Business plans - UK Power Networks
Business plans - UK Power Networks
Business plans - UK Power Networks
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<strong>Business</strong> <strong>plans</strong><br />
for our three electricity networks<br />
Draft for consultation – business plan for 2015 to 2023<br />
November 2012<br />
ukpowernetworks.co.uk
Thank you for taking the time to read our draft business plan for 2015<br />
to 2023.<br />
We are due to submit our final business plan for approval to our regulator<br />
Ofgem in July 2013. This document sets out in detail our planning process,<br />
the outputs we propose to deliver for our customers, and our current<br />
estimates of our costs and revenues. Our draft plan is dedicated to achieving<br />
our target of top third performance compared to the other electricity<br />
distribution networks in Great Britain.<br />
We also describe the step change in performance that we have delivered for<br />
our customers since we became <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> in October 2010. I am<br />
delighted that we have reduced customer minutes lost by 41.5 per cent over<br />
the last two years, whilst at the same time reducing our overhead costs by<br />
19 per cent and customer complaints by 81 per cent.<br />
The next ten years or so will be a time of challenge and change for our<br />
networks, as we try and balance the different priorities of affordable<br />
tariffs, investment in the health and capacity of the network and supporting<br />
the <strong>UK</strong>’s low carbon transition, whilst keeping the public and our employees<br />
safe. We must also innovate to utilise our network more efficiently, and<br />
prepare for a possible transition to a smart grid without creating<br />
stranded costs.<br />
Your feedback on our plan is important to us and I encourage you to<br />
comment on any aspect of our <strong>plans</strong> or forecasts. Our consultation period<br />
closes on 1 February. After that we will publish a final draft plan reflecting<br />
all the feedback we receive, and this will form the basis of the business plan<br />
we then submit to Ofgem next summer.<br />
With your help, our business plan for 2015 to 2023 will balance appropriately<br />
the needs of all our stakeholders.”<br />
Thank you<br />
Basil Scarsella<br />
Chief Executive
Contents<br />
1.0 What does <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> do 4<br />
2.0 How to respond to this consultation 6<br />
3.0 Executive summary 10<br />
4.0 <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> and our step<br />
change in performance<br />
4.1 Where we operate 17<br />
4.2 Our ownership structure 18<br />
4.3 Our vision and values 18<br />
4.4 Our legal and regulatory framework 20<br />
4.5 Improving network performance 21<br />
4.6 Improving customer satisfaction 27<br />
4.7 Improving our connections work 31<br />
4.8 Improving safety 34<br />
4.9 Delivering long-term value<br />
for customers<br />
4.10 Innovating to excel as a business 40<br />
4.11 Smart innovation to meet demand 45<br />
5.0 Process: how we are planning<br />
for the future<br />
37<br />
52<br />
5.1 Our stakeholder engagement activities 54<br />
5.2 Developing the <strong>plans</strong> for expanding<br />
our network (load related forecast)<br />
5.3 Developing our asset replacement<br />
(non-load related) expenditure forecast<br />
57<br />
63<br />
5.4 Developing our operating<br />
cost expenditure forecast<br />
68<br />
5.5 Regional cost effects 68<br />
5.6 Changes for 2013 74<br />
6.0 Outputs: our commitments<br />
to customers<br />
79<br />
6.1 Performance outputs 79<br />
7.0 Expenditure: what we will spend to<br />
deliver to 2023<br />
7.1 Our <strong>plans</strong> build on current<br />
improvements<br />
84<br />
86<br />
7.2 Expenditure: <strong>plans</strong> for our networks 86<br />
8.0 Financing: what this means<br />
for bills<br />
100<br />
8.1 Developing the revenue requirement 101<br />
8.2 The impact on our customers 102<br />
9.0 Managing risk and uncertainty 104<br />
9.1 Key areas of uncertainty in the future 105<br />
9.2 Allowing flexibility 106<br />
10.0 Glossary 108<br />
This document is published in conjunction with three summary plan documents for each of our three licensed<br />
electricity distribution networks. This detailed document contains extra information in Section 4 on our step change<br />
in performance, Section 5 on our planning process and stakeholder engagement, and Section 9 on managing risk and<br />
uncertainty which has been omitted from the summary documents.
1<br />
What<br />
does<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> do<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> owns, operates and manages three of the<br />
fourteen regional electricity distribution networks in the <strong>UK</strong>. Our<br />
licensed distribution networks are in the East of England (EPN),<br />
London (LPN) and the South East (SPN). <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> is<br />
one of the largest Distribution Network Operators (DNOs) in the<br />
<strong>UK</strong>, covering an area of approximately 30,000km 2 , extending<br />
from the Wash in the east, through London, to Littlehampton on<br />
the Sussex coast. Approximately eight million connected<br />
customers depend on us for their power.<br />
Our job is to deliver electricity to our customers safely, to ‘keep<br />
the lights on’ and to connect new customers. We are responsible<br />
for maintaining and modernising our networks and ensuring that<br />
there is adequate capacity to support the needs of our customers.<br />
We are not the National Grid (the Great Britain-wide ‘motorway<br />
system’ for electricity). Also we are not an electricity retailer; we<br />
don’t bill end customers and we don’t own the electricity flowing<br />
through our networks. Instead we deliver electricity on behalf of<br />
the ‘big six’ and other energy retailers in our service area.<br />
Electricity distribution costs represent approximately 18 per cent 1<br />
of the average domestic electricity bill.<br />
We are a monopoly and our distribution tariffs are regulated by<br />
Office of Gas and Electricity Markets (Ofgem). Ofgem has already<br />
set our prices for 2010 to 2015. Now we are consulting on the<br />
business plan that we will submit to Ofgem to form the basis of<br />
our prices for 2015 to 2023.<br />
1<br />
Ofgem Fact sheet 97, 31 May 2012<br />
>pg4 | <strong>Business</strong> plan
What we do<br />
We take electricity at high voltages from<br />
the National Grid and transform it down<br />
to voltages suitable for commercial and<br />
domestic use.<br />
Where we operate<br />
<strong>Power</strong> Station<br />
Generates at<br />
25,000 volts<br />
National Grid<br />
Electricity leaves<br />
here at 400,000/<br />
275,000 volts<br />
Grid Supply Points<br />
Electricity leaves<br />
here at 132,000<br />
volts<br />
Primary Substation<br />
Electricity leaves<br />
here at 11,000 volts<br />
Grid Substation<br />
Electricity leaves here<br />
at 33,000 volts and is<br />
used by heavy industry<br />
Regional Distribution<br />
Network Electricity<br />
is transported at<br />
132,000 volts<br />
Electricity Cables<br />
Electricity is<br />
transported at<br />
11,000 volts<br />
Secondary Substation<br />
Electricity leaves here<br />
at 230 volts<br />
Your Property<br />
Electricity enters your<br />
home or business at<br />
230 volts<br />
Peterborough<br />
Norwich<br />
Cambridge<br />
Stevenage<br />
EPN<br />
Bury St Edmunds<br />
Colchester<br />
Ipswich<br />
MANAGED BY <strong>UK</strong> POWER NETWORKS<br />
LPN<br />
London<br />
Crawley<br />
SPN<br />
Maidstone<br />
Tunbridge Wells<br />
East Grinstead<br />
Worthing<br />
Eastbourne<br />
London business plan | >pg5<br />
<strong>Business</strong> plan | >pg5
2 How to respond to this consultation<br />
Thank you for taking the time to read this consultation paper. Your views are<br />
important to us and you can have your say on the issues we have raised by<br />
logging on to our consultation website.<br />
http://www.ukpowernetworks.co.uk/internet/en/have-your-say/business-plan/<br />
The consultation pages will take you through each section of the document and<br />
give you an opportunity to respond to a number of focused questions,<br />
as reiterated in this section below:<br />
>pg6 | <strong>Business</strong> plan
Summary of all consultation questions<br />
Reliability and security of electricity supply<br />
Q1. Are you satisfied with the reliability of your electricity supply If not, please let us know<br />
why not, and what specifically you would like to see us do better<br />
Q2. We propose to hold our reliability performance approximately constant in future years.<br />
Do you agree with this or do you think that we should spend more to reduce either the<br />
number or the duration of power cuts, even if this would mean higher charges<br />
Q3. Do you support our plan for Central London, including new strategic capacity,<br />
increased resilience, and improved customer service, and do you think it has<br />
the correct priorities Who do you think should pay for the investment required<br />
(e.g. between existing and connection customers, or between different geographies<br />
or categories of existing customers)<br />
Q4. Do you think we should broaden our measures of quality of service to include additional<br />
customers In particular, should we measure customers that experience a power cut of less<br />
than three minutes<br />
Conditions for electricity connections<br />
Q5. What do you think is important to customers when they request a new electricity<br />
connection, and what should we focus on improving For example, the cost, the time to<br />
connect, the quality of our customer service<br />
Q6. Do you think we should proactively provide more electrical infrastructure, before the<br />
capacity is required, so that electricity connections can be made more quickly or easily In<br />
particular, is London a special case and, if so, why<br />
Q7. Do you think we should invest more in the electricity network to make it quicker or easier<br />
for renewable or distributed generators to connect<br />
Q8. Should any investment to make connections quicker and easier be subsidised by all<br />
customers in the region, or purely paid for by those wishing to make new connections<br />
<strong>Business</strong> plan | >pg7
Incentives and innovation<br />
Q9. Do you think our approach to innovation and change is sufficient Do you think we should<br />
be researching additional areas in relation to change and innovation, and if so what<br />
Q10. How much of a priority should each of the following areas be for us in 2015 to 2023<br />
• Facilitating renewable generation<br />
• Facilitating new demand sources such as electric vehicles, heat pumps, etc.<br />
• Empowering customers with information<br />
• Managing customer demand to avoid the need for network reinforcement<br />
• Improving electricity network service and reliability<br />
• Increasing network control and automation in preparation for a ‘smart grid’<br />
Customer satisfaction and social obligations<br />
Q11. What do you think we should do to improve customer service and to measure the<br />
satisfaction of our customers<br />
Q12. How can we make it easier for our customers to communicate with us, either in a power<br />
cut situation, for a new connection, or for a general enquiry<br />
Q13. Do you think there are additional services we should be providing to vulnerable or fuel<br />
poor customers<br />
Safety<br />
Q14. Would you value more engagement or information around safety and electricity<br />
Q15. We believe we have improved signage and security around our excavations on the public<br />
highway. How should we improve the safety of employees and the general public<br />
Q16. What should we be doing more of in the future For example:<br />
• Greater prevention of metal theft and vandalism<br />
• Additional safety education programmes<br />
Environment<br />
Q17. What are the current initiatives and issues that concern you surrounding our impact on<br />
the environment<br />
Q18. What should we be doing more of in the future For example:<br />
• Extending our programme of undergrounding overhead electricity lines beyond Areas<br />
of Outstanding Natural Beauty to other sensitive areas<br />
• Installing equipment with lower lifetime carbon impact<br />
>pg8 | <strong>Business</strong> plan
• Increasing our programme to actively remove oil filled equipment<br />
• Change our monitoring of SF6 (a greenhouse gas commonly used in<br />
electrical transformers)<br />
• More challenging targets for our carbon footprint<br />
Expenditure<br />
Q19. Do you think our proposed level of expenditure is appropriate to meet the output targets in<br />
our business plan If not, please be specific as to your views on what should change<br />
Financing<br />
Q20. What do you think about our assumptions regarding the financing of our activities and our<br />
proposed revenues and prices<br />
General<br />
Q21. Is this consultation helpful What could we have done better<br />
Q22. Do you have any general comments you would like to make about our forecast business<br />
<strong>plans</strong> for our electricity networks<br />
Q23. Please let us know if you have any other thoughts or comments on the points raised in this<br />
document, or if you would like to highlight any other issues you consider important<br />
Alternative ways of responding<br />
If you do not have access to the internet you can reply to this consultation by post.<br />
Please send your comments to:<br />
Nawaz Ahmed<br />
Head of Stakeholder Engagement<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong><br />
Newington House<br />
237 Southwark Bridge Road<br />
London, SE1 6NP<br />
We look forward to hearing from you. All the responses we receive<br />
will be fed into our findings to help shape our business <strong>plans</strong> in a<br />
sustainable direction for RIIO-ED1. At the end of the consultation all<br />
submissions will be posted on our website.<br />
Consultation period ends 1 February 2013<br />
<strong>Business</strong> plan | >pg9
3 Executive summary<br />
Our business<br />
Since October 2010 we have been owned by the Cheung Kong<br />
Group, and the Li Ka Shing Foundation, long-term investors<br />
in utility businesses around the world. We own three of the<br />
14 electricity distribution networks in Great Britain. We are a<br />
monopoly 2 business and the tariffs we charge are regulated by<br />
the Office of Gas and Electricity Markets (Ofgem).<br />
As a result we periodically go through a process to justify our<br />
forecast expenditure to Ofgem. We are approaching the next<br />
review, which starts next year and will define our tariffs for the<br />
period from 2015 to 2023.<br />
Consulting on our business plan for 2015 to 2023<br />
This document outlines our forecast business plan for that period.<br />
It describes the drivers for our investment and the total amount<br />
we will need to spend to deliver the outputs our customers<br />
value. We are publishing this consultation document in order to<br />
gather our stakeholders’ input on our thinking so far. Doing this<br />
now enables us to integrate these views into our <strong>plans</strong> in time<br />
for the formal submission of our forecast business plan to Ofgem<br />
in July 2013.<br />
This is the first time the electricity distribution business will be<br />
subject to Ofgem’s new framework for agreeing our business<br />
<strong>plans</strong>, called ‘RIIO’ - Revenue = Incentives + Innovation + Outputs.<br />
This approach was adopted in 2009 and provides a toolkit with<br />
which to address future uncertainty and the transition to the low<br />
carbon economy.<br />
We welcome the views of our stakeholders and have outlined in<br />
each chapter a series of questions that can help guide responses<br />
to this document.<br />
Our step change in performance<br />
Our vision is to deliver top third performance amongst the<br />
14 distribution networks in Great Britain in the key areas of<br />
safety, network reliability, customer service, cost efficiency and<br />
employee engagement. We want each of our three networks to<br />
perform equivalent to or better than comparable networks.<br />
We have delivered a step change towards that performance over<br />
the last two years. We have made significant improvements in<br />
quality of supply, with customer minutes lost (CML) down by<br />
41.5 per cent. We have improved our customer service with<br />
complaints down by 81 per cent.<br />
At the same time we are improving our cost efficiency to<br />
bring better value for money through sustainable cost savings<br />
programmes that have driven down our overhead costs by<br />
19 per cent and are improving our employee and public<br />
safety performance.<br />
Our plan lays the platform for a low carbon future<br />
Electricity distribution companies have a role to play in facilitating<br />
the <strong>UK</strong>’s transition to a lower carbon economy. We are expecting<br />
growth in electric vehicles and domestic heat pumps 3 and that<br />
connecting these technologies will lead to new demands on<br />
our networks. We are planning now for these to appear on our<br />
networks to ensure we are prepared and can ensure we build the<br />
capacity to accommodate them. We are also expecting growth in<br />
distributed generation from smaller scale generation from solar<br />
panels on roofs to onshore wind farms. We are developing our<br />
thinking on how to best to develop our networks (e.g. taking<br />
into account smart technologies) and the ways we work so that<br />
our networks continue to provide long-term value for money<br />
for a range of plausible future scenarios. Our approach includes<br />
proactively participating in small and large scale real-time trials<br />
of innovative new approaches and technologies through our<br />
projects Low Carbon London 4 and Flexible Plug and Play 5 , and<br />
other innovation activities. We will also support energy suppliers<br />
in their roll-out of smart meters and will seek opportunities to<br />
adapt our business to use the data to better serve our customers.<br />
Our plan is informed by the views of stakeholders<br />
We have been developing this plan over the past two years<br />
and have engaged widely with our stakeholders in a variety<br />
of forums. Our objective is to ensure our stakeholders have<br />
the opportunity to influence the way in which we plan for the<br />
future. We have sought the views of stakeholders and ensured<br />
these views have been included in the <strong>plans</strong> so far and we have<br />
reflected that throughout this document. We are undertaking<br />
specific stakeholder engagement for our forecast business plan<br />
alongside our on-going engagement activities that continuously<br />
inform our decision making.<br />
2<br />
We are a monopoly as it is economically efficient for there to be only<br />
one network that provides electricity to homes and businesses in any<br />
given area, rather than multiple independent networks<br />
3<br />
A technology that can take energy from the air or ground and makes it<br />
useable to heat our homes<br />
4<br />
http://lowcarbonlondon.ukpowernetworks.co.uk/<br />
5<br />
http://www.ukpowernetworks.co.uk/internet/en/innovation/fpp<br />
>pg10 | <strong>Business</strong> plan
Expanding our networks to reflect<br />
customer needs<br />
The need to extend and expand our networks is driven by<br />
increases in electricity demand. We forecast electricity demand<br />
based on a wide range of factors including the number of new<br />
households and the rate of economic growth. We have worked<br />
with our stakeholders to refine our planning scenarios and have<br />
developed innovative models to enable us to take a longerterm<br />
view. We are also considering how new uses and ways in<br />
which people use electricity (such as electric vehicles or heat<br />
pumps) may impact our networks. We have taken views for<br />
the uptake on the more uncertain future demands from low<br />
carbon technologies (electric vehicles and heat pumps), how<br />
people may respond to tariffs that change with the time of day,<br />
and how much renewable generation may seek to connect to<br />
the networks. In formulating our views on the future electricity<br />
demand we have taken our stakeholders’ views into account to<br />
build up our view on a core electricity demand growth scenario<br />
upon which to base our investment <strong>plans</strong> (see Figure 3.1 to<br />
Figure 3.3).<br />
Figure 3.1: EPN peak load evolution<br />
Forecast growth of electricity demand<br />
Mega watts<br />
9,000<br />
8,000<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
0<br />
Totals<br />
2011: 6966 MW<br />
2015: 6996 MW<br />
2023: 7524 MW<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
2024<br />
2025<br />
2026<br />
2027<br />
2028<br />
2029<br />
2030<br />
2031<br />
Domestic demand I&C demand EV's demand HP's demand<br />
Our EPN forecast is based on the long-term trend in background<br />
growth in domestic and industrial and commercial (I&C) demand,<br />
together with a modest increase in new connections for heat<br />
pumps (233,000) and electric vehicles (243,000) by 2030.<br />
Figure 3.2: LPN peak load evolution<br />
Forecast growth of electricity demand<br />
Mega watts<br />
8,000<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
0<br />
Totals<br />
2011: 5417 MW<br />
2015: 5605 MW<br />
2023: 6151 MW<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
2024<br />
2025<br />
2026<br />
2027<br />
2028<br />
2029<br />
2030<br />
2031<br />
Domestic demand I&C demand EV's demand HP's demand<br />
Our LPN forecast is based on the higher long-term trend in<br />
background growth in domestic and industrial and commercial<br />
(I&C) demand for London, together with a small increase in<br />
new connections for heat pumps (61,000) and electric vehicles<br />
(130,000) by 2030.<br />
Figure 3.3: SPN peak load evolution<br />
Forecast growth of electricity demand<br />
Mega watts<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
0<br />
Totals<br />
2011: 4090 MW<br />
2015: 4168 MW<br />
2023: 4303 MW<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
2024<br />
2025<br />
2026<br />
2027<br />
2028<br />
2029<br />
2030<br />
2031<br />
Domestic demand I&C demand EV's demand HP's demand<br />
Our SPN forecast is based on the long-term trend in background<br />
growth in domestic and industrial and commercial (I&C) demand,<br />
together with an increase in new connections for heat pumps<br />
(121,000) and electric vehicles (156,000) by 2030.<br />
<strong>Business</strong> plan | >pg11
Regional challenges<br />
Our three networks serve London, the South East and the East.<br />
This is the most densely populated and expensive part of the<br />
country. This fact has a direct impact on how we must operate<br />
and the overall cost of our business. We face higher than average<br />
salary costs as a result of the increased cost of living in our<br />
region compared to other parts of the country. We also face<br />
additional operational challenges from the urban environment.<br />
Our consultations suggest that our urban customers are typically<br />
more sensitive to power cuts and require us to do more of our<br />
work out-of-hours or at weekends – fitting this in between highprofile<br />
public events. As an extreme example, this year we had<br />
to cease planned work in parts of London during the Olympic and<br />
Paralympic Games. We also have to deal with congestion under<br />
pavements and roads, meaning we have to avoid other pipes<br />
and wires when we do work, which increases the complexity of<br />
what we do. We also regularly have to put our equipment into<br />
small spaces and often underground to minimise how much land<br />
we use. This leads to higher costs to install and maintain<br />
our equipment.<br />
Our Central London Plan<br />
We are also aware of our responsibility to ensure that London’s<br />
electricity network is fit for purpose and comparable to other<br />
world cities in terms of resilience, quality of supply, and the<br />
ability to deliver new connections. In order to ensure this, our<br />
business plan proposes £210 million of strategic investment in<br />
a ‘Central London Plan’ including additional capacity through<br />
six new main substations, increased resilience from more<br />
automation at both HV and LV, and a trial of unit protection at<br />
four Central London sites.<br />
The outputs we will deliver<br />
Our forecast business plan is based on a range of assumptions<br />
including the commitments to our customers to what we will<br />
deliver across a range of outputs. The outputs and the target<br />
performance have been developed in conjunction with our<br />
stakeholders and a summary of those assumed in making this<br />
forecast business plan are presented in Figure 3.4. Our plan<br />
delivers against Ofgem’s output categories and set ambitious<br />
targets for RIIO-ED1.<br />
Figure 3.4: Our <strong>plans</strong> delivers against Ofgem’s output categories and set ambitious targets for RIIO-ED1<br />
Category<br />
Our<br />
forecast<br />
for 12/13<br />
Our<br />
forecast<br />
for 14/15<br />
Our<br />
focus in<br />
RIIO-ED1<br />
Reliability and<br />
availability<br />
Customer<br />
satisfaction Connections<br />
Social<br />
responsibility Environment Safety<br />
LPN • • • • • •<br />
SPN • • • • • •<br />
EPN • • • • • •<br />
LPN • • • • • •<br />
SPN • • • • • •<br />
EPN • • • • • •<br />
• Top third IIS<br />
performance<br />
• Maintain<br />
network risk in<br />
EPN and SPN as<br />
measured by<br />
HI/LI<br />
• Reduce<br />
network risk in<br />
LPN for both<br />
HI/LI<br />
• Top third<br />
BMoCS<br />
performance<br />
• Smart fault<br />
handling<br />
• Improve time<br />
to connect<br />
every year<br />
• Targeted<br />
anticipatory<br />
investment<br />
in Central<br />
London and<br />
for DG<br />
• Value for<br />
money focus<br />
• Reflect wider<br />
distribution<br />
system<br />
optimisation role<br />
in our investment<br />
decisions<br />
• Target investment<br />
on vulnerable<br />
and worst served<br />
customers<br />
• Top third<br />
performance<br />
amongst<br />
DNOs in BCF<br />
league table<br />
• Continue to aim<br />
for Zero Harm<br />
• Public safety<br />
awareness<br />
Managing risk and uncertainty<br />
Our forecast business plan considers the risks of the future<br />
being different to our forecasts. The management of risk and<br />
uncertainty in this time of transition to a decarbonised energy<br />
sector for our stakeholders is an important consideration in our<br />
<strong>plans</strong>. We have a well-developed strategy for the management<br />
of corporate risk and this is reflected in our business plan.<br />
The primary considerations in developing our approach to risk<br />
management for our forecast business plan are to:<br />
• Recognised that we are best placed to manage risks to the<br />
delivery of the business plan<br />
• Reflect the overall risks with an appropriate regulated rate of<br />
return on equity<br />
• To only use uncertainty mechanisms proposed by Ofgem where<br />
we can materially demonstrate that we have considered the<br />
impact on customers as well as stakeholders<br />
Figure 3.5 highlights the key areas of uncertainty that we<br />
consider need to be appropriately managed into the future.<br />
>pg12 | <strong>Business</strong> plan
Figure 3.5: Key areas of uncertainty<br />
Category Area of uncertainty Our proposed uncertainty mechanism<br />
Load<br />
• Rate of take up of low carbon technologies (e.g. electric<br />
vehicles, heat pumps) – time to connect<br />
• A measure of the volume of work we have to<br />
undertake on our low voltage network as a result<br />
• Rate of load growth due to decarbonisation<br />
of low carbon technologies connecting –<br />
annual frequency<br />
• Ability to predict and manage load growth<br />
• Clustering – regional combination of low<br />
carbon technology take up and load growth due<br />
to decarbonisation<br />
Non-load • New technologies on the network (new standard of higher • Re-opener in 2019<br />
specification to be rolled-out as part of<br />
non-load replacement)<br />
Cost<br />
• Increase in general official measure of inflation<br />
• Indexation of annual revenues<br />
Specific issues<br />
• Costs of operating network business out-turns higher<br />
than forecast<br />
• Higher than inflation increase in cost of material<br />
(e.g. copper, fuel)<br />
• Increase in pension deficit caused by exogenous factors<br />
• Government requirements to increase security standards<br />
• Legislation of enable local authorities to increase charges<br />
for lane rental for essential infrastructure repair works<br />
• Increased expenditure to allow network systems to<br />
recover from major national outage<br />
• Increased costs of roll out of new innovations<br />
in technology<br />
• Ex ante allowance with cost saving/overrun shared<br />
with customers<br />
• Fixed ex ante allowance<br />
• Allowed pass through of efficient costs<br />
• Re-opener in 2019 to allow for efficiently incurred<br />
cost increases<br />
• Re-opener in 2019 to allow for efficiently incurred<br />
cost increases<br />
• Re-opener in 2019 to allow for efficiently incurred<br />
cost increases<br />
• Re-opener in 2019 to allow for efficiently incurred<br />
cost increases<br />
Our expenditure <strong>plans</strong><br />
Our plan is created to ensure the delivery of the commitments<br />
we are making and to ensure we meet our statutory obligations<br />
(placed upon us through legislation, regulations and our licence).<br />
Taking all of the assumptions, risks and uncertainties into account<br />
we have developed our view of expenditure for the period from<br />
2015 to 2023.<br />
Overall our future <strong>plans</strong> as presented in this document are<br />
largely a continuation of today, with the addition of increasing<br />
prominence of low carbon technologies on our network<br />
(including wind generation), smart metering and the enabling<br />
steps for the future smart grid. We are expecting a return<br />
to more normal levels of reinforcement on our network as<br />
economic growth returns.<br />
Our final business plan in 2013 will reflect the impact of ‘smart’<br />
alternatives to traditional network reinforcement, including<br />
demand side reduction, more automation and controls and other<br />
innovative solutions. These are not included in the current draft<br />
plan, and should reduce costs further.<br />
The following charts show what we consider to be an efficient<br />
level of expenditure to deliver the outputs, meet our obligations<br />
and responsibilities and allow us to finance our business.<br />
Across our three networks we are forecasting to spend £7.4bn<br />
in 2015 to 2023 before inflation. This is an increase of £0.8bn<br />
on the equivalent forecast for the current 2010-2015 period.<br />
The increase is primarily driven by increased work volumes<br />
and by our strategic investments in Central London, EPN wind<br />
infrastructure and smart meter readiness, offset by reductions in<br />
unit costs and in overheads savings.<br />
Total EPN forecast expenditure for the period<br />
2015 to 2023 = £3.1 billion<br />
Our <strong>plans</strong> for EPN include our current estimates of strategic<br />
investments in network capacity to support lower cost connection<br />
of renewable generation and for the smart meter roll-out.<br />
Figure 3.6: EPN total forecast expenditure from 2015 to 2023<br />
Forecast plan period 2015 to 2023 (RIIO-ED1) (£bn)<br />
Total £3.1bn 6<br />
0.8<br />
0.1 0.1 Load related<br />
0.6<br />
Non load related<br />
0.6<br />
0.9<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
6<br />
All prices are real 2012 prices for ease of comparison<br />
<strong>Business</strong> plan | >pg13
l<br />
Total LPN forecast expenditure for the period<br />
2015 to 2023 = £2.3 billion<br />
Our <strong>plans</strong> for LPN include our current estimates of strategic<br />
investments in network capacity to support the growth in London<br />
and for the smart meter roll-out.<br />
Figure 3.7: LPN total forecast expenditure from 2015 to 2023<br />
Forecast plan period 2015 to 2023 (RIIO-ED1) (£bn)<br />
Total £2.3bn 5<br />
0.5<br />
0.3<br />
0.1 0.1 Load related<br />
0.6<br />
0.7<br />
Total SPN forecast expenditure for the period<br />
2015 to 2023 = £2.1 billion<br />
Our <strong>plans</strong> for SPN include our current estimates of strategic<br />
investments in network capacity to support the smart<br />
meter roll-out.<br />
Figure 3.8: SPN total forecast expenditure from 2015 to 2023<br />
Forecast plan period 2015 to 2023 (RIIO-ED1) (£bn) Total £2.1bn 5<br />
0.5<br />
Finances and customer bills<br />
Non load related<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
0.1 Load related<br />
0.1<br />
0.4<br />
Non load related<br />
0.4<br />
0.6<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
Our expenditure is paid for through the bills customers receive<br />
from their electricity supplier. Our revenues amount to around<br />
18 per cent of the average bill. Figures 3.9 and 3.10 present a<br />
forecast of the average domestic and non-domestic bills may<br />
change and how that compares today to other distribution<br />
network companies (DNO). Currently our tariffs are amongst<br />
the lowest in Great Britain. Overall we expect to maintain our<br />
contribution to electricity bills at constant levels in real terms<br />
from 2015 for LPN and SPN and from 2019 for EPN through to<br />
2023. Excluding the impact of the charges we pay National Grid,<br />
our revenues would fall on average for our three networks in real<br />
terms over 2015-2023.<br />
Figure 3.9: Forecast impact on a typical domestic bill 7<br />
£ (2012 prices)<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
EPN<br />
SPN<br />
DNO average forecast<br />
Figure 3.10: Forecast impact on a typical non-domestic bill 7<br />
£ (2012 prices)<br />
450<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
This forecast business plan should see each of our networks<br />
remain amongst the lowest cost electricity distribution<br />
companies in Great Britain.<br />
7<br />
All prices are real 2012 prices for ease of comparison<br />
LPN<br />
DNO average<br />
Highest cost DNO<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
EPN<br />
SPN<br />
DNO average forecast<br />
LPN<br />
DNO average<br />
Highest cost DNO<br />
>pg14 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg15
4 <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> and our step<br />
change in performance<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> was created in October 2010 from the sale of EDF Energy’s<br />
three electricity networks in London, the South East and East of England. We are<br />
owned by the Cheung Kong Group and the Li Ka Shing Foundation, long term<br />
investors in utility infrastructure worldwide.<br />
Our vision is to deliver top third performance in our industry in the key<br />
areas of safety, network reliability, customer service, cost efficiency and<br />
employee engagement.<br />
We have delivered a step change in performance over the last two years.<br />
Customer minutes lost are down 41.5 per cent, complaints are down 81 per cent<br />
and our overhead costs are down 19 per cent.<br />
This chapter explains where we operate, our corporate ownership, our vision, and<br />
the industry framework. It also summarises the improvements we have made<br />
and how we will continue to improve our performance with innovative thinking<br />
for the rest of our current price control period to 2015.<br />
>pg16 | <strong>Business</strong> plan
4.1 Where we operate<br />
We work in some of the most densely populated areas of the<br />
country and in some of the most rural. Our London network<br />
delivers more energy per km 2 than any other network within<br />
the <strong>UK</strong>. Our other networks extend from suburban London<br />
into the largely rural counties and down to the south coast of<br />
England as well as north into East Anglia.<br />
Eastern <strong>Power</strong> <strong>Networks</strong> (EPN) supplies electricity over an area<br />
of approximately 20,300 Km 2 incorporating all of the counties of<br />
Norfolk, Suffolk and Hertfordshire, most of Cambridgeshire, Essex<br />
and Bedfordshire, parts of Buckinghamshire and Oxfordshire, and<br />
the northern suburbs of Greater London.<br />
London <strong>Power</strong> <strong>Networks</strong> (LPN) supplies over two million<br />
customers within an area of only 665 Km 2 . It is almost entirely<br />
urban and serves the most densely populated region in the<br />
country. Almost all of the network is underground, helping us to<br />
give London the most reliable electricity distribution system in<br />
the <strong>UK</strong>.<br />
South Eastern <strong>Power</strong> <strong>Networks</strong> (SPN) supplies electricity over an<br />
area of approximately 8,200 Km 2 , incorporating all of Kent, East<br />
Sussex, West Sussex and much of Surrey. In addition large urban<br />
conurbations not only exist in the areas bounding London, such<br />
as Croydon, but also in each county in the area.<br />
Figure 4.1<br />
Kilometres of<br />
underground<br />
cable<br />
Kilometres of<br />
overhead lines<br />
Number of<br />
substations<br />
Number of<br />
transformers<br />
Peak demand<br />
(MW)<br />
South East of<br />
London East England Total<br />
30,000 33,000 35,000 98,000<br />
n/a 12,300 53,000 65,300<br />
17,300 38,700 79,600 135,600<br />
15,400 35,200 71,200 121,800<br />
5,203 3,976 6,586 n/a<br />
<strong>Business</strong> plan | >pg17
Figure 4.2<br />
Our service area covers<br />
• 28 per cent of <strong>UK</strong> electricity consumption<br />
• 37 per cent of the <strong>UK</strong> by GDP<br />
• London – a major world city<br />
• Highly rural areas in the counties of Norfolk and Suffolk<br />
We take on challenges faced by no other DNOs<br />
• Load density – LPN is over 15 times that of the next<br />
highest DNO<br />
• Major point loads in the City, the West End and Canary Wharf<br />
• Terrorism and security challenges<br />
4.2 Our ownership structure<br />
The owners of <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> are experienced in the<br />
utility business and are long-term investors in infrastructure.<br />
Figure 4.3<br />
Cheung Kong Infrastructure<br />
An investor in utility<br />
infrastructure worldwide<br />
The integrated electricity utility<br />
for Hong Kong island and an<br />
investor in energy utilities world<br />
wide<br />
A charitable organisation founded<br />
by Li Ka Shing<br />
40% 40% 20%<br />
Eastern <strong>Power</strong><br />
<strong>Networks</strong> plc<br />
our network<br />
for the East<br />
London <strong>Power</strong><br />
<strong>Networks</strong> plc<br />
our network<br />
for London<br />
South Eastern <strong>Power</strong><br />
<strong>Networks</strong> plc<br />
our network for<br />
the South East<br />
<strong>UK</strong> <strong>Networks</strong> Services<br />
Holdings Ltd<br />
our private networks<br />
for airports, rail and<br />
defence clients<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> is owned by a consortium of three partners.<br />
The consortium constitutes a robust, well-capitalised shareholder<br />
group which has significant global experience in the ownership<br />
and operation of utility and infrastructure businesses.<br />
The strong, stable regulatory framework in the <strong>UK</strong> has been a<br />
key factor in attracting investors of the stature of the <strong>UK</strong> <strong>Power</strong><br />
<strong>Networks</strong> ownership group. Such investors, with significant<br />
experience in international utilities and infrastructure assets,<br />
who look to invest for the longer term, will be key players in<br />
delivering the necessary investment required to meet the <strong>UK</strong>’s<br />
future energy and environmental challenges.<br />
All three owners are committed to long-term ownership of <strong>UK</strong><br />
<strong>Power</strong> <strong>Networks</strong> and to supporting our vision and values.<br />
4.3 Our vision and values<br />
Our corporate vision is to achieve top-third performance<br />
amongst our electricity distribution peers and establish <strong>UK</strong> <strong>Power</strong><br />
<strong>Networks</strong> as:<br />
• An employer of choice<br />
• A respected corporate citizen<br />
• Sustainably cost efficient<br />
>pg18 | <strong>Business</strong> plan
The following diagram shows what we mean by this:<br />
Figure 4.4<br />
• Safe employees and contractors<br />
• Aligned objectives and targets<br />
• Clear roles, accountabilities and<br />
strong leadership<br />
• Pride in working for <strong>UK</strong> <strong>Power</strong><br />
<strong>Networks</strong><br />
• Employees who feel recognised,<br />
developed and rewarded<br />
• A mutually constructive<br />
relationship with the unions<br />
• Committed to personal and career<br />
development<br />
• Embrace diversity and<br />
inclusiveness<br />
• Keep the public safe<br />
• High levels of consumer<br />
satisfaction<br />
• A regulatory relationship<br />
characterised by mutual respect<br />
• Improved network service<br />
with increased reliability and<br />
rapid restoration<br />
• A competitive connections service<br />
• Recognised community<br />
involvement<br />
