Wales & West Utilities Our business plan for 2021-26 A sustainable business in a changing and dynamic sector December 2019 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

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Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Contents

Summary Foreword 3 Delivering an 13. Our net zero ready vision for 2035 110 A of our plan 1. Executive summary 4 D environmentally 14. E nvironmental Action Plan 126 2. Our consumer value proposition 14 sustainable 3. Outputs and incentives 18 network 4. Track record 25

5. Giving customers and stakeholders 15. Asset resilience 138 35 Meeting a stronger voice Maintaining 16. The distribution network 148 B the needs of 6. Customer service 52 E a safe and 17. Connecting homes 164 consumers and 7. Social obligations 62 resilient network and businesses network users 18. T ransmission and 173 pressure management

19. Workforce resilience 181

20. Cyber resilience 188

21. Business IT security plan 189

Delivering value 8. Customer bills 73 Financeability 22. Financeability 195 C for money 9. Cost efficiency 77 F 10. Using competition to deliver best value 87

11. Our innovation strategy 92

12. Dealing with uncertainty 104 Click our Business Plan Data Click here to see a full Appendix list with hyperlinks 198 Tables (BPDT) for detailed cost and workload information to support our submission.

Wales & West Utilities | Business Plan 2021–26 1 A Summary of our plan

This section of our business plan In this section: summarises our commitments Foreword to customers. 3 Strategic overview of our plan from our Chairman and Chief Executive. We also set out our proposed 1. Executive summary level of expenditure, as well 4 as the outputs we will deliver Overall summary setting out our vision for the future, the views of our customers as part of the RIIO framework. and stakeholders, and our GD2 commitments. All of this is built on a strong track 2. Our consumer value proposition record of delivery, which is also 14 summarised here. How we are delivering for our customers above and beyond the minimum requirements measured by our Social Return on Investment Tool. 3. Outputs and incentives 18 The outputs and incentives contained in our business plan – including those that are common to all networks and those bespoke to us. 4. Track record 25 Our GD1 performance and the outcomes delivered for customers. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Foreword

Welcome to our business plan In response to the increasing importance our customers and stakeholders place on the Our plan puts customers at its core and has environment and wider sustainability issues, been developed in partnership with them, we are committed to becoming an even more We are pleased to present along with diverse stakeholders. We have had sustainable business in GD2, aligning our extensive conversations, combining far-reaching commitments to the United Nations Sustainable our business plan for 2021-26, engagement with granular, in-depth research. Development Goals (SDGs). This is our most ambitious and stretching plan This progressive global movement will support which has been developed ever, but one we are confident about delivering our efforts to bring a sharper focus on the broader based on our history as a leading performer. societal goals that we can help to achieve. We are We are proud of our record to date, and we see already putting this into action, and this plan in partnership with our the opportunity in the next five years to take our includes stretching goals to reduce our own carbon ambitions further. footprint and to work towards becoming a zero- customers and stakeholders. Our aim is to deliver a net zero ready network by waste company. We are also giving stakeholders 2035 – using our position as a leading player in more of a say in the future of the business through the future energy space to put forward a bold and our enhanced engagement plans for GD2. credible plan that will support the decarbonisation Graham Edwards This document sets out our aspirations to of heat, power, and transport in our region. Chief Executive invest almost £1.2bn to support customers and Based on a whole systems approach, our plan society more broadly than ever before – which includes a clear, low-cost pathway to deliver our can only be delivered with proper funding, as vision, informed by robust scientific evidence and laid out in this document. Despite being one changing customer needs. Our plan is a positive of the most effective and efficient networks in response to the clear steer from our customers GD1, shareholders have funded debt costs that and from the wider public, that society must act should have been allowed for in the price control now to mitigate the threat of climate change. settlement. We are looking to Ofgem to ensure that the business is properly funded in GD2, so As a responsible business, we take care to that we can successfully deliver for customers. provide the same high quality of service for everybody – particularly those living in vulnerable Finally, we thank our committed colleagues who situations. We were proud to become the first have made Wales & West Utilities (WWU) the top gas distribution network to meet the requirements performing business it is today – and thank our for the British Standard for Inclusive Service customers, stakeholders, and the independent Provision (BS 18477). Our customers have told Customer Engagement Group (CEG) for their us they want us to go even further, so in GD2 we engagement, challenge and support in are virtually doubling our support for those most developing this ambitious plan. in need. This includes working with partners to help maximise the income of those in fuel poverty, putting more people on the ground to offer face to face support, and collaborating with other utilities Graham Edwards Andrew Hunter to create a single Priority Services Register (PSR). Chief Executive Chairman

