States of Jersey Utility Companies: Financial Reports and Accounts – 2008.

States of Jersey Utility Companies Financial Reports and Accounts - 2008

States of Jersey Treasury and Resources Department

UTILITY COMPANIES FINANCIAL REPORTS AND ACCOUNTS 2008

For

The Jersey New Waterworks Company Limited The Jersey Electricity Company Limited Jersey Post International Limited

JT Group Limited

Presented by:

P.F.C. Ozouf Senator Minister

Contents

Foreword

Financial Report and Accounts

The Jersey New Waterworks Company Limited for the year ending 31 December 2008 The Jersey Electricity Company Limited for the year ending 30 September 2008 Jersey Post International Limited for the year ending 31 December 2008

JT Group Limited for the year ending 31 December 2008 (redacted)

Foreword

As the States is a major shareholder and in some cases the sole shareholder in each of the four States owned utility companies. The Minister has decided to present the financial reports and accounts for the four companies to the States.

In the States 2008 annual report and accounts, reference is made to the States interest in these  four  companies  as  "Strategic  Investments" They  comprise  of The  Jersey  New Waterworks  Company  Limited;  The  Jersey  Electricity  Company  Limited,  Jersey  post International Limited and JT Group Limited.

The States of Jersey Financial Report and Accounts 2008 detail these "Strategic Investments." They are not consolidated in the accounts; instead the investments are stated at cost less provision for any permanent diminution in value.

Extract from States of Jersey Accounts, note 9 (page 46).

With the introduction of UK GAAP accounting in 2009, the States Valuations for the Strategic Investments will move from cost to adopt a fair value basis.

Waterfront  Enterprise  Board  Limited  (W.E.B.)  is  also  wholly  owned  by  the  States.  This Company's accounts were presented to the States earlier this year.

Annual Report and Financial Statements

The Jersey New Waterworks Company Limited

2008

www.jerseywater.je

Contents

Directors, Officers and Advisers  Page 2 Notice of Annual General Meeting  Page 3 Board of Directors  Page 4 Chairman s Statement  Page 5 Business Review  Page 7 Corporate Governance  Page 13 Directors Report  Page 17 Independent Auditors Report  Page 20 Balance Sheet  Page 21 Profit and Loss Account  Page 22 Statement of Total Recognised Gains and Losses  Page 23 Cash Flow Statement  Page 24 Notes to the Financial Statements  Page 25 Five Year Summary  Page 37

Directors, Officers and Advisers

Directors

David Charles Norman, FCA Chairman

Kevin Charles Keen, MBA, FCCA, FCMA Deputy Chairman and Senior Independent Director

Howard Neville Snowden, EurIng, BSc (Eng), MSc, CEng, FCIWEM, FICE, FIMechE, FIET Managing Director and Engineer

Helier James Bennett Smith, BA, ACA Finance Director

Carlyle John Le Herissier Hinault

Stephen John Marie, FICW, MBIFM, ACIOB

Anthony Cooke BA (Hons) Econ, CEnv, FCIWEM, FIWO, FRSA Mary Curtis , MA, Chartered FCIPD, MIoD, AIBC

Secretary

Helier James Bennett Smith, BA, ACA

Auditors

Ernst & Young LLP Liberation House Castle Street

St Helier

Jersey

JE1 1EY

Legal Advisers

Le Gallais & Luce 6 Hill Street

St Helier

Jersey

JE2 4UA

Registered Office

Mulcaster House Westmount Road St Helier

Jersey

JE1 1DG

Notice of Annual General Meeting

Notice is hereby given that the one hundred and twenty-seventh annual general meeting of the shareholders of The Jersey New Waterworks Company Limited will be held in the Leopold Suite at the Grand Hotel, St Helier, Jersey on 22 May 2009, at 2.00pm

for the following purpose.

Ordinary Resolutions

1. To receive the Financial Statements for the year ended 31 December 2008.
2. To declare a final net dividend of 194 pence per share on the ordinary and A ordinary shares of the Company.
3. To re-elect Mr Carlyle Hinault, the Director retiring by rotation.
4. To elect Mr Peter Yates as a Director of the Company. Mr Yates will be filling the vacancy left by Mr David Norman who will retire as a Director of the Company at the Annual General Meeting.
5. To approve the Directors fees for 2009 of £20,000 for the Chairman and £12,000 for other Directors (2008: £18,000 and £10,000 respectively).

To facilitate the preparation of dividend warrants the share transfer books of the Company will

be closed from 11 May 2009 to 22 May 2009, both days inclusive, and, subject to the dividend being confirmed, dividend warrants will be posted on 22 May 2009 to all ordinary and

 A ordinary shareholders registered on

22 May 2009.

A member of the Company entitled to attend and vote may appoint another person

(whether a member or not) as his proxy to attend and, on a poll, vote in his stead. A form of proxy is included with this annual report for use of members who are unable to attend the meeting. All shareholders are requested

to complete and return the form of proxy, whether or not they intend to be present at the meeting in person. Proxies must be deposited at the registered office of the Company not less than 48 hours before the time of the meeting.

6. To re-appoint Ernst & Young LLP as auditors at a fee to be agreed by the Directors.

By Order of the Board

Helier Smith Company Secretary

Registered Office:

Mulcaster House Westmount Road St Helier

Jersey

JE1 1DG

27 April 2009

Board of Directors

From left to right: Helier Smith, David Norman, Mary Curtis , Kevin Keen, Howard Snowden, Tony Cooke, Stephen Marie, Carl Hinault

David Norman FCA

David Norman, a Chartered Accountant, joined the Board as a Non-Executive Director in 1994 and became Chairman in 1996. He is the Managing Director of Norman (Holdings) Limited, a family owned property group and holds directorships in a number of other companies in Jersey, Guernsey and France.

Kevin Keen MBA, FCCA, FCMA

Kevin Keen was appointed to the Board in May 2007 as a Non-Executive Director. He was previously Managing Director of Jersey Dairy and prior to that a Divisional Managing Director and Finance Director of Le Riche Group. Mr Keen was also recently President of the Jersey Chamber of Commerce and is a Fellow of both the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants.

Howard Snowden EurIng, BSc(Eng), MSc, CEng, FCIWEM, FICE, FIMechE, FIET

Howard Snowden joined the Company in 1992 as Senior Engineer and became Managing Director in May 2000. Mr Snowden has worked in the water industry since 1970 for a number of Companies including Yorkshire Water Authority (the forerunner to Yorkshire Water Plc). He is a fellow of the Chartered Institution of Water & Environmental Management, the Institution of Civil Engineers, the Institution of Mechanical Engineers, the Institution of Engineering and Technology and a member of the British Dam Society and is a Panel Supervising Engineer under the Reservoir Act 1975.

Helier Smith BA, ACA

Helier Smith joined the Company in May 2002 as Financial Controller and became Company Secretary in July of that year. He was appointed to the Board

as Finance Director in October 2003. Mr Smith,

who qualified as a Chartered Accountant in 1994, was previously employed by KPMG where in the  UK and Jersey he gained experience in the manufacturing, distribution and finance sectors.

Tony Cooke BA (Hons) Econ, CEnv, FCIWEM, FIWO, FRSA

Tony Cooke became a Non-Executive Director of

the Company on 12 June 2008. Mr Cooke is an economist by background and he is currently

Managing Director of Bournemouth & West Hampshire Water Plc. He has previously held a number of Chief Executive and senior management roles in the United Kingdom and internationally.

Mary Curtis MA, Chartered FCIPD, MIoD, AIBC

Mary Curtis joined the Board as a Non-Executive Director on 12 June 2008. She is currently Managing Director of a privately owned business consultancy firm and was formerly Director of Human Resources at Mourant and Offshore Island Regional Human Resources Manager at Deloitte & Touche.

Carl Hinault

Carl Hinault joined the Board as a Non-Executive States of Jersey nominated Director in March 2000 and was re-elected to the Board in 2002 following the removal of the requirement for States of Jersey nominated Directors. Mr Hinault, a retired grower, was ConnØtable of the Parish of St John for six years until December 2000 and prior to that served as Deputy of St John for 12 years; he was

also a Procureur du Bien Public for the Parish of St John for a number of years.

Stephen Marie FICW, MBIFM, ACIOB

Stephen Marie became a Non-Executive Director

of the Company in 2002. Mr Marie has recently taken

a position as Managing Director of ComProp (CI) Ltd

a newly formed Channel Island commercial property development company, he was previously Property Director of Sandpiper CI. He is a fellow of the Institute  of Clerk of Works, a member of the Institute of Facilities Management and an associate of the Chartered

Institute of Building.

Chairman s statement

I am delighted to report to shareholders another satisfactory financial year for Jersey Water. Your Company generated profits before tax of £4,034,000, an increase of 14% on the previous year, in excess of budget and achieved whilst keeping tariff increases below inflation for the seventh consecutive year.

Although operating expenditure increased by 6%, this was better than budget and included expenditure on the Company s Water Resource Plan of £102,000, the operation of the desalination plant for three weeks to test the new control systems installed in the

year and increased depreciation charges consistent with the Company s continued investment in its infrastructure, having invested a further £3 million on capital projects in 2008.

Your Company generated profits before tax of £4,034,000, an increase of 14% on the previous year.

Your Board are recommending a final net dividend for 2008 of 194 pence bringing the total dividend for the year to 290 pence, an increase of 15% on 2007.

I am also pleased to report that the quality of water we supplied to our customers in 2008 was once again of

a very high standard with the overall compliance level consistent with 2007 at 99.97%, slightly better than the 2007 average figure for water companies in England and Wales. Our water quality results for 2008 are explained in detail in the 2008 Water Quality report.

As previously reported, on 1 January 2009 the Company implemented a policy of requiring that where there was a change of account holder, a water meter

be fitted and the property charged for water based on the volume of water consumed. The number of meters installed in 2009 to date has been lower than expected due to the recent downturn in the housing market. However, we still expect to install approximately 1,000 additional meters by the end of 2009 as a result of the new policy. Whilst the process of metering is costly, the benefits of reduced consumption and leakage

on customer pipe work clearly outweigh those costs and help defer the need for additional water resources to be introduced.

Handois Treatment Works

In last year s Chairman s statement I mentioned

your Board s decision to commission a formal Water Resource Plan based on guidelines set out by the

UK Environment Agency and followed by UK Water Companies. The plan, which will be updated every five years, will set out the means by which the likely demand for water over the next twenty five years will be met

by the Company, taking into account predictions concerning both climate change and population.

The plan is due for completion in 2009 and we

intend to publish the summary findings.

In 2009, the Water Resources (Jersey) Law 2007 will come in to force. This new law, which was supported by your Company, is important for the future as it will provide the means for gathering information on water resources across the Island, thus giving data on consumption from sources not provided by the Company. The Company, as with other commercial water abstractors, will be required to pay for abstraction of water and shareholders should note that the

licence fee is expected to be in the region of

£100,000 per annum.

Given there is currently no method for the sale or purchase of shares in the Company (other than

via private transfer), during 2009 the Board will be considering ways in which liquidity in the market for Jersey Water shares can be improved allowing shareholders to sell their shares in a cost effective manner at a price which more fairly reflects the value of the business.

