in place
for the year under review and up to the date of
approval of the annual report
 The systems accord with the FRC’s Guidance
on Risk Management, Internal Control and
Related Financial and Business Reporting
 That no significant failings or weaknesses
were identified in the review and where areas
of improvement were identified, processes are
in place to ensure necessary action is taken
and progress is monitored
Through its ongoing involvement and overview of
internal control and risk management activities,
the Board is satisfied that the internal control and
risk management remain effective.
briefings provided by business units along with
Strategic Performance Indicators (SPIs) to
measure progress. The metrics in the business
plan are subject to sensitivity analysis, which
involves flexing a number of the main assumptions
underlying the plan to assess key financial metrics
such as Free Funds from Operations (FFO)
to Debt and EBITDA. Where appropriate, this
analysis is carried out to evaluate the potential
impact of the Group’s principal risks actually
occurring.
GOING CONCERN
The Group’s performance, business model,
strategy and principal risks and uncertainties
and how these are managed are set out in
the strategy and performance report on
pages 2 to 61.
The financial position of the Group, its
cash flows, liquidity position and borrowing
facilities are described in the finance review
on pages 34 to 39. Note 26 in the financial
statements includes an overview of financial risk
management, details of its financial instruments
and hedging activities and its exposure to credit
and liquidity risks.
The Group has considerable financial resources
and the Board believe that the Group is well
placed to manage its risks successfully. After
making appropriate enquiries the Board is
satisfied that ESB has adequate resources
to continue in operational existence for the
next financial year and the foreseeable future.
Accordingly the financial statements are
prepared on a going concern basis.
The Group’s funding operations are of strategic
importance and support capital expenditure,
the refinancing of maturing debt and the
maintenance of adequate liquidity. The Group’s
debt management strategy targets a debt portfolio
profile with a diverse mix of counterparties, funding
sources and maturity. The Group’s revolving
credit facility of €1.44 billion provides ESB with
a substantial level of standby liquidity for the next
five years. ESB’s funding position reflects its
underlying financial strength and at least BBB+
(or equivalent) credit ratings from all three major
agencies. Further details on debt maturity is set
out on page 39.
Based on the results of the above analysis, the
Board members have a reasonable expectation
that the Group will be able to continue in operation
and meet its liabilities as they fall due over the fiveyear period of their assessment.
4. REMUNERATION
CHIEF EXECUTIVE’S REMUNERATION
VIABILITY STATEMENT
In accordance with the UK Code, the Board
members have assessed the prospect of the
Group over a five-year period, which is consistent
with the timeframe of the Group’s business
planning process. The assessment is based
on consideration of ESB’s current position and
prospects, maintaining financial strength, progress
against ESB Group Strategy, risk appetite,
principal risks and how these are managed.
The business planning process is completed
annually and underpinned by regular Board
The Chief Executive’s remuneration is set within
a range determined by the Minister for Public
Expenditure and Reform and the Minister for
Communications, Energy and Natural Resources.
Mr O’Doherty was appointed Chief Executive
effective 1 December 2011 and was appointed a
Board member in January 2013. His remuneration
consists of an annual salary of €295,000, a
company car and employer pension contributions.
He is a member of the ESB Pension Scheme.
In line with Government policy at this time, he
did not receive any performance related payments
in 2015.
02
03
FINANCIAL STATEMENTS
ACTIVITY
THE 2015 REVIEW OF THE
EFFECTIVENESS OF INTERNAL
CONTROL AND RISK MANAGEMENT
CORPORATE GOVERNANCE
Informatio
n
Communic and
ation
cyclical review process for identifying, assessing
and managing its significant risks has been in
place for the year under review and up to the date
of approval of the annual report. The principal
risks and uncertainties facing the Group together
with the mitigating strategies are set out on pages
15 to 19.
STRATEGY AND PERFORMANCE
COSO FRAMEWORK
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WORKER BOARD MEMBERS’
REMUNERATION
BOARD MEMBERS' REMUNERATION
CHAIRMAN
Worker Board members appointed under the
Worker Participation (State Enterprises) Act
1977 are remunerated as employees of ESB.
They are members of the ESB Pension Scheme.
INDEPENDENT BOARD MEMBERS’
REMUNERATION
2014
€
Ellvena Graham
23,075
–
Lochlann Quinn
3,952
75,075
Salary
2015
€
295,000
2014
€
295,000
Taxable benefits
15,570
15,570
CHIEF EXECUTIVE
The remuneration of the Independent
Board members (including the Chairman)
is determined by the Minister for Public
Expenditure and Reform and the Minister
for Communications, Energy and Natural
Resources and they do not receive pensions
or any other remuneration. The terms and
conditions are set out in their letter of
appointment and this is available on request
from the Company Secretary.
48,380
358,950
INDEPENDENT / WORKER
BOARD MEMBERS
2015
€
Anne Butler
15,750
2014
€
15,750
BOARD MEMBERS’ EXPENSES
Brendan Byrne
14,696
In compliance with the State Code, disclosure
is required of the expenses paid to the Chief
Executive and Board members, broken down
by category. During 2015, the following
amounts were reimbursed to, or paid on behalf
of, the Chief Executive and Board members:
€39,836 for travel expenses, €34,600 for
accommodation / subsistence and €7,289 for
subscriptions to business relevant organisations
and publications.
Dave Byrne
–
ESB is owned 95% by the Irish Government
and 5% by the Trustee of the Employee Share
Ownership Plan. ESB engages in active and
ongoing consultation with the Government on
key polices and strategic issues as required by
legislation and the State Code. It also provides
quarterly updates on its financial performance.
ESB also regularly engages with and consults
with the Trustee of the Employee Share
Ownership Plan.
ANNUAL GENERAL MEETING (AGM)
15,750
15,750
John Coleman
–
15,750
Ellvena Graham
–
15,750
Andrew Hastings
7,372
–
Sean Kelly
15,750
15,750
Seamus Mallon
15,750
15,750
Tony Merriman
15,750
15,750
Noreen O’Kelly1
–
–
Peter O’Sullivan
15,750
–
Noreen Wright
15,750
15,750
117,622
140,696
Ms O’Kelly waived her Board fees in 2014 and 2015
1
DIALOGUE WITH SHAREHOLDERS
ESB holds an AGM each year and no later than
fifteen months after the last AGM. The requisite
notice is given to all shareholders. Board
members including the Chairman of the Audit
and Risk Committee are invited to attend. The
Chairman gives an overview of development for
the year and invites shareholders to make any
comments they may have. The external auditor
attends the AGM and voting is by show of
hands or by poll.
Noreen O'Kelly, Chairman,
Audit and Risk Committee
DUTY
ACTIVITY
Financial Reporting
Reviewing the annual report and
financial statements to ensure that
when taken as a whole they are
fair, balanced and understandable
and that appropriate accounting
standards, estimates and
judgements have been applied

Reviewed the clarity and completeness of the disclosures in
Internal Control and Risk
Management
Reviewing the effectiveness
of internal control and risk
management

Reviewed and monitored the effectiveness of the Group’s
Compliance, Whistle-blowing
and Fraud
Review the adequacy and security
of the arrangements for employees
and contractors to raise concerns,
in confidence, about possible
wrongdoing in financial reporting or
other matters

Reviewed the controls and procedures in place to provide
CHAIRMAN'S INTRODUCTION
Under the UK Corporate Governance Code 2014
(the UK Code), the Board has a responsibility
to confirm that the annual report and financial
statements taken as a whole, is fair, balanced and
understandable and provides all the necessary
information for shareholders / stakeholders to
assess the Group’s performance, business model
and strategy. The Audit and Risk Committee has
reviewed the annual report and financial statements
and is satisfied that it meets these criteria and can
recommend them to the Board for approval.
The Audit and Risk Committee also considered
the significant issues in relation to the financial
statements and how these issues were addressed.
This work is summarised in the table on the right.
The Audit and Risk Committee will keep its
activities under review to ensure that future
developments relating to the work of the Audit
and Risk Committee are fully considered. The
responsibilities of the Audit and Risk Committee
are summarised in the table on the right and are
set out in full in its Terms of Reference.
KEY OBJECTIVE
The role of the Audit and Risk Committee is set
out in its Terms of Reference, a copy of which
can be found on the ESB website. The Terms of
Reference sets out the duties of the Audit and
Risk Committee under the following headings:
Financial Reporting
 Internal Control and Risk Management
 Compliance, Whistle-blowing and Fraud
 Internal Audit
 External Audit
the annual report and financial statements and the material
information presented within them

Reviewed whether the Group had applied appropriate
accounting standards and made appropriate estimates and
judgements, taking into account the views of the external
auditor

Reviewed the interim results which consist of financial
statements and explanatory notes

Reviewed and approved the ESB regulatory financial
statements

Considered and challenged the methods used to account
for significant or unusual transactions and how these were
presented and disclosed in the financial statements
system of internal control

Reviewed the arrangements for business continuity planning

Reviewed ESB’s revised Risk Policy, 2015 Risk Plan and
regular risk reports and recommended them to the Board for
approval

Considered the external review of ESB Risk Management
02
assurance of compliance with statutory obligations

Reviewed the adequacy of the processes adopted by ESB
to achieve compliance with the Code of Practice for the
Governance of State Bodies (the State Code)

Reviewed the procedures and policies for preventing and
detecting fraud and were informed of any instances of fraud

Reviewed the adequacy and security of the arrangements
for raising concerns confidentially about possible
wrongdoing in financial reporting or other matters

Considered the revised ESB Code of Ethics
Internal Audit
Monitor and assess the role and
effectiveness of the internal audit
function

Reviewed the internal audit plan and monitored progress
External Audit
Monitor and review the objectivity,
independence and quality of the
external auditor (KPMG) and
review the findings of the audit with
the external auditor

Reviewed and challenged the proposed external audit
against this plan to assess the effectiveness of the function

Reviewed reports detailing the results of key audits,
management’s response and the timeliness of resolution of
actions

Met with the head of internal audit without management
being present
plan to ensure that KPMG had identified all key risks and
developed robust audit procedures

Reviewed the report from KPMG on its audit of the financial
statements and their responses to accounting, financial
control and other audit issues as they arose

Enforced the policy on the engagement of the external
auditor to supply non-audit services

Met with the external auditor without management being
present, giving KPMG the opportunity to raise any matters in
confidence

Approved the external audit tender process and selection
criteria for 2017 onwards
03
FINANCIAL STATEMENTS
48,380
358,950
The above business and travel expenses include
those of the Chief Executive in respect of his
duties as an executive.
Pension contributions
ACTIVITIES UNDERTAKEN BY THE COMMITTEE DURING 2015 IN RESPECT OF THE
DISCHARGE OF ITS DUTIES
CORPORATE GOVERNANCE
2015
€
5. RELATIONS WITH
SHAREHOLDERS
STRATEGY AND PERFORMANCE
AUDIT AND RISK
COMMITTEE REPORT
01
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01
STRATEGY AND PERFORMANCE
FINANCIAL REPORTING
The Audit and Risk Committee receives and
considers the interim and year end financial
statements from management as well as directing
the work of and receiving reports from the internal
audit team and discussing the audit strategy and
focus of the external auditor. Taking into account
information from these activities, the Audit and
Risk Committee determined the key risks of
misstatement of the Group’s financial statements
related to the following:
 Carrying value of long-lived assets and goodwill
 Pension obligations
 Derivatives and hedging arrangements
 Legal contingent liabilities and disclosures
 Capital market funding
HOW ADDRESSED BY THE AUDIT AND RISK COMMITTEE
CARRYING VALUE OF LONG-LIVED ASSETS AND GOODWILL
Republic of Ireland (ROI) and United Kingdom (UK) Generation
Portfolio
Impairment reviews were performed on the ROI and UK generation
portfolios to ensure the carrying values are supported by forecast future
discounted cash flows. An impairment charge of €104 million with
respect to the generation business was necessary following this review.
This impairment related to Corby Power Limited (€58 million), and
Coolkeeragh ESB Limited (€46 million). Further details are in notes 4
and 10 to the financial statements.
Networks Transmission and Distribution Assets
As at 31 December 2015, there were no indicators of impairment of the
carrying value of the regulated asset base, ESB Networks (€7.4 billion)
and Northern Ireland Electricity Networks (NIE Networks) (€1.8 billion),
which determines the future regulated income to be earned.
To assist with their decision on the level of impairment charge they carried
out the following:

Considered detailed papers including descriptions of the methodologies
and assumptions applied in deriving the recoverable values including the
discount rates used

Constructively challenged the assumptions and projections presented in
the papers

Considered the detailed reporting from, and findings by, the external
auditor
Following the review above the Audit and Risk Committee is satisfied
that the impairment review approach, disclosures in notes 4 and 10, key
assumptions and the proposed impairment charge of €104 million are
appropriate.
HOW ADDRESSED BY THE AUDIT AND RISK COMMITTEE
PENSION OBLIGATIONS
In accordance with IAS 19 Employee Benefits, ESB continues to reflect
its existing committed obligations on the balance sheet as set out in
note 22 to the financial statements. This treatment is based on the
following key factors, none of which changed during 2015.

The Scheme is registered as a Defined Benefit Scheme with
the Pensions Authority. The regulations governing the Scheme
stipulate the benefits that are to be provided and they also stipulate
contributions to be paid by both ESB and the contributing members.

The Scheme is not a typical “balance of costs” Defined Benefit
Scheme (where the employer is liable to pay the balance of
contributions required to fund benefits). The company does not
intend that any further contributions, other than the normal ongoing
contributions and the balance of the company’s €591 million
additional contribution (committed to under the 2010 Pensions
Agreement and indexed at 6.25%), will be made.

Should a deficit arise in the future, the company is obliged under
the Scheme regulations to consult with the parties to the Scheme.
However, ESB has no obligation to increase contributions to maintain
benefits in the event of a deficit and ESB’s rate of contribution
cannot be altered without the agreement of ESB and the approval of
the Minister for Communications, Energy and Natural Resources.
The accounting for the obligations to be reflected in the financial statements
requires the exercise of judgement. The Board remains satisfied that the
appropriate accounting treatment, determined in accordance with IAS 19
Employee Benefits, is to reflect its existing committed obligations, as set out
in the notes to the financial statements.
02
DERIVATIVES AND HEDGING ARRANGEMENTS
The Group uses derivative financial instruments and non-derivative
instruments to hedge its exposure to foreign exchange, interest rate
and commodity price risk arising from operational, financing and
investing activities. The principal derivatives used include interest
rate swaps, currency swaps, foreign currency contracts and indexed
swap contracts relating to the purchase of fuel and sale of electricity.
Derivative contracts which are not designated as own-use contracts
are primarily accounted for as cash flow hedges, where they meet cash
flow hedge accounting criteria under IAS 39 which impacts principally
on equity rather than on the reported earnings of the Group.
The Audit and Risk Committee recognises the inherent complexities
around the accounting for derivatives and hedging arrangements and that
a significant level of judgement is required in arriving at the appropriate
accounting treatment.
To assist with their decision on the reasonableness of the accounting
treatment they carried out the following work:

Reviewed and discussed with management a paper outlining the key
details of the more complex hedging arrangements

Relied on the third party verification process in relation to the valuation of
certain derivatives

Considered the results of the work of the external auditor in relation to
derivatives
Based on this work, the Audit and Risk Committee is satisfied that the
accounting treatment for financial derivatives is appropriate.
03
FINANCIAL STATEMENTS
NIE Networks Goodwill
Goodwill recognised in the NIE Networks business at 31 December
2015 amounted to €207 million. An annual impairment test of goodwill
was carried out in accordance with IAS 36 and no reduction in the
value of goodwill was required. The growth rate and appropriate
discount rate used to carry out this test are significant judgements and
these are explained more fully in the note 12 to the financial statements.
The Audit and Risk Committee recognises that the impairment reviews for
the carrying value of assets involve a range of judgemental decisions largely
related to the assumptions used to assess the value in use of the assets
being tested.
SIGNIFICANT ISSUES CONSIDERED (Continued)
CORPORATE GOVERNANCE
SIGNIFICANT ISSUES CONSIDERED
These issues were discussed with management
during the year, with the auditor at the time
the Audit and Risk Committee reviewed and
agreed the auditor's Group audit plan, when
the auditor reviewed the half-year interim
financial statements in September 2015 and
at the conclusion of the audit of the financial
statements.
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STRATEGY AND PERFORMANCE
SIGNIFICANT ISSUES CONSIDERED (Continued)
HOW ADDRESSED BY THE AUDIT AND RISK COMMITTEE
LEGAL CONTINGENT LIABILITIES AND DISCLOSURES
Following on from flooding in Cork in November 2009, Aviva as UCC’s
insurer pursued a legal action against ESB in the High Court seeking
recovery of €19 million for property damage. On 5 October 2015 the
High Court delivered its judgement in the case and found ESB 60%
liable for the damage caused and UCC 40% contributory negligent.
In addition to the UCC claim ESB has, since the judgement in the
UCC case, been served with 156 sets of proceedings relating to the
flooding in Cork in November 2009. Details of amounts claimed in
relation to these proceedings have not yet been received and therefore
it is not possible to make a reliable estimate of their cost (should the
Court of Appeal find against ESB) at this time. However, ESB does not
anticipate that the total amount of damages awarded, if any, and related
costs for all of the actions, including the Aviva / UCC action, would
exceed its applicable insurance cover.
To assist with the decision on the classification of the claim as a contingent
liability, the Audit and Risk Committee carried out the following work:

Considered the legal advice both internal and external in relation to the
case

Challenged the views taken by management where necessary

Reviewed an accounting paper from management outlining the
accounting treatment and the proposed disclosure (see note 27 in the
financial statements)

Considered the external auditor's opinion
Based on this work, the Audit and Risk Committee is satisfied that it is
appropriate not to make a provision in relation to the case.
On the basis of the internal and external legal advice received, ESB
believes that it is more probable than not that the appeal will be
successful and accordingly, no provision has been made for such
claims in the financial statements.
CAPITAL MARKET FUNDING
Consideration was given as to whether the repurchase and refinancing
of those bonds was a renegotiation of the existing debt or the
extinguishment of the existing debt and it was concluded that it was a
renegotiation of the existing debt.
The Audit and Risk Committee recognises the inherent complexities
around the accounting for the bond issue and redemption in the financial
statements.
To assist with their decision on the reasonableness of the accounting
treatment they carried out the following work:

Reviewed and discussed with management the accounting paper
outlining the accounting treatment of the bond issue and redemption