Wales & West Utilities | Business Plan 2021–26 3 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 1. Executive summary

We are submitting this plan at a 1. Our performance in GD1 Meeting the needs of consumers Delivering an environmentally and network users sustainable network critical time for the UK’s energy Delivering value for money –– We actively listen to our customers and –– We have lowered carbon emissions by a further sector, with legally binding targets –– We are one of a few networks to have delivered stakeholders, who have significantly 18% since 2013; at the same time leading on to deliver net zero by 2050. on all of our promises and are one of the most cost efficient, as reported by Ofgem1. influenced the shape of our business in GD1. innovation that helps decarbonise heat, while At the same time, the energy system is fast minimising the cost and impact on consumers. –– We are sharing the benefits of our efficiency –– Customers have received excellent service becoming one of complex, dynamic interactions Our hybrid heating ‘Project Freedom’ is one with customers, returning £72m through from us. We recently achieved a customer – driven by changes in both the supply and the of the most ambitious projects supporting lower charges in GD1 and a further £81m in satisfaction score of 93.6 out of 100 in an use of energy. Our ambition to decarbonise heat, independent evaluation by the ICS (Institute the decarbonisation of heat in the UK, saving power and transport will deliver a net zero ready future years. This has resulted in one of the families up to £700 a year in energy bills. lowest network charges of all of the GDNs2. of Customer Service). This is significantly network by 2035 (ie a fully plastic distribution higher than the utility sector benchmark –– We have enabled significant amounts of network ready to receive green gases). –– Our ambitious innovation programme has of 74.7, and places us among the leading green gas to enter our network, connecting Based on a broadly defined whole systems delivered more than £9.7m of value in GD1, companies in the UK. approach, our plan will facilitate low-cost, reliable our first biomethane site in 2014, and now bringing improvements in customer service, delivering enough low carbon gas into the and sustainable energy for the generations of reliability and the safety of our services. –– We are working with partners to provide today and the future. enhanced support for those living in network to heat the equivalent of 130,000 vulnerable circumstances and have lifted homes. We are also providing the flexibility This is our most customer focused business almost 10,000 families out of fuel poverty by necessary for increasing renewable energy plan to date, reflecting many conversations with transferring them to a gas supply – saving across our region. stakeholders about what matters most to them. customers £680 a year, on average. Our plan also reflects the robust challenge from 10,000 £700 a year is the potential the independent CEG and the RIIO-2 Challenge The number of families we have saving for customers using Maintaining a safe and resilient network Group. In this summary, we outline what they helped to lift out of fuel poverty hybrid heating systems, have told us and how we are responding to this by transferring them to a gas supply. –– We have improved reliability such that as demonstrated engagement with our commitments for GD2. consumers will, on average, only experience by Project Freedom. an unplanned interruption once in their lifetime This plan builds on our GD1 track record as a top – lasting around eight hours, compared with In the rest of this summary, we outline how we performing network that delivers and innovates. a 26-hour GDN average in GD1. Our average are building on our success in GD1 to deliver It serves to reassure customers that they will CVP £122m Consumer Value Proposition planned interruptions now last less than three outstanding services in GD2. continue to receive excellent service long into in GD2. and a half hours, compared with the industry the future. We also outline the significant added Click Appendix 1A for an index showing where we have average of over five hours in 2018/19. value services we are offering in GD2, which go addressed the Ofgem minimum requirements in our plan. above and beyond the minimum requirement. –– We are proud of our safety culture and have Click Appendix 1B to navigate through our plan with These services –­­ our Consumer Value further reduced the risk of gas explosions reference to the Business Plan Data Tables (BPDTs). Proposition (CVP) – are valued at over £122m 18% by 50%. Our overall safety performance Click Appendix 1C for our change logs for July-October Fewer carbon emissions and October-December business plans. in GD2, with a further £20m in GD3 and beyond. saw us winning the RoSPA Oil and Gas since 2013. Sector Award in 2019 for industry leading performance, and achieving the RoSPA Gold The following logo identifies our Consumer CVP 1 Click for the Ofgem RIIO GD1 Annual Report 2017/18 – Award in 2019 for the sixth year in a row. Paragraph 4.9, Figure 4.1. Value Proposition throughout the plan. 2 All figures quoted throughout this plan are in 2018/19 prices. This success is unprecedented in our sector.