At the Annual General Meeting both Mr Carl Hinault and I will be retiring by rotation in accordance with Article 74. Mr Hinault is offering himself for re-election. I will not be seeking re-election, having served nearly

15 years on the Board, 13 of them as Chairman of

your Company.

Chairman s statement (continued)

Queen s Valley Reservoir

As this is my last Chairman s statement I am taking the opportunity to put on record my view that Jersey Water is a tremendous asset to the Island, focusing, as it

does, on the provision of high quality treated mains water; it has an infrastructure in extremely good condition, with detailed plans for the continued maintenance and enhancement of its processing and distribution capability for the future. Water supplied by the Company is of excellent quality and the Company has a professional and well trained workforce eager to meet the needs of customers. Consistently low tariff increases have resulted in a reduction in water charges in real terms of 12% for metered water and 5% for unmetered water since 2000, whilst for shareholders, the Company continues to provide a good return and strong dividend growth. The future will inevitably hold challenges and changes for Jersey Water, however,

it is, in my view, important that external distractions and pressure for short term gains are not pursued

at the expense of the Company s ability to provide

for the needs of all of its stakeholders and specifically the focus on providing a first class water supply for

our customers.

I am delighted that following my retirement from the Board, Kevin Keen has agreed to take over from me as Chairman and I am confident that the Company will continue to prosper under his stewardship.

We have been fortunate in recruiting Peter Yates as a prospective Director. Peter is a recently retired partner of Price waterhouseCoopers and if elected will take over from Kevin Keen as Chairman of the Audit Committee. I shall be proposing his election at the AGM.

I continue to be impressed with the very positive attitude of our staff to their work throughout the Company and on behalf of my colleagues on the Board, as well as Shareholders, I take this opportunity to thank all of them for their continued support and commitment to your Company.

David Norman 3 April 2009

Business Review

Financial Performance

• Turnover

Turnover for 2008 was £14.4 million, an increase of 4% on the prior figure of £13.8 million.

Revenue from water sales increased by 4.3% to £13.5 million, from £12.9 million in 2007. Sales of water to customers paying on an unmeasured basis increased by 1% to £6.4 million, this being despite a tariff increase of 3.5% in April 2008. The slow rate of growth in the value of unmeasured charges is in line with expectation and consistent with the transition to billing customers on a metered basis. With the introduction of compulsory metering on change

of account holder it is expected that the value of unmeasured water sales will drop away more

rapidly in future in favour of metered water sales.

Metered water sales for 2008 totalled £6.5 million, an increase of 8.6% over 2007. Metered water tariff increases in 2007 were just 2.25% with the balance being due to the growing number of metered water customers.

Rechargeable works income remained in line with the previous year at £0.6 million, consistent with the lower number of water connections made in 2007 and 2008 and the general level of building activity in the Island.

• Profit on disposal of fixed assets

During the year, the Company sold two areas of land and sundry plant and vehicles generating proceeds of £529,000. In addition, these sales coupled with the disposal of a number of pieces of plant and equipment following decommissioning in 2008 generated an overall profit on sale of fixed assets of £493,000.

• Interest costs

During 2008, the fall in interest rates has had a positive effect on interest payable by the Company. Interest payable reduced from £872,000 in 2007 to £835,000 in 2008. The higher levels of cash held by the Company during 2008 resulted in an increase in interest income for the year of £133,000.

• Income tax

Income tax charges for 2008 are at £4,000 compared to £273,000 in 2007. The positive variance is due mainly to a deferred tax credit of £234,000 in 2008 on accelerated capital allowances compared to a charge of £50,000 in 2007. The income tax charge for 2008 was £238,000, slightly higher than the charge of £223,000 in 2007.

Turnover for 2008 was

• OOppeerraat tiningg e cxp oe sntsditure increased by 6.3% from  £14.4 million, an increase £T9h.is3 imncilrlieoans ien  w20a 0s 7 lo two e£r9 t.h9a mn  ibllioud n g ine t 2e 0d 0 a 8n . d  as  of 4% on the prior figure aexrpeesunldt iotuf rae nounmthbee rCoofmsppeacniyfi cs iWteamtesr inRcelusoduinrgce  of £13.8 million.

Plan in 2008 of £102,000, additional depreciation

on completed works of £128,000 arising from the

Company s capital expenditure in 2007 and 2008

and the running of the desalination plant for three

weeks at an additional cost of approximately £51,000

in order to test the new control system. Electricity

charges increased in 2008 by £41,000 as a result

of the 10% increase in the electricity tariff in 2008.

Further significant increases in electricity costs are

expected in 2009 and for the future following the

announcement of tariff increases for 2009 of 25%.

In addition, the Company provided £51,000 against

slow moving pipe stock in accordance with its stock

provisioning policy and incurred an additional

£60,000 on site maintenance, decommissioning

redundant sites and overhauling one of the pumps

at Val de La Mare Pumping Station.

Business Review (continued)

• Equitydividends

Dividends paid in 2008 totalled £1,256,000, an increase of 12% over dividends of £1,124,000 in 2007. A final dividend for 2008 of £1.94 is proposed bringing the total dividend for 2008 to £1,401,000,

an increase over the total dividends for 2007 of 15%.

2008  2007

£ 000  £ 000

Dividends paid

Final dividend for the previous year  792  699 Interim dividend for the current year   464   425

£1,256  £1,124 Dividends proposed

Final dividend for the current year   £937   £792

• Defined benefit pension scheme

A full FRS 17 valuation of the defined benefit sections of the scheme was undertaken as at 31 December 2008. The valuation identified a net deficit of £1,056,000 (2007: surplus of £180,000) arising primarily as a result of the reduction in asset values following the turmoil in the markets experienced in 2008.

• Cash flow

Net debt at the end of the year was £16,034,000 compared to £18,023,000 in 2007. Net cash flows before financing and use of liquid resources were £1,989,000 (2007: £1,986,000).

• Capital expenditure

Capital expenditure for 2008 totalled £2,980,000, in line with budget. An analysis of expenditure by type is provided in the table below.

Capital expenditure by type

Mains renewals 29% Property maintenance and refurbishment 5%

Vehicle, plant, tools and equipment 8%

Mains extensions 12%

Water distribution 25%

IT infrastructure 10%

Environmental 1% Water quality 4%

Water resources 6%

Business Review (continued)

Connections, metering and charges

In 2008, 508 new service connections were made to the distribution network, the majority of which were due to new housing development sites. In some cases, bulk meters were installed to supply multiple-dwelling apartment buildings allowing a total of 637 new dwelling units to be connected.

In conjunction with water main renewal schemes,

441 existing connections were renewed during the year and made ready to accept water meters in preparation for future metering. In addition, a total of 263 existing connections were fitted with a meter at the request of customers wishing to pay for water by meter.

The Company continues to promote water metering as the fairest way of charging and from experience

in England and Wales, metering has proven to reduce consumption by an average of 10% and help to combat leakage on customer supply pipes. With effect from 1 January 2009, the Company has implemented a policy of installing meters on change of account holder and charging for water based on the volume consumed. It is expected that during 2009 a total

of approximately 1,000 properties will be fitted with a meter under this scheme. At the end of 2008,

there were approximately 11,200 metered water connections, 31% of the total customer base.

With the implementation of the policy of metering on change of account holder from 1 January 2009,

there will be a steady increase in this percentage

in future years.

In December 2008, the Company announced tariff increases of 2.5% for both metered and unmetered water charges taking effect from 1 April 2009, the seventh consecutive year in which tariff increases have been either at or below RPI.

From 1 April 2009, the Company has discontinued charging a standard price for making connections to the water network. New regulations affecting the ability of the Company and contractors to work in roads and new requirements for road reinstatement are such that the costs incurred by the Company when installing new connections can fluctuate significantly depending on the conditions imposed by the road authorities. Accordingly, all new connections after 1 April 2009 will have individual and site specific priced quotations.

Water Supply and Demand

2008 was another relatively wet year with total rainfall 16% above the 10 year average. Our reservoirs were full at both the beginning and at the end of the year, with the lowest level being recorded in July at 93%. Levels in the reservoirs have not fallen below 80% for two years, which is a record and demonstrates how wet the past two years have been.

Water in store

3,000 2,500 2,000 1,500

1,000 500

0

2008 2007 10 Year average Maximum

Business Review (continued)

In 2007, the Company commissioned a Water Resource Plan to provide estimates on the availability of and demand on water resources for the next

25 years and indicate the necessary works that the Company will need to undertake over that period in order to safeguard the continued supply of water. The initial phase is now complete and the final report including options for additional water resources and demand management is due for completion during 2009. The Water Resource Plan is being developed using the guidelines set out by the England and Wales Environment Agency and will be updated every 5 years, in accordance with those guidelines. A summary of the findings will be published later

in 2009.

Demand for water during 2008 was 3.1% above that in 2007, a figure skewed by an unusually high number of burst water mains and services in the first quarter of the year caused by the relatively cold weather. After allowing for bursts the demand increase is

in line with the 1% to 1.2% norm.

In April 2008, our reservoirs at Millbrook, Dannemarche and Handois were given a time related inspection,

in accordance with the Reservoirs (Jersey) Law 1996. The inspection was undertaken by an independent Inspecting Engineer from the UK and he reported the reservoir structures to be in satisfactory condition.

Water Quality

The quality of water supplied to our customers

in 2008 was once again of a very high standard. The compliance level for treated water analysed was 99.97%, slightly better than the average figure for water companies in England and Wales for 2007.

As a result of well below average rainfall in February, a critical period affecting the leaching of nitrates into water resources, there were no nitrate failures reported during the year.

In November 2008, the Minister for Planning & Environment approved the renewal of existing dispensations under the Water (Jersey) Law 1972,

for nitrates, iron and manganese; parameters which are outside the control of the Company. Jersey Water is entirely reliant on surface waters for water resources and is unable to blend water from different sources and with different characteristics, unlike most water companies in the UK. The nitrate dispensations allow 33% of samples taken in a year to be above the 50mg/l level but not exceeding 70mg/l.

The full report on water quality in 2008 is given in our Water Quality Report.

Total water supplied by year

8,000  

7,269 7,262 7,317 7,207 7,301 7,305 7,291 7,484 7,182  7,402 7,000

6,000

5,000  4,000  3,000  2,000  1,000  0  

1999  2000  2001  2002  2003  2004  2005  2006  2007  2008

Year

Business Review (continued)

Mains Network

In 2008, 7.5km of new water mains were laid of which 4.9km was funded by the Company and the balance of 2.6km being funded by third parties to supply new housing developments.

As part of the first phase of the works to reinforce the water distribution infrastructure in the north-east of the Island, 1.1 km of new 300mm diameter trunk mains were laid along the planned route from Trinity to

St Martin and Maufant. This new trunk main will supply water by gravity from Les Platons Service Reservoir into the high level north-east areas of the distribution network. The primary purpose of this work is to strengthen the infrastructure network in the east for future demand, but it also allows the opportunity to create a number of new District Metered Areas (DMA) which will greatly assist with future leakage detection. The provision of this new infrastructure is being undertaken in two phases, with the final phase,

to link to the existing trunk main at Maufant in 2010. The commissioning of the final phase, will provide further efficiencies, allowing the existing Booster Pumping Station at Gorey to be taken out of

service, resulting in operational and energy

savings to be made.

