APPENDIX 7 NORTH WEST NETWORK - Office of Gas and ... · APPENDIX 7 NORTH WEST NETWORK A7.1 SUMMARY...

Ref No: 62533 2006 36621 (Update v1.2) PB Power

APPENDIX 7 NORTH WEST NETWORK

A7.1 SUMMARY

A7.1.1 CAPEX

North West Network Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission LTS & Storage Capital Expenditure 6.4 12.7 17.4 27.5 9.9 73.9 Connections 3.8 4.2 4.4 4.8 4.8 22.0 Mains Reinforcement 0.8 2.8 2.9 2.2 4.4 13.2 Governors 2.8 2.7 3.7 3.1 3.9 16.3 Other Operational 1.2 1.1 1.2 1.2 1.2 5.9 Non Operational 9.9 8.3 13.1 17.0 13.4 61.7 Total 25.0 31.9 42.7 55.8 37.6 192.9 Normalisation Adjustments LTS & Storage Capital Expenditure -0.2 -0.4 0.0 -0.8 0.0 -1.4 Non Operational -0.2 -0.1 -0.6 -0.5 -0.2 -1.7 Total -0.4 -0.5 -0.6 -1.3 -0.2 -3.1 Normalised BPQ 0.0 0.0 0.0 0.0 0.0 0.0 LTS & Storage Capital Expenditure 6.2 12.3 17.4 26.7 9.9 72.5 Connections 3.8 4.2 4.4 4.8 4.8 22.0 Mains Reinforcement 0.8 2.8 2.9 2.2 4.4 13.2 Governors 2.8 2.7 3.7 3.1 3.9 16.3 Other Operational 1.2 1.1 1.2 1.2 1.2 5.9 Non Operational 9.7 8.2 12.5 16.5 13.2 60.0 Total 24.5 31.4 42.1 54.5 37.4 189.9 Adjustments LTS & Storage Capital Expenditure 0.0 -0.1 -0.2 -0.4 -0.2 -1.0 Connections -0.6 -1.0 -1.2 -1.6 -1.7 -6.1 Mains Reinforcement -0.1 -0.9 -0.9 -0.8 -2.7 -5.3 Governors 0.0 0.0 0.0 0.0 -0.1 -0.2 Other Operational 0.0 0.0 0.0 0.0 0.0 -0.1 Non Operational 0.3 0.0 -0.2 -0.2 0.0 -0.2 Total -0.5 -2.0 -2.6 -3.1 -4.6 -12.8 Proposed LTS & Storage Capital Expenditure 6.2 12.2 17.2 26.3 9.7 71.5Connections 3.3 3.2 3.2 3.2 3.1 16.0Mains Reinforcement 0.7 2.0 2.0 1.5 1.7 7.8Governors 2.8 2.7 3.6 3.1 3.9 16.1Other Operational 1.2 1.1 1.2 1.2 1.2 5.8Non Operational 10.0 8.2 12.3 16.2 13.2 59.9Total 24.1 29.4 39.5 51.4 32.8 177.1

Table A7 - 1


Original North West Network Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed LTS & Storage Capital Expenditure 8.7 7.2 6.2 9.6 16.1 47.9Connections 3.9 3.8 3.7 3.6 3.5 18.6Mains Reinforcement 0.9 2.8 2.8 2.0 2.3 10.8Governors 0.6 0.4 0.6 0.4 0.4 2.4Other Operational 1.5 1.6 1.5 1.6 1.6 7.7Non Operational 9.9 7.8 12.2 16.0 14.2 60.0Total 25.5 23.6 27.0 33.2 38.2 147.4

Table A7 - 2

North West’s net Capex projections for the forecast period 2008/9 to 2012 /13 are detailed in Table A7 - 1 above. Our original recommended net Capex projections are shown in Table A7 - 2.

The GDNs recommended total net Capex has increased from £147.4 m to £177.1m, an increase of 20.1%, which is driven by the revised recommendations regarding LTS and Storage Capex. The factors which affect the revised recommendations are considered in the relevant sections of this report.

A7.1.2 REPEX

North West Network Net Repex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Mains 71.5 72.2 71.6 73.8 70.8 359.8 Services 32.9 33.2 32.9 33.4 32.6 165.1 LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total 104.4 105.4 104.5 107.1 103.4 524.9 Normalisation Adjustments LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 0.1 0.1 0.1 0.1 0.1 0.3 Normalised BPQ Mains 71.5 72.2 71.6 73.8 70.8 359.8 Services 32.9 33.2 32.9 33.4 32.6 165.1 LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 104.5 105.5 104.6 107.2 103.4 525.2 Adjustments Mains -0.3 -2.4 -4.0 -6.7 -8.5 -21.8 Services -5.9 -6.7 -6.9 -7.6 -7.9 -35.0 LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total -6.2 -9.1 -10.9 -14.3 -16.4 -56.9 Proposed Mains 71.2 69.8 67.6 67.1 62.3 338.0 Services 27.0 26.5 26.0 25.8 24.7 130.0 LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 98.3 96.4 93.7 92.9 87.0 468.3

Table A7 - 3


Original North West Network Net Repex £m (2005/06

prices) 2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed Mains 59.4 58.6 57.8 57.2 52.6 285.6 Services 23.9 23.5 23.2 23.0 21.6 115.2 LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total 83.3 82.1 81.0 80.2 74.2 400.7

Table A7 - 4

North West’s net Repex projections for the forecast. 2008/09 to 2012/13, based on the updated analysis and no change in workload volumes, are detailed in Table A7 - 3 above. Our original recommended net Repex projections are shown in Table A7 - 4.

The GDNs recommended total net Repex has increased from £400.7m to £468.3m, an increase of 16.9%, which is driven by the revised benchmarking analysis based on the 2006/07 outturn performance. Factors which affect the revised recommendations are considered in the relevant section of this report.


A7.2 LTS AND STORAGE CAPEX

A7.2.1 SUMMARY

The proposed expenditure allowances based on Scenario 1 demand forecasts are shown in the following table.

Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Pipelines 0.0 5.3 10.9 22.3 5.7 44.2 NTS Offtakes 0.0 0.0 0.0 0.0 0.0 0.0 PRSs 3.0 3.3 3.0 2.7 2.7 14.7 Other storage 3.4 4.1 3.5 2.5 1.5 15.0 Total 6.4 12.7 17.4 27.5 9.9 73.9 Normalisation Adjustments Other storage -0.2 -0.4 0.0 -0.8 0.0 -1.4 Total -0.2 -0.4 0.0 -0.8 0.0 -1.4 Normalised BPQ Pipelines 0.0 5.3 10.9 22.3 5.7 44.2 NTS Offtakes 0.0 0.0 0.0 0.0 0.0 0.0 PRSs 3.0 3.3 3.0 2.7 2.7 14.7 Other storage 3.2 3.7 3.5 1.7 1.5 13.6 Total 6.2 12.3 17.4 26.7 9.9 72.5 Adjustments Pipelines 0.0 0.0 -0.1 -0.3 -0.1 -0.6 NTS Offtakes 0.0 0.0 0.0 0.0 0.0 0.0 PRSs 0.0 0.0 0.0 0.0 0.0 -0.2 Other storage 0.0 0.0 0.0 0.0 0.0 -0.2 Total 0.0 -0.1 -0.2 -0.4 -0.2 -1.0 Proposed Pipelines 0.0 5.2 10.8 21.9 5.6 43.5 NTS Offtakes 0.0 0.0 0.0 0.0 0.0 0.0 PRSs 3.0 3.3 3.0 2.7 2.6 14.5 Other storage 3.2 3.7 3.5 1.7 1.5 13.4 Total 6.2 12.2 17.2 26.3 9.7 71.5

Table A7 - 5

Since the publication of Updated proposals by Ofgem a number of calculation errors have been identified relating to LTS Capex. These errors overstated the Normalised Net Capex submissions for the network by £2.8m. A table detailing these corrections is given in section 2.9.

Our original proposed expenditures are shown in the following table.


Original Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed Pipelines 2.7 0.0 0.0 4.7 12.3 19.7 NTS Offtakes 0.0 0.0 0.0 0.0 0.0 0.0 PRSs 3.4 3.8 3.2 2.6 2.4 15.4 Other storage 2.7 3.5 3.0 2.4 1.4 12.8 Total 8.7 7.2 6.2 9.6 16.1 47.9

Table A7 - 6

A7.2.2 2006/07 FORECAST/OUTTURN COMPARISON

The following table shows the forecast net expenditure for 2006/07 and the actual net expenditure in 2006/07 (2005/06 prices).