• Respect for our environment<br />
• Meet the expectations of all our<br />
stakeholders including Ofgem<br />
• Outperformed Ofgem allowances<br />
for capex and direct and<br />
indirect opex<br />
• An upper third ranking forecast<br />
efficiency by April 2014<br />
• Well managed asset development<br />
• Effective governance and<br />
performance management<br />
• Sustainable levels of free<br />
cash flow<br />
• Continually improve processes<br />
and systems<br />
“Our values form the basis<br />
of who we want to be”<br />
Our vision is supported by our values. Our values set out what we<br />
expect from ourselves and those who work with us. They form<br />
the basis of the way we do business and how we will achieve<br />
our vision. We have taken the time to learn from our past<br />
performance and how we can best deliver our vision.<br />
Figure 4.5<br />
Integrity<br />
We will do what we say we will do and<br />
build trust and confidence by being honest<br />
to ourselves, our colleagues, our partners<br />
and our customer<br />
Continuous improvement<br />
We are committed to learning,<br />
development, innovation and achievement<br />
Diversity and inclusiveness<br />
We recognise and encourage the value<br />
which difference and constructive challenge<br />
can bring<br />
Respect<br />
We treat our colleagues and our customers<br />
the way in which we would want to be<br />
treated<br />
Responsibility<br />
We always act in an ethical, safe and<br />
socially/ environmentally aware manner<br />
Unity<br />
We are stronger together and this comes<br />
from a shared vision, a common purpose,<br />
supportive and collaborative working<br />
Our<br />
values<br />
Our values are the DNA of our<br />
business; they will help us to<br />
deliver our Vision ‘To become<br />
an organisation which is an<br />
Employer of Choice, a<br />
respected Corporate Citizen and<br />
Sustainably Cost Efficient’<br />
<strong>Business</strong> plan | >pg19
4.4 Our legal and regulatory framework<br />
Our three networks operate within a legislative and regulatory<br />
framework determined by primary legislation, including<br />
the Electricity Act 1989, the Utilities Act 2000 and the<br />
Health and Safety at Work Act 1974. Our networks operate<br />
under electricity distribution licences overseen by Ofgem<br />
which defines the broad range of licensed activities and<br />
responsibilities, and set out the rules and standards to which<br />
the network companies must adhere.<br />
Our current plan for 2010 to 2015 was agreed with Ofgem<br />
as part of the Distribution Price Control Review number five<br />
(DPCR5). This laid out our <strong>plans</strong> from 2010 to 2015. DPCR5<br />
was set under the RPI-X price control regime. The RPI-X regime<br />
has at its heart a drive for continued efficiency improvement.<br />
In addition to efficiency we are subject to a number of other<br />
incentives including those on network reliability and customer<br />
service. These supplement the guaranteed standards of<br />
performance that we are required to deliver. During DPCR5<br />
further focus has also been given to environmental issues<br />
through the provision of schemes to support the deployment<br />
of renewable and low carbon generation. These schemes<br />
provided funding arrangements and incentives to encourage the<br />
network companies to deliver what customers value, such as<br />
undergrounding of our lines in areas of outstanding<br />
natural beauty.<br />
In 2009, Ofgem updated its RPI-X approach to network price<br />
controls introducing the RIIO Revenue = Incentives + Innovation<br />
+ Outputs framework. This provides a broader toolkit with which<br />
the network companies and Ofgem can better address the future<br />
challenges faced by the <strong>UK</strong> in its transition to an affordable,<br />
secure and low carbon electricity industry. RIIO is the regulatory<br />
framework that will apply going forward for setting the revenue<br />
we can collect from our customers. It aims to provide benefits for<br />
customers and ensure sustainability of our businesses.<br />
The framework will apply to us for the first time in ‘RIIO-ED1’<br />
through which we will agree with Ofgem our forecast business<br />
plan for the period from 2015 to 2023. The process is well<br />
underway and we will submit our final draft business plan to<br />
Ofgem in July 2013.<br />
Our plan aims to address the objectives of the RIIO framework:<br />
• Long-term value for money for our customers<br />
• Facilitate transition to a low carbon economy<br />
• Outputs focussed – at the heart of our plan is the commitment<br />
to the efficient delivery of specified outputs<br />
• Stakeholder led – outputs, levels and expenditure and the<br />
impact upon customer bills reflect the view expressed by our<br />
stakeholders<br />
• A strong incentive for efficient delivery – the plan is based on<br />
industry leading levels of efficiency and continuing productivity<br />
and service improvement<br />
• Requirement for innovation – the plan includes a strategy<br />
for innovation to address the key challenges in the forecast<br />
business plan period and beyond<br />
• Ensuring investment is financeable – the plan includes a fully<br />
justified and financeable package that maintains investment<br />
grade credit ratings<br />
The outputs will form a ‘contract’ between us and our customers.<br />
Ofgem arranges the outputs across six categories:<br />
• Safety<br />
• Reliability and availability<br />
• Customer service<br />
• Conditions for connections<br />
• Environmental<br />
• Social obligations<br />
As part of this business plan we have set out the outputs we<br />
plan to deliver. Throughout the development of our plan we will<br />
consult with our stakeholders to ensure our target measures<br />
meet their expectations.<br />
>pg20 | <strong>Business</strong> plan
Consultation questions for this section<br />
Reliability and security of supply<br />
Q1. Are you satisfied with the reliability of your electricity supply If<br />
not, please let us know why not, and what specifically you would<br />
like to see us do better<br />
Q2. We propose to hold our reliability performance approximately<br />
constant in future years. Do you agree with this or do you think<br />
that we should spend more to reduce either the number or the<br />
duration of power cuts, even if this would mean higher charges<br />
Q3. Do you support our plan for Central London, including new<br />
strategic capacity, increased resilience, and improved customer<br />
service, and do you think it has the correct priorities Who do<br />
you think should pay for the investment required (e.g. between<br />
existing and connection customers, or between different<br />
geographies or categories of existing customers)<br />
Q4. Do you think we should broaden our measures of quality of<br />
service to include additional customers In particular, should we<br />
measure customers that experience a power cut of less than<br />
three minutes<br />
<strong>Business</strong> plan | >pg21
Our first full year as an independent network company has<br />
seen substantial progress. We have invested in the reliability<br />
of our network and changed the way we work. This has led to<br />
significant performance improvements, reducing the number<br />
and duration of power interruptions experienced by<br />
our customers.<br />
How network reliability is measured<br />
In the <strong>UK</strong>, power cuts are usually infrequent and short in<br />
duration. Our primary role is to deliver reliable electricity supplies<br />
to customers through the efficient operation and maintenance<br />
of our networks. When customers experience power cuts, we<br />
aim to respond rapidly to restore supplies as quickly as possible.<br />
There are two key measures that we use to track how well we<br />
are doing:<br />
• Customer Interruptions (CIs): a measure of the average number<br />
of power cuts experienced per hundred customers per year<br />
• Customer Minutes Lost (CML): a measure of the time in minutes<br />
that a customer on average will be without power in a year<br />
A step change in performance<br />
Implementation of our Quality of Supply strategy and focus on<br />
supply restoration resulted in a step change in performance<br />
in 2011. Across our three networks the number of customers<br />
experiencing a loss of supply has fallen (see Figure 4.6). The<br />
average minutes lost per customer fell by 41.5 per cent and the<br />
number of eight hour power cuts fell by more than 60 per cent.<br />
Figure 4.6: CIs and CMLs across the three networks (calendar<br />
years 2009 to 2011)<br />
LPN SPN EPN<br />
CML<br />
CI<br />
CML<br />
CI<br />
CML<br />
CI<br />
31.9<br />
27.5<br />
27.7<br />
25.2<br />
Where customers experience an electricity supply<br />
interruption lasting more than 18 hours, they are entitled to<br />
a compensation payment under the Electricity Guaranteed<br />
Standards of Performance. This standard will become more<br />
challenging in the 2015 to 2023 period as customers will be<br />
entitle to compensation following 12 hour supply interruptions.<br />
Our focus will be to minimise the number of these incidents,<br />
so that long duration outages become increasingly rare for<br />
all customers.<br />
45.5<br />
49.7<br />
45.7<br />
50.1<br />
54.8<br />
64.1<br />
89.7<br />
81.4<br />
85.8<br />
92.4<br />
85.9<br />
78.4<br />
84.5<br />
96.5<br />
0 20 40 60 80 100 120<br />
2009 2010 2011<br />
Figure 4.7: Number of long duration power outages (calendar<br />
years 2009 to 2011)<br />
Customers off over 8 hours<br />
Customers off over 12 hours<br />
Customers off over 18 hours<br />
How we have delivered the improved<br />
performance<br />
We have undertaken a series of initiatives to improve supply<br />
restoration performance. Our Operational Recovery programme<br />
has focussed on promptly rectifying network faults and<br />
equipment failures, increasing the use of portable generators<br />
to temporarily restore supplies where possible, improving<br />
operational responsiveness by deploying specialist teams with<br />
sufficient resources to resolve network problems and improving<br />
the performance management of field based teams. We have<br />
also shortened response times by taking smarter approaches to<br />
the dispatch of skilled staff to ensure failures are identified and<br />
rectified promptly.<br />
Building on these tactical changes we have developed a longerterm<br />
Quality of Supply programme that has taken a holistic view<br />
of performance and deployed automatic network reconfiguration,<br />
focussed on improving the reliability and dependability of<br />
network automation and remote control, and improved the<br />
efficiency of operational procedures.<br />
Quality of Supply Strategy<br />
71,274<br />
84,588<br />
23,582<br />
109,789<br />
29,602<br />
3,311<br />
178,782<br />
183,802<br />
0 100,000 200,000 300,000<br />
2009 2010 2011<br />
Our Quality of Supply programme is focussed on the two<br />
measures of network reliability, CIs and CMLs. It consists of<br />
two complementary strategies that will reduce the number of<br />
network failures and ensure a reliable service for customers.<br />
CI Strategy: Reducing the number of power interruptions<br />
321,228<br />
Network automation: allows our systems to reliably<br />
reconfigure the network to avoid customers being interrupted.<br />
This may include short power interruptions of less than three<br />
minutes as the network re-routes supplies.<br />
Maintaining the network: inspecting and fixing faults and<br />
open points in our network to ensure the long-term integrity<br />
of our networks is not jeopardised. Clearing any backlogs of<br />
maintenance and tree cutting.<br />
>pg22 | <strong>Business</strong> plan
CML Strategy: Reducing the duration of supply interruptions<br />
Remote control: Increased investment in remote control<br />
infrastructure and improving the reliability of existing systems<br />
provides control centre staff with more options to reconfigure<br />
networks for rapid supply restoration.<br />
• We have made investments in additional remote control<br />
equipment in the EPN and SPN networks to enable<br />
remote switching thus avoiding the dispatch of field staff<br />
to restore supplies<br />
• We are removing defects from our networks to ensure<br />
that remote controlled devices operate at the maximum<br />
possible efficiency<br />
Improved first response times: we have changed our working<br />
patterns to better match the volume and timing of fault<br />
calls received. We have also improved first responder time<br />
to attend incidents and increased our use of back-feeding<br />
techniques to restore supplies to customers. Across all of<br />
our networks, we now deploy skilled Distribution Supply<br />
Technicians to provide immediate on site capability to identify<br />
the problem, reconfigure the network and where appropriate<br />
apply local generators to restore supply. We have improved<br />
staff accountability and the monitoring of performance.<br />
Improved reporting will underpin on-going performance:<br />
• The quality of fault reporting is being reviewed and training<br />
programmes are being implemented to improve accuracy<br />
and consistency<br />
• An integrated automated reporting system is being<br />
developed to provide readily accessible operational<br />
management reports and strategic asset management<br />
information<br />
Figure 4.8: EPN network reliability performance to date and<br />
forecasts to 2015 (years to March)<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CI target<br />
CI actual/forecast<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CML target<br />
CML actual/forecast<br />
Figure 4.9: SPN network reliability performance to date and<br />
forecasts to 2015 (years to March)<br />
Building on our step change<br />
We have put <strong>plans</strong> in place to sustain the recent improvements<br />
through to the end of 2015. Our Quality of Supply strategy<br />
will ensure delivery of a more reliable service to customers.<br />
Reliability performance projections for EPN and SPN are<br />
presented in Figures 4.8 and 4.9. We expect to outperform all<br />
regulatory targets and deliver a more reliable service to<br />
our customers.<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CI target CI actual/forecast<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CML target CML actual/forecast<br />
<strong>Business</strong> plan | >pg23
Innovation!<br />
Smart urban low voltage network<br />
We have collaborated with an innovation project partner to develop a<br />
new retrofittable solid-state switching technology which allows remote<br />
switching and re-configuration of the LV distribution network.<br />
The new technology provides our control engineers with the ability<br />
to remotely monitor and reconfigure the LV network, rather than an<br />
engineer attending site to reconfigure the network manually.<br />
Remote monitoring and control is enabled by a <strong>Power</strong> Line Carrier<br />
communications link using the existing power cables as the<br />
communications medium, thus avoiding extensive works to<br />
install a new communications infrastructure.<br />
Following a successful initial demonstration we have<br />
commenced a large scale trial of the technology in<br />
two areas of the London network. The large scale<br />
trial will allow us to evaluate how proactive LV<br />
network management can improve performance<br />
and optimise the use of existing LV plant. It will<br />
also allow us to analyse the benefits to<br />
Quality of Supply performance through<br />
remote control and automated<br />
switching under fault conditions.<br />
>pg24 | <strong>Business</strong> plan
Focus on London reliability<br />
The distribution network serving central London differs from most<br />
other GB electricity networks in the following ways:<br />
• High levels of interconnected (meshed) network at low voltage<br />
• An almost entirely underground network (which is inherently<br />
more reliable, but more expensive to reinforce and maintain)<br />
• Greater reliance on low voltage infrastructure<br />
These features have consistently delivered high levels of network<br />
reliability to London customers, as recognised in the targets set<br />
by the regulator for Customer Interruptions (CI) and Customer<br />
Minutes Lost (CML). In recent years, we have outperformed these<br />
network reliability targets as shown in Figure 4.10. 2011 was an<br />
exceptionally benign year for weather and 2012’s CI performance<br />
reflects more normal conditions. However, we plan to make<br />
investments which will maintain the reliability of supplies in<br />
central London even as demand grows.<br />
Figure 4.10: LPN network reliability performance to date and<br />
forecasts to 2015 (years to March)<br />
40<br />
30<br />
20<br />
10<br />
0<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Our plan for Central London<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CI target<br />
CI actual/forecast<br />
2010 2011 2012 2013 2014 2015<br />
Past performance<br />
Forecast performance<br />
(Regulatory years ending 31 March)<br />
Ofgem CML target<br />
CML actual/forecast<br />
We are very conscious of our responsibilities as the network<br />
operator for London. We understand that a cost-effective<br />
network with adequate capacity and resilience is key to London’s<br />
competitiveness with other world cities and in to supporting<br />
development in London and London’s role as a major growth<br />
driver for the entire United Kingdom. London also presents<br />
unique operating challenges, for example: major point load<br />
connections not seen elsewhere in the <strong>UK</strong>, traffic congestion,<br />
access and planning difficulties, and the requirement to manage<br />
high profile events. In eighteen months we have seen a<br />
Royal Wedding, a Royal Jubilee and the Olympic and<br />
Paralympic Games. We must also consider the strategic targets<br />
of the London Mayor and other London authorities in areas such<br />
as the electrification of heat and transport, and the decentralised<br />
production of energy.<br />
Therefore we are planning strategically for the future of the<br />
London network. In this section we describe briefly our <strong>plans</strong><br />
in the areas of capacity, resilience, and customer service.<br />
Our detailed London <strong>plans</strong> will be the subject of a separate<br />
consultation early in 2013.<br />
More capacity for London<br />
Our forecast investment <strong>plans</strong> will add significant network<br />
capacity in London, to meet growth in load from existing<br />
customers and from new connections.<br />
We are forecasting to add c.1.5GW of new capacity in the period<br />
to 2021, as Figure 4.11 shows. This is a significant increase in the<br />
context of peak demand in London of c.5.2GW.<br />
Figure 4.11: Forecast London capacity additions<br />
2,000<br />
1,000<br />
0<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
MVA additions<br />
This capacity increase includes six proposed new main<br />
substations at an estimated cost of c. £170 million, targeted at<br />
key growth and development areas in Central London:<br />
• Vauxhall-Nine Elms-Battersea<br />
• White City<br />
• Calshot Street (near King’s Cross)<br />
• Isle of Dogs<br />
• City (location to be determined)<br />
• West End (location to be determined)<br />
These new substations would facilitate the substantial forecast<br />
load growth in these areas, reduce connection times and<br />
costs, and avoid the need for long cable lengths to other main<br />
substations and the associated consequences of cost, street<br />
works disruption and higher fault rates. However since the main<br />
beneficiaries of the new capacity from these substations would<br />
be new connection customers we believe it is fair to existing<br />
customers to charge new connections for their proportionate<br />
share of the capacity in these substations, even if they connect<br />
after the substations have been constructed. We are in discussions<br />
with Ofgem regarding the regulatory treatment of this proposal.<br />
Increased resilience for London<br />
National Grid is investing in additional ‘supergrid’ exit points<br />
within London that, together with our own capacity additions,<br />
will increase significantly the capacity and resilience of the<br />
London network.<br />
In addition to this, we plan to invest in increased automation and<br />
remote control to improve quality of supply further. We propose to<br />
install remote control at one third of HV substations in the Central<br />
London area, and at all the circuit breakers on the low voltage<br />
network. This would involve a total cost of c. £16 million.<br />
We also propose to convert to unit protection the network around<br />
Leicester Square at a cost of £26 million.<br />
Improved customer service<br />
The performance improvements described elsewhere in this<br />
document will benefit London. In addition we also propose<br />
operational changes to enable faster response to faults in central<br />
London, and <strong>plans</strong> to provide more publicly available information<br />
on the available capacity in our networks so that developers<br />
and other prospective connection customers can optimise their<br />
projects and will face more predictable connection costs.<br />
<strong>Business</strong> plan plan | | >pg25
What do our stakeholders say<br />
What they said in 2011<br />
Network availability is an important issue for stakeholders, with many of them<br />
expressing support for all of the existing outputs. It was also suggested that<br />
performance against these outputs should be made more visible<br />
to stakeholders.<br />
Our business plan says in 2012<br />
We agree with stakeholders’ desire for greater visibility of performance<br />
measures. We will produce an annual stakeholder report to address<br />
this, together with the inclusion of up-to-date measures on<br />
our website.<br />
What do our stakeholders say today<br />
Do you think we can do more We welcome<br />
your views.<br />
Go to our stakeholder website at<br />
http://yourviews.<br />
ukpowernetworks.co.uk<br />
>pg26 | <strong>Business</strong> plan
4.6 Improving customer satisfaction<br />
Consultation Questions for this section<br />
Customer satisfaction and social obligations<br />
Q11. What do you think we should do to improve customer service<br />
and to measure the satisfaction of our customers<br />
Q12. How can we make it easier for our customers to communicate<br />
with us, either in a power cut situation, for a new connection, or<br />
for a general enquiry<br />
Q13. Do you think there are additional services we should be<br />
providing to vulnerable or fuel poor customers<br />
<strong>Business</strong> plan | >pg27
We take customer service very seriously with many of our<br />
employees in day-to-day contact with our customers. We<br />
have made our service quicker by reducing average telephone<br />
answer times to less than 20 seconds and better, achieving<br />
improved results in the Ofgem telephone survey. However,<br />
we still have more to do to improve customer service<br />
Ofgem’s new Broad Measure of Customer Satisfaction<br />
measures our performance across a range of areas including<br />
power cuts, new connections, customer complaints and<br />
stakeholder engagement.<br />
Customer care is at the heart of our business<br />
Our Customer Service Centre in Ipswich receives over a million<br />
calls each year. Generally people contact us when their power<br />
goes off, when they require us to do some work on our network<br />
or when making a new connection.<br />
We have already seen a step change improvement in customer<br />
satisfaction with customer complaints down by 81 per cent.<br />
The number of complaints referred to the Ombudsman (see<br />
Figure 4.13) is down by almost 50 per cent and the average time<br />
it takes us to answer customer calls is down by over 70 per cent<br />
to less than 20 seconds.<br />
Figure 4.12: Number of customer complaints (across our<br />
three networks)<br />
18,000<br />
12,000<br />
Figure 4.13: Number of customer complaints taken up by the<br />
Ombudsman (across our three networks)<br />
Figure 4.14: Average time to answer customer enquires (across<br />
our three networks)<br />
Seconds<br />
6,000<br />
0<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2009 2010 2011<br />
Number of customer complaints<br />
2009 2010 2011<br />
Complaints taken up by Ombudsman<br />
2009 2010 2011<br />
How we have delivered improved performance<br />
We are radically overhauling our approach so that we manage<br />
the customer experience from the point of initial contact through<br />
to confirming customer satisfaction, making contact with<br />
customers at key points within their journey.<br />
We are reducing the time it takes us to deliver work for our<br />
customers in both connections and general enquiries. We are<br />
aiming to improve our approach so that we can deliver on the<br />
day the customer chooses. We are redefining our approach<br />
to provide a single point of contact, with ownership for our<br />
customer’s request. This will mean that when customers call our<br />
staff will have the relevant information from previous contacts.<br />
These improvements aim to answer enquiries quickly and<br />
clearly, which then helps avoid a customer feeling the need to<br />
make a complaint. When issues do escalate into complaints, the<br />
customer service improvement programme has already resulted<br />
in a reduction in the time taken to resolve them. The Broad<br />
Measure complaints metric incentivises us to handle complaints<br />
effectively, to resolve disputes quickly to our customers’<br />
satisfaction and to avoid customers having to repeatedly<br />
complain about an issue. To assess the quality of our complaints<br />
handling procedure the current metrics measure performance<br />
on four indicators that are weighted to calculate a composite<br />
score. The weight Ofgem applies to each individual indicator is:<br />
complaints over one day (10 per cent), complaints over 31 days<br />
(20 per cent), percentage of the total that are repeat complaints<br />
(50 per cent) and findings against us by the energy Ombudsman<br />
(20 per cent).<br />
Figure 4.15 shows our performance and forecast against the<br />
Broad Measure complaints metric. This shows the weighted<br />
percentage of complaints not resolved within the thresholds<br />
outlined above. We are targeting a 65 per cent reduction in<br />
complaints that exceed these thresholds by the end of 2015.<br />
Figure 4.15: Performance and forecast against the Broad<br />
Measure complaints metric<br />
35%<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
2011 2012 2013 2014 2015<br />
Historic<br />
DPCR5 Forecast<br />
LPN Weighted complaints unresolved<br />
SPN Weighted complaints unresolved<br />
EPN Weighted complaints unresolved<br />
We have increased our presence on social media e.g. Twitter and<br />
our web page to radically improve how our customers are able to<br />
interact with us. This includes functionality to enhance our web<br />
offering such as postcode based power outage enquiries and<br />
improved customer call-back. We are continuing to build on this<br />
performance improvement to deliver the service experience that<br />
our customers want.<br />
>pg28 | <strong>Business</strong> plan<br />
Average time to answer calls in seconds
d<br />
n<br />
How we will continue to deliver<br />
We are looking at all aspects of our business and we are planning<br />
on rolling out a programme of training so all of our staff can<br />
improve their skills in providing a consistently high standard of<br />
service. We will ensure that our interactions with customers are<br />
positive. A key building block in the foundation of good services<br />
is resolving enquiries quickly. This helps us to avoid customers<br />
feeling the need to escalate to a complaint. When we receive a<br />
complaint we aim to resolve it quickly and fairly.<br />
The way performance measurement is changing<br />
From April 2012 Ofgem introduced the ‘Broad Measure of<br />
Customer Satisfaction’ which involves a survey of customers who<br />
have had a new connection, experienced an interruption to their<br />
supply or made a general enquiry.<br />
The measure comprises a customer satisfaction survey, a<br />
complaints metric and incentives for stakeholder engagement.<br />
The customer satisfaction survey helps to gauge how we deal<br />
with our customers. The results from each type of customer<br />
contact are weighted; Supply Interruptions (40 per cent),<br />
Connections (40 per cent) and General Enquiries (20 per cent).<br />
How we resolve any complaint is also an important measure of<br />
customer satisfaction.<br />
Figure 4.16 shows how our three networks have fared against<br />
the industry average since the introduction of the measure<br />
in 2012.<br />
Figure 4.16: The performance of our three networks against the<br />
industry average in the industry Broad Measure of Customer<br />
Satisfaction survey<br />
9.0<br />
Figure 4.17: EPN forecast for the Broad Measure of<br />
Customer Satisfaction<br />
Regulatory year ending 31 March<br />
9.0<br />
8.5<br />
8.0<br />
7.5<br />
7.0<br />
Figure 4.18: LPN forecast for the Broad Measure of<br />
Customer Satisfaction<br />
Regulatory year ending 31 March<br />
9.0<br />
8.5<br />
8.0<br />
7.5<br />
7.0<br />
2012 2013 2014 2015<br />
Where we are<br />
now<br />
Where we will be (DPCR5 Forecast)<br />
EPN score Best overall DNO 2012<br />
Industry average 2012<br />
2012 2013 2014 2015<br />
Where we are<br />
now<br />
Where we will be (DPCR5 Forecast)<br />
8.5<br />
8.0<br />
LPN score<br />
Industry average 2012<br />
Best overall DNO 2012<br />
7.5<br />
7.0<br />
April 2012 May 2012 June 2012 July 2012<br />
Figure 4.19: SPN forecast for the Broad Measure of<br />
Customer Satisfaction<br />
Regulatory year ending 31 March<br />
EPN<br />
SPN<br />
LPN<br />
Upper third in the Broad Measure<br />
Industry average<br />
Industry best company (to date)<br />
We have set ourselves a challenging target to be in the upper<br />
third of the fourteen distribution networks in Broad Measure<br />
performance. Figures 4.17 to Figure 4.19 show how we<br />
expect our performance to improve to 2015 compared to the<br />
current best performance score in the industry. In addition to<br />
our customer service training initiatives, we have identified a<br />
number of key performance indicators mapped to Ofgem’s new<br />
Broad Measure. We have targeted specific improvements in each<br />
of those key performance areas.<br />
This target is easily the most challenging in LPN. It consists of<br />
entirely urban customers with perhaps the highest expectations<br />
of all customers and where we face the greatest challenges in<br />
meeting their needs.<br />
9.0<br />
8.5<br />
8.0<br />
7.5<br />
7.0<br />
2012 2013 2014 2015<br />
Where we are<br />
now<br />
SPN score<br />
Industry average 2012<br />
Where we will be (DPCR5 Forecast)<br />
Best overall DNO 2012<br />
<strong>Business</strong> plan | >pg29
Supporting vulnerable customers<br />
We maintain a register of vulnerable customers and we liaise with<br />
local stakeholders to keep this up to date.<br />
As part of our approach to customer satisfaction we operate a<br />
community support partnership with the British Red Cross. Our<br />
partnership allows us to provide information and practical support<br />
to customers on their doorstep, in the rare event of our customers<br />
experiencing a long power cut. We work with British Red Cross<br />
volunteers to provide the latest information on how the work to<br />
restore power supplies is progressing and can provide hot drinks and<br />
torches to those who need them.<br />
The British Red Cross fleet includes access to four-wheel drive vehicles<br />
which can visit customers in all weather conditions. The service is<br />
available 24 hours a day, every day of the year.<br />
In 2010, British Red Cross volunteers responded to more than 1,000<br />
incidents in London, the East of England and the South East. This<br />
was particularly important during the prolonged snow and ice in<br />
December, which tripled the number of British Red Cross callouts<br />
arranged by us.<br />
>pg30 | <strong>Business</strong> plan
4.7 Improving our connections work<br />
Consultation questions for this section<br />
Conditions for electricity connections<br />
Q5. What do you think is important to customers when they request<br />
a new electricity connection, and what should we focus on<br />
improving For example, the cost, the time to connect, the<br />
quality of our customer service<br />
Q6. Do you think we should proactively provide more electrical<br />
infrastructure, before the capacity is required, so that electricity<br />
connections can be made more quickly or easily In particular, is<br />
London a special case and, if so, why<br />
Q7. Do you think we should invest more in the electricity network to<br />
make it quicker or easier for renewable or distributed generators<br />
to connect<br />
Q8. Should any investment to make connections quicker and easier<br />
be subsidised by all customers in the region, or purely paid for<br />
by those wishing to make new connections<br />
<strong>Business</strong> plan | >pg31
In 2011 over 104,000 new connections were made to our<br />
electricity network. We are speeding up our processes,<br />
promoting competition and getting ready for the low carbon<br />
future. We are continuing to improve how we work to give our<br />
customers a timely and a consistent service that is recognised<br />
by them as value for money.<br />
Speeding up the process<br />
For our customers seeking a connection, we are improving how<br />
they can interact with us and speeding up the process. In many<br />
market segments customers do have a choice of connections<br />
provider and we are currently in the process of demonstrating<br />
that there is a competitive market in our regions. We welcome<br />
strong competition, providing our customers with a choice for<br />
contestable connection works. We are undertaking a review of<br />
the whole connections process to support our vision to achieve<br />
top-third performance compared to our electricity<br />
distribution peers.<br />
Our programme is further enhancing our customer service<br />
culture throughout our connections activities. The programme<br />
has three aims:<br />
• Reduce the time that a customer waits for a connection<br />
• Put the customer at the centre of our business processes and<br />
• Reduce the cost to our customers<br />
Future competition<br />
In July 2012, we submitted our Competition Notice to Ofgem that<br />
demonstrates how we have effective competition in connections<br />
across our three networks. We have worked hard to remove<br />
barriers to allow competition to flourish. We have redesigned our<br />
website in order to clearly explain to those seeking a connection<br />
that they have an option to use a third party company, how the<br />
process works and what they also need to do with us to ensure<br />
the smooth delivery of the connection. We have undertaken a<br />
stakeholder engagement process, with direct engagement and<br />
consultation with the competitors operating in our areas in order<br />
to develop an agreed and prioritised set of improvement actions.<br />
We have also worked to ensure we have the resources to respond<br />
to work volumes in order to deliver improved customer service.<br />
The roadmap<br />
We have a roadmap for improvement for <strong>UK</strong> <strong>Power</strong> Network’s<br />
connections service with three distinct phases, Insight, Design<br />
and Implementation. The Insight Phase has been completed<br />
and has established stakeholder best practice requirements for<br />
a leading edge connections service provision. We are currently<br />
progressing through the Design Phase. We expect the project to<br />
deliver improvements in the short term and to deliver a longterm<br />
sustainable approach that will consistently provide our<br />
customers with a connection service they see as value for money.<br />
To ensure our customers receive a timely connections service,<br />
we have launched a web based self-service system. This will<br />
speed up the process for less complex connection enquiries by<br />
enabling customers to create an illustrative quotation. We are<br />
also improving our accessibility information across the board<br />
to ensure customers understand the choices they have, the<br />
information we need and our commitments to them.<br />
>pg32 | <strong>Business</strong> plan
What do our stakeholders say<br />
What they said in 2011<br />
Stakeholders require better communication between us and<br />
them at every stage of the project. They expect us to be more<br />
customer‐focused.<br />
A number of stakeholders suggested that having an account<br />
manager would help achieve better communication between us and<br />
our customers.<br />
Our business plan says in 2012<br />
In the current regulatory year our connections service is ranked 11th<br />
in the Ofgem customer satisfaction survey. We are improving our<br />
process and performance by:<br />
• Providing a single point of contact and ownership for a connection,<br />
with improved contact choice and service<br />
• Reducing lead times to less than 20 days. We will deliver on the<br />
day the customer chooses<br />
• Reducing connection charges by increasing efficiency<br />
• Calling each customer at the end of the job to understand how<br />
satisfied they are<br />
• Further training our staff to ensure they understand what our<br />
customers expect of them and how we can best serve them<br />
What do our stakeholders say today<br />
Do you think we can do more We welcome your views.<br />
Go to our stakeholder website at:<br />
http://yourviews.ukpowernetworks.co.uk<br />
<strong>Business</strong> plan | >pg33
4.8 Improving safety<br />
Consultation questions for this section<br />
Safety<br />
Q14. Would you value more engagement or information around<br />
safety and electricity<br />
Q15. We believe we have improved signage and security around our<br />
excavations on the public highway. How should we improve the<br />
safety of employees and the general public<br />
Q16. What should we be doing more of in the future For example:<br />
• Greater prevention of metal theft and vandalism<br />
• Additional safety education programmess<br />
>pg34 | <strong>Business</strong> plan
Ensuring the public and our employees are safe is our highest<br />
priority when we work. Since 2010, we have nearly halved our<br />
accident rate and injuries to the public.<br />
Working safely<br />
Safety is our primary focus for the public, our staff and our<br />
contractors. We are bound by Health and Safety Legislation which<br />
is enforced through the Health and Safety Executive (HSE).<br />
Public safety<br />
We take health and safety extremely seriously and over the<br />
last two years we have been on a journey to improve our<br />
safety performance.<br />
The number of injuries involving members of the public has<br />
already fallen in 2012 compared to 2011. While the figures are<br />
not complete for this year, we are encouraged by the progress<br />
we are making.<br />
The progress we have made was put in perspective by a fatal<br />
incident. In July, a member of the public came into contact with<br />
an overhead line that had fallen from a pole and suffered a fatal<br />
injury. This is an extremely rare event. We have launched an<br />
internal investigation and are cooperating fully with the Health<br />
and Safety Executive to understand the failure mechanisms and<br />
to learn any lessons that could reduce the chances of a tragedy<br />
of this nature occurring again.<br />
Importance of employee safety<br />
We operate a safe system of working that defines how we work<br />
to protect the safety of all of our employees and contractors.<br />
We have taken steps to improve our performance and have<br />
delivered a consistent downward trend in accident rate. Figure<br />
4.20, shows that in 2011, the accident rate for employees has<br />
fallen considerably.<br />
Our recent performance has been overshadowed by a tragic<br />
event that led to a fatality of a member of our staff. This has<br />
prompted a considered and immediate response to the incident<br />
including changes to our monitoring regimes, increased safety<br />
training and a zero tolerance approach to non-compliance. We<br />
are using our first Safety Climate Survey to further inform our<br />
safety action <strong>plans</strong> going forward.<br />
Our approach to safety is wider than solely reducing lost time<br />
incidents. We have put significant effort into ensuring and<br />
promoting the health of all those who work for us. We have<br />
published an Occupational Health and Wellbeing Strategy<br />
and have launched Fitness to Work assessments for all of our<br />
operational staff. Other preventative measures include a flu<br />
vaccination programme that is available to all staff. We have also<br />
arranged ‘office walk-arounds’ by physiotherapists to promote<br />
good posture. These improvements have been achieved through<br />
continued communication efforts and incentives.<br />
Figure 4.20: Accident rate 8 for employees (across our<br />
three networks)<br />
0.40<br />