The Company renewed 2.8 km of old water mains during the year, an increase on 2007. The mains chosen for replacement are prioritised by customer service issues, such as discolouration of water and burst history.

The age of the water main alone is not a deciding factor in its planned replacement. This work requires extensive planning with the road authorities, parishes and local businesses, to minimise the disruption caused. Therefore the work tends to be expensive and slow, particularly when working in areas where underground services are dense and excavation

can only be carried out safely by hand. We remain conscious of the disruption which this essential work can cause the public and we work very hard

to minimise this.

During 2008, improvements were made to the service reservoirs at Westmount, St Helier. The inlet and outlet pipe work to both service reservoirs, was replaced and re-configured to ensure water moves efficiently through both the service reservoirs. New sampling points were also installed to improve the sampling of the water.

Mains renewals by year

3,000

2,751 2,500 2,497 2,450

2,141

2,000 1,980

1,822

1,598

1,500

1,281

1,178

1,000

500

300

0

1999  2000  2001  2002  2003  2004  2005  2006  2007  2008

Year

Business Review (continued)

Treatment and Processing

The replacement control system at the Desalination Plant was installed and commissioned during the year. This work involved the installation of new hardware and software to control the operation of the plant, which apart from starting and stopping is now an automated process. The software used is identical to that used by our existing Supervisory, Control and Data Acquisition (SCADA) system and has allowed easy integration of the plant control system on to the SCADA network, allowing remote monitoring of the site from other points of the network. The plant was operated to full output

for a short time to test the control system and ensure

its satisfactory operation. Improvements were also undertaken at the sea water intake shaft to improve access into this restricted area of the Plant.

During the year, work commenced on the design

and procurement of replacement pumping plant and associated control equipment for Queen s Valley Reservoir Pumping Station. Two new high lift pumps are to be installed, together with new electrical control panels by contractors in the early part of 2009.

The works also include the installation of a standby power supply generator, in case of mains electricity supply failure. This new infrastructure will increase the pumping capacity rate of raw water from Queen s Valley Reservoir to the treatment works and is due to be completed in time for the summer demand period.

The Company staff and management

The Company recognises the valuable contribution made by Jersey Water staff and invests heavily in the training and education of its workforce. During 2008, the programme of funding training for National Vocational Qualifications (NVQ) in Leadership and Management continued in addition to the funding

of other more specialised qualification training for other staff.

The Chairman with the recipients of long service awards in 2008.

Back row (left to right): Stephen McShane, Peter Audrain

Middle row: Paul Batho, Peter Hamel

Front row: David Le Monnier, Alan Modral, David Norman, Malcolm Hamon

Corporate Governance

Introduction

In July 2003, the Board voluntarily resolved to adopt the requirements of the Combined Code on Corporate Governance issued by the Financial Reporting Council ( the Code ).

The Board are of the opinion that, throughout the year under review, the Company has been in compliance with the Code provisions set out in Section 1 of the Code except for the following matter:

• The Code includes a requirement that Non-Executive Directors serving longer than nine years on the Board should be subject to annual re-election. One third of Directors are required to offer themselves for re-election

each year and the Board are of the opinion that re-election once every three years is sufficient for the purposes of the Company.

Directors and the Board The Board

The Board comprises eight Directors, two of whom

are Executive and six of whom are Non-Executive Directors. The Board meets regularly, normally ten times per year and for ad hoc meetings as and when required. The role of the Board is to set the overall operating strategy, approve detailed operating plans

and budgets, monitor performance against plans

and oversee the activities of the Executive Directors. The Board has delegated the day to day operation of

the activities of the Company to the Executive Directors.

The Board is supplied with regular timely management information through which it can monitor the performance, activities and financial position of the Company and on which decisions can be based.

Meetings and Committee membership

During the year, the Board met nine times. Details of Board meeting attendance, Committee membership and Committee meeting attendance are provided in the table below.

1 Tony Cooke and Mary Curtis were appointed to the Board on 12 June 2008. 2 Richard Pirouet retired from the Board on 12 June 2008.

Corporate Governance (continued)

Director independence

The Board considers all Non-Executive Directors

to be independent in character and judgement. However, both David Norman and Carl Hinault have been Board members for more than nine years.

David Norman and Carl Hinault do not therefore meet the criteria of independence set down in the Combined Code. Accordingly, the Board has determined that Tony Cooke, Mary Curtis , Kevin Keen and Stephen Marie shall be deemed independent.

Performance evaluation

In order to ensure that the Board continues to operate effectively, it has developed and implemented a process of performance evaluation. The process measures the performance of the Board as a whole against a set of predefined targets and of individual Directors by way of self and peer appraisal. The results of the performance assessments and appraisals are

fed back to the individual Directors and the Board as a whole (as appropriate) and action taken accordingly.

Reappointment

Except where a Director is appointed to fill a

casual vacancy, all Directors are appointed by

the Shareholders at the Annual General Meeting.

One third of the Directors (to the nearest whole

number of Directors) retire by rotation (based upon length of service) and, where eligible, seek re-election. Directors appointed to fill a casual vacancy must seek formal appointment by the Shareholders at the Annual General Meeting. Biographical notes of all Directors are included on page 4.

Relations with shareholders

The Company is in regular contact with its majority and controlling shareholder, the States of Jersey. Details of contact with and the views of the States are passed on to the whole Board as necessary.

Audit Committee

The Audit Committee is made up of Kevin Keen (Chairman), Tony Cooke and Carl Hinault.

The auditors, Ernst & Young LLP, and the Executive Directors, Howard Snowden and Helier Smith also attend the meetings by invitation.

The terms of reference of the Audit Committee, which are available upon request, require it to meet at least twice per annum. Additional meetings may be called where deemed necessary. The Committee is charged by the Board with the following main responsibilities:

• To monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company s financial performance. The Committee is briefed on changes to reporting requirements and provided with information on any accounting or reporting issues that arise. The Audit Committee review in detail the financial statements before making a recommendation to the Board as to whether or not they should be formally approved.

• To review the operation and effectiveness of the Company s internal financial and other controls and make recommendations for improvement where necessary. During the year, the Committee continued its process of risk assessment and evaluation of effectiveness of the systems of internal control.

• To oversee the external audit process and

manage the relationship with the external

auditors. The Committee formally considers

the performance and independence of the

external auditors on a regular basis taking into consideration all applicable professional and regulatory requirements. The Committee also

has procedures in place to protect auditor independence and control the extent to which the auditors may be retained for non audit services and the basis upon which such services are purchased.

• To make recommendations to the Board as to the re-election and remuneration of the auditors at the Annual General Meetings and does so based upon its assessment of the performance of the auditors and giving due regard to their continued independence and any other regulatory or professional requirements.

The Committee has considered the need for an internal audit function and has concluded that due to the size and type of business that such a function would not be cost effective.

Corporate Governance (continued)

Remuneration Committee

The Remuneration Committee is made up of Stephen Marie (Chairman), Mary Curtis and David Norman. The Executive Directors, Howard Snowden and Helier Smith may also attend the meeting by invitation. No Director plays any role in the determination of his own remuneration.

The terms of reference of the Remuneration Committee allow it to meet as and when necessary to:

• Review the remuneration of salaried staff.

• Review and determine the level of remuneration of Executive Directors.

Grands VauxReservoir

Nomination Committee

The Nomination Committee comprises David Norman (Chairman), Tony Cooke, Mary Curtis , Carl Hinault, Kevin Keen and Stephen Marie. It is primarily responsible for the selection and appointment of

the Company s Executive and Non-Executive Directors as and when required.

The other duties of the Committee include:

• Making recommendations to the Board as to the re-election of Directors under the retirement by rotation provisions in the Company s Articles of Association whilst giving due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required.

• Reviewing and making recommendations to the Board as to the succession planning for Executive and Non-Executive Directors.

• Regularly reviewing the structure, size and composition required of the Board compared to its current position and making recommendations to the Board with regard to any changes.

• Keeping under review the leadership needs of the organisation, both Executive and Non-Executive, with a view to ensuring the continued ability of the organisation to operate effectively.

When selecting candidates for potential appointment as Non-Executive Director, the Committee evaluates the needs of the Company and identifies the necessary skills and experience required by candidates for consideration. The Nomination Committee makes recommendations to the

Board taking into account the performance of the candidates at interview, their skills and experience and their ability to meet the specific needs of the Company. Consideration is given to the use of external recruitment consultants and open advertising in the recruitment process. However, this is weighed against the cost of doing so and the specialist needs of the Company as a Water supplier.

Corporate Governance (continued)

Internal controls

The Board is responsible for ensuring that there are effective systems of internal control in place to reduce the risk of misstatement or loss and to ensure that business objectives are met. These systems are designed to manage (rather than to eliminate) the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Company has developed and adopted a

corporate and departmental risk register detailing

and risk grading all of the significant risks faced by the Company. Alongside the register is a process through which the significant risks faced by the business are identified and evaluated on a regular basis and the controls operating over those risks assessed to ensure that they operate effectively.

The process of risk assessment and reviewing the effectiveness of the systems of internal control is regularly reviewed by the Audit Committee, accords with Turnbull guidance and has been in place for the whole of the year, up to and including the date on which the financial statements were approved.

Controls adopted by the Board (or its Committees) to ensure the effectiveness of the systems of internal control include the following:

• The review of the corporate risk register maintained and updated by the Company and of the status of any actions arising from their regular review.

• The receipt of confirmation from Senior Management of the proper operation of controls throughout the period of the review.

• The review and approval during the year of terms of reference of sub Committees.

• The review and approval during the year of the schedule of matters specifically reserved for its attention.

• The review of reports received from the Audit Committee concerning the findings of the external auditors on the financial statements of the Company and the systems of internal control.

Going Concern

The Directors have made sufficient enquiries to satisfy themselves that they have reasonable expectation that the Company will continue in operational existence for the foreseeable future and have therefore used the going concern basis in preparing the financial statements.

Directors' responsibilities

Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the financial position of the Company and of the profit or loss for the period. In preparing these financial statements the Directors have selected what they consider to be suitable accounting policies and have applied them consistently. They have made judgements and estimates which they believe are reasonable and prudent, and have followed applicable accounting standards. They have prepared the financial statements on a going concern basis.

The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors Report

The Directors of the Company present the financial statements for the year ended 31 December 2008. Activities of the Company

The Company was incorporated in 1882. The principal activities of the Company are the collection, treatment and supply of water for commercial and domestic use throughout the Island. The Company has adopted

 Jersey Water as its trading name.

Review of business and future developments

The results for the year are set out on page 22. A review of the Company s business during the year and an indication of the likely future development of the business are provided in the business review on pages 7 to 12.

Dividends

Ordinary and A Ordinary shares

Amounts are shown net of 20% tax  2008  2007

£ 000  £ 000

Interim dividend for the year ended 31 December 2008

of £0.96 (2007: £0.88) paid on 1 October 2008.  464   425

Proposed final dividend for the year ended 31 December 2008

of £1.94 (2007: £1.64).      937    792 £1,401  £1,217

Preference shares

In 2008 the Company paid dividends on preference shares totalling £381,000 (2007: £381,000).