North West 2006/07 forecast £m 2006/07 actuals £m

Pipelines 1.6 1.7 NTS Offtakes 0.0 0.0 PRSs 0.5 0.8 LTS Storage 0.0 0.0 Other Storage 1.0 1.1 Total 3.1 3.6

Table A7 - 7

A7.2.3 IMPACT OF MOVEMENTS ON RECOMMENDATIONS

North West have reported increased expenditure particularly on PRSs. We do not consider that this will impact on expenditure in the 2008/09 to 2012/13 period.

A7.2.4 REVISED FORECAST

In our original reports, the project programme was based on the demand projections set out in the GDN’s 2006 LTDS.

The following table shows the assumed peak demands, the diurnal storage % and the diurnal storage volumes used as the basis for the project plan set out in the GDN’s Scenario 1 projections.

North West LDZ

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LDZ Peak demand mcm/d 49.898 50.278 51.001 51.703 52.984 53.523 54.363

Diurnal storage % 16 16 16 16 16 16 16 Diurnal storage volume required mcm 7.984 8.044 8.160 8.272 8.477 8.564 8.698

Table A7 - 8

The forecast peak demand in 2012/13 of 54.363 mcm/d is slightly lower than the value used in North West’s 2006 LTDS.


Apart from peak demand, important drivers of LTS expenditure are the availability of diurnal storage from the NTS and the availability of interruption. Under Scenario 1, NTS storage is assumed to be available unless there is evidence of a constraint, and current levels of interruption are also assumed to be maintained.

The impact of constraints on the availability of NTS diurnal storage and reduced levels of interruption under UNC mod 90 from 2011/12 are discussed in the scenario analysis section below.

For each LDZ, the LTS Capex projects are reviewed under the two categories of expenditure:; load related, and non-load related.

Load related expenditure

The following table shows North West’s proposed mix of diurnal storage resources to meet the requirements set out in above table.

Diurnal storage resources mcm 20

06/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LP holders 3.226 3.226 3.226 3.226 3.226 3.226 3.226 HP bullets 0.23 0.23 0.23 0.23 0.23 0.23 Salt cavities 0 0 0 0 0 0 0 LTS Linepack 1.696 1.64 1.567 1.587 1.577 1.56 1.539 NTS 3.134 3.178 3.367 3.459 3.674 3.778 3.933 New salt cavity development 4.00 Total diurnal storage provided mcm 8.056 8.274 8.39 8.502 8.707 8.794 12.928

Diurnal storage surplus mcm 0.072 0.230 0.230 0.230 0.230 0.230 4.230 Table A7 - 9

In the above table we have assumed that the HP bullets being revalidated in 2006/07 return to service for 2007/08 and later years.

North West have only one major load related project, that is a proposed new salt cavity development. The above table shows that this project could reduce the LDZ’s take of storage from the NTS to zero.

Our original report included funding for a new NTS offtake at Nether Kellet, on the assumption that North West could adopt the existing Nether Kellet to Blackrod NTS spur (68km x 900mm). This would have provided 1.4 mcm of diurnal storage. We also recommended funding for an additional 0.5mcm of capacity in 2012/13 from the proposed Audley to South Cheshire pipeline. However, North West have recently been notified by NTS that they are not prepared to transfer the Nether Kellet to Blackrod pipeline.

As an alternative, North West have proposed the development of a salt cavity in Cheshire.

North West state that the cavity would provide up to 4mcm of gas per day, operate at a range of 30bar to 55bar and be designed to have a 20-year inspection frequency, and could be operational for 2012/13.

North West have indicated that the network requirement for storage is 2mcm (to replace the projects we assumed in our original reports) but that the marginal cost of increasing the size of the salt cavity from 2 mcm to 4 mcm is very small. The total cost of developing the cavity is estimated to be £44m (or £11m per mcm).

North West have noted the large percentage of storage that they will be taking from the NTS without the salt cavity development. In 2011/12 the percentage provided by the NTS is 44%. This is slightly higher than the percentage taken by any other LDZ.


The NTS is effectively the storage provider of last resort in the event of an incident in the LDZ (eg a major holder failure). There is a risk in procuring 44% of the LDZ storage from a single salt cavity that a component failure could sterilise that storage (until repaired) and require temporary support from the NTS. On the other hand, if the LDZ continues to take large quantities of NTS storage, since the LDZ has 11 NTS offtakes it is unlikely that a single NTS failure would lead to a loss of the total NTS storage provision. These and related factors need to be examined as part of a risk assessment to accompany any investment decision on the new salt cavity.

Prior to such a risk assessment it is difficult to make a judgment on the need for the project over the alternative options. However, given the uncertainty over the availability of NTS storage and the uncertainties of the LDZ requirements for storage under mod 90, the project does provide North West with a high level of flexibility to meet the potential outcomes.

Given the low unit cost of the project (£11m per mcm compared to the economic investment test value of £50m per mcm set out in our original report) we propose to include the salt cavity project in our proposals. Given the size of the proposed cavity, we recommend that North West seek ways of making some of the capacity available to East Midlands and West Midlands LDZs to support load growth requirements and the potential requirements associated with mod 90. In Section 3 we recommend arrangements with NTS and East Midlands regarding mutually complementary offtake profiles to achieve this.

Non-load related expenditure

Non-load Capex is expenditure which does not contribute to increased transmission capacity (eg the expenditure is required to meet safety or environmental requirements), or where the timing is determined by plant condition.

The following table shows the projects proposed by North West in the period 2008/09 to 2012/13.

North West LDZ Non-load related projects

NGG proposed expenditure over period 2008/09 to 2012/131

Water bath heater replacement £3.2 m PRS asset condition £4.1 m Storage related £12.8m Total expenditure £20.1 m

Table A7 - 10

The level of non-load expenditure by North West is reviewed against other GDN proposals in the main chapter. The high storage component reflects the large number of holders in North West. We consider that North West’s proposed level of non-load expenditure is reasonable.

Scenario analysis

NGG were asked to review their Capex requirements under Scenario 2 in which NTS diurnal storage is assumed available up to the NTS zonal cap and under which some or all of the current interruptible loads become firm.

Scenarios 2a and 2b were designed to give the range of Capex requirements under the possible outcomes to recent industry initiatives. Under Scenario 2a additional NTS diurnal storage is assumed to be available (unless there is evidence of a constraint) and required interruption is assumed to be procured by the GDN at economic prices.

1 All expenditure figures exclude RPEs


Under Scenario 2b, it is assumed that NTS diurnal storage is not available without NTS investment (generally this means that NTS provision is capped at the 2010/11 level) and that all of the GDN interruptibles become firm.

North West LDZ has 218 interruptibles and 16 NSLs.

North West’s analysis of the Scenario 2 conditions showed the following (all statements are relative to Scenario 1):

• If NTS diurnal storage provision is constrained (Scenario 2b) o North West LDZ requires additional LTS Capex of about £60m to supply

100% of interruptibles at peak, including £55m on a new storage project. We question whether this project will be required if the salt cavity development proceeds.

• If additional NTS diurnal storage is available from 2011/12 o North West can supply 75% of interruptible loads at peak without material

additional investment (Scenario 2a)

North West note that it would be necessary to carry out two reinforcements of the below 7 bar system, estimated at approximately £1.2m each.

PB Power Analysis

In the above sections, we have analysed the major load related project proposed by the GDN and the following table summarises our conclusions.

Load related project

GDN proposed year of construction and total cost

GDN proposed expenditure in period 2008/09 to 2012/13

PB proposed year of construction and total cost

PB proposed expenditure in period 2008/09 to 2012/13

Summary rationale

New Salt cavity

Date: 2012/13 Cost: £40.0m

£40.0m

Date: 2012/13 Cost: £40.0m

£40.0m

Long-term requirement for additional storage by NW and adjacent LDZs. Low unit costs.

Table A7 - 11

Note: All costs exclude RPEs

As in our original report, we have tested the GDN load related expenditure projections against the reference unit costs of £100m per mcm, and where appropriate the £50m per mcm value.

As discussed in Section 3, we consider that the lower reference unit cost (£50/mcm) approximates to NTS costs (if it were to build diurnal storage capacity) and that the range £50m per mcm to £100m per mcm approximates to the GDN costs of building their own capacity.

Appendix 15 shows the path of diurnal storage under each scenario together with the path of load related expenditure under the different scenarios against the reference expenditure of £100m per mcm. These tests are not useful where an LDZ has adequate existing capacity to meet incremental load.


The tests show the following:

• Under Scenario 1 the NGG expenditure and the PB proposed expenditure are lower than the reference expenditure.

• NGG’s proposed expenditure under Scenarios 2b is higher than the reference expenditure but of a similar order

• The reference expenditure under Scenario 2a (£92m) and the North West proposed expenditure under Scenario 2b (£109m) indicate the investment sensitivity of the network, possibly due to the NSLs. The proposed salt cavity would reduce this sensitivity.

