(year ended 31 March 2006)

The Group is committed to operating in a socially, ethically and environmentally responsible manner. It aims to be recognised as transparent and ethical in its dealings and to contribute to the general economic and social well-being and development of the communities in which it operates. The Group has complied in this report with the disclosure guidelines issued by the Association of British Insurers (ABI). The Group’s commitment to Corporate Social Responsibility (CSR) is recognised by its membership of the FTSE4Good Index Series.

The Group has fully integrated Social, Ethical and Environmental (SEE) matters into its mainstream management processes and risk management framework. During the year, the Board has taken regular account of the significance of SEE matters to the Group’s business. The Board considers that it has received adequate information to enable it to identify and assess significant SEE matters which may have an impact on the value of the Group, and the Board is satisfied that SEE matters are currently managed so as not to represent a material risk to the Group. There are effective systems for managing SEE-related risks and the delivery of CSR targets has been linked to bonus entitlements set for executive directors and other senior managers.

The Group’s CSR policy is supported by other policies, covering environment, health and safety, community involvement and human resources. During the year the Board adopted a new ethical dealing policy.

The Group Chief Executive is the Board member responsible for CSR strategy and is assisted by the Company Secretary and a CSR co-ordinator. CSR compliance officers co-ordinate individual businesses’ responses to SEE matters. A strategic action plan is in place which identifies CSR actions and priorities.

Specific SEE-related matters, such as health and safety, regulation and the environment, are the subject of ongoing reporting and presentations to the Board. The Board is satisfied that individual SEE training needs for directors have been fulfilled. A training programme, incorporating SEE dimensions, has been developed for new directors and was delivered as required during the year.

The principal mechanism for the management of SEE risks and opportunities is the Group’s risk management framework. Risk registers identify, assess and make explicit risks deemed to have specific SEE/CSR dimensions. Consideration is given to any additional actions required, and CSR themes and priorities are defined and incorporated in risk registers as appropriate. During the year the Risk Management Committee, which is responsible for overseeing compliance with the Group’s CSR policy, reviewed the key CSR themes and priorities for each business. The corporate risk register was similarly reviewed by the Executive Committee and the Board on three occasions during the year.

The following have been defined by the Board as the principal CSR themes and priorities relevant to the management of the Group’s exposure to SEE-related risks that may impact upon the short and long-term value of the Group:

• ensuring the safety of employees, contractors and the general public through adherence to recognised safety standards, and the promotion of a positive health and safety culture throughout the Group;
• maintaining a commitment to a working environment in which personal and employment rights are upheld and ensuring equality of opportunity for all employees and job applicants;
• maintaining a commitment to a working environment which enables employees to realise their maximum potential and to be appropriately challenged and fully engaged in the business, with opportunities for skill enhancement, personal development and employee share ownership;
• making a positive contribution to the physical environment through environmentally responsible management and adherence to relevant statutory and regulatory standards;
• contributing to a reduction of the impact of energy-related activities on the environment through the promotion and provision of renewable energy options, environmentally-friendly energy and energy efficiency measures;
• commitment to NIE Supply’s social action plans, including attention to bad debt prevention, the continued promotion of keypad meters and the provision of services to customers with special needs;
• continuing to deliver available efficiency improvements and investing within the limits of price controls to provide the Northern Ireland community with a safe and reliable electricity transmission and distribution infrastructure and a quality service at an affordable price; and
• maintaining a highly ethical approach to regulatory responsibilities, obligations under licences, public positioning and marketing of products and services.

The Group’s externally resourced internal audit function has reviewed and verified the SEE/CSR disclosures contained in this report. The internal auditors were satisfied that the disclosures are supported by adequate and appropriate evidence. Their review concluded that the Group had appropriately adopted the requirements of the ABI guidelines on Socially Responsible Investment and assigned an overall assurance rating of high. In addition, key elements of the Group’s CSR activities are subject to additional verification, including ISO 14001, externally verified by British Standards Institute and Investors in People (IIP).