Directors

Changes in Directors

The Directors of the Company on the date the financial statements were approved are detailed on page 2.

All Directors except for Richard Pirouet, Tony Cooke and Mary Curtis were Directors of the Company throughout the year ended 31 December 2008. On 12 June 2008, Richard Pirouet retired from the Board and Tony Cooke and Mary Curtis were appointed to the Board.

In accordance with the provisions of Article 74, David Norman and Carl Hinault will retire at the forthcoming annual general meeting. Mr Hinault, being eligible, offers himself for re-election. Mr Norman will not seek re-election.

The Directors recommend the election of Mr Peter Yates as a Non-Executive Director of the Company to fill the vacancy left by the retirement at the AGM of David Norman. Mr Yates, a Chartered Accountant and former President of the Jersey Society of Chartered and Certified Accountants, was previously a partner of Price waterhouseCoopers working in the United Kingdom and Jersey for a total of 31 years.

As described on page 14, the Company has undertaken a formal assessment of its performance and that of the individual Directors, including structured meetings between the Directors being assessed, the Chairman and the Deputy Chairman. Following this review, the Chairman has confirmed that the Director standing for re-election at the Annual General Meeting continues to perform effectively and demonstrates commitment to his role.

Directors Report (continued)

Directors interests

Particulars of the holdings of Directors, including family and beneficial interests, in the share capital of the Company as at 31 December 2008 are:

Tony  Mary  Carl  Kevin  Stephen  David  Howard  Helier Cooke Curtis Hinault Keen Marie Norman Snowden Smith

Ordinary shares - - 100 - 100 8,680 200 146 Preference shares - - - 3,972 - - 95 3,235

Of the many business interests of David Norman, he is a Director of Petroleum Distributors (Jersey) Limited a Company with which Jersey Water trades on an arms length basis.

Stephen Marie was, during the year up to July 2008, the Property Director of Sandpiper CI, a Group with which the Company transacts on an arms length basis.

Kevin Keen is a Non-Executive Director of BG Romeril and Co Limited and an employee of Voisin & Co, companies with which Jersey Water transacts on an arms length basis.

Insurance of Directors and Officers of the Company

The Company maintains an insurance policy on behalf of all Directors and Officers of the Company against liability arising from neglect, breach of duty and breach of trust in relation to the Company.

Substantial shareholdings

Set out below are details of significant shareholdings (3% or more) in each class of share of the Company as at 3 April 2009.

Directors Report (continued)

The Company enters into normal commercial transactions with the States of Jersey and entities controlled by the States, in that it pays income tax, telephone, electricity and various other charges. Conversely, the Company levies charges at its usual rates for the supply of water and the connection of services to States owned properties.

Auditors

A resolution to re-appoint Ernst & Young LLP as the Company s auditor will be proposed at the forthcoming Annual General Meeting.

By Order of the Board

Helier Smith Company Secretary

3 April 2009

Independent auditors report

to the members of The Jersey New Waterworks Company Limited

We have audited the Company s financial statements for the year ended 31 December 2008 which comprise the Balance Sheet, Profit and Loss Account, Statement of Total Recognised Gains and Losses, Cash Flow Statement and the related notes 1 to 22. These financial statements have been prepared on the basis of the accounting policies set out therein.

This report is made solely to the Company s members, as a body, in accordance with Article 110 of the Companies (Jersey) Law 1991. Our audit work

has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as

a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The Directors are responsible for the preparation of the financial statements in accordance with applicable Jersey law as set out in the Statement of Directors Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies (Jersey) Law 1991. We also report to you if, in our opinion,

the Company has not kept proper accounting records or if we have not received all the information and explanations we require for our audit.

We read other information contained in the

Annual Report, and consider whether it is consistent with the audited financial statements. This other information comprises the Details of Directors, Officers and Advisers, the Notice of the Annual General Meeting, the Board of Director Profiles,

the Chairman s statement, the Business Review,

the Corporate Governance Report, the Directors Report and Five Year Summary. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to

obtain all the information and explanations which we considered necessary in order to provide us

with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view, in accordance with United Kingdom accounting standards, of the state of the Company s affairs as at 31 December 2008 and of its profit for the year then ended and have been properly prepared in accordance with the Companies (Jersey) Law 1991.

Ernst & Young LLP Jersey, Channel Islands

3 April 2009

Notes

1 The maintenance and integrity of The Jersey New Waterworks Company Limited

web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2 Legislation in both Jersey and the United Kingdom governing the preparation and

dissemination of financial statements may differ from legislation in other jurisdictions.

Balance sheet

31 December 2008

Note  2008  2007

£ 000  £ 000  £ 000  £ 000

Fixed assets 2  60,303  59,831

Current assets

Stock and work in progress  1,110  1,073 Debtors  3  4,579  4,225 Bank and cash  4,248  2,259

9,937  7,557

Creditors - Amounts falling due within one year

Creditors and accruals  4  (4,079)  (2,390) Income tax   (501)   (159)

(4,580)  (2,549)

Net current assets

Total assets less current liabilities

Creditors - Amounts falling due after more than one year Creditors  5 Income tax

Bank loans  7 Non-equity preference shares  10b

5,357

65,660

- - (14,900) (5,382)

5,008 64,839

(1,067) (307) (14,900) (5,382)

(20,282)  (21,656) Provisions for liabilities and charges

Deferred taxation  8   (4,773)   (5,007) Net assets excluding pension liability 40,605 38,176

Pension (liability) / surplus  9   (1,056)   180

Net assets  £39,549  £38,356

Equity capital and reserves

Called up equity share capital  10a  483  483 Capital redemption reserve   124   124

607  607 Share premium account  678  678 Reserves  11   38,264   37,071

Shareholders funds 12  £39,549  £38,356

The financial statements on pages 21 to 36 were approved by the Board of Directors on 3 April 2009 and were signed on its behalf by:

David Norman Chairman

Profit and loss account

For the year ended 31 December 2008

Note  2008  2007

£ 000  £ 000  £ 000  £ 000

Turnover

Water supply charges  13  13,463  12,912 Rechargeable works income  613  623

Other income   302   282

14,378  13,817

Cost of sales

Pumping expenses  (671)  (645) Operation of reservoirs and works  (2,238)  (2,051) Distribution and analysis of water  (1,721)  (1,679) Desalination station expenses  (140)  (78) Miscellaneous   (316)   (356)

(5,086)  (4,809)

Administration

Administration expenses  14  (2,265)  (2,057) Insurances   (343)   (369)

(2,608)  (2,426) Depreciation

Completed works  2  (2,212)  (2,084)

Expenditure (9,906)  (9,319)

Operating profit  4,472  4,498 Profit on disposal of fixed assets 493 175 Interest

- payable  15  (835)  (872)

- receivable  178  45

Non-equity dividends 16  (381)  (381)

Other finance income  9   107   61

(931)  (1,147)

Profit before taxation 4,034 3,526 Jersey income tax 6   (4)   (273)

Profit for the financial year  £4,030  £3,253 Earnings per ordinary share of £1 18  £8.34  £6.73

There is no material difference between the reported profit for 2008 and 2007 and the profit prepared under the historical cost basis.

Statement of total recognised gains and losses

For the year ended 31 December 2008

Note  2008  2007

£ 000  £ 000

Profit for the year  4,030  3,253 (Loss) / Gain arising on pension liabilities  9  (1,581)   921

Total recognised gains and losses for the year  £2,449  £4,174

Cash flow statement

For the year ended 31 December 2008

Note  2008  2007

£ 000  £ 000  £ 000  £ 000

Net cash inflow from operating activities 19  6,842  6,439 Returns on investments and servicing of finance

Interest received  102  45

Interest paid  (848)  (871)

Non-equity dividends paid  (381)  (381)

Net cash outflow on returns on investments

and servicing of finance  (1,127)  (1,207) Taxation

Jersey income tax paid  (165)  (2) Capital expenditure

Purchase of fixed assets  (2,834)  (2,632)

Disposal of fixed assets   529   512

(2,305)  (2,120) Equity dividends paid (1,256)  (1,124)

Net cash inflow before use of liquid resources

and financing  1,989  1,986

Management of liquid resources

Net cash (placed on) / withdrawn

from fixed deposit accounts  (2,000)   - (Decrease) / increase in cash   £(11)  £1,986

Reconciliation of net cash flow to movement in net debt

Note  2008  2007

£ 000  £ 000

(Decrease) / increase in cash  (11)  1,986 Cash used to increase liquid resources   2,000   -

Movement in net debt 20  1,989  1,986 Net debt brought forward 20   (18,023)   (20,009)

Net debt carried forward 20  £(16,034)  £(18,023)

Notes to the financial statements

1. Accounting policies Deferred taxation

The following statements outline the main accounting policies applied in the preparation of the financial statements.

Basis of accounting

The financial statements are prepared under the historical cost convention and in accordance with United Kingdom accounting standards.

Turnover

Turnover represents the total value of water charges together with minor contracts and rental income.

Stocks of water

No value is placed on stocks of water held in reservoirs, which may vary from year to year.

Stock and work in progress

Stores are valued at the lower of cost and net realisable value.

Water charges

Water is billed either as a fixed rate (in advance or arrears) or as a metered charge (in arrears). Both fixed rate and metered water income is recognised for the year up to 31 December.

Deferred taxation is calculated on a full provision basis in accordance with Financial Reporting Standard 19 Deferred Taxation . As permitted under Financial Reporting Standard 19 - Deferred tax balances are not discounted to reflect the time value of money.

Retirement benefits

The Company values its liability in respect of defined retirement benefits in accordance with FRS 17 and following the unit cost method of calculation.

In December 2006, the Accounting Standards Board issued an amendment to FRS17 applicable to accounting periods commencing on or after 6 April 2007, with early adoption of the changes being encouraged. The Company adopted the changes within the financial statements for the year ended 31 December 2007.

Any surplus or deficit in the defined benefit plan, being the difference between the value of the plan assets and the present value of the plan liabilities,

is recognised in the balance sheet as an asset or liability to the extent that any surplus is recoverable through future reduced contributions or that, conversely, any deficit reflects a legal or constructive obligation. The defined benefit asset or liability is shown net of any related deferred tax liability or asset.

Fixed assets and depreciation

Fixed assets under construction are recognised within Uncompleted Works until such time as they are first brought into use. At this point the asset is transferred to Property and Completed Works and depreciation commences. Subsequent qualifying expenditure is transferred directly to Property and Completed Works .

Depreciation is charged on a straight line basis in accordance with the rates of depreciation set out below for each major asset type. No depreciation is provided on freehold land.