0.35<br />
0.30<br />
0.25<br />
0.20<br />
0.15<br />
0.10<br />
0.05<br />
0.00<br />
2008 2009 2010 2011<br />
8<br />
Accident rate is defined as the number of reportable accidents per 100<br />
employees. Reportable accidents are those that are fatal, major or over<br />
three days in lost time<br />
<strong>Business</strong> plan | >pg35
Innovation!<br />
National Underground Assets Group (NUAG)<br />
The aim of this group is to develop and trial the concept<br />
of having a <strong>UK</strong>-wide IT portal to enable anyone<br />
planning to undertake excavation in the highway or<br />
on private land to request information about the<br />
location of utility assets. This helps to prevent<br />
people from digging up our underground<br />
cables and suffering injuries, and can<br />
facilitate improved joint working<br />
between utility companies.<br />
>pg36 | <strong>Business</strong> plan
4.9 Delivering long-term value<br />
for customers<br />
Electricity distribution accounts for around 18 per cent 9 of a<br />
customer’s overall bill.<br />
Our charges to our customers are amongst the lowest in<br />
the industry.<br />
We continue to focus on delivering greater efficiency while<br />
managing the uncertainties of the economy and the risks of<br />
ageing assets. Our vision is to be amongst the top-third of our<br />
electricity distribution peers in terms of cost efficiency, while<br />
maintaining the long-term health and capacity of our network.<br />
Figure 4.21: Pie chart showing the breakdown of a typical<br />
customer electricity bill<br />
5% 7%<br />
5%<br />
10%<br />
18%<br />
54%<br />
Wholesale energy, supply costs and supplier margin<br />
Distribution<br />
Environmental<br />
VAT<br />
Transmission<br />
Meter provision and other<br />
Our customer tariffs are amongst the lowest in<br />
the industry<br />
The cost of operating, maintaining, renewing and expanding<br />
the network that carries electricity from generators to customers<br />
is on average 18 per cent of a customer’s electricity bill. The<br />
amount we charge is tightly controlled by Ofgem, the industry<br />
regulator. The amount customers are charged varies across the<br />
country depending on which of the 14 networks customers are<br />
connected to. Customers can pay anywhere between £70 and<br />
£140 per year.<br />
Customers connected to our three networks see some of<br />
the lowest annual charges in the country when compared to<br />
the other eleven DNOs. All three of our networks have been<br />
consistently ranked in the top five lowest contributors to a typical<br />
domestic customer’s bill for the past four years. EPN has also<br />
been in the top two for the past three years and is currently the<br />
best ranked among all fourteen DNOs. We are determined to<br />
deliver the best possible service to our customers at the lowest<br />
possible price. Throughout the rest of this section we summarise<br />
our current financial performance and how we will deliver an<br />
even better service.<br />
9<br />
Ofgem fact sheet 97 31 May 2012<br />
Figure 4.22: Annual cost to domestic customers (based on<br />
average annual domestic consumption of 3330kWh real<br />
2012 prices)<br />
£ (2012 prices)<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2009 2010 2011 2012 2013 2014 2015<br />
EPN<br />
SPN<br />
DNO average forecast<br />
Our financial performance<br />
LPN<br />
DNO average<br />
Highest cost DNO<br />
We are regulated by Ofgem to ensure that our operations are<br />
cost efficient and that we offer appropriate levels of service<br />
to our customers. Through the regulatory price control process<br />
Ofgem sets how much we can collect from our customers.<br />
Our expenditure <strong>plans</strong> are periodically scrutinised and challenged<br />
by Ofgem. In between these period 7% reviews, they use incentives<br />
5%<br />
to encourage us to continually seek greater efficiency and<br />
5%<br />
improve our service performance.<br />
In 2010 a five 10% year plan was agreed with Ofgem that set the<br />
revenue we were allowed to collect from our customers for the<br />
period to 2015. This included a strong incentive for efficiency and<br />
for improving the reliability of our service.<br />
We are now just over two years into the five year plan. We have<br />
taken steps to make<br />
18%<br />
our business more efficient in response to<br />
the incentives to do so. However, we have also had to undertake<br />
more work, particularly on our EPN network to keep our network<br />
healthy for the long-term benefit of our customers.<br />
In addition we have felt the effect of the prolonged economic<br />
downturn. In general an economic downturn reduces the growth<br />
in demand for electricity. In turn this has the effect of reducing<br />
the need for us to expand the capacity of our networks.<br />
In the following sub-sections we provide more detail on the<br />
impact of each of these factors on our expenditure.<br />
Increasing our efficiency; reducing the cost<br />
to customers<br />
At the time of the last price control Ofgem assessed our costs<br />
for delivering capital projects to be 20 per cent above the<br />
efficient benchmark.<br />
We have embarked on an improvement programme to improve<br />
efficiency and improve our service to our customers. Our<br />
objective is to achieve a top-third ranking against our peers<br />
in cost efficiency. This will address the efficiency opportunities<br />
identified in the last price control reset.<br />
We are now seeing the results of the cost efficiency programmes<br />
we have undertaken, with a 19 per cent reduction in our<br />
overhead (indirect) costs since October 2010.<br />
54%<br />
<strong>Business</strong> plan | >pg37
Indirect Cost Efficiency Programme<br />
The ICE programme was launched in 2011 in order to close<br />
the cost performance gap between us and the benchmark<br />
distribution companies in overhead costs. The project<br />
targeted a reduction of £50 million of annual operational<br />
expenditure by the end of 2013. The executive team provided<br />
recommendations and options to achieve savings by ‘right<br />
sizing’ our operational support functions.<br />
Employee participation was encouraged and we invited over<br />
2,400 employees to provide us with ideas for improving our<br />
efficiency. We generated over 1,000 responses.<br />
We achieved a reduction in headcount of approximately<br />
600 employees through reducing agency staff and offering<br />
voluntary redundancy packages to members of staff.<br />
The programme has delivered the majority of its intended<br />
savings. The remaining benefit will be achieved by an ongoing<br />
focus on eradicating waste and driving efficiency in our<br />
non-labour indirect cost initiatives including:<br />
• Reviewing our transport travel policy and fleet size<br />
• Reducing spend on consultants and other<br />
external contractors<br />
• Reducing insurance, legal and property costs<br />
• Renegotiating our contracts with key suppliers<br />
Responding to the economic down turn<br />
The persistent economic slowdown has reduced the overall<br />
growth of demand for new capacity in our electricity networks.<br />
The effect has varied across our networks reflecting the regional<br />
variability in economic activity.<br />
As can be seen in Figure 4.23, peak demand for electricity from<br />
our networks has been broadly flat or on a downward path.<br />
This is in contrast to the long-term trend that has seen year-onyear<br />
growth in peak demand over the previous 10 years with<br />
compound average growth rates 10 of 0.7 per cent for EPN, 1.8 per<br />
cent for LPN and 0.3 per cent for SPN.<br />
At the time we set out on our current plan, we were anticipating<br />
a short economic downturn followed by a return to growth. The<br />
return to growth has been slower and we have seen a reduced<br />
need for the projects identified when we set out in 2010. The<br />
need to expand the capacity of our networks has reduced with<br />
economic redevelopment slowing and demand growing more<br />
organically with larger scale developments and redevelopments<br />
being slowed by the economic conditions.<br />
Our LPN network has seen the smallest fall in electricity demand<br />
of our three networks, despite the wider economic difficulties.<br />
This means we are still forecasting to spend close to our original<br />
plan over the entire 2010 to 2015 period, especially with regard<br />
to the larger ‘high-value’ projects to support the wide held<br />
stakeholder expectation of continuing growth in demand for<br />
network capacity in London.<br />
For EPN growth has tailed off, with a downward turn in the latest<br />
peak demand figures compared to the previous year. It appears<br />
that the high peak in 2010/11 that was coincident with the<br />
very cold spell in that year may be less representative of the<br />
underlying long-term trend of electricity peak usage. We are<br />
currently assessing the underlying driver for this high peak. For<br />
SPN the downward trend has been apparent from the very start<br />
of the financial down turn. We do not expect these networks to<br />
recover to pre-financial crisis levels of peak load for some years<br />
and we are forecasting an overall underspend compared to our<br />
original <strong>plans</strong> for expanding the network.<br />
Figure 4.23: Actual peak demand against long-term forecast<br />
peak demand (MW)<br />
8,000<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
3,000<br />
2006/07<br />
2007/08<br />
2008/09<br />
2009/10<br />
EPN actual<br />
SPN actual<br />
LPN long-term trend<br />
Increasing volumes of work to maintain the<br />
long-term health of our assets<br />
We take a long-term view of managing our networks and are<br />
mindful of the expenditure required to replace ageing assets. In<br />
order to ensure a sustainable future we assess the health of our<br />
assets. The continuing process can highlight new requirements<br />
or factors that drive additional work. So while we drive down<br />
our cost-per unit of work the overall money we spend on asset<br />
replacement can rise.<br />
We have taken steps to improve our understanding of the health<br />
of our assets. Asset management is an ever-developing field<br />
and we have worked in partnership with experts to develop<br />
improved risk based investment modelling capability. These<br />
models use the latest available condition data and apply stateof-the-art<br />
degradation modelling techniques to predict the future<br />
health of the populations of our assets.<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
LPN actual<br />
EPN long-term trend<br />
SPN long-term trend<br />
10<br />
Compound average growth rate between 2001/02 and 2010/11<br />
>pg38 | <strong>Business</strong> plan
We use regular inspections and targeted asset condition reviews<br />
to ensure we understand the state of our assets.<br />
Through this work we have found evidence to suggest that for<br />
some of our assets, an intervention is expected to be required<br />
earlier or later than previously thought. An intervention could be<br />
a scheduled maintenance activity, refurbishment or a complete<br />
asset replacement.<br />
The effect of this is to introduce additional volumes of work<br />
mostly in EPN that we need to deliver in the short term to<br />
maintain the health of our network. These work volumes relate<br />
to additional inspection and maintenance on our link boxes<br />
due to an observable rise in disruptive failures and to our<br />
having found larger numbers of defective poles following our<br />
inspection programme. We are also undertaking additional work<br />
to address safety issues to comply with our statutory obligations<br />
under the Electricity Supply Quality and Continuity Regulations<br />
(ESQCR). In addition, in EPN, we are undertaking additional<br />
asset replacement to maintain the health of the network on a<br />
sustainable basis. The current regulatory settlement does not<br />
fund all of these additional costs and we are exposed to 45 per<br />
cent of the costs. We believe it is in the best long-term interests<br />
of our customers to complete this work now.<br />
The net result of our investment over the period is intended to<br />
maintain the overall health at a network level. We use a series<br />
of models to assess the Health Index (HI) of our assets. The HI is<br />
an industry approach to categorising the health of our assets. The<br />
categories are from HI 1 to 5 as described below:<br />
• HI1: new or as new<br />
• HI2: good or serviceable condition<br />
• HI3: deterioration requires assessment and monitoring<br />
• HI4: material deterioration, intervention requires consideration<br />
• HI5: end of serviceable life, intervention required<br />
Figure 4.24 to Figure 4.26 show how we measure progress<br />
against HI output scores monitored by Ofgem over the current<br />
period from 2010 to 2015.<br />
Ofgem HI scores are calculated from the sum of the difference<br />
between the HI forecasts with and without investment for each<br />
asset type, weighted by both significance of HI category and by<br />
asset unit cost. The resultant total value of the HI delta forms<br />
the target profile indicated in orange. Our actual progress and<br />
forecast against the target is shown in red.<br />
Figure 4.24: EPN actual and forecast progress against<br />
Ofgem DPCR5 HI scores<br />
Regulatory year ending 31 March<br />
18,000,000<br />
12,000,000<br />
6,000,000<br />
0<br />
Year 20111 Year 20122 Year 20133 Year 20144 Year 20155<br />
FBPQ target points<br />
Points actual/forecast<br />
Figure 4.25: LPN actual and forecast progress against<br />
Ofgem DPCR5 HI scores<br />
Regulatory year ending 31 March<br />
18,000,000<br />
12,000,000<br />
6,000,000<br />
0<br />
Year 20111 Year 20122 Year 20133 Year 20144 Year 20155<br />
FBPQ target points<br />
Points actual/forecast<br />
Figure 4.26: SPN actual and forecast progress against<br />
Ofgem DPCR5 HI scores<br />
Regulatory year ending 31 March<br />
18,000,000<br />
12,000,000<br />
6,000,000<br />
0<br />
Year 20111 Year 20122 Year 20133 Year 20144 Year 20155<br />
FBPQ target points<br />
Points actual/forecast<br />
<strong>Business</strong> plan | >pg39
4.10 Innovating to excel as a business<br />
Consultation questions for this section<br />
Incentives and innovation<br />
Q9. Do you think our approach to innovation and change is sufficient<br />
Do you think we should be researching additional areas in relation<br />
to change and innovation, and if so what<br />
Q10. How much of a priority should each of the following areas be for us<br />
in 2015 to 2023<br />
• Facilitating renewable generation<br />
• Facilitating new demand sources such as electric vehicles, heat<br />
pumps, etc.<br />
• Empowering customers with information<br />
• Managing customer demand to avoid the need for<br />
network reinforcement<br />
• Improving electricity network service and reliability<br />
• Increasing network control and automation in preparation for<br />
a ‘smart grid’<br />
Environment<br />
Q17. What are the current initiatives and issues that concern you<br />
surrounding our impact on the environment<br />
Q18. What should we be doing more of in the future For example:<br />
• Extending our programme of undergrounding overhead<br />
electricity lines beyond Areas of Outstanding Natural Beauty<br />
to other sensitive areas<br />
• Installing equipment with lower lifetime carbon impact<br />
• Increasing our programme to actively remove oil<br />
filled equipment<br />
• Change our monitoring of SF6 (a greenhouse gas commonly<br />
used in electrical transformers)<br />
• More challenging targets for our carbon footprintMore<br />
challenging targets for our carbon footprint<br />
>pg40 | <strong>Business</strong> plan
Innovation is core to the success of our business. We see<br />
innovation as the way to deliver our vision of being an<br />
employer of choice, a respected corporate citizen and<br />
sustainably cost efficient. We drive business innovation to<br />
improve our customer satisfaction, be more cost efficient and<br />
optimise our investment to keep customers’ bills down.<br />
<strong>Business</strong> innovation<br />
We believe strongly that through innovation we can improve<br />
how we operate our business. Our step change in performance<br />
is based on changing the way we work and finding new and<br />
innovative ways to deliver better service for our customers.<br />
Alongside general business improvement, we have a portfolio of<br />
network innovations aimed at increasing reliability and quality of<br />
supply to improve public and employee safety and support our<br />
role in the <strong>UK</strong>’s low-carbon transition.<br />
We keep our innovation portfolio fresh by continually looking for<br />
new opportunities, stimulated either by a specific business need<br />
or by technological advancements. If we think the opportunity<br />
has merit, we launch a project to trial the innovation to get a<br />
better understanding of the potential and impact of it. If the<br />
benefits prove favourable, we roll the innovation out across the<br />
business and monitor the improvements to ensure they deliver<br />
over time.<br />
Innovation in business improvements or efficiency can be<br />
self-funding. Where there are significantly higher risks, such as<br />
deploying new technology, then we seek to utilise risk sharing<br />
arrangements with partners or through the innovation funding<br />
mechanisms within the regulatory framework. In the remainder<br />
of this section we describe the innovations and improvements<br />
we are delivering now. Later in this chapter we outline the<br />
bigger innovations that will define the future distribution<br />
business, where smart technology is more widely deployed to<br />
fulfil our role in the low carbon economy.<br />
Figure 4.27: Our approach to innovation<br />
Drivers to innovate<br />
Improve customer<br />
satisfaction<br />
Example outcomes<br />
Minimise impact of<br />
street works<br />
Improve business<br />
efficiency<br />
Improve network<br />
performance<br />
Continuous<br />
improvement<br />
through<br />
innovation<br />
New ‘state of the art’<br />
decision support tools<br />
Fast overhead line fault<br />
detection<br />
Prepare for the low<br />
carbon economy<br />
Low carbon London and<br />
flexible Plug & Play<br />
Improving our business performance<br />
Innovation has played a key role in helping us deliver the stepchange<br />
in performance achieved over the last year. We have<br />
looked at best practice outside our own industry to identify and<br />
apply appropriate initiatives. For example, to improve our safety<br />
performance we have:<br />
• Undertaken a Safety Climate Survey, in conjunction with the<br />
Health and Safety Laboratory, to help us understand and<br />
improve our own safety culture and overall performance<br />
• Started to roll out a behavioural safety programme across<br />
the company<br />
For cost efficiency we have implemented a new performance<br />
management framework. This framework improves<br />
accountability for the delivery of targets by ensuring that these<br />
targets are cascaded appropriately throughout the business at<br />
an individual level and that delivery of targets is linked to the<br />
company bonus structure.<br />
An integral part of improving business performance is having<br />
good data on which to base decisions. In 2011 we undertook a<br />
full review of our business critical data items. As a result of this<br />
review we now actively monitor and report on network related<br />
data in a monthly scoreboard – increasing both the visibility and<br />
integrity of our core data set.<br />
Our unit cost project supports better performance management<br />
and improves the accuracy of cost forecasting. By ensuring the<br />
cost of network related expenditure is clearly visible and actively<br />
tracked we have been able to see where there are areas to bring<br />
unit costs down.<br />
With respect to customer service we have looked to extend the<br />
range of communication channels that we use to interact with<br />
customers. An example of this is that we now use Twitter to<br />
keep customers updated during power cuts. The increasing use<br />
of smartphones makes this an effective tool for communicating<br />
with customers, and has been received positively.<br />
<strong>Business</strong> plan | >pg41
More recently we have started to trial the use of iPads and a<br />
‘GeoSub’ app for London field staff. The aim is to reduce the<br />
number of Customer Minutes Lost (CMLs) by helping engineers to<br />
quickly navigate around the city’s 16,000 substations and pulling<br />
up detailed drawings of each upon arrival.<br />
Minimising our impact when we work<br />
While we improve our networks and deliver connections<br />
efficiently, we seek to minimise our impact of our work. We have<br />
focussed our efforts on reducing the impact of our street works in<br />
response to what our stakeholders consider important.<br />
We provide services to residences and businesses in the most<br />
densely inhabited areas in the <strong>UK</strong>. We appreciate the impact our<br />
work has on traffic congestion and the structure of the highways<br />
when we excavate verges, footways and carriageways.<br />
We have a higher proportion than most of local authorities<br />
(29) in our areas that run road permit schemes. We have the<br />
only two authorities in the <strong>UK</strong> that are applying for lane rental<br />
schemes. There is also the Mayor’s Code of Conduct, as well as<br />
Westminster and the City of London codes. We must comply<br />
with these regulations, which do not apply to other distribution<br />
companies. Undertaking street works within London, as we will<br />
explain later, presents its own unique challenges.<br />
We undertake more than 70,000 excavations a year across 52<br />
authorities. The majority of excavations are to provide new<br />
connections for customers or to repair faults on the network.<br />
Over 50 per cent of our works in London are due to customers<br />
requesting new connections. A further 44 per cent of our work is<br />
to fix faults that are causing a loss of electrical supply. Of these<br />
works, 93 per cent is undertaken off the carriageway.<br />
How we are meeting the challenge<br />
To meet the challenge of reducing our impact while undertaking<br />
street works we are:<br />
• Investing in a new street works IT hub. This will simplify our<br />
processes and ensure we manage our work to avoid fixed<br />
penalty notices, overstay charges and the impact of lane<br />
rental charges<br />
• Investing in a new customer service street works information<br />
system. This is on our website to improve information flow to<br />
our customers. There will also be a smartphone application to<br />
support this service<br />
• Implementing a new policy on site information signs that will<br />
provide better information for the travelling public. This will<br />
inform them of what is happening at our works<br />
• Working with local authorities and other utilities (particularly in<br />
London) to understand how we can collaborate on works and<br />
reduce our impact on traffic congestion<br />
• Continuing to be environmentally friendly by recycling 99 per<br />
cent of all excavated street works spoil and using recycled<br />
material where possible for back fill<br />
We are committed to reducing the impact of our street works<br />
through this on-going programme<br />
Following detailed analysis into sourcing strategies for street<br />
works teams we have started to pilot an insourcing approach<br />
in SPN. The trials are proving successful and suggest that we<br />
can realise some significant efficiencies by reducing our use of<br />
contractors. We will continue to explore such opportunities and<br />
exploit them where they are in the interests of our customers.<br />
>pg42 | <strong>Business</strong> plan
Innovation Funding Incentive (IFI)<br />
We are an active participant in Ofgem’s Innovation Funding<br />
Incentive (IFI) programme. Through innovation we are committed<br />
to improving the level of service efficiency that we provide to our<br />
customers, while ensuring that our networks remain fit for new<br />
technologies that lie ahead. Innovation in our everyday business<br />
activities has already demonstrated its benefit to how we work<br />
and we will continue to increase the pace at which this happens.<br />
Our innovation activities typically fall into a number of categories:<br />
• To understand a future issue and build a timeline for action<br />
• To inform engineering decisions<br />
• To develop new solutions such as test equipment, sensors,<br />
network management controllers, network management<br />
software and desktop design tools<br />
We operate a range of projects, from early stage research<br />
through to trials on our network. While the IFI has been a<br />
significant source of funding for our innovation activities we have<br />
sought to leverage other sources of lending wherever possible.<br />
Our spending on IFI projects can be summarised into three high<br />
level areas:<br />
• Innovation and our current assets<br />
• Managing customer demand through innovation<br />
• Using innovation to release extra capacity in our networks<br />
Innovation and our current assets<br />
Managing our assets better is a continuous process. Ensuring<br />
the accuracy of our asset information is vital to our current<br />
operations and to future business planning. As can be seen from<br />
our planning forecasts later in this document, monitoring asset<br />
condition and performance feeds directly into our expenditure.<br />
Reducing customer power interruptions is our top priority.<br />
While our London network has the advantage of underground<br />
cabling reducing fault rates, EPN and SPN have a mix of both<br />
underground cables and overhead lines. We launched the<br />
Overhead Line Incipient Fault Detection project to trial fault<br />
location solutions on overhead lines, using detection points<br />
installed on the high voltage network. Working with another<br />
DNO, Electricity North West, we aim to develop a proactive<br />
approach to reducing interruption duration as well as<br />
reducing the switching required to locate faults and reduce<br />
recurrent faults.<br />
Four 11kV circuits have been identified for the trial installation.<br />
Once installed, the system will be operated for a 12 month<br />
period with all data being gathered and compared with system<br />
fault and switching data. Conclusions about the system’s<br />
effectiveness and reliability will be drawn and if successful it has<br />
the potential to be rolled out across EPN and SPN.<br />
Managing customer demand through innovation<br />
Customer demand is expected to rise over the coming years.<br />
To reduce the need for reinforcement and hence the costs, we<br />
are using innovation to manage customer demand. We aim to<br />
reduce the amount of reinforcement necessary and to mitigate<br />
the associated costs.<br />
London has some of the largest commercial buildings in the<br />
country, requiring large amounts of electricity to heat and<br />
cool them. As an innovative example of how we are managing<br />
the demand for electricity from our commercial customers, we<br />
developed a water cooled heat exchanger for our substation at<br />
Bankside on the Thames, adjacent to the Tate Modern.<br />
Substation transformers generate heat that is lost to the<br />
environment. We have upgraded the substation so that it is<br />
water cooled, allowing the waste heat to assist the space heating<br />
at the Tate. The benefits for us are that less energy will need<br />
to be expended within cooler fans at the substation, and lower<br />
maintenance and replacement cost will be incurred. The overall<br />
carbon footprint of the site and assets will be reduced.<br />
<strong>Business</strong> plan | >pg43
Innovation!<br />
Bankside heat transfer<br />
Substation transformers generate heat, particularly during<br />
peak loads. This heat is normally lost to the environment,<br />
often through energy-intensive forced cooling. The upgraded<br />
substation at Bankside, adjacent to the Tate Modern, has<br />
used transformers with water cooled heat exchangers.<br />
It is proposed that the waste heat from the transformers<br />
will be used by the Tate Modern to assist with their<br />
space heating. This will benefit the Tate by providing<br />
low-carbon heat. The benefits for <strong>UK</strong> <strong>Power</strong><br />
<strong>Networks</strong> are that less energy will need to<br />
be expended within cooler fans at the<br />
substation, and lower maintenance and<br />
replacement cost will be incurred.<br />
The overall carbon footprint of<br />
the site and assets will<br />
be reduced.<br />
>pg44 | <strong>Business</strong> plan
Using innovation to release extra capacity on<br />
our networks<br />
There are many innovative ways that we can increase capacity<br />
on our networks. We have been exploring methods to increase<br />
capacity from existing overhead line routes. Standard techniques<br />
can be intrusive, often requiring support structures. For the<br />
pilot study, two overhead line routes have been chosen. A<br />
collaborative team has been brought together from across our<br />
engineering standards, capital projects and network planning<br />
teams with additional external consultants with significant<br />
overhead line experience. The project team are investigating new<br />
ways of increasing capacity. They are exploring novel conductors,<br />
potentially re-tensioning cables or other minor modifications to<br />
structures to increase capacity. They are also reviewing operating<br />
regimes to see if they can be improved.<br />
Our London network is entirely underground. It is often difficult<br />
to reinforce circuits in densely populated areas mainly because<br />
there is limited physical space available. London substations are<br />
commonly built underground, are therefore expensive to build,<br />
and can cause disruption during construction. We currently have<br />
an innovation project that will evaluate if an urban distribution<br />
substation developed by a Spanish company (Twelcon) could<br />
help address these issues. As these substations can be placed, for<br />
example, in car parks, the additional headroom these substations<br />
may provide could enable electric vehicle charging points to<br />
connect to the distribution network. The cost of the urban<br />
substation could be partially offset by revenue generated from<br />
the sale of advertising space on its external walls.<br />
Innovation in decision support models<br />
Innovation also extends to the tools we use to run our business.<br />
To improve our planning process we developed two new models<br />
to inform our future expenditure forecasts:<br />
• A long-term network reinforcement model to quantify Load<br />
Related Expenditure<br />
• Asset replacement and refurbishment models to quantify<br />
Non-Load Related Expenditure<br />
The new Load Related Expenditure Model was developed with<br />
Imperial College London and provides enhanced long-term<br />
network reinforcement forecasting to supplement established<br />
bottom-up planning techniques. This new reinforcement<br />
tool enables the rapid assessment of a range of network<br />
development scenarios.<br />
The new model is capable of projecting optimised network<br />
expenditure profiles to reflect the increasing deployment of<br />
low carbon technologies such as electric vehicles, heat pumps,<br />
commercial air conditioning, the various forms of distributed<br />
generation, smart appliances and energy efficiency measures.<br />
Our new ‘Asset Risk and Prioritisation’ model has been<br />
developed to inform asset replacement and refurbishment<br />
options. Through an improved understanding of asset<br />
degradation and failure risk we are able to better prioritise<br />
the assets requiring renewal over time. This innovative model<br />
enables evaluation of the financial and technical consequences of<br />
different intervention strategies. This new approach is informing<br />
our decisions to replace and refurbish assets or to introduce an<br />
enhanced maintenance practices.<br />
4.11 Smart innovation to meet demand<br />
We are committed to playing our full role in facilitating the<br />
transition to a low carbon economy. We will need to adapt our<br />
business as our customers take up low carbon technologies<br />
and connect distributed generation. We are preparing for<br />
the journey and are developing our thinking as to what<br />
the network of the future looks like, learning how new<br />
technologies can help, and how our role might change to<br />
allow us to more actively manage the electricity flows across<br />
our network.<br />
Enabling the transition to a low carbon future<br />
The Government’s Carbon Plan sets ambitious targets to reduce<br />
emissions by 18 per cent on 2008 levels by 2020. In order to<br />
achieve this, 40 per cent of our electricity must come from low<br />
carbon sources by 2020. We see these challenges as an exciting<br />
opportunity for innovation.<br />
Our commitment to the low carbon economy and innovation is<br />
long-standing. Since 2005 we have built up a portfolio of projects<br />
that will enable the transition to a low carbon future. We want to<br />
be recognised as a low carbon leader in our industry, leading the<br />
way by ensuring the decarbonisation of electricity and playing<br />
our part in enabling the electrification of heat and transport.<br />
Figure 4.28: Demand, aggregated demand and typical wind<br />
generation over a 24 hour period<br />
Demand (Giga watts)<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24<br />
Total charge<br />
Time (hours)<br />
Demand<br />
Aggregate<br />
Wind<br />
With the new approach, we are able to quantify the benefits<br />
of alternative investment strategies such as demand response<br />
and active network management techniques to understand<br />
the trade-offs between operational measures and capital<br />
expenditure. It will also be important to consider network<br />
losses in the process of optimising reinforcements aligned<br />
with low-carbon strategic objectives.<br />
<strong>Business</strong> plan | >pg45
Impacts on DNOs<br />
We share the low carbon future vision and see the challenges<br />
it presents as opportunities to bring more value and reliability<br />
to our customers. If extensive reinforcement is to be avoided<br />
then smarter means of accommodating energy resources and<br />
of managing demand will be essential. The low-carbon future<br />
presents a scenario where wind generation will be the most<br />
significant generation source. This will provide low carbon energy<br />
for millions of home and businesses. This will also provide new<br />
challenges in forecasting generation output and in keeping the<br />
electricity system in balance on a second-by-second basis.<br />
The challenges we face as an industry should be welcomed as an<br />
opportunity to change and improve. These challenges will impact<br />
distribution network daily load profiles. The increased use of<br />
wind and micro-generation and the new demands from electric<br />
vehicles and heat pumps will require close monitoring to respond<br />
to them. Over time the real-time management of electricity<br />
demand may become more critical to the successful delivery of<br />
the low carbon transition and to optimise network investment.<br />
Smart Grids: The road to DSO<br />
Moving to a low carbon economy, with increased customer<br />
interaction to manage the network, our role may change.<br />
The traditional role of a DNO is to passively distribute electricity<br />
along its networks to customers. A DNO does not generally<br />
have the tools to manage demand and generation flexibly.<br />
As we move into a low carbon future, the relative inflexibility<br />
of traditional supply and demand is expected to change. As<br />
intermittent generation is brought on-line and new innovative<br />
technologies are harnessed, we must adapt our networks to<br />
facilitate this new flexible system. This gives rise to the concept<br />
of ‘Smart Grids’.<br />
As we potentially move towards new and innovative smart<br />
technologies, we should consider if moving to become a<br />
Distribution System Operator (DSO) would be of benefit. A DSO<br />
would provide a highly flexible network to adapt to responsive<br />
demand, by using electrical storage and controllable generation.<br />
Flexibility could be achieved by offering our own new incentives<br />
for customers or by using third party commercial aggregators.<br />
The DSO concept is illustrated by the diagram in Figure 4.29:<br />
Figure 4.29: Transition from a DNO to a DSO<br />
Non-flexible demand<br />
Non-flexible DG<br />
EVs<br />
Heat<br />
Flexible demand<br />
Cooling<br />
Technical Aggregation<br />
White<br />
goods<br />
Storage<br />
Network<br />
storage<br />
Dispatchable resources<br />
DG<br />
contracts<br />
Demand<br />
response<br />
Ancillary services<br />
Enabling<br />
infrastructure<br />
Commercial<br />
aggregation<br />
By way of contrasting the current role of a DNO with that of a DSO<br />
A Distribution System Operator (DSO) has access to a portfolio of responsive demand, storage and controllable generation assets that<br />
can be used to actively contribute to distribution system operation. A DSO builds and operates a flexible network with the ability to<br />
control load flows on its network. The combination of a highly flexible network and access to demand and generation response allows<br />
the DSO to contribute to the increasing <strong>UK</strong>-wide challenge of system balancing.<br />
By contrast, a Distribution Network Operator (DNO) continues to build in response to growth in maximum or peak demand. A DNO does<br />
not have the ability or desire to influence demand and generation, and tends to introduce flexibility only to the extent that it supports<br />
existing regulatory priorities (such as to reduce supply interruptions and the risk of catastrophic asset failure).<br />
>pg46 | <strong>Business</strong> plan
Future network development plan<br />
We are preparing for a journey that may take us from DNO to<br />
DSO. The pace of our journey is closely linked to the uptake of<br />
low carbon technologies – which in turn depends on factors<br />
such as customer acceptance, economic conditions and<br />
government policies.<br />
Change will be gradual, with incremental innovation and<br />
implementation. This incremental investment approach will<br />
allow us flexibility until we have more certainty on the impact of<br />
the low carbon transition, and allow us to avoid any unnecessary<br />
investments. We do expect changes to accelerate when certain<br />
technologies gain critical mass. This might well be the tipping<br />
point at which we move from an incremental to integral solution<br />
approach and when we have become a DSO.<br />
Based on the current forecasts of low carbon technology uptake,<br />
we do not expect to reach this point until well beyond the end<br />
of the forecast period into the mid to late 2020s. Nevertheless,<br />
in preparation of this change we will need to start investing<br />
in enabling technologies such as increased monitoring and<br />
communications infrastructure during the forecast business plan<br />
period (2015 to 2023).<br />
We have spent considerable effort, developing our thinking<br />
on how this will evolve and have captured this in our ‘Future<br />
Network Development Plan (FNDP)’, which provides guidance for<br />
our activities throughout the forecast business plan period<br />
and beyond.<br />
This not only provides an exhaustive up-to-date review of<br />
technical and commercial solutions, but also brings these<br />
together into logical solution sets aligned with those developed<br />
in the cross-industry ‘Smart Grid Forum’ which is jointly chaired<br />
by Ofgem and the Department for Energy and Climate Change<br />
(DECC). In line with our FNDP we are trialling a series of<br />
technologies and approaches to develop our thinking on the<br />
best means to deliver the efficient development of our network<br />
in the future.<br />
Figure 4.30: Transition to a low carbon future: response through innovation<br />
Real time thermal<br />
ratings<br />
Using network<br />
capacity more<br />
effectively<br />
Controlled generators<br />
Connect more by<br />
managing generators<br />
output<br />
Flexible networks<br />
Making our networks more<br />
flexible by managing our<br />
power flows and other<br />
limitations and allowing us to<br />
dynamically reconfigure our<br />
network<br />
Smart enablers:<br />
automation, network monitoring, comms,<br />
IT, design, smart meters<br />
Electricity storage<br />
Creating additional<br />
flexibility to manage<br />
peak demand<br />
Intelligent EV<br />
charging<br />
Managing EV<br />
charging rates to<br />
moderate the<br />
demands on our<br />
network<br />
Demand side response<br />
Managing domestic and<br />
commercial electricity<br />
demand directly or through<br />
third parties<br />
Low Carbon Network Fund<br />
We are currently trialling innovative solutions to ease the<br />
transition to a low-carbon future. This is being funded by the<br />
Low Carbon Network Fund, which has two elements for funding<br />
projects – non-competitive (LCNF Tier 1) and competitive<br />