Reviewed the quantitative and qualitative IAS 39 testing

Review of equivalent liability management transactions by other organisations

Considered the results of the work of the external auditor
Based on this work, the Audit and Risk Committee is satisfied that the
accounting for the new bond issue and redemption is appropriate.
In reaching their conclusion, the Audit and Risk
Committee considered the following:
 All Board members received copies of the
annual report and financial statements to
review early in the process to ensure the key
messages in the annual report were aligned
with the Group’s position, performance
and strategy and the narrative sections of
the annual report were consistent with the
financial statements
 That a robust process was put in place by the
management for the preparation of the annual
report and financial statements for the year
ended 31 December 2015 including early
planning, taking into consideration regulatory
changes and best practice
 Clear linkages to the strategic objectives are
provided throughout the report
 That the Key Performance Indicators (KPIs)
used and reported in the annual report are
used for Board reporting
 Review of data and information included in the
annual report by internal audit and the external
auditor
 That all key events and issues reported to
the Board during the year, both positive and
negative have been adequately referenced or
reflected in the annual report
Following its review, the Audit and Risk
Committee is of the opinion, that the annual
report and financial statements taken as a whole,
is fair, balanced and understandable and provide
AUDIT AND RISK COMMITTEE
EVALUATION
As part of the Board evaluation process, the
operation of the Audit and Risk Committee
was also evaluated. Details of the evaluation
process are set out on page 72. Key
recommendations arising out of the evaluation
and actions implemented in 2015 included:
 More structured engagement with internal
and external auditors to facilitate open
discussion at members only meetings
 Increased time allocation for the
consideration of internal audit and whistleblowing
 More extensive reporting and communication
with the Board on sound risk management
and internal control systems
 A session dedicated to risk issues, which
was addressed at the strategy session
attended by the entire Board
DISCUSSIONS WITH THE EXTERNAL
AUDITOR
The Audit and Risk Committee has received
and discussed a report from the external auditor
on the findings from the audit, including those
relating to the judgemental areas noted on pages
78 to 80. The auditor reported to the Audit and
Risk Committee any misstatements that they had
found in the course of their work and no material
amounts remain unadjusted.
After reviewing the presentations and reports
from management and internal audit and
taking into account views expressed by the
external auditor, the Audit and Risk Committee
is satisfied that the financial statements
appropriately address critical judgements and
key estimates in the financial statements (both
in respect to the amounts reported and the
disclosures). The Audit and Risk Committee is
also satisfied that the significant assumptions
used for determining the value of assets and
liabilities have been appropriately scrutinised,
challenged and are sufficiently robust.
02
TIME SPENT ON EACH ACTIVITY BY THE AUDIT AND RISK COMMITTEE
03
External Audit
10%
Financial
Reporting
22%
Internal
Audit
17%
Compliance,
Whistle-blowing and
Fraud
27%
Internal Control and
Risk Management
24%
FINANCIAL STATEMENTS
In June 2015, ESB issued a €500 million 12-year Eurobond with a
fixed coupon of 2.125%. Some of the proceeds of the issuance were
used by the company, as part of a Tender Offer, to redeem €300 million
of the Group's existing bonds, with maturity dates of September 2017.
At the request of the Board, the Audit and
Risk Committee has considered whether, in
its opinion, the annual report and financial
statements taken as a whole, is fair, balanced
and understandable and provide all the
necessary information for shareholders
/ stakeholders to assess the Group’s
performance, business model and strategy.
Consideration is also given to whether the
information is presented in a clear and concise
format, avoids the use of jargon and is easily
understood by the reader of the financial
statements.
all the necessary information for shareholders
/ stakeholders to assess the Group’s
performance, business model and strategy.
CORPORATE GOVERNANCE
Based on legal advices received, ESB has appealed the decision to
the Court of Appeal. The appeal is likely to be heard in 2017. Pending
the appeal hearing, no hearing on quantum (i.e. the actual amount of
damages payable in respect of UCC’s losses) will take place and the
High Court has stayed its order on costs.
The Audit and Risk Committee recognise that in relation to legal claims
judgement is necessary on the appropriate level of disclosure and
provisioning.
FAIR, BALANCED AND
UNDERSTANDABLE
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APPOINTMENT AND INDEPENDENCE
The Audit and Risk Committee considers the
reappointment of the external auditor every
five years and this process is subject to public
tender. The last tender process was completed
in early 2012 and a three year contract was
awarded to KPMG with an option to extend for
another two years. This option was exercised in
February 2015.
audit team, communications and governance.
Overall the review was very satisfactory. During
the year the audit partner met with the Chair of
the Audit and Risk Committee on two occasions
outside of the scheduled meetings. The Audit
and Risk Committee Chair has suggested that
it would be beneficial to meet more frequently
between meetings.
NON-AUDIT SERVICES
The Audit and Risk Committee is satisfied that
KPMG is both independent and objective.
The Audit and Risk Committee has a policy
regarding the provision of non-audit services by
the external auditor. The fees payable for
non-audit services in any financial year should
not exceed audit fees for that year. A summary
of fees paid to the external auditor is set out in
note 9 to the financial statements.
MEETINGS
The Audit and Risk Committee has been keeping
developments at EU level in regard to audit
tenure under close review and taking account
of these developments and market practice in
ROI and the UK, a decision was taken to select
a new external auditor for the audit of 2017
onwards. The Audit and Risk Committee would
like to take this opportunity to extend its sincere
appreciation to KPMG for their exemplary service
for many years to ESB.
AUDITOR EFFECTIVENESS
The effectiveness of the external auditor is
reviewed annually, taking into account feedback
from a questionnaire on the evaluation of the
external auditor. The evaluation focuses on such
areas as the robustness of the audit process,
On behalf of the Audit and Risk Committee
Noreen O’Kelly
Chairman, Audit and Risk Committee
24 February, 2016
PRINCIPAL ACTIVITIES
The principal activities of the Group are the
generation, transmission, distribution and supply
of electricity in the Republic of Ireland (ROI) and
Northern Ireland (NI). The Group also operates
internationally, in related activities in Great Britain
(GB) and is involved in a number of consultancy
projects in Asia and Africa.
match the expenditure committed by the ESOP
Trustee in the period 2014 – 2018. Acquisition
of the capital stock by ESB will not commence
until 2017.
understandable and provide all the necessary
information for shareholders / stakeholders to
assess the Group’s performance, business model
and strategy.
ACCOUNTING RECORDS
On behalf of the Board
The Board members believe that they have
employed accounting personnel with appropriate
expertise and provided adequate resources
to the financial function to ensure compliance
with ESB’s obligation to keep proper books of
account. The books of account of ESB are held at
27 Lower Fitzwilliam Street, Dublin 2.
02
Ellvena Graham, Chairman
EXTERNAL AUDITOR
BUSINESS REVIEW
Commentaries on performance in the year ended
31 December 2015, including information on
recent events and potential future developments,
are contained in the Chairman’s Statement and
the Chief Executive’s Review. The performance
of the business and its financial position together
with the principal risks faced by the Group are
reflected in the reviews for each major business
unit, the financial review and the risk report.
RESULTS AND DIVIDEND FOR THE YEAR
The financial results of the Group show a profit
after tax of €286 million for the financial year 2015,
compared with a profit of €215 million for 2014.
An interim dividend for 2015 of €48 million (2.44
cents per unit of stock) was paid in October in
respect of 2015.
The Board is now recommending a final dividend
for 2015 of 1.55 per cent per unit of stock, or
€31 million in aggregate. This brings the total
dividends paid over the past decade to almost
€1.5 billion.
SHARE CAPITAL
An Employee Share Ownership Plan (ESOP)
market liquidity proposal was approved at the
Board meeting in May 2015. The objective of
the proposal is to improve liquidity in the ESOP
market whereby the ESOP Trustee is committing
to spend €25 million of funds to acquire capital
stock in the ESOP internal market. ESB will
The external auditor, KPMG have expressed their
willingness to continue in office for 2016.
REPORT UNDER SECTION 22 OF THE
PROTECTED DISCLOSURES ACT 2014
Pat O’Doherty, Chief Executive
Section 22 of the Protected Disclosures Act
2014 requires ESB to publish an annual report
relating to protected disclosures made under the
Protected Disclosures Act 2014. In accordance
with this requirement, ESB confirms that in
the full year ending 31 December 2015, one
protected disclosure was made to ESB regarding
suspected theft of Group property. The matter
reported was investigated in accordance with
ESB’s disciplinary procedures and reported to An
Garda Siochána.
24 February, 2016
REGULATION OF LOBBYING ACT 2015
In accordance with the requirements of the
Regulation of Lobbying Act, ESB is registered
on the Lobbying Register at www.lobbying.ie and
has made the required return for the period 1
September to 31 December 2015.
ELECTORAL ACT, 1997
The Board made no political donations during the
year.
APPROVAL OF THE 2015 ANNUAL
REPORT AND FINANCIAL STATEMENTS
The Board is satisfied, after taking into account
the recommendation of the Audit and Risk
Committee, that the annual report and financial
statements taken as a whole, is fair, balanced and
03
FINANCIAL STATEMENTS
The Audit and Risk Committee considers it
essential that the tendering of an external audit
is well planned to ensure the Group will comply
with regulatory and best practice requirements.
The Official Journal of the European
Communities (OJEC) notice will be issued in
the first half of 2016. Based on the responses
received from the OJEC notice, it is intended
that the request for tender document will be
issued to the shortlist of invited firms afterwards,
with the entire process due to be completed in
the second half of 2016.
The internal and external auditors have full
and unrestricted access to the Audit and Risk
Committee. The Audit and Risk Committee
Chairman reports the outcome of its meetings to
the Board. The Board is satisfied that at all times
during the year at least one member of the Audit
and Risk Committee had recent and relevant
financial experience. Meetings are routinely
attended by the Chairman, Chief Executive,
Group Finance Director, Head of Internal Audit
and representatives of the external auditor.
The Board members present their report together
with the audited financial statements of the
Parent and of the Group for the year ended 31
December 2015.
CORPORATE GOVERNANCE
The Audit and Risk Committee also assesses
the auditor’s independence on an ongoing basis.
The external auditor is required to rotate the
audit partner responsible for the Group audit
every five years.
BOARD MEMBERS’ REPORT
STRATEGY AND PERFORMANCE
BOARD MEMBERS' REPORT
ENERGY
FOR
COMFORT
03
FINANCIAL STATEMENTS
03
FINANCIAL
STATEMENTS
Statement of Board Members'
Responsibilities Independent Auditor's Report
to the Stockholders of
Electricity Supply Board (ESB)
Financial Statements
Prompt Payments Act
87
88
91
166 86
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
87
The Board members are responsible for preparing the annual report, incorporating financial statements for ESB (the Parent) and for ESB Group.
CONTENTS
Statement of Board Members’ Responsibilities
Independent Auditor’s Report to the Stockholders of Electricity Supply Board (ESB)
87
88
FINANCIAL STATEMENTS
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Parent Balance Sheet
Group Statement of Changes in Equity
Parent Statement of Changes in Equity
Group Cash Flow Statement
Parent Cash Flow Statement
91
92
93
94
95
96
97
98
NOTES TO THE FINANCIAL STATEMENTS
In preparing the financial statements for each of the Group and ESB on pages 91 to 165 the Board members are required to:
 Select suitable accounting policies and then apply them consistently;
 Make judgements and estimates that are reasonable and prudent;
 State that the financial statements comply with IFRS as adopted by the European Union, and as regards ESB, as applied in accordance with the
Companies Acts; and
 Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and ESB will continue in business.
The Board members are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities,
financial position and profit or loss of ESB, and which enable them to ensure that the financial statements of the Group are prepared in accordance with
applicable IFRS as adopted by the European Union and as applied in accordance with applicable provisions of the Companies Acts and ESB Regulations.
They are also responsible for safeguarding the assets of ESB and the Group, and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Board members are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s and ESB’s website
www.esb.ie.
02
Note: Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Board members, confirm that, to the best of each person’s knowledge and belief:
 The Group financial statements, prepared in accordance with IFRS as adopted by the European Union and ESB's financial statements prepared in
accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of Companies Act 2014 and as applied by the
ESB Regulations, give a true and fair view of the assets, liabilities, financial position of the Group and of ESB at 31 December 2015 and of the profit of the
Group for the year then ended 31 December 2015;
 The Board members’ report contained in the annual report includes a fair review of the development and performance of the business and the position of
the Group and ESB, together with a description of the principal risk and uncertainties that they face; and
 The annual report and financial statements, taken as a whole, provides the information necessary to assess the Group’s performance, business model and
strategy and is fair, balanced and understandable and provides the information necessary for shareholders to assess ESB's position and performance,
business model and strategy.
On behalf of the Board
Ellvena Graham, Chairman
Pat O’Doherty, Chief Executive
03
FINANCIAL STATEMENTS
99
106
108
108
109
110
110
111
112
113
115
117
118
121
121
123
123
125
129
134
137
141
142
143
144
146
160
161
162
162
162
163
The Board members must not approve the financial statement unless they are satisfied that they give a true and fair view of the assets, liabilities and financial
position of the Group and of ESB and of the Group’s profit or loss for that year.
CORPORATE GOVERNANCE
1 Statement of Accounting Policies
2 Segment Reporting
3 Geographic Information
4 Exceptional Items
5 Other Operating Income / (Expenses)
6 Operating Costs (Inclusive of Impairment Charge)
7 Net Finance Cost and Other Financing Charges
8 Employees
9 Profit for the Financial Year
10 Property, Plant and Equipment
11 Intangible Assets
12 Goodwill
13 Financial Asset Investments
14 Inventories
15 Trade and Other Receivables
16 Cash and Cash Equivalents
17 Changes in Equity
18 Taxation
19 Borrowings and Other Debt
20 Derivative Financial Instruments
21 Pension Liabilities
22 Liability – ESB Pension Scheme and Employee Related Liabilities
23 Trade and Other Payables
24 Deferred Income and Government Grants
25 Provisions
26 Financial Risk Management and Fair Value
27 Commitments and Contingencies
28 Related Party Transactions
29 Estimates and Judgements
30 ESB ESOP Trustee Limited
31 Approval of Financial Statements
32 Subsidiary, Joint Venture and Associate Undertakings
Under ESB’s governing regulations, adopted pursuant to the Electricity Supply Acts 1927 to 2004, the Board is required to prepare financial statements
as are required by companies established under the Companies Act 2014 (which replaced previous Companies Acts). ESB is also required, to furnish its
annual report, which incorporates the financial statements, to the Minister for Communications, Energy and Natural Resources in accordance with corporate
governance guidelines and to meet its obligations under Section 32 of the Electricity (Supply) Act 1927 (as amended), to make to the Minister a report of its
proceedings during the preceding year. The Companies Act 2014 provides that Group financial statements should be a prepared in accordance with IFRS
as adopted by the European Union and the Board has elected to prepare ESB’s financial statements in accordance with IFRS as adopted by the European
Union and as applied in accordance with the applicable provisions of the Companies Act and ESB Regulations.
01
STRATEGY AND PERFORMANCE
STATEMENT OF BOARD MEMBERS’ RESPONSIBILITIES
88
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
INDEPENDENT AUDITOR’S REPORT TO THE STOCKHOLDERS
OF ELECTRICITY SUPPLY BOARD (ESB) (continued)
OPINION AND CONCLUSIONS
ARISING FROM OUR AUDIT
rate indices and commodity futures). Modest
changes to these variables could have a significant
impact on the financial position of the Group.
1. OUR OPINION ON THE FINANCIAL
STATEMENTS IS UNMODIFIED
As the auditor appointed by the Minister for
Communications, Energy and Natural Resources
with the consent of the Minister for Finance, under
Section 7 of the Electricity (Supply) Act 1927,
we have audited the financial statements of ESB
for the year ended 31 December 2015 set out
on pages 91 to 165. Our audit was conducted
in accordance with International Standards on
Auditing (ISAs) (UK & Ireland).
The risks of material misstatement detailed in this
section of this report are those risks that we have
deemed, in our professional judgement, to have had
the greatest effect on: the overall audit strategy; the
allocation of resources in our audit; and directing the
efforts of the engagement team. Our audit procedures
relating to these risks were designed in the context of
our audit of the financial statements as a whole. Our
opinion on the financial statements is not modified
with respect to any of these risks, and we do not
express an opinion on these individual risks.
In arriving at our audit opinion above on the
Group financial statements the risks of material
misstatement that had the greatest effect on our
Group audit were as follows:
The most significant of these assets are the Republic
of Ireland and Northern Ireland network assets
and the Group’s power generation portfolio. Given
the magnitude of these assets relative to ESB’s
balance sheet, any potential impairment could have a
significant impact on the results of the Group.
Management review the carrying value of other
significant long-lived assets for any indications
of impairment on an annual basis. Recoverability
of these assets is based on forecasting and
discounting cash flows, which is a judgemental
process. At 31 December 2015, indicators of
impairment were identified for the Corby power
plant (due to adverse changes in the projected
GB electricity curve) and the Coolkeeragh power
plant (due to increased competition in the Single
Electricity Market). Based on the value in use
calculated for Corby and Coolkeeragh, impairment
charges of €58 million and €46 million respectively
were recognised.
Due to the inherent uncertainty in estimating longterm cash flows associated with long-lived assets
and goodwill, this is considered a key audit risk.
Our Response
In relation to the Group’s power generation portfolio,
we obtained an understanding of the Group’s
value in use models, including the assumptions
employed, the output, availability and profitability of
the assets. We challenged the key assumptions
on future projected cash flows and compared
the assumptions to externally derived data, where
possible, and performed sensitivity analysis thereon.
We compared the Regulatory Asset Base of the
Group’s Republic of Ireland networks transmission
In respect of the NIE Networks' assets and related
goodwill, we assessed the reasonableness
of management’s assumptions used in their
impairment models, which are based on the final
RP5 determination, including the discount rate
used. We compared management’s assumptions,
where possible, to third party data and performed
sensitivity analysis on the key assumptions. We
compared prices achieved for similar assets in
market transactions to the estimated value in use
established by management and the carrying values.
For all value in use models, we challenged the
key assumptions for the earnings and cash flow
forecasts, the discount rate used and, when relevant,
the value of the impairment charged in the year. We
considered whether the disclosures made in respect
of the risks, estimation uncertainty and the sensitivity
of the impairment assessment to changes in key
assumptions are adequate.
Derivatives and hedging - hedging
arrangements: net liability €511 million
(2014: net liability €500 million)
Refer to page 79 (Report of the Audit and
Risk Committee), page 102 (accounting
policy) and note 20 to the financial
statements.
The Risk
The Group uses derivative and other contracts to
hedge its exposure to foreign exchange, interest
rate, commodity and energy price risk arising from
operational, financing and investing activities. The
principal derivatives used include inflation linked
swaps, interest rate swaps, currency swaps,
foreign currency contracts and indexed swap
and other commercial contracts relating to the
purchase of fuel and sale of electricity. These
contracts are designated into a variety of cash flow
hedging relationships, with the exception of the
Group’s inflation linked swaps which do not qualify
for hedge accounting. The hedge designations
and associated documentation requirements of
the applicable accounting standards are complex
and the valuation of all of these derivatives is
judgemental and sensitive to movements in
underlying variables (such as benchmark interest
Our Response
Our audit procedures included the use of
valuation specialists in assessing the valuation
of the derivative contracts and comparing the
Group’s assumptions to externally derived data
in assessing whether the assumptions used
by the Group are reasonable. We obtained
and assessed the Group’s hedge accounting
documentation and associated supporting
calculations to ascertain whether hedge
accounting was appropriate, correctly accounted
for, documented and tested on a periodic basis.
We assessed whether the disclosures reflected
the risks inherent in the accounting for derivative
financial instruments.
Liability - ESB pension scheme: €648 million
(2014: €731 million)
Refer to page 79 (Report of the Audit and
Risk Committee), page 105 (accounting
policy) and note 22 to the financial
statements.
The Risk
Pension arrangements for the majority of ESB’s
employees are funded through the ESB Defined
Benefit Pension Scheme (the Scheme) (formerly
the ESB General Employees’ Superannuation
Scheme). The regulations of the Scheme stipulate
that benefits are to be provided to members of
the Scheme according to an agreed formula,
however these are not linked to the contributions
required to be made by ESB under the Scheme
rules. Consequently ESB has no legal obligation
to increase contributions to maintain benefits in the
event of a deficit. Should a deficit arise in the future,
ESB is obliged under the Scheme regulations to
consult with the Superannuation Committee, the
trustees and the Scheme actuary to consider the
necessity of submitting an amending Scheme for
Ministerial approval. This does not conform to a
typical ‘balance of cost’ defined benefit scheme
where the employer is liable to pay the balance of
contributions to fund deficits. However, historically,
on a number of occasions, when a deficit was
reported by the Scheme actuary and following
consultation with the various affected parties, both
ESB and employees increased their contributions to
the Scheme to address this.
In 2010 a new pensions agreement was reached
between ESB and the Scheme members which
included benefit and other actuarial changes to
the Scheme which were borne by the Scheme
members. The fixed contribution rates for ESB
and members were not changed but ESB also
agreed to pay a once off contribution of €591
million (the “Contribution”) and the Scheme
was closed to new joiners. In the 2010 financial
statements, ESB stated that it did not intend to
make any further contributions to the Scheme,
other than the ongoing fixed contributions.
This was stated explicitly in the 2010 financial
statements and in subsequent periods, ESB
has not made any contributions to the Scheme
other than the agreed contributions. As a
consequence, the accounting for the Scheme
was amended in 2010 to only accrue for the
Contribution within ESB’s balance sheet, and
to account for the ongoing fixed percentage of
salary contributions relating to current service
costs in the income statement as pensionable
service is provided.
In late 2013, a dispute arose between ESB
and its unions in relation to the pension
scheme which ultimately resulted in a Labour
Relations Commission brokered agreement
between the parties. This agreement obliges
ESB to accurately describe the Scheme in
its accounts, re-iterated the obligation on the
parties to consult in the event of a deficit and
noted that neither party had an intention to
adjust the level of contributions to the Scheme
at that time. This agreement has not changed
the Board’s views in relation to its accounting
for the Scheme and the Board has further
re-confirmed that it is not ESB’s intention to
make any further contributions to the Scheme. It
consequently continues to be the Board’s view
that it has no legal or constructive obligation in
this regard and that the accounting treatment
adopted in 2010 continues to apply.
This is a significant judgement as the
interpretation of the Scheme rules, whether
ESB has a legal or constructive obligation
to fund the Scheme, and the associated
accounting are complex matters.
Our Response
Our audit procedures included obtaining an
understanding of ESB’s legal position from
internal and external legal counsel. We received
representations from the Board members
that ESB do not intend to make any further
payments to the Scheme other than those
provided for in the 2010 pension agreement
and a fixed continuing contribution of Scheme
members’ salaries. We considered other
documentation and internal briefing notes
provided to us by ESB in relation to the issue.
We also had regard to ESB’s actions in the
period since 2010, during which no additional
contributions were made to the Scheme.
We considered whether the accounting and
disclosures made in the financial statements
in respect of this significant judgemental
matter were appropriate and in accordance
with the relevant accounting guidance. We
also reconsidered the appropriateness of the
accounting in the context of IAS 19 Employee
Benefits.
3. OUR APPLICATION OF MATERIALITY
AND AN OVERVIEW OF THE SCOPE OF
OUR AUDIT
The materiality for the Group financial statements
as a whole was set at €17 million (2014: €12
million). This has been determined using circa.
4% of the benchmark of profit before taxation
excluding the effect of once-off items. Once-off
items in the year are the €104 million impairment
charge on the Group’s long-lived power
generation assets.
We have determined profit before tax excluding
the effect of once-off items, in our professional
judgement, to be the most appropriate
benchmark as we consider it to be one of the
principal considerations for members of the
Company in assessing the financial performance
of the Group.
We report to the ESB Audit and Risk Committee
all corrected and uncorrected misstatements
we identified through our audit with a value in
excess of €0.5 million, in addition to other audit
misstatements below that threshold that we
believe warrant reporting on qualitative grounds.
Our Group audit scope focused on the Group’s
four key reportable segments, in addition to the
head office function, all of which were subject to a
full scope audit for the year ended 31 December
2015. Together these locations represent the
principal business units of the Group and account
for in excess of 95% (2014: 95%) of the Group’s
external revenue, profit after tax and total assets,
as at and for the year ended 31 December 2015.
Audits of these locations are performed centrally
by the Group engagement team and to materiality
determined individually for each component.
02
03
FINANCIAL STATEMENTS
2. OUR ASSESSMENT OF RISKS OF
MATERIAL MISSTATEMENT
The Risk
ESB has long-lived assets with a carrying value of
€11.1 billion on its balance sheet at 31 December
2015 (€10.9 billion at 31 December 2014) and
goodwill associated with the electricity networks
business in Northern Ireland (NIE Networks) of €207
million (€195 million at 31 December 2014).
and distribution assets (on which future regulated
income is determined) with the net book value of
the assets in the financial statements. We also
inspected relevant correspondence between the
Commission for Energy Regulation and the Group
and considered the implications for the financial
statements.
CORPORATE GOVERNANCE
In our opinion:
the Group financial statements give a true and
fair view of the assets, liabilities and financial
position of the Group as at 31 December 2015
and of its profit for the year then ended;
the Company balance sheet gives a true and fair
view of the assets, liabilities and financial position
of the Company as at 31 December 2015;
the Group financial statements have been
properly prepared in accordance with IFRS as
adopted by the European Union;
the Company financial statements have been
properly prepared in accordance with IFRS as
adopted by the European Union as applied
in accordance with the provisions of the
Companies Act 2014 and as applied by the
Electricity (Supply) Acts 1927 to 2004; and
the Company financial statement and Group
financial statements have been properly
prepared in accordance with the requirements
of the Companies Act 2014 and as applied by
the Electricity (Supply) Acts 1927 to 2004.
Carrying value of goodwill and long-lived
assets: €11.3 billion (2014: €11.1 billion),
impairment charge of €104 million
(2014: €50 million)
Refer to page 78 (Report of the Audit and
Risk Committee), page 101 (accounting
policy) and notes 4, 10, 11 and 12 to the
financial statements.
01
STRATEGY AND PERFORMANCE
INDEPENDENT AUDITOR’S REPORT TO THE STOCKHOLDERS
OF ELECTRICITY SUPPLY BOARD (ESB)
89
90
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
4. WE HAVE NOTHING TO REPORT ON
THE DISCLOSURES OF PRINCIPAL RISKS
5. WE HAVE NOTHING TO REPORT IN
RESPECT OF THE MATTERS ON WHICH
WE ARE REQUIRED TO REPORT BY
EXCEPTION
ISAs (UK & Ireland) require that we report to
you if, based on the knowledge we acquired
during our audit, we have identified information
in the annual report that contains a material
inconsistency with either that knowledge or the
financial statements, a material misstatement of
fact, or that is otherwise misleading.
In particular, we are required to report to you if:
we have identified any inconsistencies
between the knowledge we acquired during
our audit and the directors’ statement that they
consider the annual report is fair, balanced
and understandable and provides information
necessary for shareholders to assess the entity’s
performance, business model and strategy; or
the Audit and Risk Committee Report does not
appropriately disclose those matters that we
communicated to the Audit and Risk Committee.
accounting policies are appropriate to the Group’s
circumstances and have been consistently applied
and adequately disclosed; the reasonableness
of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements.
In addition, the Companies Acts 2014 require us
to report to you if, in our opinion, the disclosures
of directors’ remuneration and transactions
specified by law are not made.
In addition, we read all the financial and
non-financial information in the annual report to
identify material inconsistencies with the audited
financial statements and to identify any information
that is apparently materially incorrect based on,
or materially inconsistent with, the knowledge
acquired by us in the course of performing our
audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
6. OUR CONCLUSIONS ON OTHER
MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY THE
COMPANIES ACTS 2014 ARE SET OUT
BELOW
We have obtained all the information and
explanations which we considered necessary for
the purposes of our audit.
The Company’s balance sheet is in agreement
with the accounting records and, in our opinion,
adequate accounting records have been kept by
the Company.
In our opinion the information given in the Board
members’ report is consistent with the financial
statements and the description in the Corporate
Governance Statement of the main features of the
internal control and risk management systems in
relation to the process for preparing the Group
financial statements is consistent with the Group
financial statements.
Under the Code of Practice for the Governance
of State Bodies (‘the Code’) we are required
to report to you if the statement regarding the
system of internal financial control required under
the Code as included in the Board Governance
Report on pages 69 to 76 does not reflect the
Group’s compliance with paragraph 13.1(iii)
of the Code or if it is not consistent with the
information of which we are aware from our audit
work on the financial statements and we report if
it does not.
As explained more fully in the Statement of Board
members’ Responsibilities set out on page 87, the
Board members are responsible for the preparation
of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility
is to audit and express an opinion on the Group
and Company financial statements in accordance
with applicable law and International Standards on
Auditing (ISAs) (UK & Ireland). Those standards
require us to comply with the Financial Reporting
Council’s Ethical Standards for Auditors.
In accordance with the terms of our engagement
letter, we review:
the Board members’ statement, set out on
page 75, in relation to going concern;
the part of the Board Governance Report on
pages 69 to 76 relating to Board’s compliance
with the provisions of the UK Corporate
An audit undertaken in accordance with ISAs
(UK & Ireland) involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable assurance
that the financial statements are free from material
misstatement, whether caused by fraud or error.
This includes an assessment of: whether the
Notes
2015
Excluding Exceptional
exceptional
items
items
note 4
€ ‘000
€ ‘000
This report is made solely to the stockholders of
ESB, as a body, in accordance with section 391
of the Companies Act 2014, made applicable to
ESB by virtue of the Regulations adopted by it
as its governing regulations under the Electricity
(Supply) Act, 1927, as amended by the Electricity
(Supply) (Amendment) Act 2004. Our audit work
has been undertaken so that we might state to the
stockholders of ESB those matters we are required
to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone
other than ESB and its stockholders, as a body, for
our audit work, for this report, or for the opinions we
have formed.
Sean O’Keefe
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
Dublin, Ireland
24 February, 2016
Including
exceptional
items
€ ‘000
2014
Excluding Exceptional
exceptional
items
items
note 4
€ ‘000
€ ‘000
Including
exceptional
items
€ ‘000
2
3,335,401
-
3,335,401
3,257,954
-
3,257,954
Other operating income
4/5
28,943
-
28,943
35,240
132,095
167,335
Operating costs
4/6
(2,728,977)
(104,237)
(2,833,214)
(2,741,204)
-
(2,741,204)
635,367
(104,237)
531,130
551,990
132,095
684,085
7
7
7
7
(206,957)
(39,659)
30,234
1,294
(215,088)
-
(206,957)
(39,659)
30,234
1,294
(215,088)
(198,992)
(45,218)
(224,894)
1,120
(467,984)
-
(198,992)
(45,218)
(224,894)
1,120
(467,984)
13
(9,176)
-
(9,176)
(1,354)
-
(1,354)
02
411,103
(104,237)
306,866
82,652
132,095
214,747
(18,553)
392,550
(2,073)
(106,310)
(20,626)
286,240
646
83,298
132,095
646
215,393
395,852
(3,302)
392,550
(106,310)
(106,310)
289,542
(3,302)
286,240
83,176
122
83,298
132,095
132,095
215,271
122
215,393
Revenue
Operating profit
Net interest on borrowings
Financing charges
Fair value movement on financial instruments
Finance income
Net finance cost
Share of equity accounted investees loss
Income tax (expense) / credit
Profit after taxation
18
Attributable to:
Equity holders of the Parent
Non-controlling interest
Profit for the financial year
Notes 1 to 32 form an integral part of these financial statements.
Ellvena Graham, Chairman
Pat O’Doherty, Chief Executive
Donal Flynn, Group Finance Director
03
FINANCIAL STATEMENTS
BASIS OF OUR REPORT,
RESPONSIBILITIES AND RESTRICTIONS
ON USE
For the year ended 31 December 2015
Profit before taxation
Whilst an audit conducted in accordance with ISAs
(UK & Ireland) is designed to provide reasonable
assurance of identifying material misstatements
or omissions it is not guaranteed to do so. Rather
the auditor plans the audit to determine the extent
of testing needed to reduce to an appropriately
low level the probability that the aggregate of
uncorrected and undetected misstatements does
not exceed materiality for the financial statements
as a whole. This testing requires us to conduct
significant audit work on a broad range of assets,
liabilities, income and expense as well as devoting
significant time of the most experienced members of
the audit team, in particular the engagement partner
responsible for the audit, to subjective areas of
accounting and reporting.
01
CORPORATE GOVERNANCE
Based on the knowledge we acquired during our
audit, we have nothing material to add or draw
attention to in relation to:
the directors’ Viability Statement on page
75, concerning the principal risks, their
management, and, based on that, the directors’
assessment and expectations of the Group’s
continuing in operation over the five years to
2021; or
the disclosures in note 1 of the financial
statements concerning the use of the going
concern basis of accounting.
Governance Code and the Irish Corporate
Governance Annex specified for our review;
and
certain elements of disclosures in the report
to stockholders by the Remuneration and
Management Development Committee.
GROUP INCOME STATEMENT
STRATEGY AND PERFORMANCE
INDEPENDENT AUDITOR’S REPORT TO THE STOCKHOLDERS
OF ELECTRICITY SUPPLY BOARD (ESB) (continued)
91
92
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
GROUP BALANCE SHEET
For the year ended 31 December 2015
As at 31 December 2015
2014
€ ‘000
286,240
215,393
17,220
(6,664)
10,556
(60,728)
12,118
(48,610)
(1,362)
33,036
(16,421)
(1,031)
(66,527)
1,855
129
7,799
(42,522)
(1,714)
39,309
(91,644)
(106,056)
13,833
17,161
12,635
(116,476)
Other comprehensive income for the financial year, net of tax
(31,966)
(165,086)
Total comprehensive income for the financial year
254,274
50,307
Items that will never be reclassified subsequently to profit or loss:
NIE Networks pension scheme actuarial gains / (losses)
Tax on items that will never be reclassified to profit or loss
Items that are or may be reclassified subsequently to profit or loss:
Effective hedge of a net investment in foreign subsidiary
Translation differences on consolidation of foreign subsidiaries
Fair value losses on cash flow hedges
Fair value losses on cash flow hedges in equity accounted investees
Transferred to income statement on cash flow hedges
Transferred to income statement on cash flow hedges in equity accounted investees
Tax on items that are or may be reclassified subsequently to profit or loss
Tax on items that are or may be reclassified subsequently to profit or loss for equity accounted investees
Tax on items transferred from other comprehensive income (OCI)
2014
€ ‘000
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Goodwill
Investments in equity accounted investees
Financial asset investments
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Total non-current assets
10
11
12
13
13
15
20
18
10,872,836
227,740
206,759
94,850
62,563
44,777
236,565
207,246
11,953,336
10,716,586
203,660
194,827
99,464
63,638
231,624
234,374
11,744,173
Current assets
Inventories
Derivative financial instruments
Current tax asset
Trade and other receivables
Cash and cash equivalents
Total current assets
14
20
96,670
214,400
7,853
751,177