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Chapter 1. Executive summary (continued)

2. Our vision for the future We will continue to collaborate with electricity As a responsible business, we understand networks including UKPN, WPD, SSEN and that affordability is a serious issue for many. In GD1, our ambition was to deliver SPEN on whole systems development and to While we cannot end fuel poverty on our outstanding levels of gas safety, reliability provide local, joined-up energy network advice. own, our vision includes the use of innovative and customer service. We are proud to have We propose a whole systems charter to further partnerships to ensure that those who struggle achieved this, and will continue to stretch demonstrate our commitment to working with to afford their energy bills are accessing grants ourselves further during GD2. Strengthening our a wide range of stakeholders in order to create or other relevant funding to maximise their focus on the things that matter to our customers customer focused, least cost and joined up household income. This is in addition will be key; being a responsible and sustainable solutions to deliver decarbonisation. to increasing our commitment to support business, supporting customers in vulnerable those in vulnerable situations, tailoring our circumstances, and enabling a low-cost, Click Appendix 1D for a letter from WPD and SPEN services to suit individual needs. green future. about our successful collaboration. We are committed to delivering our services WWU is a key player in the energy sector, sustainably. We have published an ambitious across our network and beyond, leading Environmental Action Plan and will focus on the the debate and research into the future way we operate, tackling complex sustainability of energy. We are in a strong position to act issues at a local and regional level. on the clear steer from the wider public that society must act now to mitigate the threat To demonstrate how serious we are, our of climate change. commitments will be underpinned by the UN Sustainable Development Goals Our innovative plan to support the UK’s (SDGs). Aligning ourselves to this progressive decarbonisation targets and become a net global movement will support our efforts to zero ready network by 2035 represents a be accountable and to demonstrate to our pathway that is both credible and achievable. customers and colleagues the ways in which It encompasses the use of green gas and our services positively impact on people’s lives. hydrogen, alongside renewable electricity, As we embed the goals further, we hope to draw to decarbonise heat using hybrid heating out the direct connections between our activities technology in homes and businesses across our and the positive influences we can have, on a region. The use of renewable energy and green local, national and global scale. gas will also support the decarbonisation of all types of road transport, bringing improvements We summarise our plan’s in air quality. alignment with the SDGs on page 12.

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Chapter 1. Executive summary (continued)