(LCNF Tier 2). In addition to research and development, an<br />
important aspect of the Low Carbon Network Fund is knowledge<br />
dissemination. We are sharing the knowledge gained from<br />
our projects with key stakeholders including the entire DNO<br />
community and other interested parties using a variety of<br />
methods to appeal to a wide audience.<br />
Five LCNF Tier 1 projects have been registered to date:<br />
Short-term energy storage on the distribution network<br />
(June 2010) – investigating how storage can be an alternative<br />
to traditional reinforcement of substation when additional<br />
capacity headroom (either thermal or voltage support) is needed<br />
infrequently for limited periods of time to avoid building network<br />
capacity where the long-term demand is uncertain.<br />
Distribution network visibility (September 2010) – demonstrating<br />
the business benefits of collection, utilisation and visualisation of<br />
network data that is already available to improve our operational<br />
and investment decisions e.g. to improve time required to<br />
connect new customers.<br />
LV current sensor technology evaluation (December 2011) –<br />
the first collaborative project (with Western <strong>Power</strong> Distribution)<br />
evaluating a range of network monitoring solutions that can<br />
help us understand the available network capacity to enable<br />
us to minimise customer disruption or delay when low-carbon<br />
technologies are deployed future.<br />
Validation of Photovoltaic (PV) connection assessment tool<br />
(January 2012) – This project is testing the validity of our new<br />
planning tool, which assesses the impact of concentrations<br />
of small scale generation on our networks e.g. solar panels,<br />
enabling us to provide a better and faster service to<br />
our customers.<br />
<strong>Business</strong> plan | >pg47
Smart urban low voltage network (July 2012) – Most LV networks<br />
are passive, meaning they cannot be actively reconfigured to<br />
match user requirements. We have been working in collaboration<br />
with TE Connectivity, to develop a new solid-state switching<br />
technology for use these networks. The devices developed can<br />
provide us with remote switching and re-configuration of the<br />
LV network. The system also has the ability to provide visibility<br />
of power flows on the network, using the near real-time<br />
communications and built in sensors. This enables extensive<br />
load monitoring so we can better understand the live state of the<br />
LV network.<br />
Two LCNF Tier 2 projects have been awarded funding and a third<br />
proposal has been submitted:<br />
• October 2010: Low Carbon London – Ofgem awarded<br />
£24.9 million to our first flagship project, supported by a £5<br />
million investment by us<br />
• November 2011: Flexible Plug and Play – awarded £6.8 million<br />
for a second flagship project<br />
• Smarter Network Storage – the aim of this proposed project is<br />
to install a storage plant to solve a network constraint and to<br />
investigate additional revenue streams for providing network<br />
services. Electricity storage could provide value for customers<br />
by reducing the need for network reinforcement and has<br />
wider system benefits such as providing network services such<br />
as reserve and response to help keep electricity supply and<br />
demand in balance<br />
Low Carbon London<br />
January 2011 to June 2014<br />
Low Carbon London is a £30 million pioneering learning<br />
programme. It uses London as a test area to support the<br />
development of a smarter electricity networks that can manage<br />
the demands of a low-carbon economy. It is a collaborative<br />
programme with partners including the Mayor, Transport<br />
for London, academia, and leaders in low carbon and<br />
smart technologies.<br />
Through a series of trials we are monitoring the electricity<br />
demand of homes and businesses across London, and<br />
testing a number of initiatives designed to encourage<br />
changes in electricity usage patterns. We will be improving our<br />
understanding of the effect that the low-carbon transition will<br />
have on the operation of the electricity network. Low Carbon<br />
London is trialling some ground-breaking commercial contracts<br />
with larger industrial and commercial organisations, aimed at<br />
reducing electricity consumption at times of peak demand by<br />
tapping into surplus small-scale generation. The understanding<br />
gained from these trials will help us to ensure the most<br />
cost-effective approach to providing a sustainable electricity<br />
network to meet demand in a low carbon future. The trials<br />
started at the beginning of 2012 and will run through to the end<br />
of 2013, with final reporting delivered in early 2014.<br />
Progress to date<br />
We have established a common demand response contract with<br />
three external aggregators to enable the sign up of customers to<br />
reduce load at peak times on selected substations. 13.8MW has<br />
been signed up and further 115MW is in pipeline.<br />
Distributed generation and active network management trials:<br />
approximately 30 sites currently identified, 12 being signed up<br />
with a further eight in advanced stages of negotiation. These<br />
trials are aimed to inform how we can maximise opportunities<br />
for low carbon, distributed and micro-generated electricity,<br />
respond to new demands on the electricity network from a low<br />
carbon economy and match local energy demand with national<br />
low carbon energy demand. We will trial techniques to assess<br />
how we can best enable, facilitate, and manage distributed<br />
generation to improve security of supply and reduce network<br />
investment costs.<br />
First customers identified and signed up for electric vehicle<br />
trial: 30 residential and 70 commercial participants with access<br />
to more than 750 charging points across London through<br />
collaboration with the Source London e-mobility scheme.<br />
This will allow us to monitor electric vehicle charging behaviour<br />
and its impact on the electricity network; investigate how EV<br />
charging can be influenced by time-of-user tariffs to influence<br />
when customers charge to seek to minimise the cost of<br />
expanding the network.<br />
>pg48 | <strong>Business</strong> plan
Smart meter rollout – approximately 6,500 customers signed<br />
up; with a further 500 expected by the end of November 2012.<br />
We are planning for the roll-out of dynamic time-of-use tariffs<br />
to these customers by December 2012 that will see their tariffs<br />
change over the day. We are also using these meters to provide<br />
data that informs smarter network operating techniques and to<br />
improve our real-time understanding of power flows on<br />
the network.<br />
Flexible Plug and Play<br />
January 2012 to December 2014<br />
Flexible Plug and Play aims to enable faster and cheaper<br />
integration of renewable generation, such as wind power,<br />
into the electricity distribution network. The project will achieve<br />
this by:<br />
• Trialling innovative technical and commercial solutions with<br />
real customers (renewable generation developers) to provide<br />
the most flexible and cost effective means of connecting<br />
renewable generation to the distribution network in a trial area<br />
of around 700km 2 between Peterborough, March and Wisbech<br />
in Cambridgeshire. These solutions would seek commercial<br />
arrangements which provide the customer with a non-firm<br />
(interruptible) connection which allows the generator’s<br />
output to be changed by us to match the prevailing network<br />
conditions and needs<br />
• Deploying smart technologies on the network that will make<br />
best use of the existing electricity network through, for<br />
example, dynamic rating of overhead lines based on<br />
weather conditions<br />
• Allowing real-time management of network constraints<br />
through active control of generator output (for those<br />
generators with non-firm connections)<br />
• Deploying the first Quadrature Booster on the distribution<br />
network; the Quadrature Booster will balance the load on<br />
parallel circuits by forcing the power away from the<br />
weaker circuit<br />
• Developing an investment modelling tool that will determine<br />
the optimum network investment from both an economic and<br />
carbon emission perspective<br />
Flexible Plug and Play will contribute towards the Department<br />
of Energy and Climate Change’s (DECC) target of 30 per cent<br />
of the <strong>UK</strong>’s electricity to be generated from renewable energy<br />
sources by 2030 by enabling the faster and cheaper integration<br />
of renewable generation to the network.<br />
The first public deliverable from the Flexible Plug and Play<br />
project, the first Stakeholder Engagement Report, was delivered<br />
successfully in September 2012 11 . The major conclusion from this<br />
stakeholder engagement exercise is that generator curtailment is<br />
seen as offering substantial opportunities, implemented as part<br />
of Active Network Management schemes optimising the export<br />
of multiple generation developers onto the distribution network<br />
against known network constraints. Active Network Management<br />
can be used in conjunction with other smart technologies such<br />
as dynamic rating of lines or other assets. Generation developers<br />
had no concerns about being offered connections with some<br />
form of curtailment, as long as the implementation was<br />
transparent and the estimate of curtailment had low uncertainty.<br />
The learning from this exercise has informed current activity on<br />
the project to develop proposed commercial arrangements for<br />
non-firm connections.<br />
The project has had very positive engagement with many of the<br />
generation developers in the trial area. To date, five of these<br />
developers have received business as usual connection offers<br />
and have been invited to participate in the project in parallel.<br />
Three of these developers have already opted in to the project,<br />
with decisions pending from the other two. These developers<br />
will receive their formal flexible plug and play connection offer<br />
by March 2013, and the business as usual connection offer also<br />
remains open. Budgetary estimates developed to date indicate<br />
that flexible plug and play connection offers will be in the range<br />
of 33 per cent to 90 per cent cheaper than business as usual<br />
connection offers, representing a significant cost saving for<br />
the developer and thus providing a key enabler for faster and<br />
cheaper integration of renewable generation to the<br />
distribution network.<br />
11<br />
http://www.ukpowernetworks.co.uk/internet/en/innovation/<br />
learning-zone/<br />
<strong>Business</strong> plan | >pg49
Innovation!<br />
Energy storage<br />
Flexibility of the electricity system is recognised as vital for a<br />
low carbon energy sector, particularly considering the increased<br />
penetration of intermittent renewable generation and the potential<br />
misalignment between times of peak generation and times of<br />
peak demand. Energy storage is one source of flexibility that has<br />
significant potential to support the system at the distribution<br />
level by mitigating the misalignment of these peaks.<br />
We commissioned an energy storage system at Hemsby<br />
in April 2011. For the first year it operated as a source<br />
(export) and sink (import) of reactive power. Subsequently<br />
it has been operated to enable real power exchanges<br />
on the network through charging and discharging of<br />
the battery. The results so far are positive and have<br />
verified that the system is having the desired<br />
impact on the network in terms of both real and<br />
reactive power, as generation and demand<br />
changes over time. Further tests are now<br />
planned to demonstrate how we can<br />
improve the management of the<br />
distribution network and address<br />
some typical network issues using<br />
energy storage.<br />
>pg50 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg51
5 Process: how we are planning<br />
for the future<br />
This 2012 business plan is our first public proposal for the RIIO-ED1 period<br />
(2015 to 2023). At present, this plan is largely based on conventional approaches<br />
to network expansion and asset renewal with minimal deployment of smart<br />
technologies. However, by 2013 we intend to integrate a range of smart<br />
technologies within our RIIO-ED1 business plan. We have included a high level<br />
view of the costs and benefits of smart metering in this plan.<br />
This chapter provides an overview of the methods and tools we use in the<br />
construction of our business plan. It also outlines the impact of the future<br />
challenges, how we are incorporating stakeholder views and summarises the<br />
innovative thinking we are using to meet the challenges of a transition to a<br />
low-carbon economy.<br />
We explain the tools used to develop detailed demand scenarios, assess the<br />
uncertainties associated with the deployment of low-carbon technologies, the<br />
impact of smarter networks and how we will improve the management of our<br />
existing assets.<br />
>pg52 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg53
5.1 Our stakeholder engagement activities<br />
We are undertaking a range of engagement activities with<br />
diverse groups of stakeholders ranging from domestic<br />
customers, commercial and industrial customers, local<br />
governments, major energy users, customer organisations<br />
and those representing the community sector. We are testing<br />
all aspects of this business plan with stakeholders through<br />
different forums including willingness to pay surveys, specific<br />
stakeholder events on key topics and one to one meetings.<br />
Prior to developing the business plan, we have sought<br />
stakeholders’ views of what they consider to be the critical<br />
issues and areas where we can improve performance. We<br />
have explained how we are developing scenarios to underpin<br />
our future <strong>plans</strong>. We have also provided detail on the output<br />
measures that Ofgem will use to incentivise our performance<br />
and against which customers can judge our progress. It<br />
is important to test these output measures and incentive<br />
mechanisms with stakeholders to ensure they are relevant to<br />
stakeholder views.<br />
We promote a broad dialogue with stakeholders in each of our<br />
networks to ensure that our <strong>plans</strong> recognise the interests of<br />
the local communities we serve.<br />
Stakeholder engagement strategy<br />
Our stakeholder engagement objective is to ‘develop<br />
arrangements that will provide meaningful opportunities to<br />
a range of our stakeholders to influence the direction of our<br />
thinking on network development and business operation on an<br />
on-going basis’.<br />
In delivering our strategy we have followed the<br />
following process:<br />
• Prepare for engagement: We have established a range of<br />
stakeholders with whom to engage, the issues appropriate<br />
to engage them on and an understanding of the support<br />
stakeholders need to allow them to effectively participate in<br />
our engagement processes<br />
• Engage with stakeholders: We have developed different<br />
formats and methods for engagement to facilitate participation<br />
from different groups<br />
• Record, assess and respond: To secure the full value of<br />
engagement we have recorded the views expressed, assessed<br />
the options available to address issues raised and ensured<br />
transparency about the impact that the engagement has had;<br />
where engagement does not impact on our <strong>plans</strong>, we will<br />
provide clear reasoning for this outcome<br />
Stakeholder engagement is an on-going process which has<br />
been embedded in our business as usual <strong>plans</strong> and will continue<br />
during and after the current RIIO-ED1 assessment. We will<br />
also continually evaluate the effectiveness of our stakeholder<br />
engagement strategy. To support this process, a set of criteria has<br />
been developed against which we can assess performance. We<br />
will use this process to ensure that our strategy<br />
remains applicable.<br />
Addressing stakeholder feedback<br />
It is not sufficient to merely listen to our stakeholders: we must<br />
assess how to address the issues they have raised and provide<br />
prompt and decisive feedback on the conclusions we have<br />
reached. It is only by maintaining open and proactive two-way<br />
communication with our stakeholders that we will build trust,<br />
allow working relationships to prosper and establish a solid<br />
stakeholder partnership.<br />
We aim to promote a broad dialogue with stakeholders in each<br />
of our operating regions to ensure that our <strong>plans</strong> are aligned to<br />
the interests of the communities we serve.<br />
Engaging on our forecast business plan<br />
We launched a series of stakeholder consultations in 2011 as part<br />
of the development of this forecast business plan.<br />
Stakeholder consultation: ‘scenarios’<br />
Scenario planning aims to explore possible futures for the <strong>UK</strong>’s<br />
energy networks in the context of a low-carbon economy. We<br />
recognised that stakeholders should be involved from the earliest<br />
phases of our business planning cycle, so we involved our key<br />
stakeholders in a review of the scenarios we developed and<br />
provided the opportunity for comment, in order to refine and<br />
improve our <strong>plans</strong>.<br />
We recognised the diverse nature of our networks by developing<br />
regionally-specific scenarios and seeking the views of<br />
stakeholders from each of our three network areas. We hosted<br />
four dedicated stakeholder events – three regional workshops<br />
and an online forum – to debate four very different scenarios and<br />
the resulting potential planning assumptions that would then<br />
underpin the development of our 2013 forecast business plan.<br />
These events and the generated outcomes are described more<br />
fully below.<br />
At each workshop the business planning process was explained,<br />
the scenarios that had been developed were presented and<br />
attendees were given the opportunity to review, discuss and<br />
challenge the scenarios.<br />
The scenarios focused on the main elements which we believe<br />
will influence the requirement for future network capacity<br />
in our three regions: economic growth and the take-up of<br />
green behaviours and technologies. We gathered a range of<br />
stakeholders’ views on the different assumptions that made<br />
up each scenario and the likelihood of those assumptions<br />
being realised.<br />
In parallel with the workshops, we hosted an online forum via<br />
our stakeholder engagement website to give stakeholders a<br />
further opportunity to provide feedback on the scenarios.<br />
Over 50 people visited the web site, 11 of whom offered<br />
feedback on one or more of the scenarios.<br />
>pg54 | <strong>Business</strong> plan
Stakeholder consultation: ‘outputs’<br />
The development of meaningful ‘outputs’ – where an output is<br />
the delivery of a product or level of service – is another essential<br />
process within the overall review of our investment <strong>plans</strong> for<br />
2013. It was the focus of the second phase of our stakeholder<br />
engagement around business planning.<br />
Ofgem established a number of output categories in which we<br />
must ensure delivery during the forecast business plan period<br />
(2015 to 2023). As an input to our planning process, we wanted<br />
to give our stakeholders the opportunity to explain how they<br />
interpreted the outputs and to define what they regarded as<br />
meaningful performance measures for our business. We were<br />
also keen to hear their views on the potential outputs we<br />
had developed.<br />
During the autumn of 2011, we undertook four separate<br />
strands of engagement in order to gauge the views of a broad<br />
range of stakeholders: a workshop, an online consultation,<br />
targeted interviews with stakeholders with expertise in one or<br />
more of the output categories, and focus groups made up of<br />
domestic customers.<br />
The event was well attended: 62 stakeholders participated,<br />
drawn from our three network regions.<br />
From 12 October to 1 December, 2011, we gave our stakeholders<br />
a further opportunity to comment on this topic via an online<br />
consultation. We also made sure that the output materials that<br />
were made available to the workshop attendees were published<br />
on our stakeholder engagement website.<br />
Participants were asked to provide their opinions on both the<br />
existing outputs and possible new proposed outputs in each<br />
category, along with any suggestions of their own. A total of<br />
21 stakeholders responded to the online consultation.<br />
In November and December 2011, in the interests of ensuring<br />
the widest possible coverage of views, we conducted interviews<br />
with stakeholders who were unable to attend the workshop.<br />
Examples included: an environmental charity; a local authority<br />
street works manager; and a local authority lighting engineer.<br />
The primary objective was to facilitate an in-depth discussion<br />
about a couple of the output categories, as selected<br />
by interviewees.<br />
While the event, online consultation and interviews enabled us<br />
to consult with a diverse range of stakeholders, they were not<br />
ideal forums for engaging with domestic customers. It is our<br />
belief that we should seek to include this stakeholder group<br />
wherever possible in the planning process and hence we opted<br />
to organise a number of focus groups. Each group was made<br />
up of a mixture of customers who had previously interacted<br />
with us (due either to experiencing a power cut or requiring a<br />
connection) and customers who had not. The objective was to<br />
identify activities that domestic customers regarded as being<br />
important for us and thereby stimulate ideas as to what would<br />
constitute ‘good’ and ‘great’.<br />
Critical friends regional panel process<br />
Following our extensive consultation with stakeholders in<br />
2011, we have used the feedback from the various engagement<br />
forums to test issues to include in our business plan with three<br />
critical friends panels. These panels were established in 2012<br />
and involved one panel for each of our three separate<br />
distribution areas.<br />
During the course of 2012 and into 2013, we expect that over<br />
90 critical friends will participate in this process. The panels have<br />
been a very useful sounding board to test strategies, ideas and<br />
concepts for inclusion in the final business plan.<br />
The critical friends panel contains representatives from customer<br />
groups, vulnerable customers, major energy users, developers,<br />
local governments, industry organisations, energy sector<br />
participants, water utilities and others.<br />
Not all issues presented to the panels will be included in the final<br />
business plan. The important part of this process is to critically<br />
test concepts with stakeholders. Equally, specific issues raised by<br />
stakeholders will be included in the final plan.<br />
The panel process is on-going over 2012-13 and will conclude<br />
in April 2013, prior to the submission of our final business plan<br />
to Ofgem.<br />
Assessing what our customers and<br />
stakeholders want<br />
We have commissioned a programme of research designed to<br />
inform our future investment strategy. The research will derive<br />
what our customers’ priorities and their ‘willingness to pay’ for<br />
different levels of performance. The pilot results are promising<br />
and will be ratified through the main research programme that<br />
will deliver more comprehensive results.<br />
Our pilot programme uses four main elements to research<br />
customers’ willingness to pay for additional investments:<br />
• 14 focus groups with domestic customers<br />
• 21 business customer teleconferences<br />
• 1200 Phone-Post-Phone (PpP) stated preference interviews<br />
with domestic customers preceded by 160 pilot interviews.<br />
This is currently being undertaken<br />
• 300 PpP stated preference interviews with business<br />
customers, preceded by 160 pilot interviews. This is currently<br />
being undertaken<br />
The data from the survey is presented in terms of a score to<br />
rate how willing customers are to pay for a programme or<br />
investment. This score is based on the status quo, which is given<br />
a score of zero. Essentially the more willing the customer is to<br />
pay for the investment the greater the score will be. It can also<br />
be negative, showing customer’s unwillingness to pay.<br />
This score also has a corresponding statistical robustness score<br />
that allows the quality of the result to be assessed. Again the<br />
higher the robustness score, the more reliable the data is.<br />
The greater the willingness to pay score and the robustness of<br />
data score, the more attractive the potential investment is with<br />
the sampled customers and the more confident we can be in<br />
the result. Higher robustness scores illustrate that a result is<br />
statistically sound, suggesting we can have greater confidence in<br />
the indicated willingness to pay.<br />
Based on the pilot data from the willingness to pay survey, we<br />
show four examples of the insights that we can achieve through<br />
such research. We expect to be able to draw a number of<br />
conclusions once the work on our main survey is complete.<br />
<strong>Business</strong> plan | >pg55
Figure 5.1: Domestic customers’ willingness to pay for<br />
investments to support low carbon technologies (all networks)<br />
Figure 5.3: Willingness to pay for quicker time to connect<br />
(all networks)<br />
0.6<br />
0.35<br />
Willingness to pay<br />
0.5<br />
0.4<br />
0.3<br />
0.2<br />
0.1<br />
0<br />
0 1 2 3 4 5 6<br />
Robustness of data<br />
Investment to enable greater uptake of electric vehicles<br />
Investment in infrastructure to enable greater uptake of<br />
low carbon electric heating technologies<br />
Willingness to pay<br />
0.30<br />
0.25<br />
0.20<br />
0.15<br />
0.10<br />
0.05<br />
0.00<br />
0 0.2 0.4 0.6 0.8 1 1.2<br />
Robustness of data<br />
As now, i.e. within 90 days<br />
30 days quicker than new, i.e. within 6 months<br />
60 days quicker than now, i.e. within 30 days<br />
75 days quicker than now, i.e. within 15 days<br />
r<br />
Investment to enable large-scale renewable generation<br />
(e.g. onshore wind farms, biomass plants, etc.)<br />
Investment to enable uptake of micro-generation e.g.<br />
solar panels etc.<br />
This indicates that customers are willing to pay more for a<br />
simple, low voltage, connection e.g. domestic connection, which<br />
is completed within 15 days compared to longer time periods.<br />
Figure 5.4: Willingness to pay for quicker time to connect<br />
(all networks)<br />
This indicates that customers are willing to pay for the additional<br />
investments to allow for the connection of low-carbon<br />
technologies with a greater preference for low-carbon generation<br />
and heat compared to electric vehicles.<br />
Figure 5.2: Customers’ willingness to pay for investments to<br />
allow us to automatically detect loss of supply events<br />
(all networks)<br />
Willingness to pay<br />
0.7<br />
0.6<br />
0.5<br />
0.4<br />
0.3<br />
0.2<br />
0.1<br />
0<br />
0 2 4 6 8<br />
Robustness of data<br />
<strong>Business</strong><br />
Domestic<br />
Willingness to pay<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0<br />
-0.2<br />
-0.4<br />
-0.6<br />
-0.8<br />
0 0.5 1 1.5 2 2.5 3<br />
LPN<br />
EPN/SPN<br />
Robustness of data<br />
Automated text messages to<br />
registered customers<br />
Automated update calls and<br />
follow-up after power cut<br />
Additional information services<br />
This indicates that domestic customers in EPN and SPN are less<br />
willing to pay for additional information than customers in LPN.<br />
This indicates that both business and domestic customers are<br />
willing to pay for investments in communication infrastructure<br />
to allow us to know immediately when they have a loss of<br />
electricity supply.<br />
>pg56 | <strong>Business</strong> plan
5.2 Developing the <strong>plans</strong> for expanding<br />
our network (load related forecast)<br />
Requirements for network reinforcement and expansion<br />
are driven by locational demand growth. The future<br />
growth of electricity demand will be driven by a range of<br />
well-established and emergent factors. We face increased<br />
uncertainty due to the emergence of new applications<br />
for electricity such as electric vehicles and new heating<br />
technologies. We have worked with stakeholders to develop<br />
realistic baseline scenarios for each of our networks to inform<br />
future network reinforcement aligned with the needs of<br />
our customers.<br />
Future network investment requirements are uncertain given the<br />
anticipated transition to a low-carbon economy. Our approach<br />
to business planning seeks to recognise this uncertainty, inform<br />
our <strong>plans</strong> with a wide range of stakeholder views to better<br />
understand the uncertainty and ensure the framework is<br />
adaptable to change over the longer regulatory period.<br />
The requirement for new network capacity is driven by the<br />
demand at each of our substations. A range of external factors<br />
influence this demand. Historically, it has primarily been driven<br />
by the number of new households and the rate of economic<br />
growth in each of our areas. In the future we expect to see<br />
growth in distributed generation and low-carbon technologies in<br />
response to Government policies to decarbonise the <strong>UK</strong> economy.<br />
There is significant uncertainty regarding the types of technology<br />
that will be deployed and associated timings.<br />
Alongside this, the electricity industry is developing alternative<br />
responses to these challenges through ‘smart grid’ developments<br />
to help to reduce the cost of future network reinforcement.<br />
During the last 18 months we have embarked on a major<br />
development of our load (and non-load) forecasting capabilities.<br />
Our new load related expenditure model allows us to take a<br />
longer-term view of multiple growth scenarios and enables<br />
evaluation of these ‘smart grid’ solutions.<br />
The diagram in Figure 5.5 shows at a high level the load related<br />
expenditure forecasting process.<br />
Figure 5.5: Forecast business plan preparation<br />
General economic uncertainty<br />
Economic growth is a significant factor in increasing demand for<br />
electricity and hence the required capacity of our networks.<br />
The <strong>UK</strong>, the wider European and global economies are facing a<br />
significant period of continuing uncertainty. The rate of growth in<br />
the economy affects our network expenditure levels, as it drives<br />
both new network capacity requirements and new connections<br />
volumes. The graph details the range of independent forecasts<br />
by the Office of National Statistics (ONS) and Office of Budget<br />
Responsibility (OBR) for Gross Domestic Product 12 (GDP) growth<br />
in the <strong>UK</strong>. It illustrates the high degree of uncertainty regarding<br />
the timing and extent of economic recovery. These independent<br />
forecasts of GDP assume that recovery will happen gradually<br />
through the forecast period.<br />
A more buoyant economy is likely to mean that demand<br />
increases, both through current and new connections. Also<br />
customers (both domestic and business) may be more willing<br />
to invest in reducing their emissions and Government may have<br />
more scope to provide incentives to facilitate the take up of<br />
emission reduction technology.<br />
The converse is likely to be true if the rate of economic growth<br />
is slow. A slow growth rate may mean that customers are even<br />
more sensitive to price changes.<br />
Figure 5.6: Current ONS, OBR GDP forecast<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
-2%<br />
-4%<br />
-6%<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
12<br />
In our forecasting of growth in electricity demand we use a different<br />
measure of economic growth ‘Gross Value Added’ (GVA). This is directly<br />
related to GDP, but is not forecast as widely. To illustrate the point<br />
around uncertainty in economic recovery we have chosen instead to use<br />
independent forecasts of GDP<br />
ED1 <strong>Business</strong> plan preparation<br />
Scenarios<br />
Load & non-load<br />
related network<br />
data<br />
Selected levels of<br />
performance<br />
(outputs)<br />
‘State of the art’<br />
models<br />
• Asset Replacement<br />
Model<br />
• Load Related<br />
Model<br />
• Smart Grid Forum<br />
WS3<br />
Planners assess<br />
recommended<br />
interventions<br />
Plan tested for<br />
deliverability<br />
and<br />
Financeability<br />
Expenditure<br />
Plan for the<br />
next 8 years<br />
Consistent and<br />
evidence based<br />
inclusion of<br />
innovative solutions,<br />
as part of normal<br />
business practices<br />
Smart Solution<br />
sets, trialled in IFI<br />
and LCNF projects<br />
Revised standards<br />
& policies to<br />
consider smart<br />
interventions<br />
Cost of capital,<br />
supply chain<br />
constraints<br />
<strong>Business</strong> plan | >pg57
Uncertainties around the uptake of low<br />
carbon technologies<br />
The <strong>UK</strong> is seeking to decarbonise its economy and this has<br />
influenced our future planning scenarios. The <strong>UK</strong> is committed to<br />
reducing carbon emissions by 80 per cent by 2050 with medium<br />
term goals being set to be achieved by 2020. The reduction will<br />
come both from increased renewable sources (heat and power)<br />
and reduction in emissions.<br />
The achievement of these medium term targets is increasing the<br />
incentive for smaller scale renewable generation to connect to<br />
our network, encouraging new electricity demands to connect<br />
and is changing stakeholders’ views of the role of the network.<br />
In the long-term this will alter how we build and operate our<br />
networks and what services we need to deliver to our customers.<br />
Exactly what technologies will be deployed to achieve these<br />
targets remains uncertain. For example if ground and air<br />
source heat pumps are the key technology deployed to meet<br />
the renewable heat obligation then the consequences for our<br />
networks could be significant. Conversely, if biomass and biogas<br />
are the key technologies then there will be a lower impact on<br />
our network.<br />
Depending on penetration rates, these could also eventually<br />
result in electricity consumption increases of up to 50 per cent. If<br />
such scenarios were to materialise, there would be a significant<br />
need to reinforce our networks. Such extensive reinforcement of<br />
distribution networks could lead to significant price increases for<br />
customers, risk damage to the <strong>UK</strong> economic competitiveness as<br />
well as result in significant disruption through increased<br />
street works.<br />
More distributed generation<br />
To help meet carbon emission targets, the <strong>UK</strong> will be increasing<br />
the amount of electricity generation from renewable sources.<br />
The Department of Energy and Climate Change has stated that up<br />
to 18GW of offshore wind capacity could be available by 2020.<br />
A significant increase in renewable generation is expected to fall<br />
within the forecast period from 2015. In addition, there is likely<br />
to be wider use of distributed energy resources, e.g. solar panels<br />
on homes and commercial property so that power flows on our<br />
networks become more varied.<br />
Operating in a low-carbon world<br />
We are already considering the challenges of operating in a<br />
low-carbon world to provide a long-term view as to the best<br />
approach to mitigate the impact on electricity networks.<br />
We welcome this challenge as an opportunity to provide<br />
greater value to our customers in a low carbon future. We are<br />
already seeking new ways to accommodate distributed energy<br />
resources and combine them with smarter management<br />
and control of electricity demand through technological and<br />
commercial innovation.<br />
To better understand the potential impact on our network of all<br />
of these issues we have developed:<br />
• A range of possible planning scenarios with our stakeholders<br />
• A scenario modelling tool that can convert the inputs from the<br />
planning scenarios into an overall impact on electricity demand<br />
at the network level<br />
• A detailed load related expenditure modelling tool that uses<br />
the scenarios and will integrate smart solutions to produce a<br />
cost forecast for interventions at each voltage level on<br />
each network<br />
These are described in more detail below.<br />
Forecasting electricity demand: developing our<br />
future planning scenarios<br />
Our scenario modelling tool seeks to analyse the effect of<br />
varying the uncertainties we described above. This includes<br />
general economic growth, low carbon technology deployment<br />
in response to the policies and how market mechanisms may<br />
alter customers’ energy consumption behaviour. Taken together<br />
these factors determine the general growth in demand and<br />
the deployment and expected use of the emerging low-carbon<br />
technologies. The key factors within the model are:<br />
• Economic growth: rate of economic activity<br />
• Technology deployment: impact of the deployment of low<br />
carbon technology on the distribution network<br />
• Market mechanisms: impact of new electricity market<br />
mechanisms on the distribution network<br />
The elements of the first two key factors are listed in Figure 5.9.<br />
The market mechanisms are:<br />
• Time of Use tariffs – where tariffs change over the day or in<br />
response to balance of energy supply and demand<br />
• Domestic customer response<br />
• Industrial and commercial customers response<br />
• A range of possible planning scenarios with our stakeholders<br />
We worked in partnership with Element Energy, a specialist<br />
energy consultancy to develop the assumptions and scenarios.<br />
The data for each of our assumptions has been chosen from<br />
robust and respected primary sources e.g. Office of National<br />
Statistics and their experience of developing similar studies for<br />
DECC, Committee on Climate Change and the Energy Savings<br />
Trust. The resulting models provide credible views of the effect<br />
of incentives on competing technologies in solving specific<br />
policy objectives.<br />
We have created a range of scenarios for stakeholder feedback<br />
based on selecting high, medium or low choices against the<br />
three main factors, economic growth, technology deployment<br />
and market mechanisms.<br />
Our core planning scenario: Presenting our<br />
original scenarios<br />
Scenario planning is a core process within the overall review of<br />
the investment <strong>plans</strong> and aims to explore possible futures for the<br />
<strong>UK</strong>’s energy networks in the context of a low-carbon economy.<br />
We started from the premise that the diverse nature of our<br />
networks would necessitate regionally-specific scenarios and<br />
that, consequently, we should seek the views of stakeholders in<br />
each of our network areas. To this end, we hosted four dedicated<br />
stakeholder events; three regional workshops and an online<br />
forum. Through discussion of each of the scenarios in turn,<br />
we gathered a range of stakeholders’ views on the different<br />
assumptions that made up each scenario and the likelihood of<br />
those assumptions being realised.<br />
>pg58 | <strong>Business</strong> plan
What did our stakeholders say<br />
Our stakeholders believed that we are about to face a tactical<br />
issue with regard to the uptake of low carbon technologies. Some<br />
challenged the idea that the <strong>UK</strong> will be off gas by 2050 and believed<br />
that we could relieve some of the demand on the networks by<br />
facilitating CHP to reduce the amount of electric heating. Others<br />
believed we could also decrease load demand at peak times through<br />
innovative solutions such as controlling fridges and other electrical<br />
heating/cooling devices. Stakeholders commented that we now have<br />
a good opportunity to position ourselves in the middle of this now.<br />
Our business plan says in 2012<br />
Our approach to planning, based on stakeholder-informed scenarios,<br />
reflects the on-going uncertainties and risk surrounding the transition<br />
to a low carbon economy. We share the views of our stakeholders<br />
that through innovation we can utilise the challenges of a low carbon<br />
transition as opportunities to deliver our customers better service.<br />
To prepare for the low carbon transition, we currently run two large<br />
demonstration trials to better understand new smart solutions<br />
to reduce peak demand. These trials are set up with a multitude<br />
