NORTHERN POWERGRID (NORTHEAST) LIMITED AND NORTHERN POWERGRID (YORKSHIRE) PLC STANDARDS OF SERVICE AND REMUNERATION

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1 NORTHERN POWERGRID (NORTHEAST) LIMITED AND NORTHERN POWERGRID (YORKSHIRE) PLC STANDARDS OF SERVICE AND REMUNERATION STATEMENT MADE PURSUANT TO SECTION 42C OF THE ELECTRICITY ACT 1989 February 2018

2 INTRODUCTION 1. Northern Powergrid (Northeast) Ltd ( Northeast ) and Northern Powergrid (Yorkshire) plc ( Yorkshire ) are each holders of an electricity distribution licence and are authorised by licence to carry on activities subject to price regulation. Northeast and Yorkshire are subsidiaries of Berkshire Hathaway Energy Company ( BHEC ). Until 28 October 2011 Northeast was known as Northern Electric Distribution Ltd and until 31 October 2011 Yorkshire was known as Yorkshire Electricity Distribution plc. Throughout this statement the current company names are used. THE LINK BETWEEN REMUNERATION AND SERVICE STANDARDS 2. Northeast and Yorkshire developed arrangements during 2002 that link a portion of the remuneration of some of the directors with the levels of performance achieved by Northeast and Yorkshire as respects service standards in connection with activities subject to price control. The relevant service standards and the means by which the levels of performance are assessed are described below. 3. These arrangements apply to the directors of Northeast and Yorkshire who are also employees of Northeast and Yorkshire (hereafter referred to as Class A directors). The other directors of Northeast and Yorkshire (hereafter referred to as Class B directors) are not employees of Northeast or Yorkshire and the Class B directors receive either no remuneration from Northeast or Yorkshire or, in the case of the suitably independent directors appointed in fulfilment of the requirements of Standard Licence Condition 43A, remuneration that is limited to a director s fee and reasonable expenses. The arrangements described here do not apply to Class B directors. THE ROLE OF THE PARENT COMPANY 4. In determining the performance-related bonus payable in respect of the financial year commencing 1 January 2017 (and which forms part of the remuneration of the Class A directors), the President and Chief Executive Officer of BHEC, acting within the terms of the delegated authority of the remuneration committee of the board of directors of BHEC, took into account the levels of performance achieved by Northeast and Yorkshire as respects service standards in connection with the activities of Northeast and Yorkshire that are subject to price regulation. Class A directors also receive a salary from their employer (either Northeast or Yorkshire as the case may be) and may also receive a bonus payment and/or additional benefits that are not linked to service standards. These benefits include pension contributions, personal transport allowance, medical/dental insurance and health screening. 2

3 THE DIRECTORS OF NORTHEAST AND YORKSHIRE 5. Under the arrangements that link remuneration and service standards, bonus payments made to Class A directors are determined and expressed as a percentage of the basic salary payable by Northeast or Yorkshire as the case may be. The Class A directors of Northeast and Yorkshire covered by these arrangements during the period 1 January 2017 to 31 July were: Philip Jones Nicholas Gill Thomas Fielden 6. The Class B directors of Northeast or Yorkshire who served during all of the year were: John France Alison Marshall Philip Taylor Andrew MacLennan Thomas France 7. The Class B directors who served during part of the year were: Ronald Dixon 2 Philip Jones 3 Nicholas Gill 3 Thomas Fielden 3 THE BASIS OF CALCULATION 8. The amounts paid or payable to the Class A directors under these arrangements in respect of the financial year that commenced on 1 January 2017 are summarised below. 9. In determining the component of each Class A director s remuneration that reflects the performance of Northeast and Yorkshire in achieving the relevant service standards, the President and Chief Executive Officer of BHEC, acting within the terms of the delegated authority of the remuneration committee of the board of directors of BHEC, had regard to the most recently available data that is reported by 1 On 1 August 2017, following an internal corporate restructuring, all three Class A directors transferred to become employees of Northern Electric plc. There has been no change to the way in which the directors remuneration is derived as a consequence of this restructuring. 2 Resigned as a director of Northeast and Yorkshire on 26 October For the period 1 August 2017 to 31 December