A7.2.5 REVISED RECOMMENDATIONS

Based on the above analysis our proposed expenditure in each of the plan years is set out in the following graph. The expenditure proposals are based on the Scenario 1 assumptions in relation to demand and the availability of NTS diurnal storage.

Proposed Net Capex - North West

0

5

10

15

20

25

30

2008/09 2009/10 2010/11 2011/12 2012/13

£m 2

005/

06 P

rices

NTS Offtakes Pipelines PRSs Other storage

Figure A7 - 1


A7.3 CONNECTIONS CAPEX

A7.3.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission New Housing 0.4 0.4 0.4 0.4 0.4 2.0 Existing Housing 3.3 3.7 3.7 4.1 4.3 19.2 Non-Domestic 0.1 0.1 0.2 0.2 0.1 0.7 Total 3.8 4.2 4.4 4.8 4.8 22.0 Normalisation Adjustments New Housing 0.0 0.0 0.0 0.0 0.0 0.0 Existing Housing 0.0 0.0 0.0 0.0 0.0 0.0 Non-Domestic 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ New Housing 0.4 0.4 0.4 0.4 0.4 2.0 Existing Housing 3.3 3.7 3.7 4.1 4.3 19.2 Non-Domestic 0.1 0.1 0.2 0.2 0.1 0.7 Total 3.8 4.2 4.4 4.8 4.8 22.0 Adjustments New Housing 0.0 0.0 0.0 0.0 0.0 -0.2 Existing Housing -0.6 -1.0 -1.0 -1.5 -1.7 -5.8 Non-Domestic 0.0 0.0 -0.1 -0.1 0.0 -0.1 Total -0.6 -1.0 -1.2 -1.6 -1.7 -6.1 Proposed New Housing 0.4 0.4 0.4 0.4 0.4 1.9 Existing Housing 2.8 2.7 2.7 2.7 2.6 13.5 Non-Domestic 0.1 0.1 0.1 0.1 0.1 0.6 Total 3.3 3.2 3.2 3.2 3.1 16.0

Table A7 - 12


2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

New Housing 0.5 0.5 0.5 0.5 0.5 2.4

Existing Housing 3.2 3.2 3.1 3.0 2.9 15.4

Non-Domestic 0.2 0.1 0.1 0.1 0.1 0.7

Total 3.9 3.8 3.7 3.6 3.5 18.6

Table A7 - 13

Net Capex projections for the forecast period 2008/09 to 2012/13, based on the updated analysis and the workload adjustments specified in Section A7.3.4, are detailed in Table A7 - 12 above. Our original recommended net Capex projections are shown in Table A7 - 13.

It should be noted that our original projections include the GDN’s forecast for specific reinforcement mains.



This section of the report reviews the GDN’s reported 2006/07 out-turn performance and compares this with the BPQ forecasts for 2006/07 as reported in the October submission. The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. However, we have found a wide range of workload, expenditure and unit cost variances across the disaggregated activities.

Expenditure and workload associated with specific reinforcement is now included under reinforcement mains. To ensure data consistency, the forecast specific reinforcement expenditure and workload has been transferred to reinforcement mains. We have not made any other adjustments to the workload or costs.

Workload

Comparing the out-turn to the forecast, the workload variances for the principal activities are as follows:

• Connections: o New housing -32.3% o Existing housing 22.5% o Non-domestic 35.4% o Total -1.5%

• Mains: o New housing -14.4% o Existing housing 15.6% o Non-domestic 33.3% o Total 2.8%

The connections workload volume in all respects is driven by customer demand.

The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. The variances at the total connections and total mains level appear reasonable but there are significant variances at the dis-aggregated activity level.

In response to a supplementary question, NGG did not provided explanations for these variances for North West specifically, as requested, but has responded in general terms applicable to all of the NGG GDNs. The general explanations are summarised as follows:

• New housing volumes were lower than forecast, with the externally forecast increase in new housing yet to materialise.

• Mains workload forecasts were synthesised based on historic mains length per connection whereas the 2006/07 out-turn data is an accurate output from the management information system.


Gross expenditure

The gross expenditure out-turn variance with the forecast is -12.8%.

A7.3.3 IMPACT OF MOVEMENTS ON REGRESSION

Figure 4-5 in Section 4.2.2 shows the regression analysis movements comparing the 2006/07 out-turn to the original analysis with specific reinforcement removed. The movement for North West reflects the variances in workload and gross expenditure indicated in Section A7.3.2. The workload is not significantly changed but the cost has reduced indicating increased efficiency.


Introduction

This section of the report updates our workload proposals based on our review of North West’s forecast submission. We specify the adjustments that we have applied to the forecasts, including changes from our original reports.

Company Proposals

We have examined North West’s forecast submission and have not identified any significant changes to the assumptions applied by North West, as summarised in our original report.

Company Workload Forecasts

The workload forecasts for the period 2008/09 to 2012/13 have been reviewed taking into account historical trend levels and North West’s assumptions.

The downward trend in new housing services workload volumes from 2005/06 to 2006/07 is not carried forward into the forecasts which are increased in 2007/08, and then increase by a further 8.7% over the period 2008/09 to 2012/13. The increase in 2007/08 compared to 2006/07 is 54.8%. We are of the opinion that the forecasts are too high and our recommendations incorporate adjustments to the number of connections over the period 2008/09 to 2012/13 as follows:

• New housing connections – reduced by 500 per year

Figure A7 - 2 shows North West’s forecast and our recommended workload for new housing connections.

Our recommended new housing mains forecasts incorporate adjustments proportionate to the connections adjustments.


Number of Connections (New Housing) - North West

2000

3000

4000

5000

6000

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

No

Con

nect

ions

Actuals Forecast Recommended

Figure A7 - 2


Figure A7 - 3 and Table A7 - 14 show our revised recommendations for the GDN’s total connections Gross Capex.

Chart showing North West's Proposed Connection Gross Capex

10

11

12

13

14

15

16

17

18

19

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Tota

l Gro

ss C

apex

£m

BPQ Submission Benchmark Performance Proposed Baseline Performance

Figure A7 - 3


Total Connections Gross Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Gross Submission 15.2 15.9 16.4 17.3 17.8 82.6 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Gross BPQ 15.2 15.9 16.4 17.3 17.8 82.6 Workload Adjustment -0.6 -0.7 -0.7 -0.7 -0.7 -3.4 Efficiency Adjustment -3.4 -4.2 -4.8 -5.7 -6.3 -24.5 Total Adjustments -4.0 -4.9 -5.5 -6.4 -7.0 -27.9 Projected Gross 11.2 11.0 10.9 10.8 10.8 54.7

Table A7 - 14

Connections Net Capex

The recommended connections Net Capex projections detailed below are based on our revised Gross Capex projections. The assumptions to determine Net Capex are unchanged from our original report.

Workload

The adjustments applied to North West’s workload forecasts are shown in Table A7 - 15.

Workload Adjusted Volumes

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

District Governors 0.0 0.0 0.0 0.0 0.0 Existing Housing Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Existing Housing Mains>180mm 0.0 0.0 0.0 0.0 0.0 Existing Housing Services 0 0 0 0 0 Feeder Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Feeder Mains >180mm 0.0 0.0 0.0 0.0 0.0 New Housing Mains <=180mm -2.0 -2.0 -2.0 -2.0 -2.0 New Housing Mains >180mm 0.0 0.0 0.0 0.0 0.0 New Housing Services -500 -500 -500 -500 -500 Non-Domestic Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Non-Domestic Mains >180mm 0.0 0.0 0.0 0.0 0.0 Non-Domestic Services 0 0 0 0 0 Service Governors 0 0 0 0 0 Specific Reinforcement Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Specific Reinforcement Mains >180mm 0.0 0.0 0.0 0.0 0.0

Table A7 - 15

We recommend that our revised projections for North West’s workload volumes are accepted, as detailed in Table A7 - 16 below.


Workload Projections Volumes

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

District Governors 0.0 0.0 0.0 0.0 0.0 Existing Housing Mains <=180mm 4.2 4.2 4.2 4.2 4.2 Existing Housing Mains>180mm 0.0 0.0 0.0 0.0 0.0 Existing Housing Services 4177 4173 4170 4167 4167 Feeder Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Feeder Mains >180mm 0.0 0.0 0.0 0.0 0.0 New Housing Mains <=180mm 17.3 17.7 18.2 18.6 19.0 New Housing Mains >180mm 0.0 0.0 0.0 0.0 0.0 New Housing Services 4330 4435 4540 4645 4750 Non-Domestic Mains <=180mm 7.3 6.8 6.6 6.4 6.4 Non-Domestic Mains >180mm 0.0 0.0 0.0 0.0 0.0 Non-Domestic Services 808 760 736 713 713 Service Governors 0 0 0 0 0 Specific Reinforcement Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Specific Reinforcement Mains >180mm 0.0 0.0 0.0 0.0 0.0

Table A7 - 16

Expenditure

Our revised recommendations for the GDN’s Net Capex projections are detailed in Table A7 - 17, Table A7 - 18 and Table A7 - 19 below.