of stakeholders and customers. We welcome the views of our<br />
stakeholders on this topic and are planning to incorporate how we<br />
will be using smart technologies and the potential transition to active<br />
management of our networks.<br />
Do you think we can do more We welcome your views<br />
Go to our stakeholder website at<br />
http://yourviews.ukpowernetworks.co.uk<br />
<strong>Business</strong> plan | >pg59
Stakeholder engagement<br />
In the workshops and in the online feedback forms submitted,<br />
a number of issues were raised generally about the scenarios or<br />
came up repeatedly when specific scenarios were discussed.<br />
A frequently expressed view was that business and domestic<br />
users might respond differently within each scenario, and that<br />
there would be some value in exploring likely experiences for<br />
both sectors.<br />
A number of technologies were mentioned repeatedly.<br />
Significant increases in technologies such as wind power,<br />
both onshore and offshore, were frequently questioned by<br />
our stakeholders.<br />
The general view was that the DECC forecast for the development<br />
of onshore wind was somewhat optimistic due to on-going<br />
public opposition, planning constraints and the like. It was also<br />
felt that there should be a greater focus on other technologies<br />
that may well have a significant impact in the future, such as<br />
Combined Heat and <strong>Power</strong> (CHP) and energy from waste.<br />
We have used this feedback as the basis for an additional<br />
‘hybrid’ scenario which contains elements of the original<br />
scenarios but takes a more conservative approach in a number of<br />
areas – one being the take-up of green technology in its various<br />
forms. We have used this scenario to define the basic planning<br />
assumptions that underpin our business plan.<br />
Economic growth<br />
The overwhelming view from our stakeholders was that the<br />
current poor economic conditions were exceptional and that<br />
economic growth would return in time. However, there was little<br />
consensus on when this would occur. In addition, there was a<br />
general expectation from our London stakeholders that London<br />
had been relatively insulated from the worst effects of the<br />
recession and that, ultimately, growth in London would return<br />
to its previous high levels.<br />
Stakeholders suggested that we should put more weight on<br />
long-term trends for economic growth, rather than the more<br />
volatile short-term effects. We have therefore adopted longer<br />
term views of key the economic measures of Gross Value Added<br />
(GVA – the income generated by individuals and businesses in<br />
the production of goods and services) and housing growth. These<br />
trends are shown in the two graphs.<br />
Figure 5.7: Long-term trend in regional GVA growth<br />
12%<br />
10%<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
-2%<br />
-4%<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
Figure 5.8: Long-term household growth trend<br />
3%<br />
2%<br />
2%<br />
1%<br />
1%<br />
0%<br />
-1%<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
Technology deployment<br />
There was a widely held view that projections of the levels<br />
of penetration of the Government’s favoured low carbon<br />
technologies, such as heat pumps, electric vehicles, and small<br />
scale renewable generation, are highly optimistic. The rationale<br />
for this was that significant on-going levels of financial support,<br />
from either Government or from customers, would be required to<br />
deliver the high levels of take up suggested.<br />
Market mechanisms<br />
EPN LPN SPN<br />
There was considerable debate about whether individual<br />
households and companies were likely to be receptive to price<br />
signals, such as time-of-use tariffs. There was great scepticism<br />
that people would modify their behaviour by, for example,<br />
charging their electric vehicles or operating certain appliances<br />
at specific times of the day or night. The conclusion was that<br />
significant incentives would be required to drive such changes<br />
and that there is little evidence that these are likely to be<br />
available. On this basis and in the absence of any information<br />
as to possible incentive arrangements, we have assumed that<br />
few customers will modify their usage and hence market<br />
mechanisms are likely to have a minimal impact on demand.<br />
This assumption could be reviewed subject to any<br />
future announcements.<br />
Subsequent to our stakeholder engagement on our scenarios<br />
DECC and Ofgem announced that they would be sponsoring<br />
industry discussions on planning scenarios. We have played an<br />
active role in these discussions and our earlier engagement<br />
has given us a real insight into stakeholders’ views which<br />
could be shared as part of this process. This culminated in the<br />
development of a set of scenarios (shown in Figure 5.9) during<br />
the spring of 2012 which we are considering as part of our<br />
preparation for our forecast business plan submission<br />
in 2013.<br />
East of England London South East<br />
>pg60 | <strong>Business</strong> plan
Discussions with industry<br />
Figure 5.9: Core planning scenarios<br />
Core planning scenario to take forward<br />
Planning scenario Selected assumption to be utilised EPN LPN SPN<br />
Economic assumptions<br />
Economic growth (per annum) 20 year average of regional GVA statistics 5.40% 6.10% 4.50%<br />
Population growth − historic Average of regional household growth over period from 0.93% 0.95% 0.78%<br />
(per annum)<br />
1992 to 2008 (DCLG statistics)<br />
Domestic stock – thermal efficiency Defra Reference energy efficiency scenario 931k 542k 562k<br />
improvement (houses improved<br />
by 2023)<br />
Domestic cooking/<br />
Defra Market Transformation Programme – reference energy efficiency scenario<br />
lighting/appliances<br />
Technology deployment assumptions<br />
Heat pump uptake (to 2023) RHI incentive applied at proposed rate to 2030.<br />
(Take up based on EE assessment of house type suitability<br />
and analysis of customer response to incentive.) Some<br />
assumptions are not an interest locally (heat pumps are<br />
not really used in certain districts). Investing to save is not<br />
what people are thinking of<br />
233k 61k 121k<br />
Feed in tariff (uptake of
Figure 5.11: LPN peak load history/forecast<br />
Mega watts<br />
Figure 5.12: SPN peak load history/forecast<br />
Mega watts<br />
10,000<br />
5,000<br />
0<br />
5,000<br />
0<br />
CAGR<br />
2002-11: 1.7%<br />
2011-23: 1.1%<br />
2023-30: 1.1%<br />
2002<br />
2004<br />
2006<br />
2008<br />
2010<br />
2012<br />
2014<br />
2016<br />
2018<br />
2020<br />
2022<br />
2024<br />
2026<br />
2028<br />
2030<br />
Year<br />
Actual Domestic demand I&C demand<br />
EV's demand HP's demand Long-term trend<br />
CAGR<br />
2002-11: 0.4%<br />
2011-23: 0.3%<br />
2023-30: 0.3%<br />
2002<br />
2004<br />
2006<br />
2008<br />
2010<br />
2012<br />
2014<br />
2016<br />
2018<br />
2020<br />
2022<br />
2024<br />
2026<br />
2028<br />
2030<br />
Year<br />
Actual Domestic demand I&C demand<br />
EV's demand HP's demand Long-term trend<br />
Applying the scenarios to our load-related<br />
expenditure planning tool<br />
Combining the scenario tool with our load-related planning tool<br />
allows us to take a long-term view of the best way to develop<br />
our network to serve the customers of today and tomorrow and<br />
to deliver long-term value for money.<br />
We have developed a new decision support tool with<br />
Imperial College that is able to provide a long-term view<br />
of the load-related investment programme.<br />
It uses the growth in peak power from the scenario modelling<br />
tool and applies this across a representation of our networks.<br />
It can be adapted to present outputs based on different<br />
scenarios,apply sensitivities and to provide insights around<br />
the application of smart network technology.<br />
Managing load related risk<br />
As part of our current regulatory settlement, we are committed<br />
to deliver a certain profile of network utilisation in each of our<br />
network areas. This is measured by the Load Index (LI). Under<br />
the load index methodology each primary or grid substation<br />
on our network is assigned a load index number from 1 to 5,<br />
representing an increasing level of utilisation.<br />
We have developed our load related investment <strong>plans</strong> to broadly<br />
deliver the same LI distribution profile at the end of the period<br />
as it was at the start based on our best forecast in use of our<br />
networks. To ensure we adequately manage utilisation over the<br />
coming years, we use a well-established specialised short-term<br />
tool, our Planning Load Estimation tool (PLE). This uses the latest<br />
loading information, overlaid with growth projections. The PLE<br />
model is used to ensure compliance with our licence obligations,<br />
to calculate our regulatory performance (Load Index) and is used<br />
to evaluate which projects should be accelerated, deferred or<br />
changed to deliver our commitments to our customers.<br />
Integrating our expenditure for connections<br />
The above tools provide a total investment requirement to<br />
reinforce our current networks. We also need to include<br />
forecasts for new connections, for which we might need to<br />
add new sites or additional circuits to connect new customers.<br />
Some of the expenditure is included in our forecast business<br />
plan with the remainder being recovered directly from the<br />
connecting customer.<br />
Our connections expenditure is derived from our connections<br />
forecast model. The model uses our best view of connections<br />
activity to determine the base line position. This is based on our<br />
views of the competitive market segments, load categories and<br />
volume data in the form of exit points, points of connection and<br />
the number of expected orders.<br />
We use an aligned view of external market assumptions in areas<br />
such as housing and employments growth rates but apply these<br />
to individual market segments within each licence area to derive<br />
the expected expenditure.<br />
Our 2013 forecast business plan will cover in more detail the<br />
growth in competitor activity and market share assumptions as<br />
well as the impact of the growth of green technologies which<br />
could drive an increase in reinforcement associated with changes<br />
in the mix of technologies being connected.<br />
The model incorporates our network performance requirements<br />
to meet planning practices and compliance requirements to<br />
derive a long-term reinforcement schedule of investment over<br />
a 40 year horizon.<br />
>pg62 | <strong>Business</strong> plan
5.3 Developing our asset replacement<br />
(non-load related) expenditure forecast<br />
We have enhanced our understanding of the condition<br />
of network assets and developed innovative techniques<br />
to optimise intervention and expenditure <strong>plans</strong> for asset<br />
replacement, refurbishment and maintenance whilst<br />
managing network risk within pre-determined parameters.<br />
Non-load related expenditure (NLRE) refers to the investment<br />
in replacement, refurbishment and life extension activities of<br />
existing assets across our three regional networks. The NLRE<br />
programme’s scope includes the following asset categories:<br />
• Overhead conductor<br />
• Overhead support<br />
• Underground cables<br />
• Switchgear<br />
• Transformers<br />
• Civil structures and buildings<br />
• Protection and control<br />
Managing our assets effectively<br />
Alongside the challenges faced in relation to expanding our<br />
networks, we also have a major challenge to safely and<br />
efficiently manage our ageing asset base. All three regions<br />
comprise a significant proportion of assets over 50 years old, and<br />
it is therefore important we undertake interventions in a timely<br />
fashion to ensure we continue to operate a safe and reliable<br />
network for our customers.<br />
A key driver for investment is to maintain an acceptable level of<br />
health across all our assets in order to effectively manage overall<br />
network risk. This must be achieved, of course, whilst continuing<br />
to deliver the best value for our customers.<br />
We perform this by undertaking the right mix of maintenance,<br />
refurbishment and planned replacement at the right times to<br />
optimise whole life ownership costs and risks.<br />
Managing asset health risks<br />
Understanding asset health is key to informing our asset<br />
management decisions. We utilise a wide range of information<br />
relating to our assets that ensures we have a rounded and<br />
accurate view of asset health in order to enable timely and<br />
appropriate intervention. These information sources include<br />
condition assessments, fault trends, risk assessments,<br />
obsolescence information, maintenance history, inspection and<br />
test results, manufacturers known defect reports and agreed<br />
asset lives.<br />
This data is used to assess the overall health of an asset, which<br />
is categorised using the industry recognised Health Index (HI).<br />
HI is an output measure Ofgem uses to evaluate the DNOs’<br />
stewardship of their networks. The different HI categories are<br />
outlined below.<br />
• HI1: new or as new<br />
• HI2: good or serviceable condition<br />
• HI3: deterioration requires assessment and monitoring<br />
• HI4: material deterioration, intervention requires consideration<br />
• HI5: end of serviceable life, intervention required<br />
Whilst we would ideally like to reduce the proportion of HI4<br />
and HI5 assets on an increasing basis across all three of our<br />
networks, we need to consider value for money delivered to our<br />
customers and stakeholders in determining an appropriate level<br />
of investment.<br />
We have therefore taken a decision to retain broadly the same<br />
proportion of assets in the different HI categories (1-5) at the end<br />
of the plan compared to the beginning.<br />
Enhancing our decision making<br />
capability: modelling<br />
In order to help us better interpret the rich asset health data<br />
that we collect, and as part of <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong>’ continuous<br />
development of our asset management capability, we have<br />
worked in partnership with industry experts to further enhance<br />
our risk based investment modelling capability.<br />
We have developed a suite of models to support our decision<br />
making and long-term planning. These models include Asset Risk<br />
and Prioritisation (ARP) models, Statistical Asset Replacement<br />
Model (SARM), stocks and flows (Markov) modelling and a<br />
Condition Index model, which are used to identify the existing<br />
and predicted HI profile of the asset categories for which<br />
they cater. The mechanics of the models and their levels of<br />
sophistication reflect the characteristics and risk/priority of the<br />
asset categories to which they correspond. Figure 5.13 indicates<br />
which models are used for all major asset categories.<br />
Figure 5.13<br />
Asset Group<br />
HI model approach<br />
EHV OHL fittings and ARP model<br />
conductor<br />
EHV OHL support towers ARP model<br />
EHV OHL support roles ARP model<br />
HV OHL support poles ARP model<br />
EHV UG cable (oil) ARP model<br />
EHV (gas) cables<br />
Statistical Asset Replacement<br />
Model (SARM)<br />
132kV transformers Statistical Asset Replacement<br />
Model (SARM)<br />
EHV transformer<br />
ARP model<br />
HV transformer – (ground Condition index model<br />
mounted)<br />
132kV transformers ARP model<br />
EHV switchgear (GM) ARP model<br />
EHV switchgear (GM) ARP model<br />
primary<br />
HV switchgear and other ARP model<br />
LV swtichgear and other Statistical Asset Replacement<br />
Model (SARM)<br />
132kV circuit breakers ARP model<br />
Link boxes<br />
Markov model<br />
<strong>Business</strong> plan | >pg63
ARP models<br />
<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> has been working in collaboration with EA<br />
Technology to enhance and expand upon existing modelling<br />
techniques for establishing and managing asset health.<br />
We have invested in the development of ARP models, which<br />
build upon the long established methodology of Condition<br />
Based Risk Models (CBRM), to support our high value investment<br />
decisions. The ARP models provide decision support information<br />
to 75 per cent of the HI reportable asset categories.<br />
ARP has the capability of using asset health, risk and criticality as<br />
a decision support tool to drive future investment interventions.<br />
The new models employ our latest thinking on deterioration<br />
of our assets, and are automatically fed from our most up to<br />
date condition information held in our asset register, Ellipse.<br />
The models are also driven by a significantly higher number<br />
of asset condition and defect points, increasing the accuracy<br />
and reliability of their output, than previously achieved. The<br />
models and their outputs have undergone a rigorous testing and<br />
calibration regime to ensure validity.<br />
The ARP models use a combination of information relating to<br />
an asset’s age, environment, duty and specific condition and<br />
performance information to derive a health score for each asset,<br />
underpinned by proximity to end of life (EOL) and probability<br />
of failure. This score is then translated into the corresponding<br />
HI category. This helps us to determine when an asset requires<br />
intervention (replacement, refurbishment, retrofit or other<br />
appropriate action). The detail of the ARP score formulation is<br />
different for each asset category, reflecting the differing asset<br />
lives and patterns of degradation. There is, however, a consistent<br />
underlying algorithm and architecture.<br />
The three supporting modelling approaches, SARM, Markov<br />
(stocks and flows) and condition index models are used for the<br />
assets that represent a smaller proportion of our asset base,<br />
or where the benefit of collecting the additional condition<br />
information required is not proportionate to the cost.<br />
Statistical asset replacement model (SARM)<br />
The SARM model uses statistical techniques to estimate the<br />
volume of required interventions based on population level<br />
assessments of asset lives and applies these to the existing asset<br />
base in order to forecast replacement volumes. In addition, we<br />
use current condition information to develop an age/condition<br />
relationship, which is applied to the future age profile to predict<br />
the evolution of the asset condition.<br />
Stocks and flows modelling<br />
The stocks and flows modelling approach was developed to<br />
model asset condition and replacement volumes for linkboxes.<br />
The approach models movement between conditions<br />
independently of asset age and uses the estimated numbers<br />
of assets (in 2012) in each of condition rating as a base line.<br />
By considering the transitional probabilities (chance of moving<br />
between conditions in any one year), the model calculates the<br />
likely number of units to fail in each future year and hence<br />
provides a forecast of interventions required.<br />
Condition index model<br />
We use a condition index model for HV ground mounted<br />
distribution transformers which utilises age and condition data.<br />
The model assumes straight line deterioration over the expected<br />
life of the asset based on an average life modified by the asset’s<br />
duty and observed condition.<br />
>pg64 | <strong>Business</strong> plan
Innovation!<br />
Online partial discharge mapping<br />
The use of partial discharge measurement is a well-known<br />
method of checking the condition of electrical insulation. Over<br />
the past seven years, we have been actively involved in the<br />
development of online partial discharge monitoring and<br />
mapping techniques. An advanced substation monitor that<br />
can remotely screen and locate partial discharge has<br />
been developed.<br />
We have developed the system under the Innovation<br />
Funding Incentive scheme. The system is now<br />
enabling an increasing number of preventative<br />
cable and switchgear repairs to be carried out,<br />
thus avoiding potential failures. A formal<br />
policy has been developed and this<br />
technology has been embedded<br />
into the business in 2011.<br />
<strong>Business</strong> plan | >pg65
Enhancing our decision making capability:<br />
improving data quality<br />
We recognise that the completeness and quality of our asset<br />
data is crucial if we are to make the right asset management<br />
decisions. As such we have embarked on a journey to improve<br />
the standard of our asset information and our information<br />
management practices. We have approached this in an<br />
innovative way, acknowledging that in order to achieve<br />
world-class standards of data integrity, we need to engage our<br />
people at all levels of the organisation to ensure we specify,<br />
collect, retain and retrieve information in the most effective way.<br />
To measure and promote the quality of the data feeding into our<br />
ARP models we have developed a completeness, accuracy and<br />
timing (CAT) scoring methodology. This enables us to identify<br />
in which areas we need to make improvements and allows us<br />
to benchmark our progress against other organisations. It also<br />
guides our engineers to the weight that should be placed on<br />
the model outputs, dependent on the quality of the inputs.<br />
Furthermore, the approach will drive future data improvements<br />
by articulating the business’s expectations of data completeness,<br />
quality and timeliness, and by fostering a culture where high<br />
quality information is recognised as paramount.<br />
Incorporating criticality criteria into our<br />
investment <strong>plans</strong><br />
We understand that asset criticality is an important facet of<br />
investment planning. Assessing the criticality of assets in a<br />
consistent way helps to prioritise the order in which interventions<br />
are undertaken.<br />
The subject of criticality is currently being developed by an<br />
industry wide working group led by <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong>. It is<br />
intended that the Health Index of an asset combined with the<br />
Criticality Index will inform risk driven investment planning.<br />
We have already made significant progress in developing our<br />
thinking around criticality and have also considered how it will<br />
be built into our ARP models, once the methodology has been<br />
agreed amongst all parties.<br />
Criticality considers the consequences of failure of an asset in<br />
each of the following categories:<br />
• Network performance<br />
• Safety<br />
• Financial (e.g. cost of repairs/replacement<br />
• Environmental impact<br />
Making the right intervention choices<br />
Traditionally, our assets have been replaced on a like for like<br />
basis to deliver a relatively stable health and cost profile. We<br />
have now adopted a more innovative and sophisticated approach<br />
to non-load related investment, that considers a wider range of<br />
intervention options, as we strive to continually deliver value for<br />
our customers.<br />
For each asset category we have looked to the marketplace for<br />
new solutions, as well as drawing on our wealth of experience,<br />
to identify the range of intervention options available to us.<br />
These typically include replacement, refurbishment, retrofit,<br />
repair and maintenance activities. Each of these intervention<br />
options carries a different cost (both in relation to capex and its<br />
impact on on-going opex) and impact on health.<br />
We are currently developing an approach to assess the relative<br />
whole life costs and benefits of each intervention scenario,<br />
to help inform our investment decisions and to enable us to<br />
model capex/opex trade-offs. The approach is used to inform<br />
the volumes of each intervention to be delivered over ED1 and<br />
can also enhance our decision making in the following ways: it<br />
enables us to understand the impact of ‘smoothing’ our capex<br />
spend across the period, in terms of health profile; it helps us<br />
to ascertain which intervention scenario has the lowest whole<br />
life cost; and it can be used to identify the savings that can be<br />
realised through adjusting the timings of capex interventions in<br />
order to coincide with other capex work in the area.<br />
Optimising the non-load related expenditure plan<br />
Based on the foregoing enhanced top-down modelling capability<br />
the initial output is then refined and validated by our asset<br />
engineers taking a bottom-up approach that ensures evidence<br />
captured on asset condition and environment supports and<br />
shapes the final plan. Optimisation considers;<br />
• Benefits of refurbishment and retrofit options<br />
versus replacement<br />
• Managing HI profiles with interventions that maintain a stable<br />
level of network risk<br />
• Capex and Opex cost and benefit trade-offs to optimise whole<br />
life costs<br />
• Rationalisation with the load related reinforcement plan.<br />
Criticality is categorised using the following Criticality Index;<br />
• C1 – ‘Low’ criticality<br />
• C2 – ‘Average’ criticality<br />
• C3 – ‘High’ criticality<br />
• C4 – ‘Very High’ criticality<br />
We have described how our suite of models, together with the<br />
agreed measure of criticality, assists us in identifying the most<br />
appropriate time to undertake interventions. It is also vital for us<br />
to ensure we are undertaking the right type of interventions to<br />
ensure we are delivering maximum value to our customers.<br />
>pg66 | <strong>Business</strong> plan
Innovation!<br />
Overhead line incipient fault detection<br />
This project aims to trial a solution to locate emerging faults<br />
on overhead lines, using detection points installed on the<br />
HV overhead network before they cause a line to fail.<br />
The objectives are to:<br />
• Help identify more rapidly network sections<br />
containing faults<br />
• Predict and accurately locate a potential<br />
fault on the system<br />
<strong>Business</strong> plan | >pg67
5.4 Developing our operating<br />
cost expenditure forecast<br />
Our operating expenditure is what we need to run our<br />
operations. This is split into two broad categories; direct<br />
operating costs such as those associated with field force<br />
activities, and indirect operating costs such as those associated<br />
with business support functions, such as HR and finance.<br />
Direct operating costs<br />
Direct operating costs are comprised of three main areas;<br />
fault rectification, inspection and maintenance, and vegetation<br />
management. The associated costs are forecast from information<br />
in our Network Asset Management Plan (NAMP). The NAMP<br />
outlines volumes required for each of the three activities,<br />
which are derived from our knowledge of asset condition,<br />
our inspection and maintenance policies for each asset, and<br />
reported defects.<br />
Our aim is to anticipate any significant rise in our fault or failure<br />
rates before they occur, so that we can undertake appropriate<br />
interventions (repair, refurbish or replace) so as not to cause<br />
disruption to our customers. We do this through analysing<br />
inspection reports, condition data and fault trends. This helps<br />
us to understand the precursors to failure which we can use to<br />
help us eliminate future faults where it is efficient to do so. It is,<br />
however, impossible to identify all faults before they materialise,<br />
especially since failure rates can also be driven by issues such as<br />
inherent defects with the asset and third party damage.<br />
Each of our asset categories has its own inspection and<br />
maintenance policy, which defines the type and frequency of<br />
inspection and maintenance activity that needs to be undertaken<br />
to maintain asset health at an acceptable level. This varies<br />
across the different asset categories. Direct costs for inspection<br />
and maintenance are forecast from the projected volumes of<br />
inspection and maintenance activity.<br />
All of our vegetation management activities are outsourced to<br />
contractors, who undertake inspection and tree cutting in line<br />
with our policies. The forecast costs relating to this are derived<br />
from the known spans of our overhead lines that are affected by<br />
tree growth, in conjunction with the forecast efficient unit cost<br />
per span.<br />
We are currently undergoing a direct cost efficiency review.<br />
Following this, we will update our forecast within the revised<br />
business plan for the final regulatory submission in July 2013.<br />
It is our assumption that we will move to median industry unit<br />
costs for direct cost activities for the ED1 period.<br />
Indirect operating costs<br />
Indirect costs cover two main types of costs. <strong>Business</strong> support<br />
costs, such as HR, IT and finance functions and ‘Closely<br />
Associated’ costs that consist of activities that are related to our<br />
core work on the network, such as design, project management,<br />
engineering and clerical. We have undertaken two major cost<br />
efficiency programmes since the last price control and have<br />
achieved a 19 per cent reduction in our indirect costs. We aim to<br />
achieve a targeted reduction of £50 million of annual operating<br />
expenditure by the end of 2013.<br />
In general we utilise an indirect cost model to forecast the level<br />
of closely associated and business support indirect costs. The<br />
exceptions to this are IT and property costs which have been<br />
constructed on a bottom up basis. The basic premise behind the<br />
model is that as direct costs increase or decrease then indirect<br />
costs will increase or decrease. The relationship is symmetrical<br />
in the model. To derive the relationship between direct cost<br />
movement and indirect costs we used regression analysis and<br />
insight from our management teams.<br />
For those costs that we do not construct using our indirect costs<br />
model we use a number of underpinning assumptions Figure<br />
5.14 below sets out the forecasting basis for these costs.<br />
Our indirect and non-operational capital investment costs for IT,<br />
transport and property are all formed from bottom-up analysis of<br />
the requirements based upon key drivers such as actual vehicle<br />
replacement profiles and known IT system refresh programmes.<br />
Figure 5.14: Underpinning assumptions for the indirect costs not<br />
derived by models<br />
Expenditure type Forecast approach<br />
Pension deficit<br />
Based on existing deficit repair<br />
plan agreed with trustees<br />
IFI/LCNF<br />
IFI expenditure rolled forward at<br />
2014/15 levels<br />
Existing LCNF projects which<br />
continue beyond 2015 are<br />
included<br />
No expenditure included for<br />
Network Innovation Competition<br />
Transmission exit charges Based on information received<br />
from National Grid<br />
<strong>Business</strong> rates<br />
Small tools and equipment<br />
Other costs (Water rates,<br />
GSOP payments, etc.)<br />
Insurance<br />
5.5 Regional cost effects<br />
Extrapolated from historical<br />
actuals<br />
We operate entirely in the south east of England. This is the<br />
most densely populated, most expensive area to live in the<br />
<strong>UK</strong> delivering around 45 per cent of the <strong>UK</strong> economic output 13 .<br />
We also experience the highest power densities in the country.<br />
These factors have a direct impact on the way we operate e.g.<br />
requiring us to locate our substations within the basements<br />
of buildings and restricting when and how we work. We also<br />
experience higher costs in general within the M25 region<br />
driven from independently observable differences in pay due<br />
to the cost of living. We describe in this section the challenges<br />
we have in operating, which on the scale we observe them,<br />
are unique in the industry.<br />
Urban environments<br />
All of our networks distribute electricity to our customers in<br />
London. LPN is our only network that distributes electricity in<br />
London alone, but both EPN and SPN service areas start in Central<br />
London and stretch out to East Anglia or the South Coast of the<br />
<strong>UK</strong> respectively. It has long-been accepted that operating in the<br />
South East is more expensive than other areas of the <strong>UK</strong> due to<br />
the inherent cost of living and the need to import skills, leading<br />
to rises in the cost of labour, that we term regional cost effects.<br />
Government statistics on wages and rates of pay consistently<br />
demonstrate this effect. Figure 5.15 shows data from the ONS<br />
Annual Survey of Hours and Earnings that show London is higher<br />
13<br />
Measured in terms of Gross Value Added<br />
>pg68 | <strong>Business</strong> plan
than the <strong>UK</strong> average (score of 1.00) across all reported job<br />
categories. We will bring forward more network specific evidence<br />
in our 2013 forecast business plan to justify this regional effect.<br />
Figure 5.15: Ratio of regional job pay versus <strong>UK</strong> average pay<br />
2.0<br />
1.8<br />
1.6<br />
1.4<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
London<br />
In addition, it is widely accepted that the cost of operating in<br />
rural, urban and super-urban environments vary. The additional<br />
costs from the urban and super-urban environments arise due to<br />
external factors that impact on our operations, including:<br />
• Population and load density – leading to increased complexity<br />
and density of utility services<br />
• Underground working – driving the need for tunnelling and<br />
forced ventilation, and increased issues of confined spaces and<br />
complex movements of equipment<br />
• Buildings and access – as equipment in third party owned<br />
premises is more common<br />
• Traffic management – imposing more restrictions, such as<br />
red routes or the need for rapid reinstatement and reopening<br />
of roads<br />
• Out-of-hours working<br />
• Security costs and terrorism insurance<br />
Figure 5.16<br />
South East<br />
Scotland<br />
East<br />
North West<br />
Supporting the <strong>UK</strong> economic engine<br />
Our networks support a significant proportion of the economic<br />
output of the <strong>UK</strong>. London produces (22 per cent) the South East<br />
East Midlands<br />
North East<br />
West Midlands<br />
Yorkshire and The<br />
Humber<br />
14<br />
ONS, Regional, Sub-Regional local Gross Value Added 2010 – 14 December 2011<br />
South West<br />
Wales<br />
(14 per cent) and the East (9 per cent) of the <strong>UK</strong>’s Gross Value<br />
Added 14 , which is dependent on us providing a reliable supply<br />
of electricity and expanding our network to support future<br />
economic growth.<br />
Figure 5.17: Historic trend of GVA in our regions<br />
£ m<br />
300,000<br />
250,000<br />
200,000<br />
150,000<br />
100,000<br />
50,000<br />
0<br />
1989<br />
1990<br />
1991<br />
1992<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
East of England London South East<br />
Population and load density<br />
A large proportion of the <strong>UK</strong> population lives and works in<br />
the South East of England to support the economic output.<br />
Specifically, the population density of inner London Boroughs is<br />
more than double that of other major cities in the <strong>UK</strong>; see<br />
Figure 5.18.<br />
The crowded streets and closely packed housing of the capital<br />
means that space is at a premium. Not only does our network<br />
cover the area with the highest population density, but this<br />
area also has a high share of ‘sensitive’ customers such as<br />
Government buildings, key infrastructure, multi-national head<br />
offices, the banking sector, etc. These customers want higher<br />
levels of service and greater security of supply. This was<br />
evidenced by Ofgem’s willingness to pay survey, where LPN<br />
customers showed a significantly higher willingness to pay for<br />
reductions in interruptions.<br />
Higher population and housing density means we need to place<br />
more assets amongst the buildings, in the pavements and in our<br />
roads. This is repeated across all utilities leading to high levels of<br />
congestion under our feet that we must untangle every time we<br />
want to work on our assets.<br />
The density of cables provides particular challenges where we are<br />
replacing our assets, e.g. due to a fault. In these circumstances<br />
the small and tightly packed terraced houses creates complexity<br />
in excavating around other services and locating the right cable<br />
before we can carry out a reconnection. In this environment<br />
we tend to see shorter length of cables which lead to a larger<br />
number joints per length of cable required compared to a less<br />
urban environment. Joints and jointing are more expensive than<br />
the cable itself and are one source of cable failures.<br />
Our London <strong>Power</strong> <strong>Networks</strong> area has one of the highest demand<br />
densities in Europe, with an average density in London of 6.6MW<br />
per km 2 compared to an average <strong>UK</strong> density of circa 0.3MW<br />
per km 2 . Central London peak loads can vary between 25MW<br />
and 170MW per km 2 and are expected to increase in the future<br />
to over 300MW per km 2 . High load density typically leads to<br />
increased operating costs due to:<br />
• Maintenance work which needs to be done at weekends<br />
and overnight<br />
• A greater urgency in equipment to service following faults<br />
<strong>Business</strong> plan | >pg69
Figure 5.18: Population density across <strong>UK</strong> cities<br />
(residents per Km 2 )<br />
Figure 5.20: London boroughs power density (peak power used<br />
in each Km 2 of the city)<br />
10,000<br />
9,000<br />
8,000<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
Inner London Boroughs<br />
Manchester<br />
Birmingham<br />
Liverpool<br />
Bristol<br />
Sheffield<br />
Bradford<br />
Leeds<br />
1,000<br />
0<br />
Figure 5.19: <strong>UK</strong> power density (peak power used in each Km 2 )<br />
Figure 5.21: London power density (peak power used in each<br />
Km 2 of the city)<br />
Underground working<br />
London <strong>Power</strong> <strong>Networks</strong> is almost completely made up of<br />
underground cables. We also sometimes have to locate our<br />
substations underground to adapt to the constraints on space<br />
made available to us for our equipment.<br />
Excavations are necessary to install and maintain underground<br />
network equipment, requiring extensive planning and<br />
co-ordination with other utility owners. Our approach to the<br />
installation of new circuits in central London has been via utility<br />
cable tunnels, which are expensive to build and operate. LPN<br />
is responsible for 45 cable tunnels and incurs considerable<br />
on-going costs associated with the maintenance of the tunnel<br />
infrastructure, ensuring the serviceability of the tunnel entry<br />
points, ensuring the safety of tunnel works, and tunnel rent<br />
charges from local authorities.<br />
Heat dissipation from our underground substations is complicated<br />
with greater risk of overheating due to the limitations of air<br />
movement. To mitigate the risk of substation equipment<br />
overheating, LPN’s substations are fitted with forced ventilation<br />
equipment to assist with the heat dissipation. Our larger<br />
>pg70 | <strong>Business</strong> plan
substations, such as the Leicester Square substation, have<br />
expensive specialist cooling systems to dissipate transformer<br />
heat and, additionally, a large proportion of our central London<br />
smaller secondary substations need forced ventilation. This is a<br />
cost unique to LPN.<br />
Buildings and access<br />
In super-urban environments there is often no room to site<br />
stand-alone prefabricated substations, and availability of space<br />
comes at a premium. This is also the case in central London and<br />
as a consequence LPN’s new substations:<br />
• Need to be built in specific locations owned privately and/or<br />
integral to buildings<br />
• Require innovative solutions which often lead to more complex<br />
building designs that are more costly to build and maintain<br />
These factors combine to make new build and regular<br />
operational tasks more complicated and time consuming. Access<br />
difficulties, working in an underground environment and the<br />
physical movement of equipment in a ‘super-urban’ area are<br />
also challenges. Whilst such jobs are not unique to London, the<br />
proportion of similar work is much higher.<br />
A significant proportion of our central London network cables and<br />
equipment are located in close proximity to London’s historic,<br />
cultural or architectural places of interest. Our work in these areas<br />
is subject to increased costs due to extensive planning consent.<br />
We strive to ensure our work satisfies all interested parties,<br />
