UK Power Networks · Page 5 1.2 The benefits we have already delivered UK Power Networks was...

ukpowernetworks.co.uk

UK Power Networks

2015 to 2023 Business Plan Update

Incorporating stakeholder feedback April 2013

Foreword

“I am delighted to introduce our updated business plan for 2015 to 2023. Back in November 2012 we were the

first DNO group to publish a detailed business plan including prices for customers over the RIIO-ED1 period. The

detailed feedback we have received from stakeholders together with continued internal development has allowed

us to present this updated plan which delivers an even better deal for our customers and stakeholders. Again, we

are the first DNO group to publish an updated plan following stakeholder engagement, and this puts us in an

excellent position to submit a well-justified plan to our regulator, Ofgem in July this year.

I am pleased that we have continued to build on our track record of performance improvement since we became

UK Power Networks two and a half years ago. Customer interruptions and customer minutes lost continue to fall

(down 27 per cent and 31 per cent cumulatively over the last three years), we are ahead of plan on network

investment as measured by all indicators, customer service is improving, we are making cost savings that we will

pass on to customers, and most importantly the safety of our network continues to improve. We have also made

significant improvements in connections customer service, and in facilitating competition in connections services

provision.

Innovation is at the core of our culture of continuous improvement, and our plan fully embraces the transition to a

smart grid over the next two price control periods. We already use many ‘smart’ techniques as evidenced by the

high asset utilisation relatively low cost of our services and high network reliability and our RIIO-ED1 plan

incorporates significant savings from smart network operations.

Our updated plan shows lower costs and improved outputs when compared to our first draft plan. In today’s

tough economic climate demands on customers are increasing and we are very conscious that whilst electricity

distribution costs represent only around 18% of the electricity bill, we have our part to play in making electricity

affordable. Therefore I am pleased that our updated plan offers upfront price cuts in 2015 of 8% in real terms on

average across our three networks. This maintains UK Power Networks’ prices as significantly below the national

average of all network operators.

Please do give us feedback on our updated plan so that we can address any remaining concerns that you may

have before we submit our final plan to Ofgem in July this year. Importantly, thank you for the contribution you

have already made.”

Basil Scarsella

Chief Executive

Contents

1 Executive summary 4 1.1 The purpose of this document 4 1.2 The benefits we have already delivered 5 1.3 Outcomes from UK Power Networks’ stakeholder engagement programme 5 1.4 The outputs delivered by our updated plan 6 1.5 Our focus on innovation 7 1.6 Expenditure required to deliver these outputs in the 2015 to 2023 planning period 8 1.7 Next steps 8

2 Introduction 9 2.1 Purpose of the 2015 to 2023 Business Plan Update 9 2.2 Structure of this document 9

3 Stakeholder engagement 10 3.1 Stakeholder engagement framework 10 3.2 Our stakeholder engagement objectives and principles 10 3.3 Our stakeholders 10 3.4 Our stakeholder engagement programme 11 3.5 How stakeholder feedback has influenced our plans 21 3.6 Stakeholder feedback about our engagement 24 3.7 Future consultation 25

4 The outputs we will deliver 27 4.1 Introduction 27 4.2 Outputs for the 2015 to 2023 planning period 27 4.3 Stakeholder feedback on our proposed outputs 28 4.4 Our proposed output targets and incentives - including historical performance 28 4.5 Innovation 39

5 Expenditure requirements 42 5.1 Revisions to our proposed expenditure 42 5.2 Impact of changes on 2015 to 2023 proposed capital and operating expenditure forecast 49

6 Financing 52 6.1 Impact of changes on our revenue requirement and customers’ bills 52

7 Finalising our business plans 55 7.1 Remaining steps and timeframes for finalising our business plan 55 7.2 Questions on the business plan update 55

8 Glossary 56

1 Executive summary

1.1 The purpose of this document

In November 2012, UK Power Networks’ licence holding companies, Eastern Power Networks (EPN), London

Power Networks (LPN) and South Eastern Power Networks (SPN), were the first of the fourteen UK distribution

network operators (DNOs) to publish detailed draft business plans for the next planning period (RIIO-ED1, 2015

to 2023) for consultation with stakeholders (Consultation Draft Business Plans). UK Power Networks has received

important feedback from stakeholders on its Consultation Draft Business Plans and has also undertaken further

significant internal work to improve the benefits and costs of its draft plans for customers.

This Business Plan Update sets out, for final consultation, changes to key aspects of UK Power Networks'

Consultation Draft Business Plans before it finalises its business plans for submission to the regulator, the Office

of Gas and Electricity Markets (Ofgem), on 1 July 2013. We would like to thank our stakeholders for their input so

far and welcome further comments on this document. We propose the following questions to facilitate feedback:

1. Is this Business Plan Update useful?

2. How could UK Power Networks improve its final business plans?

3. Do you have any comments about the proposed outputs and price impacts?

4. Are there any areas that you would like to see more information on in our final business plans?

5. Do you have any general comments on this Business Plan Update?

6. How do you rate UK Power Networks’ stakeholder engagement on its business plans?

7. How does this plan compare with those of other electricity distribution networks?

Please log on to our consultation website to submit your feedback by 31 May 2013:

http://www.ukpowernetworks.co.uk/internet/en/have-your-say/business-plan/

Alternatively, you can reply by post. Please send your comments to:

Dr Nazrin Mehdiyeva

Head of Stakeholder Engagement

UK Power Networks

Newington House

237 Southwark Bridge Road

London, SE1 6NP

https://www.ukpowernetworks.co.uk/internet/en/have-your-say/business-plan/

1.2 The benefits we have already delivered

UK Power Networks was created in October 2010 and since then has transformed its business strategy and

performance, with significant benefits for customers. In the first three years of the current price control period

(2010-2015):

Our operational focus has delivered a step change in Customer Interruptions (EPN 25 per cent, LPN 25

per cent and SPN 34 per cent better than target) and Customer Minutes Lost (EPN 28 per cent, LPN 17

per cent and SPN 40 per cent better than target)

Our investment programme has exceeded the agreed targets for network health (EPN 93 per cent, LPN

60 per cent and SPN 82 per cent delivered after only 60 per cent of the period)

We have optimised our network reinforcement programme for the impact on demand of the global

economic crisis to both exceed targets and reduce expenditure to achieve cost savings which will be

shared with customers. The number of heavily loaded sites are as follows: EPN: 41 compared to a

target of 66; LPN: 23 compared to a target of 25; SPN: 32 compared to a target of 50. UK Power

Networks never automatically executes its investment plans as approved by the regulator, we always

update them for changing economic conditions to make sure we are only doing work that is really

necessary for the benefit of customers

Our refocusing of the business on customer service has improved our average customer satisfaction

score for faults, connections and general enquiries from 7.13 to 7.63 – although we recognise our

customer service performance still requires further improvement. We have launched a business

transformation programme at considerable expense to our shareholders to modernise our processes and

systems to allow us to realise these gains

We believe that we are the most innovative DNO group. Our London network already utilises many

‘smart grid’ techniques on a business-as-usual basis, including meshed networks, high levels of

automation and control, and contracted demand side reduction. We have the largest portfolio of major

innovation projects of any DNO group

We have delivered this improved performance at significant cost savings, which will be shared with

customers at the beginning of the next price control period in 2015/16. These savings are a direct result

of: UK Power Networks’ innovative asset management strategy; the already high level of smart network

solutions we use on our networks; and our relentless focus on driving down support costs including

reducing our office based staff by around 25per cent in 2011/12.

This track record of improvement is second to no other UK DNO, particularly considering that UK Power Networks

operates in the most challenging, fastest growing, and highest cost part of the country, including London.

1.3 Outcomes from UK Power Networks’ stakeholder engagement programme

UK Power Networks has undertaken a most comprehensive and inclusive stakeholder engagement programme

right from the commencement of its RIIO-ED1 planning in early 2011. This engagement has been fully integrated

with our business-as-usual stakeholder engagement, being managed within UK Power Networks’ customer

services directorate and through our CEO reporting to our Board.

To support the development of our Business Plans we have undertaken:

Nine Critical Friends Panel sessions

14 focus groups with domestic customers

21 telephony interviews with LPN business customers to test their Willingness to Pay (WTP) for certain

services

1,200 WTP interviews with domestic customers

300 WTP interviews with business customers

200 WTP interviews with central London business customers

22 customer connections stakeholder forums

Four priority issue topic specific stakeholder panels (vulnerable consumers & fuel poor customers, storm

performance, metal theft and street works)

Two distributed generation customer stakeholder forums and a customer service survey

Targeted stakeholder feedback

Bilateral engagement with suppliers and large business customers

Consultation on the November 2012 Consultation Business Plan. This set out UK Power Networks’

proposed outputs, forecast expenditure, revenue and prices for the next planning period. UK Power

Networks was the first UK DNO to publish a Draft Business Plan containing this level of information in

response to stakeholder feedback

This Business Plan Update provides stakeholders with a further opportunity to make any final comments before

the Business Plans are submitted to Ofgem on 1 July 2013. UK Power Networks has made the following changes

to its 2015 to 2023 Business Plans on the basis of feedback received to date from stakeholders:

Introduced additional secondary deliverables to support primary outputs. UK Power Networks has also

identified programs of work or activities to support these commitments

Refined certain inputs to its planning scenario including forecast household growth and the domestic

uptake rate of heat pumps and electric vehicles. UK Power Networks has however, retained the core

planning scenario underpinning its Consultation Draft Business Plans

Refined the scope of investment required to respond to the decarbonisation of the UK economy

particularly through the connection of new low carbon technologies

Refined the scope of the Distributed Generation (DG) Infrastructure required to allow the timely and

efficient connection of the increase in medium to large scale generation

Refined the scope of investment in the London Infrastructure Plan to ensure that the network serving

London has capacity and resilience comparable to other world cities

Further developed its innovation strategy through expert panel review

Included greater investment to improve the end-to-end customer connections process. Further

improvements will be delivered as part transformation project over the next planning period

Targeted improvements to the quality of electricity supply through greater investment in automation and

remote control and changes to inspection and fault processes

Further reviewed and revised its procurement, work delivery, training and contractor strategy

Expanded the initiatives that it will undertake to support community engagement and the services that it

will provide to vulnerable and fuel poor customers

Amended the way that our distribution use of system prices (DUoS) will be set to reduce price volatility

1.4 The outputs delivered by our updated plan

UK Power Networks will continue to deliver improved outputs for its customers and stakeholders in the next

planning period. Table 1 sets out the outputs and associated performance measures that UK Power Networks is

proposing to deliver over the 2015 to 2023 planning period.

Table 1 UK Power Networks’ 2015 to 2023 output performance measures

Output 2015-2023 performance measures

Safety Achieve zero public and staff harm

No formal notices or prosecutions by the HSE under applicable legislation

Reduce total recordable injury rate by more than 10 per cent

Engage with 1.8 million children, either through face to face or via on-line interaction, on

public safety issues over the planning period

Customer satisfaction Achieve top third performance in all components of the Broad Measure of Customer Service

(BMoCS)

o Customer service (target an overall score of 8.3 in EPN and SPN and 8.1 in LPN

reflecting the larger proportion of underground low voltage networks)

Output 2015-2023 performance measures

o Customer complaints

o Stakeholder engagement

Enhance stakeholder engagement to ensure the service provided to customers meets their

expectations

Continue to expand the contact channels customers can use to talk to UK Power Networks

Network Reliability Maintain LPN as having the lowest level of customer interruptions (CIs) and customer

minutes lost (CMLs) in the UK

Reduce EPN and SPN CIs by more than 8 per cent

Reduce EPN and SPN CMLs by more than 10 per cent

Maintain the health of the network during RIIO-ED1

Continue to improve the load index (LI) of the networks by reducing the number of sites

classified as LI 4 and LI5 during RIIO-ED1

Protect 98 substation sites from the risk of flooding

Reduce the number of 12 hour failures per year on average by more than 30 per cent

Environment Continue to recycle 70 per cent of office and depot waste and 98 per cent of street works

spoil

Maintain SF6 leakage as a proportion of installed mass

Reduce oil leakage by 2 per cent year on year

Undertake undergrounding in Areas of Outstanding Natural Beauty (AONB) and national

parks

Investigate all noise issues and address all non-compliant sites

Connections Facilitate a competitive connections environment in our three networks

Achieve upper quartile performance in average time to quote

Achieve upper quartile performance in average time to connect

Provide on-line instant quotations

Meet our improvement commitments to major connections customers

Deliver 100 per cent Guaranteed Standards of Performance compliance

Social Obligations Continue to improve the service provided to vulnerable customers

Maintain community engagement during RIIO-ED1

Work proactively with third parties to reduce the level of fuel poverty in our three networks

1.5 Our focus on innovation

In the next planning period, UK Power Networks will continue to build on the leadership role established in respect

of innovation over the current period. We propose to spend only 0.5 per cent of revenues a year under the

Network Innovation Allowance (NIA) because we believe it is better for customers if the networks compete for

funding under the independently scrutinised Network Innovation Competition (NIC). The Business Plans

demonstrate that UK Power Networks has fully embraced the transition to a smart grid over the next two price

control periods. Our updated plan reflects around £135 million of savings to our investment programme from the

use of smart techniques. This is in line with UK Power Networks’ implied share of the total £500 million of savings

for Great Britain estimated by the Department for Energy and Climate Change (DECC) and Ofgem’s Smart Grid

Forum.

1.6 Expenditure required to deliver these outputs in the 2015 to 2023 planning period

UK Power Networks will deliver its output commitments to its customers at a total cost of £7.3 billion, a decrease

of £0.2 billion or three per cent compared to the forecast cost in the November 2012 Consultation Draft Business

Plan (Initial Forecast). This decrease in required expenditure is driven by savings from smart interventions,

changes in the scope of major projects including the London Infrastructure Plan and DG Infrastructure investment,

a decrease in unit costs and further assessment of the volumes of work underpinning the business plan. These

changes are discussed in detail in section 5.1 of this Business Plan Update.

Table 2 below sets out UK Power Networks’ forecast costs, by building block, for the next planning period

compared to actual expenditure over the current period and UK Power Networks’ Initial Forecast. Compared to

the current period we are increasing our investment in network reinforcement for load growth and in asset

replacement (but reducing unit costs), whilst decreasing the cost of network operations and ‘indirect’ overhead

costs.

Table 2 Summary of changes in total UK Power Networks capital and operating expenditure

£ billion DPCR-5

expenditure

(adjusted to eight

years)

Initial 2015-23

expenditure

forecast

Revised 2015-23

expenditure

forecast

% difference:

DPCR-5 expenditure

and revised 2015-23

expenditure forecast

Load related capex 1.30 1.70 1.47 +13%

Non load related capex 1.80 2.10 2.21 +23%

Network operating costs 1.30 1.30 1.20 -8%

Indirect costs 2.00 1.80 1.90 -5%

Non-operational capex 0.20 0.40 0.32 +60%

RPEs - 0.20 0.21 -

Total 6.60 7.50 7.31 +11%

The November Consultation Draft Business Plans included forecast revenues and prices post-2015 that were

broadly flat in real terms. The cost reductions in this Business Plan Update enable us to offer a price cut for

customers in 2015, the first year of the next planning period. UK Power Networks will deliver an initial real terms

price cut of 4 per cent in EPN, 10 per cent in LPN and 12 per cent in SPN respectively, or 8 per cent on average,

with some modest real growth thereafter to allow us to maintain appropriate financial ratios.

UK Power Networks is pleased to continue to ensure that DUoS prices for EPN, LPN and SPN will continue to be

lower than the UK average for both domestic and non-domestic network customers. This is an excellent outcome

for our customers given the challenges we face during the upcoming planning period such as the decarbonisation

of the UK economy and an ageing asset base.

1.7 Next steps

This Business Plan Update is the result of two years of extensive preparation by UK Power Networks and builds

on the stakeholder feedback received following publication of the November 2012 Consultation Draft Business

Plans. Our impressive track record of performance improvement over the last three years has positioned us to

offer a plan to customers that will deliver improved outputs, higher quality networks and lower prices. We hope

that our stakeholders will support us to refine key elements of this Business Plan Update further ahead of

submission of our final business plans to Ofgem in July 2013.

2 Introduction

2.1 Purpose of the 2015 to 2023 Business Plan Update

In November 2012, UK Power Networks' licence holding companies EPN, LPN and SPN (collectively referred to

as the Networks) published and invited customers and other stakeholders to comment on their 2015 to 2023

Consultation Draft Business Plans:

EPN’s Consultation Draft 2015 to 2023 Business Plan

LPN’s Consultation Draft 2015 to 2023 Business Plan

SPN’s Consultation Draft 2015 to 2023 Business Plan

UK Power Networks has also widely consulted on key issues relating to the development of its business plans for

the upcoming planning period through a variety of other engagement pathways.