New Housing Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 0.4 0.4 0.4 0.4 0.4 2.0 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 0.4 0.4 0.4 0.4 0.4 2.0 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 -0.1 Efficiency Adjustment 0.0 0.0 0.0 0.0 0.0 -0.1 Total Adjustments 0.0 0.0 0.0 0.0 0.0 -0.2 Projected Net 0.4 0.4 0.4 0.4 0.4 1.9

Table A7 - 17

Existing Housing Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 3.3 3.7 3.7 4.1 4.3 19.2 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 3.3 3.7 3.7 4.1 4.3 19.2 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -0.6 -1.0 -1.0 -1.5 -1.7 -5.8 Total Adjustments -0.6 -1.0 -1.0 -1.5 -1.7 -5.8 Projected Net 2.8 2.7 2.7 2.7 2.6 13.5

Table A7 - 18


Non-Domestic Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 0.1 0.1 0.2 0.2 0.1 0.7 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 0.1 0.1 0.2 0.2 0.1 0.7 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment 0.0 0.0 -0.1 -0.1 0.0 -0.1 Total Adjustments 0.0 0.0 -0.1 -0.1 0.0 -0.1 Projected Net 0.1 0.1 0.1 0.1 0.1 0.6

Table A7 - 19


A7.4 MAINS AND GOVERNOR CAPEX

A7.4.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission General Reinforcement Mains 0.8 2.8 2.9 2.2 4.4 13.2 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 2.8 2.7 3.7 3.1 3.9 16.3 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total 3.6 5.6 6.6 5.3 8.3 29.4 Normalisation Adjustments General Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 0.0 0.0 0.0 0.0 0.0 0.0 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ General Reinforcement Mains 0.8 2.8 2.9 2.2 4.4 13.2 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 2.8 2.7 3.7 3.1 3.9 16.3 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total 3.6 5.6 6.6 5.3 8.3 29.4 Adjustments General Reinforcement Mains -0.1 -0.9 -0.9 -0.8 -2.7 -5.3 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 0.0 0.0 0.0 0.0 -0.1 -0.2 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total -0.1 -0.9 -0.9 -0.8 -2.7 -5.5 Proposed General Reinforcement Mains 0.7 2.0 2.0 1.5 1.7 7.8 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 2.8 2.7 3.6 3.1 3.9 16.1 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total 3.5 4.7 5.7 4.5 5.5 23.9

Table A7 - 20


2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

Reinforcement Mains 0.9 2.8 2.8 2.0 2.3 10.8

District Governors 0.6 0.4 0.6 0.4 0.4 2.4

Service Governors 0.0 0.0 0.0 0.0 0.0 0.0

Total 1.5 3.2 3.4 2.4 2.7 13.2

Table A7 - 21


Net Capex projections for the forecast period 2008/09 to 2012/13, based on the updated analysis and including specific reinforcement mains, are detailed in Table A7 - 20 above. Our original recommended Net Capex projections are shown in Table A7 - 21.

It should be noted that our original projections do not include the GDN’s forecast for specific reinforcement mains.


This section of the report reviews the GDN’s reported 2006/07 out-turn performance and compares this with the BPQ forecasts for 2006/07 as reported in the October submission. The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. However, we have found a wide range of workload, expenditure and unit cost variances across the activities.

Expenditure and workload associated with specific reinforcement is now included under reinforcement mains. To ensure consistency, the 2006/07 forecast specific reinforcement expenditure and workload has been transferred from connections to reinforcement mains. We have not made any other adjustments to the workload or costs.

Reinforcement mains

Excluding specific reinforcement from the out-turn, the workload and gross expenditure variances are -17.2% and -47.5% respectively. The overall unit cost decreased by 36.6%.

The actual workload volume for 2006/07 was 2.4km only. We did not request an explanation for the variances as the expenditure involved is not considered material.

Governors

The workload and gross expenditure variances for growth governors are 112.5% and 113.3% respectively, and the unit cost variance is 0.4%. In response to a supplementary question, NGG has explained that the variances result from an error in allocating the forecast activity to the DNs when preparing the October BPQ information. Compensating errors exist in East of England and London DNs where the forecast workloads were overstated. This error only affected 2006/07 and does not impact on the forecast for the period 2008/09 to 2012/13.

The workload and gross expenditure variances for renewal governors are -46.2% and -46.9% respectively, and the unit cost variance is -1.4%. Failure to complete the planned workload is of particular concern bearing in mind that renewal is driven primarily by capacity requirements to meet demand, and risk mitigation. In response to a supplementary question, NGG has explained that the lead time necessary to plan and resource the work had been under estimated. Also, NGG has confirmed that action has been taken to ensure that the shortfall is delivered in 2007/08, bringing the renewal programme back on course.

The forecast and actual expenditure for renewal and service governors is nil.

A7.4.3 IMPACT OF MOVEMENTS ON REGRESSION

Figure 5-5 in Section 5.2.2 shows the reinforcement mains regression analysis movements comparing the 2005/06 out-turn, including specific reinforcement, to the 2006/07 out-turn. The movement for North West indicates that workload and expenditure have decreased. Also, no significant change in efficiency is indicated by movement in the general direction of the regression.



Introduction

This section of the report updates our workload proposals based on our review of North West’s forecast submission. We specify the adjustments that we have applied to the forecasts, including changes from our original reports.

Company Proposals

We have examined North West’s forecast submission and have not identified any significant changes to the assumptions applied, as summarised in our original report.

Reinforcement Mains - Company Workload Forecasts

The general reinforcement mains workload forecasts for North West are unchanged from the original submission.

Specific reinforcement mains forecasts are nil over the period 2008/09 to 2012/13.

We have not identified any issues and recommend that the workload forecasts are accepted.

Governors – Company Workload and Expenditure Forecasts

The growth governors workload forecasts for North West are unchanged from the original submission and we have not applied any adjustments to unit costs.

The renewal governors workload forecasts for North West are unchanged from the original submission and we have not applied any adjustments to unit costs. We remain of the opinion that the work is necessary, for the reasons detailed in our original report, and should have been completed in previous years. However, we are advised by Ofgem that the forecast expenditure should be allowed and our original expenditure adjustments have been amended accordingly.


Gross Capex - Reinforcement mains

Figure A7 - 4 shows North West’s Gross Capex projections for the total reinforcement mains activity over the period 2005/06 to 2012/13.


Reinforcement Mains Proposed Gross Capex - North West

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

£m

Normalised BPQ General Baseline Performance Proposed Net Benchmark Performance

Figure A7 - 4

Workload

We recommend that North West’s workload forecasts for reinforcement mains and governors are accepted, as shown in Table A7 - 22 and Table A7 - 23.

General Reinforcement Mains Length (km)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

BPQ <180mm 5.6 7.8 8.7 5.6 5.6 >180mm 1.2 8.1 8.0 6.0 7.5 6.8 15.9 16.7 11.6 13.1 Normalisation Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BPQ <180mm 5.6 7.8 8.7 5.6 5.6 >180mm 1.2 8.1 8.0 6.0 7.5 Total 6.8 15.9 16.7 11.6 13.1 Work Load Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected <180mm 5.6 7.8 8.7 5.6 5.6 >180mm 1.2 8.1 8.0 6.0 7.5 Total 6.8 15.9 16.7 11.6 13.1

Table A7 - 22


Number District Governors

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

PBQ Workload Growth 15.0 10.0 15.0 10.0 10.0 Renewal 32.0 33.0 42.0 36.0 46.0 Total 47.0 43.0 57.0 46.0 56.0 Work Load Adjustments Growth 0.0 0.0 0.0 0.0 0.0 Renewal 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected Workload Growth 15.0 10.0 15.0 10.0 10.0 Renewal 32.0 33.0 42.0 36.0 46.0 Total 47.0 43.0 57.0 46.0 56.0

Table A7 - 23

Net Expenditure

Table A7 - 24 and Table A7 - 25 summarise our net expenditure projections.