133,863
1,203,963
78,838
195,517
1,705
809,523
143,731
1,229,314
13,157,299
12,973,487
17
1,979,882
51,376
49,799
(151,098)
1,930,558
3,860,517
1,979,882
19,702
123,995
(144,031)
1,907,807
3,887,355
17
(1,874)
3,858,643
1,676
3,889,031
19
22
21
22
23
24
25
18
20
4,690,314
493,148
142,069
91,057
8,686
510,011
196,431
751,082
754,537
7,637,335
4,412,377
615,770
164,022
107,736
8,185
533,813
182,953
792,358
738,516
7,555,730
19
22
22
23
24
25
418,825
154,981
54,353
695,535
48,273
79,000
3,250
207,104
1,661,321
370,592
115,300
57,966
688,148
45,031
58,738
4,373
188,578
1,528,726
9,298,656
9,084,456
13,157,299
12,973,487
15
16
Total assets
Attributable to:
Equity holders of the Parent
Non-controlling interest
Total comprehensive income for the financial year
257,576
(3,302)
254,274
50,185
122
50,307
EQUITY
Capital stock
Translation reserve
Cash flow hedging and other reserves
Other reserves
Retained earnings
Equity attributable to equity holders of the Parent
Ellvena Graham, Chairman
Pat O’Doherty, Chief Executive
Donal Flynn, Group Finance Director
Non-controlling interest
Total equity
LIABILITIES
Non-current liabilities
Borrowings and other debt
Liability - ESB pension scheme
Liability - NIE Networks pension scheme
Employee related liabilities
Trade and other payables
Deferred income and government grants
Provisions
Deferred tax liabilities
Derivative financial instruments
Total non-current liabilities
Current liabilities
Borrowings and other debt
Liability - ESB pension scheme
Employee related liabilities
Trade and other payables
Deferred income and government grants
Provisions
Current tax liabilities
Derivative financial instruments
Total current liabilities
Total liabilities
Total equity and liabilities
Ellvena Graham, Chairman
Pat O’Doherty, Chief Executive
Donal Flynn, Group Finance Director
20
02
03
FINANCIAL STATEMENTS
2015
€ ‘000
Notes
CORPORATE GOVERNANCE
2015
€ ‘000
Profit for the financial year
01
STRATEGY AND PERFORMANCE
GROUP STATEMENT OF COMPREHENSIVE INCOME
93
94
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
GROUP STATEMENT OF CHANGES IN EQUITY
As at 31 December 2015
As at 31 December 2015
Notes
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investment in equity accounted investee
Investments in subsidiary undertakings
Derivative financial instruments
Deferred tax assets
Total non-current assets
Current assets
Inventories
Derivative financial instruments
Current tax asset
Trade and other receivables
Cash and cash equivalents
Total current assets
10
11
13
13
20
18
7,102,256
159,386
100,000
61,782
92,905
97,586
7,613,915
7,057,773
137,566
100,000
61,782
53,303
105,632
7,516,056
14
20
66,843
139,398
2,250
3,181,023
17,202
3,406,716
53,974
136,959
3,017,734
56,384
3,265,051
11,020,631
10,781,107
1,979,882
(35,883)
1,625,100
3,569,099
1,979,882
(47,795)
1,514,040
3,446,127
19
22
22
24
25
18
20
1,488,584
493,148
90,829
500,434
166,733
458,829
42,669
3,241,226
1,522,749
615,770
107,736
534,352
166,429
446,568
72,789
3,466,393
19
22
22
23
24
25
365,397
154,981
46,460
3,393,612
33,108
64,576
1,513
150,659
4,210,306
330,516
115,300
49,525
3,115,419
33,108
49,538
6,998
168,183
3,868,587
7,451,532
7,334,980
11,020,631
10,781,107
15
16
Total liabilities
Total equity and liabilities
Ellvena Graham, Chairman
Pat O’Doherty, Chief Executive
Donal Flynn, Group Finance Director
17
20
Balance at 1 January 2014
Total comprehensive income / (loss) for the year
Profit for the financial year
NIE Networks pension scheme actuarial losses
Revaluation reserves on acquisition of Synergen Power Ltd.
Translation differences net of hedging
Cash flow hedges:
- Net fair value losses
- Transfers to income statement
- Finance cost (interest)
- Finance cost (foreign translation movements)
- Other operating expenses
- Transfers to income statement for equity
accounted investees
Tax on items taken directly to statement of other
comprehensive income (OCI)
Tax on items transferred to income statement
Total comprehensive income / (loss) for the year
Capital Translation
stock
reserve
€ ‘000
€ ‘000
Cash flow
hedging
Other Retained
reserve reserves1&2 earnings
€ ‘000
€ ‘000
€ ‘000
Noncontrolling
Total
interest
€ ‘000
€ ‘000
1,979,882
(17,893)
278,066
-
37,595
-
(60,728)
(5,543)
-
215,271
5,543
-
215,271
(60,728)
37,595
122
-
215,393
(60,728)
37,595
-
-
(91,644)
-
-
(91,644)
-
(91,644)
-
-
7,470
(87,040)
(26,486)
-
-
7,470
(87,040)
(26,486)
-
7,470
(87,040)
(26,486)
-
-
13,833
-
-
13,833
-
13,833
17,161
12,635
37,595 (154,071)
12,118
(54,153)
220,814
29,279
12,635
50,185
122
29,279
12,635
50,307
-
(89,878) 1,970,275 4,120,452
Total
equity
€ ‘000
2,037 4,122,489
Transactions with owners recognised directly in equity
Dividends
Balance at 31 December 2014
1,979,882
19,702
- (283,282) (283,282)
123,995 (144,031) 1,907,807 3,887,355
(483) (283,765)
1,676 3,889,031
Balance at 1 January 2015
1,979,882
19,702
123,995 (144,031) 1,907,807 3,887,355
1,676 3,889,031
-
31,674
-
17,220
(5,543)
-
289,542
5,543
-
289,542
17,220
31,674
(3,302)
-
286,240
17,220
31,674
-
-
(16,421)
-
-
(16,421)
-
(16,421)
-
-
7,722
(63,718)
(10,531)
-
-
7,722
(63,718)
(10,531)
-
7,722
(63,718)
(10,531)
-
-
(1,031)
-
-
(1,031)
-
(1,031)
Total comprehensive income / (loss) for the year
Profit for the financial year
NIE Networks pension scheme actuarial gains
Revaluation reserves on acquisition of Synergen Power Ltd.
Translation differences net of hedging
Cash flow hedges:
- Net fair value losses
- Transfers to income statement
- Finance cost (interest)
- Finance cost (foreign translation movements)
- Other operating expenses
- Fair value losses for hedges in equity
accounted investees
Tax on items taken directly to statement of other
comprehensive income (OCI)
Tax on items transferred to income statement
Tax on items taken directly to OCI for equity accounted
investees
Total comprehensive income / (loss) for the year
-
-
1,855
7,799
129
(6,664)
-
-
(4,809)
7,799
129
-
(4,809)
7,799
129
-
31,674
(74,196)
5,013
295,085
257,576
(3,302)
254,274
Changes in ownerships interests
Acquisition of subsidiary with NCI
Total changes in ownership interests
-
-
-
-
-
-
127
127
127
127
1,979,882
51,376
Transactions with owners recognised directly in equity
Dividends
ESOP repurchase provision2
Balance at 31 December 2015
- (272,334) (272,334)
- (12,080)
- (12,080)
49,799 (151,098) 1,930,558 3,860,517
(375) (272,709)
- (12,080)
(1,874) 3,858,643
Other reserves comprises of (i) a €38.8 million revaluation reserve (December 2014: €44.3 million) which arose following the acquisition of the remaining 30%
of Synergen Power Limited in 2009; (ii) other reserves relating to the NIE Networks pension scheme of (€171.9 million) (2014: (€182.8) million) and (iii) a nondistributable reserve of (€5.0) million which was created on the sale of the Group’s share in Ocean Communications Limited in 2001.
1
2
The ESOP repurchase provision relates to the amount that ESB has committed to date to purchase from the ESOP internal market. Refer to note 17 for
information on the ESOP repurchase.
02
03
FINANCIAL STATEMENTS
Current liabilities
Borrowings and other debt
Liability - ESB pension scheme
Employee related liabilities
Trade and other payables
Deferred income and government grants
Provisions
Current tax liabilities
Derivative financial instruments
Total current liabilities
2014
€ ‘000
CORPORATE GOVERNANCE
LIABILITIES
Non-current liabilities
Borrowings and other debt
Liability - ESB pension scheme
Employee related liabilities
Deferred income and government grants
Provisions
Deferred tax liabilities
Derivative financial instruments
Total non-current liabilities
2015
€ ‘000
Reconciliation of changes in equity
Total assets
EQUITY
Capital stock
Cash flow hedging and other reserves
Retained earnings
Equity attributable to equity holders of the Parent
01
STRATEGY AND PERFORMANCE
PARENT BALANCE SHEET
95
96
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
GROUP CASH FLOW STATEMENT
As at 31 December 2015
For the year ended 31 December 2015
Retained
earnings
€ ‘000
Total
€ ‘000
1,979,882
(88,624)
1,346,743
3,238,001
-
-
450,579
450,579
-
94,342
-
94,342
-
49
(87,040)
39,311
(11,793)
5,960
40,829
450,579
49
(87,040)
39,311
(11,793)
5,960
491,408
Transactions with owners recognised directly in equity
Dividends
Balance at 31 December 2014
1,979,882
(47,795)
(283,282)
1,514,040
(283,282)
3,446,127
Balance at 1 January 2015
1,979,882
(47,795)
1,514,040
3,446,127
-
-
383,394
383,394
-
55,089
-
55,089
-
(1,487)
(63,718)
37,537
(6,887)
3,458
23,992
383,394
(1,487)
(63,718)
37,537
(6,887)
3,458
407,386
Balance at 1 January 2014
Total comprehensive income / (loss) for the year
Profit for the financial year
Cash flow hedges:
- Net fair value gains
- Transfers to income statement
- Finance cost (interest)
- Finance cost (foreign translation movements)
- Other operating expenses
Tax on items taken directly to statement of other comprehensive income (OCI)
Tax on items transferred to income statement
Total comprehensive income / (loss) for the year
Total comprehensive income / (loss) for the year
Profit for the financial year
Cash flow hedges:
- Net fair value gains
- Transfers to income statement
- Finance cost (interest)
- Finance cost (foreign translation movements)
- Other operating expenses
Tax on items taken directly to statement of other comprehensive income (OCI)
Tax on items transferred to income statement
Total comprehensive income / (loss) for the year
Transactions with owners recognised directly in equity
Dividends
ESOP repurchase provision1
Balance at 31 December 2015
1,979,882
(12,080)
(35,883)
(272,334)
1,625,100
(272,334)
(12,080)
3,569,099
The ESOP repurchase provision relates to the amount that ESB has committed to date to repurchase from the ESOP internal market. Refer to note 17
for information on the ESOP repurchase.
1
2015
€ '000
2014*
€ '000
286,240
215,393
744,678
(57,530)
30,992
(590)
(6,852)
215,088
9,611
9,176
20,626
104,237
1,355,676
730,794
(59,644)
(9,612)
1,283
(9,838)
(93,700)
(38,395)
467,984
2,425
1,354
(646)
(574)
50,147
1,256,971
Charge in relation to provisions
Charge in relation to employee related liabilities
Utilisation of provisions
Utilisation of employee related liabilities
Decrease in trade and other receivables
(Increase) / decrease in inventories
(Decrease) / increase in trade and other payables
Cash generated from operations
14,821
34,581
(8,889)
(190,725)
20,958
(20,191)
(43,446)
1,162,785
5,095
41,587
(13,384)
(150,940)
83,116
1,815
12,999
1,237,259
Current tax paid
Financing costs paid
Net cash inflow from operating activities
(50,934)
(254,844)
857,007
(65,094)
(234,496)
937,669
(730,918)
(42,108)
2,528
4,682
(13,066)
1,294
32,009
(745,579)
(873,811)
(22,886)
432
14,951
45,290
(23,545)
574
1,120
27,012
(830,863)
(272,709)
(357,715)
274,334
249,259
(17,530)
(124,361)
(283,765)
(157,001)
208,662
(300)
(105,049)
(337,453)
(12,933)
143,731
3,065
133,863
(230,647)
370,848
3,530
143,731
Notes
Cash flows from operating activities
Profit after taxation
Adjustments for:
Depreciation and amortisation
Amortisation of supply contributions and other deferred income
Net emissions costs
(Profit) / loss on disposal of non-current assets
Profit on disposal of emissions allowances
Non-cash gain on conversion of SIRO Limited to equity accounted investee
Profit on disposal of subsidiaries and equity accounted investees
Net finance cost
Impact of fair value adjustments in operating costs
Losses from equity accounted investees
Income tax expense / (credit)
Dividend income
Impairment charge
Operating cash flows before changes in working capital and provisions
6
24
5
4
4/5
7
13
18
4/6
02
CORPORATE GOVERNANCE
Capital stock
€ ‘000
Cash flow
hedging
and other
reserves
€ ‘000
Reconciliation of changes in equity
01
STRATEGY AND PERFORMANCE
PARENT STATEMENT OF CHANGES IN EQUITY
97
Cash flows from investing activities
Cash flows from financing activities
Dividends paid
Repayments of term debt facilities and finance leases
Proceeds from the issue of new debt
Increase / (decrease) in other borrowings (net)
Payments on inflation linked interest rate swaps
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
17
16
16
* Comparative amounts in the Group cash flow statement have been regrouped where necessary to ensure consistency in the two years being recorded.
03
FINANCIAL STATEMENTS
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of non-current assets
Proceeds from sale of emissions allowances
Proceeds from sale of subsidiaries and equity accounted investees
Purchase of financial assets
Dividend received from associate undertaking
Interest received
Deferred income received
Net cash outflow from investing activities
98
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2015
Notes
2015
€ '000
2014*
€ '000
Cash flows from operating activities
450,579
491,381
(32,422)
25,642
(1,398)
119,770
(1,110)
(8,950)
50,925
1,027,232
495,438
(33,667)
(7,853)
(10,646)
(93,700)
127,991
(4,019)
(8,450)
45,891
961,564
Charge in relation to provisions
Charge in relation to employee related liabilities
Utilisation of provisions
Utilisation of employee related liabilities
Increase in trade and other receivables
(Increase) / decrease in inventories
Increase in trade and other payables
Cash generated from the operations
2,096
20,047
(8,266)
(154,939)
(89,067)
(15,413)
206,032
987,722
3,462
24,798
(10,828)
(115,437)
(371,706)
4,962
335,710
832,525
Current tax paid
Interest paid
Net cash inflow from operating activities
(41,783)
(157,270)
788,669
(30,724)
(161,685)
640,116
24
Cash flows from investing activities
(490,865)
(39,362)
2,825
1,034
51,903
8,950
(465,515)
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from the sale of non-current assets
Financial asset investment additions
Supply contributions and other deferred income received
Interest received
Dividends received from subsidiary undertakings
Net cash outflow from investing activities
(480,795)
(22,058)
15,144
(2,891)
6,665
46,938
8,450
(428,547)
Cash flows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
16
16
(272,334)
(339,953)
249,951
(362,336)
(283,282)
(111,339)
(394,621)
(39,182)
56,384
17,202
(183,052)
239,436
56,384
* Comparative amounts in the Parent cash flow statement have been regrouped where necessary to ensure consistency in the two years being recorded.
1. BASIS OF PREPARATION
Electricity Supply Board (ESB) is a statutory
corporation established under the Electricity
(Supply) Act, 1927 and is domiciled in Ireland. The
consolidated financial statements of ESB as at and
for the year ended 31 December 2015 comprise
the Parent and its subsidiaries (together referred to
as ESB or the Group) and the Group’s interests in
associates and jointly controlled entities.
The Parent and consolidated financial statements
are prepared under IFRS (International Financial
Reporting Standards) as adopted by the EU (EU
IFRS) and, in the case of the Parent, as applied in
accordance with the Companies Act 2014. The
Companies Act 2014 provide a Parent Company
that presents its individual financial statements
together with its consolidated financial statements
with an exemption from publishing the Parent
income statement and statement of comprehensive
income which forms part of the Parent financial
statements prepared and approved in accordance
with the Act. The financial statements of the Parent
and Group have been prepared in accordance
with those IFRS standards and IFRIC (International
Financial Reporting Interpretations Committee)
interpretations issued and effective for accounting
periods ending on or before 31 December 2015.
The Parent and consolidated financial statements
have been prepared on the historical cost basis
except for derivative financial instruments and
certain financial asset investments which are
measured at fair value.
The policies set out below have been consistently
applied to all years presented in these
consolidated financial statements and have been
applied consistently by all Group entities - with
the exception of adoption of new standards as set
out below.
The Board members consider that the Group has
adequate resources to continue in operational
existence for the foreseeable future. The financial
statements are therefore prepared on a going
concern basis. Further details of the Group’s
liquidity position are provided in note 19 of the
financial statements.
2. BASIS OF CONSOLIDATION
The Group’s financial statements consolidate
the financial statements of the Parent and of all
subsidiary undertakings together with the Group’s
share of the results and net assets of associates
and joint ventures made up to 31 December
2015. The results of subsidiary undertakings
acquired or disposed of in the year are included
in the Group income statement from the date of
acquisition or up to the date of disposal.
Acquisitions prior to 1 January 2004
(date of transition to IFRSs)
As part of its transition to IFRSs, the Group
elected to restate only those business
combinations that occurred on or after 1
January 2003. In respect of acquisitions prior
to 1 January 2003, goodwill represents the
amount recognised under the Group’s previous
accounting framework, UK GAAP.
Accounting for business combinations
Business combinations are accounted for using
the acquisition method as at the acquisition date,
which is the date on which control is transferred
to the Group.
Control
The IFRS 10 control model focuses on whether
the Group has power over an investee, exposure
or rights to variable returns from its involvement
with the investee and ability to use its power
to affect those returns. In particular, IFRS 10
requires the Group to consolidate investees that
it controls on the basis of de facto control.
The preparation of financial statements in
conformity with EU IFRS requires management
to make judgements, estimates and assumptions
that affect the application of policies and reported
amounts of assets and liabilities, income and
expenses. These estimates and associated
assumptions are based on historical experience
and various other factors that are believed to be
reasonable under the circumstances.
Acquisitions on or after 1 January 2010
From 1 January 2010 the Group applied IFRS 3
Business Combinations (2008) in accounting for
business combinations. From this date onwards,
the Group measures goodwill at the acquisition
date as:
the fair value of the consideration transferred;
plus
the recognised amount of any non-controlling
interests in the acquiree; plus if the business
combination is achieved in stages, the fair value
of the existing equity interest in the acquiree;
less
the net recognised amount (fair value) of the
identifiable assets acquired and liabilities
assumed.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Judgements made
by management in the application of EU IFRS that
have a significant effect on the financial statements
and estimates with a significant risk of material
adjustment in the next year are discussed in note
29 to the financial statements.
When the excess is negative, a bargain purchase
gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than
those associated with the issue of debt or equity
securities, that the Group incurs in connection
with a business combination are expensed as
incurred.
These financial statements are prepared in euro,
and except where otherwise stated, all financial
information presented in euro has been rounded to
the nearest thousand.
Acquisitions between 1 January 2004
and 1 January 2010
For acquisitions between 1 January 2004 and 1
January 2010, goodwill represents the excess
of the cost of the acquisition over the Group’s
interest in the recognised amount (fair value) of
the identifiable assets, liabilities and contingent
liabilities of the acquiree. When the goodwill
excess was negative, a bargain purchase gain
was recognised immediately in profit or loss.
Transaction costs, other than those associated
with the issue of debt or equity securities, that
the Group incurred in connection with business
combinations were capitalised as part of the
cost of the acquisition.
In accordance with IFRS 10, the Group’s
assessment of control is performed on a
continuous basis and the Group reassesses
whether it controls an investee if facts and
circumstances indicate that there are changes
to one or more of the elements of the control
model.
Subsidiaries
Subsidiaries are entities controlled by ESB
(control exists when ESB is exposed to, or has
rights to, variable returns from its involvement
with the entity and has the ability to affect those
returns through its power over the entity). The
financial statements of the subsidiaries are
included in the consolidated financial statements
from the date that control commences until the
date that control ceases. In the Parent financial
statements, investments in subsidiaries are
carried at cost less any impairment charges.
02
03
FINANCIAL STATEMENTS
Dividends paid
Repayments of term debt facilities and finance leases
Increase / (decrease) in other borrowings (net)
Net cash outflow from financing activities
1. STATEMENT OF ACCOUNTING POLICIES
CORPORATE GOVERNANCE
383,394
Profit after taxation
01
STRATEGY AND PERFORMANCE
PARENT CASH FLOW STATEMENT
Adjustments for:
Depreciation and amortisation
Amortisation of supply contributions and other deferred income
Net emissions cost
Profit on sale of non-current assets
Non-cash gain on conversion of SIRO Limited to equity accounted investee
Net finance cost
Impact of fair value movement on financial instruments in operating costs
Dividend receivable from subsidiary undertakings
Income tax expense
Operating cash flows before changes in working capital and provisions
99
100
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NOTES TO THE FINANCIAL STATEMENTS
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Joint Arrangements
Under IFRS 11, the Group classifies its
interests in joint arrangements as either joint
operations or joint ventures depending on the
Group’s rights to the assets and obligations
for the liabilities of the arrangements.
When making this assessment, the Group
considers the structure and legal form of the
arrangements, the contractual terms of the
arrangement agreed by the parties and when
relevant, other facts and circumstances.
Joint Ventures
Joint venture undertakings (joint ventures) are
those undertakings over which ESB exercises
contractual control jointly with another party,
whereby the Group has rights to net assets
of the arrangement rather than rights to its
assets and obligations for its liabilities.
The Group’s interests in the net assets or
liabilities of joint ventures are included as
investments in joint ventures on the face of
the consolidated balance sheet at an amount
representing the Group’s share of the fair
values of the net assets at acquisition plus
goodwill, acquisition costs, the Group’s
share of post acquisition retained income and
expenses less any impairment provision.
The amounts included in the consolidated
financial statements in respect of post
acquisition results of joint ventures are taken
from their latest financial statements made up
to the Group’s balance sheet date.
Associates
Entities other than joint arrangements
and subsidiaries in which the Group has
a participating interest, and over whose
operating and financial policies the Group is
in a position to exercise significant influence
but not control or joint control, are accounted
for as associates using the equity method
and are included in the consolidated financial
statements from the date on which significant
influence is deemed to arise until the date on
which such influence ceases to exist.
In the Parent financial statements,
investments in associates are carried at cost
less any impairment charges.
Transactions eliminated on
consolidation
Intra-group balances and transactions, and
any unrealised income and expenses arising
from intra-group transactions, are eliminated
in preparing the consolidated financial
statements. Unrealised gains arising from
transactions with equity accounted investees
are eliminated against the investment to
the extent of the Group’s interest in the
investee. Unrealised losses are eliminated in
the same way as unrealised gains, but only
to the extent that there is no evidence of
impairment.
3. NEW STANDARDS AND
INTERPRETATIONS
The following standards and interpretations
issued by the International Accounting
Standards Board (IASB) and the International
Financial Reporting Interpretations
Committee (IFRIC) are effective for the first
time in the current financial year and have
been adopted with no significant impact on
the Group’s result for the period or financial
position:
New / Revised International
Financial Reporting Standards
Annual improvements to IFRSs
2011 - 2013 cycle
Effective
date1
1 January
2015 (was
available
for early
adoption).
A number of new standards, amendments
to standards and interpretations are not yet
effective for the year ended 31 December 2015,
and have not been applied in preparing these
consolidated financial statements. The items that
may have relevance to the Group are as follows:
New / Revised International
Financial Reporting Standards
Effective
date1
Annual improvements to IFRSs
2010 - 2012 cycle
1 February
2015
Amendments to IFRS 11:
Accounting for acquisitions of
interests in Joint Operations
1 January
2016
Amendments to IAS 16 and IAS
38: Clarification of acceptable
methods of depreciation and
amortisation
1 January
2016
Amendments to IAS 16: Property,
Plant and Equipment and IAS 41
Bearer Plants
1 January
2016
Amendments to IAS 27: Equity
method in Separate Financial
Statements
1 January
2016
Amendments to IAS 1: Disclosure
Initiative
1 January
2016
Annual Improvements to IFRSs
2012 - 2014 Cycle
1 January
2016
IFRS 14: Regulatory Deferral
Accounts
1 January
2016*
Amendments to IFRS 10 and
IAS 28: Sale or contribution of
assets between an investor and
its associate or joint venture
(September 2014)
Deferred
Indefinitely
Amendments to IFRS 10, IFRS 12
and IAS 28: Investment Entities:
Applying the consolidation
exception (December 2014)
1 January
2016*
IFRS 15: Revenue from contracts
with customers (May 2014)
including amendments to IFRS
15: Effective date of IFRS 15
(September 2015)
1 January
2018*
IFRS 9: Financial Instruments (July
2014)
1 January
2018*
¹ The effective dates are those applying to EU
endorsed IFRS if later than the IASB effective
dates and relate to periods beginning on or
after those dates detailed above.
* These are the IASB effective dates not yet
endorsed under EU IFRS.
4. FOREIGN CURRENCIES
These financial statements are prepared in
euro, which is the Parent’s functional currency.
Foreign currency transactions
Transactions in foreign currencies are recorded
at the rate ruling at the date of the transactions.
The resulting monetary assets and liabilities are
translated at the rate ruling at the balance sheet
date and the exchange differences are dealt
with in the income statement. Non-monetary
assets and liabilities are carried at historical
cost and not subsequently retranslated.
Net investments in foreign operations
Each entity in the Group determines its own
functional currency and items included in the
financial statements of each entity are measured
accordingly in that currency. In the consolidated
financial statements, the Group’s net investments
in overseas subsidiary undertakings, joint
ventures, associates and related goodwill are
translated at the rate ruling at the balance sheet
date. Where an intergroup loan is made for the
long term and its settlement is neither planned
nor foreseen, it is accounted for as part of the
net investment in a foreign operation. The profits,
losses and cash flows of overseas subsidiary
undertakings, joint ventures and associates are
translated at average rates for the period where
that represents a reasonable approximation of the
actual rates.
Exchange differences resulting from the
retranslation of the opening balance sheets of
overseas subsidiary undertakings, joint ventures
and associates at closing rates, together with
the differences on the translation of the income
statements, are dealt with through a separate
component of equity (translation reserve)
and reflected in the Group statement of
comprehensive income. Translation differences
held in this reserve are released to the income
statement on disposal of the relevant entity.
Where foreign currency denominated
borrowings are designated as a hedge of the
net investment in a foreign operation, exchange
differences on such borrowings are taken to the
same translation reserve to the extent that they
are effective hedges.
5. PROPERTY, PLANT AND EQUIPMENT
AND DEPRECIATION
Recognition and measurement
Property, plant and equipment is stated at cost
less accumulated depreciation and provisions
for impairment in value, except for land which is
shown at cost less impairment. Property, plant
and equipment includes capitalised employee,
interest and other costs that are directly
attributable to the asset.
Depreciation
The charge for depreciation is calculated to write
down the cost of property, plant and equipment to
its estimated residual value over its expected useful
life using methods appropriate to the nature of the
Group’s business and to the character and extent of
its property, plant and equipment. No depreciation is
provided on freehold land or on assets in the course
of construction. Major asset classifications and their
allotted life spans are:
Generation plant and
thermal station structures
20 years
Wind farm generating
assets
20 / 25 years
Distribution plant and
structures
25 / 30 years
Transmission plant and
structures
30 years
General buildings and
hydro stations
50 years
Depreciation is provided on all depreciable assets
from the date of commissioning (date available for
use), as follows:
On the straight-line method for transmission,
distribution and general assets, and
On a projected plant usage basis for
generating units.
Reviews of depreciation rates and residual values
are conducted annually.
Subsequent expenditure
Subsequent expenditure on property, plant and
equipment is included in the asset’s carrying
amount or recognised as a separate asset, as
appropriate, only when it is probable that future
economic benefits associated with the item will
flow to the Group and the Company and the
cost of the item can be measured reliably. All
other repairs and maintenance are charged in the
income statement during the financial period in
which they are incurred.
Included in property, plant and equipment are
strategic spares in relation to the electricity
generation business. Capital stock in the
networks business is carried within assets under
construction pending commissioning.
6. LEASED ASSETS
Finance leases are leases where the Group, as
lessee, assumes substantially all the risks and
rewards of ownership, while operating leases are
those in which the lessor retains those risks and
rewards of ownership.
Non-current assets acquired under finance
leases are included in the balance sheet at their
equivalent capital value and are depreciated over
the shorter of the lease term and their expected
useful lives. The corresponding liabilities are
recorded as a finance lease payable and the
interest element of the finance lease payments is
charged to the income statement on a constant
periodic rate of interest. Operating lease rentals
are charged to the income statement on a
straight-line basis over the lease term.
7. INTANGIBLE ASSETS AND GOODWILL
(a) Goodwill
Goodwill that arises on the acquisition of
subsidiaries is presented separately on the
balance sheet. For the measurement of goodwill
at initial recognition, see note 12 to the financial
statements.
02
Subsequent measurement
Goodwill is measured at cost less accumulated
impairment losses. Goodwill is tested annually for
impairment. An impairment loss is recognised if the
carrying amount of the asset or cash-generating
unit (CGU) exceeds its recoverable amount.
The recoverable amount of an asset or CGU is
the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to
their present value using a pre-tax discount rate
that reflects current market assessments of the
time value of money and the risks specific to the
asset or CGU.
Impairment losses in respect of goodwill are
recognised in profit or loss, and are not reversed.
(b) Emissions allowances
Emissions allowances purchased by ESB are
recorded as intangible assets at market value
on the date of issue.
As emissions arise, a charge is recorded in
the income statement to reflect the amount
required to settle the liability to the Authority.
03
FINANCIAL STATEMENTS
Joint ventures are accounted for using the
equity method of accounting. Under the
equity method, the Group’s share of the
profits after tax of joint ventures is included
in the consolidated income statement after
interest and financing charges. The Group’s
share of items of other comprehensive
income is shown in the statement of
comprehensive income.
The Group assesses if a change in the facts
and circumstances requires reassessment
of whether joint control still exits. The
Group has evaluated its involvement in joint
arrangements and has confirmed that these
investments meet the criteria of joint ventures
which continue to be accounted for using the
equity method.
1. STATEMENT OF ACCOUNTING POLICIES (continued)
CORPORATE GOVERNANCE
Joint Operations
Joint operations are those undertakings in
which ESB is deemed to have joint control
of the arrangement and has rights to the
assets and obligations for the liabilities of the
arrangement. Accordingly, the Company’s
share of assets, liabilities, revenues, expenses
and other comprehensive income are
recognised in the respective consolidated
accounts.
In the Parent financial statements,
investments in joint ventures are carried at
cost less any impairment charges.
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
101
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ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
1. STATEMENT OF ACCOUNTING POLICIES (continued)
This provision includes the carrying value of
the emissions allowances held, as well as the
current market value of any additional allowances
required to settle the obligation. These
allowances are returned to the relevant Authority
in charge of the scheme within four months of
the end of that calendar year, in order to cover
the liability for actual emissions of CO2 during
that year. Emissions allowances held at cost as
intangible assets are therefore not amortised
as they are held for settlement of the emissions
liability in the following year.
Software
Other intangibles
3 / 5 years
20 years
8. IMPAIRMENT OF ASSETS OTHER
THAN GOODWILL
Assets that have an indefinite useful life are
not subject to amortisation and are tested
annually for impairment. Assets that are subject
to depreciation and amortisation are tested
for impairment whenever events or changes in
circumstance indicate that the carrying amount
may not be recoverable. An impairment loss
is recognised for the amount by which an
asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher
9. BORROWING COSTS
Borrowing costs attributable to the construction
of major assets, which necessarily take
substantial time to get ready for intended use, are
added to the cost of those assets at the weighted
average cost of borrowings, until such time as the
assets are substantially ready for their intended
use. All other borrowing costs are recognised
in the income statement in the period in which
they are incurred. The capitalisation rate applied
equates to the average cost of ESB’s outstanding
debt and where applicable, a project specific rate
is applied.
10. INVENTORIES
Inventories are carried at the lower of average
cost and net realisable value. Cost comprises
all purchase price and direct costs that have
been incurred in bringing the inventories to their
present location and condition. Net realisable
value is based on normal selling price less
further costs expected to be incurred prior to
disposal.
Specific provision is made for damaged,
deteriorated, obsolete and unusable items
where appropriate.
11. FINANCIAL ASSETS AND LIABILITIES
(a) Non-derivative financial assets and
liabilities
Trade and other receivables
Trade and other receivables are initially recognised
at fair value, which is usually the original invoiced
amount and subsequently carried at amortised
cost using the effective interest method less
provision made for impairment.
Specific provisions are made where there is
objective evidence of impairment, for example
where there is an inability to pay. An additional
provision is made on a portfolio basis to cover
additional incurred losses based on an analysis
of previous loss experience updated for current
market conditions.
Cash and cash equivalents
For the purpose of the cash flow statement,
cash and cash equivalents include cash in
hand, deposits repayable on demand and other
short-term highly liquid investments with original
maturities of three months or less, less bank
overdrafts payable on demand.
Trade and other payables
Trade and other payables are initially recorded at
fair value, which is usually the original invoiced
amount, and subsequently carried at amortised
cost using the effective interest rate method.
Loans to and receivables from Group
companies
Loans to and receivables from Group
Companies are non-derivative financial assets
which are not quoted in an active market. They
are included in current assets on the balance
sheet, except for those with maturities greater
than twelve months after the balance sheet
date, which are included in non-current assets.
Loans and receivables are included within trade
and other receivables in the Parent balance
sheet and are initially recorded at fair value and
thereafter at amortised cost.
Financial assets or liabilities at fair value
through profit or loss
Financial instruments classified as assets
or liabilities at fair value through the income
statement are financial instruments either held
for trading or designated at fair value through
profit or loss at inception.
On initial recognition, these assets are
recognised at fair value, with transaction costs
being recognised in profit or loss, and are
subsequently measured at fair value. Gains and
losses on these financial assets are recognised
in profit or loss as they arise.
Instruments held for trading are those that are
acquired principally for the purpose of sale in the
near term, are part of a portfolio of investments
which are managed together and where shortterm profit taking occurs.
(b) Derivative financial instruments and
other hedging instruments
The Group uses derivative financial instruments
and non-derivative financial instruments to
hedge its exposure to foreign exchange,
interest rate, and commodity price risk arising
from operational, financing and investing
activities. The principal derivatives used include
interest rate swaps, inflation-linked interest
rate swaps, currency swaps, forward foreign
currency contracts and indexed swap contracts
relating to the purchase of fuel.
Within its regular course of business, the
Group routinely enters into sale and purchase
derivative contracts for commodities, including
gas and electricity. Where the contract
was entered into and continues to be held
for the purposes of receipt or delivery of
the commodities in accordance with the
Group’s expected sale, purchase or usage
requirements, the contracts are designated
as own use contracts and are accounted
for as executory contracts. These contracts
are therefore not within the scope of IAS
39 Financial Instruments: Recognition and
Measurement.
Derivative commodity contracts which are
not designated as own use contracts are
accounted for as trading derivatives and are
recognised in the balance sheet at fair value.
Where a hedge accounting relationship is
designated and is proven to be effective, the
changes in fair value will be recognised in
accordance with IAS 39 as cash flow hedges
or fair value hedges.
Financial derivative instruments are used by
the Group to hedge interest rate and currency
exposures. All such derivatives are recognised
at fair value and are re-measured to fair value
at the balance sheet date. The majority of these
derivative financial instruments are designated
as being held for hedging purposes. The
designation of the hedge relationship is
established at the inception of the contract and
procedures are applied to ensure the derivative
is highly effective in achieving its objective
and that the effectiveness of the hedge can
be reliably measured. The treatment of gains
and losses on subsequent re-measurement
is dependent on the classification of the
hedge and whether the hedge relationship is
designated as either a fair value or cash flow
hedge.
Derivatives that are not part of effective hedging
relationships are treated as if held for trading,
with all fair value movements being recorded
through the income statement.
(i) Cash flow hedges
Where a derivative financial instrument is
designated as a hedge of the variability in cash
flows of a recognised liability, a firm commitment
or a highly probable forecast transaction,
the effective part of any gain or loss on the
derivative financial instrument is recognised
directly in other comprehensive income. When
the firm commitment or forecasted transaction
results in the recognition of a non-financial
asset or liability, the cumulative gain or loss is
removed from other comprehensive income