UK Power Networks has listened to, and understood, what its customers and other stakeholders have said and

has acted on this by incorporating their feedback into the further development of its business plans. UK Power

Networks has also undertaken further internal and external reviews of the key aspects of its business plans to

ensure that they are well justified and will deliver value for money over the long term, having regard for what

customers and other stakeholders have said that they value.

This document provides an overview of the changes to key aspects of UK Power Networks' Consultation Draft

Business Plans. In particular, it sets out what stakeholders have said, and on this basis the changes made to:

The outputs that will be delivered

The projects that will be undertaken

It also explains the processes that have been applied to further test, challenge and verify the proposed

expenditure forecasts to ensure that they are prudent and efficient. These changes directly influence the required

revenues over the 2015 to 2023 planning period, which in turn impact customers' electricity bills.

We welcome your views on this Business Plan Update and have included questions in section 7 to facilitate

stakeholder discussion and feedback. We will incorporate this feedback in our final business plans which are due

to be submitted to Ofgem on 1 July 2013.

2.2 Structure of this document

The remainder of this document is structured as follows:

Section 3 sets out the nature, scope and outcomes of UK Power Networks' stakeholder engagement

programme

Section 4 sets out the outputs that UK Power Networks will deliver in 2015 to 2023

Section 5 sets out UK Power Networks' revised expenditure requirements

Section 6 sets out the financing arrangements, including the impact of these changes on UK Power

Networks' required revenue and customers' bills

3 Stakeholder engagement

3.1 Stakeholder engagement framework

UK Power Networks recognises the importance of stakeholder views to the future development of its distribution

networks. In order to build on this, UK Power Networks established a Customer Service Directorate in 2011. This

was implemented as part of the drive to transform UK Power Networks from an engineering-led to a customer

focused business. Prior to this, responsibility for customer service was at best not clear and at worst not satisfied.

Since 2011, UK Power Networks has undertaken an extensive programme of consultation on all aspects of its

2015 to 2023 Business Plans to ensure that they meet the expectations of customers and other stakeholders and

deliver value for money over the long term. The Business Plan consultation is the most extensive stakeholder

engagement programme undertaken by UK Power Networks to date and has been facilitated by the changes to

the focus of stakeholder engagement within UK Power Networks since acquisition by its current owners.

This section explains how UK Power Networks has gathered stakeholders’ views from 2011 for the purposes of

developing and informing the Network's 2015 to 2023 Business Plans which has been monitored by the Board of

Directors through the CEO.

3.2 Our stakeholder engagement objectives and principles

UK Power Networks' stakeholder engagement objective is to ‘develop arrangements that will provide meaningful

opportunities to a range of its stakeholders to influence the direction of UK Power Networks' thinking on network

development and business operations on an on-going basis'.

UK Power Networks' stakeholder engagement objective is supported by its stakeholder engagement strategy,

which is underpinned by the AA1000 Stakeholder Engagement Standard (2011 (as amended)). This is a leading

international standard which sets out the following principles:

Materiality: engaging with stakeholders on issues that they have a material interest in and that are within

UK Power Networks' control or influence

Inclusivity: involving stakeholders in the internal decision making process

Responsiveness: committing to act and respond to stakeholders’ views and opinions

UK Power Networks has developed company policies, procedures and activities to align with AA1000 and the

principles which underpin it. UK Power Networks' stakeholder engagement team has been trained in the AA1000

Stakeholder Engagement Standard.

3.3 Our stakeholders

UK Power Networks' stakeholders include any individual, groups of individuals or organisations that affect, or

could be affected by its activities, services or associated performance. UK Power Networks' diverse list of

stakeholders comprises domestic customers, commercial and industrial customers, local governments, major

energy users, customer organisations and those representing the community sector as shown in Figure 1 below.

Figure 1 UK Power Networks' stakeholders

UK Power Networks has established a stakeholder register which records a range of relevant information on its

stakeholders including their location and areas of interest to ensure that all interested individuals, groups and

organisations are continually informed about relevant upcoming consultation pathways.

3.4 Our stakeholder engagement programme

In accordance with its stakeholder engagement principles, UK Power Networks has developed a comprehensive

programme of events for its three networks that will ensure all stakeholders have the opportunity to put forward

their views and get involved in the development of each Network’s future plans in an efficient and inclusive way.

We are committed to ensuring that all stakeholders have the opportunity - and multiple opportunities where

required - to be heard. UK Power Networks recognises that, in order to cultivate more equitable decision-making,

it is necessary to listen to and understand stakeholders' views. We also recognise that this is key to informing the

development of our 2015 to 2023 Business Plans.

UK Power Networks' stakeholder engagement programme:

Adopts a diverse range of engagement pathways including workshops, forums, online consultation,

targeted interviews, letters, telephone and face-to-face meetings. It recognises that different stakeholder

groups have different levels of interest and knowledge. Therefore we tailor engagement to meet

different stakeholder needs

Covers a wide range of business areas and issues that affect stakeholders

Takes every opportunity to raise stakeholder awareness to encourage participation in the engagement

process. UK Power Networks recognises the significant efforts made by its stakeholders participating in

the engagement processes

UK Power Networks' approach to stakeholder engagement on the development of its Business Plans comprised

three key stages:

1. Stage 1: Research

This involved the qualitative and quantitative WTP Research, undertaken in 2011 and 2012 as well as

targeted discussions and interviews with business and domestic customers. It also involved

Consumers

Domestic

Industrial &

commercial

Small and

medium

enterprises

Environmental groups

Renewable energy advocates

Landscape focused organisations

Organisations focused on carbon

Government interests

Ofgem

Central

government

Local

authorities

Health and

safety

Education and

skills

Members of

parliament

Investors

Debt and equity

investors

Credit rating agencies

Innovative industry parties

Energy service

companies (ESCos)

Electric vehicle (EV)

developers

Developers and engineers

Engineering institutions and boards

Construction Streetworks

Utilities

Gas Telecoms Water/sewerage

Local interest groups

Local community groups

Chambers of commerce

Parish councils

Industry parties

Other DNOs /

IDNOs

Distributed

generators

Suppliers

Generator

developers

Transmission owners

consultation, via regional workshops, on the Networks' planning scenarios.

2. Stage 2: Targeted Engagement

This involved the Critical Friends Stakeholder Engagement Panel Sessions (panel sessions) undertaken

by the Networks in the second half of 2012. The panel sessions were held after the publication of the

WTP results in June 2012. The panel sessions formed the core of UK Power Networks' consultation

programme for the development of the Networks' 2015 to 2023 Business Plans. The discussions and

feedback from the panel sessions led to new engagement sessions, such as metal theft and vulnerable

customers.

3. Stage 3: Feedback Implementation

This involved UK Power Networks developing an internal actions log for each Network which recorded

the issues, views, positions and actions raised at each engagement session. The issue logs assist the

Networks to record, assess and respond to all issues raised by stakeholders and track their assessment

of, and response to, these issues over time.

Importantly, there was some overlap between the three phases which created a ‘virtuous cycle’ of addressing and

responding to issues. For example, implementation of feedback from panel sessions one and two was being

finalised at the same time that panel session three was being scoped and developed. This overlap ensured that

the issues raised in panel sessions one and two were further consulted on, as appropriate, in panel session three.

A high level overview of the programme of stakeholder events is shown in Figure 2 below.

Figure 2 Stakeholder Engagement Programme

Strategy, Preparation,

Planning, Issue

Identification

Developing Issues,

Testing Issues,

Delivering Actions &

Outcomes

Key Outcomes Ongoing Engagement

Strategy Development Stakeholder

Categorisation

Outputs

Development &

Consultation

Planning

Scenarios

Willingness to Pay

Early

Development Draft

Business Plan

Critical Friends

Panels

London

Infrastructure

Forum

Priority / Specific

Issues

Low Carbon

Whole of Business

Engagement

Future

Engagement

Final, well-

justified

Business Plan

Critical Friends

Priority Issues

London

Infrastructure

Forum

Competition in

Connections Ongoing

Stage 1: ResearchStage 2: Targeted

Engagement

Stage 3: Feedback on

Implementation

November draft

consultation

Business Plan

April Business

Plan update

The time-table for these events is shown in Figure 3 below:

Figure 3 Timing of Stakeholder Engagement Programme

A short summary of each of the key stakeholder consultation programmes is set out below.

3.4.1 Output development consultation

UK Power Networks recognise that agreement on the outputs, being the products or services that the Networks

will deliver to their customers, is central to the Networks' future planning requirements. To this end, UK Power

Networks commenced consultation on outputs early in its business planning process in 2011, to ensure that it

understood what its stakeholders consider to be meaningful outputs for each Network. This information was then

reflected into the development of the Networks' future plans including their investment requirements.

There were four key engagement pathways:

Workshops - 62 attendees, comprising targeted organisations and individuals, from across all three

Networks participated in the workshop which was held in Central London

Online consultation - 21 participants, who attended the workshop and undertook the online consultation

established via UK Power Network's online stakeholder engagement website

Targeted telephone interviews - Ten stakeholders, who were not able to attend the workshop,

participated in the telephone interviews

Domestic customer focus groups - The objective of these focus groups was to identify activities that

domestic customers regarded as being important

Stakeholders were asked to express their views on the outputs they want the Networks to deliver. Stakeholders

confirmed that the six primary output categories as defined by Ofgem were the most important:

Safety

Conditions for connection

Customer services

Environmental performance

Network reliability and availability

Social obligations

Stakeholders also suggested that Environmental performance should be split between a DNOs direct impact on

the environment and a DNOs contribution and support of the decarbonisation of the UK economy. This change

was rejected within the development of Ofgem’s RIIO-ED1 strategy framework.

2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec



Focus Group:

Performance

during storms

Focus Group:

Street works

Critical Friends

panel 4

Regional

Residential

Forums

Stakeholder

Engagement

Solution live

Scenario Planning

Regional

Workshops

Focus Group:

Metal theft

Critical Friends panels

1 & 2

Critical Friends

panels 3

Full day outputs

workshop -

London

Embracing

Competition

workshop 2

Embracing

Competition

workshop 3

Embracing

Competition

workshop 7

Embracing

Competition

workshop 10

Willingness to

Pay Seminar

Embracing

Competition

workshop 8

Ongoing Engagement

Focus Group:

Vulnerable

customers

Embracing

Competition

workshop 9

Publication of Nov

Consultation draft

Business Plan

Focus Group:

Distribution

Generation

3.4.2 Planning scenarios

One of the key challenges facing UK Power Networks over the 2015 to 2023 planning period is the need to adapt

to the requirements of a low carbon environment. The UK Government has committed to reducing carbon

emissions by 80 per cent by 2050 with medium term goals set for 2020.

There is significant uncertainty about the rate of consumer uptake of Low Carbon Technologies (LCT), such as

electric vehicles, solar panels and heat pumps, to support the Government’s objective of reducing greenhouse

gases. UK Power Networks is also expecting growth in a range of distributed generation technologies, including

onshore wind farms, to impact its Networks. Depending on the rate of uptake, these LCT could significantly

impact the future capacity requirement the Networks' distribution systems.

UK Power Networks consulted extensively with its stakeholders in 2011 to understand their views on the likely

scale and uptake of these LCT (referred to as 'planning scenarios') on each Network to assist it develop a "best

view", being the most likely planning scenario for the 2015 to 2023 period. UK Power Networks sought

stakeholder views on the following scenarios for each Network:

Scenario 1 - Economic concern

Scenario 2 - Engaged green

Scenario 3 - Green stimulus

Scenario 4 - Green technology

Scenario 5 - Business as usual

Each of these scenarios was considered in light of the following three key drivers of growth in demand for

electricity:

Rate of economic growth including population growth, economic growth, domestic cooking, lighting and

appliances

Deployment of LCT including heat pumps and electric vehicles

Changes in electricity market mechanisms such as the increase in demand-side response, roll out of

smart meters and the introduction of time of use tariffs

Each of the drivers was considered in the context of a high, medium or low outcome for each Network as shown

in Table 3 below.

Table 3 Possible planning scenarios 2015 to 2023

Scenario Rate of economic growth Impact of low carbon

technologies

Impact of electricity

market reform

Economic Concern Low Low High

Engaged Green Society High High High

Green Stimulus Low High High

Green Technology Revolution High High Low

Business as Usual High Low Low

UK Power Networks sought stakeholder views on the planning scenarios including through:

Regional workshops

Each Network held focused workshops which explained the alternative possible planning scenarios

relevant to them. Key differences in the location of the Networks means that regionally-specific scenarios

are required for all three Networks. Stakeholders were provided with the opportunity to discuss, review

and challenge each of the scenarios presented

Online forum

This was established via UK Power Networks' online stakeholder engagement website and provided

stakeholders with a further opportunity to provide feedback on alternative possible planning scenarios.

Over 50 people visited the web site, 11 of whom offered feedback on one or more of the scenarios.

Key stakeholder feedback included that:

Further consideration should be given to the potential differences in views of business and domestic

customers

The Department for Energy and Climate Change’s (DECC) onshore wind forecasts are overly optimistic

given, amongst other things, public opposition and planning constraints

Further consideration should be given to emerging energy technologies including Combined Heat and

Power (CHP) and energy from waste

Drawing on stakeholder feedback and the original planning scenarios, UK Power Networks developed a ‘hybrid’

scenario which takes a more conservative approach in a number of areas including assumptions around the take-

up of green technology. This hybrid scenario underpinned UK Power Networks’ 2012 Consultation Draft Business

Plans.

UK Power Networks has continued to review and refine the planning scenario inputs and has made some

modifications including to:

Forecast household growth

UK Power Networks has revised its forecast having regard for historical actual information published by

the Department of Communities and Local Government (DCLG). Based on this analysis, UK Power

Networks has assumed that the yearly level of household formation in the next planning period will be

equal to the historic long run average shown below for each of its distribution areas

The domestic uptake rate of heat pumps

Originally UK Power Networks based its assumption on housing formation data from the English House

Condition Survey, however as part of the development of its modelling approach UK Power Networks

has used a more detailed analysis of the housing stock based on Experian data. This has resulted in an

increase in the heat pump penetration in EPN and a reduction in both SPN and LPN.

The uptake rate of electric vehicles

UK Power Networks agreed with its Stakeholders that its assumptions were optimistic given purchase

prices and concerns regarding the ease of re-charging and speed. On this basis, UK Power Networks

reduced its assumptions regarding the rate of uptake of electric vehicles

Commercial heat pumps

These were not included in UK Power Networks original scenario forecasts, however stakeholder

feedback was supportive of its inclusion and has now been included in the planning assumptions.

Domestic lighting and appliances

UK Power Networks improved its forecasts by using more recently available information released by the

Department for Environment Food and Rural Affairs (DEFRA) in its Market Transformation Programme.

The impact of these changes is shown in Table 4 below.

Table 4 Modifications to planning inputs and assumptions (as at March 2023)

November 2012 Consultation Business Plan Business Plan Update

LPN EPN SPN LPN EPN SPN

Heat pumps –

Domestic

61k 233k 121k 44k 262k 100k

Heat pumps – Non

domestic (MW)

Not included Not included Not included 70MW 176MW 94MW

Electric vehicles 130k 243k 156k 50k 156k 134k

FIT eligible

generation

93k 290k 167k 72k 207k 121k

Onshore wind

(MW)

10MW 724MW 214MW 10MW 655MW 152MW

Offshore wind

(MW)

N/A Beyond 2015

assumed to

connect to

offshore grid

Beyond 2015

assumed to

connect to

offshore grid

Not

applicable

Beyond 2015

assumed to

connect to

offshore grid

Beyond 2015

assumed to

connect to

offshore grid

3.4.3 Willingness to pay

UK Power Networks recognises the importance of understanding its customers' WTP for the provision of different

or additional services, activities or service levels in developing its Business Plans for the 2015 to 2023 period. UK

Power Networks therefore invited stakeholders to participate in WTP studies specific to each of its Networks.

These studies comprised two elements:

Qualitative research

This was concerned with identifying the services, activities and service standards that stakeholders

considered should be reviewed in the study

Quantitative research

This was a statistical exercise involving customers and other stakeholders assigning a numerical value,

representative of a financial value, to the provision of certain services, activities or service standards.

Breaking the survey into the two phases was important to ensure that stakeholders defined the nature and scope

of the quantitative phase.

Table 5 below summarises the initiatives that customers have said they value most, ordered in terms of the

customers' WTP, over the RIIO-ED1 period.

Table 5 UK Power Networks’ WTP results (cumulative over the eight years of the RIIO-ED1 period)

Services, activities, service levels LPN

WTP (£m)

SPN

WTP (£m)

EPN

WTP (£m)

Undertake infrastructure investment required to detect loss of supply

from individual or small groups of premises

28 41 52

Undertake investment in network technologies to allow cheaper and

quicker connection of new commercial low carbon electricity generators

26 38 52

Undertake investment to support and facilitate the uptake of domestic

micro-generation such as solar panels

25 28 34

Undertake infrastructure investment required to support the take up of

low carbon electric heating technologies

21 26 28

Provide customers with confirmation around the likely timeframes

(morning, afternoon, evening) for new connections being undertaken.