General Reinforcement Mains Net Capex All figures

£m 2005/06 prices 2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 0.8 2.8 2.9 2.2 4.4 13.2 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 0.8 2.8 2.9 2.2 4.4 13.2 Total up to 180mm 0.5 0.7 0.8 0.6 0.6 3.2 Total above 180mm 0.3 2.1 2.1 1.7 3.8 9.9 Total Adjustments -0.1 -0.9 -0.9 -0.8 -2.7 -5.3 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -0.1 -0.9 -0.9 -0.8 -2.7 -5.3 Proposed Net 0.7 2.0 2.0 1.5 1.7 7.8 Total up to 180mm 0.5 0.6 0.7 0.5 0.4 2.7 Total above 180mm 0.2 1.4 1.3 1.0 1.2 5.1

Table A7 - 24

District Governor Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 2.8 2.7 3.7 3.1 3.9 16.3 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 2.8 2.7 3.7 3.1 3.9 16.3 Growth 0.6 0.4 0.7 0.4 0.5 2.6 Renewal 2.2 2.3 3.0 2.6 3.5 13.6 Total Adjustments 0.0 0.0 0.0 0.0 -0.1 -0.2 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment 0.0 0.0 0.0 0.0 -0.1 -0.2 Disallowed Costs 0.0 0.0 0.0 0.0 0.0 0.0 Proposed Net 2.8 2.7 3.6 3.1 3.9 16.1 Growth 0.6 0.4 0.7 0.4 0.5 2.6 Renewal 2.2 2.3 3.0 2.6 3.4 13.5

Table A7 - 25


A7.5 OTHER OPERATIONAL CAPEX

A7.5.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Plant & Equipment 1.2 1.1 1.2 1.2 1.2 5.9 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 1.2 1.1 1.2 1.2 1.2 5.9 Normalisation Adjustments Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.0 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ Plant & Equipment 1.2 1.1 1.2 1.2 1.2 5.9 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 1.2 1.1 1.2 1.2 1.2 5.9 Adjustments Plant & Equipment 0.0 0.0 0.0 0.0 0.0 -0.1 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 -0.1 Proposed Plant & Equipment 1.2 1.1 1.2 1.2 1.2 5.8 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 1.2 1.1 1.2 1.2 1.2 5.8

Table A7 - 26


2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l Proposed

Plant & Equipment 1.2 1.1 1.2 1.2 1.2 5.8

Land & Buildings 0.3 0.5 0.3 0.4 0.4 1.9

Total 1.5 1.6 1.5 1.6 1.6 7.7

Table A7 - 27


Although NW overspent relative to their forecast for Plant & Equipment for 2006/07 by £0.6m, NGG have pointed out in response to a supplementary question that the aggregate spend for the four NGG GDNs was below the aggregate forecast at £2.9m compared with £3.3m. We accept that this is reasonable.

NW underspent relative to their Land & Buildings forecast.


There are no issues arising from the 2006/07 actuals which would cause us to change any allowances recommended for 2008/09 to 2012/13.



Net Capex £m All figures in 2005/06 Prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Table A7 - 28

Land & Building Net Capex

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2008/09 2009/10 2010/11 2011/12 2012/13

£ m

WW No Sc So EoE Lon NW WM

Figure A7 - 5

Net Capex £m All figures in 2005/06 Prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l Plant & Equipment 1.2 1.1 1.2 1.2 1.2 5.9

Table A7 - 29


Plant & Equipment Net Capex

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2008/09 2009/10 2010/11 2011/12 2012/13

£ m

WW No Sc So EoE Lon NW WM

Figure A7 - 6

Costs previously entered under Land & Buildings have been transferred to Non Operational Capex (Other - Property). Taken as an aggregate figure, NGG's costs have not altered from those originally submitted.


The recommendation is unchanged. After adjustment for RPEs the allowances are recommended in full.


A7.6 NON-OPERATIONAL CAPEX

A7.6.1 SUMMARY

GDN Capital Expenditure £m (2005/2006 prices)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

System Operations 0.4 0.1 1.7 2.3 0.0 4.5 IS Infrastructure 2.1 1.8 1.3 2.0 2.6 9.8 IS Systems 2.5 2.4 3.6 4.5 4.1 17.1 xoserve 2.0 0.2 2.1 1.7 0.2 6.2 Vehicles 0.8 0.9 1.8 4.0 3.7 11.2 Security 0.0 0.7 0.6 0.6 0.6 2.5 Tools & Equipment 1.0 1.0 1.0 1.0 1.0 5.0 Other 1.1 1.2 1.0 0.9 1.2 5.4 Total 9.9 8.3 13.1 17.0 13.4 61.7 Normalisation Adjustments xoserve -0.2 -0.1 -0.6 -0.5 -0.2 -1.7 Net Total -0.2 -0.1 -0.6 -0.5 -0.2 -1.7 Normalised Capex System Operations 0.4 0.1 1.7 2.3 0.0 4.5 IS Infrastructure 2.1 1.8 1.3 2.0 2.6 9.8 IS Systems 2.5 2.4 3.6 4.5 4.1 17.1 xoserve 1.8 0.1 1.5 1.2 0.0 4.5 Vehicles 0.8 0.9 1.8 4.0 3.7 11.2 Security 0.0 0.7 0.6 0.6 0.6 2.5 Tools & Equipment 1.0 1.0 1.0 1.0 1.0 5.0 Other 1.1 1.2 1.0 0.9 1.2 5.4 Total 9.7 8.2 12.5 16.5 13.2 60.0 Efficiency Adjustments System Operations 0.3 0.0 -0.2 -0.2 0.0 -0.2 Net Total 0.3 0.0 -0.2 -0.2 0.0 -0.2 Proposed Net Capex System Operations 0.7 0.1 1.5 2.1 0.0 4.3 IS Infrastructure 2.1 1.8 1.3 2.0 2.6 9.8 IS Systems 2.5 2.4 3.6 4.5 4.1 17.1 xoserve 1.8 0.1 1.5 1.2 0.0 4.5 Vehicles 0.8 0.9 1.8 4.0 3.7 11.2 Security 0.0 0.7 0.6 0.6 0.6 2.5 Tools & Equipment 1.0 1.0 1.0 1.0 1.0 5.0 Other 1.1 1.2 1.0 0.9 1.2 5.4 Total Proposed 10.0 8.2 12.3 16.2 13.2 59.9

Table A7 - 30

The table above shows the final figures, after our revised recommendations.

The table below shows our original recommendations.



2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

Proposed Net Capex System Operations 0.7 0.1 1.5 2.1 0.0 4.3 IS Infrastructure 2.1 1.8 1.3 2.0 2.6 9.8 IS Systems 2.5 2.4 3.6 4.5 4.1 17.1 xoserve Capex 2.0 0.2 2.1 1.7 0.2 6.2 Vehicles 0.8 0.9 1.8 4.0 3.7 11.2Telecoms, Office 0.0 0.0 0.0 0.0 0.0 0.0 Security 0.0 0.7 0.6 0.6 0.6 2.5 Furniture and fittings 0.0 0.0 0.0 0.0 0.0 0.0 Tools & Equipment 1.0 1.0 1.0 1.0 1.0 5.0 Other 0.8 0.7 0.3 0.1 2.0 3.9 Total 9.9 7.8 12.2 16.0 14.2 60.0

Table A7 - 31


The following table shows the outturn costs for 2006/2007 compared with the originally submitted forecast costs.


2006

/07

Fore

cast

2006

/07

Out

turn

2006

/07

Var

ianc

e

System Operations 0.6 0.2 -0.4 IS Infrastructure 2.0 0.8 -1.2 IS Systems 3.8 6.3 2.5 xoserve 0.2 0.0 -0.2 Vehicles 3.5 3.5 0.0 Telecoms, Office 0.0 0.0 0.0 Security 0.1 0.0 -0.1 Furniture and fittings 0.0 0.0 0.0 Tools & Equipment 0.6 0.9 0.3 Other -0.7 2.8 3.5 Total 10.1 14.4 4.3

Table A7 - 32

North West’s outturn costs show an increase of £4.3m overall on forecast costs. £2.5m of this variance is a result of greater spending on IS systems. This is due to the bringing forward of expenditure on Field Force Device replacement, systems for the Traffic Management Act , a Positional Accuracy project and an increased allocation of Shared Services costs associated with the bringing forward of expenditure on the ERP programme.

These increases in costs were offset by lower infrastructure costs and the completion of the Transformation Programme to upgrade PC’s for office based staff. IS Capex and Infrastructure costs are captured centrally by National Grid, and allocated to the GDN’s on the basis of the number of supply points. Hence the precise level of these costs submitted for North West is a function of its relative proportion of supply points rather than reflecting specific cost performance within NW GDN.

North West’s outturn costs also show an increase of £3.5m from forecast in ‘Other’ costs which results from allocation of property costs in the June update figures, as requested


on Ofgem’s BPQ templates in March 2007, and from the inclusion of an abatement challenge which was applied to all Non-Op Capex areas but which has been captured in ‘Other’ in the BPQ templates.