Workplace

The Group is fully aware of its obligations to employees and contractors under health and safety legislation. The Group’s health and safety policy aims to promote high standards and is supported by specific safety principles, rules, policies and procedures. Laurence MacKenzie, Managing Director Electricity Infrastructure, has responsibility for health and safety at Board level.

The Group health and safety management system is structured upon the principles of the Health & Safety Executive for Northern Ireland (HSENI) guidance “Successful Health and Safety Management” and the Health and Safety Commission guidance “Directors’ Responsibilities for Health and Safety”. To further strengthen the health and safety management system, the Group has adopted recommendations from a quality safety audit of transmission and distribution (T&D) and Powerteam undertaken by RoSPA (Royal Society for the Prevention of Accidents) in 2004. The Group safety and risk department regularly engages with relevant organisations including the HSENI; the Department of Enterprise, Trade and Investment in Northern Ireland (DETI); the Department of Trade and Industry; and the Electricity Networks Association (ENA).

Formal processes for accident investigation and incident analysis are in place. During the year there was a total of seven reportable accidents across the Group compared to 14 in the previous year. Contractors working on NIE’s electricity network must adhere to the same safety rules and requirements as Group employees. There were no employee or contractor fatalities during the year. However, a person engaged in road resurfacing was tragically killed in an incident involving an 11,000 volt overhead line in February 2006.

The Group Chief Executive has overall responsibility for employment issues, including equal opportunities, and is supported by the General Manager, Group Human Resources. The Group’s approach to employment-related performance, such as safety and sickness absence, is to set targets in line with best practice in similar industries. The Group reports its safety performance to the ENA. Equal opportunity measures and reporting are formally presented to the Equality Commission. The Group’s equal opportunities policy commits the Group to providing equality of opportunity for all employees and job applicants. Employment decisions exclude consideration of an individual’s religious belief, political opinion, gender, marital status, family status, dependency, disability, race, ethnic origin, nationality, sexual preference, age, irrelevant criminal convictions or any other personal factor which is not relevant. Equal opportunities, harassment and disability policies have been updated to remain consistent with best practice and changing legislation. The Group’s last disability survey showed that 2.2% of employees considered themselves as having a disability.

There were no occasions during the year when the Group was found to have failed to comply with equal opportunities legislation. The NI Equality Commission commended the Group’s most recent Article 55 Review of Fair Employment for the period May 2001 to May 2004, carried out in accordance with the Fair Employment and Treatment Order 1998.

In addition to formal complaints and grievance procedures, the Group has 13 trained harassment advisers and a harassment advice line. The Group engages with relevant external organisations, including Opportunity Now, which promotes equality on gender, the NI Equality Forum, an employers’ forum for sharing knowledge and best practice on equality issues, the NI Equality Commission, the Employers’ Forum on Disability and the NI Association for the Care and Resettlement of Offenders.

The Group has a wide range of family-friendly working arrangements in place including maternity, paternity, adoption, parental and dependant leave, a child care scheme, career breaks, job sharing and flexible working hours.

Eligible employees have the opportunity to participate in employee share schemes. A savings related share option scheme (Sharesave Scheme) approved by HM Revenue & Customs has been in place since privatisation in 1993. 54% of eligible employees participated in the grant of options under the Sharesave Scheme made during the year. 57% of eligible employees currently participate in the Company’s Share Incentive Plan.

Learning and development needs are identified through performance, planning and review (PPR) processes. NIE and Powerteam are IIP accredited, having been re-accredited in July 2003 and February 2004 respectively.

The Group places a significant emphasis on internal communications. Employee communications occur through a variety of channels, including team briefings, employee surveys, involvement groups, company forums and through interaction and consultation with trade unions. Communications are managed at the individual level and the PPR processes have been designed to include upward feedback. During the year an employee survey (comprising both written questionnaires and focus groups) was undertaken to identify the views of employees on a range of business issues.