and included in the initial measurement of that
asset or liability. Otherwise the cumulative gain
or loss is removed from other comprehensive
income and recognised in the income statement
at the same time as the hedged transaction. The
ineffective part of any gain or loss is recognised
in the income statement immediately.
When a hedging instrument or hedge
relationship is terminated but the hedged
transaction is still expected to occur, the
cumulative gain or loss at that point remains in
other comprehensive income and is recognised
in accordance with the above policy when the
transaction occurs. If the hedged transaction is
no longer probable, the cumulative unrealised
gain or loss recognised in other comprehensive
income is recognised in the income statement
immediately.
(ii) Hedge of net investment in foreign
entity
Where a foreign currency liability hedges a net
investment in a foreign operation, foreign exchange
differences arising on translation of the liability
are recognised directly in other comprehensive
income, and taken to the translation reserve, with
any ineffective portion recognised immediately in
the income statement.
(c) Interest bearing borrowings
Interest bearing borrowings are recognised
initially at fair value less attributable transaction
costs. Subsequent to initial recognition these
borrowings are stated at amortised cost using
the effective interest rate method.
(d) Insurance contracts
During the normal course of business, Parent
Company guarantees and bonds are provided
to subsidiary companies of the Parent. These
guarantees and bonds are classified under IFRS
4 as insurance contracts. Where it is expected
that no claims will be made on these contracts,
no provision is made in the Parent Company
financial statements. Where claims are probable,
the provisions policy (15) is applied.
12. NON-REPAYABLE SUPPLY
CONTRIBUTIONS AND CAPITAL
GRANTS
Non-repayable supply contributions and capital
grants received up until 1 July 2009 were
recorded as deferred income and are released
to the income statement on a basis consistent
with the depreciation policy of the relevant
assets.
Following the implementation of IFRIC 18 Transfer
of Assets from Customers, non-repayable supply
contributions received after 1 July 2009 (the
effective date of the interpretation) are recognised
in full upon completion of services rendered, in the
income statement.
13. CAPITAL STOCK
02
The units of capital stock are measured at the
price at which they were initially issued to the
Department of Finance, the Department of
Communication, Energy and Natural Resources
and the ESB ESOP Trustee Limited.
14. INCOME TAX
Income tax on the profit or loss for the year
comprises current and deferred tax. Income tax
is recognised in the income statement, except
to the extent that it relates to items recognised
directly in other comprehensive income or equity.
(a) Current tax
Current tax is provided at current rates and is
calculated on the basis of results for the period.
The income tax expense in the income statement
does not include taxation on the Group’s share
of profits of joint venture undertakings, as this is
included within the separate lines on the face of the
income statement for profits from joint ventures.
(b) Deferred tax
Deferred tax is provided using the balance
sheet liability method, providing for temporary
differences between the carrying amounts
of assets and liabilities for financial reporting
purposes and the amounts used for taxation
purposes.
03
FINANCIAL STATEMENTS
Costs that are directly associated with the
production of identifiable and unique software
products controlled by the Group and the
Parent, and that will probably generate economic
benefits exceeding costs beyond one year, are
recognised as intangible assets. Direct costs
include the costs of software development,
employees and an appropriate portion of
relevant overheads. These costs are measured
at cost less accumulated amortisation, which
is estimated over their estimated useful lives
(three to five years) on a straight-line basis and
accumulated impairment losses.
For power generation assets, value in use is
based on the estimated cash flows expected to
be generated by the asset and is based on an
external view of forecast power generation and
forecast power, gas, carbon and capacity prices
(where applicable) and the timing and extent of
operating costs and capital expenditure. These
cash flows are discounted to their present value
using a pre-tax discount rate that reflects the
current markets assessment of the time value of
money and the risks specific to the asset.
1. STATEMENT OF ACCOUNTING POLICIES (continued)
CORPORATE GOVERNANCE
(c) Software costs and other
intangible assets
Acquired computer software licenses and other
intangible assets including grid connections
and other acquired rights, are capitalised on the
basis of the costs incurred to acquire and bring
the specific asset into use. These costs are
measured at cost less accumulated amortisation,
which is estimated over their useful lives on a
straight-line basis and accumulated impairment
losses. Major asset classifications and their
allotted life spans are:
of an asset’s fair value less costs to sell and
its value in use. For the purposes of assessing
impairment, assets are grouped at the lowest
levels for which there are separately identifiable
cash flows (CGU).
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
103
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NOTES TO THE FINANCIAL STATEMENTS
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Deferred tax assets are recognised only to
the extent that the Board consider that it is
more likely than not that there will be suitable
taxable profits from which the future reversal
of the underlying temporary differences can be
deducted.
Deferred tax is measured at the tax rates that
are expected to apply in the periods in which
temporary differences reverse, based on tax
rates and laws enacted or substantively enacted
at the balance sheet date.
15. PROVISIONS
Provision for generating station closure
The provision for closure of generating stations
represents the present value of the current
estimate of the costs of closure of the stations at
the end of their useful lives.
17. REVENUE
(a) Electricity revenue
Revenue comprises the sales value derived
from the generation, distribution and sale of
electricity, together with other goods and
services to customers outside the Group and
excludes value added tax. Electricity revenue
includes the value of units supplied to customers
between the date of the last meter reading and
the period end and this estimate is included in
trade and other receivables in the balance sheet
as unbilled consumption. Electricity revenue is
recognised on consumption of electricity.
(b) Contract revenue
Contract revenue is recognised on a time
apportionment basis by reference to the stage
of completion of the contract at the balance
sheet date.
18. OTHER OPERATING INCOME
Other operating income comprises of income
which accrues to the Group outside of the
Group’s normal trading activities.
19. COSTS
(a) Energy costs
Energy costs comprise direct fuel (primarily
coal and gas), purchased electricity, Use of
System Charges (other electricity costs) and
net emissions costs. Fuel and purchased
electricity costs are recognised as they are
utilised. The Group has entered into certain
long-term power purchase agreements for
fixed amounts. Amounts payable under the
contracts that are in excess of or below
market rates are recoverable by the Group or
repayable to the market under the Public Service
Obligation (PSO) levy.
(b) Operating and other maintenance costs
Operating and other maintenance costs
relate primarily to overhaul and project costs,
contractor costs and establishment costs. These
costs are recognised in the income statement as
they are incurred.
(c) Finance income and finance costs
Finance income comprises interest income on
bank deposits, which attract interest at prevailing
deposit interest rates.
Finance costs comprise interest expense on
borrowings, unwinding of the discount on
provisions, pension financing charges, fair
value gains and losses on financial instruments
not qualifying for hedge accounting, losses
on hedging instruments that are recognised
in the income statement and reclassifications
of amounts previously recognised in other
comprehensive income.
20. EXCEPTIONAL ITEMS
The Group has used the term exceptional to
describe certain items which, in management’s view,
warrant separate disclosure by virtue of their size
or incidence, or due to the fact that certain gains
or losses are determined to be non-recurring in
nature. Exceptional items may include restructuring,
significant impairments, profit or loss on asset
disposals, material changes in estimates or once off
costs where separate identification is important to
gain an understanding of the financial statements.
Further details of the Group's exceptional items are
provided in note 4 of the financial statements.
21. EMPLOYEE RELATED LIABILITIES
(a) Restructuring liabilities
Voluntary termination benefits are payable
under various collective agreements between
the Board of ESB and Union Staff when an
employee accepts voluntary redundancy
in exchange for these benefits. The Group
recognises termination benefits when it is
demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed
plan to either terminate employment before the
normal retirement age, or to provide termination
benefits as a result of an offer made to employees
to encourage voluntary redundancy.
Termination benefits for voluntary redundancies
are recognised as an expense when the Group
has made an offer of voluntary redundancy
and the offer has been accepted. Ordinary
termination benefits not covered by the
aforementioned agreement are expensed at
the earlier of when the Group can no longer
withdraw the offer of those benefits and when
the Group recognises costs for a restructuring.
Benefits expected to be settled more than
twelve months after the balance sheet date are
discounted to present value. Future operating
losses are not provided for.
(b) Other short-term employee related
liabilities
The costs of vacation leave and bonuses
accrued are recognised when employees render
the service that increases their entitlement to
future compensated absences.
22. PENSION OBLIGATIONS
The Group companies operate various
pension schemes in the Republic of Ireland
and Northern Ireland, which are funded
through payments to trustee administered
funds. A defined contribution scheme is a
pension scheme under which the Group pays
fixed contributions into a separate fund but
where the Group has no legal or constructive
obligation to pay further contributions if the
fund does not hold sufficient assets to pay all
members of the scheme the benefits relating
to employee service in the current and prior
periods. A defined benefit scheme is a pension
scheme that is not a defined contribution
scheme.
Pension schemes in the Republic of Ireland
The Group operates two pension schemes,
which are called the ESB Defined Benefit
Pension Scheme (the Scheme) (formerly the
ESB General Employees' Superannuation
Scheme) and the ESB Defined Contribution
Pension Scheme.
Pensions for the majority of employees in
the electricity business are funded through a
contributory pension scheme called the ESB
Defined Benefit Pension Scheme. The fund is
vested in trustees nominated by ESB and its
members for the sole benefit of employees and
their dependants. The Scheme is registered as
a Defined Benefit Scheme with the Pensions
Authority.
The regulations governing the Scheme stipulate
the benefits that are to be provided and the
contributions to be paid by both ESB and the
contributing members. Benefits payable are
determined by reference to a Career Average
Revalued Earnings (CARE) pension model
for benefits earned after 1 January 2012
(previously based on final salary). ESB has no
legal obligation to increase contributions to
maintain benefits in the event of a deficit and
ESB’s rate of contribution cannot be altered
without the agreement of ESB and approval
of the Minister for Communications, Energy
and Natural Resources. Should a deficit arise
in the future, the Company is obliged under
the Scheme regulations to consult with the
Superannuation Committee, the Trustees
and the Scheme Actuary to consider the
necessity of submitting an amending Scheme
for Ministerial approval.
Under the 2010 Pensions Agreement
(approved by employees in July 2010 and
formally ratified by the Board of ESB on 20
October 2010), ESB agreed to a once off
cash injection into the Scheme, payable over
a number of years, which had an agreed
valuation for actuarial purposes as at 1
January 2010 of €591 million. The fixed
contribution rates for the employer and for
employees were not changed. Under the
Agreement membership of the Scheme has
been closed to new joiners.
The obligations to the Scheme reflected
in ESB’s financial statements have been
determined in accordance with IAS 19
Employee Benefits. Given that the scheme is
not a typical “balance of costs” DB Scheme
(where the employer is liable to pay the
balance of contributions required to fund
benefits), the obligations to be reflected in
the financial statements require the exercise
of judgement. Should a deficit arise in the
future, the Company, as noted above, is
obliged to consult with the parties to the
Scheme. However, ESB has no obligation to
increase contributions to maintain benefits in
the event of a deficit and the Company does
not intend that any further contributions, other
than the normal ongoing contributions and
the balance of the Company’s €591 million
additional contribution (committed to as part
of the 2010 Pensions Agreement), will be
made. Therefore, ESB has concluded that
the financial statements should reflect its
obligations to the Scheme, which consist of:
a) any remaining amounts to be paid in
relation to the once-off contribution agreed
pursuant to the 2010 Agreement (€591
million in 2010 money to be paid over a
number of years)
b) pre-existing commitments relating to past
service (the present value of the agreed
contributions that relates to service prior to
October 2010), and
c) Past Voluntary Severance (VS)
Programmes - in 2010 the Company
recognised a future commitment in respect
of staff who have left the Company under
past VS programmes. ESB will make pension
contributions in respect of those staff and
these are recognised at fair value.
Ongoing contributions (up to 16.4%) are
recognised in the income statement as
incurred. Any unpaid amounts at year end
are recognised as liabilities on the balance
sheet.
The ESB Defined Contribution Pension
Scheme is a defined contribution scheme
and contributions to the scheme are
accounted for on a defined contribution
basis with the employers’ contribution
charged to income in the period the
contributions become payable.
Pension scheme in Northern Ireland
The Group’s wholly owned subsidiary
undertaking Northern Ireland Electricity
Networks Limited (NIE Networks) operates
a defined benefit scheme in respect of all
eligible employees. The defined benefit
obligation of NIE Networks is calculated
annually by independent actuaries using
the projected unit credit method, and
discounted at a rate selected with reference
to the current rate of return of high quality
corporate bonds of equivalent currency and
term to the liabilities. Pension scheme assets
are measured at fair value. Full actuarial
valuations are obtained at least triennially
and are updated annually thereafter.
Actuarial gains and losses are recognised in
full in the period in which they occur and are
recognised in other comprehensive income.
The cost of providing benefits under the
defined benefit scheme is charged to
the income statement over the periods
benefiting from employees’ service. Past
service costs including curtailment losses
are recognised in the income statement in
the period they occur. The interest income
from pension scheme assets and the interest
expense on pension scheme liabilities are
included within net finance cost.
02
03
FINANCIAL STATEMENTS
The estimated costs of closing stations are
recognised in full at the outset of the asset life,
but discounted to present values using a risk
free rate. The costs are capitalised in property,
plant and equipment and are depreciated over
the useful economic lives of the stations to which
they relate. The costs are reviewed each year
and amended as appropriate. Amendments to
the discounted estimated costs are capitalised
into the relevant assets and depreciated over
the remaining life of the relevant assets. As the
costs are capitalised and initially provided on
a discounted basis, the provision is increased
by a financing charge in each period, which is
calculated based on the provision balance and
discount rate applied at the last measurement
date (updated annually) and is included in the
income statement as a financing charge. In
this way, the provision will equal the estimated
closure costs at the end of the useful economic
lives of stations. The actual expenditure is set
against the provision as stations are closed.
The provision for generating station closure
costs is included within current or non-current
provisions as appropriate on the balance sheet.
As a result of the €3 billion wholesale Eurobond
debt programme, which is listed on the Irish
Stock Exchange, the disclosure requirements
of IFRS 8 Operating Segments apply to the
Group. IFRS 8 specifies how an entity should
disclose information about its segments using
a management approach under which segment
information is presented on the same basis
as that used for internal reporting. Financial
information for segments whose operating
activities are regularly reviewed by the Executive
Team and the Board, collectively the Chief
Operating Decision Maker (CODM), in order to
make decisions about allocating resources and
assessing performance has been presented in
note 2 to the financial statements.
1. STATEMENT OF ACCOUNTING POLICIES (continued)
CORPORATE GOVERNANCE
A provision is recognised if, as a result of a
past event, the Group has a present legal or
constructive obligation that can be estimated
reliably, and it is probable that an outflow of
economic benefits will be required to settle
the obligation. Provisions are determined by
discounting the expected future cash flows
at a pre-tax rate that reflects current market
assessments of the time value of money and the
risks specific to the liability. The unwinding of the
discount is recognised as a finance cost.
16. OPERATING SEGMENTS - IFRS 8
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
105
106
ESB Annual Report 2015 - Energy for Life
2. SEGMENT REPORTING
As a result of issuing publicly traded debt, the Group comes within the scope of IFRS 8 Operating Segments, and has made the appropriate disclosures
in these financial statements.
For management purposes, the Group is organised into four key reportable segments, being the Group's strategic divisions which are managed
separately and in respect of which internal management information is supplied to the Executive Team and to the Board being collectively the Chief
Operating Decision Maker (CODM) of the Group. Three further corporate divisions provide support and other services to the principal operating divisions
of the Group and are combined as Other Segments in the information below.
NOTES TO THE FINANCIAL STATEMENTS
(b) ESB Networks is principally concerned with the ownership and operation of the electricity distribution network and the ownership of the electricity
transmission network in the Republic of Ireland. ESB Networks is a regulated business earning an allowed return on its Regulated Asset Base (RAB)
through Use of System charges payable by electricity generators and suppliers. It is ring-fenced through regulation through the Group's generation and
supply business.
(c) Generation and Wholesale Markets comprises the generation and international investment business across the Group. Within this business
segment, the Group operates power stations and wind farms in Ireland, Northern Ireland and Great Britain.
01
2. SEGMENT REPORTING (continued)
(a) Income statement
(i) Segment revenue - 2015
A description of the Group's key reportable segments is as follows:
(a) Electric Ireland is a leading supplier of electricity and gas to domestic customers in the Republic of Ireland and during 2015 entered the Northern
Ireland domestic market. Electric Ireland has a substantial market share in the non-domestic sector in both the Republic of Ireland and Northern Ireland.
Revenues are primarily derived from sales to electricity customers.
107
External revenues
Inter-segment revenue
Revenue
Electric
Ireland
€ '000
ESB
Networks
€ '000
Generation
and
Wholesale
Markets
€ '000
2,095,907
4,418
2,100,325
407,880
546,172
954,052
472,241
936,479
1,408,720
279,630
21,672
301,302
79,743
198,558
278,301
(1,707,299)
(1,707,299)
3,335,401
3,335,401
(8,288)
(2,047,985)
-
(365,361)
(335,015)
-
(206,227)
(961,122)
(104,237)
(147,697)
(105,336)
-
(17,105)
(242,140)
-
1,707,299
-
(744,678)
(1,984,299)
(104,237)
NIE
Networks1
€ '000
Other
Segments
€ '000
Consolidation
and
eliminations
€ '000
Total
€ '000
(ii) Segment operating costs - 2015
Depreciation and amortisation
Other operating costs
Impairment charge (exceptional item)
02
(e) Other Segments include the results of internal service providers, which supply the main business units of the Group with support services. These
segments are governed by regulation, and service level agreements are in place to ensure that transactions between operating segments are on an
arm's length basis similar to transactions with third parties. This segment also includes most finance costs in the Group, as the majority of Treasury
activity is conducted centrally. Finance costs are not recharged to other operating segments.
Operating profit (includes exceptional item)
Net finance cost
44,052
(149)
286,644
(665)
137,079
(29,528)
48,269
(57,557)
15,086
(127,189)
-
531,130
(215,088)
Share of equity accounted investees loss
Profit / (loss) before taxation
43,903
285,979
(179)
107,372
(9,288)
(8,997)
(121,100)
-
(9,176)
306,866
Electric
Ireland
€ '000
ESB
Networks
€ '000
Generation
and
Wholesale
Markets
€ '000
NIE
Networks1
€ '000
Other
Segments
€ '000
Consolidation
and
eliminations
€ '000
Total
€ '000
2,052,897
3,806
2,056,703
463,001
496,900
959,901
423,246
1,026,650
1,449,896
256,921
23,359
280,280
61,889
197,799
259,688
(1,748,514)
(1,748,514)
3,257,954
3,257,954
(8,608)
(1,984,142)
-
(357,649)
(342,473)
-
(220,527)
(1,063,797)
(50,147)
(130,082)
(94,398)
-
(13,928)
(223,967)
-
1,748,514
-
(730,794)
(1,960,263)
(50,147)
Exceptional items (note 4)
Operating profit (includes exceptional items)
Net finance cost
63,953
(1,132)
292,785
(1,293)
38,395
162,190
(35,044)
55,800
(50,607)
93,700
109,357
(379,908)
-
132,095
684,085
(467,984)
Share of equity accounted investees loss
Profit / (loss) before taxation
62,821
291,492
(326)
126,820
5,193
(1,028)
(271,579)
-
(1,354)
214,747
(i) Segment revenue - 2014
Innovation was established to co-ordinate and focus on new investment opportunities to develop and grow business in the context of a changing
environment. This segment operates adjacent to the core operating segments of the Group. It is proposed that as business opportunities are identified
and become viable, they will then be transferred to the relevant core operating segment. Innovation is reported to the CODM as a separate component
within Other Segments.
The CODM monitors the operating results of the segments separately in order to allocate resources between segments and to assess performance.
Segment performance is predominantly evaluated based on operating profit. Assets and liabilities are not reported by segment to the CODM.
Revenue by product
Reportable segments are split by type of product revenue earned. Electric Ireland revenues consist of sales to electricity and gas customers. Generation
and Wholesale Markets revenue derives mainly from electricity generation. ESB Networks and NIE Networks earn Use of System income in the Republic
of Ireland and Northern Ireland respectively. Revenue included within Other Segments relates primarily to engineering services.
External revenues
Inter-segment revenue
Revenue
CORPORATE GOVERNANCE
(iii) Operating result - 2015
(d) Northern Ireland Electricity Networks (NIE Networks) is principally concerned with the ownership and operation of the electricity distribution
network and the ownership of the electricity transmission network in Northern Ireland. NIE Networks derives its revenue principally from charges for
the use of the distribution systems levied on electricity suppliers and from charges on transmission services collected from the System Operator for
Northern Ireland (SONI).
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
ESB Annual Report 2015
(ii) Segment operating costs - 2014
(iii) Operating result - 2014
1
NIE Networks segment includes depreciation on fair value uplift recognised on the acquisition of NIE Networks.
03
FINANCIAL STATEMENTS
Depreciation and amortisation
Other operating costs
Impairment charge
108
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
2. SEGMENT REPORTING (continued)
(b) Other disclosures
Additions to non-current assets (excluding acquisitions)
Electric Ireland
ESB Networks
Generation and Wholesale Markets
NIE Networks
Other Segments
Total
4. EXCEPTIONAL ITEMS (continued)
2015
€ ‘000
10,895
494,477
175,965
134,977
56,659
872,973
2014
€ ‘000
8,129
447,859
340,398
102,057
61,195
959,638
Additions to non-current assets (excluding acquisitions) includes investments in property, plant and equipment, intangible assets (excluding emissions
allowances) and financial assets.
3. GEOGRAPHIC INFORMATION
(a) Non-current assets by geographic location
2015
€ ‘000
2014
€ ‘000
7,767,937
3,717,022
24,566
11,509,525
7,738,533
3,520,201
19,441
11,278,175
Non-current assets for this purpose consist of property, plant and equipment, intangible assets, goodwill, investments in equity accounted investees,
financial asset investments and trade and other receivables. Derivative financial instruments, deferred tax assets and pension assets are excluded.
(b) External revenue by geographic market
Ireland
UK including Northern Ireland
Rest of world
Total
2015
€ ‘000
2014
€ ‘000
2,792,331
528,051
15,019
3,335,401
2,720,517
515,738
21,699
3,257,954
4. EXCEPTIONAL ITEMS
The Group presents certain items separately which are unusual by virtue of their size and incidence in the context of its ongoing core operations. This
presentation is made in the income statement to aid understanding of the performance of the Group's underlying business. Judgement is used by the
Group in assessing the particular items which should be disclosed as exceptional.
2014
€ ‘000
(104,237)
(104,237)
93,700
38,395
132,095
Impairment charges
International Accounting Standard 36 - Impairment of Assets stipulates that an impairment loss is the amount by which the carrying value of an asset
exceeds its recoverable amount. Recoverable amount is the higher of its fair value less costs of disposal and its value in use. Value in use is calculated
by taking the Net Present Value (NPV) of expected future cash flows from the asset discounted at an appropriate discount rate. Entities are required to
conduct impairment tests where there is an indication of impairment of an asset. The following indicators have prompted impairment reviews on certain
generation plant.
- The impact of continued downward pressure on wholesale electricity margins in Great Britain (GB) (spark spreads and capacity revenue) on Corby
power station (Corby)
- The reduced running of Coolkeeragh power station (Coolkeeragh)
Corby is a 350 MW Combined Cycle Gas Turbine (CCGT) in GB that has been operated successfully by ESB through an Operations and Maintenance
(O&M) Agreement since commissioning in 1994. Initially ESB had a 20% shareholding in Corby and this was increased to 50% in 2000 as a result of
one of the original shareholders exiting the business, the other 50% was held by E.ON who had a long-term tolling agreement with Corby. During the period 2001 - 2010, ESB successfully operated the plant in line with the tolling agreement. In May 2011, ESB purchased E.ON’s 50% share
in Corby and the tolling agreement was assigned to ESB as part of the transaction. ESB paid a net consideration of Stg£34 million for E.ON’s 50%
share. An impairment charge of €31.2 million (Stg£24 million) was recorded in operating costs in 2014 (note 6) in respect of Corby due to adverse changes
to the projected GB wholesale electricity price curve and Corby being unsuccessful in the 2014 capacity auction. The curve continued to decline in
2015 and Corby failed to secure an acceptable capacity contract in the GB capacity auction, therefore a further impairment review was carried out. As a
result of this review an impairment charge for the full remaining carrying value of €57.8 million (Stg£41 million) has been taken and is recognised in the
Generation and Wholesale Markets segment. The real discount rate applied to the cash flows to determine the NPV was a pre-tax rate of 5.7% (2014:
6.0%). The cash inflows are based on the forecasted running profiles for the plant, forward prices for electricity, gas and carbon and forecast capacity
auction prices. The cash outflows for operating and capital expenditure are based on the Board approved five-year business plans, and thereafter, on
long-term production and cash flow forecasts. Coolkeeragh is a 400 MW CCGT in Northern Ireland which was commissioned in June 2005. Between 2005 and 2006 an impairment charge of
€50.0 million was recognised in relation to Coolkeeragh. This impairment arose as a result of a reduction in the technical performance of the plant.
Coolkeeragh is currently providing system security in Northern Ireland but despite this is seeing a reduction in its running in the Single Electricity Market
(SEM). The reduction is due to energy generated from other technologies being more economic and also there are a number of gas plants, similar
to Coolkeeragh, in the SEM competing for running. As a result of this reduced running, an impairment review has been performed which resulted in
an impairment charge of €46.4 million (Stg£33 million) being recognised in the current year in the Generation and Wholesale Markets segment. The
remaining carrying value is €59.0 million (Stg£42 million). The real discount rate applied to the cash flows to determine the NPV was a pre-tax rate of
5.7%. The cash inflows are based on the forecasted running profiles for the plant, forward prices for electricity, gas and carbon. The cash outflows for
operating and capital expenditure are based on the Board approved five-year business plans, and thereafter, on long-term production and cash flow
forecasts.
Gain on conversion of subsidiary to equity accounted investee
ESB has commenced delivery of a high capacity Fibre to the Building (FTTB) network to homes and businesses in selected urban locations across
the Republic of Ireland through an innovative joint venture agreement with Vodafone Ireland Limited. The joint venture has begun rolling out the fibre
network across Ireland through a special purpose vehicle, SIRO Limited (SIRO) (formally Evolve Structuring Services Limited). Prior to the joint venture
agreement, SIRO was a 100% subsidiary of ESB. At the date of the joint venture agreement, Vodafone acquired a 50% interest in SIRO and a loss of
control event occurred for ESB. In 2014 the Group recorded its remaining 50% equity investment at fair value which gave rise to a non-cash gain of
€93.7 million in 2014 (refer to note 13 for further details).
02
Profit on disposal of subsidiaries and equity accounted investees
On 30 April 2014 ESB completed the sale of its interest in Bizkaia Energia SL and the Group's 100% subsidiary ESBI Facility Management España SL
to an affiliate of ArcLight Capital Partners, LLC.
The profit on disposal of ESB's shareholding in Bizkaia Energia SL and ESBI Facility Management España SL, being the proceeds received less the
carrying amount of the investment as at the sale date, direct selling expenses, associated translation reserve and cash flow hedge reserve amounts
reclassified on disposal, was €38.4 million.
5. OTHER OPERATING INCOME / (EXPENSES)
Profit / (loss) on disposal of property, plant and equipment and intangible assets
Profit on disposal of subsidiaries1
Gain arising on sale of emissions allowances
Amortisation of supply contributions
Dividends received
Fair value movements on assets measured at fair value through profit and loss (note 13) 2
Loss on consolidation of equity accounted investees3
Total
2015
€ ‘000
2014
€ ‘000
590
6,852
32,222
(2,847)
(7,874)
28,943
(1,283)
9,838
32,222
574
(6,111)
35,240
The profit on disposal of subsidiaries relates to the sale of wind farms in Airvolution of which €26.1 million was included in property, plant and
equipment (note 10).
2
The fair value movements in 2015 and 2014 relate to adjustments to the value of investments in renewable enterprises held by Novusmodus, as
detailed in note 13.
3
Refer to note 13 for further information relating to the conversion of Geothermal International Limited to subsidiary.
1
03
FINANCIAL STATEMENTS
Impairment charges (2014 impairment charge recorded in operating costs (note 6))
Fair value (non-cash) gain on loss of control of subsidiary
Profit on disposal of subsidiaries and equity accounted investees
Total
2015
€ ‘000
Impairment charges (continued)
CORPORATE GOVERNANCE
Ireland
UK including Northern Ireland
Rest of world
Total
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
109
110
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
6. OPERATING COSTS (INCLUSIVE OF IMPAIRMENT CHARGE)
Employee costs (note 8)
Fuel costs
Other electricity related costs
Operations and maintenance
Impairment charges (notes 10 / 11)
Depreciation and amortisation (notes 10 / 11)
Total
8. EMPLOYEES
2015
€ ‘000
2014
€ ‘000
421,192
653,667
434,732
474,708
104,237
744,678
2,833,214
413,662
796,822
298,404
451,375
50,147
730,794
2,741,204
Included in fuel costs is a charge of €nil (2014: gains of €3.2 million) relating to the fair value movement of fuel commodity swaps which have not been
designated as cash flow hedges.
7. NET FINANCE COST AND OTHER FINANCING CHARGES
Financing charges:
- on NIE Networks pension scheme (note 21)
- on ESB pension scheme (note 22)
- on employee related liabilities (note 22)
- on power station closure costs (note 25)
- on other provisions (note 25)
Total financing charges
2015
€ ‘000
2014
€ ‘000
259,583
(52,626)
206,957
247,039
(48,047)
198,992
GROUP
(a) Average number of employees in year by business activity, including temporary employees:
4,283
34,686
2,372
2,947
930
45,218
Fair value (gains) / losses on financial instruments:
- currency / interest rate swaps: cash flow hedges, transfer from OCI
- interest rate swaps and inflation linked swaps not qualifying for hedge accounting
- foreign exchange contracts not qualifying for hedge accounting
Total fair value (gains) / losses on financial instruments
7,722
(37,958)
2
(30,234)
7,470
217,427
(3)
224,894
Finance cost
Finance income
Net finance cost
216,382
(1,294)
215,088
469,104
(1,120)
467,984
(b) Employee costs in year
Current staff costs (excluding pension)
Salaries
Overtime
Social welfare costs (PRSI)
Other payroll benefits1
(c) Pension and other employee benefit costs
Exit costs - NIE Networks severance programme
Pensions charge - other schemes2
NIE Networks pension scheme charge3
Total employee related costs charged to the income statement
346
3,204
973
1,208
1,574
7,305
313
3,120
983
1,254
1,479
7,149
2015
€ ‘000
2014
€ ‘000
455,758
36,730
33,753
32,203
558,444
435,195
34,379
31,292
28,619
529,485
(191,652)
366,792
(173,225)
356,260
44,127
10,273
54,400
3,144
42,031
12,227
57,402
421,192
413,662
1
These benefits primarily include travel and subsistence expenses and accruals for holiday leave balances remaining at year end.
2
The pension charge to other schemes include contributions to the ESB Defined Contribution Pension Scheme, ESB Defined Benefit Pension Scheme
(formerly the ESB General Employees’ Superannuation Scheme) and the Options section of the NIE Networks Scheme.
3
The NIE Networks pension scheme charge relates solely to the Focus section to the Northern Ireland Electricity Scheme (the NIE Networks Scheme)
See note 21 for further details.
02
03
FINANCIAL STATEMENTS
The financing charges on provisions are calculated in accordance with the policy for the discounting of future payment obligations.
In addition to the amounts transferred from other comprehensive income relating to interest rate swaps and foreign exchange contracts disclosed above,
a further €63.7 million (2014: €87.0 million) has been transferred from the cash flow hedge reserve to net finance cost and other financing charges
during the period. However, these amounts are fully offset by movements in the translation of the underlying hedged foreign currency borrowings at the
prevailing exchange rates. In 2014, the Group, and its counterparty banks, agreed a restructuring of its inflation linked swaps, together with amendments to certain of their critical
terms. These changes included an extension of the mandatory break in the swaps from 2015 to 2022, immediate settlement in 2014 of accrued
accretion payments (previously due for payment in 2015), amendments to the fixed interest rate element of the swaps, and an expansion in the number
of swap counterparties. Future accretion payments are now scheduled to occur every 5 years, starting in 2018, with remaining accretion paid at maturity.
Arising from these changes, an amount of €95.7 million in accretion payments under the swaps was made in 2014.
Positive fair value movements of €29.8 million arose on the inflation linked swaps in 2015 (2014: negative fair value movements of €244.9 million).
These have been recognised within finance costs in the income statement, as hedge accounting is not available for these instruments.
2014
Number
Electric Ireland
ESB Networks
Generation and Wholesale Markets
NIE Networks
Other Segments
Total
Capitalised payroll
Net payroll cost for employees
5,651
30,788
1,190
1,568
462
39,659
2015
Number
CORPORATE GOVERNANCE
Interest payable on borrowings
Less capitalised interest
Net interest on borrowings
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
111
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NOTES TO THE FINANCIAL STATEMENTS
8. EMPLOYEES (continued)
PARENT
(a) Average number of employees in year by business activity, including temporary employees:
Electric Ireland
ESB Networks
Generation and Wholesale Markets
Other Segments
Total
(b) Employee costs in year
Current staff costs (excluding pension)
Salaries
Overtime
Social welfare costs (PRSI)
Other payroll benefits1
(c) Pension and other employee benefit costs
Pension Charge2
Total employee related costs charged to the income statement
10. PROPERTY, PLANT & EQUIPMENT
2015
Number
2014
Number
283
3,204
626
850
4,963
225
3,120
624
806
4,775
2015
€ ‘000
2014
€ ‘000
321,526
29,808
20,722
20,933
392,989
306,182
28,504
19,259
19,032
372,977
(134,146)
258,843
(124,335)
248,642
31,697
30,933
290,540
These benefits primarily include travel and subsistence expenses and accruals for holiday leave balances remaining at year end.
The pension charge to other schemes include contributions to the ESB Defined Contribution Pension Scheme and the ESB Defined Benefit Pension
Scheme (formerly the ESB General Employees’ Superannuation Scheme).
9. PROFIT FOR THE FINANCIAL YEAR
2015
€ ‘000
Auditor’s remuneration:
- Audit of individual and Group financial statements3
- Other assurance services
- Tax advisory services (Parent and NIE Networks entities only)
- Other non-audit services
- NIE Networks audit and other assurance services4
ESB (Parent) Board members’ remuneration:
- Fees
- Other remuneration
744,678
104,237
13,940
(32,222)
(590)
(6,852)
7,874
320
290
36
67
104
142
359
2014
€ ‘000
730,794
50,147
10,851
(32,222)
(8,555)
(38,395)
(93,700)
-
320
290
23
164
106
216
359
Impairment charge (notes 10 / 11)
Included within note 24 deferred income and government grants is amortisation of supply contributions €32.2 million and other deferred income €25.3
million.
3
€180,000 (2014: €180,000) related to the Parent Company.
4
€104,000 (2014: €106,000) related to the NIE Networks entities audited by EY.
1
2
Assets under
construction
€ '000
Total
€ '000
Cost
Balance at 1 January 2014
1,161,523
14,846,597
16,008,120
1,129,110
17,137,230
Additions
Retirements / disposals
Transfer of assets held for resale
Transfers out of assets under construction
Transfers to equity accounted investees
Transfers from / (to) intangible assets
Translation differences
Balance at 31 December 2014
392
(99)
146
17,646
593
1,180,201
180,240
(5,953)
435,137
303,209
82
273,984
16,033,296
180,632
(6,052)
435,283
320,855
82
274,577
17,213,497
732,576
(320,855)
(3,409)
(1,160)
36,142
1,572,404
913,208
(6,052)
435,283
(3,409)
(1,078)
310,719
18,785,901
Balance at 1 January 2015
1,180,201
16,033,296
17,213,497
1,572,404
18,785,901
Additions
Retirements / disposals
Transfers out of assets under construction
Transfers to intangible assets
Translation differences
Balance at 31 December 2015
100