Asset type   Depreciation period

Water mains  - Iron  80 years

- Others  50 years

Buildings  60 years Dams  60-100 years Pumping plant  30 years Reinforced concrete structures  80 years Meters  10 years Motor vehicles  3-6 years Mobile plant and tools  3-10 years Reverse osmosis plants  10 years

Notes to the financial statements (continued)

2. Fixed assets

Property and  Uncompleted  Motor vehicles  Total

completed works mobile plant &

works equipment

£ 000  £ 000  £ 000  £ 000

Cost

Brought forward  77,799  530  2,235  80,564 Additions  -  2,721  259  2,980 Disposals  (307)  -  (121)  (428) Transfers   2,510  (2,558)   48   -

Carried forward  £80,002     £693  £2,421  £83,116

Depreciation

Brought forward  (19,208)  -  (1,525)  (20,733) Charge for the year  (2,212)  -  (258)  (2,470) Disposals   272   -   118   390

Carried forward  £(21,148)   £-  £(1,665)  £(22,813)

Net book value

Brought forward  £58,591  £530  £710  £59,831 Carried forward  £58,854  £693  £756  £60,303

Of the £2,470,000 depreciation charge for the year, £258,000 relating to motor vehicles, mobile plant and equipment has been allocated to various cost centres included within the Cost of Sales and Administration Expense categories in the Profit and Loss Account.

At 31 December 2008 capital commitments contracted for amounted to £348,000 (2007: £91,000).

3. Debtors

2008  2007

£ 000  £ 000

Trade debtors  3,458  3,198 Prepayments  352  365 Accrued income and other debtors   769   662

£4,579  £4,225

Notes to the financial statements (continued)

4. Creditors and accruals

2008  2007

£ 000  £ 000

Trade creditors  661  312 Other creditors  477  358 Defined benefit pension scheme contributions  1,065  - Contract retentions  6  78 Accruals and deferred income   1,870   1,642

£4,079  £2,390

Subsequent to the year end, the Company paid the special contribution into the defined benefit pension scheme totalling £1,065,000.

5. Creditors due after more than one year

2008  2007

£ 000  £ 000

Defined benefit pension scheme contributions  -  1,065 Contract retentions   -   2

£-  £1,067

6. Jersey income tax

2008  2007

£ 000  £ 000

Current tax

Income tax on the profits for the year  240  280 Over provision for previous years   (2)  (57)

Total current tax  238  223

Deferred tax

(Credit) / Charge for the year  (234)   50 Total deferred tax  (234)   50

Total tax charge for the year £4  £273

Notes to the financial statements (continued)

Factors affecting tax charge for year

The basis of assessment of trading income to Jersey tax is changing from a prior year basis to a current year basis from 2008. The trading profits shown in these accounts are subject to transitional provisions under the Income Tax (Amendment No 28) (Jersey) Law 2007.

The profits chargeable to tax for the year of assessment 2008 will be the average of the adjusted profits for the 2007 and 2008 accounting periods.

Previously, the Company accrued for current tax based on the taxable profit for that accounting period notwithstanding that tax was charged on the Company on a prior year basis. The accounting impact of the transition to an actual basis from 2008 is that only half of the year s profits for 2007 and 2008 year ends will suffer tax at 20%.

The tax provision included in the results for the year is the tax liability for the Year of Assessment 2008, less the provision made in the 31 December 2007 financial statements.

The tax assessed for the year is lower than the standard rate of Jersey income tax (20%). The differences are explained below:

2008  2007

£ 000  £ 000

Profit before tax  £4,034  £3,526 Profit before tax multiplied by the standard rate of Jersey income tax of 20%.  807  705

Tax at 20% on:

Capital allowances for period in excess of depreciation  (84)  (14) Capital expenditure, deductible for tax purposes  (172)  (176) Profit on sale of fixed assets  (99)  (35) Dividends on non-equity shares - Non deductible  76   76 Effect of transitional provisions  (288)   (276)

Current tax charge for year  £240  £280

Notes to the financial statements (continued)

7. Bank loans

Repayment Dates  2008  2007

£ 000  £ 000

Facilities drawn down

HSBC Bank plc  2010  3,650  3,650 HSBC Bank plc  2011  5,250  5,250 HSBC Bank plc  2013   6,000   6,000

£14,900  £14,900

Loans falling due within one year  -  - Loans falling due between one and two years  8,900  8,900 Loans falling due after two years but less than five years  6,000  6,000 Loans falling due after five years or more   -   -

£14,900  £14,900

The Company has a rolling overdraft facility with HSBC Bank plc. Unconditional guarantees have been given by the States of Jersey for the repayment of the principal and interest on loans up to a maximum of £16.2m taken out to fund the Company s capital works programme.

8. Deferred taxation

2008  2007

£ 000  £ 000

Capital allowances  £4,773  £5,007

Brought forward  5,007  4,957 Transfer (to) / from profit and loss account   (234)   50

At 31 December  £4,773  £5,007

9. Pensions

The Company operates two formal pension schemes; a defined contribution scheme and a defined benefit scheme. There are also certain past employees whose pension or pension supplements, which are of a defined benefit nature, have not been funded by the Company s present or previous pension agreements (the unfunded scheme ). Where applicable, the liability of the Company in respect of the unfunded scheme is included within the disclosure below relating to the defined benefit section. The defined benefit section of the scheme was closed to new entrants with effect from 1 January 2003.

The defined contribution scheme and defined benefit scheme are both sections of The Jersey Water Pension Plan (the name of the plan was changed from The Jersey New Waterworks Retirement Benefits Plan 1987 on 20 November 2008).

Defined contribution section

The defined contribution section of the plan was opened to new members on 1 May 2003. Employer contributions during the period to 31 December 2008 totalled £37,000 (2007: £32,000).

Defined benefit section and unfunded scheme

The full FRS17 actuarial valuation as at 31 December 2008 shows a change from the 2007 surplus of £180,000 to a deficit of £1,056,000 in 2008.

Notes to the financial statements (continued)

The major assumptions used by the actuary were:

2008  2007 Rate of increase in salaries  3.93%  4.68% Rate of increase in pensions accrued after 1 January 1999  2.88%  3.43% Discount rate  6.10%  5.88% Expected return on plan assets  5.52%  6.55% Inflation assumption  2.93%  3.68% Life expectancy assumptions

Current pensioners at 65 - Male  86  84

Current pensioners at 65 - Female  88  87

Future Pensioners at 65 - Male  87  85

Future pensioners at 65 - Female  89  88 The post-retirement mortality assumptions allow for expected increases in longevity.

The overall expected rate of return is based on the weighted average return of each class of asset at the start of each accounting period.

2008  2007

£ 000  £ 000

Reconciliation of the present value of scheme liabilities

Opening scheme liabilities  13,966  15,043 Current service cost  272  423 Employee contributions  55  29 Interest cost  825  785 Actuarial gains  (1,085)  (1,736) Benefits paid   (525)   (578)

Closing scheme liabilities  £13,508  £13,966

Analysis of funded and wholly unfunded scheme liabilities

Funded scheme  13,389  13,837 Wholly unfunded scheme   119   129

Total present value of scheme liabilities  £13,508  £13,966

Reconciliation of the fair value of scheme assets

Opening fair value of scheme assets  14,191  12,514 Expected return  932  846 Employer contributions  532  1,651 Employee contributions  55  29 Actuarial losses  (3,013)  (288) Benefits paid   (509)   (561)

Closing fair value of scheme assets  £12,188  £14,191 Actual (loss) / return on scheme assets  £(2,081)   £558

Notes to the financial statements (continued)

2008  2007

£ 000  £ 000

Analysis of amounts shown in the balance sheet

Fair value of plan assets  12,188  14,191 Present value scheme liabilities  (13,508)  (13,966)

(Deficit) / Surplus  (1,320)  225 Related deferred tax asset / (liability)   264   (45)

Net (deficit) / surplus  £(1,056)   £180

Analysis of amounts recognised in the profit and loss account

Current service cost  (272)  (423) Expected return on pension plan assets  932  846 Interest on pension plan liabilities   (825)   (785)

Total  £(165)  £(362)

Current service costs are included within administration expenses in the profit and loss account. Expected returns on pension plan assets and interest on pension plan liabilities are shown net within other finance income in the profit and loss account.

Analysis of amounts recognised in the statement of total

recognised gains and losses  2008  2007

£ 000  £ 000

Actual return less expected return on pension scheme assets  (3,013)  (288) Experience gains arising on scheme liabilities  185  241 Changes in assumptions underlying the present value of scheme liabilities   900  1,495

Actuarial (loss) / gain recognised in the statement of total recognised gains and losses  (1,928)  1,448 Current tax relief  38  24 Movement in deferred tax relating to net liability / surplus   309   (551)

(Loss) / Gain recognised in the statement of total recognised gains and losses  £(1,581)  £921 Cumulative amounts recognised in the statement

of total recognised gains and losses  £(2,766)  £(1,185) Analysis of scheme assets  2008  2007

% of total fair value  % of total fair value of scheme assets  of scheme assets

Equities  48%  48% Corporate bonds  43%  44% Cash and receivables   9%   8%

100%  100%

Notes to the financial statements (continued)

History of experience gains and losses  2008  2007  2006  2005  2004  Not restated

£ 000  £ 000  £ 000  £ 000  £ 000

Present value of scheme assets  12,188  14,191  12,514  11,655  9,197 Present value of scheme liabilities  (13,508)  (13,966)  (15,043)  (15,532)  (13,096)

Gross scheme (deficit) / surplus  £(1,320) Experience gains and (losses)

on scheme liabilities

Amount  185 Difference between the expected

and actual return on scheme assets

Amount  (3,013) Funding of the defined benefit pension scheme

£225  £(2,529) 241  290 (288)  (22)

£(3,877)  £(3,899) 136  194 1,108  162

The actual funding of the defined benefit pension scheme is determined by the triennial actuarial valuation

and this differs from the amount that is required to be charged to the profit and loss account under Financial Reporting Standard 17. During the year, the Company made scheduled retirement benefit contributions into the defined benefit scheme totalling £532,000 (2007: 586,000), no special contributions were made during the year (2007: £1,065,000).

Prior to 1 January 2008, Company and member contributions were 14.6% and 5.0% (for contributory members). Future benefit changes with effect from 1 January 2008 have led to the following changes in contribution rates. Company contributions were paid at the rate of 12.3% of pensionable salaries from 1 January 2008, reducing to 9.8% in January 2009, plus fixed amounts of £250,000 per annum. Members contribute at rates of 2.5% and 5.0% of pensionable salaries from 1 January 2008 and 1 January 2009 respectively. These rates will remain in force until the results of the formal actuarial valuation of the plan as at 1 January 2009 are known.

10. Share capital

1. Equity share capital

2008  2007

£ 000  £ 000

Authorised

252,000  ordinary shares of £1  252  252 231,000  A ordinary shares of £1   231   231

£483  £483

Issued and fully paid

252,000  ordinary shares of £1  252  252 231,000  A ordinary shares of £1   231   231

£483   £483

Ordinary and A ordinary shares carry no right to fixed income and rank after preference shares and other liabilities. Each ordinary share carries one vote in the event of a poll. Each A ordinary share, whilst in the ownership of the States of Jersey, entitles the holder to such additional votes at a poll as brings the total number of votes attaching to the A ordinary shares to twice the number of votes cast in respect of all other shares.