Environment

Harry McCracken, Group Managing Director VP&E, is the Board member with responsibility for environmental issues. The environmental policy commits the Group to protecting the environment and is designed to ensure compliance with all relevant legislative and regulatory requirements. Where practical and economically viable, the Group seeks to develop standards in excess of such requirements. Areas of particular focus include measures to protect against oil pollution, the responsible management of emissions and waste and the promotion of energy efficiency.

Annual and five year targets are set for NIE and Powerteam in the environmental action plan. Performance indicators have been set for all relevant new contractors to reduce waste to landfill. NIE and Powerteam have 24 trained environmental auditors and 15 audits were completed during the year. The Group has designated environmental compliance officers for its relevant operations. Following the seventh environmental management survey conducted by ARENA Network in Northern Ireland in 2004, the Group attained the top position for the utilities sector, achieving an overall score of 95.8%. The sector average was 80%, with an overall average of 65% for all participating organisations. There were no prosecutions for non-compliance with environmental legislation during the year.

Since June 2001, NIE and Powerteam have been certified to ISO 14001 and continued certification was approved during the year. The environmental management system was updated during the year to ensure compliance with the new ISO 14001: 2004 standard, which came into effect in May 2006. External verification of compliance with the new standard was confirmed in March 2006.

Huntstown 1 operates in compliance with its Integrated Pollution Control licence, with reporting on emissions based on calendar years. For calendar year 2005, the station’s emissions of oxides of NO_x, SO₂ and CO₂ were 512 tonnes, 0.3 tonnes and 851,847 tonnes respectively. In 2006 Huntstown 1 achieved full verification compliance under the EU Emissions Trading Scheme through surrendering CO₂ credits to meet its CO₂ emissions for calendar year 2005 well within the allotted time frame. During the year, Huntstown 1 progressed towards attaining ISO 14001 for its plant environmental system and management process. Huntstown 1 is exempt from the requirements of the Large Combustion Plant (LCP) Directive, as transposed into Republic of Ireland (RoI) law, having been licenced and put into operation before the applicable date when they came into force. Notwithstanding its exemption, the plant complies with the emission limits for NO_x, SO₂ and dust under the LCP Directive.

During the year NIE Supply managed a £4.6m energy efficiency programme, approved by the Northern Ireland Authority for Energy Regulation (NIAER) and audited by the Energy Saving Trust. This programme is aimed at reducing CO₂ emissions and alleviating fuel poverty. During the year a total of 26 energy efficiency schemes were implemented with estimated lifetime reductions of 400GWh in energy demand. This represented an estimated 112,000 tonnes of CO₂ savings and customer benefits of £23m over the lifetime of these measures. Many of these schemes were developed to target the most vulnerable customers providing whole house energy efficiency solutions. In addition, through commitments in NIE Supply’s price control, a further £15m of lifetime savings to customers has been delivered through investment in energy efficiency measures since 2000. NIE Supply has continued to promote EcoEnergy, its “green” electricity tariff, which currently has 18,200 customers. NIE Supply has also made significant progress towards its price control target to encourage 1,000 micro-renewable installations with 291 completed and a further 337 being developed. NIE was awarded the Excellence in Environmental Achievement Award at the Belfast Telegraph Business Awards in April 2005.

The Group provides financial support to Action Renewables, a joint venture with DETI aimed at raising awareness and encouraging the installation of renewable energy technologies in Northern Ireland.

An ESCo (Energy Services Company) project team has been established within NIE Supply to oversee sustainable energy activities, regulated and unregulated, and to consider business opportunities in this emerging field.

The NIE Sustainable Management of Assets and Renewable Technologies (SMART) programme (www.niesmart.co.uk) is part of the current regulatory framework agreed between T&D and NIAER. The programme has been developed to support emerging renewable technologies and to encourage environmentally-friendly approaches to the provision of T&D network infrastructure to meet customer demand in Northern Ireland. A total of 37 renewable programmes and projects is now being funded and managed under the SMART programme with £3.4m committed. Technologies targeted for support include photovoltaics, solar water heating, biomass, domestic CHP, tidal power and hydro-electric power.

