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Regional Cost Justification

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Regional Cost Justification UK Power Networks Regional Cost Justification Contents 1 Executive summary 4 2 Introduction 6 2.1 Assorted facts and quotes to pick from 6 2.2 Summary of London factor costs 7 3 Regional cost factors 9 3.1 Introduction 9 3.2 Regional differentials in salary costs 10 3.3 Mapping the delivery of work to administrative regions 12 3.4 Calculating regional labour factors 13 3.5 Calculation of the regional salary cost impact for the three UK Power Networks licensees 15 4 Transport & travelling 16 4.1 Background 16 4.2 Congestion charging 17 4.3 Parking & site access 19 4.4 Vehicle costs 20 4.5 Plant delivery 20 5 Excavation 22 5.1 Footpaths & roads 22 5.2 Permits 23 5.3 Environmental restrictions on street works 24 5.4 Archaeological artefacts in City of London 25 5.5 Traffic management 26 6 Operations 27 6.1 Background 27 6.2 Underground distribution network 27 6.3 Secondary substations 28 6.4 LV cable systems 33 6.5 HV Cable systems 38 6.6 High voltage faults: LPN extra costs 44 6.7 EHV cable systems 47 6.8 EHV cable metrics in UK Power Networks 48 6.9 EHV circuit outages 48 6.10 Railway access difficulties 49 6.11 Underground primary substations 58 7 Resources 62 7.1 Background 62 7.2 London salaries 62 7.3 London allowances 63 8 Security 65 8.1 Security issues of a major city 65 8.2 Major events 65 9 Properties 69 9.1 Background 69 Contents Page 2 9.2 Operational buildings 69 9.3 Insurance of Property and Assets 70 10 Contractors 73 10.1 Background 73 10.2 London contract costs 73 11 Tunnels 75 11.1 Background 75 11.2 Tunnel Inspection & Maintenance 76 11.3 Tunnel defect repairs 77 12 Appendices 82 A.1 TFL City of London Highway Activity maps 82 A.2 Parking meter suspension charges and notice periods 85 A.3 Penalty Charge notices in LPN 87 A.4 NJUG Footpath Utility layout 88 A.5 Network preparation matrix for Major Public Events 89 A.6 Civil Works contract price differential 90 A.7 Backhill to Fisher Street No. 4 Circuit. 91 A.8 Cable Tunnel Expenditure 93 A.9 Contractors London Cost premium Activities 95 A.10 Damage Cable Analysis 100 A.11 Pool Reinsurance Co. Ltd: Zones (part 1) 101 A.12 Pool Re-Insurance Co. Ltd: Zones (part 2) 102 A.13 LPN Tunnel Drawing 103 A.14 EHV Cable drawing for LPN 104 A.15 City of London Tunnel Diagram 105 A.16 Bankside Power station Heat recovery system 106 A.17 Subways in West End & City of London 107 Contents Page 3 1 Executive summary For many people, London is one of the great cities of the world. It is the largest centre of population in the UK and increasingly could be said to be the powerhouse of the British economy. It is the seat of Government and the chosen location of many prestigious national and international organisations. As well as being a major commercial centre, and one of the three major financial centres in the world, it is also the cultural hub for the UK and hugely influential across the English speaking world and beyond. Whilst all DNOs take the stewardship of their electricity networks extremely seriously, the responsibility that comes with serving the people and institutions of London places a particular pressure on UK Power Networks. Partially in response to this, the London network has developed in a way which differentiates it from other networks in the UK. The density of electrical load is the highest in Europe and the extremes of demand greater than for other UK networks serving areas twenty times larger. In spite of this, London has the best fault performance in the UK and its customers face amongst the lowest distribution charges Most obviously, the network is entirely underground. It is also significantly interconnected which provides greater engineering complexity, but a much better capability to respond to faults and restore supplies. An underground network avoids some of the difficulties of an overhead network, such as damage from wind; however it brings its own challenges, in that the cost of building and repairing the cable network is greater, due to the need to excavate and reinstate the ground. In London, this is further complicated by the fact that a very large proportion of the network is in made ground, and hence to excavate, paving slabs have to be lifted and replaced, or tarmac has to be removed and re-laid. Furthermore, there are many other services to be found in the roads and footpaths which will often force us to dig by hand, rather than by machine, and to lay our cables at a greater depth. The contrast with a lone underground cable laid