Notes to the financial statements (continued)

2. Non-equity preference share capital

2008  2007

£ 000  £ 000

Authorised  

  20,000  cumulative preference shares of £5  100  100  20,000  cumulative second preference shares of £5  100  100 100,000  cumulative third preference shares of £5  500  500 100,645  cumulative fourth preference shares of £5  503  503 900,000  cumulative fifth preference shares of £5   4,500   4,500

£5,703  £5,703

Issued and fully paid

  17,261  5% cumulative preference shares of £5  86  86  17,402  3.5% cumulative second preference shares of £5  87  87  23,509  3% cumulative third preference shares of £5  118  118  16,036  3.75% cumulative third preference shares of £5  80  80  11,400  5% cumulative third preference shares of £5  57  57  90,877  2% cumulative fourth preference shares of £5  454  454 900,000  10% cumulative fifth preference shares of £5   4,500   4,500

£5,382   £5,382

Preference shares bear interest at the rates indicated above and rank, in the order listed, above ordinary and A ordinary equity shares in the event of winding up.

Upon a poll, every holder of a preference share present at a general meeting in person or by proxy shall have one vote only for all the preference shares held by him, irrespective of the number and class of such preference shares.

11. Reserves

Retained profit

£ 000

Brought forward  32,881 Profit for the financial year   4,030 Equity Dividends   (1,256)

Transfer of profit on sale of fixed assets to capital reserve  (493)

Loss relating to pension plan deficit recognised in the

statement of total recognised gains and losses   (1,581) Carried forward  £33,581

Capital reserve  Total

£ 000  £ 000 4,190  37,071

- 4,030

- (1,256)

493  -

- (1,581)

£4,683  £38,264

Notes to the financial statements (continued)

12. Reconciliation of movement in equity shareholders' funds

2008  2007

£ 000  £ 000

Profit for the year  4,030  3,253 Equity dividends   (1,256)   (1,124)

Retained profit for the year  2,774  2,129 (Loss)/ gain arising on pension plan  (1,581)  921 Opening equity shareholders funds   38,356   35,306

Closing equity shareholders funds  £39,549  £38,356

13. Water supply charges

2008  2007

£ 000  £ 000

Measured water charges  6,487  5,972 Unmeasured water charges  6,421  6,362 Service charges and other charges for water   555   578

£13,463  £12,912

14. Administration expenses

2008  2007

£ 000  £ 000

Included in administration expenses are the following:

Directors fees (note 21)  84  63 Auditors fees  - Statutory audit  30  30

- Other services (Tax advisory and compliance)  4  4

15. Interest payable

2008  2007

£ 000  £ 000

On loans and overdrafts from banks  £835  £872

Notes to the financial statements (continued)

16. Non-equity dividends

2008  2007

  Charge for the

Paid Payable year

£ 000  £ 000  £ 000

5% cumulative preference shares  2  2  4 3.5% cumulative second preference shares  2  1  3 3% cumulative third preference shares  3  -  3 3.75% cumulative third preference shares  2  -  2 5% cumulative third preference shares  2  -  2 2% cumulative fourth preference shares  7  -  7 10% cumulative fifth preference shares   360   -   360

 Charge for the

Paid  Payable  year

£ 000  £ 000  £ 000 2  2  4 2  1  3 3  -  3 2  -  2 2  -  2 7  -  7  360   -   360

Total dividends on non-equity shares

recognised in the year  £378

17. Equity dividends

Ordinary and A Ordinary shares

£3  £381  £378

2008  2007

£3  £381

2008  2007

£ 000  £ 000

Dividends paid

Final dividend for the previous year  £1.64  £1.45  792  699 Interim dividend for the current year  £0.96  £0.88   464   425

£1,256  £1,124 Dividends proposed

Final dividend for the current year  £1.94  £1.64   £937   £792

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in the financial statements.

18. Earnings per ordinary share

The calculation of earnings per ordinary share of £1 is based on earnings of £4,030,000 (2007: £3,253,000), being the profit available for distribution to equity shareholders and 483,000 ordinary and A ordinary shares of £1 in issue.

19. Reconciliation of operating profit to net cash flow from operating activities

2008  2007

£ 000  £ 000

Operating profit  4,472  4,498 Depreciation  2,470  2,339 Change in order to bring pension charges onto a contribution basis  (278)  (1,245) (Increase) / Decrease in stock and work in progress  (37)  25 Increase in debtors  (176)  (243) Increase in creditors   391   1,065

Net cash inflow from operating activities  £6,842  £6,439

Notes to the financial statements (continued)

20 Analysis of changes in net debt

At 1 January  Cash Flows  Other Changes  At31 December

2008  2008

£ 000  £ 000  £ 000  £ 000

Bank and cash  2,259  (11)  -  2,248 Liquid Resources  -   2,000  -  2,000 Debt due after one year   (20,282)   -   -   (20,282)

Total  £(18,023)  £1,989   £-  £(16,034)

21 Directors emoluments

1 For the year ended 31 December 2008 the Company s contribution in respect of Howard Snowden s pension was £11,000. 2 For the year ended 31 December 2008 the Company s contribution in respect of Helier Smith s pension was £9,000.

Benefits for Mr Snowden consist of full expenses for the use of a motor car, private health care and prolonged disability and death in service insurance. Benefits for Mr Smith consist of motor fuel, private health care and prolonged disability and death in service insurance.

22 Ultimate controlling party

The ultimate controlling party of The Jersey New Waterworks Company Limited is the States of Jersey.

Five Year Summary

Units 2008  2007 2006 2005 2004

Not restated[1]

Balance sheet

Equity shareholders funds £ 000 39,549 38,356 35,306 32,024 31,872 Net Debt £ 000 16,034 18,023 20,009 20,559 20,233

Profit and loss account

Turnover £ 000 14,378 13,817 13,492 12,683 12,413 Operating profit £ 000 4,472 4,498 3,865 3,176 3,228 Profit before tax £ 000 4,034 3,526 3,130 2,439 2,457 Profit for the financial year £ 000 4,030 3,253 2,703 2,115 1,773 Equity dividends paid £ 000 (1,256) (1,124) (1,070) (1,372) (37)

Financial statistics & ratios

Capital expenditure £ 000 2,980 2,546 2,970 3,713 2,565

Net cash inflow / (outflow)

before financing £ 000 1,989 1,986 550 (326) 542 Earnings per share £ 8.34 6.73 5.60 4.38 3.67 Dividend cover Times 3.2 2.9 2.52 1.54 48 Interest cover Times 4.1 3.7 3.55 3.0 3.1 Gearing[2] % 51 53 57 63 64

Operational statistics

Total water supplied Ml 7,402 7,182 7,484 7,291 7,305 Maximum daily demand Ml 26 25 29 27 27 Annual rainfall mm 1,042 915 782 746 884 New mains laid km 4.6 5.6 6.5 9.8 7.0 Mains re-laid km 2.8 2.0 2.1 2.5 2.5 Net increase in connections No 508 453 1,001 629 560 Live unmeasured supplies 000 25.2 26.1 26.6 27.0 27.5 Live metered connections 000 11.2 10.6 9.8 8.6 7.5 Employees No 107 107 107 110 114

Water quality

% Compliance with water quality parameters 99.97% 99.86% 99.97% 99.84% 99.80%

Notes

Notes

Notes

Mulcaster House, Westmount Road, St. Helier , Jersey, JE1 1DG

Telephone: 01534 707300 Facsimile: 01534 707400

Email: info@jerseywater.je Website: www.jerseywater.je

Jersey Water is the trading name of

The Jersey New Waterworks Company Limited.

Our drive towards a low carbon island

Contents

Chairman s Statement

Operations Review

Financial Review

Board of Directors

Directors Report

Corporate Governance

Statement of Directors Responsibilities Remuneration Report

2 Independent Auditors Report 30 3 Consolidated Income Statement 31 17 Statements of Recognised Income and Expense 31 20 Balance Sheets 32 21 Cash Flow Statements 33 23 Notes to the Financial Statements 34 26 Five Year Group Summary 57 27 Financial Calendar 58

Directors, Officers

and Professional Advisers

Non-Executive Directors Registered Office

Geoffrey John Grime, F.C.A. (Chairman) Queens Road, St. Helier , Jersey Jean Amy Le Maistre

Arthur Jeremy Arnold, F.C.A. Place of Incorporation Christopher Charles Evans Jersey

Clive Aubrey Charles Chaplin, B.A.

Michael Joseph Liston OBE, Auditors

F.R.Eng., B.Sc., C.Eng., F.I.E.E., C.I.Mgt.  Deloitte LLP, 66-68 Esplanade, St. Helier , Jersey

Executive Directors Bankers

Christopher John Ambler (Chief Executive),

B.A., M.A., M.Eng., C.D ipA.F., C.Eng, M.I. Mech E, M.B.A.  R1o6y LailbBraarnykPolafcSec, oSttl.aHnde liIenrt,eJrenrasteiyo nal Limited,

Martin Paul Magee (Finance), C.A.

David Brian Padfield (Operations), Brokers

B.Sc., C.Eng., F.I.E.E., M.C.M.I., C.D ir, MIOD.

Collins Stewart (CI) Limited, 38-39 Esplanade, Richard Alan Plaster (Commercial & Human Resources), St. Helier , Jersey

F.C.I.P.D., C.D ir, MIOD.

Registrar

Secretary Computershare Investor Services (CI) Limited, Peter John Routier, B.Sc., F.C.I.S. 31 Pier Road, St. Helier , Jersey

Chairman's Statement

The Jersey Electricity Company has had a strong year and is now well positioned for forthcoming investment. Group profits rose by 14% to £10.0m in the year as a result of the growth in our many commercial enterprises and the recovery of margins in our energy business. As expected, those margins have been depressed during the past two years by our voluntarily two-year price freeze which cushioned customers from high and volatile energy markets. Margins have now returned to the level required for essential ongoing investment in infrastructure.

Wholesale energy markets have been and continue to be highly priced and volatile, and our business has not been helped by the progressive weakening of Sterling. The combined effect is an increase in the cost of imported power for 2009 of 40% compared with 2008. Whilst we have absorbed some of this cost increase, we have unfortunately had to announce a tariff increase of 24% from 1 January 2009. We have fully hedged our costs for 2009 and hope for some stability as we look for further opportunities to protect our customers from price shocks in global energy markets.

We achieved our highest ever reliability of electricity supplies this year and we recognise its critical importance to the Island s business community in particular. Our infrastructure investment of £13m during the year was part of a programme which anticipates in the next 10 years an investment commitment similar to that of the past decade, in which we spent over £100m on our network. Much of this year s capital spending has been directed at reinforcing the grid in the west of the Jersey. In addition we are continuing to make progress on our third subsea interconnector project with France, which will replace the ageing first interconnector and build capacity and resilience for growth.

As well as an improved financial performance, reliability, standards of service, care in our community, health and safety and staff relationships were all first-class. We remain committed to our community and are proud to support energy conservation initiatives in Jersey in these times of increasing prices. To this end we have provided £0.5m of seed capital to the States of Jersey to create the Jersey Energy Trust. This will provide grant aid for the most needy in our community to improve insulation and promote other long term energy saving measures.

Overall, I am pleased to confirm that we have increased our half year dividend to be paid in the year from £1.17 to £1.48 per share, an increase of 27% and at a level more in line with our peer group comparables.