Energia continues to promote energy efficiency schemes through the Customer Energy Efficiency Levy approved by NIAER. In 2005/06 a total of 52 schemes was supported delivering estimated annual savings of £0.4m.

Marketplace

The Group aims to be transparent and ethical in all its dealings with third parties and has a number of policies in place to underpin this objective. Policies include internal “whistleblowing” procedures as well as the Group’s corporate governance arrangements. The new ethical dealing policy was communicated to employees during the year.

The Group’s procurement practices aim to ensure transparency and fairness in dealings with suppliers, including a policy to make payment to suppliers in accordance with agreed terms of business.

As a major purchaser the Group recognises that it has an opportunity to encourage suppliers of materials and services to deliver good environmental and safety performance and to maintain responsible practices towards their employees and the communities in which they operate. The Group subscribes to the Achilles utilities vendor database to pre-qualify potential suppliers for major contracts; this assessment includes environmental and health and safety practices. All suppliers are pre-qualified on a fair and equal basis. The Group’s procurement team carries out supplier assessments on other contracts not processed through Achilles, through an assessment of environmental and health and safety practices as submitted in tender documentation. Evidence that potential vendors support and respect internationally-proclaimed human rights is sought during the invitation-to-tender stage of the procurement process.

During the year the procurement team reviewed its invitation-to-tender documents to request CSR information, updated its supplier questionnaire to include ethical questions and developed a CSR and quality check-list for supplier audits. Six audits were completed during the year.

Following three years of business growth in the RoI, Energia won the Queen’s Award for Enterprise: International Trade in 2005.

Community

Through its mainstream business activities and its community involvement policy, the Group seeks to contribute to economic and social development and environmental improvements in the local communities in which it operates, both in Northern Ireland and in the RoI. The Group’s community involvement policy is aligned to three key themes: growth, safety and environment.

During the year, NIE operated an on-going public safety awareness programme, promoting the importance of electrical safety to farmers and agricultural and building contractors through the HSENI and NIE farm safety road show, safety presentations and farm safety leaflets. The NIE-initiated “Kidzsafe” programme, conducted in association with other agencies including the Department of the Environment, the Northern Ireland Fire Brigade and the Police Service of Northern Ireland, raises safety awareness among school children in an effort to reduce incidences of vandalism and electricity-related injuries. Over 13,800 school children attended presentations under this safety awareness programme during the year and the NIE Kidzsafe website (www.niesafety.co.uk) continues to support the programme.

NIE offers contractors undertaking roadworks a wide range of advice and assistance to help them avoid damaging electrical underground cables. This includes advice leaflets, videos and providing diagrams, when requested, of the underground electricity network, as well as advising contractors to check NIE’s website (www.niesafety.co.uk) for additional safety advice.

The Group recognises the social dimension of debt management and NIE Supply continues to offer a wide range of payment options and debt prevention measures. As part of its price control, NIE Supply has a target to install 175,000 keypad meters by March 2007. At 31 March 2006 some 170,000 meters were installed. This pay-as-you-go metering enables customers to budget for their electricity payments, whilst attracting a 2.5% discount on the standard price of electricity, and provides friendly credit and user-friendly consumption information. There are over 1,300 outlets in Northern Ireland from which NIE Supply customers can buy keypad meter credits, as well as a telephone vending facility.

NIE provides financial and in-kind support for Northern Ireland’s Energy Efficiency Advice Centres and engages with organisations including the Fuel Poverty Partnership Group and the Department of Social Development.

NIE aims to ensure that its customers receive a quality service at an affordable price. By the end of the third price control period (31 March 2007), T&D prices will have reduced by around 43% in real terms since privatisation. T&D’s strong record of cost efficiency, delivered while improving network performance and performance against customer standards, is part of its mainstream business commitment to the community. Key performance indicators used to report network performance and customer service include CML (the average number of minutes lost per customer per annum through supply interruptions excluding major storms), guaranteed and overall standards and customer complaints.

