Interest rates punt fails to pay off for electricity body

North West Electricity Networks saw revenues increase in the six months to September 30, it revealed today, but it recorded a big pre-tax loss due to the poor performance of its investments.

The organisation is a holding and financing company whose principal activity is the operation of electricity distribution assets owned by Electricity North West Limited, a subsidiary of the company.

Stockport-based Electricity North West is the region’s electricity distribution network operator.

Sales for North West Electricity Networks during the period were £218m, compared with £208m the same time a year ago.

However, last year’s pre-tax profit of £24m was transformed into a loss before tax of £52m.

The interim management report said revenues were £10m higher due to higher unit prices which are set to recover an allowed distribution use of system (DUoS) revenue for each year.

The principal reasons for the higher unit price are higher allowed base revenue, including adjustments for inflation, higher incentive revenue and the impact of the final over recovery of revenue in the prior year.

It said the revenue for the six months to March 31, 2020, is expected to be higher than that in the six months to September 30, 2019, due to the seasonally higher volumes of electricity units distributed over the Winter period.

Explaining the £76m turnround in pre-tax profits, it said: “This is primarily due to a fair value loss on the derivative financial instruments of £78m, compared to a gain of £4m in the prior period.

“The fair value movements are a result of the combined effect of the changes in market expectations of future interest rates and of inflation rates.”