The movements in 2006/2007 outturn do not alter our recommendations.


The revised forecast is shown at the top of Table A7 - 30. Normalisation adjustments have been applied to xoserve Capex calculated from the xoserve BPQ.

The only change NW has made is to adjust its forecast for ‘Other’ costs.

In response to a specific question, NGG said that in relation to other costs they have:-

• Removed capitalised interest charges in line with our original recommendations (their figure for capitalised interest for NW of £3.9m, although in response to an earlier question, NW had revised this figure to £3.5m)

• The expenditure category ‘Property’ has been reassigned from Other Operational Capex to Non-Operational Capex. There are minor variations from the submission, between the NGG GDNs, but in aggregate the total under this heading is slightly less than before and is therefore supported.

The adjustments NW has reported are summarised in the table below:-

NW £m (2005/2006 Prices)

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

5 Y

r Tot

al

Net Capex - As Submitted Oct 06 1.0 1.1 1.6 1.7 2.0 7.4 Less Capitalised Interest -0.2 -0.4 -0.9 -1.2 -1.2 -3.9 Add Property Capex 0.3 0.5 0.3 0.4 0.4 1.9 July 07 As Submitted 1.1 1.2 1.0 0.9 1.2 5.4

Table A7 - 33


Our original recommendation was a total deduction of £0.2m resulting from the reallocation of non-SCADA systems costs across all the GDN’s and a deduction of £3.5m capitalised interest.

NW have removed capitalized interest (albeit slightly more than previously) themselves so we no longer need to recommend this. We have also removed xoserve Capex (as reported in the July update) for consistency with the other GDN’s, who have not submitted any xoserve Capex with their Non-Op Capex update. Our original recommendation in relation to System Operation costs stands unchanged. NW figure for total 5-year System Operation Capex is unchanged so we maintained our adjustment to keep the allowed System Operation costs at the same level (£4.3m) as previously calculated. Our revised recommendations are shown in Table A7 - 30. For reference the table below shows our original recommendations



2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

System Operations 0.4 0.1 1.7 2.3 0.0 4.5 Other 1.0 1.1 1.6 1.7 2.0 7.4 Total 1.4 1.2 3.3 4.0 2.0 11.9 Normalisation Adjustments 0.0 0.0 0.0 0.0 0.0 0.0 Capitalised Interest Charges -0.2 -0.4 -1.3 -1.6 0.0 -3.5 Net Total -0.2 -0.4 -1.3 -1.6 0.0 -3.5 Efficiency Adjustments 0 0 0 0 0 0System Operations 0.3 0.0 -0.2 -0.2 0.0 -0.2 Net Total 0.3 0.0 -0.2 -0.2 0.0 -0.2 Proposed Net Capex System Operations 0.7 0.1 1.5 2.1 0.0 4.3 Other 0.8 0.7 0.3 0.1 2.0 3.9 Total 1.5 0.8 1.8 2.2 2.0 8.2

Table A7 - 34


A7.7 MAINS AND SERVICES REPEX

A7.7.1 SUMMARY

Tables for Forecast section for each area of spend £m (2005/06)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Submission HSE Enforcement Policy 64.1 64.8 63.8 65.9 66.3 324.8 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.3 0.3 0.3 0.4 0.4 1.7 Other Policy & Condition 7.3 7.4 7.7 7.8 4.4 34.6

Mains

Rechargeable Diversions (Net) -0.3 -0.3 -0.3 -0.3 -0.2 -1.3 Non-Domestic Services 0.1 0.2 0.2 0.2 0.2 0.8 Domestic Services 30.9 31.1 30.6 30.8 29.9 153.2 Services Multi-occupancy Buildings 1.9 2.0 2.2 2.4 2.5 11.0

Total 104.4 105.4 104.5 107.1 103.4 524.9 Normalisation Adjustments Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised

HSE Enforcement Policy 64.1 64.8 63.8 65.9 66.3 324.8 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.3 0.3 0.3 0.4 0.4 1.7 Other Policy & Condition 7.3 7.4 7.7 7.8 4.4 34.6

Mains


Total 104.4 105.4 104.5 107.1 103.4 524.9 Adjustments

HSE Enforcement Policy 0.3 -1.8 -3.2 -5.8 -7.8 -18.3 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.0 0.0 0.0 0.0 -0.1 -0.2 Other Policy & Condition -0.6 -0.6 -0.7 -0.9 -0.6 -3.4

Mains

Rechargeable Diversions (Net) 0.0 0.0 0.0 0.0 0.0 0.1 Non-Domestic Services 0.0 -0.1 -0.1 -0.1 -0.1 -0.3 Domestic Services -4.7 -5.5 -5.6 -6.1 -6.4 -28.3 Services Multi-occupancy Buildings -1.1 -1.2 -1.3 -1.4 -1.5 -6.4

Total -6.2 -9.1 -10.9 -14.3 -16.4 -56.9 Proposed

HSE Enforcement Policy 64.4 63.0 60.6 60.1 58.4 306.4 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.3 0.3 0.3 0.3 0.3 1.5 Other Policy & Condition 6.8 6.7 7.0 6.9 3.8 31.2

Mains


Total 98.2 96.3 93.6 92.9 87.0 468.0

Table A7 - 35


Original Tables for Forecast section for each area of spend £m (05/06)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

HSE Enforcement Policy 52.5 51.8 50.8 50.3 49.0 254.3

MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0

Non-Rechargeable Diversions 0.3 0.3 0.3 0.3 0.3 1.3

Other Policy & Condition 6.9 6.8 7.0 6.8 3.6 31.0

Mains

Rechargeable Diversions (Net) -0.2 -0.2 -0.2 -0.2 -0.2 -1.0

Non-Domestic Services 0.1 0.1 0.1 0.1 0.1 0.4

Domestic Services 23.0 22.6 22.3 22.0 20.6 110.5 Services

Multi-occupancy Buildings 0.8 0.9 0.9 0.9 0.9 4.3

Total 83.3 82.1 81.0 80.2 74.2 400.8

Table A7 - 36

The outcome of the updated regression analysis is to increase (from our last report) the cost of replacement mains and services for the five years to 2012/13 by £67.2m (16.8%). Whilst the Network’s efficiency has improved in 2006/07 this effect is offset by changes to our workload forecast for the period. The factors which affect the revised recommendations are considered below.


2006/07 Performance against Forecast

This section reviews the Network’s actual 2006/07 performance and compares this with the forecasts contained within the Network’s October 2006 submission.

In undertaking this review it is recognised that some costs are allocated to activities rather than being attributed to a unique cost centre, e.g. the allocation of mains costs to diameter bands. We have therefore only identified significant movements between the October forecast and the reported results.

Mains

The commentary below refers to mains laid under the HSE Enforcement Policy (including MPDI where this occurs) Other Policy & Condition mains and non-rechargeable mains diversions. Re-chargeable diversions have been omitted because of the relatively small volumes and net costs.

Gross Cost

Forecast (£m) Actual (£m) Change (£m) %Change

58.0 58.2 0.2 0.4%

Table A7 - 37

Installed Mains

Forecast (km) Actual (km) Change (km) %Change

527.6 519.6 -8.0 -1.5%

Table A7 - 38


Unit Cost Movements

There were small reductions from forecast in all diameter bands except >250mm to 355mm (+10.7%).

Volume Movements

Although there is reasonable overall agreement between the change in gross cost and the volume installed above, there is a change in the diameter mix with an additional 36.6km <=75mm main offset by a reduction of 40.9km in the >75mm to 125mm diameter band.

A reduction from forecast in the >180mm to 355mm diameter bands (-10.6km) was offset by an increase in the >355mm diameter bands (+7.1km).

Abandoned Mains

Forecast (km) Actual (km) Change (km) %Change

531.6 530.8 -0.8 -0.2%

Table A7 - 39

HSE Enforcement Policy

Abandoned main (506.8km) was less than forecast (509.6km), a shortfall of 2.8km2.

The required rate of abandonment to complete the programme over the next 25 years is approximately 443km/year.

Abandoned/Installed Ratio

Forecast Actual

1.01 1.02

Table A7 - 40

Target Population at 31.03.07

Forecast (km) Actual (km) Change

* 10,850.0

Table A7 - 41

*The October 2006 forecast included mains (outside of the 30m proximity zone) which are not included within the HSE Enforcement Policy. The October 2006 forecast is thus not comparable with the corrected end of year population.

The population remaining at 31.03.07 (and to be replaced over the next 25 years) is consistent with the workloads forecast in our last report.

2 In agreement with the HSE a Network may carry forward a shortfall, or in the case of Networks under common ownership, sum minor variances in arriving at the following years programme.