such as local authorities, architects, archaeologists, business and<br />
residents. The aesthetics and environment of these areas are<br />
very important to us.<br />
Most of the central London Boroughs contain large sites of special<br />
national archaeological importance. The City of Westminster,<br />
for example, contains six large sites of special national<br />
archaeological importance, including the area around the Houses<br />
of Parliament and Westminster Abbey. Current archaeological<br />
thinking, Government advice, and City Council policies favour<br />
retaining archaeological remains in situ, leading to extensive and<br />
costly planning and consent processes for undertakers.<br />
Excavations are necessary to install and maintain network<br />
equipment which is underground. This requires extensive<br />
planning and co-ordination with other utility owners.<br />
Traffic management<br />
In common with other super-urban areas, London is subject to<br />
extreme traffic congestion, leading to strict traffic management<br />
measures. In the case of London these measures are very<br />
onerous, such as congestion charging.<br />
London has a congestion charging zone which covers eight of<br />
the fourteen London Boroughs that LPN serves. These costs are<br />
unique to our network. Many of the roads in London are also<br />
strategic and designated as traffic sensitive. Traffic sensitive roads<br />
impact our operations leading to increased costs and additional<br />
out-of-hours work.<br />
Out-of-hours working<br />
We pride ourselves on providing an excellent service to all our<br />
customers. In the case of our more sensitive customers, such as a<br />
critical government offices, health-service facilities, and financial<br />
institutions, this required more frequent out-of-hours work to<br />
minimise disruption.<br />
Capital cities often have the largest share of special events<br />
and this also applies to London. Examples include the London<br />
2012 Olympics, the London Marathon, Wimbledon, Notting Hill<br />
Carnival, the Lord Mayor’s show, and frequent state visits. We<br />
are required to work around these events, thus placing further<br />
restrictions on when we can carry out our work, reducing the<br />
number of evenings and weekends for areas of the city.<br />
Terrorism and security<br />
Due to the profile of London and its significance within the<br />
economy, our network faces a higher risk of terrorist attack.<br />
Security measures put in place for mitigating this increased risk<br />
add to our overall operating costs. Additionally, we face increased<br />
costs in insuring against network asset damage and any business<br />
interruptions following attacks. These costs are unique to<br />
our network.<br />
How these challenges affect our networks<br />
The factors outlined have an impact on many of the costs of<br />
running our business. This includes our new investment, our<br />
contractors and the day-to-day operational expenditure.<br />
We have undertaken studies and benchmarked these effects over<br />
time. We have commissioned a range of studies and analysed<br />
our own costs. We will refresh these studies for our full business<br />
plan in 2013. In summary we have previously demonstrated<br />
that the effect in super urban environments can be as large as<br />
60 per cent higher than the urban environment. This is on top of<br />
the premium for urban over rural environments. Adjustments for<br />
both the regional cost and urbanity cost are widely accepted as<br />
the reality of operating in the South East and in world cities.<br />
We expect today’s ‘always-on’, connected culture to increasingly<br />
affect our networks as we transition to a low carbon economy<br />
and heat and transport becomes increasingly dependent<br />
on electricity.<br />
The recent analysis done by Ofgem for the gas distribution<br />
network company review recognised that labour and contractor<br />
costs are higher within London (defined as within M25).<br />
The overall labour and contractor cost adjustment to reflect<br />
these effects for a gas distribution network company operating<br />
within the M25 was 23 per cent.<br />
Ofgem also recognised there were productivity impacts of<br />
operating in an urban environment, due to longer travel<br />
times, and greater complexity of excavation as we have outlined<br />
in this section.<br />
In recognition of the productivity impacts Ofgem made a<br />
15 per cent adjustment in respect of the gas distribution network<br />
capital expenditure schemes, mains replacement programme<br />
and connections schemes. Other adjustments were also made in<br />
respect of reinstatement and transport activities within London.<br />
<strong>Business</strong> plan | >pg71
This supports the assessment in the previous (DPCR5<br />
review) where the treatment of regional factors, was less<br />
well-developed.<br />
Within our current business plan we received a pre-settlement<br />
adjustment to reflect the increased labour and contractor costs<br />
(£29.4m), productivity impacts (£2.5m), and costs for specific<br />
London infrastructure e.g. cable tunnel maintenance (£0.4m).<br />
These figures are applied annually to ensure a consistent<br />
benchmark is applied, (all figures shown in 2007/08 prices).<br />
All these factors are incorporated into our forecasting for the<br />
coming price control period by recognising regional differences<br />
in the unit cost applied to each of our networks.<br />
Figure 5.22: Complex underground substation build in<br />
Leicester Square<br />
As part of our 2013 forecast business plan we will be providing a<br />
range of evidence in support of the cost implications of operating<br />
within the M25, which applies to all of our networks.<br />
>pg72 | <strong>Business</strong> plan
Innovation!<br />
Urban transformer substation<br />
It is often difficult to reinforce circuits in densely populated areas<br />
mainly because there is limited physical space available. London<br />
substations are commonly built underground, are therefore<br />
expensive to build, and can cause disruption during construction.<br />
The project will evaluate if an urban distribution substation<br />
developed by a Spanish company (Twelcon) could help<br />
address these issues.<br />
The urban substation houses an LV panel, Ring Main Unit<br />
(RMU), Remote Terminal Unit (RTU) and Transformer<br />
(up to 1,000 kVA). Twelcon currently use continental<br />
equipment in the substation; hence development<br />
and further testing may be required to ensure<br />
that components meet <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong><br />
specifications and perform efficiently<br />
and safely within the urban substation<br />
environment. The Twelcon substation<br />
also has four backlit advertising<br />
panels that could be used for<br />
public information.<br />
<strong>Business</strong> plan | >pg73
5.6 Changes for 2013<br />
Our <strong>plans</strong> for the next 10 years are under development.<br />
This 2012 forecast business plan is a work in progress. We<br />
have published it to gather stakeholder views on our current<br />
thinking so that we can incorporate those into our 2013 plan<br />
that will be submitted to Ofgem in July 2013.<br />
In this section we outline a number of areas of uncertainty<br />
and ideas under development where our evolving thinking is<br />
likely to result in changes in our forecast business plan. Key<br />
uncertainties include the number of interventions we will need<br />
to undertake in support of the smart metering programme,<br />
the cost of integrating smart meter data into our business,<br />
the applicability and cost of smart grid technologies and how<br />
stakeholders view strategic investments that anticipate future<br />
customer needs.<br />
How do we expect our plan to change for 2013<br />
This 2012 forecast business plan lays out our current thinking<br />
to allow for detailed engagement to allow us to consider and<br />
integrate stakeholder views ahead of our submission to Ofgem<br />
in July 2013.<br />
There are a number of things that we already know will change<br />
between now and when we submit to Ofgem in 2013. The<br />
known changes are described below.<br />
Planning assumptions<br />
We will revise our planning assumptions and update our<br />
scenarios in line with the views and guidance we receive from<br />
our stakeholders and expert opinions. For example, we expect<br />
to make updates to reflect the latest information on economic<br />
growth, deployment rates for low-carbon technologies and<br />
renewable generation. We will also reflect the latest thinking<br />
from the various industry groups that are looking at the evolution<br />
of the industry, including the joint DECC and Ofgem Smart<br />
Grid Forum.<br />
Benchmarking of costs<br />
We intend to provide a further base of evidence to support<br />
our view that the costs we incur in running the networks are<br />
efficient. Efficiency in delivering our outputs considers what we<br />
do, where we do it, how we do it and what it costs. Much of our<br />
direct work and the associated indirect costs are specific to our<br />
industry, making peer benchmarks the most obvious yardstick<br />
against which to measure our performance. We will use these<br />
benchmarks together with bottom-up analysis of the drivers of<br />
our costs to influence the efficiency of delivering our outputs.<br />
In the case of business support costs, these are more generic<br />
corporate costs and as such we will put forward a range of<br />
external, independent benchmarking or expert evidence to<br />
justify that they are efficient.<br />
Relationship between direct and indirect costs<br />
Much of our indirect cost expenditure is driven by a modelled<br />
relationship with the growth in our direct work. We use a<br />
relationship that was established for the current business plan<br />
period (DPCR5) such that for a one per cent movement in direct<br />
costs there was a one third of one per cent movement in indirect<br />
costs. We are making changes to how we operate our business<br />
and this may include a change in the mix of the work that<br />
we insource and outsource. This may lead to a change in the<br />
relationship from that observed. Therefore, we plan to review<br />
and re-test the current assumption for inclusion in our 2013<br />
forecast business plan.<br />
Smart metering – cost benefit<br />
Over the coming months we are reviewing our planned response<br />
to the smart meter programme based on the latest information.<br />
Our <strong>plans</strong> will reflect the activity and costs of implementation<br />
and the IT and business changes that are required to enable us<br />
to utilise the smart meter data effectively. We have also included<br />
in this forecast business plan our expectations for the costs of<br />
supporting the roll-out programme, where our staff may need to<br />
visit homes to allow the smart meter to be fitted safely.<br />
Smart meters will provide customers with real time information<br />
on their energy consumption, enabling them to manage their<br />
energy use and the cost of their bills. This will also help to reduce<br />
emissions. There is a large task facing all energy suppliers. Over<br />
53 million gas and electricity meters must be replaced, visiting<br />
30 million homes and small businesses between 2014 and 2019<br />
as part of the roll out. A proportion of these installations will<br />
require our people to attend site to rectify defects and faults<br />
associated with the meter installation. Estimates vary for the<br />
number of interventions that we will need to perform, but we<br />
are anticipating around 10 per cent of our customers may need<br />
to call us and perhaps require us to visit their home.<br />
We also believe that smart metering provides a unique<br />
opportunity to improve customer service and network efficiency.<br />
We are proactively involved in the smart meter development<br />
programme. It is anticipated that smart meters will contribute<br />
to the efficient operation of our networks and the decarbonising<br />
agenda. They will provide many opportunities to improve<br />
including network planning, income management and<br />
fault handling.<br />
In anticipation of the roll-out, we are preparing the business to<br />
improve our performance by making the most efficient use of<br />
the data available to us. We see an opportunity to:<br />
• Improve customer service – by proactively knowing when the<br />
customer is off and being able to provide better information<br />
about recovery time<br />
• Improve restoration times (CML performance) – through<br />
enhanced network information we can dispatch our resources<br />
more efficiently in response to LV faults, storm response and<br />
other fault conditions<br />
• Improve investment efficiency – enhanced network<br />
information to improve accuracy and efficiency of network<br />
investment needs and options<br />
• Improve quality of supply – by automatic detection of lost<br />
neutrals (with potential self-disconnect), high/low voltage<br />
alarms, leading to more informed problem identification and<br />
improved scheduling of actions<br />
• Improve our asset safety – as the smart meter roll out will<br />
necessitate the inspection of all meters and fuses on<br />
the network<br />
We expect that the majority of these benefits will be realised<br />
towards the end of the smart meter roll-out – although some<br />
benefits such as customer outage notification could be<br />
realised earlier.<br />
>pg74 | <strong>Business</strong> plan
Figure 5.23<br />
Summary of costs and<br />
benefits<br />
Customer contact details<br />
and fault records<br />
Determine customers<br />
affected<br />
Outbound fault comms<br />
Meter polling for fault<br />
detection and restoration<br />
verification<br />
Group volumes for<br />
HV faults<br />
Field force faults response<br />
Full visibility of network<br />
down to LV<br />
Improved network and<br />
connectivity information<br />
Optimised load and<br />
non-load capex<br />
Cost (£m)<br />
(and timing)<br />
4.5-6.5<br />
(by 2014/15)<br />
14-27<br />
(by 2015/16)<br />
14-27<br />
(by 2017/18)<br />
Benefit<br />
(£m p.a.)<br />
TBC<br />
4.5-6.5<br />
~4<br />
(ENA view)<br />
Enhanced billing 3-6 Negligible<br />
(by 2014/15)<br />
Data warehouse, etc. 7-13<br />
(by 2014/15)<br />
Total 42.5-76.5 8-10.5<br />
Alongside this stakeholder consultation we are continuing to<br />
refine our approaches and develop our detailed <strong>plans</strong> ready to<br />
submit a plan that stands up to the scrutiny of our stakeholders<br />
and Ofgem. We highlight below areas within our <strong>plans</strong> for which<br />
there remains significant uncertainty or we have more work to<br />
do to refine the approach that will ensure that our forecasts are<br />
as robust as possible for defining the next 10 years. There are<br />
three major areas that will lead to changes in our <strong>plans</strong>, adoption<br />
of smart grid technologies (and the preparatory work we will<br />
do ahead of them being needed), responding efficiently and<br />
differently to support stakeholder and customer requirements<br />
and improving our approaches to forecasting expenditure.<br />
Incorporation of Smart Grids into our <strong>plans</strong><br />
We have made the decision not to include smart grids<br />
technologies in this 2012 forecast business plan. This allows<br />
stakeholders to clearly see the impact of these technologies<br />
when they are included next year. Smart grid technology may<br />
offer new solutions to the challenges we face as we move into a<br />
low-carbon future.<br />
Smart grid technology may present the best option to deal with<br />
the challenges of uncertainties in the demand for electricity.<br />
The pace of transition to the low carbon economy is uncertain,<br />
however if electric vehicles and heat pumps are widely adopted<br />
over the new regulatory period, this new demand must be<br />
matched with network capacity. Concurrently we will be<br />
accommodating dispersed, variable generation sources, primarily<br />
wind and solar into across our networks. In the past this has<br />
been a minority issue, but the volumes of generation stimulated<br />
by government policy initiatives requires new solutions that<br />
can efficiently manage the uncertainties and deliver for our<br />
customers. These are challenges we and the wider industry<br />
will face.<br />
The earlier section on innovation describes how we are<br />
leading trials of the technologies and approaches to adapt<br />
to these challenges and the learning from these will support<br />
our approach. In addition we are improving our modelling<br />
approaches to allow us to incorporate smart technologies into<br />
our network development and planning processes to make them<br />
part of our future investment plants.<br />
In addition the industry, through the Smart Grids Forum –<br />
Workstream 3 is assessing the impact of low carbon technologies<br />
on Great Britain’s power distribution networks. As an industry we<br />
wish to better understand how low carbon technologies will form<br />
part of our <strong>plans</strong> for the future.<br />
The Workstream has issued its report and we are in the process<br />
of evaluating its recommendations. We will consider the outputs<br />
of Workstream 3 of the Smart Grids Forum. It is our intention<br />
to utilise, where appropriate, its recommendations in the<br />
construction of our 2013 forecast business plan.<br />
Strategic load related investments:<br />
Distributed Generation (DG) Infrastructure<br />
We would expect our networks to take their fair share of the <strong>UK</strong>’s<br />
commitment to renewable generation. We are seeing a large<br />
potential for new wind farms connecting to our networks. This is<br />
particularly true in the east of England where there quality of the<br />
wind resource is high.<br />
We have included a first view of a potential strategic investment<br />
for our EPN network. This concept is to provide a high-capacity<br />
‘spine’ to allow new renewable generators to connect in a<br />
timely and cost effective way. We see blockers to renewables<br />
developments e.g. where small developments need extensive<br />
network reinforcements. These can make a project unviable as<br />
a result of when they have come forward. We are looking at the<br />
options and undertaking analysis on the benefits of developing<br />
new capacity on an anticipatory basis. This will be explored<br />
further in our 2013 forecast business plan.<br />
London capacity and resilience<br />
We are looking in detail at how we can ensure we can meet the<br />
resilience and capacity expectations of our customers in London,<br />
as discussed in Section 4.5. We are developing options to be<br />
presented for the 2013 forecast business plan that has a full cost<br />
benefit case.<br />
Improvements to forecasting methods –<br />
Load Related Expenditure<br />
Clustering of low carbon technology deployment<br />
Over the next two decades, many new low carbon technologies,<br />
both consumption and generation, are expected to connect to<br />
the network as part of the transition to a low-carbon economy.<br />
At first glance it appears that networks would be able to<br />
accomodate the national take-up of these technologies.<br />
This assumes, however, that these technologies are evenly<br />
distributed across the population and networks. In reality it<br />
is much more likely that the technologies will be irregularly<br />
deployed, creating local clustering, as a result of local conditions,<br />
demographics and customer behaviour. The clustering of these<br />
new technologies in localised parts of the network would drive<br />
much greater investment.<br />
<strong>Business</strong> plan | >pg75
A good example of this effect is the adoption of photovoltaic<br />
solar panel over the recent years. The supporting subsidy<br />
applies across Great Britain, but in practice the adoption has<br />
been clustered. In part because geographic conditions (days of<br />
sun, orientation of roof) but there is also evidence of irrational<br />
clustering when neighbours copy others in their street.<br />
We are therefore working on analysis techniques to allow us to<br />
better represent these factors into our modelling approach. We<br />
are working with experts to refine the methodology for applying<br />
these new demands and generation sources onto our networks.<br />
This will see a potentially very different distribution (higher and<br />
lower) of new electricity consumption across our substations.<br />
A full description of the methodology and outcome will be<br />
provided in our 2013 forecast business plan.<br />
Improvements to forecasting methods –<br />
non-load related<br />
Incorporating criticality into our forecasting models<br />
There have been a number of improvements to forecasting nonload<br />
related expenditure that will have significant benefits for<br />
long term planning.<br />
The development of ARP models will provide more accurate and<br />
reliable forecasts of asset health, enabling us to make the right<br />
decisions about our assets. The models have been developed in<br />
conjunction with EA Technology, utilising our latest knowledge of<br />
asset deterioration.<br />
In addition, we are leading the working group of DNOs to<br />
develop a criticality index. Alongside this we have been<br />
developing our approach to criticality, which will be incorporated<br />
into our ARP models and will help us to better prioritise the<br />
interventions in our long term plan.<br />
>pg76 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg77
6 Outputs: our commitments<br />
to customers<br />
We are committed to delivering an excellent service to our customers. We will<br />
be measured by Ofgem against the commitments we make as part of our 2013<br />
forecast business <strong>plans</strong>.<br />
Ofgem has defined six categories of output, as follows:<br />
• Network availability and reliability<br />
• Customer service<br />
• Connections<br />
• Safety<br />
• Environmental performance<br />
• Social obligations<br />
In this chapter we describe the outputs we have used in building the 2012<br />
forecast business plan. These have been developed in consultation with our<br />
stakeholders. The outputs and the level of performance will be refined in<br />
response to the insights and conclusions from our research on customers’<br />
willingness to pay and Ofgem’s policy decisions on how it will measure the<br />
performance of the industry.<br />
>pg78 | <strong>Business</strong> plan
6.1 Performance outputs<br />
This section describes our current thinking on output levels<br />
and how we are continuing to seek views to help us find the<br />
right balance of cost for the level of output performance. Our<br />
proposed outputs have been developed in consultation with<br />
our stakeholders, although many of the outputs ultimately<br />
may be set on an industry wide basis. We have quantified<br />
the outputs we will deliver where our work is suitably well<br />
progressed; in other areas such as the ‘time-to-connect’ we<br />
are continuing to work as an industry to set out how such an<br />
incentive will work.<br />
Working with our stakeholders<br />
to understand what they want<br />
The development of meaningful outputs (an output in this<br />
context being the delivery of a commitment or level of service)<br />
is part of the overall review of our investment <strong>plans</strong> for 2013.<br />
It was the focus of the second phase of our stakeholder<br />
engagement around business planning in 2011.<br />
Stakeholders were asked to provide their opinions on the existing<br />
outputs and possible new outputs we proposed, along with any<br />
suggestions of their own. Specifically, stakeholders were asked to<br />
provide their opinion of network reliability and the transition to a<br />
low carbon economy.<br />
We learned some significant lessons from our engagements:<br />
• Domestic customers were able to provide valuable insights,<br />
although they needed some time to more fully understand the<br />
role of distribution companies within the wider energy market<br />
• When asked what was most important to them, each group<br />
arrived ultimately at the six output categories defined by<br />
Ofgem. Within those categories, the participants were able to<br />
apply their experience of other service organisations and so<br />
provide extremely valuable feedback on their expectations<br />
We plan to consult with stakeholders further on the proposed<br />
measures later this year through our willingness to pay work that<br />
will help us to understand an appropriate performance target<br />
that can be integrated within the future business plan.<br />
The potential outputs that have been developed to date are<br />
described below.<br />
Network availability and reliability<br />
Network reliability has always been an area of strong focus and<br />
will continue to be so during the forecast business plan period.<br />
We are acutely aware of how reliability issues impact<br />
our customers, as highlighted in customer satisfaction surveys.<br />
The scope for major reliability improvement programmes<br />
following the step change achieved during the past five years<br />
may be more limited without significantly larger investments<br />
being made. While in general this may not be appropriate, we<br />
are considering in our willingness to pay research more specific<br />
and regional questions to establish if there are areas where<br />
investment is wanted where higher reliability is of<br />
particular importance.<br />
The proposed outputs for network availability and reliability are<br />
suggested to remain:<br />
• Customer Interruptions (CI) (planned as well as unplanned):<br />
Number of customers whose supplies have been interrupted<br />
per 100 customers each year<br />
• Customer Minutes Lost (CML): (planned as well as unplanned):<br />
duration of unplanned interruptions to supply each year,<br />
measured by average customer minutes lost per customer<br />
where an interruption of supply to the customer lasts three<br />
minutes or longer<br />
• Health Index – maintaining the overall risk for our networks –<br />
with the addition of criticality<br />
• Load Index – maintaining a similar level of utilisation across<br />
our networks – with improvements on the consistency of<br />
application across the industry<br />
Our plan is built on the expectation of delivering the outputs<br />
described in this section. All of the projected performance is<br />
provisional and work continues to validate these in terms of the<br />
cost to deliver the output and our customers’ willingness to pay<br />
for different levels of performance.<br />
Figures 6.1 and 6.2 below indicate Ofgem’s proposed CI and CML<br />
targets for ED1, as at September 2012.<br />
<strong>Business</strong> plan | >pg79
Figure 6.1: Targets proposed by Ofgem in September strategy<br />
paper for unplanned CI over the forecast business plan period<br />
(2015 to 2023)<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/20<br />
2020/21<br />
2021/22<br />
Ofgem targets for unplanned Customer Interuptions (CI)<br />
2022/23<br />
Figure 6.3: Commitment to EPN asset health at the end of the<br />
forecast business plan period (2023)<br />
80%<br />
60%<br />
40%<br />
20%<br />
0%<br />
End of DPCR5<br />
End of ED1<br />
HI 1 HI 2 HI 3 HI 4 HI 5<br />
EPN SPN LPN<br />
Figure 6.2: Targets proposed by Ofgem in September strategy<br />
paper for unplanned CML over the forecast business plan period<br />
(2015 to 2023)<br />
Figure 6.4: Commitment to LPN asset health at the end of the<br />
forecast business plan period (2023)<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2015/16<br />
2016/17<br />
2017/18<br />
6.1<br />
2018/19<br />
2019/20<br />
2020/21<br />
2021/22<br />
2022/23<br />
Ofgem targets for unplanned Customer Minutes Lost (CML)<br />
EPN SPN LPN<br />
80%<br />
60%<br />
40%<br />
20%<br />
0%<br />
6.3<br />
End of DPCR5<br />
End of ED1<br />
HI 1 HI 2 HI 3 HI 4 HI 5<br />
We are committed to delivering against our HI and LI targets;<br />
Figures 6.3 to 6.5 show our commitments to improving the<br />
Health of the assets across our three networks, and Figures 6.6<br />
to 6.8 indicate our delivery of our load targets through DPCR5.<br />
We will have a better understanding of our utilisation forecasts<br />
at the end of the forecast business plan period (2023) when we<br />
provide our revised plan to Ofgem in July.<br />
Figure 6.5: Commitment to SPN asset health at the end of the<br />
forecast business plan period (2023)<br />
80%<br />
60%<br />
40%<br />
6.2<br />
20%<br />
0%<br />
6.4<br />
End of DPCR5<br />
End of ED1<br />
HI 1 HI 2 HI 3 HI 4 HI 5<br />
>pg80 | <strong>Business</strong> plan
Figure 6.6: Delivery of DPCR5 Load Indices in EPN<br />
Weighted LI<br />
Average<br />
2009/10<br />
DPCR5 Start 2011/12 2014/15<br />
DPCR5 forecast 2.26 2.20 2.13<br />
Actual/revised<br />
2.05 1.82 1.94<br />
forecast<br />
Figure 6.7: Delivery of DPCR5 Load Indices in LPN<br />
Weighted LI<br />
Average<br />
2009/10<br />
DPCR5 Start 2011/12 2014/15<br />
DPCR5 forecast 2.55 2.45 2.35<br />
Actual/revised<br />
2.48 2.30 2.40<br />
forecast<br />
Figure 6.8: Delivery of DPCR5 Load Indices in SPN<br />
Weighted LI<br />
Average<br />
2009/10<br />
DPCR5 Start 2011/12 2014/15<br />
DPCR5 forecast 2.30 2.21 2.12<br />
Actual/revised<br />
2.15 1.92 2.06<br />
forecast<br />
Customer Service<br />
Our customer satisfaction performance over the forecast business<br />
plan period will be measured by the broad measure of customer<br />
satisfaction (BMoCS).<br />
The BMoCS is intended to replicate the sorts of measures typically<br />
used by customer-facing businesses in competitive markets to<br />
monitor and improve the service they offer their customers. The<br />
measure comprises three different components:<br />
• Customer satisfaction survey<br />
• Complaints metric<br />
• Stakeholder engagement<br />
This is a compound measure that takes the results from customer<br />
surveys from customers who have contacted us, i.e. for a power<br />
cut, a connection or a general enquiry relating to our wires or<br />
substations or issue affecting their property. It also takes into<br />
account our speed and effectiveness in responding to complaints<br />
and how we engage with our stakeholders.<br />
The customer survey captures customer interactions<br />
for connection customers regardless of the method of<br />
communication (ie telephone, email, website applications) used<br />
to contact the DNO. For general enquiries and interruptions only<br />
customers that made contact via the telephone are currently<br />
surveyed. Ofgem is considering changing the survey sample in<br />
two ways.<br />
• Extending the survey to include customers interacting via social<br />
media, the internet and those who unsuccessfully attempted<br />
a call<br />
• Splitting out the large and small connection customers into two<br />
groups to provide larger connection customers who are smaller<br />
in number or have a larger voice in customer satisfaction<br />
The complaints metric measures performance on four indicators<br />
that are weighted to calculate a composite score (the weightings<br />
are shown in brackets): the percentage of total complaints<br />
outstanding after one day (10 per cent) the percentage of<br />
total complaints outstanding after 31 days (20 per cent) the<br />
percentage of total complaints that are repeat complaints (50 per<br />
cent) the percentage of Energy Ombudsman decisions that find<br />
in favour of the complainant (20 per cent). Ofgem is proposing<br />
to modify the final element around the Energy Ombudsman to<br />
either reduce the weighting or include all referrals to increase<br />
the currently small sample sizes.<br />
Our vision for our company is to be in the upper third amongst<br />
our peers for customer satisfaction performance.<br />
Connections<br />
Our connections business is one of the largest in the <strong>UK</strong>. The<br />
areas in which we provide our services are amongst the most<br />
dynamic in the <strong>UK</strong>, with the highest load and population density<br />
of all networks and significant economic growth activity.<br />
Listening to our stakeholders’ views we support the introduction<br />
of a ‘time-to-connect’ measure. We welcome this introduction<br />
and we would be willing to enter into arrangements to<br />
incentivise us to deliver and provide a downside risk where we<br />
fail and it is our fault.<br />
Our connections performance over the forecast business plan<br />
period will be measured against the following indicators (with<br />
the values to be determined through the Ofgem review process):<br />
• Average time to produce a quote<br />
• Average time taken from quotation acceptance to completion<br />
of works<br />
The proposal is that performance will be assessed relative to a<br />
target based on current levels of performance, with the target<br />
ratcheted up over time to incentivise improving performance.<br />
Ofgem is suggesting that this incentive would be less strong<br />
than that proposed for the enhanced Broad Measure of<br />
Customer Satisfaction.<br />
Safety<br />
The safety of the public and our employees are our highest<br />
priority. Following on from stakeholder engagement we<br />
will continue to measure our own safety against the<br />
following measures:<br />
• Accident Rate per 100 employees<br />
• Injuries to members of the public<br />
We are targeting to reach our target of zero injuries by the end<br />
of the forecast plan period. We also have a zero injury target for<br />
members of the public.<br />
Ofgem is proposing not to include any further incentive within<br />
its regulatory framework than that which applies through health<br />
and safety legislation.<br />
<strong>Business</strong> plan | >pg81
Environmental performance<br />
As a DNO, we are committed to the low carbon transition. In<br />
addition to playing our role in facilitating a low carbon economy,<br />
we are also reducing our own CO 2<br />
emissions. We have reduced<br />
our business footprint by 11 per cent and we are committed<br />
to reducing it further. Figure 6.5 shows our progress to date in<br />
reducing our carbon footprint.<br />
We have sought the views of our stakeholders on how our<br />
environmental performance is measured. Stakeholders felt that<br />
reducing carbon emissions is now simply good business practice<br />
and we should concentrate our efforts on the biggest<br />
CO 2<br />
emitting operations of our business.<br />
Our environmental performance over the forecast business plan<br />
period will be measured against the following indicators:<br />
• Innovation funding: percentage of allowance used – more<br />
than 80 per cent of allowance used over the forecast business<br />
plan period<br />
• <strong>Business</strong> Carbon Footprint: Carbon emission related to business<br />
operations according to categories of building energy usage,<br />
operational and business transport, etc. – top third sector<br />
performance for our London network on average over the<br />
forecast business plan period<br />
Social obligations<br />
The existing criteria on which our social obligations are<br />
measures are:<br />
• Worst served customers – defined as those customers who<br />
experience on average at least five higher voltage interruptions<br />
per year, over a three year period, subject to a minimum of<br />
three in each year<br />
• Provision of Priority Services Register and associated services to<br />
customers – a list of customers who are particularly vulnerable<br />
to the loss of the electricity supply and the precise nature of<br />
their needs<br />
Ofgem believe that DNOs can improve the quality and extend the<br />
reach of the Priority Services Register. We will outline in our 2013<br />
forecast business <strong>plans</strong> how the information held could be used<br />
to benefit customers. Specifically we will outline how we will<br />
build on our current partnerships to include other stakeholders<br />
(e.g. suppliers, other distributors and local authorities) to share<br />
and use information on customer vulnerability more strategically.<br />
Figure 6.9: Current business carbon footprint reductions across<br />
our networks<br />
Tonnes of CO 2 equivalent<br />
(tCo 2 e)<br />
50,000<br />
40,000<br />
30,000<br />
20,000<br />
10,000<br />
0<br />
2009 2010 2011 2012<br />
EPN business carbon footprint<br />
LPN business carbon footprint<br />
SPN business carbon footprint<br />
6.6<br />
>pg82 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg83
7 Expenditure: What we will spend to<br />
deliver to 2023<br />
Consultation questions for this section<br />
General<br />
Q21. Is this consultation helpful What could we have done better<br />
Q22. Do you have any general comments you would like to make<br />
about our forecast business <strong>plans</strong> for our electricity networks<br />
Q23. Please let us know if you have any other thoughts or comments<br />
on the points raised in this document, or if you would like to<br />
highlight any other issues you consider important<br />
Expenditure<br />
Q19. Do you think our proposed level of expenditure is appropriate to<br />
meet the output targets in our business plan If not, please be<br />
specific as to your views on what should change<br />
>pg84 | <strong>Business</strong> plan
The forecast business plan is created to ensure the delivery<br />
of the commitments we are making and to ensure we meet<br />
our statutory obligations (placed upon us through legislation,<br />
regulations and our licence). The expenditure forecast<br />
reflects our expectations of the challenges and assumptions<br />
outlined in this document. This chapter describes our plan and<br />
represents our current best view of the future justified needs<br />
and corresponding efficient expenditure.<br />
Figure 7.1: Forecast plan period 2015 to 2023<br />
Overall our future <strong>plans</strong> are largely a continuation of today,<br />
with the addition of an increasing prominence of low carbon<br />
technologies on our network, smart metering, the enabling<br />
steps for the future smart grid, and further efficiency savings.<br />
We are expecting a recovery in required levels of reinforcement<br />
on our network as economic growth returns.<br />
Our current view for the future business plan period indicates a<br />
total spend of £7.4 billion from 2015 to 2023.<br />
Figure 7.1 breaks this total down across the major cost<br />
categories. This compares to an eight year equivalent of our<br />
2010 to 2015 plan of £6.6 billion.<br />
Figure 7.2: Current plan period 2010 to 2015<br />
15<br />
1.8<br />
0.4 0.2 Load related<br />
1.7<br />
Non load related<br />
Network operating costs<br />
2.0<br />
0.2<br />
1.3<br />
Load related<br />
Non load related<br />
Network operating costs<br />
1.3<br />
2.1<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
1.3<br />
1.8<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
Figure 7.3: Material cost differences<br />
Cost driver Difference Where it impacts<br />
Smart metering (including IT and interventions) +£115 million Shared out across our networks<br />
Additional work volumes including low carbon<br />
technologies and limited smart grid enablers<br />
+£845 million Shared out across our networks<br />
London strategic investments in capacity and resilience +£210 million LPN only<br />
Distributed generation strategic investments to reduce<br />
the barriers for connecting new renewable generation<br />
+£50 million EPN only<br />
Direct Unit cost savings -£175 million Shared out across our networks<br />
7.1<br />
7.2<br />
Indirect cost savings -£262 million Shared out across our networks<br />
Real price effects +£16 million Shared out across our networks<br />
Total change<br />
+£800 million<br />
<strong>Business</strong> plan | >pg85
7.1 Our <strong>plans</strong> build on<br />
current improvements<br />
Much of what we do today we will continue to do in the<br />
future. The majority of our expenditure continues to be related<br />
to maintaining the existing network and expanding it to serve<br />
new customers and growth in electricity usage. As such the<br />
expenditure in this 2012 forecast business plan is generally in<br />
line with what we have committed to and are forecasting for<br />
the current plan period.<br />
This 2012 forecast business plan for 2015 to 2023 is a work in<br />
progress. The 2012 plan remains subject to uncertainty around<br />
some of the underlying assumptions. The level of uncertainty in<br />
some areas is greater in this business plan than in the past. This<br />
is predominantly due to the unknown rate at which the transition<br />
to the low carbon economy will occur. The emerging policy<br />
framework and rate of technology development both contribute<br />
to the uncertainty in the need for network capacity over the<br />
long-term. We believe that this uncertainty is higher than it was<br />
in the past.<br />
We are still in the process of finalising our views on how<br />
our business will evolve over the next ten years to deliver<br />
improvements in service and efficiency. We have an ongoing<br />
dialogue with our stakeholders to understand what they want<br />
from our networks. We are active in the cross-industry working<br />
groups that are seeking to provide a more consistent view of the<br />