NIE offers a number of services to its customers that are promoted through its codes of practice and through various advice providers, including Citizens Advice Bureaux, Advice NI and Energy Efficiency Advice Centres. The codes are produced in several different languages. NIE aims to assist its customers with special needs through a number of these services. The total number of customers using the critical care register is 2,662, with 2,593 on the customer care register. At 31 March 2006, 651 customers were users of NIE’s password scheme, a service which provides customers with additional proof of identity of agents calling at their homes.

During the year, the Group sponsored various charities and organisations with sponsorship totalling £145,000. Other examples of community involvement during the year included:

• the Viridian Growth Fund, which is supported by public and private sector investors including the Group and Viridian Group Pension Scheme, had, at 31 March 2006, invested a total of £3.1m in developing businesses in Northern Ireland;
• major sponsorship of the Enzyme project, designed to encourage entrepreneurs through an incubation and mentoring process;
• a one-off donation of £30,000 on behalf of Viridian shareholders to the Salvation Army and St. Vincent de Paul NI;
• the Prince’s Trust and Young Enterprise initiatives, both supported through the provision of office accommodation and other facilities;
• participation in the “Tree For All” campaign organised by the Woodland Trust;
• the coaching of chief executives of local voluntary organisations by senior managers within the Group;
• assisting voluntary sector organisations in the recruitment of key staff and the development of human resource policies and procedures;
• provision of guidance and advice on energy efficiency, renewable energy and safety at the Royal Ulster Agricultural Society’s annual show;
• monthly presentations to various business representative groups including the Chamber of Commerce and the Federation of Small Businesses;
• further support for the NIE Farm Energy Scholarship Scheme offering financial assistance to students from Northern Ireland attending Harper Adams University College; and
• sponsorship of two engineering students at university.

Stakeholder Engagement

The Group recognises the importance of engaging with its stakeholders. The Group recognises a range of stakeholders, including its shareholders, customers, employees, the wider community, those representing the environment and its suppliers.

During the year a stakeholder engagement strategy was developed to capture more clearly the totality of the Group’s stakeholder engagement in relation to CSR.

Stakeholder engagement has been referred to throughout this CSR Report. Other examples of stakeholder activity during the year included:

• regular interaction with the Consumer Council on a wide range of customer issues including complaints;
• regular interaction and consultation with NIAER, the Commission for Energy Regulation and DETI;
• a critical care customer contact day and interaction with health trusts to ensure that appropriate customers benefit from the critical care scheme;
• independent external market research to obtain feedback from NIE Supply’s business customers, as well as monthly internal market research for NIE Supply’s HomeEnergy/business customers;
• a review of NIE Supply’s literature/communications in partnership with minority representative organisations;
• discussion with the Department for Social Development, Advice NI, Citizens Advice Bureaux, Eaga Partnership and other representative groups to develop NIE’s proposal for a vulnerable customer fund to help alleviate fuel poverty;
• networking with a broad range of business representative groups such as federations of retail trade, town centre managers, enterprise agencies and Women in Business to heighten awareness of issues affecting the local business community;
• an energy efficiency seminar inviting representative organisations to work in partnership with NIE;
• interaction with the Home Energy Conservation Authority Advisory Panel, Fuel Poverty Advisory Group, Advice NI and Citizens Advice Bureaux;
• ongoing discussions with trade unions on a wide range of issues including pay negotiations, terms and conditions, productivity improvements and policies;
• a seminar with major civil contractors to advise how to avoid electricity cables when carrying out excavation work;
• briefings on energy issues to relevant elected representatives and politicians in both Northern Ireland and the RoI;
• representation on the NI Infrastructure Emergencies Planning Forum; and
• liaison with contractors, landowners and environmental representatives, including the Environment and Heritage Service when undertaking environmental impact assessments.