I succeeded Derek Maltwood as Chairman in March of this year and would like to pay tribute to his 20 years on the Board, the last 10 of which were as Chairman. With his steady hand on the tiller, he steered the Company through an exciting phase of its development with skill and determination.

Mike Liston stepped down as chief executive on 1st October, after 15 years in office and 22 years of service with the Company. His contribution to the Jersey Electricity Company has been quite exceptional and he developed an excellent management team which he led with great energy and ability. Mike is heading for a well earned retirement from full time duties but we are delighted that he has agreed to become a non-executive director of the Company for a period. He will also be continuing with several other power related interests.

I am very pleased to welcome Chris Ambler as Mike s successor. Chris was chosen after a thorough internal and external search and has been with the Company for three months. Chris has an excellent pedigree and the Board believes his energy, enthusiasm and skills from previous energy related businesses will help take the company forward as we enter the next stage of its development.

I am grateful to and wish to thank the executive team, the Board and indeed all the employees for their efforts which have contributed to the success of the Company over the last 12 months.

Geoffrey Grime Chairman

16 December 2008

Purpose and Performance

Our performance is driven by the following aims. We achieved all of them this year:

Strategic, Environmental and Operational

¥ Maintain electricity supply reliability at the World class levels consistent with the needs of Jersey s principal industry in financial & banking services i.e. Minutes Lost Per Customer Per Annum not exceeding 25 minutes.

¥ Voluntarily meet the Regulatory Standards of Performance prevailing in the UK Electricity Supply Industry.

¥ Procure at least 25% of the electricity we supply from renewable or other fossil-free energy sources.

¥ Manage safety risks such that the rate of accidents is as near zero as possible.

Commercial and Financial

¥ Maintain a long-term target Return on Capital Employed on Energy assets, between 6% and 7%, consistent with other listed electricity utilities.

¥ Secure at least 75% of the new energy market

presented each year by the construction of new commercial and residential premises.

¥ Ensure that the majority of our customers pay electricity prices which are within plus or minus 10% of the average in Europe.

¥ Diversify our earnings beyond our core business of electricity supply, into related businesses.

Our Energy Business - Purpose

Our purpose is to provide to the Island of Jersey a safe, secure supply of electricity at minimum cost to customers and the environment. We strive to deliver this to high standards of service, within a culture of respect for our staff and the community we serve.

We enjoy the privilege of a monopoly in our core business of electricity supply. We believe this privilege brings with it some fundamental responsibilities to look beyond short-term financial performance to wider social and strategic energy security imperatives.

Our culture is one of private sector enterprise delivered with a public sector conscience which is increasingly relevant in a world that is anticipating energy shortages and experiencing escalating costs and environmental damage from its use of fossil fuels.

During this year the price of oil and gas on the world s markets doubled again. Oil prices peaked at almost $150 per barrel some five times higher than five years ago, before collapsing in November. Rapid demand growth driven by dramatic expansion in emerging economies, combined with evidence of rapidly declining output from the world s major oil fields and accelerating Climate Change, keep energy and the environment at the top of political agendas everywhere.

The financial crisis which began in the USA in 2007 reached a critical point in Autumn this year when major financial institutions collapsed, global stock markets fell by almost half and a liquidity crisis threatened the stability of all enterprises reliant on high levels of borrowing. As corporations began the urgent restructuring of their balance sheets, concerns emerged amongst policy makers that much needed investment in energy supply infrastructure and carbon emissions reduction were stalling.

Our culture is one of private sector enterprise delivered with a public sector conscience.

Our Energy Business - Performance

Cost

Heating oil and gas prices in Jersey followed the pattern in global markets, with the former, at times, rising to levels almost twice those of the previous year. By contrast, electricity users benefited from our ability in 2006 to buy forward, at fixed prices, all our imported power requirements for 2007 and 2008. This in turn facilitated our voluntary pledge not to increase tariffs for at least two years, thus preserving a trend of competitiveness which since the beginning of the last decade has seen electricity prices rising at a rate less than half that of heating oil and gas, in Jersey. The tariff increase which immediately preceded our pledge to a two-year price freeze was only the second real terms increase since the mid- 1980s. That increase passed on to customers was only part of the cost increases we were faced in the wholesale energy market. As expected, this restraint depressed profits in our Energy business by one third in 2006 and 2007. As intended, Energy profits this year recovered to the £6m level last achieved in 2005, at which they represent a 7% return on assets employed a rate in the range generally regarded by energy regulators as being fair and appropriate for the

funding of essential infrastructure development.

As in the previous decade, we anticipate capital investment in our electricity supply infrastructure of £100-£150m during the next 10 years. We expect to finance most of this from reserves, with material borrowing likely to be needed for only a few years in the middle of that period.

We maintained in 2008 our policy to hedge our exposure to volatility in the cost of the imported power, which typically represents more than 95% of the energy we supply.

However, few opportunities arose to make sizeable forward commitments in a market which often defied rational analysis in its relentless rise. As a consequence we followed a conservative policy of regular, incremental power purchases for no further ahead than 12 months. The outcome was that costs for power delivered in 2009, are a third higher than those at which we secured power for 2008. We faced similar circumstances in our efforts to hedge our exposure to the currency risks arising from the need to make our power purchases in Euros. Although our opportunistic, forward purchases of the European currency achieved lower costs compared with spot market rates, the marked decline in

the value of Sterling during the year increased our currency costs for 2009, by 7%. Overall, the effective costs of power and currency purchased for next year are over 40% higher than at present.

We announced a 24% electricity tariff increase with effect from January 2009, with no increases for 12 months.

Given modest assumptions about the continuation of strong underlying growth in electricity sales, we expect this tariff increase will be sufficient to preserve the profitability needed to sustain our core business of electricity supply.

Security of Supply

Two-thirds of Jersey s Gross National Income comes from its success as a leading offshore finance centre. The technological sophistication of the financial services institutions and the Legal and Administration enterprises which support them, are wholly dependent upon high reliability of electricity supplies. Throughout the past decade we have achieved average levels of electricity supply reliability four times better than in the UK. This year we achieved our highest ever reliability, with average customer minutes lost of 4.8 minutes in the 12 months to the end of September. This compares very favourably to systems in other islands and to the UK which averages 80 to 100 minutes each year.

Our outstanding supply reliability is a function of diversity, resilience and precision in the design and operation of our electricity infrastructure. We have invested substantially in submarine interconnections to the neighbouring European electricity grid, from which and through EDF we import typically more than 95% of our power requirements. These interconnectors give us access to power produced from nuclear, hydro and other carbon-free energy, at prices which reflect competition in traded wholesale markets. We have also invested in the coupling together of the electricity supply systems of Jersey and Guernsey, through the Channel Islands Electricity Grid joint venture completed in 2000. Through this interconnection we share not only energy purchased jointly from the Continent, but also the indigenous power generating capacity which both Jersey Electricity and Guernsey Electricity retain as strategic and operational standby in case of transient or prolonged failures of importation facilities. Such sharing of standby capacity

minimises the capital investment and operational cost to customers of providing this independence. Again this year, we made occasional commercial arrangements with Guernsey Electricity for incremental generating capacity during winter peak demand periods, to avoid the cost and environmental impact of bringing on-stream additional generators in Jersey to top-up imported power. This helped to minimise our resort to oil-fired electricity production, which as usual, was less than 4% of the energy we supplied during the year.

The reliability of Jersey s electricity supplies beyond the medium term is threatened by metallurgical degradation which risks the failure of the oldest of the two submarine cables through which we import power from the Continent. This threat is compounded by widely predicted shortages in the availability of heavy fuel oil and the specialist small ships able to transport it to the Channel Islands. Consequently,

the likelihood is that the half of our legacy power generating plant which utilises heavy fuel oil, will in the long term, be insufficiently dependable in the standby role for which that plant is retained. This was a major consideration in our previously announced decision to install a third Continental electricity interconnector which will provide tolerance to the loss of any one out of the three power importation circuits with no loss of power supplies in Jersey. In addition, the resulting increase in our power importation capacity to approximately 220MW will also eliminate the growing shortfall of power importation capacity we have begun to experience during winter months, with maximum electricity demands of around 160MW.

In view of continuing uncertainty surrounding the future sufficiency of global energy supplies and the adequacy of energy infrastructure investment, we propose to retain indigenous power plant for strategic security. We expect that any new generating capacity needed in the long-term

to fulfil this role, can be met by low capital cost, manpower- light, jet engine generators.

The new Western Primary sub-station

We are making good progress with preparations for our proposed third interconnector, which we aim to bring into service in 2012/13. Environmental Impact Assessments are near completion in Jersey and France in both land and marine territories. All relevant government agencies are engaged with the project and we hope fully to secure the necessary permits and consents during 2010. Weakening Sterling and rising metals prices have caused us to increase the estimated cost of this project to £50m.

Our electricity distribution network is as critical to supply reliability as our High Voltage interconnectors and our emergency standby power generating plant. Our four major

power distribution centres in Jersey have performed reliably for some 50 years, but the coincidence of obsolescence and demand-driven capacity limitations has necessitated a programme of primary distribution network reinforcement, and the adoption of a 90kV design philosophy for this next generation of assets.

Following the first of our new 90kV substations which we completed in the east of the Island in 2003, we completed this year a second, in the west of the Island. Built within tight time and cost targets, this £13m facility resolves an unacceptable risk of loss to power supplies in the west of the Island next winter and beyond, threatened by a failure of either of the

two circuits comprised in the original, 33kV substation. Construction of a third major substation will commence in

St Helier in 2011, to meet strong demand growth arising from the continuing development of commercial and residential property, especially in the St Helier Waterfront zone.

Customer Minutes Lost (CML) Jersey v UK (Ofgem)

Environmental Sustainability

Our investment in grid connections to the Continent and

the resulting displacement of oil in favour of non-fossil fuels for the production of electricity used in Jersey, has on its own, enabled the Island to out-perform the CO2 reductions targets arising from its commitment to International Climate Change Treaties. De-carbonising electricity has meant that despite a 50% increase in its energy use since 1990, Jersey s carbon emissions have fallen by one-third. Although welcome, this achievement masks failures in all other energy consuming sectors such as transport and public sector premises, to reduce the carbon footprint of their activities.

We are disappointed that the Energy Policy for Jersey which was published as a White Paper last year, has not yet been debated by the Island s parliament. It recognises not just electricity s increasing use as a supply-side substitute for carbon-based fuels, but also proposes a range of demand- side initiatives to reduce energy waste. The White Paper identifies significant energy security, economic and environmental imperatives which support a proposed carbon reduction target of 52% by 2030, compared with 1990. It proposes a range of measures including insulation grants, energy efficiency advice and tougher Building Regulations. Anticipating a government spending constraint on the timely establishment of the public/private body planned to oversee and provide grant aid for energy sustainability initiatives, we donated £500,000 to it, subject to adequate public funding being committed next year and beyond.

We believe that the recent proposal by the Council of Ministers to establish a Commission for Energy, the primary function of which will be to ensure the proper functioning of the energy market against criteria much wider than those used in conventional economic regulation, would be a more relevant approach to the protection of society s interests than the narrow, sector-specific regulation model which commonly focuses predominantly on costs. It is intended that the Commission conducts a biennial review of the

adequacy of provisions for energy security, economy and environmental sustainability.