Domestic Services (including non-domestic services and multiple occupancy buildings)

Forecast (£m) Actual (£m) Change (£m) %Change

29.9 28.8 -1.1 -3.6%

Table A7 - 42

Unit Cost Movements

Unit cost of the three principal activities were less than forecast:

Relaid services associated with mains replacement -8.7%

Service test & transfer to new or other main -1.8%

Services relaid after escape -5.3%

There was a significant increase in the unit cost of Other Domestic Services (Alter meter positions that require the service to be relayed) but this is largely offset by income now allocated to the activity.

Domestic Services Jobs (Excluding Purge & Relight)

Forecast Actual Change %Change

60029 56264 -3765 -6.3%

Table A7 - 43

Volume Movements

An increase from forecast in the number of relaid services (associated with mains replacement) and services relaid after escape were offset by a significant fall in the numbers of services tested and transferred.

Relaid services associated with mains replacement +6.7%

Service test & transfer to new or other main -25.7%

Services relaid after escape +22.0%

Multiple Occupancy Buildings

Whilst there were no forecast costs, actual costs of £0.1m have been recorded representing 175 lateral connections and associated risers.

Key Ratios

Relaid services/km mains abandoned – 59.9

Transferred services/km mains abandoned – 32.3

% services transferred – 35.1%

Services jobs/km mains abandoned – 92.2

The services workload trends in the Network have been variable in recent years, making forecasting more uncertain.


A7.7.3 REGRESSION ANALYSIS AND THE 2006/07 BASE YEAR

Normalisations

We have been advised of accounting adjustment recommended by Ofgem in relation to Fulcrum related party margins. A sum of £0.08m has been removed from the 2006/07 Services figures.

In our last report and analysis, we normalised some of the costs associated with Relaid Services (after escape) believing that these were attributable to site monitoring, the emergency process and Opex. The Network maintains that where site monitoring costs are incurred these are allocated to the Repair process (Opex). Whilst we remain concerned at the relatively high cost of this activity, we have chosen not to normalise these costs in this review, leaving them subject to the Repex regression analysis.

We have made no adjustment to 2006/07 mains or services volumes.

Installed Mains Base Year (2006/07) Assumptions and Adjustments (Excluding Re-Chargeable Diversions)

Volume (km)

Gross (Including Overheads)

£m

BPQ Submission HSE Enforcement Policy 495.6 56.4 MPDI Programme 0.0 0.0 Other Policy & Condition Mains 23.8 1.8 Non-rechargeable Diversions 0.2 0.1 Total Repex Mains 519.6 58.2 Normalised BPQ HSE Enforcement Policy 495.6 56.4 MPDI Programme 0.0 0.0 Other Policy & Condition Mains 23.8 1.8 Non-rechargeable Diversions 0.2 0.1 Total Repex Mains 519.6 58.2

Table A7 - 44


Replacement Services-domestic Base Year (2006/07) Assumptions and Adjustments Volume

Gross (Including Overheads)

£m

BPQ Submission Domestic Services Relaid services associated with mains replacement 31805 15.8 Relaid services not associated with mains replacement (bulk relays) 0 0.0 Services relaid after escape 6708 6.6 Service test & transfer to new or other main 17170 4.2 Reposition domestic meter - service relays 0 0.0 Purge & relight after domestic service work 50115 1.1 Service relay domestic meterwork 0 0.0 Other domestic services 581 0.3 Total domestic services 28.1 Non-domestic Services 159 0.3 Multiple Occupancy Buildings Renew risers 209 0.0 Renew service connections 174 0.1 Total - Multiple Occupancy Buildings 0.1 Total Services 28.5 Normalised BPQ Domestic Services Relaid services associated with mains replacement 31805 15.8 Relaid services not associated with mains replacement (bulk relays) 0 0.0 Services relaid after escape 6708 6.6 Service test & transfer to new or other main 17170 4.2 Reposition domestic meter - service relays 0 0.0 Purge & relight after domestic service work 50115 1.1 Service relay domestic meterwork 0 0.0 Other domestic services 581 0.3 Total domestic services 28.1 Non-domestic Services 159 0.3 Multiple Occupancy Buildings Renew risers 209 0.0 Renew service connections 174 0.1 Total - Multiple Occupancy Buildings 0.1 Total Services 28.5

Table A7 - 45


A7.7.4 2005/06 – 2006/07 COMPARISON

Log Regression Chart Total Net Repex Against Weighted Workloads

EoE

Lon

No

NW

Sc

So

WMWW

3.6

3.8

4

4.2

4.4

4.6

4.8

3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9

Log Weighted Average Workload

Log

Net

Exp

endi

ture

(RF

appl

ied)

2005/06 (Rev) 2006/07 Linear (2005/06 (Rev)) Linear (2006/07)

Figure A7 - 7

The R2 value of the analysis has improved from 0.9112 (2005/06) to 0.9297 in 2006/07.

There were significant improvements in key unit costs over the year with the cost of installed mains in the diameter bands up to 355mm all showing improvement (-2.8% to -19.9%). There were small changes to unit costs in the larger diameter bands.

The unit costs of relaid services associated with mains replacement increased by 11.7% and services relaid after escape, and services test & transfers were both relatively unchanged.

The Network’s 2005/06 position was improved by a normalisation to Emergency Opex of £2.4m. There is no corresponding normalisation in the 2006/07 analysis and the Network has moved parallel to the regression line with no apparent improvement in performance. On a comparable basis the Network, driven by the unit cost improvements above, would have shown a more distinct improvement.

The Network has provided a detailed commentary and commented that the increased use of no-dig techniques influenced the mains unit costs, and that services unit costs were influenced by the work location.


Comparison with the Network’s October 2006 Submission:

Abandoned Mains - There is no change in the volume of mains to be abandoned.

Installed Mains - There are very minor adjustments to lengths within the diameter bands but no change to the total each year.

Services - There is an adjustment to services jobs of -488 relaid services (-0.2%3) over the five years. The Network explained that it had re-allocated some replacement services

3 As a percentage of total services jobs excluding “purge and relight” and multiple occupancy buildings.


to low-rise (<20m) multiple occupancy buildings following the revised definitions in the March 2007 BPQ.

Multiple Occupancy Buildings – Workload has been reassessed from 2520 to 5112 service connections over the five years.

Revised Workload Submission

GDN Volumes (as presented) (Excluding Re-Chargeable

Diversions) 2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains (km) HSE Programme 495.6 511.7 506.0 499.1 488.4 487.4 488.9 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.2 1.0 1.0 1.0 1.0 1.0 1.0 Other Policy & Condition Mains 23.8 58.0 60.7 60.7 62.3 62.3 31.3 Total Installed Mains (km) 519.6 570.7 567.7 560.8 551.7 550.7 521.2 Replacement Services - domestic Relaid services associated with mains replacement 31805 33265 33034 32602 32064 32154 30445

Relaid services not associated with mains replacement (bulk relays) 0 0 0 0 0 0 0 Services relaid after escape 6708 5423 5348 5274 5200 5128 5057 Service test & transfer to new or other main 17170 22189 21904 21614 21256 21315 20100 Reposition domestic meter - service relays 0 0 0 0 0 0 0 Purge & relight after domestic service work 50115 43967 34007 33947 33863 33889 34307 Service relay domestic meterwork 0 0 0 0 0 0 0 Other domestic services 581 1320 1320 1320 1320 1320 1320 Total Domestic Services 106379 106164 95612 94757 93703 93806 91228 Replacement Services - Non-domestic 159 59 59 59 59 59 59 Multiple Occupancy Buildings Renew service connections 174 826 891 957 1024 1091 1160 Total riser renewals (m) 209 0 0 0 0 0 0

Table A7 - 46

A7.7.6 VOLUME ADJUSTMENTS (2008/09 – 2012/13)

In our last report we reduced mains volumes to the level required to complete the HSE programme within 30 years. After discussions with the HSE, Ofgem has agreed to fund the proposed higher levels of mains replacement and we have therefore removed the adjustment together with a corresponding adjustment to services.

We have adjusted installed mains volumes to increase the proportion of smaller diameter mains and to arrive at an overall abandonment ratio (abandoned/installed mains) of 1.05. Reasons for these adjustments are in our previous report.

We have scaled back the Network’s proposals for Multiple Occupancy Buildings. Whilst we support the need to fund a programme of replacement, there is insufficient population data available at present to set an appropriate rate of replacement. We have therefore scaled down the proposals to fund a limited volume of planned or reactive replacement each year. We are aware that Networks are continuing to collect population data and


Ofgem may wish to review the recommendation if further information is available later in the year.