(1,299)
21,865
552
1,201,419
235,367
(12,329)
429,977
258,393
16,944,704
235,467
(13,628)
451,842
258,945
18,146,123
579,058
(26,164)
(451,842)
(31,604)
40,258
1,682,110
814,525
(39,792)
(31,604)
299,203
19,828,233
Depreciation
Balance at 1 January 2014
636,876
6,343,391
6,980,267
-
6,980,267
Charge for the year
Retirements / disposals
Transfers to assets held for resale
Impairment
Transfers from / (to) intangible assets
Translation difference
Balance at 31 December 2014
23,234
(59)
59
134
660,244
673,921
(5,549)
270,251
31,246
(82)
95,893
7,409,071
697,155
(5,608)
270,310
31,246
(82)
96,027
8,069,315
-
697,155
(5,608)
270,310
31,246
(82)
96,027
8,069,315
Balance at 1 January 2015
660,244
7,409,071
8,069,315
-
8,069,315
Charge for the year
Retirements / disposals
Impairment
Translation difference
Balance at 31 December 2015
21,317
(642)
126
681,045
685,050
(11,985)
104,237
87,979
8,274,352
706,367
(12,627)
104,237
88,105
8,955,397
-
706,367
(12,627)
104,237
88,105
8,955,397
Net book value at 31 December 2015
Net book value at 31 December 2014
Net book value at 1 January 2014
520,374
519,957
524,647
8,670,352
8,624,225
8,503,206
9,190,726
9,144,182
9,027,853
1,682,110
1,572,404
1,129,110
10,872,836
10,716,586
10,156,963
During the year the Group capitalised interest of €52.6 million (2014: €48.0 million) in assets under construction, using an effective interest rate of
4.7% (2014: 4.9%).
The carrying value of non-depreciable assets at 31 December 2015 is €88.0 million (2014: €89.2 million).
Property, plant and equipment with a net book value of €nil at 31 December 2015 is included above at a cost of €3,613.9 million (2014: €3,173.1 million).
Retirements / disposals in both 2015 and 2014 primarily relate to the retirement of assets that have been fully depreciated in addition to the disposal of
developmental wind farms from assets under construction in 2015 (refer to note 5).
Impairment charges
An impairment review has been carried out on assets displaying indications of impairment by comparing the value in use to their net book value as at 31
December 2015. A review of the Corby CCGT plant in GB and the Coolkeeragh CCGT plant in Northern Ireland was undertaken at year end. An impairment loss of
€57.8 million (2014: €31.2 million) in respect of Corby and €46.4 million in respect of Coolkeeragh has been recognised in the income statement. The
remaining carrying value of Corby is €nil and €59.0 million in respect of Coolkeeragh.
Refer to note 4 for further information relating to the above impairment charges.
02
03
FINANCIAL STATEMENTS
The profit for the financial year is stated after charging / (crediting):
Depreciation and amortisation
Impairment charge1
Operating lease charges
Amortisation of supply contributions2
Profit / (loss) on disposal of property, plant and equipment
Profit on disposal of subsidiaries and intangible assets
Fair value (non-cash) gain on loss of control of subsidiary
Loss on consolidation of equity accounted investee
Plant and Total assets in
machinery
commission
€ '000
€ '000
279,575
1
2
GROUP
Land and
buildings
€ '000
CORPORATE GOVERNANCE
Capitalised payroll
Net payroll cost for employees
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
113
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NOTES TO THE FINANCIAL STATEMENTS
10. PROPERTY, PLANT & EQUIPMENT (continued)
11. INTANGIBLE ASSETS
Plant and
machinery
€ '000
Total assets in
commission
€ '000
Assets under
construction
€ '000
Total
€ '000
Cost
Balance at 1 January 2014
1,128,260
11,259,834
12,388,094
743,789
13,131,883
Additions
Retirements / disposals
Transfer of assets held for resale
Transfers out of assets under construction
Transfers to equity accounted investees
Transfers to / (from) intangible assets
Balance at 31 December 2014
382
(99)
146
17,646
1,146,335
78,526
(5,463)
435,137
293,414
82
12,061,530
78,908
(5,562)
435,283
311,060
82
13,207,865
425,248
(311,060)
(3,409)
(1,142)
853,426
504,156
(5,562)
435,283
(3,409)
(1,060)
14,061,291
Balance at 1 January 2015
1,146,335
12,061,530
13,207,865
853,426
14,061,291
Additions
Retirements / disposals
Transfers out of assets under construction
Transfers to intangible assets
Balance at 31 December 2015
92
(1,054)
21,082
1,166,455
98,562
(12,329)
386,664
12,534,427
98,654
(13,383)
407,746
13,700,882
439,155
(407,746)
(27,645)
857,190
537,809
(13,383)
(27,645)
14,558,072
Depreciation
Balance at 1 January 2014
633,477
5,630,294
6,263,771
-
6,263,771
Charge for the year
Retirements / disposals
Transfer of assets held for resale
Transfers to intangible assets
Balance at 31 December 2014
20,720
(59)
59
654,197
454,134
(5,276)
270,251
(82)
6,349,321
474,854
(5,335)
270,310
(82)
7,003,518
-
474,854
(5,335)
270,310
(82)
7,003,518
Balance at 1 January 2015
654,197
6,349,321
7,003,518
-
7,003,518
Charge for the year
Retirements / disposals
Balance at 31 December 2015
17,920
(481)
671,636
446,844
(11,985)
6,784,180
464,764
(12,466)
7,455,816
-
464,764
(12,466)
7,455,816
Net book value at 31 December 2015
Net book value at 31 December 2014
Net book value at 1 January 2014
494,819
492,138
494,783
5,750,247
5,712,209
5,629,540
6,245,066
6,204,347
6,124,323
857,190
853,426
743,789
7,102,256
7,057,773
6,868,112
During the year the Parent capitalised interest of €22.2 million (2014: €23.7 million) in assets under construction, using an effective interest rate of
4.2% (2014: 4.2%).
Property, plant and equipment with a net book value of €nil at 31 December 2015 are included above at a cost of €2,992.4 million
(2014: €2,868.1 million).
Retirements / disposals in both 2015 and 2014 primarily relate to the retirement of assets that have been fully depreciated.
Emissions
allowances
€ ‘000
Software
under
development
€ ‘000
Total
€ ‘000
Cost
Balance at 1 January 2014
550,570
60,241
22,783
633,594
Software additions
Purchase of emissions
Impairment of emissions
Software disposals
Settlement of emissions allowances
Transfers out of software under development
Transfers (to) / from property, plant and equipment
Translation differences
Balance at 31 December 2014
9,590
(1,395)
10,857
(82)
11,758
581,298
52,842
(5,113)
(58,014)
67
50,023
13,296
(10,857)
1,160
191
26,573
22,886
52,842
(5,113)
(1,395)
(58,014)
1,078
12,016
657,894
Balance at 1 January 2015
581,298
50,023
26,573
657,894
Software additions
Purchase of emissions
Software disposals
Settlement of emissions allowances
Transfers out of software under development
Transfers from property, plant and equipment
Translation differences
Balance at 31 December 2015
12,076
(332)
26,153
31,604
11,133
661,932
32,153
(50,213)
31,963
33,306
(26,153)
27
33,753
45,382
32,153
(332)
(50,213)
31,604
11,160
727,648
Amortisation
Balance at 1 January 2014
395,229
-
-
395,229
Charge for the year
Retirements / disposals
Impairment
Transfers from property, plant and equipment
Translation differences
Balance at 31 December 2014
33,639
(124)
18,901
82
6,507
454,234
-
-
33,639
(124)
18,901
82
6,507
454,234
Balance at 1 January 2015
454,234
-
-
454,234
Charge for the year
Retirements / disposals
Translation differences
Balance at 31 December 2015
38,311
(56)
7,419
499,908
-
-
38,311
(56)
7,419
499,908
Net book value at 31 December 2015
Net book value at 31 December 2014
Net book value at 1 January 2014
162,024
127,064
155,341
31,963
50,023
60,241
33,753
26,573
22,783
227,740
203,660
238,365
GROUP
Software costs include both internally developed and externally purchased assets. The majority of these costs however are represented by internally
developed assets.
Other intangible assets include grid connections and other wind farm development assets.
Emissions allowances are not amortised as they are held for settlement in the following year.
Amortisation of intangible assets is charged to the income statement as part of operating costs.
Impairment charge
During the year ended 31 December 2014 other intangible assets arising on the acquisition of the Group’s operating wind farm, West Durham Wind
Farm in GB was impaired by €18.9 million. This impairment arose as a result of adverse changes to the projected GB Wholesale Electricity Price curve
and a reduction in wind yield relative to the original business case. The impairment was calculated by comparing the net present value of future cash
flows to the net book value of the wind farm as at 31 December 2014. The real discount rate applied to the cash flows to determine the net present
value was a pre-tax rate of 5%.
02
03
FINANCIAL STATEMENTS
The carrying value of non-depreciable assets at 31 December 2015 is €82.3 million (2014: €83.8 million).
Software and
other intangible
assets
€ ‘000
CORPORATE GOVERNANCE
Land and
buildings
€ '000
PARENT
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
115
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NOTES TO THE FINANCIAL STATEMENTS
11. INTANGIBLE ASSETS (continued)
01
12. GOODWILL
Software and
other intangible
assets
€ ‘000
Emissions
allowances
€ ‘000
Software
under
development
€ ‘000
Total
€ ‘000
Cost
Balance at 1 January 2014
402,533
53,390
15,269
471,192
Software additions
Purchase of emissions
Impairment of emissions
Software disposals
Settlement of emissions allowances
Transfers out of software under development
Transfers (to) / from property, plant and equipment
Balance at 31 December 2014
9,344
(195)
2,811
(82)
414,411
46,426
(4,204)
(45,507)
50,105
12,714
(2,811)
1,142
26,314
22,058
46,426
(4,204)
(195)
(45,507)
1,060
490,830
Balance at 1 January 2015
414,411
50,105
26,314
490,830
Software additions
Purchase of emissions
Software disposals
Settlement of emissions allowances
Transfers out of software under development
Transfers from property, plant and equipment
Balance at 31 December 2015
8,556
(567)
25,879
27,645
475,924
21,402
(39,462)
32,045
30,806
(25,879)
31,241
39,362
21,402
(567)
(39,462)
27,645
539,210
The Group calculates the value in use using a 20-year discounted cash flow model, and a terminal value based on RAB, corresponding to the expected
useful life of the underlying asset base. The future cash flows are adjusted for risks specific to the investment and are discounted using a pre-tax
discount rate of 6.9% (2014: 6.9%).
Amortisation
Balance at 1 January 2014
332,722
20,584
(124)
82
353,264
-
332,722
Charge for the year
Retirements / disposals
Transfers from property, plant and equipment
Balance at 31 December 2014
-
Key factors in assessing the value of goodwill are expectations of future levels of capital spend and the appropriateness of the allowed return on the
RAB. Both are agreed with the Utility Regulator in Northern Ireland (NIAUR) as part of the Regulatory Price review. Management believes that at
the date of the impairment test there were no reasonably possible changes in the key valuation drivers that would cause the carrying amount of the
investment to exceed its recoverable amount.
Balance at 1 January 2015
353,264
-
-
353,264
Charge for the year
Retirements / disposals
Balance at 31 December 2015
26,617
(57)
379,824
-
-
26,617
(57)
379,824
96,100
61,147
69,811
32,045
50,105
53,390
31,241
26,314
15,269
159,386
137,566
138,470
PARENT
Balance at 1 January 2014
Translation differences
Balance at 31 December 2014
182,013
12,814
194,827
Balance at 1 January 2015
Translation differences
Balance at 31 December 2015
194,827
11,932
206,759
Goodwill was recognised on the acquisition of NIE Networks in December 2010, and relates to the fair value of the expected return on future investment
in the Regulated Asset Base (RAB) of NIE Networks. Goodwill is reviewed annually in December for impairment, by assessing the recoverable amount
of the investment, based on its value in use.
The annual impairment test of goodwill was carried out in December 2015 in accordance with IAS 36. No reduction in the value of goodwill was deemed
to be required.
The discount rate used is a key driver for valuation and the rate was determined by building up an appropriate Weighted Average Cost of Capital
(WACC) for NIE Networks and benchmarking relevant comparators. Other key drivers include inflation and regulatory assumptions. Long-term inflation
rates used were sourced from the UK Office of Budget Responsibility, and are currently based on a long-term rate of 2.75%. Assumptions in relation to
regulatory return are made by reference to previous regulatory decisions in the UK.
02
CORPORATE GOVERNANCE
Net book value at 31 December 2015
Net book value at 31 December 2014
Net book value at 1 January 2014
20,584
(124)
82
353,264
€ ‘000
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
117
03
Other intangible assets include grid connections and other wind farm development assets.
Emissions allowances are not amortised as they are held for settlement in the following year.
Amortisation of intangible assets is charged to the income statement as part of operating costs.
FINANCIAL STATEMENTS
Software costs include both internally developed and externally purchased assets. The majority of these costs however are represented by internally
developed assets.
118
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NOTES TO THE FINANCIAL STATEMENTS
13. FINANCIAL ASSET INVESTMENTS
13. FINANCIAL ASSET INVESTMENTS (continued)
Total
€ ‘000
-
49,359
49,359
Additions
Transfers to SIRO Limited
Transfers from property, plant and equipment (to SIRO Limited)
Disposals
Transfers to other payables
Share of loss
Fair value movement - transfer to income statement (note 5)
Conversion of subsidiary to equity accounted investee (note 4)
Translation differences
Balance at 31 December 2014
916
2,891
3,409
(98)
(1,354)
93,700
99,464
19,737
(3,894)
(6,111)
4,547
63,638
20,653
2,891
3,409
(3,894)
(98)
(1,354)
(6,111)
93,700
4,547
163,102
Balance at 1 January 2015
99,464
63,638
163,102
Additions
Transfers to other payables
Share of loss
Fair value movement on cash flow hedges
Fair value movement - transfer to income statement (note 5)
Consolidation of equity accounted investee
Translation differences
Balance at 31 December 2015
4,178
803
(9,176)
(902)
483
94,850
8,888
(2,847)
(10,905)
3,789
62,563
13,066
803
(9,176)
(902)
(2,847)
(10,905)
4,272
157,413
GROUP
Tilbury Green Power Holdings Limited (Tilbury)
During the year ended 31 December 2015, the Group became a 47% partner in Tilbury, a joint arrangement formed with the Green Investment Bank
(47%) and the EPC / O&M consortium (6.0%). The purpose of this joint arrangement is to construct and operate a biomass plant in GB.
The amount invested in Tilbury to date is €47.2 million, of which €2.4 million was advanced as equity and €44.8 million as shareholder loans.
Balance at 1 January 2014
Equity accounted investees investments
The fair value movement on cash flow hedges for equity accounted investees relates to derivatives held in Raheenleagh Power Limited, which have been
designated as cash flow hedging relationships in this entity.
Tilbury is legally separated from the parties and the legal form or contractual arrangement do not give the parties direct rights to the assets and liabilities
of the vehicle. Accordingly, the Group has classified it’s interest in Tilbury as an equity accounted investee as the Group has a residual interest in the net
assets of the arrangement.
The Group has entered into a 15 year arrangement with Tilbury to purchase physical power, renewable obligation certificates and levy exemption
certificates from the plant. Payments made under this contract are contingent upon actual power production.
Raheenleagh Power Limited (Raheenleagh)
During the year ended 31 December 2015, the Group became a 50% partner in Raheenleagh, a joint arrangement formed with Coillte Teoranta. The
purpose of this joint arrangement is to construct and operate a 35 MW wind farm in the Republic of Ireland. The amount invested in Raheenleagh to
date is €5.6 million of which €1.8 million was advanced as equity and €3.8 million as shareholder loans.
Raheenleagh is legally separated from the parties and the legal form or contractual arrangement do not give the parties direct rights to the assets and
liabilities of the vehicle. Accordingly, the Group has classified its interest in Raheenleagh as an equity accounted investee as both parties have a residual
interest in the net assets of the arrangement.
The Group has entered into a 15 year arrangement with Raheenleagh to purchase physical power from the wind farm. Payments made under this
contract are contingent upon actual power production.
02
CORPORATE GOVERNANCE
Equity
accounted
investees
€ ‘000
Financial assets
at fair value
through profit
or loss
€ ‘000
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
119
Translation differences for equity accounted investees relate to Tilbury Green Power Holdings Limited as this company is located in GB and has sterling
as its functional currency.
Country
Oweninny Power Limited1
Emerald Bridge Fibres Limited1
SIRO Limited (formerly Evolve Structuring Services Limited)
Raheenleagh Power Limited
Kingspan ESB Limited
Tilbury Green Power Holdings Limited
Republic of Ireland
Republic of Ireland
Republic of Ireland
Republic of Ireland
Great Britain
Great Britain
1
Holding 31
December 2014
% of share
capital owned
50
50
50
50
50
47
50
50
50
-
At 31 December 2015, the investments in both Oweninny Power Limited and Emerald Bridge Fibres Limited were held at €nil.
SIRO Limited (SIRO) (formally Evolve Structuring Services Limited)
SIRO is an unlisted joint arrangement in which the Group has joint control and a 50% ownership interest. SIRO was founded by the Group with Vodafone
Ireland Limited acquiring a 50% stake in November 2014.
Vodafone’s acquisition of shares in SIRO was pursuant to a Joint Venture Arrangement (JVA) concluded between both parties.
SIRO is structured as a separate vehicle, is jointly controlled by the Group and Vodafone Ireland Limited and the Group has a residual interest in the net
assets of the company. Accordingly, the Group has classified its interest in SIRO as an equity accounted investee. ESB has committed to provide capital
funding to SIRO amounting to €85 million over the next 5 years.
03
FINANCIAL STATEMENTS
Name of the company
Holding 31
December 2015
% of share
capital owned
120
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
13. FINANCIAL ASSET INVESTMENTS (continued)
14. INVENTORIES
The Group’s aggregate share of the non-current assets, current assets, non-current liabilities, current liabilities, income and expenses related to its
interests in these equity accounted investees are as follows:
Summarised income statement
Revenue
Loss
Group share of loss
Summarised balance sheet
SIRO
Limited
2015
€’000
Tilbury Green Power Holdings
Limited
2014
2015
2014
€’000
€’000
€’000
Other equity
accounted investees1
2015
2014
€’000
€’000
20
(16,730)
(8,365)
(1,071)
(536)
-
-
(1,622)
(811)
(1,636)
(818)
2015
€’000
2014
€’000
2015
€’000
2014
€’000
2015
€’000
2014
€’000
71,426
5,549
129,475
(23,345)
183,105
99,930
65
108,949
(10,016)
198,928
95,307
6,192
(95,307)
6,192
-
361
27,033
(25,712)
1,682
-
47%
6,192
2,910
2,910
-
50%
1,682
841
841
50%
-
1
50%
183,105
91,553
(454)
91,099
50%
198,928
99,464
99,464
2014
€ ‘000
PARENT
2015
€ ‘000
2014
€ ‘000
29,489
67,181
96,670
20,262
58,576
78,838
8,630
58,213
66,843
4,255
49,719
53,974
Inventories consumed during the year ended 31 December 2015 totalled €123.7 million (2014: €137.1 million). There were no inventory impairments
recognised during the year (2014: €nil).
15. TRADE AND OTHER RECEIVABLES
Reconciliation of the above amounts to the investment recognised in the balance sheet:
Group equity interest
Net assets
Group share
Other adjustments
Carrying value of Group’s equity interest
Materials
Fuel
Total
GROUP
2015
€ ‘000
GROUP
2015
€ ‘000
Current receivables:
Retail electricity receivables - billed
Retail electricity receivables - unbilled
Total retail electricity receivables
SEM pool related receivables
Use of System receivables (including unbilled)
Other electricity receivables
Total electricity receivables
Trade receivables - non-electricity
Amounts due from equity accounted undertakings
Other receivables
Amounts due from subsidiary undertakings
Prepayments
Total
Other equity accounted investees include Emerald Bridge Fibres Limited, Oweninny Power Limited and Raheenleagh Power Limited in 2015. 2014 included
Emerald Bridge Fibres Limited and Oweninny Power Limited.
89,881
187,853
277,734
54,882
212,527
38,082
583,225
58,683
16,218
56,706
36,345
751,177
GROUP
2015
€ '000
2014
€ ‘000
88,933
205,484
294,417
74,485
207,848
106,552
683,302
37,521
9,549
47,638
31,513
809,523
2014
€ '000
PARENT
2015
€ ‘000
67,140
140,462
207,602
32,087
38,377
28,316
306,382
11,024
7,271
2,836,676
19,670
3,181,023
2014
€ ‘000
66,690
156,627
223,317
49,839
38,502
84,660
396,318
9,788
19,995
2,574,643
16,990
3,017,734
PARENT
2015
€ '000
2014
€ '000
Non-current receivables:
Amounts due from equity accounted undertakings
At 31 December 2015, the Group could be called upon by its partners in the VantagePoint fund to make a further €0.4 million investment in the fund
(2014: €0.8 million).
Wholesale and retail credit risk
Trade and other receivables can be divided into final retail electricity customers (billed and unbilled), SEM pool related receivables, Use of System
receivables, and other (non-electricity) receivables.
Conversion of Geothermal International Limited to a full subsidiary
During the year, ESB acquired the total shareholding of Geothermal International Limited and its related financial asset investment was therefore
converted to a full subsidiary. The carrying value of the Group’s investment at the date of acquisition was €10.9 million and a loss of €7.9 million was
recognised in the income statement on conversion to a full subsidiary (note 5).
The maximum credit exposure of the Group at 31 December is set out on page 122. Prepayments of €36.3 million (2014: €31.5 million) are excluded
from the analysis as no credit exposure is perceived to exist in relation to these. In the case of the Parent, balances stated also exclude amounts due
from subsidiary undertakings of €2,836.7 million (2014: €2,574.6 million).
Equity
accounted
investees
€ ‘000
Subsidiary
undertakings
€ ‘000
-
61,782
Transfer to SIRO Limited
Transfer from property, plant and equipment (to SIRO Limited)
Conversion of SIRO Limited from subsidiary to equity accounted investee (note 4)
Balance at 31 December 2014
2,891
3,409
93,700
100,000
61,782
Balance at 1 January 2015
Balance at 31 December 2015
100,000
100,000
61,782
61,782
PARENT
Balance at 1 January 2014
-
-
-
03
FINANCIAL STATEMENTS
Interest in financial assets held at fair value through profit and loss
The Group owns a venture capital fund, Novusmodus, in which seed capital is invested into emerging technology entities. These investments are
managed purely for an investment return and are consequently carried at fair value through the income statement. No financial assets held at fair value
through profit or loss are controlled by ESB. Additions include investments in a number of clean energy and new technology companies and also on
investment in the VantagePoint clean energy fund. These investments have been fair valued at the year end and the movement transferred to the income
statement. The fair value movements in both 2015 and 2014 primarily relate to adjustments to the value of certain investments in the fund.
44,777
02
CORPORATE GOVERNANCE
Cash
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
121
122
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
15. TRADE AND OTHER RECEIVABLES (continued)
15. TRADE AND OTHER RECEIVABLES (continued)
GROUP 2014
GROUP 2015
Not past due
Past due < 30 days
Past due 30 - 120 days
Past due > 120 days
Past due by more than one year
Total
Gross
amount
receivable
€’000
662,145
57,416
35,179
24,479
35,927
815,146
Gross
amount
receivable
€’000
Impairment
provisions
€’000
Net
amount
receivable
€’000
(842)
(6,785)
(20,846)
(27,064)
(55,537)
662,145
56,574
28,394
3,633
8,863
759,609
706,854
30,288
30,015
29,459
39,259
835,875
(513)
(3,311)
(23,125)
(30,916)
(57,865)
706,854
29,775
26,704
6,334
8,343
778,010
Gross
amount
receivable
€’000
401,369
6,366
19,941
23,282
27,002
477,960
Impairment
provisions
€ '000
Net
amount
receivable
€ '000
269,089
39,324
18,021
20,569
22,919
369,922
(670)
(1,533)
(20,420)
(22,622)
(45,245)
269,089
38,654
16,488
149
297
324,677
Impairment
provisions
€’000
The credit risk in relation to DUoS is managed by the invocation of section 7 of the DUoS Framework Agreement approved by CER on 1 August 2002.
This section provides for the provision of security by each supplier. Before a supplier can register a customer they must sign up to the DUoS agreement.
All suppliers must provide security in accordance with section 7.2. The DUoS credit risk is managed through the timely collection procedures which are
in accordance with the regulations in section 6 of the DUoS Framework Agreement and the monitoring of debtor days to keep these to a minimum.
There is security cover in place for all suppliers, in the event of a supplier defaulting as set out in section 7 of the DUos Framework Agreement.
(331)
(2,280)
(23,125)
(26,123)
(51,859)
401,369
6,035
17,661
157
879
426,101
In the event of a supplier defaulting as set out by section 7 of the DUoS Framework agreement, TUoS credit risk is managed through timely collection
procedures and the monitoring of debtor days to keep these to a minimum. Procedures for the payment by EirGrid of TUoS income due to ESB Networks as
TAO are governed by the Infrastructure Agreement between EirGrid and ESB. This is not a normal bilateral contract freely entered into by the will of the parties,
but an arrangement required by legislation and many of whose terms are specified in that legislation. Accordingly, the credit risk in relation to TUoS receivables
is considered to be low. The amount due in respect of TUoS income at 31 December 2015 was €41.1 million (2014: €41.9 million), which is the largest Use of
System receivable balance in the Republic of Ireland. This amount has been received subsequent to year end.
Management does not expect any significant losses of receivables that have not been provided for as shown above. As explained below overdue amounts,
including amounts past due by more than one year, are impaired only to the extent that there is evidence that they are not ultimately recoverable. The
impairment provision recognised is collective rather than specific in nature and is calculated based on the level of credit risk perceived to exist in relation to
the underlying balances. The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
GROUP
Balance at 1 January
Impairment loss recognised
Provision utilised
Balance at 31 December
PARENT
2015
€ ‘000
2014
€ ‘000
2015
€ ‘000
2014
€ ‘000
57,865
22,807
(25,135)
55,537
51,427
24,350
(17,912)
57,865
51,859
17,560
(24,174)
45,245
45,802
23,016
(16,959)
51,859
The impairment provisioning policy in relation to retail electricity receivables is based on the historical experience of debts written off. Provision may be
made in respect of specific balances where there is evidence of a dispute or an inability to settle. An additional provision is made on a portfolio basis
to cover additional anticipated losses based on an analysis of previous losses experienced and an evaluation of the impact of economic conditions and
particular industry issues. Provision is not made in cases where appropriate repayment arrangements are in place and there is evidence that balances
are ultimately recoverable, notwithstanding that such balances may be seriously in arrears. Collateral is held in the form of security deposits on new
customer accounts. The largest single billed retail balance outstanding at 31 December 2015 was €102,000 (2014: €224,000).
Controls around electricity receivables are focused on the full recovery of amounts invoiced. In 2015, electricity receivables to the value of €55.5 million
(2014: €57.8 million) were provided for at year end. The single largest customer amount written off during the year was €104,000 (2014: €272,000)
relating to a customer that went into liquidation. Retail electricity receivables arise largely in the Republic of Ireland, with 5% (2014: 6%) relating to
Northern Ireland revenue.
In respect of the Networks business in Northern Ireland revenue is derived principally from charges for use of the distribution system, PSO charges levied
on electricity suppliers and charges for transmission services levied on SONI (System Operator for Northern Ireland). Credit risk in respect of use of system
receivables from electricity suppliers is mitigated by security received in the form of cash deposits, letters of credit or parent company guarantees. With the
exception of public bodies, payments in relation to new connections or alterations are paid for in advance of the work being carried out. Normal credit terms and
debtor days in respect of trade receivables from electricity suppliers are less than 30 days. The largest use of system electricity receivable in Northern Ireland at
31 December 201 is €12.8 million (2014: €12.5 million).
02
Other electricity receivables
Other electricity receivables include amounts in relation to Public Service Obligation (PSO) levy in addition to amounts relating to ancillary services and
electricity trading in the UK market which is not included in the SEM.
Trade and other receivables - non-electricity
Trade receivables (non-electricity) relate to balances due in respect of the Group's non-electricity trading and other operations. It includes amounts due
in respect of the Group's telecommunications, consultancy, facility management and other ancillary operations. Credit risk with regard to these balances
is not considered to be significant. The largest single balance included within this category at 31 December 2015 is an amount of €8.6 million
(2014: €9.7 million) due from an external company.
03
16. CASH AND CASH EQUIVALENTS
GROUP
2015
€ ‘000
Cash at bank and in hand
133,863
2014
€ ‘000
143,731
PARENT
2015
€ ‘000
2014
€ ‘000
17,202
56,384
2015
€ ‘000
2014
€ ‘000
1,880,888
98,994
1,979,882
1,880,888
98,994
1,979,882
17. CHANGES IN EQUITY
(i) Capital Stock
There are 1,979,881,885 units of capital stock in issue at a value of €1 each.
Comprised as:
Stock issued from converted reserves
Stock issued for subscription by ESOT
Total
In accordance with the Electricity (Supply) (Amendment) Act 2001, on 30 December 2001, the equity of ESB was converted to capital stock and issued
to the Department of Finance. At the same time, ESB ESOP Trustee Limited, established to act as Trustee for an ESB employee shareholding scheme,
subscribed for 5% of the stock. The principal rights attaching to each unit of capital stock include the rights to exercise a vote at annual meetings,
entitlements to dividends from profits when declared and the rights to proportionate participation in a surplus on winding up.
FINANCIAL STATEMENTS
Retail electricity receivables
The credit risk on electricity accounts is managed through the ongoing monitoring of debtor days, putting in place appropriate collateral and a collection
policy based on the credit worthiness, size and duration of debt. The concentration of risk in Electric Ireland is in relation to retail electricity accounts that
have closed in arrears. In addition, given an increase in competition, certain customers may switch suppliers before they have settled their outstanding
balances. The CER, in conjunction with all electricity supply companies, is attempting to agree a solution to this phenomenon (known as debt hopping).
These accounts are managed within the Group's debt collection policy by a combination of internal debt follow-up, the use of debt collection agencies
and legal action where necessary including the publication of judgements.
Unbilled electricity receivables represent estimates of consumption not yet invoiced.
Use of System receivables
Use of System income in the Republic of Ireland comprises of Distribution Use of System (DUoS) income, Transmission Use of System (TUoS) income
and Operation and Maintenance (O&M) charges for generators connected to the Distribution System. The credit terms for DUoS are 10 business days
and there are currently 25 suppliers. TUoS is collected by EirGrid, and the Transmission Asset Owner (TAO) allowed revenue is invoiced to EirGrid over
12 monthly instalments with each invoice due 36 business days after month end. Invoices were issued in respect of 158 generators during 2015 for
operation and maintenance charges. The credit terms for these invoices are 20 business days.
Net
amount
receivable
€’000
PARENT 2014
Gross
amount
receivable
€ '000
SEM pool receivables
Credit risk in relation to SEM pool related receivables is managed by the Energy Trading and Risk functions (ET&R) within those business units engaged in
electricity trading through the SEM pool. Each of these functions is ring-fenced from each other and segregation of responsibilities between the back office,
middle office and front office functions is maintained in each case. The Trading Back Office function is responsible for invoicing customers and maintaining
all accounts receivable. Payment terms for all trading balances relating to each of the SEM revenue streams are governed by the SEM settlement calendar.
CORPORATE GOVERNANCE
Impairment
provisions
€’000
Net
amount
receivable
€’000
PARENT 2015
Not past due
Past due < 30 days
Past due 30 - 120 days
Past due > 120 days
Past due by more than one year
Total
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
123
124
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
17. CHANGES IN EQUITY (continued)
01
18. TAXATION
2014
€ ‘000
45,021
(1,735)
137
43,423
40,166
2,561
131
42,858
(3,322)
(19,568)
93
(22,797)
(43,507)
3
(43,504)
Total
20,626
(646)
(iii) Non-controlling interest - Group
Non-controlling interests at 31 December 2015 relate to the minority shareholdings in Crockahenny Wind Farm Limited, Mountain Lodge Power
Limited, Airvolution Energy Limited, Coriolis Energy Limited and Geothermal International Limited.
Reconciliation of effective tax rate
2015
€ ‘000
2014
€ ‘000
(iv) Cash flow hedging, revaluation and other reserves - Group and Parent
The hedging reserve primarily represents the fair value of derivatives which are part of effective cash flow hedging relationships at year end. As the
derivatives are held for hedging purposes as defined by IAS 39, their fair value movements are retained in OCI instead of being charged to the income
statement during the year and will be charged to the income statement in the same period as the corresponding transaction.
Profit before tax
Plus: after tax share of joint venture loss
Profit before tax (excluding joint venture loss)
306,866
9,176
316,042
214,747
1,354
216,101
39,505
27,013
5,209
49
(2,209)
(20,064)
(1,642)
(222)
20,626
4,842
(4,872)
3,619
(11,712)
546
(22,638)
2,564
(8)
(646)
The Ministers and Secretaries Amendment Act 2011, which came into force on 6 July 2011, establishes the office of the Minister for Public
Expenditure and Reform. The 2011 Act has the effect of transferring ownership of the stock previously held by the Minister for Finance in ESB to the
Minister for Public Expenditure and Reform as and from 6 July 2011.
(ii) ESOP repurchase
An ESOP market liquidity proposal was approved at the Board meeting in May 2015. The objective of the proposal is to improve liquidity in the Employee
Share Ownership Plan (ESOP) market whereby the ESOP Trustee is committing to spend €25 million of funds to acquire capital stock in the ESOP
internal market. ESB will match the expenditure committed by the ESOP Trustee in the period 2014 - 2018. Acquisition of the capital stock by ESB will
not commence until 2017. An ESOP repurchase provision of €12.1 million has been recognised in the 2015 financial statements in relation to capital
stock repurchase by the ESOP Trustee.
Other reserves include the following:
• Revaluation reserves of €38.8 million (2014: €44.3 million) which arose following the acquisition of the remaining 30% of Synergen Power Limited in
2009. This reserve is being amortised to retained earnings over the same term as the associated assets acquired are depreciated;
• Non-distributable reserves of €5.0 million which were created on the sale of the Group’s share in Ocean Communications Limited in 2001; and
• Actuarial movements on the NIE Networks defined benefit scheme, net of the related deferred tax adjustments, totalling (€172.0) million
(2014: (€182.8) million); and
• ESOP repurchase provision of €12.1 million which relates to the amount that ESB has committed to date to repurchase from the ESOP internal
market.
(v) Dividends
GROUP
Dividends on capital stock:
Total dividend paid 13.77 (2014: 14.33) cents per capital stock unit
Dividend to non-controlling interest
Total
Dividends on capital stock:
Total dividend paid 13.77 (2014: 14.33) cents per capital stock unit
Total
2014
€ ‘000
Current tax expense
Current tax
Prior year (over) / under provision
Value of tax losses surrendered to joint ventures
Deferred tax expense
Origination and reversal of temporary differences
Reduction in tax rate5
Prior year under provision
Taxed at 12.5%
Expenses not deductible1
Income not taxable 2
Write down of investment 3
Fair value gain on loss of control of subsidiary 4
Income taxed at higher rate of corporation tax
Impact of tax rates in foreign jurisdictions
Impact of reduced rate of UK tax on deferred tax stated at Irish tax rate 5
Revisions to prior year estimates 6
Other items
Income tax expense / (credit)
02
Included in expenses not deductible is the tax impact of creation of the provision for the buyback of ESOP shares. See note 30.
1
272,334
375
272,709
283,282
483
283,765
2015
€ '000
2014
€ ‘000
272,334
272,334
283,282
283,282
Total dividends paid during 2015 amounted to €272.3 million and include a final dividend of €10.3 million (0.52 cent per unit of stock) in respect of
2014, the remaining special dividend of €213.7 million declared by the Board in July 2014 and an interim dividend of €48.3 million (2.44 cent per unit
of stock) which was paid in October in respect of 2015.
The Board is now recommending a final dividend of 1.55 cent per unit of stock, or €30.7 million in aggregate.
During 2013, the Board of ESB approved a revised dividend policy, which has been agreed with the Government and is intended to be in effect for the
period to at least the end of this decade. The key parameters of this policy are:
• The target dividend pay-out ratio was set at 30% profit after tax for 2013 and 2014, in addition to the targeted Special Dividends from the disposal of
non-strategic generation capacity in 2013 - 2014 of €400 million.
• From 2015, the target pay-out ratio will be increased gradually.
• ESB will aim to pay an interim dividend within each financial year, with the balance to be paid as a final dividend post year-end.
• ESB has agreed with the Government that sustaining a minimum BBB+ credit rating is a key policy objective for the Group, and that this should be a
priority consideration when considering dividend payments under the policy outlined above.
2
Income not taxable in 2014 relates to the profit on sale of a 50% shareholding in Bizkaia Energia SL which qualified for substantial shareholding relief.
3
The write down of investment relates to the impairment of the carrying value of Corby Power Limited and West Durham Wind Farm Holdings 2 Limited
in 2014.
During 2014, ESB entered into a joint venture agreement with Vodafone in order to deliver a high capacity Fibre to the Building (FTTB) network to
homes and businesses in selected urban locations across the Republic of Ireland. Following the joint venture agreement, ESB’s investment in the joint
venture entity, SIRO Limited reduced to 50% and accordingly had to be restated at fair value. This gave rise to a fair value gain which reflects the fair
value to ESB of its 50% shareholding. This gain is not subject to corporation tax and thus has been treated as a permanent adjustment for tax purposes.
03
4
The July 2015 Budget for the UK included the provision that the UK corporation tax rate will reduce to 18% over a period up to 2020. The reductions
in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and a further reduction to 18% (effective 1 April 2020) were substantially
enacted on 26 October 2015. This will reduce the Group’s future current tax charge accordingly. The deferred tax liability at 31 December 2015 has
been calculated based on the rate of 18% (2014: 20%) substantively enacted at the balance sheet date.
5
6
The 2015 and 2014 prior year over and under provision arose as a result of adjustments to a number of the single entity statutory accounts which
were booked following the finalisation of the consolidated financial statements.
FINANCIAL STATEMENTS
PARENT
2015
€ '000
(a) Income tax expense / (credit)
CORPORATE GOVERNANCE
2015
€ ‘000
(i) Capital Stock (continued)
The Energy (Miscellaneous Provisions) Act 2006 amended Section 2 of the 2001 Act to provide that 10% of issued capital stock in ESB now stands
vested in the Minister for Communications, Energy and Natural Resources, with the Minister for Finance retaining 85% of ESB’s capital stock and the
ESOP retaining 5% of the stock.
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
125
126
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
18. TAXATION (continued)
18. TAXATION (continued)
(b) Deferred tax assets and liabilities
GROUP (continued)