16 15 25

Provide customers with information on the timeframes for undertaking

simple low voltage new connections work, for example - within 15 days

12 20 21

Provide customers with information on the expected timescale for the

provision of quotations for simple, low voltage new connections work

13 17 22

Restore supply to 80% of rural customers off supply for more than 3

minutes within 60 minutes

- 18 28

Undertake new connection during normal business hours, in the

evenings and at weekends

7 10 22

UK Power Networks to undertake all elements of the new connections

service offered

6 9 20

Limit the frequency of power cuts over 3 min to an average of one every

two years

- 13 20

Provide more information to customers during power cuts by improving

the information provided by the call centre and provision of real-time

information via the internet, social media & staff proactively contacting

customers.

5 11 15

Provide electricity back-up services to customers including regular

testing of customer-owned generators and systems

8 11 12

Provide customers with quotations for simple, low voltage new

connections work within 7 working days

8 14 -

Services, activities, service levels LPN

WTP (£m)

SPN

WTP (£m)

EPN

WTP (£m)

Reduce the timeframes for completing simple, low voltage new

connections from 90 to 60 days.

- 11 -

Provide a single point of contact for customers seeking a new

connection work.

- 8 -

UK Power Networks also commissioned a further complementary WTP study focused on small and large London

central business district customers (City of London, West End and the Docklands). This study was concerned

with identifying any differences in the priorities and value for these customers, as compared to the wider LPN

customer base.

The results of this study highlight the subtle but important differences in the priorities of LPN Central Business

District (CBD) business customers, being that they were more concerned with network reliability and connections

and are willing to pay an additional £26 million over the RIIO-ED1 period, for services that they value. The results

of this study are summarised in Table 6 below:

Table 6 UK Power Networks’ WTP results - CBD Business Customers only (cumulative over the RIIO-ED1

period)

Services, activities, service levels WTP Value (£m)

Restore supply to 80 per cent of urban customers off supply for more than 3 minutes within 5 minutes 6

Undertake investment in infrastructure required to enable the Networks to detect loss of supply from

individual or small groups of premises 5

Provide customers with information on the expected timescale for the provision of quotations for high

voltage new connections work: within jointly agreed timeframes 3

Restore supply to 80 per cent of urban customers off supply for more than 3 minutes within 10 minutes 3

Limit the frequency of power cuts over 3 minutes to an average of one every four years 3

Provide customers with quotations for high voltage new connections work within 20 working days 3

Commence providing contingency, back-up services, to customers e.g. regular testing of customer-

owned generators and systems 2

Provide customers with confirmation around the likely timeframes (morning, afternoon, evening) for

new connections being undertaken. 2

Total 26

Based on this information, we have included the following in the 2015 to 2023 Business Plans:

£50.7 million to support targeted quality of service improvements

Delivery of a wide range of improvements to the end-to-end connections process. This investment will

be self-funded (by UK Power Networks shareholders).

£106.5 million to support process and system changes required to accommodate data from smart

meters, establish a suitably skilled workforce and carry out 160,000 metering interventions

£15 million of network reinforcement investment, predominately in the EPN, to provide additional network

capacity required to accommodate the connection of renewable generation. This investment

incorporates new 'smart' techniques which will enhance UK Power Networks' network performance,

therefore reducing the need for expensive traditional reinforcement investment

Improvements to UK Power Networks' customer service operations. This investment forms part of the

business transformation project and will be self-funded (by UK Power Networks shareholders).

3.4.4 Critical friends panel sessions

UK Power Networks organised critical friends panel sessions, for each Network, to consult with stakeholders on

the key targeted issues shown in Figure 4 below. These issues are closely related to the key output categories

identified by Ofgem in its RIIO consultation documents:

Figure 4 Critical friends panel sessions

The panels comprised representatives from major energy users, industry participants, consumer groups, and

developers, the low carbon energy sector, local authorities and community organisations. The purpose of

establishing the panels was to ensure that the output and feedback generated through the panel sessions was

comprehensive and representative of all of the Networks' stakeholders. UK Power Networks considers that this is

important for developing robust and well justified business plans that will deliver customers value for money over

the long term. The panel was established by drawing on the Networks' internal stakeholder engagement

database, which contains key information on stakeholders, including their areas of interest.

UK Power Networks also actively encouraged additional stakeholders who were not` on the panels to attend the

panel sessions of specific interest to them. Again, these stakeholders were identified though their internal

databases and relevant UK Power Networks' managers identifying relevant contacts. The panel rounds and

session timetable are shown in Figure 5 below:

Figure 5 Critical friends panel session rounds

Figure 5 shows that in the past eight months, UK Power Networks has conducted three rounds of critical friends

panels being each involving three sessions – one session for each Network. Accordingly, to date the Networks

have held nine critical friends panel sessions.

A fourth round of panel sessions will be held in May 2013 and will focus on reviewing the progress that the

Networks have made in implementing stakeholder feedback from the previous rounds of panel sessions

highlighting where feedback has resulted in changes to their policies and processes. For feedback not yet

Customer satisfaction

Low carbon targets & transition

Low carbon technologies

Network reliability & availability

Social obligations

Safety Environment Connections

Expected Outcomes

Engagement topics and timetable

Purpose of Engagement

Priority Issue Sessions and

Planning Future Panels

Changes to Existing Business

Processes and Actions Update

Panel 1 Panel 2 Panel 3

Low Carbon Economy:

Our Path to Innovation

Overview of the RIIO

Framework

Quality of Supply

Low Carbon Challenges &

Our Innovative Solutions

Network Investment

Social Obligations, Safety

and the Environment

Customer

Services

Connections

LPN: 4 Oct, SPN: 18 Oct,

EPN 1 Nov

LPN: 15 Nov, SPN: 29

Nov, 13 Dec

LPN: 10 Jan, SPN: 24

Jan, EPN: 7 Feb

LPN: 2 May, SPN: 9

May, EPN: 16 May

Panel 4

Business Plan

engagement feedback

and update

To Test and Shape Our Business

Plan 2015-23

To Capture and Act on Your Priority

Issues

Robust Business Plan with a Clear

Sense of Direction

To Include Your Views in Our

Improvement Plans to 2015

implemented, the Networks will provide a timeline within which stakeholders can expect to have their feedback

actioned.

Each of the panel sessions involved the Networks conducting short presentations on specific topics with the

opportunity for stakeholders to ask questions or make comments both during and after the presentations. The

presentations were followed by a dedicated open forum to facilitate discussion and further clarify key aspects of

the issues being discussed.

3.4.5 London infrastructure forum

At the commencement of its planning process, UK Power Networks sought stakeholders' views to inform the

development of its central London investment strategy to ensure that London Power Networks' distribution

system, particularly the segment serving the central business district (CBD), has capacity and resilience that is

comparable with other world cities.

Given the importance of this issue, particularly for the economic growth and prosperity of the wider UK economy

over the long term, a separate forum and working party was established to ensure that LPN's Business Plan for

the next eight years supports this growth. The working party comprised representatives from the City of London,

the City of Westminster, London First, the City Property Association, Westminster Property Association and the

Greater London Authority as well as representatives from UK Power Networks. The objective of the working party

was to challenge the infrastructure plans in LPNs business plan to ensure they will result in sufficient and timely

investment required to meet capacity growth and network resilience requirements in London over the 2015 to

2023 period. This working party met on a monthly basis from April 2012 chaired by the Corporation of London.

Importantly, this forum also contains organisations which represent business and commercial enterprises in

London. The participation and input from these organisations has added a practical perspective to what may

otherwise have been aspirational, planning-led discussions.

The London Infrastructure Forum has greatly assisted the LPN to develop an investment plan for London which is

supportive of the Government's aspirations and also reflects the needs of the wider business community. LPN will

continue to meet with the London Infrastructure Panel to obtain valuable feedback from stakeholders.

3.4.6 Priority and specific issues

Over the past 18 months UK Power Networks has conducted a number of stakeholder events focused on specific

issues identified as important by customers and other stakeholders, including:

Network performance during and after storms

Vulnerable customers

Distributed generation

Metal theft

Street works

Low carbon innovation

Competition in connections

Topics for future engagement

Consulting on these issues has been important in order to connect with specific customers and ensuring that their

needs and requirements on these matters are fully understood and reflected in the development of the Networks'

2015 to 2023 Business Plans.

3.4.7 Our consultation draft business plans

In November 2012, UK Power Networks published Consultation Draft Business Plans for each of its Networks,

which set out their proposed:

Outputs for the 2015 to 2023 period

Expenditure forecasts for each year of the 2015 to 2023 period

Revenue requirements for each year of the 2015 to 2023 period

Prices for the for the 2015 to 2023 period

UK Power Networks is pleased to advise that EPN, LPN and SPN were the first of the fourteen UK DNOs to

publish draft business plans containing this level of detail. To date, no other DNO has published annual revenue

requirements or prices for the upcoming planning period.

Stakeholders were invited to comment on all aspects of the Consultation Draft Business Plans and the questions

included throughout were designed to assist stakeholders challenge, and apply a robust review of the key issues.

There was a two month consultation period, ending 4 February 2013, and a variety of consultation pathways were

available to facilitate stakeholders providing feedback via an online survey.

UK Power Networks considered that publishing and inviting feedback on its Consultation Draft Business Plans,

eight months prior to them being finalised for submission to Ofgem, was important to provide sufficient time to:

Assess and incorporate feedback so as to further the develop its business plans

Ensure a strong understanding of the services, and service standards, that customers and other

stakeholders want in the next planning period

Publish this document, the Business Plan Update, to explain the key changes to the business plans

before they are finalised for submission to Ofgem. UK Power Networks considers that this is important

to ensure that customers and other stakeholders have the opportunity to understand how their feedback

has been incorporated into the development of the business plans, and how the changes will impact

them in terms of prices over the next planning period

Ten stakeholder groups provided their views on the Consultation Draft Business Plans. Key areas of focus were:

Investment in infrastructure and how the associated costs are recovered from different groups of

customers

Improving the process and timeliness for connecting customers to the distribution network

Network reliability

This feedback was considered within the context of all stakeholder feedback received on the Business Plan as

well as the outcomes from internal analysis and review.

3.4.8 Supplier and large customer engagement

UK Power Networks recognises the importance of the unique relationship it has with electricity retail suppliers. To

this end, UK Power Networks has developed a substantial consultation programme focused on developing a

working understanding of the expectations and needs of suppliers over the next ten years focusing on how it can

better work with them to ensure that customers receive value for money over the long term. UK Power Networks

has therefore proactively sought bilateral meetings with all of the major suppliers and has actively attended

forums representing the smaller suppliers. These efforts have proved successful - to date there have been five

bilateral meetings focused on understanding retail suppliers' views on the Networks' Business Plans. Further,

supplier feedback on the nature and scope of these meetings has been extremely positive. Key feedback from

suppliers through this engagement relates to the impact of DUoS price volatility on their customers. Suppliers

highlighted that a significant proportion of their customer contracts are based on fixed prices or are set

significantly in advance. Sudden and large changes to prices therefore disproportionately impact suppliers’ cash-

flow risk and customer's final bills. For customers deciding to choose a pass through contract this adds to the

uncertainty inherent in the electricity market.

UK Power Networks recognises that DUoS price volatility is driven by a combination of:

A lack of sufficient advanced visibility of DUoS price changes

The revised DUoS Common Changing Methodology

UK Power Networks will continue to actively seek to resolve these issues through industry forums. It will assist in

promoting transparency of indicative changes to its DUoS charges for the 2015 to 2023 period by outlining these

in its 2015 to 2023 Business Plan - this is discussed further in section 6.1.

A number of suppliers have also proposed further changes to the current industry arrangements, including EDF

Energy who's consultants, CEPA, published a paper in September 2012 examining the impact of DUoS price

volatility. In this paper it was proposed that "a more comprehensive approach would instead be to fix the DNOs

DUoS charges much earlier than at present by providing the notice period of future changes in tariffs and

introducing a DNO smoothing mechanism for the 2015 to 2023 period that would allow for DNO: revenue profiling;

certainty of recovering revenue; net present value (NPV) neutrality; and overall financeability.

UK Power Networks supports an approach whereby the industry fixes its DUoS prices 15 months in advance of

price application. This approach will require further changes to the industry framework, will need to allow for any

Ofgem changes to incentive mechanisms design and for UK Power Networks to amend its charging methodology.

UK Power Networks believes there is sufficient time to introduce these changes prior to commencement of the

next planning period.

UK Power Networks is planning further rounds of meetings with suppliers on its Business Plans before they are

finalised for submission to Ofgem. This consultation programme is additional and separate to the on-going

engagement with suppliers that is undertaken through the Energy Network Association (ENA).

3.5 How stakeholder feedback has influenced our plans

Through the programme of engagement described above, UK Power Networks has gathered important feedback

and information on stakeholders' views and priorities so as to understand what they want the Networks to deliver

in the 2015 to 2023 period.

The seven most important issues for our customers and other stakeholders are set out in Table 7 below. These

issues were repeatedly raised during the engagement programme.

Table 7 Stakeholder feedback - the seven most important issues

Top seven issues Feedback Incorporating stakeholder feedback

Transparency across

the board

Requested greater transparency around

reporting, decisions and business processes

particularly in connections.

We were the first of the UK DNOs to publish

information on our annual revenue requirements

and prices for the upcoming planning period.

We will undertake further focused improvement

to our external web-site including providing

improved information on our connections

process and network availability.

Path to a DSO Support for the planning to meet the challenges

arising from the transition to a low carbon

economy, which will drive changes in the

Networks' role and responsibilities.

We are committed to the UK’s transition to a low

carbon economy and to a ‘smart grid’ and have

reflected investment to support our transition to a

DSO in our business plans. Further detail is

provided in our Smart Grid Strategy.

Choice in customer

services and

connections

Support the development of a contestable

customer connections market to foster greater

choice in service provider and in improvements

in service outcomes.

We have already significantly improved our

customer connection services by listening to and

acting on feedback from customers. We are

committed to introducing further improvements

over the next planning period as part of the

transformation project.

Vulnerable

customers

Support for even more investment in initiatives

to assist vulnerable customers.

We have established a project specifically

focused on identifying how we can better assist

vulnerable customers.

Customer

connections portal

Support for the introduction of an end-to-end

customer self-service connection portal. This

will provide customers with greater transparency

about the connection process including

timeframes, alternative service providers,

information requirements and cost.

We will introduce an end-to-end customer self-

service connection portal in the first year of the

next planning period.

Infrastructure

development

Questioned whether the Networks' investment

plans will be sufficient to accommodate future

customer connection requests in certain areas

of the network and how the cost of network

investment, required to accommodate future

connections, should be recovered from

customers.

We have revised our business plans to reflect

stakeholder feedback. In particular:

LPN’s Business Plan includes £100million to

undertake the London Infrastructure Plan.

This investment is supported by the existing

planning standards. The investment costs will

be recovered from customers in accordance

with the existing statutory connection charges

methodology

EPN has included £15 million to undertake the

Top seven issues Feedback Incorporating stakeholder feedback

Distributed Generation (DG) Infrastructure

Investment, which is required to support the

increased level of DG seeking connection to its

distribution system. This investment is

supported by WTP and cost benefit

assessments.

Efficiency of cost

delivery

Support for more comparative information on

the relative efficiency of the Networks in

delivering their outputs compared to other

DNOs.

UK Power Networks is working with Ofgem to

develop industry annual output report, which will

contain comparative DNO information.

Table 8 below summarises feedback from customers and other stakeholders gathered through UK Power

Networks’ stakeholder engagement process. UK Power Networks has assessed this feedback and where

possible, incorporated it into its future plans. While all the feedback received has been considered, it was not

possible or feasible to incorporate all the feedback received.

Table 8 Stakeholder feedback by output category

Stakeholder Feedback Actions taken Further action to be taken

ENVIRONMENT

UK Power Networks should benchmark

its BCF against companies outside the

electricity distribution sector

We have commenced broadening the

benchmarking approach to include

other utilities sectors

We will report back to the Critical

Friends Panel on the results of the

broader benchmarking approach

What is UK Power Networks doing to

minimise losses?

We are working with Ofgem on this

issue. Ofgem has recently introduced

new annual reporting requirements that

will require us to identify the actions we

have taken to reduce losses

We will submit our first report to Ofgem

in mid- 2014 and will provide this report

to our Critical Friends Panel

SAFETY

Safety should be an essential

component of a DNO’s function

Our Public Safety Team has been

developing and implementing a

broader, more pro-active public safety

strategy

We are working with local communities,

councils, businesses and schools to

improve safety awareness and

understanding and are developing a

number of short safety films to assist in

this process

RELIABILITY AND AVAILABILITY

Can you publish maps of load pinch

points?