4 Northeast and Yorkshire to BHEC and, where applicable, to the Gas and Electricity Markets Authority ( GEMA ) for the twelve-month period ending 31 December In this statement data relating to the standards of performance refers to the performance achieved during the twelve-month period ending on 31 December of the relevant year. The management and operating systems from which the data that is submitted to GEMA is derived are subject to annual audit or inspection by an external auditor (except in the case of the Customer Satisfaction Metric referred to in the table at paragraph 11 below). The data that is not submitted to GEMA may be subject to internal audit from time to time as part of the normal work plan of Northern Powergrid s internal audit team. THE RELEVANT SERVICE STANDARDS 11. The performance of Northeast and Yorkshire under the following service standards is taken into account in determining the remuneration of Class A directors: the total number of failures under the Electricity (Standards of Performance) Regulations 2015 and the Electricity (Connection Standards of Performance) Regulations 2015, all made under section 39A of the Electricity Act 1989; and under the DG Standards Direction, issued under paragraph 15A.4 of standard condition 15A of the electricity distribution licence (together referred to as the Guaranteed Standards General Metric ); the percentage of representations resolved at the first opportunity (i.e. within level one of the three-level complaint-handling procedure that Northeast and Yorkshire each operate in compliance with the Gas and Electricity (Consumer Complaints Handling Standards) Regulations 2008 ( the Customer Redress Metric ); the percentage of customer satisfaction achieved in the survey of quality of telephone response conducted by Ofgem in accordance with its RIIO-ED regulatory instructions and guidance: Annex H Customer Service (Version 2 to 19 April 2017, Version 3 from 20 April 2017) document ( the Customer Satisfaction Metric ); the percentage of loss-of-supply calls answered by agents within the customer relations centre that are so answered within 15 seconds ( the Call Centre Performance Metric ); the number of customer interruptions used to determine the quality of service incentive amount under special condition CRC2D of the electricity distribution licence ( the CI Metric ); and 4

5 the duration of customer interruptions used to determine the quality of service incentive amount under special condition CRC2D of the electricity distribution licence ( the CML Metric ). PERFORMANCE DURING THE YEAR AGAINST THE TARGETS SET FOR THE RELEVANT SERVICE STANDARDS 12. The targets and the performance of Northeast and Yorkshire against each of those targets in the year to which this statement relates are set out in the table below. The entitlement (expressed as a percentage of base pay) that may contribute to the bonus of each Class A director if the target is met is also shown in the table below. SERVICE STANDARD TARGET FOR YEAR (2017) PERCENTAGE INCREMENT TO BASE PAY IF TARGET MET TARGET ACHIEVED OR FAILED IN RELEVANT YEAR Guaranteed Standards General Metric # 3540* 1.0 Achieved Customer Redress Metric # Day+1 performance 60% Achieved Day+31 performance 95% Failed Customer Satisfaction Metric # 89% 0.25 Failed Call Centre Performance Metric # 90% 0.25 Achieved NORTHEAST CML Metric Achieved NORTHEAST CI Metric Achieved YORKSHIRE CML Metric Achieved YORKSHIRE CI Metric Achieved # Denotes that the target relates to the performance of Northeast and Yorkshire taken together * Inclusive of >12 hour faults (EGS2) PAYMENTS IN RESPECT OF THE YEAR As a result of applying these arrangements in respect of the financial year commencing 1 January 2017 the Class A directors each became entitled to an additional payment amounting to per cent of their basic salary. 5

6 INTENTIONS WITH RESPECT TO THE YEAR It is intended that in the financial year commencing 1 January 2018 following the internal corporate restructuring on 1 August no remuneration will have been paid or become due during that year to the directors of Northeast or Yorkshire as a result of arrangements falling within section 42C(3) of the Electricity Act