smart grid investments that we should undertake to enable and<br />
facilitate the transition to the low carbon economy. The outcomes<br />
from this work will be incorporated into our 2013 forecast<br />
business plan.<br />
This 2012 plan does include expenditure to enable us to extract<br />
the benefits for network companies identified by DECC from<br />
the roll out of smart meters (being undertaken by electricity<br />
suppliers). It also includes our initial thinking on strategic<br />
investments in our EPN network to facilitate the connection of<br />
new wind generation in areas with high quality wind resource.<br />
We have also outlined in this 2012 plan our <strong>plans</strong> to develop<br />
a strategic investment programme for London that reflects<br />
stakeholders’ views on the current resilience and capacity of the<br />
network and its importance to the <strong>UK</strong> economy.<br />
Our forecast business plan is actually three <strong>plans</strong>, one for each of<br />
the networks. There are many commonalities across the <strong>plans</strong>,<br />
for example, because they use similar or the same types of<br />
assets, albeit in different proportions. There are also differences<br />
between our networks resulting from how they have developed<br />
over time, where they are and what future customers expect<br />
from them. A summary of the expenditure for each of the<br />
networks forecast plan is shown in the charts in section 7.2.<br />
We also show for comparison the current forecast for expenditure<br />
(on an eight year equivalent basis) for 2010 to 2015.<br />
7.2 Expenditure: <strong>plans</strong> for<br />
our networks<br />
Our three distribution networks use common policies and<br />
approaches to managing the assets that make up those<br />
networks. As a result significant elements of our plan are<br />
common to all three networks. Our expenditure <strong>plans</strong> are<br />
broadly aligned between the current plan period and what<br />
we are forecasting. We are forecasting some increases in<br />
expenditure that result from a mix of additional volumes and<br />
rising underlying costs of doing work. We are also forecasting<br />
further increases in efficiency as we carry out changes to the<br />
ways we work to deliver better service, more efficiently.<br />
We expect the costs of operating our network in the future to be<br />
largely similar to today. We have split the description of our plan<br />
into two pieces. The first part describes costs that are network<br />
specific, which includes our expenditure on maintenance, faults<br />
and capital investments in our network. These costs can vary<br />
significantly between our networks, for example LPN has no<br />
tree cutting costs, but higher costs for managing its underground<br />
cables. These variations reflect the history (design choices,<br />
equipment choices), geography (density of population, SSSI,<br />
terrain, etc.) and our customers’ demands of the network e.g. in<br />
EPN there is a greater interest in connecting onshore wind farms,<br />
whereas in London our customers often want to connect large<br />
buildings to our networks e.g. the Shard.<br />
The Shard<br />
>pg86 | <strong>Business</strong> plan
The second part addresses costs that are derived centrally for<br />
all three networks or those over which we have little control or<br />
influence. The cost each network faces is a result of an allocation<br />
from a centrally derived costs e.g. based on activity drivers.<br />
This covers the indirect (overhead) costs and pass-through costs<br />
(e.g. licence fees and transmission exit charges).<br />
Volume and unit cost efficiency<br />
Large parts of our forecast spend is derived by taking the<br />
volumes of work we believe we need to do and applying<br />
our forecast of the efficient unit cost to those volumes. In the<br />
following sub-sections we provide an overview of the main<br />
drivers of change in volumes of work. Alongside this we show<br />
how the cost of delivering the work is expected to change.<br />
Aligned: our current and future <strong>plans</strong><br />
Our forecast business plan expenditure for 2015 to 2023 for each<br />
network is shown in the following sections.<br />
Eastern <strong>Power</strong> <strong>Networks</strong> business plan<br />
This network covers the largest land area of our three networks<br />
from north London out to our most rural communities. It serves<br />
areas that have high quality wind resource and we expect<br />
the trend of wind generation connections to support the <strong>UK</strong>’s<br />
renewable energy targets to continue. We would expect this<br />
region to attract its fair share of wind turbines to support the<br />
renewables being deployed across the <strong>UK</strong>. We also expect<br />
this region to see noticeable numbers of heat pumps<br />
being deployed.<br />
The charts show how the future business plan compares to our<br />
current <strong>plans</strong>.<br />
Figure 7.4: Current period expenditure total = £2.8 billion<br />
0.8<br />
0.4<br />
0.1 Network operating<br />
costs<br />
0.7<br />
Indirect costs<br />
Figure 7.5: Forecast period expenditure total = £3.1 billion<br />
0.8<br />
0.8<br />
7.4<br />
Non load related<br />
Load related<br />
Non operational capex<br />
0.1 0.1 Load related<br />
0.6<br />
Non load related<br />
0.6<br />
0.9<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
Direct capital expenditure<br />
Direct capital expenditure primarily consists of the expenditure<br />
on expanding our network (load-related or reinforcement<br />
expenditure) and replacing and refurbishing our assets (non-load<br />
related). The underlying changes and drivers are explained in the<br />
following sub-sections.<br />
Load related expenditure<br />
Figure 7.6: EPN load related capital expenditure<br />
£m (2012 prices)<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
Load related<br />
Non-load related capit<br />
We are expecting our expenditure on expanding and extending<br />
the network to return to more normal (higher) levels over the<br />
future business plan period. This is based on our core scenario<br />
that shows a return to growth in electricity demand early in the<br />
forecast period.<br />
7.6<br />
This growth in demand is also reflected in our expectations of<br />
connection volumes, which anticipate a significant increase in<br />
connections compared to the current plan period.<br />
Taken together these forecasts of increasing electricity growth<br />
and new connections lead to our overall view of the need Direct for operating costs<br />
load-related expenditure.<br />
0.1<br />
0.4<br />
Figure 7.7: Forecast connection activity<br />
0.7 Indirect operating cost<br />
investment<br />
25,000<br />
500<br />
0.8<br />
Load-related capital<br />
20,000<br />
400 investment<br />
0.8<br />
Non-operational capita<br />
15,000<br />
300<br />
investment<br />
10,000<br />
200<br />
5,000<br />
100<br />
0<br />
0<br />
LV connections<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2019/20<br />
2022<br />
2020/21<br />
LV<br />
LV DR5 average<br />
HV & EHV<br />
HV & EHV DR5 average<br />
2023<br />
2021/22<br />
2022/23<br />
HV and EHV connections<br />
7.7<br />
<strong>Business</strong> plan | >pg87
DG infrastructure<br />
In addition to demand growth, we are expecting a considerable<br />
uptake in wind generation in the EPN region. Our view of likely<br />
activity suggests that considerable volumes of new wind farms<br />
are likely to come forward for connection in the forecast period<br />
between 2015 and 2023.<br />
We are investigating and have made provision in this 2012<br />
business plan for a strategic investment in infrastructure for the<br />
currently expected levels of wind farms in the region. The cost<br />
benefit case for this investment will be developed further for<br />
2013, but rests on the principle that will result in a lower cost<br />
solution than a project-by-project development. We believe<br />
that this is consistent with our role in facilitating the lower<br />
carbon economy.<br />
Asset replacement<br />
Our expenditure on asset replacement is forecast to increase on<br />
average by approximately 30 per cent over the forecast plan<br />
period. The additional asset replacement volumes are being<br />
driven by ever improving understanding of the condition of our<br />
assets and how they are expected to deteriorate over time. The<br />
new modelling approach ARP is assisting how we decide on our<br />
interventions based on a more holistic view of risk and condition.<br />
The results show additional replacement volumes are required<br />
compared to the current plan period and we are currently<br />
reviewing and validating these outputs e.g. via additional<br />
condition sampling.<br />
Figure 7.8: Actual/forecast asset replacement capital expenditure<br />
£m (2012 prices)<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/20<br />
2020/21<br />
2021/22<br />
2022/23<br />
Non load related<br />
Expenditure on the asset types shown in Figure 7.9 represents<br />
a significant proportion of the increase in asset replacement<br />
expenditure compared to the current plan. We have included a<br />
brief commentary on the drivers that lead to these changes<br />
in volumes.<br />
Our future expenditure <strong>plans</strong> show both rises and falls in<br />
expenditure. We have found reduced need for investment in the<br />
asset types shown in Figure 7.10 which represent a significant<br />
proportion of the reductions in spend, the remainder being<br />
spread across other asset types due to the normal variation in<br />
replacement profiles.<br />
7.8<br />
Figure 7.9<br />
Asset group Component Commentary<br />
Overhead Pole Line LV Main (OHL) Conductor We plan to return to our original strategy of conductor replacement following a<br />
short-term programme of rectification of defects during the current period<br />
Cable 6.6/11kV UG Cable We have revised the policy for this cable type. This includes collecting additional<br />
condition information to further improve our understanding of the future need<br />
for replacement. Our current replacement rates remain at a level that will see<br />
cables in service well beyond design life. Our long-term replacement strategy<br />
will be reviewed in light of the improving condition information<br />
Switchgear<br />
6.6/11kV CB<br />
(GM) Primary<br />
We are experiencing increased unreliability of our oil filled switch gear that is<br />
driving increased forecasts of the need for replacement<br />
Overhead Tower Line<br />
132kV OHL (Tower<br />
Line) Conductor<br />
We are anticipating a greater proportion of conductor replacement compared to<br />
the current mix that has more fittings only work<br />
Figure 7.10<br />
Asset group Component Commentary<br />
Switchgear<br />
33kV indoor, gas<br />
insulated, ground<br />
mounted circuit breakers<br />
Switchgear<br />
132kV indoor, gas<br />
insulated, ground<br />
mounted circuit breakers<br />
The population of assets in these classes are relatively small and reducing<br />
so we will spend significantly less on this asset category once our current<br />
programme of replacement ends in the current plan period<br />
>pg88 | <strong>Business</strong> plan
We are currently reviewing all of our investment <strong>plans</strong> to seek<br />
further efficiencies in delivery, to recognise changes in mix and<br />
to validate the underlying data to support our future forecast<br />
of efficient costs. We are undertaking further work to refine<br />
distribution asset replacements unit costs before submission of<br />
our business plan in July 2013.<br />
Direct operating expenditure<br />
Inspection and maintenance expenditure<br />
Figure 7.11: Actual/forecast inspection and maintenance costs<br />
£m (2012 prices)<br />
30<br />
20<br />
10<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Inspection & maintenance<br />
In the current plan period we believe we are currently spending<br />
at above the steady-state level that is required going forward.<br />
This is to carry out an identified backlog of work. This does result<br />
in us overspending against our current allowances, in this plan<br />
period, and we are exposed to 45 per cent of these costs. We<br />
believe that this is in the long-term best interests of the network<br />
and our customers.<br />
Our forecast inspection and maintenance costs reduce from the<br />
current spend levels but have a number of movements both<br />
positive and negative. We are forecasting a significant growth<br />
in tower line painting based on our assessment of the optimum<br />
lifecycle policy for our tower lines. This is expected to preserve<br />
the asset life to defer replacement. Other upward drivers of cost<br />
are increasing inspection volume for rising and lateral mains and<br />
we continue to explore the scale of costs and the approaches<br />
7.9<br />
to managing these assets. The second driver is the volumes of<br />
pole line inspections. These have increased following the results<br />
from recent surveys that have shown examples of poles in worse<br />
condition than expected and identified poles missing from our<br />
asset register.<br />
The workload for protection schemes is reducing in the forecast<br />
period following a detailed survey of protection equipment<br />
and evaluation of the appropriate policy to apply to the actual<br />
population of assets.<br />
The final area is an expected increase in the volumes for 33kV<br />
substation work, where we are also anticipating delivering<br />
significant efficiencies in how we deliver the work such that<br />
overall this results in lower costs for our customers.<br />
In summary, the known upward volume effects are outweighed<br />
by volume reductions and compared to the current plan period<br />
our unit costs fall for these activities (see Figure 7.12).<br />
Figure 7.12: EPN I&M; composite unit cost efficiency trend<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
2012<br />
2013<br />
2014<br />
2015<br />
Faults expenditure<br />
2016<br />
2017<br />
Figure 7.13: Actual/forecast fault costs<br />
£m (2012 prices)<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
Figure 7.14: EPN faults; composite unit cost efficiency trend<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
Our costs are based on our projections of fault rates by voltage<br />
and asset group multiplied by our forecast of efficient cost for<br />
fault repair for each.<br />
Our projections of fault rates are generally forecast to be<br />
maintained at a constant level based on the delivery of our<br />
replacement and maintenance policies. We are forecasting rises<br />
in HV underground cable and LV underground mains (those that<br />
are not Concentric Neutral Solid Aluminium Conductor). This<br />
growth is expected due to deterioration in condition of these<br />
assets. We are increasing our understanding of the condition of<br />
our underground assets through increasing our use of post-fault<br />
analysis and investigation.<br />
7.12 <strong>Business</strong> plan | >pg89<br />
2018<br />
2019<br />
2020<br />
Forecast vs 2011/12<br />
7.10<br />
Faults<br />
2021<br />
2022<br />
2023<br />
2024<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
7.11<br />
Forecast vs 2011/12<br />
2021<br />
2022<br />
2023<br />
2024
Overall the number of faults we are forecasting is expected to<br />
rise slightly by around 6 per cent over the forecast plan period.<br />
We expect our unit costs to fall, such that the total cost of<br />
repairing faults will remain broadly aligned to our current annual<br />
cost of repairing faults.<br />
Figure 7.15: EPN fault rate chart for 2015 to 2023 for<br />
LV underground cables (non-consac) and HV<br />
underground cables<br />
8,000<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
2015/16<br />
2016/17<br />
2017/18<br />
Tree cutting costs<br />
2018/19<br />
2019/20<br />
2020/21<br />
2021/22<br />
LV Main (UG non-Consac)<br />
Figure 7.16: Actual/forecast costs for tree cutting<br />
2022/23<br />
LV Main (UG non-Consac) DR5<br />
Average<br />
HV UG Cable<br />
HV UG Cable DR5 Average<br />
1,000<br />
900<br />
800<br />
700<br />
600<br />
Total cost underpinning our plan<br />
In summary the EPN plan remains largely a continuation of<br />
our spend profile today. There is a step up in our direct capital<br />
expenditure which is due to an increase in asset replacement<br />
expenditure required to maintain the long-term health of the<br />
network and the return to more normal levels of reinforcement<br />
as we see the economy recover early in the forecast period. In<br />
addition to these volume increases we expect our civil costs to<br />
rise from those seen in the current plan period. We believe that<br />
we will achieve greater efficiency and reductions around our<br />
expenditure on inspection and maintenance and continue to<br />
maintain our efficient level of indirect costs. A summary of our<br />
forecast expenditure is shown in Figure 7.17 that shows how the<br />
main cost categories change from our current plan (to 2015) to<br />
the end of the forecast planned expenditure (to 2023).<br />
Figure 7.17: EPN expenditure profile (excluding pass<br />
through items)<br />
£m (2012 prices)<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
425 422 415 412<br />
385 388 20 396<br />
32<br />
15<br />
8 31 30 378<br />
363<br />
371 377<br />
8<br />
32 35<br />
17 8<br />
17<br />
8 28<br />
7<br />
17 8 26<br />
30<br />
25 25<br />
19<br />
17 13<br />
7<br />
7<br />
7<br />
94<br />
19 18<br />
4 17<br />
3<br />
22<br />
93 93 92<br />
88 92<br />
90<br />
90<br />
84<br />
10<br />
90 90<br />
10 10<br />
10<br />
10<br />
214<br />
146<br />
165 165<br />
187 181 179 166 151 158 164<br />
£m (2012 prices)<br />
18<br />
17<br />
16<br />
15<br />
14<br />
13<br />
2010/11<br />
2011/12<br />
2012/13<br />
7.13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
0<br />
73 76 76 74 76 75 76 75 76 76 77<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023<br />
Direct opex Direct capex DG Spine<br />
Indirects Non op and other costs Pension deficit<br />
Tax allowance<br />
Tree cutting<br />
Our costs are based on the line length affected by trees. Our total<br />
costs are forecast to be broadly constant through the forecast<br />
plan period which assumes that any increases in cost due to<br />
additional new lines affected by trees will be largely offset by<br />
efficiencies in delivering tree cutting.<br />
7.15<br />
7.14<br />
>pg90 | <strong>Business</strong> plan
London <strong>Power</strong> <strong>Networks</strong> business plan<br />
The LPN network is almost entirely underground and is urban in<br />
nature. It must continue to fulfil the constant growth in customer<br />
demand for network capacity. We have to work in congested<br />
streets where pipes and wires from all the utilities that serve<br />
the population are located close together. Street works are<br />
particularly challenging in central areas where access to dig in<br />
the street is carefully controlled and therefore alternatives such<br />
as tunnelling underground become the efficient option. We are<br />
looking closely at bolder strategic options to make the network<br />
more resilient and release capacity to facilitate economic growth.<br />
These challenges are done in a region where the costs of labour<br />
are typically higher and the urban working environment, with<br />
more indoor, basement and working restrictions leading to lower<br />
productivity of our people.<br />
The LPN plan remains largely a continuation of our spend profile<br />
today. There is a step up in our direct capital expenditure which is<br />
due to an increase in asset replacement expenditure required to<br />
maintain the long-term health of the network and the need for<br />
greater reinforcement than we have seen in the current period<br />
as we see the economy to recover strongly in London. In addition<br />
to these we expect our civil costs to rise from those seen in the<br />
current plan period.<br />
Figure 7.18: Current period expenditure total = £1.8 billion<br />
(DPCR5 – eight year equivalent)<br />
0.4<br />
0.5<br />
0.1 Network operating<br />
0.3 costs<br />
Indirect costs<br />
0.5<br />
Figure 7.19: Forecast period expenditure total = £2.3 billion<br />
(RIIO-ED1)<br />
0.5<br />
0.3<br />
0.7<br />
0.6<br />
7.16<br />
Non load related<br />
Load related<br />
Non operational capex<br />
0.1 0.1 Load related<br />
Non load related<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
Direct capital expenditure<br />
Direct capital expenditure primarily consists of the expenditure<br />
on expanding our network (load-related or reinforcement<br />
expenditure) and replacing and refurbishing our assets<br />
(non-load related).<br />
Load-related expenditure<br />
Figure 7.20: LPN load related capital expenditure<br />
£m (2012 prices)<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
We are expecting our expenditure on expanding and extending<br />
the network to return to more normal levels<br />
0.1<br />
Direct operating<br />
over 0.3 the business<br />
plan period. This is based on our core scenario that shows Indirect operatin<br />
0.4<br />
a return to growth in peak demand, which alongside new<br />
connections drives reinforcement spend. Our forecast average Non-load related<br />
annual spend in the forecast period is more than double than we investment<br />
0.5<br />
expect to spend over the current plan period.<br />
Load-related cap<br />
investment<br />
This growth in demand is reflected in our 0.5 expectations of Non-operational<br />
connection volumes which are shown in Figure 7.21, that investment<br />
anticipate a significant increase in connections compared to the<br />
current plan period.<br />
7.18<br />
Figure 7.21: Forecast connection activity<br />
20,000<br />
300<br />
LV connections<br />
15,000<br />
10,000<br />
5,000<br />
0<br />
2015<br />
2016<br />
2017<br />
2018<br />
2018/19<br />
Load related<br />
2019<br />
LV<br />
HV & EHV<br />
Linear (LV DR5 average)<br />
2020<br />
2021<br />
2019/2020<br />
2022<br />
2020/21<br />
2023<br />
2021/22<br />
V<br />
LV DR5 average<br />
720<br />
HV & EHV 513 DR5 average VERSION<br />
333<br />
250<br />
2022/23<br />
HV and EHV connections<br />
200<br />
107 59<br />
OLD<br />
597<br />
7.17<br />
7.19<br />
<strong>Business</strong> plan | >pg91
Asset replacement<br />
Our asset replacement expenditure is forecast to increase by<br />
more than 20 per cent over the plan period. The additional<br />
asset replacement volumes are being driven by ever improving<br />
understanding of the condition of our assets and how they<br />
are expected to deteriorate over time. The new modelling<br />
approach ARP is improving how we decide on when and how<br />
we intervene based on a more holistic view of risk and condition<br />
of our assets. The results have shown additional replacement<br />
volumes are required compared to the current plan period and<br />
we are currently reviewing and validating these outputs e.g. via<br />
additional condition sampling.<br />
Figure 7.22: Actual/forecast asset replacement<br />
capital expenditure<br />
£m (2012 prices)<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
Non load related<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
We are currently reviewing all of our investment <strong>plans</strong> to<br />
seek further efficiencies in delivery, to recognise changes in<br />
mix and to validate the underlying data to support our future<br />
forecast costs and effects of the urban environment. These unit<br />
costs are applied to our current view of the volumes of work<br />
to maintain our network to provide an expenditure profile.<br />
We are undertaking further work to refine distribution asset<br />
replacements unit costs before submission of the final business<br />
plan in July 2013.<br />
Expenditure on the asset types shown in Figure 7.23 represent<br />
a large proportion of the increase in expenditure within<br />
our forecast.<br />
We have also found significant efficiencies and potential<br />
reductions in need for investment in the asset types shown in<br />
Figure 7.24 which represent a large proportion of the reductions<br />
in spend, the remainder being spread across other asset types<br />
due to the normal variation in replacement profiles.<br />
Figure 7.23<br />
Asset group Component Commentary<br />
HV Switchgear<br />
6.6/11kV ground<br />
mounted circuit breakers<br />
Our approach to modelling the deterioration of these assets has improved with<br />
additional condition data. This is suggesting that there are significant volumes<br />
of oil switchgear, which are likely to become more unreliable and are forecast<br />
to require intervention<br />
EHV Cable<br />
123kV Cable<br />
33kV underground cable<br />
(non Pressurised)<br />
132kV underground cable<br />
(non Pressurised)<br />
A programme of removing existing leaking oil cables is leading to increasing<br />
volumes of these more environmentally friendly assets<br />
A programme of removing existing leaking oil cables is leading to increasing<br />
volumes of these more environmentally friendly assets<br />
132kV Transformer 132kV Transformer Better condition information is suggesting that replacement within the current<br />
population can be at a lower rate following the replacement programme in the<br />
7.20<br />
current plan<br />
Figure 7.24<br />
Asset group Component Commentary<br />
LV Switchgear<br />
LV link boxes & LV pillars<br />
(outdoor not<br />
at Substation)<br />
The rate of replacement of these assets reduces in the future business plan<br />
period as the programme of replacements in the current period has seen a<br />
volume defective units replaced<br />
HV Switchgear<br />
6.6/11kV Ring<br />
Main Unit<br />
132 kV Switchgear 132kV indoor, gas<br />
insulated, ground<br />
mounted circuit breakers<br />
There is a significant drop in expenditure as these assets are replaced by<br />
alternatives and the overall population falls<br />
A strategy of more refurbishments means our asset replacement spend<br />
is reduced<br />
>pg92 | <strong>Business</strong> plan
Direct operating expenditure<br />
Inspection and maintenance expenditure<br />
Figure 7.25 Actual/forecast inspection and maintenance costs<br />
£m (2012 prices)<br />
20<br />
18<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Inspection & maintenance<br />
These volume rises are offset by reductions in volumes and<br />
anticipated future unit cost efficiencies (shown in Figure 7.26)<br />
in most of our inspection, repair and maintenance work. This is<br />
alongside volume reductions from recent survey results for our<br />
substations and indoor switchgear in London which is showing<br />
the assets may be in better condition than anticipated.<br />
Faults expenditure<br />
Figure 7.27: Actual/forecast fault costs<br />
£m (2012 prices)<br />
29<br />
28<br />
27<br />
26<br />
25<br />
24<br />
23<br />
We expect our total inspection and maintenance expenditure to<br />
remain broadly at the steady-state rate that we have seen during<br />
the recent past. Our forecast inspection and maintenance costs<br />
are within approximately 5 per cent above those in the current<br />
plan period and is a result of minor changes in approaches and<br />
workload across the plan.<br />
There are a number of upward drivers that outweigh the<br />
efficiencies that we can foresee across the forecast plan period.<br />
A significant upward movement is the increase in volume of<br />
underground cable inspections as we take a more in depth<br />
look at the deterioration of these assets that dominate the<br />
network in London. We are seeking to better understand and<br />
evaluate the potential<br />
7.21<br />
for sustained operational reliability and<br />
how their condition is evolving. We are also anticipating greater<br />
maintenance costs for our 132kV switchgear and an increasing<br />
workload to maintain the increasing length of tunnels that<br />
we own.<br />
Figure 7.26: LPN I&M; composite unit cost efficiency trend<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
2024<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Our total fault costs are based on our projections of fault rates by<br />
voltage and asset group multiplied by the forecast efficient cost<br />
of fault repair for each of these.<br />
Our projections of fault rates are generally forecast to be<br />
maintained at a constant level based on the delivery of our<br />
replacement and maintenance policies. We are forecasting rises<br />
in HV underground cable and LV underground mains (those that<br />
are not Concentric Neutral Solid Aluminium Conductor). This<br />
growth is expected due to deterioration in condition of these<br />
assets. We are increasing our understanding of the condition of<br />
our underground assets through increasing our use of post-fault<br />
analysis and investigation. We are forecasting an average 0.6 per<br />
cent growth in faults per annum in these categories.<br />
7.23<br />
Figure 7.28: LPN faults composite unit cost efficiency trend<br />
1.2<br />
1.20<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
Faults<br />
2018<br />
2019<br />
1.00<br />
0.80<br />
0.60<br />
0.40<br />
0.20<br />
2020<br />
2021<br />
OLD<br />
VERSION<br />
2022<br />
2023<br />
2024<br />
Forecast vs 2011/12<br />
0.00<br />
Forecast vs 2011/12<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
Forecast<br />
7.22<br />
7.24<br />
<strong>Business</strong> plan | >pg93
Overall the number of faults we are forecasting is expected to<br />
rise by around 11 per cent. We expect our unit costs to fall, such<br />
that the total cost of repairing faults will remain broadly aligned<br />
to our current annual cost of repairing faults.<br />
Figure 7.29: LPN fault rate for 2015 to 2023 – LV underground<br />
cable (non-consac) and HV underground cable<br />
4,500<br />
4,100<br />
3,700<br />
3,300<br />
2,900<br />
2,500<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
Total expenditure underpinning our plan<br />
In summary the LPN plan remains largely a continuation of<br />
our spend profile today. There is a step up in our direct capital<br />
expenditure which is due to an increase in asset replacement<br />
expenditure required to maintain the long-term health of the<br />
network and the need for growing reinforcement that we<br />
anticipate from the later years of the current plan period as the<br />
economy recovers strongly in London. In addition to these we<br />
expect our civil costs to rise from those seen in the current<br />
plan period.<br />
2019/20<br />
7.25<br />
2020/21<br />
LV Main (UG non-Consac)<br />
2021/22<br />
2022/23<br />
LV Main (UG non-Consac) DR5 Average<br />
HV UG Cable<br />
HV UG Cable DR5 Average<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
We believe that we will achieve greater efficiency and reductions<br />
around our expenditure on inspection and maintenance and<br />
continue to maintain our efficient level of indirect costs.<br />
A summary of our forecast expenditure is shown in Figure<br />
7.30 that shows how the main cost categories change from<br />
our current plan (to 2015) to the end of the forecast planned<br />
expenditure (to 2023).<br />
Figure 7.30: LPN expenditure profile (excluding pass<br />
through costs)<br />
4,500<br />
£m (2012 prices)<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
4,000<br />
3,500<br />
3,000<br />
310 313<br />
299<br />
288 2,500 17 293<br />
21 285 290<br />
274<br />
15<br />
280<br />
32<br />
15<br />
22 23 15<br />
31<br />
15 261<br />
11 12 24<br />
253<br />
30<br />
26<br />
24<br />
24<br />
26<br />
10<br />
12<br />
13<br />
21 15 15<br />
14<br />
26 13 61<br />
13 13<br />
61<br />
13<br />
10<br />
14<br />
17<br />
60<br />
63<br />
62 63<br />
64<br />
59<br />
65 64<br />
56<br />
105<br />
118 131<br />
159 154<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
3,500<br />
3,000<br />
2,500<br />
2019/20<br />
2020/21<br />
40 42 42 41 41 41 41 42 42 42 42<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
4,500<br />
2022 2023<br />
Direct opex Direct capex Indirects<br />
Non op and other costs Pension deficit 4,000 Tax allowance<br />
7.26<br />
130 138 134 125 113 109<br />
2015/16<br />
2016/17<br />
2021/22<br />
2017/18<br />
2022/23<br />
2018/19<br />
5<br />
4<br />
3<br />
2<br />
1<br />
0<br />
LV Main (<br />
LV Main (<br />
Average<br />
HV UG Ca<br />
>pg94 | <strong>Business</strong> plan
South Eastern <strong>Power</strong> <strong>Networks</strong> business plan<br />
This network has a similar combination of drivers as EPN, serving<br />
a mix of London and rural areas, with a lower expectation for the<br />
connection of wind generators.<br />
Figure 7.31: Current period expenditure total = £1.9 billion<br />
0.6<br />
0.1 Network operating<br />
0.2 0.4<br />
costs<br />
Indirect costs<br />
0.6<br />
Figure 7.32: Forecast period expenditure total = £2.0 billion<br />
0.5<br />
0.1 0.1<br />
0.4<br />
0.4<br />
0.6<br />
Direct capital expenditure<br />
7.27<br />
Direct capital expenditure primarily consists of the expenditure<br />
on expanding our network (load-related or reinforcement<br />
expenditure) and replacing and refurbishing our assets<br />
(non-load related).<br />
Load-related expenditure<br />
Non load related<br />
Load related<br />
Non operational capex<br />
Load related<br />
Non load related<br />
Network operating costs<br />
Indirect costs<br />
Non operational capex<br />
RPEs<br />
Figure 7.33: SPN load related capital expenditure<br />
£m (2012 prices)<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2012/13<br />
2013/14<br />
7.28<br />
32<br />
2014/15<br />
2015/16<br />
2016/17<br />
We are expecting our expenditure on expanding and extending<br />
the network to return to more normal levels over the business<br />
plan period. This is based on our core scenario that shows a<br />
return to more normal demand growth patterns.<br />
This forecast alongside new connections forecasts drives our<br />
reinforcement expenditure. Our forecast average annual spend<br />
in the forecast period is more than one and a half times than we<br />
expect to spend over the current plan period.<br />
2017/18<br />
Load related<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
Figure 7.34: Forecast connection activity<br />
LV connections<br />
Asset replacement expenditure<br />
Figure 7.35: Actual/forecast asset replacement<br />
capital expenditure<br />
£m (2012 prices)<br />
15,000<br />
10,000<br />
5,000<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
0<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
Our expenditure on asset replacement is forecast to decrease<br />
slightly in the forecast period compared to our current <strong>plans</strong>.<br />
The reduced spend is justified by ever improving understanding<br />
of the condition of our assets and how they are expected to<br />
deteriorate over time. The new modelling approach ARP is<br />
assisting how we decide on our interventions based on a<br />
60<br />
more<br />
holistic view of risk and condition. There are slightly reduced<br />
replacement volumes compared to the current plan period 50and<br />
we are currently reviewing and validating these outputs e.g. via<br />
additional condition sampling.<br />
40<br />
We are currently reviewing all of our investment <strong>plans</strong> to seek 28<br />
30<br />
30<br />
29<br />
300<br />
200<br />
100<br />
629<br />
226<br />
further efficiencies in delivery, to recognise changes in mix and<br />
to validate the underlying data to support our future forecast 20<br />
costs. These<br />
7.31<br />
unit costs are applied to our current view of the<br />
10<br />
volumes of work to maintain our network to form the total<br />
expenditure plan. We are undertaking further work to refine 0<br />
distribution asset replacements unit costs before submission of<br />
the final business plan in July 2013.<br />
Expenditure on the asset types shown in Figure 7.36 represent<br />
the significant rises in expenditure in our <strong>plans</strong> which are<br />
alongside more general rises in civil works.<br />
We are also forecasting significant efficiencies and reduced<br />
need for investment in the asset types shown in Figure 7.37<br />
which represent most of the of the reductions in the plan, the<br />
remainder being spread across other asset types due to the<br />
normal variation in replacement profiles.<br />
2020<br />
2021<br />
2022<br />
LV<br />
LV DR5 average<br />
HV & EHV<br />
HV & EHV DR5 average<br />
7.30<br />
Non load related<br />
2023<br />
0<br />
£m<br />
HV and EHV connections<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/20<br />
2020/21<br />
2021/22<br />
2022/23<br />
103<br />
376<br />
OLD<br />
VERSION<br />
123<br />
360<br />
540<br />
58<br />
OLD<br />
488<br />
VERSION<br />
OLD<br />
VERSION<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
7.29<br />
<strong>Business</strong> plan | >pg95
Figure 7.36<br />
Asset group Component Commentary<br />
Overhead Pole Line LV overhead line We plan to return to our original strategy of conductor replacement following a<br />
main conductor programme of rectification of defects during the current period<br />
Cable<br />
Figure 7.37<br />
33kV underground cable<br />
(Non Pressurised)<br />
A programme of removing existing leaking oil cables is leading to increasing<br />
volumes of these more environmentally friendly assets<br />
Asset group Component Commentary<br />
Switchgear 6.6/11kV Ring Main Units Following an accelerated programme of replacement in the current period the<br />
forecast is to return to more usual levels of work<br />
Cable<br />
132kV underground cable<br />
(non Pressurised)<br />
Forecast is based on leak rates remaining acceptable on pressurised systems<br />
not requiring replacement with these assets<br />
Cable<br />
Switchgear<br />
132kV underground<br />
cable (Gas)<br />
132kV indoor, gas<br />
insulated, ground<br />
mounted circuit breakers<br />
Direct operating expenditure<br />
Inspection and maintenance expenditure<br />
Data suggests that the remaining assets are in good condition following the<br />
programme of work completed in the current plan<br />
A strategy of more refurbishments means our asset replacement spend<br />
is reduced<br />
Figure 7.38: Actual/forecast inspection and maintenance costs<br />
£m (2012 prices)<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Inspection & maintenance<br />
Our workload will increase following our comprehensive review.<br />
Our review recognises the criticality of these assets to the<br />
resilience of our networks and need for increased vigilance<br />
against condition deterioration and vandalism.<br />
These upward effects are outweighed by downward movements.<br />
The more significant movements are in ground mounted<br />
substations civil works following a review of how we manage<br />
our civil assets and deliver work. The workload for protection<br />
schemes is also reducing in the forecast plan period following a<br />
detailed survey of protection equipment and evaluation of the<br />
appropriate policy to apply to the actual population of assets.<br />
We are forecasting efficiencies in the unit costs of inspection and<br />
maintenance work, which is shown in Figure 7.39.<br />
Figure 7.39: SPN I&M; composite unit cost efficiency trend<br />
We are currently spending at around the steady-state rate that<br />
we currently expect to be required going forward.<br />
Our total forecast inspection and maintenance costs reduce from<br />
the current spend levels. There are a number of movements<br />
both positive and negative. Two major upward drivers of cost<br />
are increasing inspection volumes for rising and lateral mains as<br />
we identify the scale and scope of the requirements to manage<br />
these assets. In addition we are planning greater volumes of pole<br />
line repairs as a result of the recent survey outcomes suggesting<br />
the condition is worse than anticipated and we are identifying<br />
poles missing from our asset register. We are also seeing growing<br />
needs for other types of inspections including cable bridges.<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
Forecast vs 2011/12<br />
2022<br />
2023<br />
2024<br />
7.32<br />
>pg96 | <strong>Business</strong> plan
Faults expenditure<br />
Figure 7.40: Actual/forecast faults costs<br />
Figure 7.42: SPN fault rate chart for 2015-2024 (DR5 average<br />
line) – LV UG non-consac and HV UG<br />
£m (2012 prices)<br />
28<br />
27<br />
26<br />
25<br />
24<br />
23<br />
22<br />
21<br />
Our costs are based on our projections of fault rates by voltage<br />
and asset group multiplied by the average cost of fault repair for<br />
each of these assets.<br />
Overall we expect fault costs to be broadly similar to history<br />
with volumes and costs falling slightly between our current plan<br />
period and the future period but with greater efficiency in<br />
repair faults.<br />
Figure 7.41: SPN faults, composite unit cost efficiency trend<br />
1.2<br />
1.0<br />
0.8<br />
0.6<br />
0.4<br />
0.2<br />
0.0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Faults<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
2024<br />
Forecast vs 2011/12<br />
Our projections of fault rates are forecast to be maintained at<br />
a constant level based on the delivery of our replacement and<br />
maintenance policies. We are forecasting rises in HV underground<br />
cable and LV underground mains (those that are not Concentric<br />
Neutral Solid Aluminium Conductor). This growth is expected<br />