We are currently developing a

Geographic Information System (GIS)

which will assist in identifying the

geographic location of load and

capacity requirements

An industry approach to automatic

customer compensation payments in

accordance with the Energy

Guaranteed Standards (EGS)

requirements

We are currently reviewing the

approach applied by gas businesses

We will directly engage with Ofgem and

the other DNOs to jointly develop a

common approach to automatic

customer payments - similar to the

approach applied by gas businesses

Support more onerous reliability and

availability standard compensation

payments

We have commenced paying higher

amounts than required by the relevant

industry regulations and we proactively

contact customers advising them of

their entitlement to receive a payment

The triggers under the relevant industry

regulations are currently being

reviewed with a view to agreeing more

challenging targets. It is anticipated

that any changes to the targets will be

finalised by mid-2014

UK Power Networks should explain We are on track to deliver all our Our final business plans will set out:


and justify why it is seeking a higher

expenditure allowance in RIIO-ED1

(compared to DPCR-5) when it

underspend its DPCR-5 allowance

outputs for the current period and have

sought to achieve this as efficiently as

possible

Why our proposed RIIO-ED1

expenditure is prudent and efficient

Key drivers for any under

expenditure in DPCR-5

CONNECTIONS

UK Power Networks should improve

transparency around how it calculates

customer connection charges -

particularly where upfront customer

contributions are required

We have recently commenced directly

contacting customers to explain how

connection charges and quotes have

been developed

Further work in this area will be

undertaken as part of our business

transformation project. We are

committed to improving visibility of how

connection charges are calculated

UK Power Networks should provide

more information on the process for

new connections

We recently launched a service called

‘Ask the Expert’ which provides

information on the connection process

and assistance with new connection

applications

We will monitor the outcomes from ‘Ask

the Expert’ and introduce further

changes as required to ensure that it

meets customers’ needs

UK Power Networks should improve

resourcing in connections to reduce

long lead-times

We are currently reviewing our

processes to identify how they can be

improved

We will introduce changes on the basis

of the outcomes of our review

CUSTOMER SERVICES

UK Power Networks should develop a

customer database during 2013

We will develop a customer data base

as part of the overall business

transformation programme

As a minimum, we will implement a

temporary solution for faults by the end

of 2013

UK Power Networks should keep us

better informed during and after power

cuts

We have recently commenced

providing text updates - 24 hours a day

seven days a week - to keep

customers better informed during and

after power cuts

We are assessing how to improve the

customer friendliness of the letters we

send to customers explaining the

cause of outages. We will continue to

seek stakeholder feedback on how we

can improve in this area

UK Power Networks should advise

Stakeholders on whether a single

national DNO contact number is

feasible, as well as providing a cheaper

number from mobiles

UK Power Networks has now assessed

the technical aspects of the challenge

and has agreed to explore the concept

at a whole of industry level

We are currently reviewing whether to

replace our existing contact numbers

(there are currently multiple ) with a

single contact number for all customer

queries

UK Power Networks should develop a

Customer Portal.

This idea features heavily in the

Customer Services journey, which is

developing within the IT infrastructure

as part of the business transformation

initiative

We anticipate that we will test, if not

launch, the Customer Portal by mid

2014

UK Power Networks should publish a

staff directory for its customers and

other stakeholders

We have introduced a number of

improvements to our website during

2012 to facilitate customers contacting

us, including providing business area

contact numbers

UK Power Networks has commenced

developing a staff directory that will be

published on its website

UK Power Networks should review its

telephony service to ensure that

customers ringing in relation to a fault

are not automatically redirected to

another DNO when they are ringing

from a location outside of UK Power

Networks distribution area

We have commenced developing a

new telephony platform

We expect our new telephony platform

to be installed in the second quarter of

2013. This will ensure that our

customers will not be redirected even

when they contact us from outside our

distribution area

UK Power Networks should look at

offering an account manager service

for larger customers

Our connections team currently

operates an account approach in

dealing with specific infrastructure

We will update our approach on the

basis of the outcomes of our current

review


projects and companies. We are

currently assessing how this approach

could be extended to large customers

and those that have frequent

interactions with us

ENCOURAGING INNOVATION

UK Power Networks should provide a

clear rationale for any strategy to move

from a network operation to a system

operation (or Distributions System

Operator) (DSO) role

Our final business plan sets out how

we intend to transition to a DSO role in

the next planning period

We will commence a gradual transition

to becoming a DSO in accordance with

the investment proposal set out in our

final business plan. We recognise that

the transition will be influenced by the

rate of uptake of low carbon technology

UK Power Networks should provide

further supporting evidence for its

forecasts concerning the projected up-

take of low carbon technologies such

as EVs, heat pumps and solar panels

Our low carbon technology uptake

forecasts have been updated to reflect

expert advice from Element Energy

and stakeholder feedback - particularly

on the rate of uptake of EV. This is

discussed in section 3.4.2

We plan to continually engage with

stakeholders on this topic and use their

input to help shape our assumptions

and forecasts in the future

UK Power Networks should explain

whether it is able to use Energy

Storage on its network and if so how

this would operate in practice

We are currently working on a number

of energy storage initiatives (including

Leighton Buzzard), which have been

awarded funding by Ofgem under the

Low Carbon Network Fund.

We are also trialling a short term

energy storage solution at Hemsby.

The results are positive and our

learning are reflected in our business

plan

Owning and running this ‘proof of

concept’ facility, will allow the business

to learn valuable lessons for future

energy storage projects and facilitate

embedding similar technology across

other constrained parts of our network.

We will regularly update stakeholders

on progress, including through the

Critical Friends Panel sessions

3.6 Stakeholder feedback about our engagement

UK Power Networks has sought on-going feedback from stakeholders about the nature and structure of its

engagement pathways to ensure that it is meeting their expectations as well as satisfying UK Power Networks'

stakeholder engagement principles being:

Materiality: Engaging with stakeholders on issues that they have a material interest in and that are within

UK Power Networks' control or influence

Inclusivity: Involving stakeholders in the internal decision making process

Responsiveness: Committing to act and respond to stakeholders’ views and opinions.

The following tables summarise stakeholder feedback on the Critical Friends Stakeholder Engagement Panel

sessions undertaken in the second half of 2012. These panel sessions formed the core of our consultation

programme for the 2015 to 2023 Business Plan. The feedback is extremely positive.

Figure 6 About the Event

Figure 7 About UK Power Networks

3.7 Future consultation

UK Power Networks is committed to on-going and regular stakeholder engagement over the course of the 2015 to

2023 planning period. The submission of UK Power Networks' Business Plans to Ofgem on 1 July 2013 will not

mark the end of its stakeholder engagement programme. The future engagement programme will build on the

benefits derived from consultation since 2011 and ensure the continued involvement of stakeholders through the

Critical Friends Panels, specific issue engagement and a range of other stakeholder engagement pathways. UK

Power Networks is committed to continuing to evaluate the effectiveness of these engagement pathways and

adapt them as required over time to ensure that they remain relevant and meaningful to stakeholders.

Key aspects of UK Power Networks’ future consultation programme for April and May 2013 include:

Street works – 29 April 2013

The City of London – 15 May 2013

The fourth Critical Friends Panel session – which are scheduled for 2, 9 and 16 May 2013.

The calendar of events until the end of 2013, as it currently stands, is shown below and the calendar of events

beyond the end of 2013 will evolve and be informed by issues that are important to customers and other

stakeholders as they arise. UK Power Networks expects stakeholders will be interested in engaging on key issues

such as, amongst other things, the transition to a low carbon economy, smart networks and the evolution to a

DSO.

0% 20% 40% 60% 80% 100%

Was useful

Easy to understand

Improved my understanding

Coverage of relevant material

Clear presentations

Engaging

Opportunity for questions

Further information sources provided

Strongly Agree Agree Disagree Strongly Disagree

0% 20% 40% 60% 80% 100%

Confidence in UKPN's investment direction

Confidence in UKPN's business plan engagement

Understanding of UKPN's low carbon technologyinnovation

Confidence in UKPN's environment & communitycommitments

Confidence in UKPN's network investment

I want to receive more information from UKPN

Confidence that my questions will be answered

Strongly Agree Agree Disagree Strongly Disagree

Figure 8 Overview of our stakeholder engagement programme until end 2013

Session 7: TBC

4 The outputs we will deliver

4.1 Introduction

This chapter provides an overview of:

The outputs UK Power Networks proposes to deliver over the 2015 to 2023 planning period, together

with the proposed targets against which its output delivery performance will be measured and the

associated incentives

How UK Power Networks will use innovation to deliver its outputs to ensure customers receive value for

money over the next planning period

4.2 Outputs for the 2015 to 2023 planning period

Table 9 below summarises the key output measures against which UK Power Networks will target and measure

its performance delivery in the 2015 to 2023 planning period.

Table 9 UK Power Networks' proposed output measures

Output category Definition Primary output Secondary deliverable

Safety

Minimise the risk associated

with operating distribution

networks to achieve zero harm

to customers, contractors and

staff

Compliance with HSE legislation

and directives

Asset Health, Criticality and Risk

Index – see Network Reliability.

This provides a framework for

managing risk including safety

Number of fatal major and lost

time contractor accidents

Number of public injuries

(resulting from our activities)

Customer

satisfaction

Ensure a high level of customer

satisfaction and service and

undertake effective engagement

with our customers and other

stakeholders

Customer Satisfaction Survey

Complaints Metric

Not applicable

Reliability and

availability

Promote the long term condition

and resilience of the networks,

provide customers with long

term reliability and minimise the

number and duration of supply

Customer interruptions (CI) -

planned

Customer interruptions (CI) -

unplanned

Customer Minutes Lost (CML) -

planned

Customer Minutes Lost (CML) -

unplanned

Health Index (HI)

HI Criticality and Risk Index (RI)

Load Index

Resilience

Worst served customers

Guaranteed Standards of

Performance

Environment

Reduce the environmental

impacts of our electricity

network

Business Carbon Footprint

(BCF)

Innovation Funding

Management of equipment

containing SF6 (i.e. switch gear

and transformers)

Output category Definition Primary output Secondary deliverable

Management of oil leakage

Noise reduction

Undergrounding in Areas of

Outstanding Natural Beauty and

National Parks

Minimising landfill

Recycling spoilage waste from

street works

Connections

Ensure the provision of

information around the process

and cost of connecting, the

information required, timeliness

of connections and third party

service

Time to connect

Major connections stakeholder

engagement

Social

Ensuring all customers have

access to affordable electricity

including those that are

vulnerable to supply

interruptions (vulnerable

customers) and / or are fuel

poor

Zero harm

Public safety awareness

Provision of the priority services

register (PSR) and fuel poor

customers

UK Power Networks' proposed outputs align with the six categories defined by Ofgem in its March 2013 RIIO -

ED1 Strategy Decision.

4.3 Stakeholder feedback on our proposed outputs

As discussed in section 3.2 above, UK Power Networks has consulted extensively with its customers and other

stakeholders on the outputs, being the products or services provided to customers, in the 2015 to 2023 planning

period. Sections 3.3 and 3.4 of this Business Plan Update, respectively discuss:

The nature of UK Power Networks' stakeholder consultation on its outputs

Stakeholder feedback received through consultation pathways on its proposed outputs.

In summary stakeholders:

Supported the output categories defined in Ofgem's RIIO-ED1 Draft Strategy Decision.

Supported the primary outputs under each of the six output categories albeit requested more detail in

some areas

Supported the proposed secondary deliverables, albeit some suggestions for additional secondary

deliverables were made. In particular they requested that the secondary deliverables supporting the

environmental output should distinguish between UK Power Networks’ response to the low carbon

economy and its services or activities, over which it has direct control (i.e. services which involve the use

of fluid filled cables), which impact negatively on the environment

4.4 Our proposed output targets and incentives - including historical performance

4.4.1 Safety

We are committed to ensuring safety and minimising the risks associated with operating our Networks to achieve

zero harm to customers, contractors and staff.

Safety relates to the physical, mechanical and electrical safety of network assets. UK Power Networks is bound

by the framework and obligations set out in the Health and Safety Legislation to ensure its network assets do not

present a safety risk to the public or its employees and contractors. This is enforced through the Health and

Safety Executive (HSE), the national safety regulator.

2015-23 performance measures

Targeted zero public and staff harm

No formal notices or prosecutions by the HSE under applicable legislation

Reduction in total recordable injury rate by more than 10 per cent

Engage with 1.8 million children, either through face to face or via or on line interaction, on public safety issues over the

planning period

Zero harm

UK Power Networks’ vision is to deliver top third industry performance in the area of safety. Our safety

performance is our highest priority – UK Power Networks recognises the potential safety risk associated with

electricity assets if they are not appropriately managed. UK Power Networks is committed to identifying ways to

eliminate risk to achieve zero harm to customers, contractors and staff.

Loss Time Injuries (LTI) and Total Recordable Injuries (TRI)

Since acquisition by our current owners, we have been on a journey to improve our safety performance. This has

resulted in significant improvement in our accident rate and injuries.

Table 10 UK Power Networks’ actual and forecast safety performance

DPCR-5 Average - EPN DPCR-5 Average - LPN DPCR-5 Average - SPN UKPN’s RIIO ED1

forecast performance

LTIs 14 8 9

Zero harm TRIs 109 39 63

Public safety

UK Power Networks will continue to actively promote public safety including by:

Actively managing our network including through rapid resolution of potential safety issues such as low

conductors and poor condition street furniture (such as link-boxes and streetlights).

Managing the security of our substations to through passive security features, active monitoring and

patrols aw well as maintaining a high level of engagement with the police and other authorities. This will

minimise theft of earthing metalwork may create safety risks for customers

Education programs including at county shows and schools. Our schools program will include both face

to face sessions or line interaction via our interactive website ‘powerup’ and will target 1.8 million

interactions in RIIO-ED1.

Asset Health and Risk

The overall health and condition of UK Power Networks’ assets is an important contributor to staff and public

safety. UK Power Networks has well developed maintenance, refurbishment and replacement activities and

programmes of work which ensure the overall condition of its network assets, the overall health of which is

measured through the Health Index (HI).

In particular, the RIIO Strategy Decision introduces a criticality component which is incorporated into the risk

index. Asset criticality is concerned with the consequence of failure and specifically has regard for safety,

reliability and environmental issues.

The risk index is a secondary deliverable for the network reliability and availability output and is discussed in

detail in section 31 of this document.

General Safety

UK Power Networks’ approach to safety is wider than solely reducing LTIs. We have put significant effort into

promoting the health of those who work for us. We have published an Occupational Health and Wellbeing

Strategy and have launched Fitness to Work assessments for all of our operational staff. Other preventative

measures include a flu vaccination programme that is available to all staff. We have also arranged ‘office walk-

arounds’ by physiotherapists to promote good posture. These improvements have been achieved through

continued communication efforts and incentive.

4.4.2 Customer satisfaction

UK Power Networks is committed to being a customer-driven business. We are committed to monitoring and

improving the service we deliver to achieve a high level of customer satisfaction on everything that we do. As

discussed in section 3 we are also concerned with ensuring effective stakeholder engagement across a range of

services and activities which directly impact our customers.

Customer satisfaction with our performance is measured through the broad measure of customer satisfaction

(BMoCS), which is intended to replicate the sorts of measures typically used by customer-facing businesses in

competitive markets. The BMoCS comprises the following three components:

Customer satisfaction survey

Complaints metric

Stakeholder engagement


Improve performance to top third in all components of the BMoCS including

Customer satisfaction survey

Complaints metric

Stakeholder engagement

Further enhance stakeholder engagement to ensure the service provided to customers meets their expectations during RIIO-

ED1

Continue to expand the contact channels customers can use to talk to us

Broad Measure of Customer Service

Table 11 below shows the BMoCS for each Network for the current and next planning periods.

UK Power Networks' BMoCS targets for the next period highlight its commitment to significantly improve its

performance, particularly in the area of connections and for LPN, general enquiries. In 2012/13, SPN and EPN’s

general enquires performance improved providing confidence that the measures implemented will enable them to

meet the challenging 2015 to 2023 targets. Efficiencies arising from the implementation of best practice systems

and processes as part of the transformation process will also facilitate UK Power Networks achievement of these

targets.

Table 11 UK Power Networks' overall customer satisfaction survey scores

DNO BMoCS component DPCR-5 (Feb. 2012-2013)

UKPN’s forecast performance

for RIIO ED1

EPN Interruptions 8.11 8.55

Connections (minor) 7.20 8.09

General Enquiries 8.18 8.44

LPN Interruptions 7.55 8.05



SPN Interruptions 7.91 8.55



UK Power Networks will introduce a glide path approach to achieving the RIIO-ED1 targets which will involve

setting increasingly higher targets for the remainder of the planning period to incentivise continual improvement in

its performance.

