Performance Report 2004
EDF Energy has seen continued growth over the past year. The three branches responsible for these increases in turnover and operating profit, Networks, Customers and Energy, and Development, summarise their financial positions below.
The Networks Branch manages the three licensed distribution networks of London, the east and south east of England.
Turnover in 2004 was £887 million and EBIT £392 million.
EDF Energy is the largest distribution company in the UK, distributing 85 TWh to 7.8 million customers and contributing 63% of group EBIT. Some £308 million (2003, £305 million) was invested during the year, which resulted in improvements in the quality of supply to our customers.
At the end of 2004, the final proposal under the Distribution Price Control Review ('DPCR') was agreed with our regulator Ofgem. This was an important process for EDF Energy as, amongst other things, it determines how much capital we can invest in our network, as well as the amount we can charge suppliers for electricity distribution.
The last three reviews had been marked by considerable cost-cutting, but this time the industry got investment firmly back on the agenda.
Having accepted the latest review, EDF Energy will be investing approximately £400 million in its networks during 2005, compared to the £300 million we committed to invest last year.
Most of our network is over 40 years old and, while there is nothing substantially wrong with it, investment in the infrastructure is essential in the medium to long-term to maintain reliability.
We submitted a plan to the industry regulator, Ofgem, that carefully outlined the areas that need repair or replacement in order that they are upgraded now before the cost of doing so becomes too great and reliability begins to deteriorate.
The retail interests of the group are managed by the Customers Branch and the generation and energy procurement interests are managed by the Energy Branch. Both branches work closely together to minimise the cost of electricity and gas to our customers.
The Customers and Energy Branches supplied 51.1 TWh of electricity and supplied 21.6 TWh of gas. The output from own generation was 24.9 TWh, which broadly covered the demand from our domestic customers. This works well with the current market, with the more competitive large commercial customers demand being matched against market producers.
Turnover in 2004 was £3,164 million and EBIT £186 million.
2004 saw extremely volatile electricity and gas prices in the forward market, largely due to the highest crude oil prices seen for many years. Active buying in the gas market by a number of banks and gas producers also added upward pressure on prices. Between January and September 2004, the winter-forward contract prices for power and gas rose by 32% and 38% respectively. This prompted us to raise our tariffs by 10.8% for electricity and 8.3% for gas. This was not a decision we took lightly, as any price rise can affect customer retention and push more households into fuel poverty. Consequently, we developed a number of specific products designed to ease the burden, including a capped price product and a price change exemption for our most vulnerable customers.
Development Branch has become the fourth branch of EDF Energy, sitting alongside EDF Energy's Customers, Energy and Networks Branches. The Development Branch focuses on the financing, construction and management of electrical infrastructure for major customers such as London Underground, British Airports Authority and Channel Tunnel Rail Link. It operates largely in the PFI (Private Financing Initiatives) and PPP (Public Private Partnerships) arena.
Turnover in 2004 was £308 million whilst EBIT was £42 million.
The 24% growth in turnover largely reflects an increase in work under the 30-year contracts with London Underground to upgrade and maintain approximately two thirds of the London Underground rail networks, as well as all of their high voltage electricity networks.