We continued to engage with policy makers on the need in Jersey for incentives similar to those employed widely in other jurisdictions, to encourage the development of utility scale, renewable energy projects. Markets exist not only in the Island but also in mainland Europe for power potentially produced from wind and marine energy resources such as those available in Jersey s waters. We were represented on a Working Party established by the States of Jersey to recommend a policy on renewable energy, which is due to report at the end of 2008. In the meantime we have

remained close to developments in neighbouring Alderney, where pre-production seabed trials of marine current turbine technologies are expected in 2009.

During the year we introduced a renewable energy buy back tariff, which enables customers with renewable energy generators such as wind turbines, photovoltaic installations and Combined Heat and Power units, to sell any surplus power to us at prices equivalent to our avoided costs. However, we do not anticipate a significant take-up of micro-generation until such time as there are capital grants or other incentives available from government.

Transport

Road transport is a major contributor to the Island s carbon emissions. Early this year, Mercedes Benz launched a four year UK trial of the electric Smart car and we are pleased to have secured participation for

Jersey. We have committed to lease a small fleet of

these vehicles for the four-year, pre-production trial We intend to bring

the electric car

and intend to bring the electric car experience to as experience to as many businesses and opinion-formers as possible to many businesses and

help inform the development of a sustainable oasp ipnoiosnsi-bfloer.mers transport policy for Jersey.

The proposed new energy from waste incinerator at La Collette

One of four JE electric Smart cars

Energy from Waste

A new municipal Energy from Waste plant has been approved for construction in the next few years as part of a government initiative to minimise the environmental impact of waste incineration, pending the development of more ambitious recycling policies. We were successful in promoting a partnership for this project, under which the new plant will be sited adjacent to our La Collette power station. There it will share a number of our existing facilities such as chimney and auxiliary fuel, water and power systems. As part of the partnership we promise to purchase, at the wholesale market prices we achieve in Europe, all the power produced by the plant - which is expected to represent approximately 5% of the Island s electricity consumption each year.

WORKING WITH OUR CUSTOMERS DURING 2008 ON KEY INITIATIVES HAVE INCLUDED

¥ Providing one of the Islands largest food store/retailers ¥ The installation of load profiling equipment the Co-op with assistance in carbon foot printing/  to raise awareness of their energy use profile. benchmarking of all sites.

¥ The installation of instantaneous electrical demand

¥ The application of low energy and LED lighting and carbon emission indicators (to assist with the solutions for practical applications. Co-op Energy Management Strategy for the smaller retail stores). Provides store managers with instant

¥ To employ renewable technology including heat

readings of energy use.

pumps and wind turbines on key projects.

¥ The ongoing review of applicable low carbon,

¥ The integration of heat reclaim schemes used for

energy efficient solutions for new and existing recovering energy from refrigeration plant to heat

facilities as part of the Co-op commitment to the their premises.

environment and their ongoing programme of

¥ The use of high efficiency heat pumps and heat reclaim  refurbishments.

systems within their new and refurbished stores.

Standards of Service and Care in our Community

We consistently continue to achieve very high levels of compliance onerous as those set by Regulators of the UK s electricity industry with the published Service Quality Standards we set for our core and represent a significant challenge in the operation of a small business of Electricity Supply. These Standards are at least as power network.

PERFORMANCE TARGET  Performance Achieved We will replace a main fuse within 3 hours of a customer s call 99.98% We will give at least 2 days notice of any planned supply interruption 100% We will restore lost power supplies within 18 hours 100%

We will quote for the provision of new electricity supplies within 15 working days, or 25 days for

major infrastructure schemes 99.94% We will investigate any supply voltage complaints within 5 working days 100%

We will respond to an enquiry about an electricity bill, and, (where necessary), check the reading

and test the meter within 5 working days  99.99%

We will, wherever practicable avoid disconnection for debt in domestic premises by free installation of a

pre-payment meter, without surcharge on the customer s normal tariff 100% We will respond within 5 working days to a request for change of account payment method 100% We will provide free advice on energy efficiency and agree an appointment to visit within 7 working days 100% We will agree attendance on a specific morning or afternoon to provide any of our services 99.99%

The Extra Care Service project which we established last year to identify electricity customers with special needs, is now fully embedded with a number of agencies, including the Parish Hall s, Social Security Department, doctors surgeries and relevant charities. The elderly, the disabled and those suffering genuine financial hardship are among the most vulnerable in our community and they receive tailored support from our Customer Care team.

All our customers are eligible for face-to-face, free energy efficiency advice and this year we enhanced our facilities aimed at reducing to zero, the already very low rate of disconnection of supply for debt at domestic premises for debt. Our long established provision of free pre-payment meters, with no surcharge on normal tariffs, is endorsed by all the welfare agencies and Age Concern and the Citizens

The electric eels swim team taking part in the Jersey Swimarathon

Those suffering genuine financial hardship are among the most vulnerable in our community and they receive tailored support from our Customer Care team

Advice Bureau have been particularly helpful in the development of our Care policies.

Our long standing support for the Durrell Wildlife Conservation Trust and Family Nursing and Home Care Service (Jersey) continued during 2008, consistent with our commitment to ecological sustainability and the care of those who are most at risk in our community.

We continue to work closely with local primary and secondary schools as part of our ongoing commitment to improve social and environmental awareness, particularly focusing this year on Environment Week. As part of our participation in this annual event, we facilitated student and teacher visits to our electricity installations and sponsored first aid and safety campaigns.

Marion Morton (Retail) assisting in the Jersey Soup Kitchen earlier this

year raising funds for Children in need.

Richard Marriott (Meter Technician) assists with the setting up of key meters.

Our Other Businesses – Purpose

We have steadily diversified beyond our electricity supply business where we can enhance our use of associated assets and expertise in related activities. Earnings from these activities support our aim to keep electricity prices as low as possible and the wide range of customer interfaces they provide strengthens our brand and reinforces loyalty in our core business which will be a vital competitive advantage in the event that the electricity market is liberalised at some

time in the future. An equally important benefit of our business diversification is the culture of commercial enterprise and service quality which it instills into people throughout

the Jersey Electricity Group and the opportunities for their professional development which it provides.

(Above) The Beyond Computer and Phone Factory Shop in Halkett Street,

St. Helier

these activities support our aim to keep electricity prices as low as possible

(Left and Above) JE Retail at The Powerhouse,

Queens Road, St. Helier.

Our Other Businesses – Performance

Collectively, our non-core business generated 33% of Group profits this year with performance generally similar to last year despite the challenges in the final quarter of the global economic downturn. Our Property business comprises mostly the rental income we derive from commercial premises which we developed in the past decade, together with that from legacy residential properties originally built to house imported staff. Underlying profits from our property portfolio remained at approximately £1m with a further £0.7m arising from their revaluation and a disposal, in a buoyant local market. It is not yet clear what impact the crisis in global financial markets will have on valuations in the future.

Our Retailing business had another good year, with profits down only marginally at approximately £0.5m on turnover up 10% to £13m in a sector which has struggled in the UK and Europe this year. We have been successful in preserving margins despite the price deflation which is a feature of the computing, mobile phone and home entertainment Brown Goods sectors and although our White Goods business

of laundry and refrigeration is expected to remain resilient during the anticipated decline in retail spending, we are not confident of continuing overall growth in our Retailing business next year.

Our Building Services business achieved good margins again this year, maintaining a pattern of consistency which has prevailed since we rationalised it four years ago to avoid the risks inherent in major contracting. Profits of £0.3m were achieved on turnover up marginally to £3.6m. In addition

to its provision of a wide range of electrical and refrigeration

services, our Building Services business provides an important facility in the development of new applications for electricity in the local energy market. Our work with major property developers, architects and Planning Authorities has helped us to develop with equipment manufacturers, new applications for heating, cooling and lighting technologies which underpin electricity s established dominance in the

 new build energy market and which position it well in

the replacement market where it can displace obsolescent oil and gas systems. In particular, air source electric Heat Pumps are emerging as a promising option for larger residential premises, as we apply our expertise as leaders in the substantial, commercial property energy systems market.

Our remaining non-core businesses are small enterprises which have been established in response to emerging

energy services markets or niche opportunities to leverage in-house expertise. Among them, Jersey Energy has become a leader in the Channel Islands in the design and management of environmentally sustainable energy solutions for business. It also provides policy support to governmental and non-governmental bodies and because of its importance to the early establishment of the public/private body being contemplated by government to promote demand-side energy efficiency, we expect no improvement in its modest profitability during the next year or two of this work, done for little more than cost.

Our I.T. consultancy JENDEV continued profitably to serve its small portfolio of utility clients as well as meeting our own needs as a diversified user of a well integrated I.T. platform.

Health and Safety

Jersey Electricity places the highest priority on the health and safety of its staff, business partners and the general public.

Our continuous improvement in managing these risks over

the past decade in particular, led to a performance this year

of only two lost time accidents, neither of which were serious.

During the year we commissioned an independent expert to review of the Company s health and safety management systems, including a comprehensive audit carried out by our insurers, Marsh. They concluded that the Company s health and safety management systems fell within the good

and very good categories widely used for industry benchmarking. We undertook also this year an independent

Eddie Boschat and Colin

Carver (Energy Division)

carry out an on site risk training remains

assessment

a key factor in maintaining a culture of awareness and competence

review of our management of safety and quality in the work done by our contractors engaged in our largest out-sourced activity, the installation of network power cables. We found, and implemented as an urgent priority several opportunities for improvement, in this, one of our most critical safety interfaces with the public and the construction industry.

This year s European campaign for Health and Safety at Work focussed on risk assessment. At Jersey Electricity, all our generic risk assessments are continually reviewed and refined in light of industry best practice, and training remains a key factor in maintaining a culture of awareness and competence.

LOST TIME ACCIDENTS

2004 2005 2006 2007 2008

Andr de St George (Senior Health, Safety and Environmental Engineer)

carries out a regular site inspection with Chris Young (JEBS)

Our People

Our staff remain the most vital ingredient in Jersey

Electricity s excellent reputation for enterprise and service.

We continue to invest in their professional and personal development and provide every opportunity to empower

them in their contribution to the Company s success.

The good quality of industrial relations in the Company was illustrated during the year when Amicus, the trades union which represented many of our staff, merged with the

TGWU. Its members in Jersey Electricity collectively resigned and at their request following a ballot, we agreed to de-recognise the new union, UNITE and recognise GMB,

who our staff regard as being more compatible with the partnership culture which prevails between the Company,

its people and their Unions.

Brian O'Gorman (Customer Care Team Leader) successfully passed the Chartered Management Institute (CMI) level 5 Diploma in Management earlier in the year

Peter Richards, Mark Le Vesconte and Gary Drelaud (front), Dave Whitt, Erwann Peu, Kris Moore (rear) and Gavin Glaser (not in photo) (all from Energy Division) successfully attained the City and Guilds 2322 Electrical Technology Engineering qualification this year

Our staff remain the most vital ingredient

Iain Ormrod and Joanna Le Fondr (Finance) are currently studying for their respective CAT (Certified Accounting Technician)

and ACCA (Association of Chartered Certified Accountants) qualifications