Resolving customer complaints is important to us. We are committed to getting the job right first time, every time

which is reflected in our commitment to eliminate repeat complaints and complaints awarded to the ombudsman

in the 2015 to 2023 planning period as shown in Table 12 below.

Table 12 Complaints metric

DPCR-5

Average - EPN

DPCR-5

Average - LPN

DPCR-5

Average- SPN

UKPN’s

forecast

performance

for RIIO ED1

Complaints not resolved within 1 Day (%) 67 69 62 40

Complaints not resolved within 31 Days (%) 9 9 9 5

Repeat Complaints (%) 12 13 12 0

Ombudsman Complaints awarded to the

customer (%) 0 1 1 0

Overall Complaints Metric Score (%) 15 16 15 6

4.4.3 Network reliability and availability

UK Power Networks is committed to ensuring the long term condition and resilience of its Networks to ensure that

the number and duration of customer supply interruptions are minimised.


Maintain LPN having the lowest level of customer interruptions and customer minutes lost in the UK

Reduce EPN and SPN customer interruptions by more than 8 per cent

Reduce EPN and SPN customer minutes lost by more than 10 per cent

Maintain the health of the network during RIIO-ED1

Continue to improve the load index of the networks by reducing the number of LI 4/5 sites

Protect 98 substations sites from the risk of flooding

Reduce the number of 12 hour failures per year on average by more than 30 per cent

Customer Interruptions (CI) and Customer Minutes Lost (CML)

Table 13 below summarises UK Power Networks' actual performance over the current period (2011 and 2012)

and target performance for the next planning period which commit it to deliver further improvements in relation to:

CIs, which refer to the number of customers whose supplies have been interrupted per 100 customers

each year and

CMLs, which refer to the duration of unplanned interruptions to supply each year, measured by average

customer minutes lost per customer where an interruption of supply to the customer lasts three minutes

or longer

This commitment is underpinned by UK Power Networks' Quality of Supply Strategy, which is focused on

achieving:

Greater network automation and remote control to increase its ability to remotely restore loss of supply

Improvements to inspections and faults processes across the Networks including through changes to

working patterns that better align with the volume and timing of fault calls

Table 13 Unplanned interruptions performance - current period performance and RIIO ED1 targets

DNO CI and CML's DPCR-5 average

performance

UKPN revised forecast

2015-23 performance

% reduction from

DPCR-5 average

EPN CIs 62.5 57.3 8%

CMLs 45.9 41.2 10%

LPN CIs 24.9 25.1 -1%

CMLs 33.0 31.0 6%

SPN CIs 56.4 52.0 8%

CMLs 45.0 39.7 12%

The improvements in EPN's, LPN's and SPN's CI and CML performance during the current period is shown in

Figure 9 to Figure 11. In particular, they show that the Networks are expected to outperform the CI and CML

targets set by Ofgem for the current period, thereby delivering a more reliable service to customers. This

improvement has largely been driven by recent investment which has focused on the efficient and innovative use

of the existing network assets.

This performance improvement has enabled UK Power Networks to achieve the third lowest CI performance of all

fourteen DNOs and the lowest proportion of customer interruptions lasting more than 12 hours as a percentage of

the number of customers interrupted.

EPN has the fourth lowest average restoration time of all 14 UK DNOs reflecting the significant improvements in

restoration performance over the current period. EPN's average restoration time per customer improved by 26

minutes between 2008/09 and 2011/12 (reducing from an average of 101 to 75 minutes).

Figure 9 EPN’s unplanned interruptions performance

Figure 10 shows that LPN has consistently delivered high levels of network reliability as reflected in its CI and

CML targets set by Ofgem for the current period. LPN has outperformed these targets with outperformance being

most pronounced in 2010 and 2011 due to the mild weather. LPN's RIIO-ED1 targets commitment to improved

reliability and availability of supply, notwithstanding growth in demand on its network.

Figure 10 LPN’s unplanned interruption performance

0

50

100

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

EPN CI - UKPN Initial forecast performance

EPN CI - Actual performance

EPN CI - UKPN Revised forecast performance

EPN CI Ofgem Target

0

50

100

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

EPN CML - UKPN Initial forecast performance

EPN CML - Actual performance

EPN CML - UKPN Revised forecast performance

EPN CML - Ofgem Target

0

50

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

LPN CI - UKPN Initial forecast performance

LPN CI Actual performance

LPN CI - UKPN Revised forecast performance

LPN CI Ofgem Target

0

50

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

LPN CML - UKPN Initial forecast performance

LPN CML Actual performance

LPN CML - UKPN Revised forecast performance

LPN CML Ofgem Target

SPN has the fifth lowest average restoration time of all 14 UK DNOs reflecting the significant improvements in

restoration performance over the current period. SPNs average restoration time per customer has improved by

34 minutes between 2008/09 and 2011/12 (reducing from an average of 114 to 80 minutes).

Figure 11 SPN’s unplanned interruption performance

Network health index (HI)

The HI framework is concerned with asset condition. In particular is a framework collating information on the

health (i.e. condition) of distribution assets and for tracking changes in condition over time. The index is based on

the following five categories:

HI1: new or as new

HI2: good or serviceable condition

HI3: deterioration requires assessment and monitoring

HI4: material deterioration, intervention requires consideration

HI5: end of serviceable life, intervention required

UK Power Networks has been reporting against HIs since 2010. By the end of the 2012/13, UK Power Networks

will be ahead of its agreed HI output delivery for all three of its Networks. This is highlighted in Figure 12 to

Figure 14, which also show EPN’s, LPN’s and SPN’s progress against HI output scores monitored by Ofgem over

the current period and the forecast performance HI targets for RIIO-ED1.

Figure 12 EPN’s performance against Ofgem’s DPCR-5 HI scores

0

50

100

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

SPN CI - UKPN Initial forecast performance

SPN CI Actual performance

SPN CI - UKPN Revised forecast performance

SPN CI Ofgem Target

0

50

100

07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22

SPN CML - UKPN Initial forecast performance

SPN CML Actual performance

SPN CML - UKPN Revised forecast performance

SPN CML Ofgem Target

0%

50%

100%

150%

200%

2011 2012 2013 2014 2015Impro

vem

ent as %

of

HI

targ

et*

EPN Actual

EPN Forecast

Agreed HI Improvement

* HI improvement as agreed with Ofgem

0%

10%

20%

30%

40%

50%

60%

70%

80%

End of DPCR5 End of ED1

Axis

title

HI 1 HI 2 HI 3 HI 4 HI 5

Figure 13 LPN’s performance against Ofgem’s DPCR-5 HI scores

Figure 14 SPN’s performance against Ofgem’s DPCR-5 HI scores

UK Power Networks will maintain the profile of its asset health risk for each Network broadly consistent over the

upcoming period. This will involve maintaining the number of assets in each index category broadly consistent.

Load Index (LI)

UK Power Networks is committed to maintaining its LI at current levels in the RIIO-ED1. The LI framework relates

to the utilisation of the assets supplying a demand group and therefore involves assigning each primary or grid

substation a load index number from 1 to 5, representing an increasing level of utilisation or loading.

Table 14 shows EPN’s, LPN’s and SPN’s progress against the LI scores monitored by Ofgem over the current

period and forecast performance for the next planning period.

Table 14 UK Power Networks’ LI performance and forecast future performance

UK Power

Networks

Initial LI

performance at

commencement

of DPCR-5

Revised (as of

2012) LI

performance

forecast at end

of DPCR-5

Forecast LI

performance for

end of RIIO ED1

EPN 87 38 30

LPN 28 27 15

SPN 59 31 25

0%

50%

100%

150%

2011 2012 2013 2014 2015Impro

vem

ent as %

of

HI

targ

et*

LPN Actual

LPN Forecast



0%

10%

20%

30%

40%

50%

60%

70%

80%


Axis

title


0%

50%

100%

150%

2011 2012 2013 2014 2015Impro

vem

ent as %

of

HI

targ

et*

SPN Actual

SPN Forecast



0%

10%

20%

30%

40%

50%

60%

70%

80%


Axis

title


Figure 15 EPN performance

(number of LI 4&5s)

Figure 16 LPN performance

(number of LI 4&5s)

Figure 17 SPN performance

(number of LI 4&5s)

At the start of DPCR-5 our networks had considerably more heavily loaded sites than other DNOs. Table 14

above shows that over the current period the Networks have outperformed the target number of LI4 and LI5,

meaning that that there are fewer assets in these categories than forecast at the start of the current period. This

means that overall, assets have more headroom capacity (or less loading). Figure 15 to Figure 17 show that UK

Power Networks’ 2015 to 2023 load related investment plans will continue to reduce the number of heavily loaded

sites over the period, ensuring that our load index profile comes more in line with other DNOs. This will be

achieved through a combination of traditional reinforcement and investment in smart network solutions (discussed

in section 5.1.5) and are supported by the assumptions relating to the growth in forecast demand over the

upcoming planning period.

Resilience

Resilience is the ability of the distribution system to continue to supply electricity during a disruptive event (such

as flooding or severe storms) and the speed of recovery to resume normal operations after the event. UK Power

Networks applies a proactive approach to improving its network resilience and in RIIO ED1 will undertake:

Flooding resilience for a further 40 substations in EPN, 18 substations in LPN and 40 substations in SPN

Black start resilience by ensuring all UK Power Networks’ sites meet the 72 hour resilience standards

within the RIIO-ED1 periods

UK Power Networks is committed to maintaining average fault rates on overhead lines in RIIO-ED1 at the current

period average rate.

Worst Served Customers

UK Power Networks supports investment to improve service quality to the worst served customers, and has

undertaken investment in the current period where it is funded to do so under the regulatory arrangements. UK

Power Networks will continue to make such investments in the next planning period.

Guaranteed Standards of Performance

Where customers experience an electricity supply interruption lasting more than 18 hours, they are entitled to a

compensation payment under the Electricity (Standards of Performance) Regulations 2010. Domestic customers

receive a payment of £54 and non-domestic customers receive a payment of £108, and both receive a further £27

payment for every additional 12 hours off supply. UK Power Networks has voluntarily increased the payments it

makes to domestic customers to £100. The standards under the Regulations will become more challenging in the

2015 to 2023 period. Customers will be entitled to compensation following 12 hour supply interruptions and

compensation payments will increase to £75 for domestic customers and £150 for non-domestic customers, with

a further £35 payment for every additional £12 hours off supply.

UK Power Networks welcomes this change and will focus on ensuring that the Networks outperform the new

restoration standard to minimise the number of these incidents, so that long duration outages become

increasingly rare for all customers. In particular, UK Power Networks will aim to restore all customers in under 12

hours and 98 per cent of customers in under 8 hours.

0

50

100

EPN

2010 DPCR5 Start2010 DPCR5 Forecast for 2015Actual 2011/122012 forecast for 2015RIIO ED1 End

0

20

40

LPN


0

50

100

SPN


4.4.4 Environmental performance


Top third BCF performance

Continue to recycle 70 per cent of office and depot waste and 98 per cent of street works spoil

Maintain SF6 leakage as a proportion of installed mass

Reduce oil leakage by 2 per cent year on year.

Use allowance for undergrounding in Areas of Outstanding Natural Beauty (AONB) and National Parks

Investigate all noise issues and address all non-compliant sites

Business Carbon Footprint

UK Power Networks is committed to the low carbon transition. In addition to playing a key role in facilitating a low

carbon economy through the connection of low carbon generation, it is also concerned with reducing its own CO2

emissions. Over the current period UK Power Networks has reduced its business footprint by 24 per cent. UK

Power Networks is committed to achieving further reductions including by reviewing the operational areas of its

business that create CO2 emissions.

Table 15 UK Power Networks actual and forecast BCF performance (excluding electricity line losses)

Tonnes CO2

equivalent

DPCR-5 Average

- EPN

DPCR-5 Average

- LPN

DPCR-5 Average

- SPN

DPCR-5 Average

- UKPN

UKPN’s RIIO ED1

forecast

performance

BCF 36,495 18,630 22,687 77,812 76,273

The largest contributors to UK Power Networks’ BCF arise from its transport and fuel usage. Some activities such

as use of temporary generation to restore customers can directly increase UK Power Networks’ carbon footprint.

UK Power Networks’ current forecast BCF performance in the next planning period is based on the average

performance over the current period. UK Power Networks is signing up to the global reporting initiative and is

committed to achieve upper third performance amongst comparable industries.

Innovation to meet decarbonisation

Over the current period, UK Power Networks has significantly increased expenditure on innovation investment

related to low carbon initiatives. In particular, UK Power Networks’ expenditure under the Low Carbon Network

Fund (LCNF) in 2011/12 was £78.2 million or around 0.72 per cent of revenue and increased to £12.7 million

which is around 0.98 per cent of revenue in 2012/13. Further information is provided in section 4.5.

UK Power Networks also monitors a number of environmental indicators including:

Management of equipment containing SF6 (i.e. switch gear and transformers)

Management of oil leakage

Noise reduction

Undergrounding in AONB and national parks

Minimising landfill

Recycling spoilage waste from street works

Over the 2015 to 2023 planning period, UK Power Networks is committed to:

Reducing the impact of our street works through the current on-going program of work

Recycling 98 per cent of its street-works spoil from its term contractors, and is committed to exploring

new ways of treating the remaining waste so that it is re-usable. The learnings from street-works spoil

recycling will be applied to maximise the recycling of waste from major construction projects

A two per cent per annum reduction in the oil loses from pressurised cables and will seek further

reductions through the asset replacement program

Maintaining its SF6 gas leakage at 0.2 per cent of the installed mass by focussing on older items of

switchgear which is designed to lower standards

Undertaking undergrounding of overhead lines in AONB.

4.4.5 Connections

UK Power Networks is committed to facilitating competition in the connections market and making it easier for

customers seeking connection by ensuring:

Customers receive high quality information on the process and cost of connecting to our networks

Customer connection are completed in reasonable timeframes that meet customers’ expectations


Ensure UK Power Networks facilitates a competitive connections environment in its three networks

Achieve upper quartile performance in average time to quote

Achieve upper quartile performance in average time to connect

Provide on-line instant quotations

Meet our improvement commitments to major connections customers

Deliver 100 per cent Guaranteed Standards of Performance compliance

Since formation in 2010, UK Power Networks has focused on improving connection services by undertaking a

number of improvement initiatives including:

The redesign of its website to include improved information on the connection process including in

relation to: connection timeframes; customer information requirements; and third party providers. This

will assist customers understand the choices they have, the information we need from them and our

commitments to them

The introduction of a web based self-service system designed to improve the process for less complex

connection enquiries by enabling customers to create an illustrative quotation

Stakeholder engagement to understand what our stakeholders and customers, including third party

providers, consider to be the priority areas for improvement in the areas of connection services.

Customers and other stakeholders have told us that this is an area in which we could improve further. UK Power

Networks agrees with stakeholders and is committed to undertaking further improvements over the next planning

period. In particular, UK Power Network is committed to implementing an End-to-End Connection Project, as part

of its business transformation project, which will lead to further improvements.

To this end, UK Power Networks’ performance targets for the next planning period as shown in Table 16 and

Table 17 commit it to delivering even further performance improvements that would enable it to reach top-third

performance amongst the 14 UK DNOs.

Table 16 Average time to quote (days)

DPCR-5 Average -

EPN

DPCR-5 Average -

LPN

DPCR-5 Average -

SPN

UKPN’s RIIO ED1

forecast

performance

Low voltage single services 2.4 2.5 2.7 2.4

Low voltage multiple services 6.6 6.6 8.2 5.2

Table 17 Average time to connect (days)

DPCR-5 Average -

EPN

DPCR-5 Average -

LPN

DPCR-5 Average -

SPN

UKPN’s RIIO ED1

forecast

performance

Low voltage single services 42 49 49 42

Low voltage multiple services 53 70 63 53

4.4.6 Social commitments

UK Power Networks understands that electricity is an essential service which is important to its customers. UK

Power Networks considers that a basic customer requirement for all its customer groups, especially those that are

vulnerable to supply interruptions, is an affordable price and dependable electricity service.


Continue to improve the service provided to vulnerable customers

Maintain community engagement during RIIO-ED1

Work proactively with third parties to reduce the level of fuel poor in our three networks

Priority Services Register (PSR) for vulnerable consumers

UK Power Networks maintains a PSR which captures important information on its vulnerable customers in order

to assist it in providing services to these customers. There are currently around 280,000 vulnerable customers on

its PSR. As a respected corporate citizen, UK Power Networks is committed to doing everything possible to

identify and support vulnerable customers. Over the current period, UK Power Networks has improved its service

offerings to vulnerable customers including by introducing:

A welcome pack including luminous stickers with UK Power Networks’ contact details and practical

advice on preparing for a power cut

A priority number enabling an immediate point of contact

Real-time updates offered by way of call backs or SMS messages

Mobile generators to care homes, critically ill customers and those with a medical dependency

Hotel and meal allowances in certain circumstances

Home visits from an engineer before leaving the site

An electronic flagging system was also introduced which enables UK Power Networks to easily identify vulnerable

customers in its database and on its fault management system.