2014
€ ‘000
Deferred tax assets
Property, plant and equipment and intangible assets
Liability - NIE Networks pension scheme
Liability - ESB pension scheme
Provisions
Tax losses forward
Derivative financial instruments
Total
1,753
25,556
87,266
3,663
6,151
82,857
207,246
739
32,802
91,384
4,459
8,421
96,569
234,374
Deferred tax liabilities
Property, plant and equipment and intangible assets
Provisions
Derivative financial instruments
Capital gains tax
Total
Net deferred tax liability
731,414
166
18,322
1,180
751,082
(543,836)
760,291
156
29,524
2,387
792,358
(557,984)
Balance at
1 January
€ ‘000
Recognised
in income
€ ‘000
Recognised
in OCI
€ ‘000
Translation
differences
€ ‘000
Balance at
31 December
€ ‘000
ASSETS
Property, plant and equipment and intangible assets
Liability - NIE Networks pension scheme
Liability - ESB pension scheme
Provisions
Tax losses forward
Derivative financial instruments
Total deferred tax assets
551
21,555
96,079
4,305
8,686
48,546
179,722
188
(871)
(4,695)
154
(265)
43,214
37,725
12,118
1,645
13,763
3,164
3,164
739
32,802
91,384
4,459
8,421
96,569
234,374
LIABILITIES
Property, plant and equipment and intangible assets
Provisions
Derivative financial instruments
Capital gains tax
Total deferred tax liabilities / (assets)
Net deferred tax (liability) / asset for the year
748,351
143
57,160
2,288
807,942
(628,220)
2,813
13
(8,704)
99
(5,779)
43,504
(28,151)
(28,151)
41,914
9,127
9,219
18,346
(15,182)
760,291
156
29,524
2,387
792,358
(557,984)
2014
There is no expiry date to when tax losses in the Group can be utilised.
The movement in temporary differences for the Group were as follows:
Recognised
in income
€ ‘000
Recognised
in OCI
€ ‘000
Translation
differences
€ ‘000
Balance at
31 December
€ ‘000
ASSETS
Property, plant and equipment and intangible assets
Liability - NIE Networks pension scheme
Liability - ESB pension scheme
Provisions
Tax losses forward
Derivative financial instruments
Total deferred tax assets
739
32,802
91,384
4,459
8,421
96,569
234,374
1,014
(582)
(4,118)
(796)
(2,270)
(17,779)
(24,531)
(6,664)
(1,365)
(8,029)
5,432
5,432
1,753
25,556
87,266
3,663
6,151
82,857
207,246
LIABILITIES
Property, plant and equipment and intangible assets
Provisions
Derivative financial instruments
Capital gains tax
Total deferred tax liabilities
Net deferred tax (liability) / asset for the year
760,291
156
29,524
2,387
792,358
(557,984)
(37,833)
10
(8,298)
(1,207)
(47,328)
22,797
(11,148)
(11,148)
3,119
8,956
8,244
17,200
(11,768)
731,414
166
18,322
1,180
751,082
(543,836)
Deferred tax has not been provided for in relation to unremitted reserves of the Group’s overseas subsidiaries for two reasons; either there is no
commitment for these reserves to be distributed in the foreseeable future or it has been established that no tax would arise on the remittance. Nor has
deferred tax been provided for in relation to unremitted reserves of the Group’s joint ventures as the Group has the ability to control the repatriation of
these reserves to the Republic of Ireland. Cumulative unremitted reserves of overseas subsidiaries, joint ventures and associates totalled €508 million
(2014: €668 million) as at 31 December 2015.
PARENT
2015
€ ‘000
2014
€ ‘000
Deferred tax assets
Liability - ESB pension scheme
Provisions
Derivative financial instruments
Total
87,267
2,684
7,635
97,586
91,384
3,184
11,064
105,632
457,649
1,180
458,829
(361,243)
445,388
1,180
446,568
(340,936)
Deferred tax liabilities
Property, plant and equipment
Capital gains tax
Total
Net deferred tax liability
03
FINANCIAL STATEMENTS
Balance at
1 January
€ ‘000
02
CORPORATE GOVERNANCE
2015
€ ‘000
GROUP
2015
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
127
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ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
18. TAXATION (continued)
19. BORROWINGS AND OTHER DEBT
Recourse Non-recourse
borrowings
borrowings
€ ‘000
€ ‘000
PARENT (continued)
(a) GROUP
The movement in temporary differences for the Parent were as follows:
Balance at
1 January
€ ‘000
Recognised
in income
€ ‘000
Recognised
in OCI
€ ‘000
Balance at
31 December
€ ‘000
ASSETS
Liability - ESB pension scheme
Provisions
Derivative financial instruments
Total deferred tax assets
91,384
3,184
11,064
105,632
(4,117)
(500)
(4,617)
(3,429)
(3,429)
87,267
2,684
7,635
97,586
LIABILITIES
Property, plant and equipment
Capital gains tax
Total deferred tax liabilities
Net deferred tax liability
445,388
1,180
446,568
(340,936)
12,261
12,261
(16,878)
(3,429)
457,649
1,180
458,829
(361,243)
2015
Balance at
1 January
€ ‘000
Recognised
in income
€ ‘000
Recognised
in OCI
€ ‘000
Balance at
31 December
€ ‘000
Current borrowings
- Repayable by instalments
- Repayable other than by instalments
Total current borrowings
2015
Total
€ ‘000
2014
Total
€ ‘000
18,893
28,080
46,973
118,171
300,654
418,825
103,738
266,854
370,592
97,538
240,439
427,296
765,273
27,305
112,853
344,883
485,041
124,843
353,292
772,179
1,250,314
108,890
320,556
799,549
1,228,995
339,082
1,205,870
1,103,199
2,648,151
248,989
542,860
791,849
339,082
1,454,859
1,646,059
3,440,000
22,194
1,697,882
1,463,306
3,183,382
Total non-current borrowings
3,413,424
1,276,890
4,690,314
4,412,377
Total borrowings outstanding
3,785,276
1,323,863
5,109,139
4,782,969
2015
€ ‘000
2014
€ ‘000
347,067
24,785
18,893
28,080
418,825
101,350
211,127
29,922
2,388
25,805
370,592
2015
€ ‘000
2014
€ ‘000
485,041
1,918,096
791,849
765,273
730,055
4,690,314
386,876
1,745,910
749,987
842,119
687,485
4,412,377
Non-current borrowings
- Repayable by instalments
Between one and two years
Between two and five years
After five years
- Repayable other than by instalments
Between one and two years
Between two and five years
After five years
See section (c) for details of applicable interest rates.
ASSETS
Liability - ESB pension scheme
Provisions
Derivative financial instruments
Total deferred tax assets
96,079
3,144
16,897
116,120
(4,695)
40
(4,655)
(5,833)
(5,833)
91,384
3,184
11,064
105,632
LIABILITIES
Property, plant and equipment
Capital gains tax
Total deferred tax liabilities
Net deferred tax liability
433,581
1,180
434,761
(318,641)
11,807
11,807
(16,462)
(5,833)
445,388
1,180
446,568
(340,936)
Current borrowings by facility
Long-term bank borrowings
Private placement borrowings
Fuel financing arrangement
Non-recourse long-term project finance debt
Non-recourse short-term project finance debt
Ref
5
6
3
2
7
Non-current borrowings by facility
Non-recourse long-term project finance debt
ESB Eurobonds
NIE Networks Eurobonds
Long-term bank borrowings
Private placement borrowings
Ref
2
1
4
5
6
With the exception of borrowings relating to non-recourse project finance debt, which is secured against specific assets, none of the borrowings are
secured against the Group assets.
At 31 December 2015, ESB was rated A- from Standard & Poor’s, BBB+ from Fitch and Baa1 (equivalent to BBB+) from Moody’s. The outlook on all
three rating agencies at 31 December 2015 was stable.
1. ESB Eurobonds
The table below provides details of ESB Eurobonds included in borrowings at 31 December 2015:
Issuer
ESB Finance Limited
ESB Finance Limited
ESB Finance Limited
ESB Finance Limited
ESB Finance Limited
Value
Stg£275.0 million
Euro €300.0 million
Euro €500.0 million
Euro €300.0 million
Euro €500.0 million
Date
March 2010
September 2012
November 2012
November 2013
June 2015
Tenor
10 years
5 years
7 years
10 years
12 years
Coupon
6.500%
6.250%
4.375%
3.494%
2.125%
On 5 June 2015, ESB successfully raised a €500 million, 2.125% fixed rate Eurobond maturing in June 2027. In addition to this, on the same date, the
Group successfully bought back a €300 million portion of its existing €600 million Eurobond debt which was originally raised in September 2012, as
outlined above.
02
03
FINANCIAL STATEMENTS
99,278
272,574
371,852
CORPORATE GOVERNANCE
2014
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
129
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ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
19. BORROWINGS AND OTHER DEBT (continued)
01
19. BORROWINGS AND OTHER DEBT (continued)
1. ESB Eurobonds (continued)
As the terms of the existing bond and the new issue were not substantially different, quantitatively or qualitatively, and the counterparty remained the
same under International Accounting Standard 39 - Financial Instruments Recognition and Measurement, this transaction was considered an exchange of
existing debt instruments rather than the issue of new debt. As it was an exchange of existing debt instruments the difference between the tendered value
of the existing bonds and the par value of the new issue (€41.7 million) was rolled into the effective interest rate of the new bonds. The €41.7 million will
be amortised to the income statement over the life of the new bonds. €2.0 million has been amortised to the income statement as at 31 December 2015.
2. Non-recourse long-term project finance debt
In September 2012 Carrington Power Limited (CPL), a 100 per cent owned subsidiary of ESB, completed the financial close of an 881 MW Combined
Cycle Gas Turbine power plant in Carrington, near Manchester. Finance was structured on a 70:30 debt / equity basis, with the debt of Stg£523.0
million being provided by a syndicate of banks by way of non-recourse project finance, incorporating export credit support from the Swiss Export Credit
Agency, SERV. Stg£372.4 million (2014: Stg£305.9 million) debt was drawn at the year end. The plant is scheduled to be commissioned in 2016 and
the assets under construction are Stg£509.8 million at year end. The remainder of this debt is in relation to a wind farm in GB.
3. Fuel financing arrangement
In December 2012 the Group received €30.0 million from the sale of fuel inventories, and at the same date contracted to buy them back in December
2015 at a fixed price. This transaction had the effect of a financing arrangement and was treated as such in the financial statements. This amount was
repaid as scheduled in December 2015.
PARENT
Current borrowings
- Repayable by instalments
- Repayable other than by instalments
Total current borrowings
Non-current borrowings
- Repayable by instalments
Between one and two years
Between two and five years
After five years
- Repayable other than by instalments
Between one and two years
Between two and five years
After five years
Recourse
borrowings
€ ‘000
2015
Total
€ ‘000
2014
Total
€ ‘000
92,823
272,574
365,397
92,823
272,574
365,397
89,467
241,049
330,516
97,538
240,439
427,297
765,274
97,538
240,439
427,297
765,274
88,535
249,163
497,566
835,264
45,438
345,195
332,677
723,310
45,438
345,195
332,677
723,310
22,194
363,191
302,100
687,485
Total non-current borrowings
1,488,584
1,488,584
1,522,749
In June 2011, NIE Networks Limited issued a Stg£400.0 million 15 year sterling bond with a fixed coupon of 6.375%.
Total borrowings outstanding
1,853,981
1,853,981
1,853,265
5. Long-term bank borrowings
Long-term bank borrowings include €406.0 million of floating rate debt borrowed on a bilateral basis, while the remainder is fixed interest debt.
(b) Funding and liquidity management
A €1.44 billion revolving credit facility with a syndicate of 14 banks to draw down bank finance as required up to February 2020, with an option to
extend this for a further two years was available to the Group. At 31 December 2015 €250 million was drawn on this facility.
The facility signed in December 2013 with the European Investment Bank (EIB) to support renewable connections to the electricity network in the
southwest of Ireland was increased by a further €100 million in October 2014, bringing the total value of the facility up to €200 million dependent on
the completion of certain specified capital expenditure. The facility is undrawn at 31 December 2015.
6. Private placement borrowings
The first private placement senior unsecured notes were issued, to a range of institutional investors, in December 2003. These fixed rate notes were issued
in US dollars and sterling and at 31 December 2015 comprise US$370.0 million, maturing on dates between 2018 and 2023, and Stg£20.0 million,
maturing on dates between 2018 and 2023. US$256.5 million of this first private placement debt was repaid in December 2015 as scheduled.
The second private placement senior unsecured notes were issued in June 2009. These notes were issued in US dollars, sterling and euro and at 31
December 2015 comprise US$253.0 million, maturing on dates between 2016 and 2019, Stg£85.0 million maturing on dates between 2017 and
2021 and €40.0 million maturing in 2019. See note 26(f) for private placement debt swapped to euro at inception.
The principal liquidity risks faced by the Group relate to cash flow requirements arising from day-to-day operations, maturing debt obligations and the
funding of capital investment programmes. The Group’s treasury function manages this risk through a combination of liquid investments, cash and cash
equivalents and undrawn committed bank facilities. The Group negotiates facilities with relationship banks and debt capital markets to pre-fund any
requirements arising from maturing debt and capital expenditure.
At 31 December 2015 the Group had over €1.5 billion available in cash or cash equivalents and committed bank facilities, ensuring liquidity demands
can be met as required. The committed bank facilities include a syndicated loan facility with a large number of well-rated financial institutions as well as
facilities with the EIB. Included in the amount disclosed are facilities totalling €145 million (which may be increased to €200 million) and can only be
drawn against certain specified capital expenditure.
The Group’s debt management strategy targets a debt portfolio profile with a diverse mix of counterparties, funding sources and maturities. Structured
non-recourse and limited recourse financing is used where appropriate, taking into account both funding costs and risk mitigation. All borrowing facilities
are in compliance with the Electricity Acts and relevant regulatory requirements.
The maturity profile of the carrying amount of the Group’s borrowings, and the expiry of material undrawn committed bank borrowing facilities are as
follows:
Hedge of net investment in foreign operations
Included in borrowings above are sterling denominated bank loans, which have been designated as a hedge of the Group’s investment in a sterling
denominated subsidiary in the United Kingdom, as outlined below:
Sterling denominated loans designated as a hedge of Group’s investment in subsidiary
Value at 1 January
Repayments in year
Loss on translation to euro
Value at 31 December
Gain on translation of intra-group euro loan to subsidiary (taken to OCI)
2015
€ ‘000
2014
€ ‘000
73,477
(13,123)
4,627
64,981
80,041
(11,822)
5,258
73,477
3,265
3,544
Drawn Debt - Group
Maturing
In one year or less
Between one and two years
Between two and five years
In more than five years
Drawn Debt - Parent
Undrawn Facility - Group and Parent
2015
€ ‘000
2014
€ ‘000
2015
€ ‘000
2014
€ ‘000
2015
€ ‘000
2014
€ ‘000
418,825
463,925
1,808,151
2,418,238
5,109,139
370,592
131,084
2,018,438
2,262,855
4,782,969
365,397
142,976
585,634
759,974
1,853,981
330,516
110,729
612,354
799,666
1,853,265
145,000
1,190,000
1,335,000
200,000
1,387,161
1,587,161
03
FINANCIAL STATEMENTS
The private placement debt and certain other facilities have conditions which require ESB to maintain certain interest cover and asset covenants. To date
ESB has been fully in compliance with all the covenant requirements associated with the private placement debt and other facilities.
7. Non-recourse short-term project finance debt
Short-term non-recourse project funding of Stg£20.6 million had been drawn down at 31 December 2015. This is in relation to the financing of certain
Airvolution projects (a Novusmodus investee).
02
CORPORATE GOVERNANCE
4. NIE Networks Eurobonds
As part of the acquisition of NIE Networks, a Eurobond of Stg£175.0 million was also acquired at fair value at the acquisition date. This facility had a
6.875% fixed coupon rate and is repayable in 2018.
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
131
132
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
19. BORROWINGS AND OTHER DEBT (continued)
19. BORROWINGS AND OTHER DEBT (continued)
(b) Funding and liquidity management (continued)
The following table sets out the contractual maturities of Group borrowings, including the associated interest payments. Borrowings with a carrying value
of €3,255.5 million (2014: €2,929.7 million) are included in the Group balances below, but do not comprise part of the Parent’s liabilities.
(c) Interest rate risk management (continued)
Carrying
amount
€ ‘000
Contractual
cash outflows /
(inflows) - net
€ ‘000
Within 1 year
€ ‘000
1-2 years
€ ‘000
2-5 years
€ ‘000
More than
5 years
€ ‘000
31 December 2015
Recourse borrowings
Non-recourse borrowings
Total borrowings
3,785,276
1,323,863
5,109,139
4,694,995
1,880,859
6,575,854
528,860
114,181
643,041
596,682
95,352
692,034
1,786,736
511,393
2,298,129
1,782,717
1,159,933
2,942,650
31 December 2014
Recourse borrowings
Non-recourse borrowings
Total borrowings
3,617,913
1,165,056
4,782,969
4,438,521
1,771,297
6,209,818
479,353
71,400
550,753
267,019
83,583
350,602
2,045,914
477,649
2,523,563
1,646,235
1,138,665
2,784,900
In respect of income-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date taking into account
the effect of interest rate swaps and cross currency swaps:
Private placement borrowings (fixed interest rate)
Non-recourse borrowings (fixed interest rate)
Other long-term borrowings (fixed and variable interest rate)
Effective
interest rate
%
Total
€ ‘000
Within 1
year
€ ‘000
1-2 years
€ ‘000
2-5 years
€ ‘000
More than
5 years
€ ‘000
6.5
6.0
4.9
754,840
1,323,863
3,030,436
24,785
46,973
347,067
47,658
27,305
388,962
349,634
361,842
1,096,675
332,763
887,743
1,197,732
31 December 2015
50 bp
50 bp
increase
decrease
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
31 December 2014
50 bp
50 bp
increase
decrease
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
Profit before taxation
Interest payable
Fair value movements on financial instruments
(2,030)
42,640
2,030
(43,244)
(858)
59,513
858
(61,924)
Other comprehensive income
Fair value gains / (losses)
19,106
(19,106)
18,304
(18,304)
The following assumptions were made in respect of the sensitivity analysis above:
- the balance sheet sensitivity to interest rates relates only to derivative financial instruments, as debt and other deposits are carried at amortised cost
and so their carrying value does not change as interest rates move;
- the sensitivity of accrued interest to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative
instruments
- derivatives designated as cash flow hedges against movements in interest rates are assumed to be fully effective, recorded fully within equity with no
impact on the income statement;
- changes in the carrying value of derivative financial instruments not in hedging relationships affect the income statement only; and
- the floating leg of any swap or any floating rate debt is treated as not having any interest rate already set, therefore a change in interest rates affects
a full 12 month period for the accrued interest portion of the sensitivity calculations.
02
CORPORATE GOVERNANCE
(c) Interest rate risk management
The Group’s interest rate policy was updated in 2013 and the target is to have a significant majority of its debt at fixed (or inflation linked) interest rate
to maturity, with a minimum of 50% fixed (or inflation linked) at all times. This is achieved either by borrowing directly at fixed interest rates or via interest
rate swaps. At 31 December 2015, 92% of the Group’s debt was fixed to maturity or inflation linked (2014: 96%). The fair value of interest rate swaps
is disclosed in note 20.
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
133
Included within other long-term borrowings in this analysis are floating rate liabilities of €406.0 million (2014: €171.5 million).
The effective interest rate on the private placement borrowings has been fixed through the use of cross currency swaps and interest rate swaps. The
effective rate of non-recourse sterling borrowings of £412.5 million has been fixed using interest rate swaps. In the absence of these interest rate
swaps, the floating rate on the underlying sterling and euro borrowings at 31 December 2015 would be 0.43%, in line with prevailing interest rates in
those monetary areas on borrowings of a similar duration. Inflation linked swaps are included at equivalent nominal interest rate levels.
FINANCIAL STATEMENTS
In managing interest rate risk, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however,
permanent changes in interest rates will have an impact on consolidated earnings. It is estimated that a general increase of 50 basis points in interest
rates (and corresponding real interest rates) at 31 December would have increased profit before taxation and reduced equity by the amounts shown
below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant, including the assumption that there is no
change in inflation rates.
03
134
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
20. DERIVATIVE FINANCIAL INSTRUMENTS
20. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
(a) Fair value by class of derivative financial instrument
Derivative financial instruments are carried at fair value. The fair value of a financial instrument is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The method used to calculate the fair value of the
Group’s financial instruments is discounted cash flow analysis using a zero coupon discount rate and reflecting counterparty credit risk. This method
enables the Group to discount the cash flows at a rate equal to the prevailing market rate of interest taking into account maturity and credit margin.
(a) Fair value by class of derivative financial instrument (continued)
The fair values of financial instruments, grouped by class of instrument, are as follows:
GROUP
Interest rate swaps
Inflation linked interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
PARENT
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Non-current
assets
€ ‘000
Current
assets
€ ‘000
2015
Non-current
liabilities
€ ‘000
Current
liabilities
€ ‘000
Total
€ ‘000
3,750
43,040
283
11,999
177,493
236,565
5,768
6,820
82,523
119,289
214,400
(28,607)
(619,204)
(12,049)
(94,677)
(754,537)
(14,838)
(14,013)
(178,253)
(207,104)
(24,857)
(634,042)
48,808
(18,959)
(178,408)
296,782
(510,676)
Non-current
assets
€ ‘000
Current
assets
€ ‘000
2014
Non-current
liabilities
€ ‘000
Current
liabilities
€ ‘000
Total
€ ‘000
1,849
1,444
82,611
145,720
231,624
16,919
136,960
41,638
195,517
(35,352)
(626,136)
(28,611)
(7,251)
(41,166)
(738,516)
(15,070)
(3,764)
(28,663)
(141,081)
(188,578)
(33,503)
(641,206)
(32,375)
(17,551)
37,324
187,358
(499,953)
Non-current
assets
€ ‘000
Current
assets
€ ‘000
2015
Non-current
liabilities
€ ‘000
Current
liabilities
€ ‘000
Total
€ ‘000
17
43,040
283
11,999
37,566
92,905
5,768
6,767
82,523
44,340
139,398
(2,174)
(40,495)
(42,669)
(13,898)
(136,761)
(150,659)
17
48,808
(9,022)
(82,734)
81,906
38,975
Non-current
assets
€ ‘000
Current
assets
€ ‘000
2014
Non-current
liabilities
€ ‘000
Current
liabilities
€ ‘000
Total
€ ‘000
636
1,444
29,095
22,128
53,303
16,846
120,113
136,959
(115)
(28,611)
(5,005)
(39,058)
(72,789)
(3,764)
(28,116)
(136,303)
(168,183)
521
(32,375)
(14,831)
(26,153)
22,128
(50,710)
Total fair value gains of €8.6 million (2014: gains of €27.9 million) were recognised during the year in relation to interest rate swaps, of which gains
of €2.9 million were recognised directly in finance costs in the income statement, with gains of €5.7 million recognised in OCI (2014: losses of €54.3
million recognised in OCI).
(ii) Inflation linked interest rate swaps
Inflation linked interest rate swaps with a fair value on acquisition of €272.5 million were acquired in December 2010 as part of the purchase of NIE
Networks. The inflation linked interest rate swaps did not qualify for hedge accounting under IAS 39 on acquisition of NIE Networks. The fair value of
the inflation linked interest rate swaps is affected by relative movements in interest rates and in market expectations of future retail price index (RPI)
movements in the United Kingdom.
During 2014 the Group and its counterparty banks agreed a restructuring of the swaps, including amendments to certain critical terms. These changes
included an extension of the mandatory break period in the swaps from 2015 to 2022, immediate settlement in 2014 of accrued accretion payments
of €90.1 million (previously due for payment in 2015), amendments to the fixed interest rate element of the swaps, and an expansion in the number of
swap counterparties. Future accretion payments are now scheduled to occur every 5 years, starting in 2018, with remaining accretion paid at maturity in
2036.
Arising from movements in forward interest rates and RPI forward prices during the year, positive fair value movements of €7.2 million occurred in 2015
(2014: negative fair value movements of €244.9 million). These have been recognised within finance costs in the income statement.
(iii) Currency swaps
The fair value of currency swaps is affected by movements in foreign exchange and interest rates. ESB’s currency swaps are primarily classified as cash
flow hedges and relate mainly to the cross currency swaps entered into in connection with the private placement debt, which is described in note 19.
These cross currency swaps were entered into in order to swap US dollar and sterling interest and principal repayments on the underlying debt to euro,
thereby hedging the risk on these payments as a result of restructuring over the periods to maturity from 2010 to 2023.
Ineffectiveness under the meaning of IAS 39 arose on the currency swaps during the year and resulted in the recognition of a charge of €nil (2014:
credit €0.3 million) within finance costs in the income statement. Separately included in the income statement in 2015 is a transfer from the cash flow
hedge reserve of €63.7 million (2014: transfer of €87.0 million) arising on cross currency swaps which is fully offset by movements in the translation of
the underlying hedged foreign currency borrowings at the prevailing exchange rates (see note 7).
In addition to foreign currency forward contracts entered into in relation to the Group’s borrowings, the Group has entered into foreign currency
contracts in relation to pool purchases, fuel purchase requirements (which are in US dollars and sterling) and in relation to power station projects
(including Carrington Power Limited). These contracts have maturities extending until 2022. Total negative fair value movements of €1.4 million (2014:
negative movements of €20.9 million) were recognised during the year in relation to such foreign exchange contracts, of which a negative fair value
movement of €13.0 million (2014: positive movements of €0.6 million) was recognised through other comprehensive income and a positive fair value
movement of €11.6 million (2014: negative movements of €21.5 million) was recognised in the income statement.
Fair value hierarchy
Further information on the methods of valuing financial instruments is included in note 26.
With the exception of inflation linked interest rate swaps, the majority of the derivative balances shown in the tables above are designated as cash flow
hedges of interest rate, currency or commodity risk arising from highly probable forecast interest, revenue, or other operating cost cash flows.
When interpreting the positive and negative fair values of derivative financial instruments, it should be noted that they are matched with underlying
transactions with offsetting risks. The fair value of derivative financial instruments is determined by discounting the difference between the contractual
forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
The interest rate used to discount future estimated cash flows was 0.9% (2014: 0.9%). The rate is based on the EURIBOR yield curve at the reporting
date.
02
03
FINANCIAL STATEMENTS
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
For interest rate swaps, the fair value takes into account the fixed, floating and market rates prevailing at the year end. As interest rate swaps are marked
to market at the year end, their carrying value is equal to their fair value.
CORPORATE GOVERNANCE
Interest rate swaps
Inflation linked interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
(i) Interest rate swaps
The Group has executed interest rate swaps of Stg£805.0 million in connection with certain of its borrowings, including project finance debt secured by
Carrington Power Limited and West Durham Wind Farm Limited and in relation to fixed rate borrowings held by the Parent and ESB Finance Limited.
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
135
136
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
20. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
21. PENSION LIABILITIES
(b) Funding and liquidity management - maturity of derivative financial instruments
The following table sets out the contractual maturities of derivative financial instruments, including the associated undiscounted net cash flows
attributable to them. These derivative financial instruments are expected to impact profit or loss over a time period similar to the cash outflows. Net
derivative financial instrument liabilities of €549.6 million (2014: €449.2million) are included in the Group balances below, but do not comprise part of
the Parent’s assets and liabilities. See note 26 (b) for further analysis of Group and Parent financial assets and liabilities.
Contractual
cash outflows /
(inflows) - net
€ ‘000
Within 1 year
€ ‘000
1-2 years
€ ‘000
2-5 years
€ ‘000
More than
5 years
€ ‘000
31 December 2015
Interest rate swaps
Inflation linked interest rate swaps
Foreign exchange contracts
Forward fuel price contracts
Total liabilities
28,607
634,042
26,062
272,930
961,641
116,337
769,639
26,291
273,872
1,186,139
11,862
14,900
13,974
170,783
211,519
14,772
11,935
2,985
73,442
103,134
39,948
104,776
2,024
29,647
176,395
49,755
638,028
7,308
695,091
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Total assets
3,750
48,808
7,103
94,522
296,782
450,965
21,912
105,950
7,078
94,025
296,241
525,206
3,728
11,490
6,795
81,963
118,698
222,674
3,649
5,702
249
12,026
103,577
125,203
13,810
63,649
34
36
73,966
151,495
725
25,109
25,834
Net derivative (assets) / liabilities
510,676
660,933
(11,155)
(22,069)
24,900
669,257
31 December 2014
Interest rate swaps
Inflation linked interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Total liabilities
35,352
641,206
32,375
35,914
182,247
927,094
100,563
773,622
(24,838)
35,175
182,264
1,066,786
10,380
15,151
1,348
27,847
141,092
195,818
10,736
12,392
(5,119)
3,851
41,172
63,032
32,244
123,394
(27,084)
2,355
130,909
47,203
622,685
6,017
1,122
677,027
Interest rate swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Total assets
1,849
18,363
219,571
187,358
427,141
24,823
18,355
219,995
187,928
451,101
3,619
16,908
136,968
41,343
198,838
3,638
1,426
47,309
52,921
105,294
10,558
21
35,718
93,664
139,961
7,008
7,008
Net derivative (assets) / liabilities
499,953
615,685
(3,020)
(42,262)
(9,052)
670,019
(a) Parent and Group - Republic of Ireland
(i) ESB Defined Benefit Pension Scheme (The Scheme) (formerly ESB General Employees’ Superannuation Scheme)
Pensions for the majority of employees in the electricity business are funded through a contributory pension scheme called the ESB Defined Benefit
Pension Scheme. The fund is vested in trustees nominated by ESB and its members for the sole benefit of employees and their dependants. The
Scheme is a defined benefit scheme and is registered as such with the Pensions Authority.
The regulations governing the Scheme stipulate the benefits that are to be provided and the contributions to be paid by both ESB and the contributing
members. Notwithstanding the defined benefit nature of the benefits, ESB has no legal obligation to increase contributions to maintain those benefits
in the event of a deficit. ESB’s rate of contribution cannot be altered without the agreement of ESB and approval of the Minister for Communications,
Energy and Natural Resources. Should a deficit arise in the future, the Company is obliged under the regulations to consult with the Superannuation
Committee, the Trustees and the Scheme Actuary to consider the necessity of submitting an amending Scheme for Ministerial approval. This is different
to the normal ‘balance of cost’ defined benefit approach, where the employer is liable to pay the balance of contributions required to fund benefits.
History
Historically the contributions of both ESB and members have been fixed by the Scheme regulations for long periods. On a number of occasions since
the early 1980s, a deficit in the Scheme has been reported by the Scheme actuary. On each occasion ESB has, in accordance with its obligations
under the Scheme rules, consulted with the committee, the trustees and the actuary. Following discussions with the unions, deficits were resolved by
increasing contributions by both the Company and pension Scheme members.
The 2010 Pensions Agreement followed a 31 December 2008 actuarial deficit of €1,957.0 million. It was recognised that it was not feasible to address
such a deficit through increased contributions. Negotiations between the Company and ESB Group of Unions (employee representatives) concluded
with the landmark 2010 Pensions Agreement (approved by employees in July 2010 and formally ratified by the Board of ESB on 20 October 2010).
The main features of the Agreement included the introduction of a Career Average Revalued Earnings (CARE) pension model for benefits earned after
1 January 2012, pension and pay freezes, the cessation of the historic link between salary and pension increases, and the application of a solvency
test in relation to any future pension increases. The fixed contribution rates for the employer and for Scheme members were not changed. Under the
Agreement ESB agreed to a once off cash injection into the Scheme, payable over a number of years, which had an agreed valuation for actuarial
purposes as at 1 January 2010 of €591.0 million. Under the Agreement membership of the Scheme has been closed to new joiners. The changes
brought about by the 2010 Pensions Agreement were subsequently approved by the Minister.
02
CORPORATE GOVERNANCE
Carrying
amount
€ ‘000
The Group operates a number of pension schemes for staff in both the Republic of Ireland and Northern Ireland. Pension arrangements in respect of
staff in the Republic of Ireland including ESB employees seconded overseas are set out in sections (a) and (b) below. Pension arrangements in respect
of staff in Northern Ireland are described in section (c).
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
137
The Scheme does not have a deficit on an ongoing actuarial basis. It would have a deficit in a wind-up situation (Minimum Funding Standard) but a
funding plan has been approved by the Pensions Authority to resolve this deficit by 2018. According to the last Minimum Funding Standard review in
2015 this plan was on track and there are no plans to wind up the Scheme. The Company does not intend that any further contributions, other than the
normal ongoing contributions (up to 16.4% of pensionable salary, in addition to employee contributions of up to 8.5%) and the balance of the Company’s
€591.0 million additional contribution (committed to as part of the 2010 Agreement), will be made. Should a deficit arise in the future, the obligation on
the Company, as set out in the Scheme regulations, to consult with the parties to the Scheme remains unchanged.
Ongoing actuarial valuation
This valuation method assumes that both the Scheme and the Company continue in existence for the foreseeable future - it is not a wind-up valuation.
The Scheme actuary confirmed in 2015 that the Scheme is in balance on an ongoing actuarial basis, i.e. that based on the assumptions made, the
Scheme is projected to be able to meet its obligations as they fall due.
Wind up / Minimum Funding Standard Valuation
The Pensions Act requires the Trustees of the Scheme to also assess whether it could meet a certain prescribed standard, known as the Minimum
Funding Standard (MFS). This assesses whether, if the Scheme were wound up on a specified theoretical valuation date, it could secure the benefits on
that date. It should be noted that ESB does not envisage the winding up of the Scheme.
The Scheme actuary reported at the end of 2011 that the Scheme did not satisfy the Minimum Funding Standard requirements. To address this, the
Scheme trustees, with the agreement of ESB, submitted a funding plan to the Pensions Authority, which was approved in October 2012. This funding plan
aims to resolve the Minimum Funding Standard requirements by the end of 2018 and during 2015 this Scheme actuary confirmed that this Plan was on
track to meet that objective based on existing contribution levels (including the €591.0 million commitment from the 2010 Pensions Agreement).
03
FINANCIAL STATEMENTS
Definitions
There are three different methods of assessing the financial status of the Scheme:
• Ongoing Actuarial Valuation.
• Minimum Funding Standard, under the Pensions Acts.
• Accounting, as set out in International Accounting Standard 19 (revised), Employee Benefits.
Each of these methods assesses the Scheme from specific perspectives using assumptions and projections which may differ.
138
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
21. PENSION LIABILITIES (continued)
01
21. PENSION LIABILITIES (continued)
Accounting
IAS 19 (revised) Employee Benefits is the relevant accounting standard to determine the way post-employment benefits should be reflected in ESB’s
financial statements.
The financial statements reflect the following obligations to the Scheme:
• Ongoing contributions - these are recognised in the income statement as incurred. Any unpaid amounts at year end are recognised as liabilities on
the balance sheet.
• Obligations of €648.1 million to the Scheme are also included on the balance sheet, made up of;
- 2010 Pension Agreement Injection - the Company committed to making an exceptional cash injection of €591.0 million (PV in 2010 money based
on a rate of 6.25%) over a period of up to 12 years into the Scheme. Amounts yet to be paid to the Scheme under this part of the Pension Agreement
are effectively subject to an annual financing charge and this is expensed in the income statement. €249.0 million has been paid into the Scheme to
date.
- Past service contributions - the ongoing rate of contribution by ESB includes a contribution towards past service accrued in 2010. The present value
of future contributions in respect of that past service are recognised on the balance sheet.
- Past Voluntary Severance (VS) Programmes - in 2010 the Company recognised a future fixed commitment in respect of staff who had left
the Company under previous VS programmes. ESB will make pension contributions in respect of those staff and the fair value of those future
contributions are also recognised on the balance sheet.
(c) Northern Ireland Electricity Networks (NIE Networks) Pension Scheme
The majority of the employees in NIE Networks Limited and subsidiaries are members of the NIE Networks Pension Scheme (the NIE Networks
Scheme). This has two sections: Options, which is a money purchase arrangement whereby the employer generally matches the members’ contributions
up to a maximum of 6% of salary, and Focus which provides benefits based on pensionable salary at retirement or earlier exit from service. The assets of
the NIE Networks Scheme are held under trust and invested by the trustees on the advice of professional investment managers.
In June 2011, the IASB published an amended version of IAS 19 Employee Benefits which is applicable for annual periods beginning on or after 1
January 2013. As a result of this change, the Group determines the net interest expense by applying the discount rate used to measure the pension
obligation at the beginning of the annual period to the net liability.
Mortality assumptions
The assumptions relating to life expectancy at retirement for members are set out below. These assumptions are based on standard actuarial mortality
tables and include an allowance for future improvements in life expectancy.
At 31 December 2015
Males
Females
Years
Years
Current pensioners at aged 60
Future pensioners currently aged 40 (life expectancy age 60)
27.1
29.1
29.7
31.7
At 31 December 2014
Males
Females
Years
Years
26.5
28.1
29.0
30.6
Pension assets and liabilities
The assets and liabilities in the Focus section of the NIE Networks Scheme are:
Equities
Bonds
Multi-asset credit investment
Diversified growth
Other
Fair value of plan assets
Present value of funded obligations
Net deficit
At 31
December
2015
€’000
At 31
December
2014
€’000
289,938
276,179
239,510
539,971
6,676
1,352,274
(1,494,343)
(142,069)
269,856
515,082
527,598
6,649
1,319,185
(1,483,207)
(164,022)
02
CORPORATE GOVERNANCE
(b) ESB Defined Contribution Pension Scheme - Republic of Ireland
ESB also operates an approved defined contribution scheme called ESB Defined Contribution Pension Scheme for employees of ESB subsidiary