in a grass verge is stark! Another consequence of working in the road or pavement is the impact it can have on traffic. London’s streets are busy and the highways authorities quite reasonably want us to minimise any congestion that arises. In part for some of the reasons described above, London also has an extensive underground tunnel network, and it is now hard to conceive of us installing a major higher voltage cable in anything other than a tunnel. The density of occupation in London also brings challenges that other networks will rarely face, if at all. Many assets and substations in particular, are based within buildings and often are sited underground. This can bring problems of access, whether it is the sheer practicality of moving equipment into a basement location or in conducting electrical work in a working hotel or office location. To deliver the services we do, in the conditions described, requires a skilled and dedicated workforce, as well as an established group of external partners that we can draw upon. It is well understood that living costs in London and the South East are higher than the rest of the UK. Our costs for labour and contractors have to recognise this fact in order that our staff are appropriately rewarded and hence we are able to recruit and retain the best people, whether working directly for us or for one of our partners. All of the elements described contribute towards making London a higher cost region for operations. In many cases, these costs are unavoidable and exist purely as a consequence of the location of our network. It should also be remembered that the ‘London’ (LPN) network only covers part of London, and around 20% of each of the South East (SPN) and Eastern (EPN) customers live within the M25. Executive summary Page 4 This document provides a richer picture of the issues faced in London, but goes beyond that to attempt to quantify financially those impacts. In summary, the increased costs of operating in London are substantial, adding approaching £29.3 million per annum (Table 1 Annual operating costs of UK Power Networks a DNO in the London area) to the cost base of our network. For this reason, the expectation that we should seek out any opportunities to improve our efficiency or mitigate these London factors, is a perfectly reasonable one. There is a strong commitment to innovation in our London operations combined with a pride in getting the job done. This document also provides information on the various initiatives that we have taken to contain expenditure. Section 3 of this document provides a summary of the outcomes of the top down regional cost adjustment methodology for the three UKPN networks as used in the gas distribution price control. This adjustment methodology proposes a regional cost adjustment of £12.74 million in EPN, £22.61 million in LPN and £10.44 million in SPN. Combining these two analyses, UKPN has applied regional cost adjustments to its business plan of £22 million per annum during RIIO-ED1 for London and £11 million per annum for SPN. UKPN has not applied a regional cost adjustment for its EPN network as the northern part of our EPN’s geographical region. UKPN has t also included a faster on-going annual efficiency factor of 1.25% (compared to 1.0 % in SPN and EPN) in recognition of the additional opportunities for cost improvement. Executive summary Page 5 2 Introduction 2.1 London London is truly an amazing city to work rest or play. It’s the heart of the UK Financial world, centre of government, seat of the Royal Family and home to over 7,500,000 Londoners. Also known as ’The City’ and ’The Square Mile’, the City of London is London’s chief financial district and along with Tokyo and New York City forms the world’s three most important financial centres. In fact London is by far the largest foreign exchange trading centre in the world, handling around one third of all foreign Exchange trading. London is a major financial centre for international business and commerce and is one of three "command centres" for the global economy along with New York City and Tokyo. It has the sixth largest city economy in the world, after Tokyo, New York City, Los Angeles, Chicago and Paris. The LPN area covers an area of 722 sq. km of London The maximum demand of 5,167 MW is higher than some Distribution Networks covering an area 20 times greater Highest load density in Europe of 8 MW/km². Circa 2 million customers The network serves some very demanding key customers ranging from government departments to prestigious internationally known stores such as Harrods.
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