due to deterioration in condition of these assets. We are<br />
increasing our understanding of the condition of our underground<br />
assets through increasing our use of post-fault analysis and<br />
investigation. We are forecasting an average 0.6 per cent growth<br />
in these faults per annum, but overall we are expecting a small<br />
reduction in the fault volumes.<br />
7.35<br />
4,500<br />
4,000<br />
3,500<br />
3,000<br />
2,500<br />
2,000<br />
Linear ( LV Main (UG non-Consac) DR5<br />
Tree cutting expenditure<br />
Average)<br />
Figure 7.43: Actual/forecast tree cutting costs<br />
7.34 7.36<br />
£m (2012 prices)<br />
7.8<br />
7.6<br />
7.4<br />
7.2<br />
7.0<br />
6.8<br />
6.6<br />
6.4<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
Our costs are based on the line length affected by trees. Our<br />
cost are held constant through the forecast plan period which<br />
assumes that any increase cost due to additional new lines<br />
affected by trees will be offset by efficiencies in delivering<br />
tree cutting.<br />
Total expenditure underpinning our plan<br />
1,000<br />
900<br />
800<br />
700<br />
600<br />
500<br />
In summary the SPN plan remains largely a continuation of<br />
our spend profile today, with little change between our latest<br />
forecast for the current plan period and future plan levels<br />
of expenditure. There is a rebalancing of the mix of drivers<br />
underpinning the plan, showing the increased forecast for<br />
network reinforcement work (consistent across the region) and<br />
cost of civil works, being offset by a reduction in the forecast of<br />
need for asset replacement.<br />
7.37<br />
2019/20<br />
2020/21<br />
2021/22<br />
2022/23<br />
LV Main (UG non-Consac)<br />
LV Main (UG non-Consac) DR5 Average<br />
HV UG Cable<br />
HV UG Cable DR5 Average<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Tree cutting<br />
<strong>Business</strong> plan | >pg97
Figure 7.44: SPN total expenditure profile (excluding pass<br />
through costs)<br />
£m (2012 prices)<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
280 285<br />
279 273<br />
264<br />
21 23<br />
245<br />
251<br />
256<br />
22<br />
254 254 257<br />
19<br />
21 21<br />
16<br />
15 20 20 14 12 11 11<br />
17 15 23<br />
19<br />
12<br />
20<br />
13 20 18 11 9<br />
14<br />
11<br />
15 15<br />
16 17<br />
21<br />
60 61 11<br />
60<br />
60<br />
60<br />
59 59 59<br />
60 60<br />
59<br />
114 120<br />
86<br />
103<br />
46 45 45 44 44 45 44 44 45 46 45<br />
Common and allocated costs<br />
Overall indirect costs<br />
Figure 7.45: Actual/forecast indirect costs<br />
£m (2012 prices)<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
120 116 111 105 104 110 116<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023<br />
Direct opex Direct capex Indirects<br />
Non op and other costs Pension deficit Tax allowance<br />
7.38<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
2023/24<br />
Total indirect costs<br />
During the current plan period we have made significant<br />
efficiency gains in the provision of business support activities and<br />
our closely associated indirects. For our 2013 forecast business<br />
plan we will incorporate additional benchmarking of our business<br />
supports costs and factor in further achievable efficiency that<br />
is revealed. At this time we believe that maintaining our total<br />
business support costs constant over the forecast plan period is<br />
efficient. This implies productivity gains are found to compensate<br />
for growth in requirements, e.g. through new legislation,<br />
additional technology (e.g. providing platforms to support social<br />
media were not envisaged at the setting of DPCR5).<br />
7.39<br />
Our closely associated indirect costs are assumed to move with<br />
our direct costs. Our 2012 forecast business plan shows these are<br />
expected to be broadly constant on an average annual basis and<br />
approximately the same per annum as 400<br />
400<br />
we are forecasting to the<br />
end of the 2015. We are assuming that we can deliver efficiency<br />
350<br />
in our operations to 350 largely offset any expected growth.<br />
We expect some changes to these costs as we develop our<br />
300<br />
thinking on the future 300operating 280 285 279.7<br />
model and build 284.6 278.6<br />
in our thinking 272.8 2<br />
21.2 22.7<br />
264.0<br />
22.0<br />
on the overall effect on efficiency and performance 21.1 21.1 that 244.7 our<br />
251.4 19.2 2<br />
21 23<br />
250<br />
245 251 16.3<br />
15.2 19.9 20.1<br />
1<br />
250<br />
transformation <strong>plans</strong> will have on the 21 customer<br />
17.2<br />
21 15.1 23.4<br />
12.1<br />
20.1<br />
facing functions 19.2<br />
13.0<br />
2<br />
14.0<br />
17 15<br />
21.1 23<br />
OLD 15<br />
10.8<br />
1<br />
(Customer Service, Connections and Network<br />
200<br />
19<br />
60.3 Operations).<br />
60.5 11.0<br />
60.2 1159.6<br />
200<br />
21<br />
59.1<br />
We expect these transformations 60 61 11 59.7<br />
5<br />
to deliver higher VERSION<br />
levels 58.7 of<br />
150<br />
60<br />
service at a more efficient 150 cost.<br />
59<br />
100 113.6 120.3<br />
120.1 116.5<br />
102.8<br />
110.6 Average annual spends for our total indirect costs across 85.7<br />
100 114 120<br />
all three<br />
networks are therefore predicted to remain consistent 86 103<br />
1<br />
50<br />
with the<br />
current efficient level 50and to be maintained 46.3 over 44.9 the 44.8 forecast<br />
43.7 44.3 44.5 43.9 4<br />
business plan period. This shows 46 a slight 0 increase 45 in our 45 closely 44<br />
associated indirects costs 0<br />
2013 2014 2015 2016 2017 2018 2019 2<br />
(circa 1 per cent) that reflects the<br />
increase in direct work that we<br />
2013<br />
plan to complete<br />
2014<br />
Direct and<br />
2015<br />
opexa focus on<br />
2016 2<br />
Direct ca<br />
increasing our call centre capabilities. There is Indirects a small reduction Non op<br />
(circa 3 per cent) in our business Direct opex support costs Pension Direct that keeps deficit capexthe<br />
Indirects Tax allow<br />
average total indirects costs flat over the forecast business<br />
plan period.<br />
Non-operational capital expenditure<br />
Our 2012 forecast business plan contains expenditure on<br />
transport and property that largely unchanged throughout the<br />
period. These are based on bottom-up analysis of requirements<br />
for properties and vehicles to enable the organisation to be<br />
effective in delivering on its commitments. Our approaches to<br />
running our property and transport were well regarded at the<br />
previous review by Ofgem’s experts.<br />
IT<br />
Our expenditure on IT is much more dependent on the drivers on<br />
our business to adapt to the changing needs and expectations<br />
of our customers. Our 2012 forecast business plan includes a<br />
budget of circa £100 million for IT transformation across our<br />
business over the period. As part of our benchmarking of other<br />
utility businesses we have identified that integration of key IT<br />
systems is a key enabler of future efficiency improvements and<br />
appears essential to support the transition to the low carbon<br />
economy. The business case for this expenditure is still at the<br />
developmental stage. We will refine this for the 2013 business<br />
plan submission and we will amend our view of the appropriate<br />
and well justified expenditure.<br />
Real price effects<br />
We have taken a view for the forecast business plan period of<br />
the real price effects that should apply for internal and contract<br />
labour. This is based on the existing work undertaken for the Gas<br />
Distribution <strong>Networks</strong> and the work we carried out at the time of<br />
Ofgem’s previous review.<br />
On materials it is based on our own internal forecasts of key<br />
commodities and reflects the mix of materials that we purchase.<br />
The latter is most effected by global movements and hence is<br />
subject to the balance of supply and demand. The economic<br />
downturn has generally suppressed demand amongst key<br />
commodities with examples of the supply side allowing stocks to<br />
run down leading to oversupply in some markets. We will review<br />
all of these assumptions for our 2013 forecast business<br />
plan submission.<br />
£m<br />
>pg98 | <strong>Business</strong> plan
Figure 7.46<br />
Real price effects<br />
Current plan<br />
(DPCR5)<br />
Forecast business<br />
plan (RIIO-ED1)<br />
Direct capital<br />
1.1% 1.0%<br />
expenditure<br />
Direct operating<br />
1.4% 1.3%<br />
expenditure and<br />
indirects<br />
Efficiency 1.0% 0.9%<br />
Pass through costs<br />
All electricity distribution companies in Great Britain incur<br />
costs due to the way in which the industry is structured and<br />
over which they have no control. Three costs that we incur<br />
are described in the Figure 7.47. Based on the transmission<br />
companies business <strong>plans</strong>, we anticipate that Transmission Exit<br />
Charges are expected to grow significantly (more than 60 per<br />
cent for EPN and LPN and more than 80 per cent for SPN) over<br />
the forecast plan period. The charts show the forecasts of these<br />
charges for our three networks. Ofgem has proposed a lower<br />
amount of expenditure for National Grid and therefore the values<br />
shown here are likely to reduce. These will be refined in our next<br />
business plan.<br />
Figure 7.47<br />
Pass through<br />
item<br />
Licence<br />
charges<br />
<strong>Business</strong> rates<br />
Transmission<br />
exit charges<br />
Who charges them and why<br />
Levied by Ofgem on all companies who are<br />
subject to their authority. The licence fee is<br />
allocated by them in order to recover the<br />
costs of their obligations in regulating the<br />
electricity industry<br />
Levied by HM Treasury based on the Valuation<br />
Office’s assessment of the rateable value of<br />
our assets<br />
Levied by National Grid based on the capacity<br />
of interconnections between their network<br />
and ours. These charges are expected to<br />
grow significantly over the period between<br />
2015 and 2023 to reflect the increases in<br />
investment in the transmission network as<br />
agreed with Ofgem<br />
Figure 7.48: EPN pass through costs<br />
£m (2012 prices)<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2013 2011 2012 2014 2013 2015 2014 2016 2015 2017 2016 2018 2017 2019 2018 2020 2019 2021 2020 2022 2021 2023<br />
Figure 7.49: LPN pass through costs<br />
£m (2012 prices)<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
Figure 7.50: SPN pass through costs<br />
£m (2012 prices)<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
Transmission exit charges<br />
Pass through costs<br />
Pass through cost related revenue<br />
7.48<br />
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023<br />
Transmission exit charges<br />
Pass through costs<br />
Pass through cost related revenue<br />
7.49<br />
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021<br />
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023<br />
Transmission exit charges<br />
Pass through costs<br />
Pass through cost related revenue<br />
7.50<br />
<strong>Business</strong> plan | >pg99
8 Financing: what this means for bills<br />
Consultation questions for this section<br />
Financing<br />
Q20. What do you think about our assumptions regarding the<br />
financing of our activities and our proposed revenues and prices<br />
>pg100 | <strong>Business</strong> plan
In this chapter we outline the impact on our customers’ bills<br />
from our forecast business plan.<br />
Customers who receive service and ultimately pay for the<br />
upkeep and development of our three distribution networks<br />
have been involved in defining this plan. As a result we have<br />
made changes that reflect their views on priorities and how<br />
the future may evolve.<br />
We are requesting revenue to allow us to operate our business<br />
that reflects the risk we take, to ensure we are able to finance<br />
our activities.<br />
Our charges to our customers are amongst the lowest in the<br />
industry and this forecast business plan would allow us to<br />
keep our charges flat (excluding inflation) into the future for<br />
the majority of our customers (LPN and SPN) with rise in our<br />
charges to our customers in EPN.<br />
8.1 Developing the revenue requirement<br />
We are required to operate our business in a financially sound<br />
manner, maintaining an investment grade credit rating and<br />
avoiding financial distress. The revenue we require to fund our<br />
business covers the costs of operation, the cost of financing our<br />
investments, the associated tax and other liabilities such as<br />
the pensions for our employees.<br />
Cost of capital<br />
With the adoption of an indexation for the cost of debt in the<br />
RIIO-ED1 framework, the cost of capital discussion is limited to<br />
a smaller number of factors. Our current view based on initial<br />
financial modelling is that most of the factors could remain<br />
unchanged from today. We believe that the transition to the<br />
low carbon economy introduces greater uncertainty and without<br />
additional mitigations will lead to a higher cost of equity. We are<br />
currently working on the basis of a cost of equity of 7 per cent<br />
and we will provide evidence to support that in our next business<br />
plan. This will include analysis of cash flow risk, investment<br />
uncertainties and market viewpoints to help identify the<br />
appropriate value.<br />
For reference Figure 8.1 summarises the values that support our<br />
view on the appropriate cost of capital.<br />
Figure 8.1<br />
Current plan<br />
(DPCR5)<br />
Forecast business<br />
plan (RIIO-ED1)<br />
Cost of equity 6.73% 7.00%<br />
Notional<br />
65.0% 65.0%<br />
gearing<br />
Cost of debt 3.6% Rolling 10 year<br />
average<br />
Vanilla WACC 4.69% 4.24%-4.17%<br />
estimated<br />
Totex split<br />
(fast/slow)<br />
RAV<br />
depreciation<br />
Ofgem target<br />
dividend yield<br />
Tax and pensions<br />
15/85 (business<br />
support + nonoperational<br />
capital<br />
expenditure100% fast)<br />
30/70 on all<br />
expenditure<br />
categories<br />
20 years Single period<br />
transition to 45 years<br />
5% on regulatory<br />
equity<br />
5% on regulatory<br />
equity<br />
We are assuming the DPCR5 approach and assumptions for the<br />
on-going treatment of pensions and tax.<br />
Revenue requested per network<br />
In the revenue analysis in this sub-section we have shown our<br />
<strong>plans</strong> with and excluding those costs that we cannot control,<br />
such as transmission exit charges. We have included all of the<br />
expenditure we have forecast to spend over the period.<br />
The charts show the year-by-year revenue we believe is efficient<br />
to allow us to finance our operations. In general, the revenue<br />
requirement is flat in real terms for our networks.<br />
One significant factor is the increasing pass through costs<br />
(predominately transmission exit charges) that are causing a<br />
significant rise of revenue compared to the current plan period.<br />
This is in addition to the funding of additional investments as<br />
described above.<br />
EPN revenues are forecast to average £544 million per annum,<br />
with a compound average growth rate of 1.3 per cent from 2015.<br />
<strong>Business</strong> plan | >pg101
l<br />
Figure 8.2: EPN revenue profile (real terms)<br />
£m (2012 prices)<br />
LPN revenues are forecast to average £422 million per annum,<br />
with a zero compound average growth rate from 2015.<br />
Figure 8.3: LPN revenue profile (real terms)<br />
£m (2012 prices)<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
CAGR: 6.5%<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
Profiled revenue<br />
CAGR: 0.0%<br />
CAGR: 6.6%<br />
8.1<br />
CAGR: -1.5%<br />
Profiled revenue ex pass through<br />
SPN revenues are forecast to average £352 million per annum,<br />
with a zero compound average growth rate from 2015.<br />
Figure 8.4: SPN revenue profile (real terms)<br />
£m (2012 prices)<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
CAGR: 4.9% CAGR: 1.3%<br />
CAGR: 4.8% CAGR: 0.5%<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
Profiled revenue<br />
CAGR: 8.1% CAGR: 0.0%<br />
CAGR: 7.7% CAGR: -1.2%<br />
8.2 The impact on our customers<br />
We have developed our forecast business CAGR plan 5.5% with our<br />
600<br />
customers and stakeholders. The overall impact on our<br />
customers is to keep bills constant 500from 2015 in the forecast<br />
plan period for LPN and SPN, with 400bills in EPN rising due<br />
to increases in investment until 2018 and then remaining<br />
300<br />
constant for the remainder of the forecast period to 2023.<br />
200<br />
We have estimated the impact on domestic and non-domestic<br />
100<br />
customers. This has been done by extrapolating from today’s<br />
charges in line with the increase in 0revenue that we have<br />
estimated we need to finance our businesses in the forecast<br />
plan period.<br />
Underlying this is the flat revenue profile for our three Profiled networks, revenue<br />
with rises beyond 2015 due to inflation for LPN and SPN,<br />
whereas for EPN revenues flatten from 2019. If we were to<br />
exclude the effects of pass through costs we would expect to<br />
see bills fall in real-terms. We show the real-terms bill impact<br />
in Figure 8.5 and Figure 8.6 (including pass through costs) to<br />
demonstrate the underlying cost impact of our <strong>plans</strong> (without<br />
the inflation impact).<br />
This forecast business plan 500 should see each of our networks<br />
450<br />
remain amongst the lowest cost electricity distribution<br />
400<br />
companies in Great Britain.<br />
350<br />
Figure 8.5: Projected change<br />
300in average annual domestic bill<br />
250<br />
(consumption = 3,330kWh) (excluding inflation)<br />
£m<br />
200<br />
150<br />
100<br />
50<br />
0<br />
2010/11<br />
EPN<br />
SPN<br />
400<br />
DNO average forecast<br />
350<br />
300<br />
250<br />
Figure 8.6: Projected change in average annual non-domestic bill<br />
(consumption = 9,900kWh) (excluding 200 inflation)<br />
8.2<br />
0<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
2020/21<br />
2021/22<br />
2022/23<br />
Profiled revenue<br />
Profiled revenue ex pass through<br />
Profiled revenue ex pass through<br />
£ (2012 prices)<br />
£ (2012 prices)<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
450<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
£m<br />
£m<br />
150<br />
100<br />
50<br />
2011/12<br />
2010/11<br />
2012/13<br />
2011/12<br />
2013/14<br />
OLD<br />
VERSION<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2019/2020<br />
Profiled revenue<br />
Profiled revenue ex pass through<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
LPN<br />
DNO average<br />
CAGR 9%<br />
Highest cost DNO<br />
2012/13<br />
OLD<br />
VERSION<br />
2013/14<br />
2014/15<br />
2015/16<br />
2016/17<br />
2017/18<br />
2018/19<br />
2020/21<br />
2019/2020<br />
Profiled revenue<br />
Profiled revenue ex pass through<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
2019<br />
2020<br />
2021<br />
2022<br />
2023<br />
EPN<br />
SPN<br />
DNO average forecast<br />
2010/11<br />
2011/12<br />
2012/13<br />
2013/14<br />
2014/15<br />
2015/16<br />
LPN<br />
DNO average<br />
Highest cost DNO<br />
2016/17<br />
2017/18<br />
2018/19<br />
CA<br />
OLD<br />
VERSION<br />
2019/2020<br />
Profiled revenue ex pass through<br />
CAGR<br />
>pg102 | <strong>Business</strong> plan<br />
8.3
<strong>Business</strong> plan | >pg103
9 Managing risk and uncertainty<br />
A key consideration for our business plan is the management of risk and<br />
uncertainty in a time of transition to a decarbonised energy sector in the <strong>UK</strong>.<br />
We are mindful of our obligations as a DNO to manage risk in the interest of<br />
all our stakeholders. We have a well-developed strategy for the management<br />
of corporate risk and this is reflected in our business plan. The primary<br />
considerations in developing our approach to risk management in our forecast<br />
business plan are to:<br />
• Recognise that we are best placed to manage risks to the delivery of the<br />
business plan<br />
• Reflect the overall risks with an appropriate rate of regulated return on equity<br />
• To use uncertainty mechanisms proposed by Ofgem where we can materially<br />
demonstrate that we have considered the impact on customers as well<br />
as stakeholders<br />
>pg104 | <strong>Business</strong> plan
9.1 Key areas of uncertainty in<br />
the future<br />
There is considerable uncertainty about the best way to<br />
meet the challenges around the transition to the low-carbon<br />
economy whilst continuing to deliver reliable, value for money<br />
for networks for both existing and future customers.<br />
We share the Government’s vision for the low carbon transition.<br />
It is up to us to meet the challenges and opportunities of<br />
delivering the networks required for a sustainable, low carbon<br />
energy sector. However there is considerable uncertainty about<br />
the best way to meet these challenges whilst delivering value<br />
for money for existing and future customers.<br />
Even with the most advanced forecasting models it remains<br />
impossible to accurately predict the future. Under the new<br />
regulatory framework, the price control will be set for eight<br />
years (previously five years) and we will need to make decisions<br />
about the longer term, including taking action in the current price<br />
control period to deliver primary outputs and value for money in<br />
future periods.<br />
Examples of uncertainty include the possibility that revenues<br />
raised from customers could be higher or lower than necessary<br />
to cover the costs of providing network services, with customers<br />
paying more or less for network services than was required.<br />
The key areas of uncertainty that we have identified for our<br />
business plan are summarised in the table.<br />
Figure 9.1<br />
Category Area of Uncertainty Our Proposed Uncertainty Mechanism<br />
Load<br />
• Rate of take up of low carbon technologies<br />
(e.g. electric vehicles, heat pumps) – time to connect<br />
• A measure of the volume of work we have to<br />
undertake on our low voltage network as a result of<br />
• Rate of load growth due to decarbonisation<br />
low carbon technologies connecting –<br />
annual frequency<br />
• Ability to predict and manage load growth<br />
• Clustering – regional combination of low<br />
carbon technology take up and load growth due<br />
to decarbonisation<br />
Non-load • New technologies on the network (new standard of • Re-opener in 2019<br />
higher specification to be rolled-out as part of<br />
non-load replacement)<br />
Cost<br />
• Increase in general official measure of inflation • Indexation of annual revenues<br />
Specific issues<br />
• Costs of operating network business outturns higher<br />
than forecast<br />
• Higher than inflation increase in cost of material<br />
(e.g. copper, fuel)<br />
• Increase in pension deficit caused by exogenous factors<br />
• Government requirements to increase security<br />
standards<br />
• Legislation to enable local authorities to increase<br />
charges for lane rental for essential infrastructure<br />
repair works<br />
• Increased expenditure to allow network systems to<br />
recover from major national outage<br />
• Increased costs of roll out of new innovations<br />
in technology<br />
• Ex ante allowance with cost saving/overrun sharing<br />
with customers<br />
• Fixed ex ante allowance<br />
• Allowed pass through of efficient costs<br />
• Re-opener in 2019 to allow for efficiently incurred cost<br />
increases<br />
• Re-opener in 2019 to allow for efficiently incurred cost<br />
increases<br />
• Re-opener in 2019 to allow for efficiently incurred cost<br />
increases<br />
• Re-opener in 2019 to allow for efficiently incurred cost<br />
increases<br />
<strong>Business</strong> plan | >pg105
9.2 Allowing flexibility<br />
Ofgem recognises the issues around uncertainty and the<br />
regulatory framework aims to manage this risk via a<br />
combination of scenarios, uncertainty mechanisms, and<br />
frameworks that allow revenue to be adjusted during the price<br />
control period in response to changes in operating conditions.<br />
Before uncertainty mechanisms are considered, Ofgem need<br />
to have the confidence that we have tried to capture the<br />
uncertainty via a rigorous scenario process. We will include four<br />
scenarios in our business plan, based on the DECC scenarios, and<br />
determine the efficient allowance corresponding to<br />
each scenario.<br />
DNOs have the flexibility to choose one of these scenarios<br />
as their ‘baseline’ or submit an alternative scenario with an<br />
alternative baseline efficient allowance as long as:<br />
• They can justify the reasonableness of the chosen ‘base line’<br />
scenario (in both cases)<br />
• They can justify the differences with the DECC scenarios (in the<br />
latter case)<br />
• They can demonstrate they can move (efficiently) to the DECC<br />
‘high’ or ‘low’ scenarios (as applicable)<br />
This process ensures Ofgem that the most efficient<br />
ex-ante allowance has been set, given all the information and<br />
knowledge available at that time, including the flexibility in the<br />
plan to achieve its outputs efficiently across a range of scenarios,<br />
including the ‘high’ scenario.<br />
For the residual uncertainty, Ofgem and the DNOs can propose<br />
frameworks to adjust the revenue. In the current plan period<br />
(DPCR5) we have 21 areas where we are incentivised in<br />
various ways. An overview of all incentivised activities will be<br />
maintained during the DPCR5 in order to ensure that we have<br />
set appropriate targets and that action <strong>plans</strong> are in place to<br />
deliver them.<br />
>pg106 | <strong>Business</strong> plan
<strong>Business</strong> plan | >pg107
10 Glossary<br />
A<br />
Asset risk and prioritisation (ARP)<br />
Models for establishing and forecasting the health of network<br />
assets. The ARP models use a combination of information relating<br />
to an asset’s age, environment, duty and specific condition and<br />
performance information to derive a health score for each asset,<br />
underpinned by proximity to end of life and probability of failure<br />
B<br />
<strong>Business</strong> carbon footprint (BCF)<br />
The BCF scheme was introduced as a reputational incentive in<br />
DPCR5 to encourage DNOs to consider the direct carbon impact of<br />
conducting their operations and to be proactive in the reduction<br />
of emissions<br />
Broad measure of customer satisfaction<br />
(BMoCS)<br />
A composite incentive consisting of a customer satisfaction<br />
survey, a complaints metric and stakeholder engagement. It was<br />
introduced for DPCR5 and is designed to drive improvements in<br />
the quality of the overall customer experience by capturing and<br />
measuring customers’ experiences of contact with their DNO<br />
across the range of services and activities the DNOs provide<br />
C<br />
Capital expenditure (Capex)<br />
Expenditure on investment in long-lived distribution assets, such<br />
as underground cables, overhead electricity lines and substations<br />
Combined heat and power (CHP)<br />
The simultaneous generation of usable heat and electricity in a<br />
single process, thereby discarding less wasted heat<br />
Compound annual growth rate (CAGR)<br />
Average annual growth rate over a defined period of time<br />
Customer interruptions (CIs)<br />
The number of customers whose supplies have been interrupted<br />
per 100 customers per year over all incidents, where an<br />
interruption of supply lasts for three minutes or longer, excluding<br />
re-interruptions to the supply of customers previously interrupted<br />
during the same incident.<br />
Customer minutes lost (CMLs)<br />
The duration of interruptions to supply per year – average<br />
customer minutes lost per customer per year, where an<br />
interruption of supply to customer(s) lasts for three minutes<br />
or longer<br />
D<br />
DCLG<br />
Department for Communities and Local Government<br />
DECC<br />
Department of Energy and Climate Change<br />
DEFRA<br />
Department for Environment, Food and Rural Affairs (DEFRA)<br />
Distributed generation (DG)<br />
Distributed generation (also known as embedded or dispersed<br />
generation) refers to an electricity generating plant connected<br />
to the distribution network . There are many types and sizes of<br />
distributed generation facilities. These include Combined Heat and<br />
<strong>Power</strong> (CHP), wind farms, hydro-electric power or one of the new<br />
smaller generation technologies such as photo-voltaic cells<br />
Distribution network operators (DNOs)<br />
A DNO is a company which operates the electricity distribution<br />
network which includes all parts of the network from 132kV down<br />
to 230V in England and Wales. In Scotland 132kV is considered<br />
to be a part of transmission rather than distribution so their<br />
operation is not included in the DNOs’ activities. There are 14<br />
DNOs in the <strong>UK</strong> which are owned by six different groups<br />
Distribution price control review 5 (DPCR5)<br />
Distribution price control review 5. This price control runs from 1<br />
April 2010 until 31 March 2015<br />
>pg108 | <strong>Business</strong> plan
Distribution system operator (DSO)<br />
As DNOs actively manage the local levels of demand, whilst at<br />
the same time accommodating varying amounts of generation<br />
onto the network, they will start to behave like system operators<br />
(ie locally balancing demand and supply on their networks),<br />
known as the DSO<br />
E<br />
EA<br />
Environment Agency<br />
Eastern <strong>Power</strong> <strong>Networks</strong> (EPN)<br />
One of the three distribution network licence areas owned and<br />
operated by <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong>. The EPN network covers the<br />
East of England<br />
Element Energy (EE)<br />
Element Energy, a strategic energy consultancy, have provided<br />
economic analysis to inform the 2013 forecast business plan<br />
Electric vehicle (EV)<br />
Vehicles that utilise electric motor(s) or traction motor(s) and are<br />
powered by either an external power station, on-board electrical<br />
generators, or stored electricity<br />
Electricity, safety, quality and continuity<br />
regulations 2002 (ESQCR)<br />
The ESQCR specify safety standards, which are aimed at<br />
protecting the general public and customers from danger. In<br />
addition, the regulations specify power quality and supply<br />
continuity requirements to ensure an efficient and economic<br />
electricity supply service to customers<br />
Extra high voltage (EHV)<br />
Voltages over 20kV up to, but not including, 132kV<br />
F<br />
Fast money<br />
Fast money is the revenue that is matched to the year<br />
of expenditure<br />
Feed in tariff (FIT)<br />
The price per unit of electricity that a utility or supplier has to<br />
pay for renewable electricity from private generators. These are<br />
used to encourage distributed renewable generation through<br />
private generators<br />
Forecast business plan questionnaire (FBPQ)<br />
Questionnaire through which data is submitted to Ofgem to help<br />
form Ofgem’s initial views on the revenue requirements for price<br />
control reviews<br />
G<br />
Gigawatt (GW)<br />
Measure of power equal to one billion watts<br />
Guaranteed standards of performance (GSOPs)<br />
Guaranteed Standards set service levels to be met in each<br />
individual case and are established by a Statutory Instrument.<br />
If the licence holder fails to provide the level of service required,<br />
it must make a payment to the customer affected subject to<br />
certain exemptions<br />
H<br />
Health index (HI)<br />
Framework for collating information on the health (or condition)<br />
of distribution assets and for tracking changes in their condition<br />
over time. The HI will be used by Ofgem to inform an assessment<br />
of the efficacy of the DNOs’ asset management decisions over the<br />
price control period. Health index arrangements were introduced<br />
as a part of DPCR5<br />
High voltage (HV)<br />
Voltages over 1kV up to, but not including, 22kV<br />
<strong>Business</strong> plan | >pg109
I<br />
Indirect cost efficiency (ICE)<br />
The ICE programme was launched in 2011 in order to close the<br />
gap with the benchmark distribution companies in relation to<br />
indirect costs<br />
Information technology (IT)<br />
Technology systems used to manage information. In <strong>UK</strong> <strong>Power</strong><br />
<strong>Networks</strong> this includes our management information systems,<br />
asset information systems and operational IT<br />
Inspections and maintenance (I&M)<br />
The activities of both:<br />
• Inspections – the visual checking of the external condition<br />
of assets<br />
• Maintenance – the invasive (‘hands on’) examination of plant<br />
and equipment<br />
Innovation funding incentive (IFI)<br />
The IFI is intended to encourage DNOs to invest in appropriate<br />
research and development activities that are designed to enhance<br />
the technical development of distribution networks (up to and<br />
including 132 kV) and to deliver value (ie financial, supply quality,<br />
environmental, safety) to end customers<br />
Interruption incentive scheme (IIS)<br />
The interruption incentive scheme is a symmetric annual rewards<br />
and penalties scheme based on each DNO’s performance against<br />
their targets for the number of customers interrupted per 100<br />
customers (CI) and the number of customer minutes lost (CML)<br />
K<br />
KiloWatt hour revenue driver (kWh)<br />
A revenue allowance based on units distributed (kWh)<br />
L<br />
Load index (LI)<br />
Framework for collating information on the utilisation of individual<br />
substations or groups of interconnected substations and for<br />
tracking changes in their utilisation over time. The LI will be used<br />
by Ofgem to inform an assessment of the efficacy of the DNOs’<br />
general reinforcement decisions over the price control period. The<br />
Load Index was introduced as a part of DPCR5<br />
Load related expenditure (LRE)<br />
The installation of new assets to accommodate changes in the<br />
level or pattern of electricity or gas supply and demand<br />
London <strong>Power</strong> <strong>Networks</strong> (LPN)<br />
One of the three distribution network licence areas owned and<br />
operated by <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong>. The LPN network covers<br />
Greater London<br />
Low Carbon <strong>Networks</strong> Fund (LCNF)<br />
A mechanism introduced under the fifth distribution price control<br />
review to encourage the DNOs to use the forthcoming price<br />
control period to prepare for the role they will have to play as GB<br />
moves to a low carbon economy. The fund will see up to<br />
£500 million made available for DNOs and partners to innovate<br />
and trial new technologies, commercial arrangements and ways<br />
of operating their networks<br />
Low voltage (LV)<br />
This refers to voltages up to, but not including, 1kV<br />
M<br />
Megawatt (MW)<br />
Measure of power equal to one million watts<br />
Megawatt-hour (MWh)<br />
A measure of energy production or consumption equal to one<br />
million watts produced or consumed for one hour<br />
N<br />
Non load related expenditure (NLRE)<br />
The replacement or refurbishment of assets which are either at<br />
the end of their useful life due to their age or condition, or need<br />
to be replaced on safety or environmental grounds<br />
O<br />
Office of gas and electricity markets (Ofgem)<br />
Responsible for regulating the gas and electricity markets in the<br />
<strong>UK</strong> to ensure consumers’ needs are protected, including their<br />
interests in the reduction of greenhouse gases and in the security<br />
of the supply of gas and electricity. This involves promoting<br />
competition, wherever appropriate, and regulating the monopoly<br />
companies which run the gas and electricity networks<br />
P<br />
Photovoltaic (PV) connection assessment tool<br />
Planning tool which assesses the impact of concentrations of<br />
small scale generation on our networks e.g. solar panels, enabling<br />
us to provide a better and faster service to our customers<br />
R<br />
Real price effects (RPE)<br />
Increase in prices over and above increases in the Retail Price<br />
Index (RPI). For example, increases in the cost of copper, steel,<br />
direct or contract labour over and above increases in RPI<br />
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Regulatory asset value (RAV)<br />
The value ascribed by Ofgem to the capital employed in the<br />
licensee’s regulated distribution or (as the case may be)<br />
transmission business (the ‘regulated asset base’). The RAV is<br />
calculated by summing an estimate of the initial market value<br />
of each licensee’s regulated asset base at privatisation and<br />
all subsequent allowed additions to it at historical cost, and<br />
deducting annual depreciation amounts calculated in accordance<br />
with established regulatory methods. These vary between classes<br />
of licensee. A deduction is also made in certain cases to reflect<br />
the value realised from the disposal of assets comprised in the<br />
regulatory asset base. The RAV is indexed to RPI in order to allow<br />
for the effects of inflation on the licensee’s capital stock. The<br />
revenues licensees are allowed to earn under their price controls<br />
include allowances for the regulatory depreciation and also for the<br />
return investors are estimated to require to provide the capital<br />
RPI-X<br />
The form of price control currently applied to network monopolies.<br />
Each company is given a revenue allowance in the first year of<br />
each control period. The price control then specifies that in each<br />
subsequent year the allowance will move by ‘X’ per cent in<br />
real terms<br />
Revenue = incentives + innovation + outputs<br />
(RIIO)<br />
Ofgem’s new regulatory framework, stemming from the<br />
conclusions of the RPI-X@20 project, to be implemented in<br />
forthcoming price controls. It builds on the success of the<br />
previous RPI-X regime, but better meets the investment and<br />
innovation challenge by placing much more emphasis on<br />
incentives to drive the innovation needed to deliver a<br />
sustainable energy network at value for money to existing<br />
and future consumers<br />
RIIO electricity distribution 1 (RIIO-ED1)<br />
The first RIIO price control review to be applied to the electricity<br />
distribution network operators, following DPCR5. This price control<br />
will run from 1 April 2015 to 31 March 2023<br />
Remote terminal unit (RTU)<br />
Communications device that transmits readings and information<br />
about the status of the network back to the control centre<br />
Renewable heat incentives (RHI)<br />
Financial incentive scheme for renewable heat generation that<br />
will help the <strong>UK</strong> reduce carbon emissions and hit its European<br />
Union renewable energy targets<br />
Ring main unit (RMU)<br />
A HV switchgear arrangement for the connection and protection<br />
of distribution transformers<br />
S<br />
Slow money<br />
Slow money is where costs are added to the RAV and revenues<br />
allow recovery of the costs over time together with the cost of<br />
financing this expenditure in the interim<br />
South Eastern <strong>Power</strong> <strong>Networks</strong> (SPN)<br />
One of the three distribution network licence areas owned and<br />
operated by <strong>UK</strong> <strong>Power</strong> <strong>Networks</strong>. The SPN network covers the<br />
South East of England<br />
Site of Special Scientific Interest (SSSI)<br />
Sites of Special Scientific Interest give legal protection to wildlife,<br />
geological and physiographical heritage under the Wildlife and<br />
Countryside Act 1981 There are over 4000 SSSIs in England,<br />
covering around 8 per cent of the country<br />
Sulphur Hexafluoride (SF6)<br />
One of the most potent greenhouse gases and is widely used in<br />
transmission and distribution equipment<br />
System operator (SO)<br />
National Grid Electricity Transmission is the electricity system<br />
operator, responsible for managing the operation of the<br />
electricity transmission system. They balance supply and demand<br />
ensuring the stability and security of the power system and the<br />
maintenance of satisfactory voltage and frequency<br />
T<br />
Tonnes of carbon dioxide equivalent (tCO 2<br />
e)<br />
Unit of measurement that allows global warming potential of<br />
different greenhouse gases to be compared<br />
Total operating and capital expenditure (totex)<br />
Total of capital expenditure (capex) plus operational<br />
expenditure (opex)<br />
W<br />
Weighted average cost of capital (WACC)<br />
This is the weighted average of the expected cost of equity and<br />
the expected cost of debt<br />
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<strong>UK</strong> <strong>Power</strong> <strong>Networks</strong> (Operations) Limited<br />
Registered office: Newington House, 237 Southwark Bridge Road, SE1 6NP<br />
Registered number: 3870728 registered in England and Wales