companies (other than NIE Networks) and, from 1 November 2010, new staff of the Parent. Contributions are paid by the members and the employer
at fixed rates. The benefits secured at retirement reflect each employee’s accumulated fund and the cost of purchasing benefits at that time. Death
benefits are insured on a Group basis and may be paid in the form of a lump sum and/or survivor’s pension. The assets of the Scheme are held in a
separate trustee administered fund. The pension charge for the year represents the defined employer contribution and amounted to €8.6 million (2014:
€7.5 million).
(c) Northern Ireland Electricity Networks (NIE Networks) Pension Scheme (continued)
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
139
Financial assumptions
The valuation of the Focus section of the NIE Networks Scheme by independent actuaries for the purpose of IAS 19 disclosures is based on the
following assumptions:
% at 31
December
2014
3.80
1.90
3.00
1.90
3.50
1.90
3.25
1.90
The discount rate used in the calculation of the pension liability at 31 December 2015 was 3.8% (2014: 3.5%). This was determined by reference
to market yields as at that date on high quality corporate bonds. The currency and term of the corporate bonds was consistent with the currency and
estimated term of the post-employment benefit obligations.
03
FINANCIAL STATEMENTS
Rate of interest applied to discount liabilities
Price inflation (CPI in the United Kingdom)
Rate of increase of pensionable salaries
Rate of increase of pensions in payment
% at 31
December
2015
140
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
21. PENSION LIABILITIES (continued)
22. LIABILITY - ESB PENSION SCHEME AND EMPLOYEE RELATED LIABILITIES
Employee related liabilities
(c) Northern Ireland Electricity Networks (NIE Networks) Pension Scheme (continued)
At 31 December
2015
€’000
At 31 December
2014
€’000
GROUP
Change in benefit obligation
Benefit obligation at the beginning of the year
Movement during the year:
Current service cost
Interest cost
Plan members’ contributions
Actuarial (gain) / loss - impact of assumption changes
Actuarial (gain) / loss - experience loss
Benefits paid
Re-apportionment of PES liabilities to NIE Networks Limited
Other
Past service cost
Translation difference on benefit obligation in the year
Benefit obligation at the end of the year
Current service cost
Past service costs
Total defined benefit charge in year
Analysis of the amounts recognised in finance costs, as net pension scheme interest:
Analysis of the amounts recognised in the statement of comprehensive income:
Actual return on assets less interest
Actuarial gains / (loss) on liabilities
Net actuarial gain / (loss)
Discount rate (0.1% movement)
Inflation rate (0.1% movement)
Future mortality (1 year)
Total
€ ‘000
1,299,395
Balance at 1 January 2014
766,228
152,271
30,500
182,771
10,126
54,549
603
(46,943)
(23,437)
(78,530)
2,604
147
92,017
1,494,343
9,861
57,225
605
102,159
(82,658)
(446)
2,367
94,699
1,483,207
Movements during the year:
Charge to the income statement
Utilised during the year
Financing charge
Translation differences
Balance at 31 December 2014
(69,844)
34,686
731,070
(21,492)
2,372
13
133,164
29,360
(27,347)
25
32,538
29,360
(48,839)
2,372
38
165,702
Balance at 1 January 2015
731,070
133,164
32,538
165,702
(113,729)
30,788
648,129
(3,998)
(18,644)
1,190
14
111,726
28,306
(27,191)
31
33,684
24,308
(45,835)
1,190
45
145,410
493,148
154,981
648,129
91,057
20,669
111,726
33,684
33,684
91,057
54,353
145,410
1,319,185
1,189,729
48,898
(53,160)
31,281
603
2,604
(120)
(78,530)
81,513
1,352,274
(4,261)
52,942
41,431
31,488
605
(82,658)
323
85,325
1,319,185
94,373
2015
€ ‘000
2014
€ ‘000
(10,126)
(147)
(10,273)
(9,861)
(2,367)
(12,228)
2015
€ ‘000
2014
€ ‘000
48,898
(54,549)
(5,651)
52,942
(57,225)
(4,283)
2015
€ ‘000
2014
€ ‘000
(53,160)
70,380
17,220
41,431
(102,159)
(60,728)
Sensitivity analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have
affected the defined benefit obligation by the amounts shown below.
Pension Liability
Other
€ ‘000
Movements during the year:
(Release) / charge to the income statement
Utilised during the year
Financing charge
Translation differences
Balance at 31 December 2015
Analysed as follows:
Non-current liabilities
Current liabilities
Total
Employee related liabilities
Liability ESB pension
scheme
€ ‘000
Restructuring
liabilities
€ ‘000
Other
€ ‘000
Total
€ ‘000
Balance at 1 January 2014
766,228
152,091
23,592
175,683
Movements during the year:
Charge to the income statement
Utilised during the year
Financing charge
Balance at 31 December 2014
(69,844)
34,686
731,070
(21,492)
2,372
132,971
24,798
(24,100)
24,290
24,798
(45,592)
2,372
157,261
Balance at 1 January 2015
731,070
132,971
24,290
157,261
(113,729)
30,788
648,129
(3,998)
(18,738)
1,190
111,425
24,045
(22,471)
25,864
20,047
(41,209)
1,190
137,289
493,148
154,981
648,129
90,829
20,596
111,425
25,864
25,864
90,829
46,460
137,289
2015
€ ‘m
2014
€ ‘m
19.6
(19.9)
(43.2)
21.2
(19.4)
(49.4)
Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the
sensitivity of the assumptions shown.
Movements during the year:
(Release) / charge to the income statement
Utilised during the year
Financing charge
Balance at 31 December 2015
Analysed as follows:
Non-current liabilities
Current liabilities
Total
02
03
FINANCIAL STATEMENTS
Interest on pension scheme assets
Interest on pension scheme liabilities
Net pension scheme interest
Restructuring
liabilities
€ ‘000
1,483,207
PARENT
Analysis of the amounts recognised in employee costs as part of employee benefits were as follows:
Liability ESB pension
scheme
€ ‘000
CORPORATE GOVERNANCE
Change in plan assets
Fair value of plan assets at the beginning of the year
Movement during the year:
Interest on plan assets
Actuarial gains / (losses)
Employer contributions
Plan members’ contributions
Re-apportionment of PES liabilities to NIE Networks Limited
Other
Benefits paid
Article 75 contribution
Translation difference on assets in the year
Fair value of plan assets at the end of the year
Actual return on plan assets for the year
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
141
142
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
22. LIABILITY - ESB PENSION SCHEME AND EMPLOYEE RELATED LIABILITIES (continued)
24. DEFERRED INCOME AND GOVERNMENT GRANTS
Liability - ESB Pension Scheme
See note 21 (a).
Restructuring liabilities
This provision represents the estimated cost of providing post employment payments to former employees, other than those amounts covered by the
pension scheme. It includes liabilities for continuing payments to employees who left under past voluntary severance initiatives, which are expected to
be materially discharged by 2027. Expected future cash flows are discounted to present value using long-term interest rates based on a zero-coupon
discount curve at the reporting date plus an appropriate credit spread.
GROUP
Other
In accordance with the requirements of IAS 19 Employee Benefits, provision has been made for employee remuneration liabilities, including accrued
holiday leave, bonuses and profit share arrangements.
23. TRADE AND OTHER PAYABLES
GROUP
2015
€ ‘000
Non-current payables:
Other payables
350,692
76,815
43,070
20,199
35,681
85,737
83,341
695,535
2014
€ ‘000
358,845
62,781
21,701
17,520
46,618
101,660
79,023
688,148
PARENT
2015
€ ‘000
180,786
19,089
18,216
14,992
20,741
3,104,118
35,670
3,393,612
2014
€ ‘000
205,736
12,471
15,680
21,981
20,759
2,829,356
9,436
3,115,419
2015
€ ‘000
2014
€ ‘000
2015
€ ‘000
2014
€ ‘000
8,686
8,185
-
-
Supply
contributions
and other
€‘000
Balance at 1 January 2014
608,320
Receivable
Released to the income statement
Translation differences
Balance at 31 December 2014
29,695
(59,644)
473
578,844
Balance at 1 January 2015
578,844
Receivable
Released to the income statement
Translation differences
Balance at 31 December 2015
36,959
(57,530)
11
558,284
Analysed as follows
Non-current liabilities
Current liabilities
Total
510,011
48,273
558,284
PARENT
Supply
contributions
and other
€‘000
Balance at 1 January 2014
591,779
Receivable
Released to the income statement
Balance at 31 December 2014
9,348
(33,667)
567,460
Balance at 1 January 2015
567,460
Receivable
Released to the income statement
Transfer to Group
Balance at 31 December 2015
1,034
(32,422)
(2,530)
533,542
Analysed as follows
Non-current liabilities
Current liabilities
Total
500,434
33,108
533,542
02
CORPORATE GOVERNANCE
Current Payables:
Trade payables
Progress payments on work in progress
Other payables
Employment taxes
Value added tax
Accruals
Amounts owed to subsidiary undertakings
Accrued interest on borrowings
Total
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
143
03
FINANCIAL STATEMENTS
Non-repayable supply contributions and capital grants received prior to July 2009 were recorded as deferred income and released to the income
statement on a basis consistent with the depreciation policy of the relevant assets. Accounting for supply contributions post July 2009 have been
described further in the statement of accounting policies in these financial statements.
144
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ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
25. PROVISIONS
25. PROVISIONS (continued)
Other
€ ‘000
Total
€ ‘000
Balance at 1 January 2014
139,004
63,958
56,776
259,738
Charged to the income statement
- Emissions
- Legal and other
- Station closure
Utilised in the year
Financing charge
Translation differences
Balance at 31 December 2014
282
(7,303)
2,947
175
135,105
49,125
(63,910)
158
49,331
4,813
(6,081)
930
817
57,255
49,125
4,813
282
(77,294)
3,877
1,150
241,691
Balance at 1 January 2015
135,105
49,331
57,255
241,691
Charged to the income statement
- Emissions
- Legal and other
ESOP provision (note 30)
Utilised in the year
Financing charge
Translation differences
Balance at 31 December 2015
(5,139)
1,568
173
131,707
63,145
(50,259)
(85)
62,132
14,821
12,080
(3,750)
462
724
81,592
63,145
14,821
12,080
(59,148)
2,030
812
275,431
Analysed as follows:
Non-current liabilities
Current liabilities
Total
129,693
2,014
131,707
62,132
62,132
66,738
14,854
81,592
196,431
79,000
275,431
Power station
closure costs
€ ‘000
Emissions
provisions
€ ‘000
Other
€ ‘000
Total
€ ‘000
Balance at 1 January 2014
134,487
53,545
44,668
232,700
Charged to income statement
- Emissions
- Legal and Other
Utilised in the year
Financing Charge
Balance at 31 December 2014
(7,303)
2,532
129,716
38,572
(51,403)
40,714
3,462
(3,524)
931
45,537
38,572
3,462
(62,230)
3,463
215,967
Balance at 1 January 2015
129,716
40,714
45,537
215,967
-
47,044
-
2,096
47,044
2,096
ESOP provision (note 30)
Utilised in the year
Financing charge
Balance at 31 December 2015
(5,139)
1,388
125,965
(39,462)
48,296
12,080
(3,127)
462
57,048
12,080
(47,728)
1,850
231,309
Analysed as follows:
Non-current liabilities
Current liabilities
Total
123,951
2,014
125,965
48,296
48,296
42,782
14,266
57,048
166,733
64,576
231,309
GROUP
PARENT
Charged to the income statement
- Emissions
- Legal and other
Power station closure costs
The provision at 31 December 2015 of €131.7 million (2014: €135.0 million) for station closure represents the present value of the current estimate
of the costs of closure of generating stations at the end of their useful economic lives. The expected closure dates of most generating stations are up
to 2025. As the costs are provided on a discounted basis, a financing charge is included in the income statement and added to the provision each year.
The power station closure provision is re-examined annually and the liability re-calculated in accordance with the current expected station closure dates.
The estimated value of future closure costs at the balance sheet date include physical dismantling, site remediation, de-manning and associated costs.
There are a number of uncertainties that affect the calculation of the provision for station closure, including the impact of regulation, the accuracy of the
site surveys, unexpected contaminants, the impact of alternative technologies and changes in the discount rate. The Group has made its best estimate
of the financial effect of these uncertainties in the calculation of the provision, but future material changes in any of the assumptions could materially
impact on the calculation of the provision. Expected future cash flows are discounted to present value using long-term interest rates based on a zerocoupon discount curve at the reporting date plus an appropriate credit spread.
Emissions provisions
In accordance with the provisions of the European CO2 Emissions Trading Scheme, a provision is recognised to cover the liability for actual emissions
during the year. Allowances purchased during the year are returned to the relevant Authority in charge of the scheme within four months from the end
of that calendar year, in line with the actual emissions of CO2 during the year. The year end provision represents the obligation to return emissions
allowances equal to the actual emissions. This obligation is measured at the carrying amount of the capitalised CO2 emissions allowances, in addition to
the market value of any additional allowances required to settle the year end liability.
Other provisions
Other provisions represent prudent estimates of liabilities to third parties, in respect of claims notified or provided for at year end. In accordance with
normal commercial practice, the year end provision includes an estimate for liabilities incurred but not yet notified.
02
03
FINANCIAL STATEMENTS
Emissions
provisions
€ ‘000
CORPORATE GOVERNANCE
Power station
closure costs
€ ‘000
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
145
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NOTES TO THE FINANCIAL STATEMENTS
01
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(a) Overview of financial risk management
(b) Overview of financial assets and liabilities
Financial assets and liabilities, excluding provisions and employee related liabilities, at 31 December 2015, and at 31 December 2014 can be analysed
as follows:
Risk environment
The main financial risks faced by the Group relate to liquidity, foreign exchange, interest rate, commodity (electricity and fuel) price movements and
operational risk. Policies to protect the Group from these risks, and other risk areas, such as credit risk, are regularly reviewed, revised and approved by
the Board as appropriate. Group Treasury is responsible for the day to day treasury activities of the Group. The Finance and Investment Committee is
updated on an ongoing basis on key treasury matters and an annual report covering the treasury activity is also submitted to the Committee for review.
Commodity price risk is managed by the front and middle office functions of the relevant business units: ESB Trading (located within Generation and
Wholesale Markets) and Electric Ireland. This is done in the context of an overall Group risk management framework. These activities are reviewed
regularly by Group Internal Audit. The Group Trading Risk Management function ensures that the Group’s market, credit and operational risks are
managed in a way to protect the Group from loss, while respecting the ring-fencing obligations in place between the business units.
Contracts entered into in order to hedge exposures arising from the production and sale of electricity may be divided into forward fuel price contracts,
forward electricity price contracts and foreign exchange contracts. Financial instruments are derecognised on settlement or sale.
Within each of these business units, a Trading Risk Management Committee has been established to serve as the primary overseer of trading risk
at individual ring-fenced entity level. This committee includes the head of the front office function, the Trading Risk (Middle Office) Manager, a
representative from Group Trading Risk Management, and the business unit Financial Controller. The Trading Risk Management Committees are
responsible for formulating trading risk strategy in accordance with the Group Trading Risk Management Policy and ensuring compliance with same,
trading risk limit management and ensuring that there is an effective control framework in place.
The Trading Risk Management Committees report to the GTC. The middle office function in each business unit maintains a separate reporting line to the
Group Trading Risk Management function, which is responsible for ensuring that the Group’s net exposure to movements in commodity or other price
movements is adequately managed in accordance with Group Trading Risk Management Policy. The trading operations of the business units are subject
to review by Group Internal Audit.
For further information on the Group’s Risk Management Policy and objectives see the Risk Management Report on pages 14 to 19.
Hedge accounting
ESB funds its operations using borrowings and uses deposit instruments to invest surplus funds. ESB also uses interest rate and foreign currency
instruments to manage interest rate and currency risks that arise in the normal course of operations from US dollar and sterling denominated
borrowings, from its foreign currency subsidiaries, and from the use of foreign currency suppliers. Hedge accounting pursuant to IAS 39 is used both for
hedges of foreign currency liabilities and interest rate risks from current and non-current liabilities.
751,177
133,863
33,195 120,082
214,400
33,195 120,082 1,099,440
809,523
143,731
195,517
1,148,771
953,254 347,198
293,979 103,767 133,162 1,443,345
1,444,033
-
- 4,690,314 4,412,377
8,686
8,185
- 110,664
- 4,699,000 4,420,562 110,664
- 4,690,314
8,686
94,164 643,873 644,352
754,537
94,164 643,873 644,352 5,453,537
4,412,377
8,185
738,516
5,159,078
Current liabilities
Borrowings and other debt
Trade and other payables
Derivative financial instruments
Total current financial liabilities
-
418,825 370,592
695,535 688,148
- 115,647
- 1,114,360 1,058,740 115,647
57,284
57,284
418,825
695,535
91,457 131,294
207,104
91,457 131,294 1,321,464
370,592
688,148
188,578
1,247,318
Total financial liabilities
-
- 5,813,360 5,479,302 226,311
151,448 735,330 775,646 6,775,001
6,406,396
LIABILITIES
Non-current liabilities
Borrowings and other debt
Trade and other payables
Derivative financial instruments
Total non-current financial
liabilities
- 165,993
- 165,993
218,544
218,544
-
751,177
133,863
885,040
809,523
143,731
- 181,205
953,254 181,205
75,435
75,435
62,563 63,638
929,817
-
70,572
70,572
2014
€ ‘000
63,638
231,624
295,262
Total financial assets
44,777
44,777
Total
2015
€ ‘000
44,777
62,563
236,565
343,905
Current assets
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current financial assets
62,563 63,638
62,563 63,638
Derivative financial Derivative financial
instruments
instruments
with hedging
with no hedging
relationships
relationships
2015
2014
2015
2014
€ ‘000
€ ‘000 € ‘000
€ ‘000
13,080
13,080
02
03
FINANCIAL STATEMENTS
In addition, the Group enters into certain commodity hedging transactions to fix fuel costs and to link electricity revenues more closely to fuel inputs,
where possible. All of these arrangements are designated into hedge relationships, and in the majority of cases meet the specific hedging accounting
criteria of IAS 39. Where the IAS 39 hedge criteria are met in respect of cross currency swaps, interest rate swaps, foreign exchange contracts, forward
fuel price contracts and forward electricity price contracts, these instruments are designated as cash flow hedges of highly probable forecast interest,
revenue or other operating cost cash flows. Any derivatives on hand which are not specifically designated into hedge relationships from an accounting
perspective are nevertheless regarded as valid economic hedges.
ASSETS
Non-current assets
Trade and other receivables
Financial asset investments
Derivative financial instruments
Total non-current financial assets
Assets / (liabilities)
held at amortised
cost
2015
2014
€ ‘000
€ ‘000
CORPORATE GOVERNANCE
Risk reporting structure
Through the Chief Executive, the Board has delegated to the Group Trading Committee (GTC) the broader responsibility of managing ESB’s trading
risk in a manner consistent with the Group’s risk tolerances and business strategies. The GTC has established risk limits to manage and limit trading
risk exposure at Group and business unit level. These limits are documented for each of the ESB businesses engaged in wholesale trading activities.
Furthermore the Group Trading Risk Management Policy is applicable to each of these businesses.
GROUP
Financial assets at
fair value through
profit or loss
2015
2014
€ ‘000 € ‘000
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
ESB Annual Report 2015
148
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NOTES TO THE FINANCIAL STATEMENTS
01
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(b) Overview of financial assets and liabilities (continued)
(c) Funding and liquidity management
The following table sets out the contractual maturities of financial liabilities (and assets of a similar nature), including the interest payments associated
with borrowings, and the undiscounted net cash flows attributable to derivative financial instruments. Borrowings with a carrying value of €3,255.1 million
(2014: €2,929.7 million), and net derivative financial instrument assets of €549.6 million (2014: €449.2 million) are included in the Group balances
below, but do not comprise part of the Parent’s assets and liabilities. See notes 19, 20 and 23 for further analysis of Group and Parent financial assets
and liabilities.
Contractual
Carrying cash outflows /
Within
More than
amount (inflows) - net
1 year
1-2 years
2-5 years
5 years
€ ‘000
€ ‘000
€ ‘000
€ ‘000
€ ‘000
€ ‘000
PARENT
Financial assets at
fair value through
profit or loss
2015
2014
€ ‘000 € ‘000
Assets / (liabilities)
held at amortised
cost
2015
2014
€ ‘000
€ ‘000
Derivative financial Derivative financial
instruments
instruments
with hedging
with no hedging
relationships
relationships
2015
2014
2015
2014
€ ‘000
€ ‘000 € ‘000
€ ‘000
Total
2015
€ ‘000
2014
€ ‘000
ASSETS
Non-current assets
Derivative financial instruments
Total non-current financial assets
-
-
-
63,443
63,443
41,435
41,435
29,462
29,462
92,905
92,905
53,303
53,303
Current assets
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current financial assets
-
- 3,181,023 3,017,734
17,202
56,384
- 3,198,225 3,074,118
69,400
69,400
17,209
17,209
- 3,181,023
17,202
69,998 119,750
139,398
69,998 119,750 3,337,623
3,017,734
56,384
136,959
3,211,077
Total financial assets
-
- 3,198,225 3,074,118 132,843
58,644
99,460 131,618 3,430,528
3,264,380
11,868
11,868
31 December 2015
Borrowings
Trade and other payables (excluding tax balances
and accrued interest on borrowings)
Derivative financial liability
Total liabilities
5,109,139
565,000
6,575,854
565,000
643,041
556,314
692,034
8,686
2,298,129
-
2,942,650
-
961,641
6,635,780
1,186,139
8,326,993
211,519
1,410,874
103,134
803,854
176,395
2,474,524
695,091
3,637,741
450,965
450,965
525,206
525,206
222,674
222,674
125,203
125,203
151,495
151,495
25,834
25,834
6,184,815
7,801,787
1,188,200
678,651
2,323,029
3,611,907
4,782,969
553,171
6,209,818
553,171
550,753
544,986
350,602
8,185
2,523,563
-
2,784,900
-
927,094
6,263,234
1,066,786
7,829,775
195,818
1,291,557
63,032
421,819
130,909
2,654,472
677,027
3,461,927
427,141
427,141
451,101
451,101
198,838
198,838
105,294
105,294
139,961
139,961
7,008
7,008
Net liabilities
5,836,093
7,378,674
1,092,719
316,525
2,514,511
3,454,919
Derivative financial asset
Total assets
Net liabilities
-
- 1,488,584 1,522,749
- 1,488,584 1,522,749
21,968
21,968
59,445
59,445
20,701
20,701
- 1,488,584
13,344
42,669
13,344 1,531,253
1,522,749
72,789
1,595,538
Current liabilities
Borrowings and other debt
Trade and other payables
Derivative financial instruments
Total current financial liabilities
-
365,397 330,516
- 3,393,612 3,115,419
- 3,759,009 3,445,935
74,040
74,040
51,959
51,959
365,397
- 3,393,612
76,619 116,224
150,659
76,619 116,224 3,909,668
330,516
3,115,419
168,183
3,614,118
Total financial liabilities
-
- 5,247,593 4,968,684
96,008
111,404
97,320 129,568 5,440,921
5,209,656
31 December 2014
Borrowings
Trade and other payables (excluding tax balances
and accrued interest on borrowings)
Derivative financial liability
Total liabilities
Derivative financial asset
Total assets
02
CORPORATE GOVERNANCE
LIABILITIES
Non-current liabilities
Borrowings and other debt
Derivative financial instruments
Total non-current financial liabilities
-
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
149
The Group’s provisions and employee related liabilities are not analysed in the table above, or in the further analysis below. This includes the liability for
pension obligation of €648.1 million at 31 December 2015 (2014: €731.0 million). See notes 21, 22 and 25 for further information in relation to this
and to the other provisions and employee related liabilities.
03
FINANCIAL STATEMENTS
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NOTES TO THE FINANCIAL STATEMENTS
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(d) Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivative Association (ISDA) master netting agreements. In general, under
such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency or commodity
are aggregated into a single net amount that is payable by one party to the other. In certain circumstances - for example when a credit event such as
default occurs - all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is
payable in settlement of all transactions.
(d) Master netting or similar agreements (continued)
PARENT
The following tables provide information on the impact of netting for instruments subject to an enforceable master netting agreement or similar
agreement and the carrying amounts of recognised financial instruments that are subject to the above agreements.
GROUP
Financial liabilities
Interest rate swaps
Inflation linked interest rate swaps
Foreign exchange contracts
Forward fuel price contracts
31 December 2014
Financial assets
Interest rate swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Net amount
€ ‘000
3,750
48,808
7,103
94,522
296,782
450,965
(1,520)
(6,179)
(74,708)
(65,563)
(147,970)
2,230
48,808
924
19,814
231,219
302,995
(28,607)
(634,042)
(26,062)
(272,930)
(961,641)
1,520
17,296
129,154
147,970
(27,087)
(634,042)
(8,766)
(143,776)
(813,671)
1,849
18,363
219,571
187,358
427,141
(1,011)
(16,783)
(132,075)
(20,614)
(170,483)
838
1,580
87,496
166,744
256,658
(35,352)
(641,206)
(32,375)
(35,914)
(182,247)
(927,094)
1,011
31,874
137,598
170,483
(34,341)
(641,206)
(32,375)
(4,040)
(44,649)
(756,611)
Financial liabilities
Foreign exchange contracts
Forward fuel price contracts
31 December 2014
Financial assets
Interest rate swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Financial liabilities
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Amounts not
offset on the
balance sheet
€ ‘000
Net amount
€ ‘000
17
48,808
7,050
94,522
81,906
232,303
(5,757)
(60,196)
(76,606)
(142,559)
17
48,808
1,293
34,326
5,300
89,744
(16,072)
(177,256)
(193,328)
13,635
128,924
142,559
(2,437)
(48,332)
(50,769)
636
18,290
149,208
22,128
190,262
(115)
(16,710)
(131,089)
(20,614)
(168,528)
521
1,580
18,119
1,514
21,734
(115)
(32,375)
(33,121)
(175,361)
(240,972)
115
30,815
137,598
168,528
(32,375)
(2,306)
(37,763)
(72,444)
02
03
FINANCIAL STATEMENTS
Financial liabilities
Interest rate swaps
Inflation linked interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Amounts not
offset on the
balance sheet
€ ‘000
Gross Amount
of financial
instruments on
the balance sheet
€ ‘000
CORPORATE GOVERNANCE
31 December 2015
Financial assets
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
Gross amount
of financial
instruments on
the balance sheet
€ ‘000
31 December 2015
Financial assets
Interest rate swaps
Currency swaps
Foreign exchange contracts
Forward fuel price contracts
Forward electricity price contracts
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
151
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NOTES TO THE FINANCIAL STATEMENTS
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(e) Credit risk
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit
exposures to wholesale and retail customers, including outstanding receivables and committed transactions.
2015
Financial assets
Trade and other receivables
Financial asset investment
Cash and cash equivalents
Derivative financial instruments
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
153
2014
GROUP
€ ‘000
PARENT
€ ‘000
GROUP
€ ‘000
PARENT
€ ‘000
795,954
62,563
133,863
450,965
1,443,345
3,181,023
17,202
232,303
3,430,528
809,523
63,638
143,731
427,141
1,444,033
3,017,734
56,384
190,262
3,264,380
Foreign currency forward purchase contracts and cross currency swaps are used to reduce volatility arising from foreign currency exposures. The
foreign currency forward purchase contracts in place at 31 December 2015 relate to forecast cash flows expected to occur up to 2028.
At year end, ESB’s total debt portfolio amounted to €5.1 billion (2014: €4.8 billion), of which the Parent held €1.8 billion (2014: €1.8 billion). The
underlying debt, before and after swaps, was denominated in the following currencies:
Before swaps
2015
(%)
GROUP
Currency
Euro
US dollar
Sterling
Total
47
11
42
100
44
15
41
100
Before swaps
2015
(%)
PARENT
Currency
Euro
US dollar
Sterling
Total
2014
(%)
45
31
24
100
2014
(%)
36
39
25
100
After swaps
2015
(%)
58
42
100
After swaps
2015
(%)
75
25
100
2014
(%)
59
41
100
2014
(%)
75
25
100
As shown above, the majority of the Parent debt portfolio is either denominated in or swapped into euro for both principal and interest, thereby reducing
the foreign currency risk exposure in the Group. In managing its foreign operations, the Group is cognisant of borrowing in currencies that match the
functional currency of the foreign operation. Therefore a substantial proportion of debt is sterling denominated primarily as a result of the NIE Networks
acquisition.
02
CORPORATE GOVERNANCE
Trade and other receivables
Wholesale and credit risk arising from trade and other receivables has been disclosed in note 15.
Financial asset investments
Credit risk arising on financial asset investments, including financial assets at fair value through profit or loss, is closely monitored and reflected in the
carrying value at year end. Treasury related credit risk (relating to cash and derivative instruments)
The Group is exposed to credit risk from the counterparties with whom it holds its bank accounts and transacts with in the financial markets. The
Group’s policy is to limit its exposure to each financial institution based on accepted credit ratings of not less than BBB or equivalent.
Trading in derivatives is performed to mitigate financial risks and is executed in compliance with the Specification and Requirements of the Minister for
Finance issued under the aegis of the Financial Transactions of Certain Companies and Other Bodies Act 1992. The Specification and Requirements
outline the type of derivatives which ESB can transact and the associated requirements which ESB must satisfy regarding each derivative counterparty.
Dealing activities are controlled by putting in place robust dealing mandates with counterparties. The Group does not hold or trade derivative instruments
for speculative purposes. Exposures, related limits and compliance with the Minister’s Specification and Requirements are subject to ongoing review and
monitoring. The Group has not experienced any losses due to failure of such counterparties to deliver on their obligations.
Commodity credit risk (relating to derivatives)
The Group also has credit risk associated with commodity positions. These arise from derivative financial instruments that are entered into to hedge
energy and fuel price risks and are managed in accordance with the Minister’s Specification and Requirements (Financial Transactions of Certain
Companies and Other Bodies Act 1992). The Group establishes counterparty credit risk limits to restrict uncollateralised exposure. Net exposures,
collateral requirements and compliance are monitored on an ongoing basis. Collateral, in the form of bonds and guarantees, is required by ESB business
units from various parties, specifically in the form of Letters of Credit from certain power Contract for Differences (CfD) counterparties. Total collateral
held at year end was €49.7 million (2014: €100.1 million). Given the current economic environment, the Group is particularly cognisant of any changes
in the creditworthiness of counterparties, and where such a change occurs all appropriate steps are taken to further secure the Group’s position. (f) Foreign currency risk management
Foreign currency exposures arise mainly through the purchase of fuel and power, station overhaul costs required, other purchases denominated in
foreign currencies, borrowings in foreign currencies (including the private placement as described in note 19) and investments outside the Eurozone.
A general increase of 10% in foreign currency exchange rates at 31 December would increase equity and profit before taxation by the amount set out
below. This analysis assumes that all other variables remain constant, and includes the impact of the value of commodity swaps in place, all of which are
in effective hedge relationships at 31 December 2015.
31 December 2014
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
10% Strengthening
US dollar
Sterling
Swiss Franc
(25,275)
19,641
(948)
540
(3,434)
-
(32,769)
(1,365)
30,257
(501)
10% Weakening
US dollar
Sterling
Swiss Franc
30,891
(24,006)
1,158
(660)
4,197
-
40,051
1,668
(36,197)
501
The following assumptions were made in respect of the sensitivity analysis above:
- changes in the carrying value of derivative financial instruments not in hedging relationships affect the income statement only;
- changes in the carrying value of derivative financial instruments that are cash flow hedges impact other comprehensive income only;
- changes in the carrying value of derivative financial instruments designated as net investment hedges arising from movements in the euro to sterling
exchange rate are recorded directly in equity, with no ineffectiveness assumed.
03
FINANCIAL STATEMENTS
GROUP
31 December 2015
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
154
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NOTES TO THE FINANCIAL STATEMENTS
01
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(g) Commodity price risk management
The volatility of the fuel prices required for the Group’s electricity generation activities has been significant in recent years and the resulting exposures
to fuel price movements are managed by the Group on a selective hedging basis. The Group has entered into forward commodity price contracts in
relation to the purchase of gas and coal required for electricity generation activities - refer to note 20 for further details. Forward fuel price contracts
are valued based on physical volumes contracted and outstanding, and on the forward prices of products of a similar nature, at the balance sheet date,
discounted where necessary based on an appropriate forward interest curve.
(h) Fair value
The fair values of financial assets and liabilities carried at amortised cost, together with the carrying amounts shown in the balance sheet are as follows:
GROUP
A general increase of 10% in the price of gas and coal at 31 December 2015 would impact equity and profit before taxation by the amount set out
below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant, and includes the impact of the value of
commodity swaps in place, all of which are in effective hedge relationships at 31 December 2015. A 10% reduction would have an equal and opposite
effect, on the basis that all other variables remain constant.
GROUP
Gain / (loss) due to 10% increase in gas and coal prices
31 December 2015
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
42,072
(2,340)
31 December 2014
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
78,763
(2,972)
Fair value
2015
€ ‘000
31 December 2015
Long-term debt
Short-term borrowings
Total borrowings
4,690,314
418,825
5,109,139
5,290,073
472,381
5,762,454
1,488,584
365,397
1,853,981
1,875,656
460,410
2,336,066
Non-current trade and other payables
Current trade and other payables
Non-current trade and other receivables
Current trade and other receivables
Cash and cash equivalents
Net liabilities
8,686
695,535
(44,777)
(751,177)
(133,863)
4,883,543
8,513
695,535
(66,001)
(751,177)
(133,863)
5,515,461
3,393,612
(3,181,023)
(17,202)
2,049,368
3,393,612
(3,181,023)
(17,202)
2,531,453
PARENT
Gain / (loss) due to 10% increase in gas and coal prices
5,707
(2,340)
31 December 2014
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
24,894
(2,972)
A general increase of 10% in the System Marginal Price (SMP) of the Single Electricity Market at 31 December 2015 would have decreased other
comprehensive income and profit before taxation by the amounts set out below. This analysis assumes that all other variables, in particular foreign
exchange rates, remain constant, and includes the impact on the value of commodity swaps in place. A 10% reduction would have an equal and
opposite effect, on the basis that all other variables remained constant.
GROUP
(29,775)
-
31 December 2014
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
(66,098)
PARENT
Loss due to 10% increase in the SMP
-
-
31 December 2014
Long-term debt
Short-term borrowings
Total borrowings
4,412,377
370,592
4,782,969
5,226,255
433,804
5,660,059
1,522,749
330,516
1,853,265
1,928,662
413,960
2,342,622
Non-current trade and other payables
Trade and other payables
Trade and other receivables
Cash and cash equivalents
Net liabilities
8,185
688,148
(809,523)
(143,731)
4,526,048
8,022
688,148
(809,523)
(143,731)
5,402,975
3,115,419
(3,017,734)
(56,384)
1,894,566
3,115,419
(3,017,734)
(56,384)
2,383,923
As trade and other receivables are all due within one year, and have been provided for where impaired, their carrying value is considered to be materially
in line with their fair value.
The fair value of trade and other payables is calculated based on the present value of future cash flows, discounted at the market rate of interest at the
reporting date.
Borrowings and other debt are Level 2 fair values. The valuation technique used for borrowings and other debt is a comparison of debt stock to the
marginal cost of debt (from main funding markets) in addition to discounting using the zero coupon discount curve of the relevant currency.
03
Fair value - discount rates
The interest rates used to discount future estimated cash flows, where applicable, are based on the EURIBOR yield curve at the reporting date plus an
appropriate constant credit spread, and were as follows:
31 December 2014
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
(28,207)
-
The sensitivity analysis provided above for the Group and Parent has been calculated as at 31 December 2015 using the following base commodity
prices and foreign currency rates:
Gas (Stg. p/therm)
SMP (€/MWh)
Coal (US$/tonne)
Foreign currency rate (US$ = €1)
Foreign currency rate (Stg£ = €1)
Fair value
2014
€ ‘000
-
A 10% movement in the SMP at 31 December 2015 would have no significant impact on other comprehensive income, or profit before taxation, of the
Parent in 2015 or 2014.
31 December 2015
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
Carrying value
2014
€ ‘000
2015
2014
33.70
45.09
43.27
1.09
0.7340
50.15
56.67
66.39
1.241
0.7789
02
Other loans and borrowings
Derivative financial instruments
Trade and other payables
2015
%
2014
%
2.2
0.9
1.0
1.8
0.9
1.1
FINANCIAL STATEMENTS
Loss due to 10% increase in the SMP
31 December 2015
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
PARENT
Carrying value
Fair value
2014
2014
€ ‘000
€ ‘000
CORPORATE GOVERNANCE
GROUP
31 December 2015
Other
Profit
comprehensive
before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
PARENT
Carrying value
Fair value
2015
2015
€ ‘000
€ ‘000
Carrying value
2015
€ ‘000
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
155
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NOTES TO THE FINANCIAL STATEMENTS
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(i) Fair value hierarchy
The table below analyses financial assets and liabilities carried at fair value, by valuation method. The different levels relevant to financial assets and
liabilities held by the Group have been defined as follows:
- Level 2: inputs, other than unadjusted quoted prices in active markets for identical assets and liabilities, that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices);
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
GROUP
31 December 2015
ASSETS
Derivative financial instruments
- Currency swaps
- Foreign exchange contracts
- Forward fuel price contracts
- Forward electricity price contracts
- Interest rate swaps
Financial assets at fair value through profit or loss
Net (liability) / asset
31 December 2014
ASSETS
Derivative financial instruments
- Foreign exchange contracts
- Forward fuel price contracts
- Forward electricity price contracts
- Interest rate swaps
Financial assets at fair value through profit or loss
Net (liability) / asset
Level 3
€ ‘000
Total
€ ‘000
48,808
7,103
94,522
574
3,750
154,757
296,208
61,993
358,201
48,808
7,103
94,522
296,782
3,750
61,993
512,958
PARENT
31 December 2015