Over the next planning period, UK Power Networks will continue to build on these recent improvements. In

particular, it is committed to, amongst other things:

Developing new, and strengthen existing, partnerships with suppliers, local government authorities and

community organisations to improve services to vulnerable consumers

Assessing how vulnerable and fuel poor customers can benefit from the introduction of smart meters

including through the introduction of innovative tariff structures

Using all available channels to promote the PSR and clearly and simply explain our priority service

offerings. For instance, UK Power Networks will seek to do this during calls with customers, in SMS

correspondence, via its website and via twitter

Where practical, enhance its service offerings to:

Offer notices in braille, for visually impaired customers

Simplify telephone options, so it is simpler and quicker to contact a customer advisor

More simply explain to customers our pricing methodology.

Fuel poor

Fuel poor customers are those who would need to spend 10 per cent of their income on fuel to maintain an

adequate level of warmth (21 degrees in the main living area, and 18 degrees for other occupied rooms). It is

estimated that approximately five million households in the UK are fuel poor and a large percentage of these

customers (around 80 per cent) are also vulnerable.

UK Power Networks is committed to undertaking initiatives to reduce fuel poverty. Key areas of focus in the next

planning period include:

Assessing how smart meters can be used to reduce fuel poverty. UK Power Networks will seek to work

jointly with suppliers, local government authorities and community organisations on this matter

Providing greater targeted information on how energy efficiency and demand side activity can be used by

these customers to better manage their energy consumption and thereby reduce their electricity bill.

Community engagement

As an essential service provider, UK Power Networks is committed to helping sustain livelihoods and lifestyles for

many people in the East and South East of England and London. UK Power Networks strengthens local

economies and communities through infrastructure investment, as well as through everyday actions including

supporting:

The British Red Cross assistance for vulnerable customers

Wildlife trusts in our distributions area

Public safety education in schools and county shows

Charity aid foundations

UK Power Networks is pleased to advise that it has recently established a community grant program that provides

funding (from shareholder returns) for community based projects relating to low carbon projects, vulnerable

customers and communities. Quarterly grants of £1,000 to £10,000 are available under the scheme depending

on the project’s size and merit with a total of £100,000 available for each Network in the first year of the scheme.

The grant program is about bringing ideas to life and the possibilities are endless.

4.5 Innovation

UK Power Networks has a strong track record of network innovation and has made extensive use of incentives

such as the Innovation Funding Incentive, Registered Power Zone and Low Carbon Network Fund to develop

bespoke demonstration projects and selectively participate in major European research programmes. UK Power

Networks is committed to continually implementing new ideas or methods that improve the way it operates its

networks and transports electricity. UK Power Networks uses innovation to deliver its vision, improve its customer

satisfaction, deliver cost efficiencies, optimise investment and network planning and meet the challenges of the

low carbon economy and keep customers’ bills down. UK Power Networks has been successful in winning

funding in each year of the first three years of the Low Carbon Network Fund Tier 2 competition. The three

projects for which it has been awarded funding: Low Carbon London; Flexible Plug & Play Networks; and Smarter

Network Storage, explore the scope for both technological and commercial innovation to enhance the capability of

electricity distribution networks and the wider system to accommodate new low carbon technologies such as

electric vehicles, heat pumps and renewable generation.

4.5.1 Innovation investment over the current period

Over the current period, UK Power Networks has significantly increased expenditure on innovation. Total

innovation expenditure (LCNF tier 1 and 2 and IFI) has increased from £3.3 million in 2008/09 (or 0.5 per cent of

allowed revenue) to £15.8 million in 2012/13 (or to 1.2 per cent of allowed revenue). IFI and LCNF Tier 1

expenditure has increased from £3.9 million in 2010/11 to £5.4 million in 2012/13. The remaining expenditure

relates to LCNF Tier 2 and has risen from £1.1 million to £10.4 million over the same period. The efficiency and

value of this expenditure was tested through the LCNF Tier 2 competitive bidding process. This shown by Figure

18.

Figure 18 UK Power Networks’ innovation related expenditure

A short summary of UK Power Networks' investments under the LCN fund and IFI is provided below:

0

5

10

15

20

25

Ea

rly S

tart

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5Innovation S

pend (

£m

)

IFI LCNF Tier 1 LCNF Tier 2

UK Power Networks' current period LCNF tier 1 investments

To date, the following five projects have been registered:

Short-term energy storage on the distribution network (June 2010). The focus of this project is

investigating the use of storage, as an alternative to traditional network reinforcement, to provide

additional network capacity (thermal or voltage support) for limited periods where the demand is

uncertain.

Distribution network visibility (September 2010). The focus of this project is assessing the benefits of

collecting, utilising and visualising available network data to improve our operational and investment

decisions e.g. to improve time required to connect new customers.

LV current sensor technology evaluation (December 2011). This is a joint UK Power Networks' and

Western Power Distribution project - and UK Power Netwroks' first joint project. It evaluates a range of

network monitoring solutions that assist in understanding the available network capacity, thereby

minimising customer disruption or delay when low-carbon technologies are deployed in the future.

Validation of Photovoltaic (PV) connection assessment tool (January 2012). This project tests the

validity of UK Power Networks' new planning tool, which assesses the impact of concentrations of small

scale generation on its distribution networks e.g. solar panels, which enable it to provide improved

services to customers.

Smart urban low voltage network (July 2012). This is a joint project with TE Connectivity, to develop a

new solid-state switching technology. This project will increase flexibility with respect to remote switching

and re-configuration of the LV network. Solid-state switching technology provides greater visibility of

power flows on the network, using the near real-time communications and built in sensors. This enables

extensive load monitoring so as to better understand the live state of the LV network.

UK Power Networks' current period LCNF tier 2 investments

To date, Ofgem has awarded UK Power Networks funding for the projects under the LCNF Tier 2 scheme:

Low Carbon London (October 2010) – This was UK Power Networks' first flagship project. Ofgem

awarded UK Power Networks £24.9 million of the available £64 million (to all DNOs) to purse smart

network initiatives which focused on innovative ways to deliver sustainable electricity to businesses and

communities in a low carbon future UK Power Networks has contributed an additional £5 million to

support this project

Flexible Plug and Play (November 2011) - This was UK Power Networks' second flagship project. Ofgem

awarded UK Power Networks £6.8 million to trial innovative technical and commercial solutions in order

to provide cheaper and faster connections of renewable generation, such as wind power, to the

electricity distribution network

Smarter Network Storage – (November 2012). This project involves the installation of a larger scale

storage plant to solve a network constraint. Electricity storage could provide value for customers by

reducing the need for network reinforcement and has wider system benefits such as providing network

services such as reserve and response to help balance electricity supply and demand

UK Power Networks will continue to bid for expenditure to be approved under the LCNF where it identified

projects which will deliver long term benefits to customers.

UK Power Networks' current period IFI projects

UK Power Networks expenditure on approved IFI projects falls into three high level areas:

Innovation and current assets

Managing customer demand through innovation

Using innovation to release extra capacity in our networks.

Further information on UK Power Networks’ innovation expenditure in the current period is set out in:

UK Power Networks' Innovation Strategy, which will also be published on 1 July 2013

UK Power Networks IFI / LCNF Annual Report April 2011 to March 2012.

4.5.2 Innovation investment in the 2015 to 2023 planning period

UK Power Networks is seeking a regulated Network Innovation Allowance of 0.5 per cent of total regulated

revenue over the upcoming planning period. As noted, UK Power Networks is forecasting to spend around 0.5

per cent of its total regulated revenue over the current 2010 to 2015 period and has spent around 0.4 per cent in

2010/11 and 2012/13.

The innovation mechanisms that will apply in the 2015 to 2023 period are different to the mechanisms applied by

Ofgem in the current period and include:

The Network Innovation Competition (NIC). This will replace tier two of the LCN Fund. The NIC will

provide competitive funding for large scale low carbon and environmental projects

The Network Innovation Allowance (NIA). This will replace the IFI programme and tier one of the LCN

Fund. This will provide a fixed annual regulatory allowance of between 0.5 and 1.0 per cent of allowed

annual revenue for each year of the 2015 to 2023 planning period

The Innovation Roll out Mechanism (IRM). This will provide funding for business as usual innovative

projects that are not funded under either the NIC or NIA. Funding is provided under a revenue

adjustment mechanism whereby DNOs will be able to apply for funding at specified times (application

windows) during the price control where the costs are material (proposed expenditure multiplied by the

DNOs efficiency rate is greater or equal to one per cent of revenue base) and satisfy defined criteria

including supporting the delivery of outputs.

UK Power Networks is only seeking 0.5 per cent under the NIA and will actively bid for funding for specific

projects available annually on competitive basis via the NIC where it identifies projects that satisfy the required

criteria and that will assist it to deliver its outputs in a manner that provides long term benefits for customers. UK

Power Networks considers that having a low regulated allowance under the NIC will deliver the best value for

customers.

UK Power Networks considers that this level of funding will support it achieve its vision of delivering top-third

performance amongst the 14 UK DNOs in the area of safety, network reliability, customer service, cost efficiency

and employee engagement. It will also strongly position UK Power Networks to address the challenges, changes

and opportunities that lie ahead over the next ten years whilst continuing to deliver long term benefits for

customers.

Further information on UK Power Networks’ innovation strategy for the next period is set out in UK Power

Networks' Innovation Strategy, which will be published, together with the Business Plans, on 1 July 2013.

5 Expenditure requirements

5.1 Revisions to our proposed expenditure

Based on stakeholder feedback and our own further reviews, UK Power Networks has revised the capital and

operating expenditure forecasts in the 2015 to 2023 Business Plans to reflect the following:

Changes to major projects

Revised unit costs

Network regional characteristics

Revised volumes

Each of these is discussed below.

5.1.1 Major projects and investments

UK Power Networks has listened to its customers and other stakeholders and has undertaken further internal

analysis of its key reinforcement projects. This has resulted in material changes to the proposed expenditure for

the following projects

London Infrastructure Plan - LPN is proposing to only include three of the six projects previously

proposed in its Consultation Draft Business Plan. The impact of this is to reduce expenditure from £170

million to around £100 million (excluding land purchase and other associated costs)

Distributed Generation (DG) Infrastructure - EPN is proposing a reduction in expenditure from £50 million

to £15 million

The nature and results of the assessment undertaken of each of the following projects is discussed below:

London Infrastructure Plan

The London Infrastructure Plan project is our central London investment strategy to ensure that the London

network, particularly the central business district (CBD), has capacity and resilience that is comparable with other

world cities. There are currently concerns relating to:

Faults with long restoration times primarily due to the complexity of the LV interconnected network

Available capacity required to cater for load growth

LPN’s Consultation Draft Business Plan included a draft plan to enhance network resilience, network capacity and

customer service for London by:

Increasing capacity at six main substations (Vauxhall Nine Elms, White City, West End, City of London,

West Ferry Road, Calshot Street) at an estimated cost of around £170 million

Increasing network automation and remote control to improve the quality of supply and network

resilience at an estimated cost of around £42 million.

LPN has revised the scope of the proposed investment required for the London Infrastructure Plan based on

outcomes and advice from:

WTP studies - There was strong support from the London Infrastructure Forum for this investment given

the importance of this investment for the economic growth and prosperity of the wider UK economy over

the long term. The nature, scope and outcomes of this consultation is discussed in sections 3.3 and 3.4

above

Network options analysis – UK Power Networks has assessed different investment options to improve

the resilience – performance and capacity – of LPN’s network assets. It engaged an independent

engineering consultant, Sinclair Knight Merz (SKM), to provide an expert review of the possible

investment options for addressing the issues. SKM identified and reviewed the costs versus the benefits

of the available options which were categorised as short, medium and long terms solutions

Stakeholder engagement – UK Power Networks extensively engaged with its stakeholders, including

through the London Infrastructure Forum which is discussed in section 3.3 above on an appropriate

investment solution. UK Power Networks recognises that any investment solutions must be line with

requirements of customers and key stakeholders

As a result of these outcomes UK Power Networks has revised its investment strategy by removing three projects

from this updated business plan. In the case of the City of London project UK Power Networks is able to extend

an existing network primary substation, reducing the expected time to connect once a customer has made a

formal connection request. The proposed investments are summarised in Table 18 below.

Table 18 London infrastructure development revised plan

Project name Initial firm capacity

to be installed (n-1)

Latest status in

UKPN business plan

Costs to DUoS

customers

(£ million)

Cost to connection

customer(s)

(£ million)

Vauxhall Nine Elms 66 MVA Included in RIIO-ED1 33.0 TBC

White City 66 MVA Included in RIIO-ED1 27.5 2.5

West End 60 MVA Included in RIIO-ED1 32.0 0

City of London 33 MVA

Waiting for initial

customer enquiry

before agreeing

funding allocation

Not applicable Not applicable

West Ferry Road 66 MVA

Waiting for initial

customer enquiry

before agreeing

funding allocation


Calshot Street 66 MVA

Included in DPCR-5/

RIIO-ED1 Business

Plan

8.0 0

Total 423 MVA 100.5 TBC

Earls Court 66 MVA

Waiting for initial

customer enquiry

before agreeing

funding allocation


DG infrastructure investment

This project is intended to address existing network constraints in the East of England where there has been a

high number of renewable generation developments. While UK Power Networks supports the timely and efficient

connection of these medium to large scale generation proponents to its network, it emphasises that significant

network investment is required to ensure the maintenance of the quality and reliability of supply and network

safety standards for existing customers.

UK Power Networks reviewed 16 investment projects ranging in capacity to be installed between 90MVA and

7MVA. UK Power Networks has revised the size of the investment based on outcomes and advice from:

WTP studies - There was clear support from customers for network investment to provide additional

infrastructure to support the network against LCT growth. Customers indicated that they were willing to

pay an additional £116 million across our three networks, and for EPN alone they were prepared to pay

an additional £52 million, over the 2015 to 2023 planning period.

Cost-benefit / options analysis – UK Power Networks undertook an internal cost benefit assessment of

the different investment options. This assessment involved:

Determining the cost of each network investment project and assumed that the costs would be incurred

in a single year

Determining the benefits associated with each project, being the reduction in carbon emissions from

the connection of low carbon generation enabled by the network extension. UK Power Networks

assessed the benefits using both the DECC energy market traded and non-traded carbon values (high-

low scenarios in both cases) over a period of 16 and 24 years

Assuming phased use (over several years) of the additional network investment

Further stakeholder engagement at two UK Power Networks’ DG forums

Technical expert review – UK Power Networks is finalising an external technical review by SKM of the

four proposed projects to ensure best value for customers is achieved in RIIO-ED1. This review will be

completed for the final July business plan

Our Business Plan Update proposes four projects should be developed during RIIO-ED1 installing a further

187MVA of capacity at a total cost to consumers of £15.35 million. These projects represent best value for money

realising a positive return using the DECC non-traded carbon values.

5.1.2 Unit costs

UK Power Networks has reviewed the unit costs underpinning its 2015 to 2023 expenditure forecasts to ensure

that they are the most efficient achievable costs. The unit costs underpin both the capital and operating

expenditure as follows:

Capital expenditure – network replacement, network refurbishment and network reinforcement

expenditure

Operating expenditure – day to day costs of running the network including faults, tree cutting and

inspection and maintenance

The review involved a:

Top-down assessment of the efficient industry costs for network activities, as reported annually by DNOs

A detailed review of all cost components (i.e. a bottom-up cost build-up) for 22 network services and

activities, which represent around 80 per cent of UK Power Networks’ total expenditure for the next

planning period. This involved assessing and comparing the costs incurred across the Networks for

these activities as well as average industry costs

Importantly, the review highlighted differences between the costs calculated using the detailed bottom-up

approach compared to the top-down approach, with the top-down approach resulting in a lower cost outcome.

UK Power Networks has therefore adopted these costs in developing its expenditure forecast for the 2015 to 2023

period and these will provide better value for money (through costs savings) for its customers.

UK Power Networks’ 2015 to 2023 expenditure is based on unit costs that represent the upper quartile industry

targets adjusted for regional cost impacts (which apply only to LPN and SPN). UK Power Networks is continuing

to review these target unit costs together with its stakeholders and consultants and any revisions will be

incorporated in its final 2015 to 2023 business plans.