GDN Volumes (Adjusted)

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains (km) HSE Programme 495.6 511.7 494.0 487.3 476.6 475.4 477.5 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.2 1.0 1.0 1.0 1.0 1.0 1.0 Other Policy & Condition Mains 23.8 58.0 59.3 59.3 60.8 60.8 30.6 Total Installed Mains (km) 519.6 570.7 554.3 547.5 538.4 537.2 509.1 Replacement Services - domestic Relaid services associated with mains replacement 31805 33265 33034 32602 32064 32154 30445

Relaid services not associated with mains replacement (bulk relays) 0 0 0 0 0 0 0 Services relaid after escape 6708 5423 5348 5274 5200 5128 5057 Service test & transfer to new or other main 17170 22189 21904 21614 21256 21315 20100 Reposition domestic meter - service relays 0 0 0 0 0 0 0 Purge & relight after domestic service work 50115 43967 34007 33947 33863 33889 34307 Service relay domestic meterwork 0 0 0 0 0 0 0 Other domestic services 581 1320 1320 1320 1320 1320 1320 Total Domestic Services 106379 106164 95612 94757 93703 93806 91228 Replacement Services - Non-domestic 159 59 59 59 59 59 59 Multiple Occupancy Buildings Renew service connections 174 826 371 399 427 455 483 Total riser renewals (m) 209 0 0 0 0 0 0

Table A7 - 47


A7.7.7 REVISED EXPENDITURE SUBMISSION

GDN Costs as presented (Normalised) £m 2005/06 Prices

(Excluding Re-Chargeable Diversions) 20

06/0

7

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains HSE Programme 56.4 68.6 64.1 64.8 63.8 65.9 66.3 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.1 0.3 0.3 0.3 0.3 0.4 0.4 Other Policy & Condition Mains 1.8 6.7 7.3 7.4 7.7 7.8 4.4 Total Installed Mains 58.2 75.7 71.7 72.5 71.9 74.0 71.0 Replacement Services - Domestic Relaid services associated with mains replacement 15.8 18.4 18.5 18.6 18.1 18.3 17.6 Relaid services not associated with mains replacement (bulk relays) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services relaid after escape 6.6 5.6 5.5 5.5 5.5 5.5 5.5 Service test & transfer to new or other main 4.2 5.8 5.9 5.9 5.9 6.0 5.8 Reposition domestic meter - service relays 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Purge & relight after domestic service work 1.1 1.0 0.8 0.8 0.8 0.8 0.8 Service relay domestic meterwork 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other domestic services 0.3 0.2 0.2 0.2 0.2 0.2 0.2 Total Domestic Services 28.1 31.0 30.9 31.1 30.6 30.8 29.9 Replacement Services - Non-domestic 0.3 0.1 0.1 0.2 0.2 0.2 0.2 Multiple Occupancy Buildings Renew service connections 0.1 1.2 1.9 2.0 2.2 2.4 2.5 Total riser renewals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.1 1.2 1.9 2.0 2.2 2.4 2.5 Total Repex 86.6 107.9 104.7 105.7 104.8 107.4 103.6

Table A7 - 48



Forecast & Projected Net Repex

75

80

85

90

95

100

105

110

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Exp

£m

Restated BPQ (Normalisation & Workload) Benchmark PerformanceProposed Baseline Performance

Figure A7 - 8


Recommended Costs £m 2005/06 Prices

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains HSE Programme 57.9 69.1 64.4 63.0 60.6 60.1 58.4 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.1 0.3 0.3 0.3 0.3 0.3 0.3 Other Policy & Condition Mains 1.8 6.3 6.8 6.7 7.0 6.9 3.8 Rechargeable Diversions 1.1 -0.2 -0.3 -0.3 -0.2 -0.2 -0.2 Total Installed Mains 61.0 75.5 71.2 69.8 67.6 67.1 62.3 Replacement Services - domestic Relaid services associated with mains replacement 15.1 15.3 15.1 14.8 14.4 14.3 13.5 Relaid services not associated with mains replacement (bulk relays) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services relaid after escape 5.3 4.1 4.0 3.9 3.9 3.8 3.7 Service test & transfer to new or other main 4.9 6.1 5.9 5.8 5.7 5.6 5.3 Reposition domestic meter - service relays 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Purge & relight after domestic service work 1.0 0.8 0.6 0.6 0.6 0.6 0.6 Service relay domestic meterwork 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other domestic services 0.2 0.4 0.4 0.4 0.4 0.4 0.4 Total Domestic Services 26.5 26.7 26.1 25.6 25.0 24.7 23.5 Replacement Services - Non-domestic 0.3 0.1 0.1 0.1 0.1 0.1 0.1 Multiple Occupancy Buildings Renew service connections 0.1 1.2 0.8 0.8 0.9 1.0 1.1 Total riser renewals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.1 1.2 0.8 0.8 0.9 1.0 1.1 Total Repex 87.8 103.4 98.2 96.3 93.6 92.9 87.0

Table A7 - 49

The outcome of the updated regression analysis is to increase (from our last report) the cost of replacement mains and services for the five years to 2012/13 by £67.2m (16.8%). Whilst the Network’s efficiency has improved in 2006/07 this effect is offset by changes to our workload forecast for the period. The factors which affect the revised recommendations are set out above.


A7.7.9 SUPPLEMENTARY INCENTIVE MECHANISM

This table is prepared on the same basis as described in our previous report and excludes re-chargeable diversions as in the current version of the supplementary incentive mechanism.

De-commissioned

Mains 2008/09 2009/10

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

Volume (km)

Unit Cost (£/m)

Total £m

</=3" 98.69 63.10 6.23 97.77 62.53 6.11 4-5" 247.77 68.89 17.07 243.30 68.27 16.61 6-7" 109.63 96.93 10.63 109.10 96.05 10.48 8-9" 41.00 179.30 7.35 39.54 177.68 7.03

10-12" 35.11 250.50 8.79 35.26 248.24 8.75 >12-18" 30.58 363.25 11.11 31.64 359.97 11.39 >18-24" 14.65 507.70 7.44 14.21 503.12 7.15

>24" 4.54 626.53 2.84 4.06 620.88 2.52 581.97 71.46 574.88 70.04

2010/11 2011/12

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

Volume (km)

Unit Cost (£/m)

Total £m

</=3" 90.35 61.06 5.52 83.60 60.01 5.02 4-5" 235.55 66.66 15.70 233.85 65.51 15.32 6-7" 108.99 93.80 10.22 107.78 92.17 9.93 8-9" 53.71 173.51 9.32 48.72 170.50 8.31

10-12" 29.58 242.41 7.17 47.08 238.22 11.22 >12-18" 27.82 351.52 9.78 27.15 345.44 9.38 >18-24" 13.57 491.31 6.67 11.32 482.81 5.47

>24" 5.75 606.31 3.49 4.51 595.81 2.69 565.32 67.86 564.01 67.32

2012/13

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

</=3" 72.51 59.15 4.29 4-5" 238.71 64.57 15.41 6-7" 91.33 90.86 8.30 8-9" 46.03 168.07 7.74

10-12" 41.64 234.81 9.78 >12-18" 32.72 340.50 11.14 >18-24" 8.80 475.90 4.19

>24" 2.81 587.29 1.65 534.54 62.49

Table A7 - 50


A7.8 LTS REPEX

A7.8.1 SUMMARY

Repex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalisation Adjustments LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 0.1 0.1 0.1 0.1 0.1 0.3 Normalised BPQ LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 0.1 0.1 0.1 0.1 0.1 0.3 Adjustments LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Proposed Repex LTS 0.1 0.1 0.1 0.1 0.1 0.3 Total 0.1 0.1 0.1 0.1 0.1 0.3

Table A7 - 51

Original Repex £m (05/06 prices)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed Repex

LTS 0.0 0.0 0.0 0.0 0.0 0.0

Total 0.0 0.0 0.0 0.0 0.0 0.0

Table A7 - 52


NW have marginally overspent relative to their gross and net forecasts for 2006/07. However, when corrected for the omission of capitalised overheads, this equates to less than £0.5m.


There are no issues arising from the 2006/07 actuals which would cause us to change any allowances recommended for 2008/09 to 2012/13.


LTS Net Repex All figures £m 2005/06 prices 20

08/0

9

2009

/10

2010

/11

2011

/12

2012

/13

BPQ Gross Submission 0.6 0.6 0.6 0.6 0.6 BPQ Contributions 0.6 0.6 0.6 0.6 0.6 BPQ Net Submission 0.0 0.0 0.0 0.0 0.0

Table A7 - 53


In addition to (nil) net cost of the forecast Repex, there has been a cost neutral transfer of £0.3m from LTS Opex in respect of intended work on LTS filter replacement.


The proposals are recommended for acceptance in full.

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