Notes to the consolidated financial statements
24. Provisions
| Decom- missioning £m |
Environ- mental £m |
Emissions £m |
Restructuring £m |
Other £m |
Total provisions £m |
|
|---|---|---|---|---|---|---|
| At 1 April 2007 | 70 | 372 | 1 | 56 | 95 | 594 |
| Exchange adjustments | – | 3 | 2 | – | 1 | 6 |
| Acquisition of subsidiary undertakings* | 23 | 390 | 111 | – | 180 | 704 |
| Additions | 5 | 124 | 5 | 25 | 17 | 176 |
| Unused amounts reversed | (4) | (14) | (1) | – | (5) | (24) |
| Unwinding of discount* | 6 | 31 | – | – | 8 | 45 |
| Utilised | (13) | (69) | (4) | (15) | (3) | (104) |
| At 31 March 2008* | 87 | 837 | 114 | 66 | 293 | 1,397 |
| Exchange adjustments | 33 | 240 | 33 | – | 73 | 379 |
| Additions | 4 | 101 | 6 | 43 | 28 | 182 |
| Unused amounts reversed | (3) | (23) | (9) | – | – | (35) |
| Unwinding of discount | 2 | 58 | – | – | 8 | 68 |
| Utilised | (15) | (109) | (119) | (9) | (40) | (292) |
| At 31 March 2009 | 108 | 1,104 | 25 | 100 | 362 | 1,699 |
Provisions have been analysed as current and non-current as follows:
| 2009 £m |
2008* £m |
|
|---|---|---|
| Current | 248 | 375 |
| Non-current | 1,451 | 1,022 |
| 1,699 | 1,397 |
- *
- Comparatives have been restated for the finalisation of the fair value exercise on the acquisition of KeySpan Corporation (see note 28)
Decommissioning provision
The decommissioning provision of £108m at 31 March 2009 (2008: £87m) primarily represented the net present value of the estimated expenditure (discounted at a nominal rate of 6%) expected to be incurred in respect of the decommissioning of certain nuclear generating units. It also included £47m (2008: £33m) relating to other asset retirement obligations. Expenditure is expected to be incurred between financial years 2010 and 2061.
Environmental provision
The environmental provision represents the estimated restoration and remediation costs relating to a number of sites owned and managed by subsidiary undertakings. The environmental provision is comprised as follows:
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Discounted £m |
Undiscounted £m |
Discounted £m |
Undiscounted £m |
Nominal discount rate |
||
| UK gas site decontamination (i) | 226 | 317 | 192 | 280 | 5.0% | |
| US sites (ii) | 876 | 1,272 | 643 | 963 | 5.5% | |
| Other (iii) | 2 | 2 | 2 | 2 | n/a | |
| 1,104 | 1,591 | 837 | 1,245 | |||
- (i)
- Represents the statutory decontamination costs of old gas manufacturing sites in the UK. The anticipated timing of the cash flows for statutory decontamination cannot be predicted with certainty, but they are expected to be incurred over the financial years 2010 to 2058 with some 50% of the spend over the next six years.
- There are a number of uncertainties that affect the calculation of the provision for UK gas site decontamination, including the impact of regulation, the accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. We have made our 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 and hence the income statement.
- The undiscounted amount of the provision is the undiscounted best estimate of the liability having regard to the uncertainties above.
- (ii)
- The remediation expenditure in the US is expected to be incurred between financial years 2010 and 2059. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK gas decontamination. However, unlike the UK, with the exception of immaterial amounts of such costs, this expenditure is expected to be recoverable from rate payers under the terms of various rate agreements in the US.
- (iii)
- The remainder of the environmental provision relates to the expected cost of remediation of certain other sites in the UK. This is expected to be utilised within the next five years and there is no material difference between the discounted and undiscounted amounts.
Emissions provision
The provision for emission costs is expected to be settled using emissions allowances granted.
Restructuring provision
At 31 March 2009, £30m of the total restructuring provision (2008: £32m) consisted of provisions for the disposal of surplus leasehold interests and rates payable on surplus properties. The remainder of the restructuring provision related to business reorganisation costs in the UK, to be paid during 2009 and 2010.
Other provisions
Other provisions at 31 March 2009 included £61m (2008: £52m) of estimated liabilities in respect of past events insured by insurance subsidiary undertakings, including employer liability claims. In accordance with insurance industry practice, these estimates are based on experience from previous years and there is, therefore, no identifiable payment date. Other provisions at 31 March 2009 also included £12m (2008: £17m) in respect of the sales of four UK gas distribution networks relating to property transfer costs; and £13m (2008: £11m) in respect of obligations associated with investments in joint ventures.
As at 31 March 2009 other provisions also included a £219m (2008: £165m) onerous lease provision. The associated operating lease related to the Ravenswood generation station but the lease commitment remained with National Grid following the sale of Ravenswood.