5.1.3 Regional differences impacting costs

UK Power Networks has updated its expenditure forecasts to reflect the regional differences that impact the cost

of undertaking the work required to deliver its outputs. These differences influence the level and type of required

activities and associated costs associated with:

Transport and travel – increased costs associated with working in narrow streets, traffic congestion, and

parking restrictions

Excavation – increased costs associated with working in high density urban areas, and increased cable

installation depth

Operations – increased costs associated with scheduling work, accessing sites, and gaining consent

from multiple interested parties such as property owners and local authorities

Resources – increased costs associated with higher labour rates

Security – increased costs associated with higher network asset security requirements

Cable routes – increased costs associated with building tunnels to allow the installation of, and access

to, underground cables

Properties – increased costs associated with land and buildings

Contractors – increased costs associated with higher labour rates (due to shortage of skilled labour)

To calculate the cost impact associated with regional factors, UK Power Networks has applied the same top down

approach applied by Ofgem in its recent gas distribution determination. This approach is set out in Ofgem's

"RIIO-GD1: Initial Proposals – Step-by-step guide for the cost efficiency assessment methodology". This

approach was chosen as it provides a straightforward, robust and transparent approach for calculating regional

cost differences.

5.1.4 Revised volumes

UK Power Networks has revised the volumes underpinning its expenditure forecast to reflect outcomes from:

CBA analysis

Options analysis

External review and assurance

Benchmarking of asset life duration

UK Power Networks has worked extensively with consultants to review both its network asset management

strategy and its forecasting models to ensure they support robust and efficient forecast volumes of work to be

undertaken over the upcoming planning period.

5.1.5 Incorporation of smart metering

Since UK Power Networks published its Consultation Draft Business Plans there has been further clarification on

the services that DNOs will need to provide as a result of the implementation of the smart metering programme in

the first half of RIIO-ED1. UK Power Networks has adopted the following key principles in determining its smart

metering strategy:

The interests and experience of the customer are paramount. Work undertaken during RIIO-ED1 must

create a good customer experience and customer benefits must be realised early where possible, to help

encourage positive adoption of smart metering

Smart metering will yield data and functionality that provides a significant opportunity for business

benefits and these opportunities must be seized

Smart metering provides the vanguard in moving the UK distribution networks towards a smart grid,

capable of supporting load shifting, pervasive LCTs and active network management. Investment must

be made to take advantage of these opportunities in RIIO-ED1 and provide a sustainable platform to

maximise opportunities in RIIO-ED2

Smart metering provides a new infrastructure that benefits not just DNOs, but customers, suppliers and

other participants

To measure these principles, we have included benefits in our business plan in excess of those set out in

the ENA’s paper ‘Analysis of Network Benefits from Smart Meter Message Flows Interim Review

(Phasing and Categorisation)’ and seek wherever possible to meet the benefits that can be distilled from

the Department of Energy and Climate Change (DECC) Impact Assessment (IA)

During the rollout, it is expected that there will be an additional 20,000+ interventions per year. These must be

carried out efficiently and effectively with trained staff who deliver a good customer experience and in a safe

manner. A dedicated unit will be established to manage this work for the rollout period. Staff will be transferred

from existing units to provide business knowledge, mentoring and leadership to new staff. A mix of direct and

contractor labour, broadly 60 to 40 per cent, will initially be developed to match a two per cent intervention rate.

UK Power Networks has assessed each area of cost and sought ways to optimise spend, consistent with

delivering a quality consumer experience and the overall benefits. The main cost drivers in RIIO-ED1 are

summarised in Table 19 below.

Table 19 Smart metering investment requirements

Area DPCR-5

total (£m)

ED1

total (£m)

Comment

Interventions 7.7 60.2 Establish a workforce and carry out 160,000 additional

interventions

Indirects (Inc. training) 8.0 14.1 Dedicated Interventions team and the recruitment,

training of the direct workforce

Industry interface and income

management

1.0 0.5 Support additional data queries and the Smart Energy

Code (SEC)

Call centre 0.1 1.0 Temporary additional agents to manage interventions

Network Condition and Planning - -

DCC Fixed charge 0.3 6.6 Based on 7.7m meters at bands of 2p, 5p, 10p until

2020, then 20p post 2020

DCC transaction costs 0.1 2.3 Energisation checks and asset data

IT Costs 7.5 21.0 Mandated change and building a platform to support

smarter networks

Total 24.7 105.7

UK Power Networks has applied a rigorous approach to identifying and quantifying potential benefits. We have

reviewed the benefits in the DECC IA and in the ENA submissions to the programme to identify the applicability

and value to UK Power Networks. We have further sought to identify additional benefits and to ensure smart

meter opportunities are fully fed into our other corporate initiatives. We have assessed the benefits to other

parties, for example consumers and suppliers, as well as to ourselves. We estimate that during the ED1 period

we can deliver the following benefits:

A total of £97.1 million of benefits for all parties against the DECC IA estimate of £107million and the

ENA paper ‘Analysis of Network Benefits from Smart Meter Message Flows Interim Review (Phasing and

Categorisation)’ estimate of £67 million

This includes benefits of £42.5m to the UK Power Networks’ business

In addition to these financial benefits, we believe we can deliver substantial qualitative benefits to consumers, in

particular proactive targeted messaging in fault situations. We can also position the business to address the

opportunities of the network of the future at the start of RIIO-ED2.

5.1.6 Implementing a smart grid strategy to reduce network investment

Within the business, UK Power Networks has developed a comprehensive Future Network Development Plan

which provides the overall framework for our Smart Grid Innovation Strategy. This plan, which we referred to in

our November 2012 Consultation Draft Business Plans, comprises a suite of documents which collectively map

out our priorities for smart grid implementation and further research and development over the RIIO-ED1 period.

Importantly, given the inherent uncertainty as to the rate of adoption of low carbon technologies over the medium

term, the plan identifies how our priorities would flex to deal with varying future energy scenarios and so ensure

an optimal level of investment in smart grid solutions.

Complementary to our Future Network Development Plan is UK Power Networks’ approach to future load

forecasting. We have worked with acknowledged experts in this field to develop our forecasts at a granular level

thereby enabling us to identify those particular parts of our network which, under varying future energy scenarios,

will more quickly come under pressure as both low carbon technologies and wider economic drivers of load

growth eat into currently available network capacity headroom.

Collaboration with Smart Grid Forum and Development of Models

As well as being represented on the joint Ofgem / DECC chaired Smart Grid Forum, UK Power Networks has

engaged fully with its various workstreams. This has included developing future energy scenarios; examining the

overall business case for smart grids; identifying potential regulatory and market barriers, and solutions; and

assessing the scope for smart grid investment strategies to reduce overall requirements for network expenditure,

both in the longer term and over the RIIO ED1 and ED2 periods. Our Low Carbon Network Fund projects continue

to provide a valuable source of experience which we are able to share with the Smart Grid Forum workstreams

and so ensure that the industry as a whole benefits from our work.

Whilst all of the Smart Grid Forum workstreams are important, and indeed interdependent to some extent, of

particular importance has been the development of a parametric model of the GB distribution networks to provide

a high-level assessment of the impact of low carbon technologies, and the relative cost-effectiveness of a range

of both conventional and smart network investment options to manage that impact. The model, known as

‘Transform’, can be used to compare the relative benefits of alternative smart interventions under varying future

energy scenarios. Whilst it can provide an indicative level of investment over a given period of time (such as

RIIO-ED1) the parametric nature of model means that it is better utilised in its design context – namely as a

means of comparing longer-term investment strategies.

Notwithstanding its longer-term horizon, UK Power Networks has carefully studied the outputs of Transform from

a RIIO-ED1 perspective in order to compare its predicted savings over conventional investment compared with

those of our own smart grid strategy. Our analysis shows that UK Power Networks anticipates similar savings to

those predicted by the Transform model over the RIIO ED1 period, albeit our solutions are more appropriate to

our networks and the RIIO-ED1 timeframe than those promoted by the model.

UK Power Networks’ RIIO ED1 Smart Grid Strategy

Solutions which are of particular importance to our network over the RIIO-ED1 period include: Demand Side

Response with Industrial and Commercial Consumers (incorporating Generator Network Support); Real Time

Thermal Ratings of Overhead Lines; Real Time Thermal Ratings of System Transformers; Fault Current Limiters;

Enhanced Network Meshing; and Voltage Optimisation. Complementary to these smart grid solutions, UK Power

Networks will invest in appropriate enabling technologies over the RIIO-ED1 period to ensure that our smart grid

strategy remains optimal over the RIIO-ED2 period when low carbon technologies are expected to have a much

greater impact. A priority over RIIO-ED1 will be to increase visibility of network load flows and voltage levels

through advanced monitoring and communications systems so that emerging network constraints can be

foreseen and addressed in good time. UK Power Networks will make full use of data emanating from smart

meters, the rollout of which should be completed during 2019, as part of its enhanced network visibility strategy.

Over the RIIO-ED1 period, by investing in smart grid alternatives, UK Power Networks anticipates savings across

its three licensed distribution networks of around £125 million compared with a conventional approach to network

reinforcement. UK Power Networks also anticipates that it will benefit from £10 million of smart savings on non-

load related expenditure through the use of partial discharge, giving a total saving of c. £135 million.

Benefits from Existing Smart Solutions

As one of GB’s leading exponents of smart grids, UK Power Networks has already established a baseline of

smart network solutions which have provided, and will continue to deliver, significant network investment

efficiencies. Two particular examples which will be of particular relevance and further developed over the RIIO-

ED1 period are Enhanced Network Meshing and Transformer Thermal Modelling.

The former is being continuously developed as a means of maintaining the unique benefits of LV interconnected

HV feeder groups in Central London. This arrangement is a specific form of network meshing that combines the

benefits of high HV and LV network utilisation, and no-break supplies under single HV circuit fault conditions. As

such the system provides similar levels of service to unit-protected circuits but without the redundant network

capacity inherent in unit-protected schemes. Systems are developed which combine extensive automation and

simplified interconnection which enable high utilisation levels to be maintained along with rapid post-fault

restoration of supplies.

5.1.7 Real price effects

Key elements of UK Power Networks’ cost base for the next planning period will increase at a greater rate than

the retail price index (RPI), which measures general prices in the economy, due to the specialist labour and

materials required to operate our Networks. UK Power Networks engaged NERA Economic Consulting (NERA) to

independently estimate the real price effects (RPEs), being the real price movements, relative to RPI for the next

planning period for:

Labour

Materials

Plant and equipment

NERA’s analysis (methodology and data sources) is consistent with the approach applied by Ofgem in the recent

RIIO electricity transmission and gas distribution price reviews. NERA developed a range of scenarios: midpoint

and upper and lower bounds. Separate RPEs were calculated for network investment expenditure and operational

expenditure reflecting the different composition of inputs required to undertake activities relating to this

expenditure.

UK Power Networks has adopted NERA’s mid-point RPE estimates as shown in Table 20 below. These RPEs

have been reflected in UK Power Networks’ capital and operating expenditure forecasts, which are separately

detailed in section 5.2. The RPE impact is offset, in part, by efficiency savings also independently calculated by

NERA. The RPEs applied by UK Power Networks are lower than those applied by Ofgem in its RIIO electricity

and gas transmission Decision (on a consistent weighting of activity).

Table 20 RPEs for the 2015 to 2023 planning period

Operational activities (%) Network investment (%)

RPE applied by UKPN (NERA) 1.2 1.0

5.2 Impact of changes on 2015 to 2023 proposed capital and operating expenditure forecast

Sections 5.2.1 to 5.2.3 set out EPN’s, LPN’s and SPN’s total forecast expenditure requirements (capital

expenditure (capex) and operating expenditure (opex)) for the next planning period which reflect the changes

discussed in section 5.1.

5.2.1 EPN’s 2015 to 2023 proposed expenditure forecasts

EPN’s total proposed expenditure for the next planning period is £3.09 billion. This is:

An increase of £0.29 billion or ten per cent compared to the current 2010 to 2015 period expenditure,

adjusting for the difference in the length of the planning period. The increase is primarily driven by the

DG Infrastructure investment, increased work volumes and smart meter readiness including interventions

A decrease of £0.01 billion compared to UK Power Networks’ Initial Forecast. This decrease in required

expenditure is largely driven by a change in scope of the DG Infrastructure investment, a revision of unit

costs and further assessment of the volumes of work underpinning the business plan. These changes

are discussed in detail in section 5.1 of this Business Plan.

Table 21 below sets out EPN’s forecast capex, by building block, for the next planning period compared to actual

expenditure over the current period and its initial forecast (set out in its Consultation Draft Business Plan).

Table 21 EPN: Revised capital expenditure requirement 2015 to 2023 - by building blocks

£ billion DPCR-5

expenditure

Initial 2015-23

expenditure

forecast

Revised 2015-23

expenditure

forecast

% difference:

DPCR-5 expenditure

and revised 2015-23





Indirect costs 0.80 0.80 0.82 +3%


RPEs - 0.10 0.09 -

Total 2.80 3.10 3.09 +10%

Figure 19 EPN Initial 2015 to 2023 forecast (£3.10

billion)

Figure 20 EPN Revised 2015 to 2023 forecast

(£3.09 billion)

0.6

0.9

0.6

0.8

0.10.1

Load related capex

Non load relatedcapexNetwork operatingcostsIndirect costs

Non operational capex

RPEs

0.6

0.9

0.5

0.8

0.10.1

Load related capex



RPEs

5.2.2 LPN’s 2015 to 2023 proposed expenditure forecasts

LPN’s total proposed expenditure for the next planning period is £2.14 billion. This is:

An increase of £0.34 billion or 19 per cent compared to the current 2010 to 2015 period expenditure,

accounting for the difference in the length of the planning period. The increase is primarily driven by the

London Infrastructure Plan, increased work volumes and smart meter readiness including interventions.

A decrease of £0.16 billion or seven per cent compared to UK Power Networks’ Initial Forecast. This

decrease in required expenditure is largely driven by a change in scope of the London Infrastructure

Plan, a revision of unit costs and further assessment of the volumes of work underpinning the business

plan. These changes are discussed in detail in section 5.1 of this Business Plan.

Table 22 below sets out LPN’s forecast capex, by building block, for the next planning period compared to actual


Table 22 LPN: Revised capital expenditure requirement 2015 to 2023 - by building blocks

£ billion DPCR-5

expenditure

Initial 2015-23

expenditure

forecast

Revised 2015-23

expenditure

forecast

% difference:

DPCR-5 expenditure

and revised 2015-23




Network operating costs 0.30 0.30 0.30 +1%

Indirect costs 0.50 0.50 0.55 +10%

Non-operational capex 0.10 0.10 0.09 -9%

RPEs - 0.10 0.06 -

Total 1.80 2.30 2.14 +19%

Figure 21 LPN Initial 2015 to 2023 forecast (£2.30

billion)

Figure 22 LPN Revised 2015 to 2023 forecast (£2.14

billion)

0.7

0.6

0.3

0.5

0.10.1

Load related capex



RPEs

0.5

0.60.3

0.6

0.1

0.1

Load related capex



RPEs

5.2.3 SPN’s 2015 to 2023 proposed expenditure forecasts

SPN’s total proposed expenditure for the next planning period is £2.08 billion. This is:

An increase of £0.18 billion or nine per cent compared to the current 2010 to 2015 period expenditure,

accounting for the difference in the length of the planning period. The increase is primarily driven

increased work volumes and smart meter readiness including interventions.

An increase of £0.08 billion or four per cent compared to UK Power Networks’ Initial Forecast. This

increase in required expenditure is largely driven by further assessment of the volumes of work

underpinning the business plan, offset by a revision of unit costs. These changes are discussed in detail

in section 5.1 of this Business Plan.

Table 23 below sets out SPN’s forecast capex, by building block, for the next planning period compared to actual


Table 23 SPN: Revised capital expenditure requirement 2015 to 2023 - by building blocks

£ billion DPCR-5

expenditure

Initial 2015-23

expenditure

forecast

Revised 2015-23

expenditure

forecast

% difference:

DPCR-5

expenditure and

revised 2015-23

expenditure

forecast




Indirect costs 0.60 0.50 0.52 -13%


RPEs - 0.10 0.06 -

Total 1.90 2.00 2.08 +9%

Figure 23 SPN Initial 2015 to 2023 forecast

(£ 2.00 billion)

Figure 24 SPN Revised 2015 to 2023 forecast

(£ 2.08 billion)

0.4

0.6

0.4

0.5

0.10.1

Load related capex



RPEs

0.4

0.7

0.3

0.5

0.1

0.1

Load related capex



RPEs

6 Financing

6.1 Impact of changes on our revenue requirement and customers’ bills

6.1.1 Cost of capital and financial requirements

UK Power Networks has not amended any of the financial assumptions made in its November 2012 Consultation

Draft Business Plan set out below. We are still reviewing these assumptions for our Final Business Plans,

including the cost of equity. UK Power Networks’ financial assumptions reflect what is required to attract essential

investment required to finance the Networks over the 2015 to 2023 planning period and long term value for

money for consumers.

