As a 100% subsidiary of E.ON AG, E.ON UK must meet the corporate governance expectations of our parent company. Further information on corporate governance at E.ON is available here.

E.ON UK is not a listed company in the UK and does not have any external non-executives on its Board. Under our Delegations of Authority policy, appointments to the Boards of our main operating subsidiaries must be approved by the E.ON AG Management Board. All senior management appointments are approved in accordance with a process agreed with the E.ON AG Board.

As part of our governance arrangements we have a suite of policies and procedures. Work is currently being undertaken to update the policy suite, focusing on the key risk areas for E.ON and incorporating requirements of our parent E.ON AG where appropriate.

Business conduct

Our Conduct of Business policy sets out our expectations of our employees. In addition we have policies in place relating to whistleblowing and anti-fraud procedures.

Each month, the Head of Security, the Head of Internal Audit and the General Counsel meet to review compliance with these policies and consider any reported issues or trends. Any incidents of a significant nature are reported to the Board.

We have had no instances of corruption or bribery during the period, though there have been some instances of minor fraud-related incidences, related largely to cheques having the payee or amount details altered, which were reported and dealt with under the policy. These were investigated and appropriate action taken.

We also operate a Competition Law Compliance policy. This is supported by training across the business. In the last quarter of 2005, we launched an innovative online training package. The training was undertaken by our top 40 managers by the end of 2005 and is now being rolled out to all appropriate employees.

The Risk Management Executive, which is a sub-group of the Board, meets to discuss all business risks including those relating to regulation once a month.

Risk management

As part of our governance arrangements, we have set up a Risk Management Executive (RME) which is a sub group of the Board. The RME meets monthly and discusses key risk and operational issues affecting E.ON's integrated business, ie the retail and trading businesses. Regulatory risk affecting the business is also reviewed at the RME.

We manage our significant risks using an internal control framework which is subject to an independent review by our Internal Audit function. Risks are controlled and performance improved through planned, independent reviews conducted through an audit plan. This plan considers the key risks facing the business both now and in the foreseeable future, and is reviewed in the case of legislative or other significant changes to the business.

E.ON UK as part of the E.ON Group, must comply with the requirements of the Sarbanes-Oxley Act (SOA) for the first time for its fiscal year ending 31 December 2006. The act requires management to demonstrate through evidence and testing that they have designed, documented and implemented effective controls over financial reporting. There is a centrally coordinated project, including a programme of risk-based controls testing to deliver E.ON UK compliance by December 2006.

Compensation

The E.ON UK Executive Board has a collective set of objectives relating to financial performance, health and safety performance, carbon emission targets and employees. The compensation package for our senior executives has a clear link to this performance. In some cases, compensation is also linked to the performance of E.ON AG. There are three incentive schemes in place:

• Short-term incentive scheme: a bonus scheme for the Board and senior managers. Around 240 of E.ON UK's employees are eligible for this. The bonus is linked to E.ON UK's financial performance as well as the performance of the business unit and the individual.
• Medium-term incentive scheme: around 50 of E.ON UK's senior managers are eligible for this scheme. It is based exclusively on E.ON UK performance.
• Long-term incentive scheme: the senior executive team (around 30 in total) are eligible for this scheme which is a phantom share option scheme based solely on the performance of E.ON AG.

Public policy

We monitor legislative trends and changes in the UK, and review any new developments that might affect us as a business. The issues that are particularly relevant to us, and where we have an active involvement, include:

• the policy framework for low-carbon investment, including emissions trading
• security of energy supply
• renewable energy
• nuclear power
• carbon capture and storage
• energy efficiency
• fuel poverty
• the regulation of the gas and electricity markets and networks in the UK.

Our work in these areas includes the following:

• responding to consultation papers issued by Government departments or regulatory bodies
• submitting oral and written evidence to parliamentary select committees
• discussion with Government departments and the Office for Gas and Electricity Markets (Ofgem)
• dialogue with non-Governmental stakeholders such as green groups
• individual meetings and briefings for key MPs and peers on energy policy
• briefing MPs and peers on energy-related legislation as appropriate
• speaking at conferences and seminars
• participation in trade association activity.

We regard the UK Government as one of our primary stakeholders and pay particular attention to their objectives. In general our lobbying focuses on how to deliver the Government's goal of secure, affordable and low-carbon energy supply most effectively.

Political donations

We gave £5,000 in sponsorship to an East Midlands Labour Party reception that took place at the Labour Party annual conference in 2005.