ASSETS
Derivative financial instruments
- Currency swaps
- Interest rate Swaps
- Foreign exchange contracts
- Forward electricity price contracts
- Forward fuel price contracts
LIABILITIES
Derivative financial instruments
- Foreign exchange contracts
- Forward fuel price contracts
Net (liability) / asset
(26,062)
(177,256)
(28,607)
(634,042)
(865,967)
(95,674)
(95,674)
(26,062)
(272,930)
(28,607)
(634,042)
(961,641)
(711,210)
262,527
(448,683)
Level 2
€ ‘000
Level 3
€ ‘000
Total
€ ‘000
18,363
149,206
333
1,849
169,751
70,365
187,025
63,068
320,458
18,363
219,571
187,358
1,849
63,068
490,209
31 December 2014
ASSETS
Derivative financial instruments
- Interest Rate Swaps
- Foreign Exchange contracts
- Forward electricity price contracts
- Forward fuel price contracts
LIABILITIES
Derivative financial instruments
- Currency swaps
- Foreign exchange contracts
- Forward fuel price contracts
- Interest rate swaps
Net (liability) / asset
(32,375)
(35,914)
(175,362)
(35,352)
(641,206)
(920,209)
(6,885)
(6,885)
(32,375)
(35,914)
(182,247)
(35,352)
(641,206)
(927,094)
(750,458)
313,573
(436,885)
When interpreting the positive and negative fair values of derivative financial instruments, it should be noted that they are matched with underlying
offsetting risks. The fair value of derivative financial instruments is determined by discounting the difference between the contractual forward price and
the current forward price for the residual maturity of the contract using a risk-free interest rate.
Level 2
€ ‘000
Level 3
€ ‘000
Total
€ ‘000
48,808
17
7,050
94,522
150,397
81,906
81,906
48,808
17
7,050
81,906
94,522
232,303
(16,072)
(177,256)
(193,328)
-
(16,072)
(177,256)
(193,328)
(42,931)
81,906
38,975
Level 2
€ ‘000
Level 3
€ ‘000
Total
€ ‘000
636
18,290
149,208
168,134
22,128
22,128
636
18,290
22,128
149,208
190,262
(32,375)
(33,121)
(175,361)
(115)
(240,972)
-
(32,375)
(33,121)
(175,361)
(115)
(240,972)
(72,838)
22,128
(50,710)
02
03
FINANCIAL STATEMENTS
LIABILITIES
Derivative financial instruments
- Currency swaps
- Foreign exchange contracts
- Forward fuel price contracts
- Interest rate swaps
- Inflation linked interest rate swaps
Level 2
€ ‘000
(i) Fair value hierarchy (continued)
CORPORATE GOVERNANCE
LIABILITIES
Derivative financial instruments
- Foreign exchange contracts
- Forward fuel price contracts
- Interest rate swaps
- Inflation linked interest rate swaps
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
157
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NOTES TO THE FINANCIAL STATEMENTS
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
26. FINANCIAL RISK MANAGEMENT AND FAIR VALUE (continued)
(i) Fair value hierarchy (continued)
Measurement of fair values - Valuation techniques and significant unobservable inputs
The following table shows the valuation technique used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used.
Type
Currency swaps, foreign
exchange contracts and
interest rate swaps
Valuation technique
Significant
unobservable
inputs
Inter relationship between significant
unobservable inputs and fair value
measurement
Level 2 - Present valuation of future contracted
foreign exchange cash flows using constructed
zero-coupon discount curve.
The zero-coupon curve is constructed using the
interest yield curve of the relevant currency.
Forward fuel and
electricity price
contracts
Level 2 - The fair value of forward fuel and
electricity contracts is determined by reference to
forward electricity, gas, coal and carbon prices with
the resulting value discounted to present values.
System Marginal
Price (SMP)
The estimated fair value would increase/
(decrease) if SMP was lower / (higher).
Generally a change in SMP is accompanied
by a directionally similar change in gas prices.
(i) Fair value hierarchy (continued)
The following table shows a reconciliation from opening balances at 1 January 2015 to the year ended 31 December 2015 balances for fair value
measurements in Level 3 of the fair value hierarchy:
GROUP
Opening balance
Purchases
Total gains or losses:
- in profit or loss
- in OCI
Settlements
Translation movements
Closing balance - net
The expected payment is determined by
considering the possible scenarios of forecast
revenue and gross margin, future cash flows under
each scenario and the probability of each scenario.
Total
€ ‘000
63,068
8,888
187,025
-
63,480
-
313,573
8,888
(13,752)
3,789
61,993
148,416
(39,233)
296,208
(152,506)
(6,648)
(95,674)
(13,752)
(4,090)
(45,881)
3,789
262,527
02
Sensitivity analysis - Level 3 fair values
For the fair values of forward fuel and electricity price contracts reasonably possible changes at the reporting date to one of the significant unobservable
inputs, holding other inputs constant, would have the following effects.
Forecast annual
revenue growth
rate; Forecast
gross margin
Novusmodus typically assesses the value of
its investments based on our expectations
of the proceeds which could be realised in
a disposal.
This value will usually be driven by a
number of inputs including the ability of the
investee to grow its revenue and associated
margins leading to higher EBITDA thus
higher values.
GROUP
Gain due to 10% increase in gas and coal prices
Loss due to 10% increase in the SMP
31 December 2015
Other
comprehensive
Profit before
income
taxation
gain / (loss)
gain / (loss)
€ ‘000
€ ‘000
(35,705)
(29,775)
-
03
FINANCIAL STATEMENTS
Market comparison technique:
The valuation model is based on market multiples
derived from quoted prices of companies to the
investee and the expected gross margin of the
investee.
Forward fuel
price contracts
€ ‘000
Financial assets at fair value through profit or loss are carried at fair value. Where applicable, the fair value is based on the most recent fund valuation
statement available adjusted for a liquidity discount. In relation to stand alone investments, the valuation methodology used is in accordance with
International Private Equity and Venture Capital Valuation Guidelines which have been developed by a number of international venture capital
associations. As this requires the use of model based valuation techniques, with a number of unobservable inputs, all financial assets at fair value
through profit or loss have been categorised as Level 3 investments in the current year.
Future cash flows are estimated using expected
RPI benchmark levels as well as expected LIBOR
rate sets.
Discount cash flows:
The valuation model considers the present value of
expected cash flows.
Forward electricity
price contracts
€ ‘000
Forward fuel price contracts and forward electricity price contracts included at Level 3 in the fair value hierarchy relate to long-term contracts whose
valuations are based on a number of forward price assumptions, with some unobservable inputs, including assumed forward electricity, carbon and gas
inputs for longer term periods.
Level 2 - Independent valuations are used and
validated using the present valuation of expected
cash flows using a constructed zero-coupon
discount curve.
The zero-coupon curve is constructed using the
interest rate yield curve of the relevant currency.
Financial assets at fair
value through profit or
loss
Financial assets at fair
value through profit or loss
€ ‘000
CORPORATE GOVERNANCE
Level 3 - The fair value of some specific forward
fuel and electricity contracts are determined by
reference to forward electricity prices which are
unobservable.
Inflation linked interest
rate swaps
01
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
159
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ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
27. COMMITMENTS AND CONTINGENCIES
28. RELATED PARTY TRANSACTIONS
(a) Operating lease obligations
Total commitments under non-cancellable operating leases are due as follows:
Within one year
Between two and five years
After five years
Total payable
2015
€ ‘000
2014
€ ‘000
14,256
39,378
147,469
201,103
12,962
29,012
116,355
158,329
Operating leases payable by the Group generally relate to the rental of land and buildings. These lease costs are based on open market value at the date
of inception and are generally subject to rent reviews, on average, every five years. There are no significant or unusual restrictions imposed on the Group
by the terms of the operating leases.
(b) Capital commitments
Contracted for
01
2015
€ ‘000
2014
€ ‘000
336,912
381,159
(d) Other disclosures
Following on from flooding in Cork in November 2009, Aviva as UCC’s insurer pursued a legal action against ESB in the High Court seeking recovery
of €19 million for property damage. On 5 October 2015 the High Court delivered its judgement in the case and found ESB 60% liable for the damage
caused and UCC 40% contributory negligent.
Based on legal advices received, ESB has appealed the decision to the Court of Appeal. The appeal is likely to be heard in 2017. Pending the appeal
hearing, no hearing on quantum (i.e. the actual amount of damages payable in respect of UCC’s losses) will take place and the High Court has stayed its
order on costs.
In addition to the UCC claim ESB has, since the judgement in the UCC case, been served with 156 sets of proceedings relating to the flooding in Cork
in November 2009. Details of amounts claimed in relation to these proceedings have not yet been received and therefore it is not possible to make
a reliable estimate of their cost (should the Court of Appeal find against ESB) at this time. However, ESB does not anticipate that the total amount of
damages awarded, if any, and related costs for all of the actions, including the Aviva/UCC action, would exceed its applicable insurance cover.
On the basis of the internal and external legal advice received, ESB believes that it is more probable than not that the appeal will be successful and
accordingly, no provision has been made for such claims in the financial statements.
Banks owned by the Irish state
In the normal course of business ESB transacts with certain Irish banks which have become wholly or partially controlled by the Irish Government. All of
ESB’s transactions with such banks are on normal commercial terms. ESB had no material concentration of borrowings with any such banks during the
year or at 31 December 2015. A portion of the cash and cash equivalents as disclosed in note 16 was on deposit with such banks.
Board members’ interests
Other than agreed allocations under ESOP, Board members had no beneficial interest in ESB or its subsidiaries at any time during the year.
ESOP repurchase
Please refer to note 30 for details of the ESOP repurchase.
Subsidiary undertakings
During the year ended 31 December 2015, ESB Parent purchased engineering, consulting and other services, including rental services of €149.8
million (2014: €131.6 million) from its subsidiaries.
During the year, ESB Parent had sales of €149.6 million (2014: €113.3 million) to subsidiaries. These sales mainly relate to management services, as
well as electricity charges including Use of System Charges and sales of electricity.
During the year, ESB Parent received interest of €50.8 million (2014: €46.5 million) from subsidiaries and paid interest of €170.5 million (2014: €72.3
million) to subsidiaries on inter-company loans.
At 31 December 2015, ESB Parent had amounts payable of €3,104.1 million (2014: €2,829.4 million) to its subsidiaries. These payables mainly relate
to amounts held on deposit for subsidiaries, borrowings raised by ESB Finance Limited and loaned to ESB Parent, as well as amounts due in respect of
engineering and consulting services.
At 31 December 2015, ESB Parent had balances receivable of €2,836.7 million (2014: €2,574.6 million) from its subsidiaries. These receivables relate
to management services and loans to subsidiaries, as well as electricity charges including Use of System Charges.
At 31 December 2015, ESB Parent had balances receivable from its subsidiaries, in relation to equity and capital contributions, of €61.8 million (2014:
€61.8 million).
02
CORPORATE GOVERNANCE
(c) Fuel contract commitments
There are a number of long-term gas supply arrangements in place for different periods up to 2019. These arrangements provide for pricing changes in
line with changes in inbuilt energy market indicators. Where appropriate, embedded derivatives have been separated and valued in accordance with IAS
39.
Semi-state bodies
In common with many other entities, ESB deals in the normal course of business with other Government sponsored bodies such as Ervia and Bord na
Móna. Long-term agreements are negotiated between ESB and Bord na Móna in relation to the purchase of peat for the Midland Stations.
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
161
Equity accounted investees
ESB provided services during the year to Oweninny Power Limited of €0.7 million (2014: €0.5 million), to Emerald Bridge Fibres Limited of €0.1
million (2014: €0.1 million), to SIRO Limited of €1.8 million (2014: €0.2 million), to Tilbury Green Power Limited of €5.3 million (2014: €nil) and to
Raheenleagh Power Limited amounted of €4.5 million (2014: €nil).
ESB has purchases during the year from Emerald Bridge Fibres Limited €0.1 million (2014: €nil) and from Kingspan ESB Limited €0.9 million (2014:
€nil).
Capital funding of €1.8 million (2014: €nil) was advanced to Raheenleagh Power Limited, and €2.9 million ( 2014: €nil) to Tilbury Green Power
Holdings Limited.
03
Interest on borrowings receivable from Emerald Bridge Fibres Limited amounted to €0.4 million for 2015 (2014: €0.3 million), and Oweninny Power
Limited for €0.4 million (2014: €nil).
ESB has committed to provide capital funding to SIRO Limited amounting to €85.0 million over the next 5 years.
Key management compensation
Salaries and other short-term employee benefits
Post-employment benefits
Termination benefits
2015
€ ‘000
2014
€ ‘000
2,506
359
2,865
2,409
318
387
3,114
The key management compensation amounts disclosed above represent compensation to those people having the authority and responsibility for
planning, directing and controlling the activities of the Group. These include the remuneration of Board members and senior executives.
FINANCIAL STATEMENTS
The Group was owed €50.4 million from equity accounted investees at the 31st December 2015, being €3.8m (2014: €nil) from Raheenleagh Power
Limited, €1.8 million (2014: €1.8 million) from Oweninny Power Limited, €44.8 million (2014: €nil) from Tilbury Green Power Holdings Limited and €nil
(2014: €0.9 million) from Emerald Bridge Fibres Limited. No capital was advanced during the year to SIRO Limited.
162
ESB Annual Report 2015 - Energy for Life
29. ESTIMATES AND JUDGEMENTS
NOTES TO THE FINANCIAL STATEMENTS
Company name
It should be noted that the impact of variation in some assumptions and estimates can have a particularly material impact on the reported results. These
include but are not limited to:
Direct subsidiary
ESB Energy International Ltd.
ESB International Ltd.
ESB International Investments Ltd.
ESB Financial Enterprises Ltd.
ESB Networks Ltd.
ESBNI Ltd.
ESB Finance Ltd.
ESB Electric Ireland Ltd.
ESB Electric Ireland Ltd. (UK)
Electric Ireland Ltd. (UK)
(b) The value in use, in accordance with IAS 36 Impairment of Assets relates to goodwill, as described in note 12.
(c) The value in use, in accordance with IAS 36 Impairment of Assets, of long lived assets as described below.
For power generation assets, value in use is based on the estimated cash flows expected to be generated by the asset and is based on a detailed
review of the forecast power generation and forecast power, gas, carbon and capacity prices (where applicable) and the timing and extent of operating
costs and capital expenditure. These cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market
assessments of the time value of money and the risks specific to the asset. The estimation of forecasted revenues and the timing of expenditure
requires judgement and is dependent on the economic factors associated with these assets.
(e) Future costs required to settle current provisions and employee related liabilities, such as the power station closure costs and voluntary severance
obligations. These liabilities are disclosed in notes 21, 22 and 25.
(f) The measurement of a number of assets, liabilities, income and costs at year end which require a high degree of estimation and judgement, including,
the calculation of unbilled electricity income and trade and other receivables, the valuation of fuel stocks, the cost of fuel consumed, the useful lives of
property, plant and equipment and also accruals for goods received or work carried out for which supplier invoices have not yet been received. These
items are estimated in accordance with the accounting policies of the Group and current International Financial Reporting Standards.
(g) ESB provides services to around 1.5 million individuals and businesses, mainly on credit terms. It is known that certain debts due to ESB will not be
paid through the default of a small number of customers. Estimates, based on historical experience, are used in determining the level of debts that is
believed will not be collected. These estimates include such factors as the current state of the Irish economy and particular industry issues (see note
15).
(h) For other disclosures, please refer to note 27 for further details of estimates and judgements regarding ongoing legal claims.
30. ESB ESOP TRUSTEE LIMITED
Refer to note 17 for further details.
31. APPROVAL OF FINANCIAL STATEMENTS
The Board approved the financial statements on 24 February 2016.
Group share %
Nature of business
1
1
1
1
8
5
2
2
4
4
100
100
100
100
100
100
100
100
100
100
Holding company
Holding company
International investments
Holding company
Power distribution
Holding company
Finance
Electricity sales
Electricity sales
Electricity sales
1
1
1
1
1
1
1
1
1
1
14
1
1
12
1
2
10
5
4
21
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
90
100
100
100
Engineering
Contracting
Consultancy
Computer services
Customer credit
Electricity sales
Electricity sales
Holding company
Power generation
Power generation
Operation & maintenance services
Power generation
Telecommunications
Facility management
Power generation
Power generation
Power generation
Power generation
Holding company
Power generation
4
15
4
4
1
1
1
1
1
1
1
1
5
1
2
5
4
4
4
100
100
100
100
85.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Facility management
Transmission management
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Property management
Power generation
Power generation
Power generation
Power generation
Subsidiary undertakings
Indirect subsidiary
ESBI Engineering and Facility Management Ltd.
ESBI Contracting Ltd.
ESBI Consultants Ltd.
ESBI Computing Ltd.
Elfinance Ltd.
ESB Independent Energy Ltd.
ESB Independent Energy NI Ltd.
ESB Power Generation Holding Company Ltd.
Gort Windfarms Ltd.
Crockahenny Wind Farm Ltd.
Utility O&M Services Ltd.
Hibernian Wind Power Ltd.
ESB Telecoms Ltd.
Electricity Supply Board Services B.V.
Corvoderry Wind Farm Ltd.
Kerry Wind Power Ltd.
Geothermal International Ltd.
Coolkeeragh ESB Ltd.
ESBII UK Ltd.
Power Generation
Technology Snd. Bhd.
Facility Management UK Ltd.
ESBI Georgia Ltd.
Marchwood Power Development Ltd.
Knottingly Power Ltd.
Mountainlodge Power Ltd.
Tullynahaw Power Ltd.
Woodhouse Wind Farm Ltd.
ESB Trading Ltd.
Kobai Ltd.
Orliven Ltd.
Cappawhite Wind Ltd.
Waterfern Ltd.
Hunter’s Hill Wind Farm Ltd.
ESB Wind Development Ltd.
ESB Commercial Properties Ltd.
Crockagarran Windfarm Ltd.
West Durham Wind Farm Ltd.
West Durham Wind Farm (Holdings) Ltd.
West Durham Wind Farm (Holdings) 2 Ltd.
02
03
FINANCIAL STATEMENTS
ESB ESOP Trustee Limited was incorporated by ESB during 2001, with a €1 investment, as trustee to the ESB Employee Ownership Trust (ESOT) and
the ESB Approved Profit Sharing Scheme (APSS). Under the terms of the creation of ESB ESOP Trustee Limited, ESB has no ability or rights to exert
control over the assets or management of the Company. The trustee Company is chaired by an independent professional trustee with four directors
representing ESB employees and two directors representing the Company. As such, severe restrictions which substantially hinder the exercise of the
rights of ESB over the assets and management of the Company exist. In accordance with IAS 27 Consolidated and Separate Financial Statements,
the accounts for ESB ESOP Trustee Limited are not consolidated with the results of the ESB Group. During the year ended 31 December 2015, ESB
entered into an agreement to support the acquisition of capital stock in future ESOP internal markets. As part of the agreement ESB committed to
match the acquisitions made by the ESOP Trustees up to a value of €25 million. The acquisition of this stock by ESB will not commence until 2017. An
ESOP repurchase provision of €12.1 million has been recognised in the 2015 financial statements in relation to capital stock repurchase by the ESOP
Trustee.
Registered office
CORPORATE GOVERNANCE
(d) As described in note 26 section (h), the valuation of certain financial instruments is based on a number of judgemental factors and assumptions
which of necessity are not based on observable inputs. These have been classified as Level 3 financial instruments, under the meaning of IFRS 13 Fair
Value Measurement. In 2010, the Group acquired, as part of the acquisition of NIE Networks, inflation linked interest rate swaps which have a duration
of over 20 years, which have been added to the Group’s existing portfolio of Level 3 financial instruments.
01
32. SUBSIDIARY, JOINT VENTURE AND ASSOCIATE UNDERTAKINGS
Preparation of consolidated financial statements requires a significant number of judgemental assumptions and estimates to be made. These impact on
the income and expenses contained within the income statement and the valuation of the assets and liabilities in the balance sheet. Such estimates and
judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances and are subject to continual re-evaluation.
(a) The accounting for the ESB - pension liability requires the exercise of judgement. The Board is satisfied that the appropriate accounting treatment,
determined in accordance with IAS 19 Employee Benefits, is to reflect its existing committed obligations, as set out in the note to the financial
statements.
163
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
ESB Annual Report 2015
164
ESB Annual Report 2015 - Energy for Life
ESB Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
01
32. SUBSIDIARY, JOINT VENTURE AND ASSOCIATE UNDERTAKINGS (continued)
32. SUBSIDIARY, JOINT VENTURE AND ASSOCIATE UNDERTAKINGS (continued)
Group share %
Indirect subsidiary (continued)
Devon Wind Power Ltd.
ESB Solar (NI) Ltd.
4
5
100
100
Crockdun Windfarm (NI) Ltd.
ESBI Eng & FM (Botswana) (Proprietary) Ltd.
ESB Asset Development (UK) Ltd.
ESB Solar (IRE) Ltd.
5
11
4
2
100
100
100
100
Airstream Wind Energy Ltd.
Northern Ireland Electricity Networks Ltd.
Sillahertane Energy Project Two Ltd.
NIE Network Services Ltd.
Synergen Power Ltd.
ESB Novus Modus GP Ltd.
Airvolution Energy Ltd. (UK)
Airvolution Energy (Wythegill) Ltd.
Airvolution Energy (Mossmorran) Ltd.
Airvolution Energy (Potato Pot) Ltd.
Airvolution Energy (Shotts) Ltd.
Airvolution Energy (Hafod-Y-Dafal) Ltd.
Airvolution Energy (Agney Farm) Ltd.
Airvolution Energy (Rawcliffe Bridge) Ltd.
Airvolution Energy (New Rides Farm) Ltd.
Airvolution Energy (Junction 2A) Ltd.
Airvolution Energy (Biglis Farm) Ltd.
Airvolution Energy (Muircleugh) Ltd.
Airvolution Energy (Scottow) Ltd.
Airvolution Energy (Airfield) Ltd.
Airvolution Energy (Blakemore) Ltd.
Airvolution Energy (Car Ban Wind Farm) Ltd.
Airvolution Energy (Church House Farm) Ltd.
Airvolution Energy (Grimoldby) Ltd.
Airvolution Energy (Hartwood Hill) Ltd.
Airvolution Energy (Kinegar) Ltd.
Airvolution Energy (Lancarr) Ltd.
Airvolution Energy (Middle Balbeggie) Ltd.
Airvolution Energy (Plas Bodewryd) Ltd.
Airvolution Energy (RGM) Ltd.
Airvolution Energy (Roseland) Ltd.
Airvolution Energy (Shotts 2) Ltd.
Airvolution Energy (Washpit Drove) Ltd.
Airvolution Energy (West Scales) Ltd.
Airvolution Energy (Wilton) Ltd.
ESB 1927 Ltd.
ESBI Carbon Solutions Ltd.
ESB Independent Generation Trading Ltd.
Carrington Power Ltd.
Northern Ireland Electricity Ltd.
Capital Pensions Management Ltd.
Cambrian Renewable Energy Ltd.
EC02 Cambrian Ltd.
Curryfree Wind Farm Ltd.
Mount Eagle Wind Farm Ltd.
Garvagh Glebe Power Ltd.
Corby Power Ltd.
1
6
1
6
16
2
7
7
17
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
2
1
1
4
6
6
4
4
5
1
1
3
100
100
100
100
100
100
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
100
100
100
100
100
100
100
100
100
100
100
100
Nature of business
Power generation
Business and management
consultancy activities
Power generation
Engineering and consultancy
Power generation
Business and management
consultancy activities
Power generation
Power transmission and distribution
Power generation
Infrastructure contracting
Power generation
Clean technology investment
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Property management
Carbon emission reduction
Electricity and gas trading
Power generation
Dormant
Pension scheme administration
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Company name
Registered office
Group share %
Indirect subsidiary (continued)
NIE Finance PLC
ESB Services BV (Holland)
Castlepook Power Ltd.
6
12
2
100
100
100
Finance
Operation and maintenance
Power generation
Non-controlled subsidiary undertaking
ESB ESOP Trustee Ltd.
18
100
Staff shareholding scheme
Equity accounted investees
Oweninny Power Ltd.
Emerald Bridge Fibres Ltd.
UNES Operation and Maintenance Inc.
Kingspan ESB Ltd.
1
1
19
2
50
50
50
50
SIRO Ltd. (formerly Evolve Structuring Services Ltd)
Raheenleagh Power Ltd.
Tilbury Green Power Holdings Ltd.
2
2
4
50
50
47
Power generation
Telecommunications
Operation & maintenance services
Business and management
consultancy activities
Fibre to the Building
Power generation
Power generation
Associate undertakings
Pesaka Technologies
Rousch Pakistan Power
Blarghour Wind Farm Ltd.
Glendye Wind Farm Ltd.
Turnalt Wind Farm Ltd.
Chirmorie Wind Farm Ltd.
Kirk Hill Wind Farm Ltd.
Dell Wind Farm Ltd.
Lower Alt Wind Farm Ltd.
20
13
9
9
9
9
9
9
9
30
7
8
8
8
8
8
8
8
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
ESB’s principal place of business is 27 Lower Fitzwilliam Street, Dublin 2.
Notes:
1
Stephen Court, 18-21 St Stephen’s Green, Dublin 2
2
27 Lower Fitzwilliam Street, Dublin 2
3
Mitchell Road, Phoenix Parkway, Corby, Northamptonshire, N17 1Q7
4
Tricor Services Europe LLP, 4th Floor, 50 Mark Lane, London, EC3R 7QR
5
2 Electra Road, Maydown, Derry, BT47 6 UL
6
120 Malone Road, Belfast, BT9 5HT
7
Palladium House, 1-4 Argyll Street, London, W1F 7TA
8
Clanwilliam House, Clanwilliam Place, Dublin 2
9
22 - 24 King Street, Maidenhead, SL6IEF
10 Shellingwood House, Westwood Way, Westwood Business Park, Coventry, CV48J2
11 Deloitte House, First Floor, Plot, 64518, Fairgrounds Office Park, Gaborne, Botswana
12 22nd Floor, Menara, EON Bank, Lala Raja Laut, 50350, Kuala Lumpar, Malaysia
13 94 - W, 3rd Floor, AAMIR Plaza, Jinnah Avenue, Blue Area, Islambad, Pakistan
14 58 Upper Mount Street, Dublin 2
15 39 Gamsakhurdia Ave, Suite 42, Tbilisi, Georgia
16 Power Plant, Pigeon House Road, Ringsend, Dublin 4
17 50 Lothian Road, Festival Square, Edinburgh, Scotland, EH3 9WJ
18 43 Merrion Square, Dublin 2
19 Nispetiye Cad Akmerkez E3, Blok K, 13Etiler/Besiktas, Turkey
20 Level 1, Menara Yavasan, Tun Razak, Zoo, Jalan Bukit Bintang, 55100 Kuala Lumper, Malaysia
21 10th Floor, Wisma Havela, Thakardos, No 1 Jalan Raja Laut, 50350 Kuala Lumpur, Malaysia
Nature of business
02
03
FINANCIAL STATEMENTS
Registered office
CORPORATE GOVERNANCE
Company name
STRATEGY AND PERFORMANCE
NOTES TO THE FINANCIAL STATEMENTS
165
166
ESB Annual Report 2015 - Energy for Life
Introduction
Payments terms during 2015 were governed by two items of legislation:
 The Prompt Payment of Accounts Act, 1997.
 European Communities (Late Payments in Commercial Transactions) Regulations, 2002 (S.I. No. 388 of 2002) to combat late payments in commercial
transactions. These Regulations apply to contracts for goods and services supplied to ESB by EU-based suppliers.
Statement of payment practices including standard payment periods
ESB operates a policy of paying all undisputed supplier invoices within the agreed terms of payment. The standard terms specified in the standard
purchase order are net monthly. Other payment terms may apply in cases where a separate contract is agreed with the supplier.
Compliance with the legislation
ESB complies with the requirements of the legislation in respect of external supplier payments within the EU in all material respects.
Procedures and controls in place
Appropriate internal financial controls have been implemented including clearly defined roles and responsibilities. These procedures provide reasonable
but not absolute assurance against material non-compliance with the legislation.
Details of interest payments in respect of 2015
When ESB validates a request from the supplier, it is ESB’s policy to pay interest due on late payments. No such payments were made in respect of late
payments during the year 2015 (2014: €nil).
GLOSSARY
1.Better Energy Programme (BER)
This programme was launched under the
Government’s Jobs Initiative, the Better Energy
- The National Upgrade Programme on 11 May
2011. Its objective is to deliver a major increase
in sustainable energy investments in upgrading
existing buildings and facilities.
10. Environmental Protection
Agency (EPA)
The Environmental Protection Agency is an
independent public body established under
the Environmental Protection Agency Act,
1992. It is at the front line of environmental
protection and policing.
2.Business in the Community (BIC)
Business in the Community works with the
largest companies in Ireland to help them
develop, manage and measure their corporate
social responsibility (CSR) and sustainability
strategies.
11. 4You Safety
The 4You Safety programme is an initiative,
focusing on behavioural change, which
aims to enhance the health and safety culture
of the organisation and to support staff in the
development of non-technical skills for safety.
4You tools available include safety culture
assessments, safety leadership behaviour
questionnaires, safety leadership and
workforce programmes and workshops, and
4You safety coaching.
3.Commission for Energy
Regulation (CER)
The Commission for Energy Regulation (CER) is
the independent regulator of the energy market
in the Republic of Ireland.
4.Contracts for Difference (CFDs)
A contract for difference (CFD) is a contract
between two parties, a buyer and a seller,
stipulating that the buyer will pay to the seller the
difference between the current value of an asset
and its value at contract time. If the difference is
negative, then the seller pays instead to the
buyer.
5.Customer Contact Association Global
Standard
Customer Contact Association is a set of key
principles which have been defined and agreed
by industry experts and stakeholders designed
to increase the reliability and effectiveness of the
customer contact operation.
Ellvena Graham
Chairman
24 February, 2016
6.Customer Service Improvement Plan
2013 - 2016
The plan is based on feedback from customers
and outlines ten key areas that the company will
focus on over the period to 2016 to improve
customer service.
7.EBITDA
Operating profit before interest, taxation,
depreciation, impairment, amortisation, and
exceptional items.
8.Electricity Market Reform (EMR)
Electricity Market Reform (EMR) is a UK
Government policy to incentivise investment
in secure, low-carbon electricity, improve
the security of Great Britain’s electricity
supply and improve affordability for
consumers.
9.Energy for Generations Fund
In November 2013, ESB launched the Energy
for Generations Fund, a corporate
responsibility investment which will see over
€2 million per year disbursed across a range
of community and issues-based initiatives.
12. Great Britain (GB)
England, Wales and Scotland.
13. Gigawatt (GW)
Gigawatt, being the amount of power equal to
1 billion watts.
14. Gigawatt Hours (GWh)
Gigawatt hours, being the amount of energy
equivalent to delivering 1 billion watts of
power for a period of one hour.
15. Impairment
An impairment charge is determined when the
carrying value (book value) of assets exceeds
its recoverable amount.
16. Integrated Single Electricity
Market (I-SEM)
This European Target Model is a
development flowing from the Third Energy
Package and is an umbrella term for a
detailed list of new common EU guidelines,
procedures and codes to be put in place to
enable a single EU-wide wholesale electricity
market. The implementation of these common
EU guidelines, procedures and codes across
the EU will allow electricity and gas to be
traded freely across the Union.
19. Joint Venture
A company or other entity which is controlled
jointly with other parties.
20. Liquefied Natural Gas (LNG)
Liquefied natural gas, a clear, colourless,
non-toxic liquid that forms when natural gas is
cooled to -162ºC (-260ºF).
21. Lost Time Injuries (LTI)
A work related injury causing an absence for
one or more working days, counting from the
day after the injury, before the person returns
to normal or restricted work.
22. Megawatt (MW)
Megawatt, being the amount of power equal
to 1 million watts.
23. Megawatt Hours (MWh)
Megawatt hours, being the amount of energy
equivalent to delivering 1 million watts of
power for a period of one hour.
24. National Smart Metering Programme
The CER, working closely with the
Department of Communications, Energy and
Natural Resources (DCENR), established the
National Smart Metering Programme (NSMP)
in late 2007.
02
25. Northern Ireland Environment
Agency (NIEA)
The Northern Ireland Environment Agency is
an executive agency within the Department of
the Environment with the strategic objective to
create prosperity and wellbeing through
effective environment and heritage
management and regulation.
26. No-load costs
No-load costs are generator costs which are
indifferent to output levels.
27. The Northern Ireland Renewables
Obligation (NIRO)
The Northern Ireland Renewables Obligation
is the main support mechanism for
encouraging increased renewable electricity
generation in Northern Ireland.
17. Industrial Emissions Directive
The Industrial Emissions Directive is a series of
environmental legislative changes aimed at
reducing emissions from industrial production
processes which account for a large amount
of the overall pollution in Europe.
28. Novusmodus Fund
The Novusmodus Fund is a venture capital
fund in which seed capital is invested into
emerging technologies.
18. Joint Equality Council
The Joint Equality Council is a joint body
drawn from representatives from ESB
management and the Group of unions to
promote equality and diversity.
29. OHSAS 18001
OHSAS 18001 Occupational, Health and
Safety Management Certification is an
international standard which provides a
framework to identify, control and decrease
the risks associated with health and safety
within companies.
03
FINANCIAL STATEMENTS
Pat O’Doherty
Chief Executive
01
CORPORATE GOVERNANCE
Prompt Payment Code of Conduct
In 2015 the Government launched the Prompt Payment Code of Conduct, which can be found at www.promptpayment.ie. ESB are signatories to this
code and undertake to pay suppliers on time, give clear guidance to suppliers on payment procedures and encourage the adoption of the Code by
suppliers within their own supply chains.
167
STRATEGY AND PERFORMANCE
Report of Board Members on Compliance with the Prompt Payment of
Accounts Act, 1997 and European Communities (Late Payments in Commercial
Transactions) Regulations, 2002 (S.I. No. 388 of 2002)
ESB Annual Report 2015
168
ESB Annual Report 2015 - Energy for Life
GLOSSARY
30. Over the Counter trading platform
Financial instruments (specifically electricity
price contracts) which enable participants in
the SEM to reduce their risk (and therefore
electricity price volatility for their customers) by
trading these products directly (over the
counter) with each other, rather than via an
intermediary or through an exchange, in order
to hedge their exposure to movements in the
wholesale price of electricity.
31. PAS 55
PAS 55 is the British Standards Institution
(BSI) publically available specification for the
optimised management of physical assets. It
provides clear definitions and requirements
specification for establishing and verifying a
joined-up, optimised and whole-life
management system for all types of physical
assets.
32. PowerCheck app
PowerCheck app provides real time
information to customers regarding planned
and unplanned power supply interruptions,
including projected restoration times.
33. Price Review 4 (PR4)
Regulatory periods are of 5 years’ duration and
the Price Control Review (PR4) covers the
period 2016 to 2020 and sets out the total
regulated allowed revenues over that period
as determined by the Commission Energy
Regulation.
34. Regulatory Period 5 (RP5)
Regulatory Period 5 (RP5), are regulatory
periods of 5 years’ duration for price control
covering the period 1 April 2012 to 31 March
2017 by the Utility Regulator in Northern
Ireland.
35. Regulatory Period 6 (RP6)
Regulatory Period 6 (RP6), are regulatory
periods of 5 years’ duration for price control
covering the period 1 October 2017 to 31
March 2024 by the Utility Regulator in
Northern Ireland.
36. Return on Capital Employed (ROCE)
The return on capital employed shows the
overall return on capital provided by both debt
and equity.
37. Single Electricity Market (SEM)
The Single Electricity Market is a wholesale
pool-based electricity market operating north
and south of the Irish Border.
38. Single Electricity Market Operator
(SEMO)
The SEM is operated by SEMO, a jointventure between EirGrid and SONI, the
transmission system operators in Ireland and
Northern Ireland respectively.
47. Sustainable Energy Authority of
Ireland (SEAI)
The Sustainable Energy Authority of Ireland
was established as Ireland’s national energy
authority under the Sustainable Energy Act
2002.
39. SIRO
A joint venture with Vodafone, which will bring
1 gigabit per second (Gbps) broadband to
500,000 customers in fifty towns across
Ireland using the existing distribution network.
48. System Operator for Northern Ireland
(SONI)
The System Operator for Northern Ireland
ensures the safe, secure
and economic operation of the high voltage
electricity grid in Northern Ireland and in
co-operation with EirGrid is also responsible
for running the all-island wholesale market for
electricity.
40. Smart Grid
A transformed electricity transmission and
distribution network or Grid that uses robust
two-way communications, advanced sensors
and distributed computers to improve the
efficiency, reliability and safety of power
delivery and use.
49. System Marginal Price (SMP)
The wholesale price of electricity for each half
hour period.
41. Smart Meters
Smart meters are the next generation of
energy meter. They will replace the traditional
electricity and gas meters removing the need
for a home visit to read the meter and will
eliminate the need to use estimates whenever
a meter cannot be read.
50. UK Competition and Markets
Authority (CMA)
The UK Competition and Markets Authority is
an independent non-ministerial Government
department in the United Kingdom (UK), to
promote competition for the benefit of
consumers, both within and outside the UK.
42. Smarter Pay As You Go
Smarter Pay As You Go products allows
users to control electricity usage and track
usage from a monitor to enable them to know
how much they are spending on electricity at
all times.
51. United Kingdom (UK)
England, Wales, Scotland and Northern
Ireland.
43. Solar Photovoltaic
This is the term for technology used to convert
the sun’s radiation directly into electricity. The
basis of the technology is the solar cell, which
consists of layers of a semi-conductor material
which generates electric current when
irradiated with the sun’s energy. Solar
photovoltaic is a clean, renewable energy
source.
52. Utility Regulator (UR)
The independent non-ministerial Government
department set-up to ensure the effective
regulation of the electricity, gas and water and
sewerage industries in Northern Ireland.
53. Vertically Integrated Utility
The Vertically Integrated Utility (VIU) refers to
ESB’s presence within and ownership of
assets across all of the elements of the
electricity value chain including the generation,
trading, transmission, distribution and supply of
power to customers.
44. Spark Spread
The difference between the price of a unit of
electricity and the cost of the gas used to
generate it.
45. Start-up costs
Start-up costs are costs a generator faces if it
needs to be turned on after a period of
inactivity.
46. Supplemental Balancing Reserve
Supplemental Balancing Reserve is a service
designed to support the National Grid in
balancing the system in the unlikely event that
there is insufficient capacity in the market to
meet demand.
Produced and published by Zahra Media Group
www.zahramediagroup.com
ESB Head Office
27 Lower Fitzwilliam Street
Dublin 2
DO2 KT92
Ireland
T: +353 1 676 5831
E: info@esb.ie
www.esb.ie
Twitter: @ESBGroup
LinkedIn: https://www.linkedin.com/company/esb
YouTube: https://www.youtube.com/user/ESBVideo
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