Table 24 Financing parameters

Parameter Current period (DPCR-5) 2015 to 2023 planning period

Cost of equity 6.73% 7.00%

Notional gearing 65.0% 65.0%

Cost of debt 3.6% Rolling 10 year average

Vanilla WACC 4.69% 4.24% to 4.17% (estimated)

Totex split (fast / slow) 15/85 (business support + non-

operational capital expenditure 100%

fast)

30/70 on all expenditure categories

RAV depreciation 20 years Single period transition to 45 years

Ofgem target dividend yield 5% on regulated equity 5% on regulated equity

6.1.2 Revenue requirement

In order for UK Power Networks to continue to operate safe and secure distribution networks it needs levels of

revenue to match its expenditure plans. Figure 25 to Figure 27 show EPN’s, LPN’s and SPN’s annual revenue

requirements for the 2015 to 2023 planning period. The revenue requirements cover the cost of operating the

Networks, financing capital investments, tax expenses and other liabilities incurred such as employee pensions.

UK Power Networks will recover this revenue from customers through the charges discussed in section 6.1.3

below.

We are pleased that the cost savings in our Business Plan Update allow us to offer real term price cuts in 2015,

followed by some modest real term growth in line with our asset base in order to maintain appropriate credit

ratios.

Figure 25 EPN’s annual revenue requirement Figure 26 LPN’s annual revenue requirement

Figure 27 SPN’s annual revenue requirement

6.1.3 The impact on our customers

UK Power Networks has estimated the impact on domestic and non-domestic customers using the same

methodology applied in its November 2012 Consultation Draft Business Plan. This involved applying the

percentage change in forecast revenue required to finance UK Power Networks in the next planning period to the

current charges.

Figure 28 to Figure 33 show that in real terms LPN and SPN’s prices will remain relatively constant with current

price levels over the next planning period and that there will be a relatively modest increase in EPN’s prices but

they will flatten from 2019.

UK Power Networks’ 2015 to 2023 Business Plans should see each of the Networks remain amongst the lowest

cost UK DNOs.

Figure 28 EPN: projected change in average annual

domestic bill (real £2010/11)

Figure 29 LPN projected change in average annual

domestic bill (real £2010/11)

0

100

200

300

400

500

60013/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

19/2

0

20/2

1

21/2

2

22/2

3£m

(2010/1

1 p

rices)

Profiled revenue Profiled revenue (Nov '12)

CAGR: 1.3%

Po: (4%)CAGR: 2.3%

0

100

200

300

400

500

600

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

19/2

0

20/2

1

21/2

2

22/2

3£m

(2010/1

1 p

rices)


CAGR: 0%

Po: (10%)CAGR: 1.7%

0

100

200

300

400

500

600

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

19/2

0

20/2

1

21/2

2

22/2

3£m

(2010/1

1 p

rices)


CAGR: 0%

Po: (12%)CAGR: 1.9%

76.289.3

60.5

79.488.3

0

50

100

150

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

EPN EPN - NOV '12

DNO average DNO average forecast

Highest cost DNO

60.4

77.0 86.6

85.5 85.5

0

50

100

150

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

LPN LPN - NOV '12


Highest cost DNO

Figure 30 SPN: projected change in average

annual domestic bill (real £2010/11)

Figure 31 EPN: projected change in average annual

non-domestic bill (real £2010/11)

Figure 32 LPN: projected change in average annual


Figure 33 SPN: projected change in average annual


56.0

95.2

83.895.6

95.2

0

50

100

150

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

SPN SPN - NOV '12


Highest cost DNO

174.3204.4

151.5

181.6 202.1

0

100

200

300

400

500

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

EPN EPN - NOV '12


Highest cost DNO

164.0

156.5

140.9 158.5

156.5

0

100

200

300

400

500

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

LPN LPN - NOV '12


Highest cost DNO

183.2209.0

130.1

208.2 208.2

0

100

200

300

400

500

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

SPN SPN - NOV '12


Highest cost DNO

7 Finalising our business plans

7.1 Remaining steps and timeframes for finalising our business plan

UK Power Networks is currently in the last stages of finalising its business plans for submission to Ofgem on 1

July 2013. UK Power Networks is keen that stakeholders have an explicit opportunity to comment on the updated

proposed business plan. UK Power Networks has therefore built into its engagement process these remaining

key steps:

Incorporate feedback from stakeholders on this Business Plan Update in the Final Business Plans

Conduct further stakeholder consultation and engagement:

The Central London Update – 15 May 2013

The fourth Critical Friends Panel sessions in EPN, LPN & SPN (May 2013)

Supplier bilateral meetings

Evaluate feedback received from the above consultations and incorporate in the final Business Plans.

7.2 Questions on the business plan update

UK Power Networks welcomes your feedback on all aspects of this Business Plan Update. The following

questions are intended to assist stakeholders in providing feedback:

1. Is this Business Plan Update useful?

2. How could UK Power Networks improve its Business Plan Update?

3. Do you have any comments about the proposed outputs, costs or price impacts?

4. Are there any areas that you would like to see more information on in our Final Business Plan?

5. Do you have any general comments on this Business Plan Update?

6. How do you rate UK Power Networks’ stakeholder engagement on its business plan?

7. How does this plan compare with those of other electricity distribution networks?

Please logon to our consultation website to submit your feedback by 31 May 2013:

http://www.ukpowernetworks.co.uk/internet/en/have-your-say/business-plan/

Alternatively, you can reply by post. Please send your comments to:

Dr Nazrin Mehdiyeva

Head of Stakeholder Engagement

UK Power Networks

Newington House

237 Southwark Bridge Road

London, SE1 6NP

https://www.ukpowernetworks.co.uk/internet/en/have-your-say/business-plan/

8 Glossary

A

Asset risk and prioritisation (ARP)

Models for establishing and forecasting the health of

network assets. The ARP models use a combination

of information relating to an asset’s age,

environment, duty and specific condition and

performance information to derive a health score for

each asset, underpinned by proximity to end of life

and probability of failure

B

Business carbon footprint (BCF)

The BCF scheme was introduced as a reputational

incentive in DPCR-5 to encourage DNOs to

consider the direct carbon impact of conducting their

operations and to be proactive in the reduction of

emissions

Broad measure of customer satisfaction

(BMoCS)

A composite incentive consisting of a customer

satisfaction survey, a complaints metric and

stakeholder engagement. It was introduced for

DPCR-5 and is designed to drive improvements in

the quality of the overall customer experience by

capturing and measuring customers’ experiences of

contact with their DNO across the range of services

and activities the DNOs provide

C

Capital expenditure (Capex)

Expenditure on investment in long-lived distribution

assets, such as underground cables, overhead

electricity lines and substations

Combined heat and power (CHP)

The simultaneous generation of usable heat and

electricity in a single process, thereby discarding

less wasted heat

Compound annual growth rate (CAGR)

Average annual growth rate over a defined period of

time

Customer interruptions (CIs)

The number of customers whose supplies have

been interrupted per 100 customers per year over

all incidents, where an interruption of supply lasts

for three minutes or longer, excluding re-

interruptions to the supply of customers previously

interrupted during the same incident.

Customer minutes lost (CMLs)

The duration of interruptions to supply per year –

average customer minutes lost per customer per

year, where an interruption of supply to customer(s)

lasts for three minutes or longer

D

DCLG

Department for Communities and Local Government

DECC

Department of Energy and Climate Change

DEFRA

Department for Environment, Food and Rural Affairs

(DEFRA)

Distributed generation (DG)

Distributed generation (also known as embedded or

dispersed generation) refers to an electricity

generating plant connected to the distribution

network . There are many types and sizes of

distributed generation facilities. These include

Combined Heat and Power (CHP), wind farms,

hydro-electric power or one of the new smaller

generation technologies such as photo-voltaic cells

Distribution network operators (DNOs)

A DNO is a company which operates the electricity

distribution network which includes all parts of the

network from 132kV down to 230V in England and

Wales. In Scotland 132kV is considered to be a part

of transmission rather than distribution so their

operation is not included in the DNOs’ activities.

There are 14 DNOs in the UK which are owned by

six different groups

Distribution price control review 5 (DPCR-5)

Distribution price control review 5. This price control

runs from 1 April 2010 until 31 March 2015

Distribution system operator (DSO)

As DNOs actively manage the local levels of

demand, whilst at the same time accommodating

varying amounts of generation onto the network,

they will start to behave like system operators (ie

locally balancing demand and supply on their

networks), known as the DSO

E

EA

Environment Agency

Eastern Power Networks (EPN)

One of the three distribution network licence areas

owned and operated by UK Power Networks. The

EPN network covers the East of England

Element Energy (EE)

Element Energy, a strategic energy consultancy,

have provided economic analysis to inform the 2013

forecast business plan

Electricity Guaranteed Standards Electric

vehicle (EV)

Vehicles that utilise electric motor(s) or traction

motor(s) and are powered by either an external

power station, on-board electrical generators, or

stored electricity

Electricity, safety, quality and continuity

regulations 2002 (ESQCR)

The ESQCR specify safety standards, which are

aimed at protecting the general public and

customers from danger. In addition, the regulations

specify power quality and supply continuity

requirements to ensure an efficient and economic

electricity supply service to customers

Extra high voltage (EHV)

Voltages over 20kV up to, but not including, 132kV

F

Fast money

Fast money is the revenue that is matched to the

year of expenditure

Feed in tariff (FIT)

The price per unit of electricity that a utility or

supplier has to pay for renewable electricity from

private generators. These are used to encourage

distributed renewable generation through private

generators

Forecast business plan questionnaire

(FBPQ)

Questionnaire through which data is submitted to

Ofgem to help form Ofgem’s initial views on the

revenue requirements for price control reviews

G

Gigawatt (GW)

Measure of power equal to one billion watts

Guaranteed standards of performance

(GSOPs)

Guaranteed Standards set service levels to be met

in each individual case and are established by a

Statutory Instrument. If the licence holder fails to

provide the level of service required, it must make a

payment to the customer affected subject to certain

exemptions

H

Health index (HI)

Framework for collating information on the health (or

condition) of distribution assets and for tracking

changes in their condition over time. The HI will be

used by Ofgem to inform an assessment of the

efficacy of the DNOs’ asset management decisions

over the price control period. Health index

arrangements were introduced as a part of DPCR-5

High voltage (HV)

Voltages over 1kV up to, but not including, 22kV

I

Indirect cost efficiency (ICE)

The ICE programme was launched in 2011 in order

to close the gap with the benchmark distribution

companies in relation to indirect costs

Information technology (IT)

Technology systems used to manage information. In

UK Power Networks this includes our management

information systems, asset information systems and

operational IT

Inspections and maintenance (I&M)

The activities of both:

Inspections – the visual checking of the

external condition of assets

Maintenance – the invasive (‘hands on’)

examination of plant and equipment

Innovation funding incentive (IFI)

The IFI is intended to encourage DNOs to invest in

appropriate research and development activities

that are designed to enhance the technical

development of distribution networks (up to and

including 132 kV) and to deliver value (ie financial,

supply quality, environmental, safety) to end

customers

Interruption incentive scheme (IIS)

The interruption incentive scheme is a symmetric

annual rewards and penalties scheme based on

each DNO’s performance against their targets for

the number of customers interrupted per 100

customers (CI) and the number of customer minutes

lost (CML)

K

KiloWatt hour revenue driver (kWh)

A revenue allowance based on units distributed

(kWh)

L

Load index (LI)

Framework for collating information on the utilisation

of individual substations or groups of interconnected

substations and for tracking changes in their

utilisation over time. The LI will be used by Ofgem to

inform an assessment of the efficacy of the DNOs’

general reinforcement decisions over the price

control period. The Load Index was introduced as a

part of DPCR-5

Load related expenditure (LRE)

The installation of new assets to accommodate

changes in the level or pattern of electricity or gas

supply and demand

London Power Networks (LPN)



LPN network covers Greater London

Low Carbon Networks Fund (LCNF)

A mechanism introduced under the fifth distribution

price control review to encourage the DNOs to use

the forthcoming price control period to prepare for

the role they will have to play as GB moves to a low

carbon economy. The fund will see up to £500

million made available for DNOs and partners to

innovate and trial new technologies, commercial

arrangements and ways of operating their networks

Low voltage (LV)

This refers to voltages up to, but not including, 1kV

M

Megawatt (MW)

Measure of power equal to one million watts

Megawatt-hour (MWh)

A measure of energy production or consumption

equal to one million watts produced or consumed for

one hour

N

Non load related expenditure (NLRE)

The replacement or refurbishment of assets which

are either at the end of their useful life due to their

age or condition, or need to be replaced on safety or

environmental grounds

O

Office of gas and electricity markets

(Ofgem)

Responsible for regulating the gas and electricity

markets in the UK to ensure consumers’ needs are

protected, including their interests in the reduction of

greenhouse gases and in the security of the supply

of gas and electricity. This involves promoting

competition, wherever appropriate, and regulating

the monopoly companies which run the gas and

electricity networks

P

Photovoltaic (PV) connection assessment

tool

Planning tool which assesses the impact of

concentrations of small scale generation on our

networks e.g. solar panels, enabling us to provide a

better and faster service to our customers

R

Real price effects (RPE)

Increase in prices over and above increases in the

Retail Price Index (RPI). For example, increases in

the cost of copper, steel, direct or contract labour

over and above increases in RPI.

Regulatory asset value (RAV)

The value ascribed by Ofgem to the capital

employed in the licensee’s regulated distribution or

(as the case may be) transmission business (the

‘regulated asset base’). The RAV is calculated by

summing an estimate of the initial market value of

each licensee’s regulated asset base at privatisation

and all subsequent allowed additions to it at

historical cost, and deducting annual depreciation

amounts calculated in accordance with established

regulatory methods. These vary between classes of

licensee. A deduction is also made in certain cases

to reflect the value realised from the disposal of

assets comprised in the regulatory asset base. The

RAV is indexed to RPI in order to allow for the

effects of inflation on the licensee’s capital stock.

The revenues licensees are allowed to earn under

their price controls include allowances for the

regulatory depreciation and also for the return

investors are estimated to require to provide the

capital

RPI-X

The form of price control currently applied to

network monopolies. Each company is given a

revenue allowance in the first year of each control

period. The price control then specifies that in each

subsequent year the allowance will move by ‘X’ per

cent in real terms

Revenue = incentives + innovation +

outputs (RIIO)

Ofgem’s new regulatory framework, stemming from

the conclusions of the RPI-X@20 project, to be

implemented in forthcoming price controls. It builds

on the success of the previous RPI-X regime, but

better meets the investment and innovation

challenge by placing much more emphasis on

incentives to drive the innovation needed to deliver

a sustainable energy network at value for money to

existing and future consumers

RIIO electricity distribution 1 (RIIO-ED1)

The first RIIO price control review to be applied to

the electricity distribution network operators,

following DPCR-5. This price control will run from 1

April 2015 to 31 March 2023.

Remote terminal unit (RTU)

Communications device that transmits readings and

information about the status of the network back to

the control centre.

Renewable heat incentives (RHI)

Financial incentive scheme for renewable heat

generation thatwill help the UK reduce carbon

emissions and hit its European Union renewable

energy targets

Ring main unit (RMU)

A HV switchgear arrangement for the connection

and protection of distribution transformers

S

Slow money

Slow money is where costs are added to the RAV

and revenues allow recovery of the costs over time

together with the cost of financing this expenditure

in the interim

South Eastern Power Networks (SPN)



SPN network covers the South East of England

Site of Special Scientific Interest (SSSI)

Sites of Special Scientific Interest give legal

protection to wildlife, geological and physiographical

heritage under the Wildlife and Countryside Act

1981 There are over 4000 SSSIs in England,

covering around 8 per cent of the country

Sulphur Hexafluoride (SF6)

One of the most potent greenhouse gases and is

widely used in transmission and distribution

equipment

System operator (SO)

National Grid Electricity Transmission is the

electricity system operator, responsible for

managing the operation of the electricity

transmission system. They balance supply and

demand ensuring the stability and security of the

power system and the maintenance of satisfactory

voltage and frequency

T

Tonnes of carbon dioxide equivalent

(tCO2e)

Unit of measurement that allows global warming

potential of different greenhouse gases to be

compared

Total operating and capital expenditure

(totex)

Total of capital expenditure (capex) plus operational

expenditure (opex)

W

Weighted average cost of capital (WACC)

This is the weighted average of the expected cost of

equity and the expected cost of debt

UK Power Networks · Page 5 1.2 The benefits we have already delivered UK Power Networks was...

Documents

Transcript of UK Power Networks · Page 5 1.2 The benefits we have already delivered UK Power Networks was...