Our approach has helped us better understand what customers know and think about our 4. Our customer commitments services, and how they would like them to Our plan has been summarised here evolve. This feedback has been through into the three Ofgem output categories, comprehensive triangulation, giving us further in addition to our own important category insights into customers’ priorities. of value for money. Some feedback has been in line with expectations, around safety and reliability, our Meeting the needs mains replacement programme and support for customers in vulnerable situations. However, of consumers and the importance customers place on the network users environmental impact and sustainability of our network was stronger than ever before. This, along with the challenge from the CEG, has Delivering an heavily influenced our decision to align ourselves environmentally with the SDGs. sustainable network Our approach, validated by triangulation, also allows us to clearly demonstrate that the Maintaining a 25 commitments we are making in GD2 reflect the wants and needs of our customers and safe and resilient stakeholders. Our willingness to pay research network showed overall acceptance for our customer 3. G iving consumers and Our engagement activities have encompassed: bill and efficiency proposals. Delivering value stakeholders a stronger voice –– engagement with more than 21,000 The views of our customers and stakeholders consumers, both face to face and online; Click Appendix 1E for a summary of our for money have been critically important to the –– additional acceptability testing with responses to the RIIO-2 Challenge Group development of our plan. The role the CEG and c.1,000 customers during summer 2019; feedback in July and October. Ofgem’s RIIO-2 Challenge Group have played –– willingness to pay research on our business in reviewing and challenging our stakeholder plan commitments with c.1,000 customers; engagement – and our response to the –– working alongside partners and others to feedback we have heard – has also significantly access hard-to-reach stakeholders, including strengthened our plan. interviews with 100 vulnerable customers; Alongside our ‘business as usual’ engagement, –– collaborating with other gas networks to we have created a bespoke engagement reach national and strategic stakeholders; strategy which has helped us to gather informed, –– analysis of 1.45 million pieces of customer actionable and specific feedback to guide our data each year (on average) by our business direction of travel for GD2. intelligence tool.

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Chapter 1. Executive summary (continued)

Our commitment Our commitment Customers want us to listen to and act Meeting the needs on what they say of consumers Maintain our ICS accreditation and the Continue our leading work in data sharing Across our diverse communities there are British Standard for Inclusive Service agreements, with the aim of aligning the gas, and network users around 1 million people of pensionable age, Provision. We propose these as bespoke water and electricity sectors into a virtual 700,000 people living in rural areas, and nearly reputational outputs. common PSR, while working towards a single Customers want us to listen half a million homes in fuel poverty. We must PSR for all utilities in GD3. understand our customers better if we are to and act on what they say Customers living in vulnerable situations want meet their diverse needs. Involving customers and to deliver high-quality, us to further tailor the support we provide Customers want us to support people directly in the development of this plan firmly in fuel poverty and to raise awareness fair and reliable services Given the importance of our services to meets our customers’ desire to give their vulnerable customers, we undertook a ‘deep of carbon monoxide (CO) opinions on our plans and our work. for all, including those dive’ engagement programme in three phases Stakeholders have consistently asked us to in vulnerable situations. where we spoke to customers with a range of support those in fuel poverty, and to continue Our commitment vulnerabilities, as well as their carers. An emerging raising awareness of CO. This is one of the Evolve our GD1 Critical Friends Panel and Customers want to receive the high-quality theme from this research was a growing need to top five commitments customers were willing create a new GD2 Citizens’ Panel, in a ‘centrally and inclusive services they need understand emotional vulnerability. This research to pay more for. Fuel poverty is particularly facilitated, locally delivered’ approach to showed that stakeholders, including the Critical relevant in our region, where in some areas over In GD2, we will continue to develop our people enhanced engagement. Friends Panel, want us to work harder to 25% of the population are classified as living in focused culture, with its emphasis on delivering promote the PSR in our network, and asked fuel poverty, compared to an 11.1% national excellent customer service for all. Stakeholders have Customers want us to keep the network us to collaborate more closely with other utility average3. Customers had conflicting views about told us to maintain current performance levels, safe, making sure gas is paid for fairly companies. Social media PSR sign-up trials in our role in raising awareness of CO, therefore which will prove challenging as we continue by all those using it GD1 have proven highly effective and efficient, we have built our plan on a cost benefit analysis to respond and adapt to changing customer and will be rolled out into GD2. (CBA) approach that includes awareness raising The theft of gas (customers taking gas illegally) expectations. Those at our regional workshops and targeting CO alarm distribution to the has been an important theme at regional discussed the value of looking outside our sector We hope to continue our collaboration with regional most vulnerable. workshops. The driver for this has been safety for best practice and comparisons, as this helps electricity and water companies in GD2 to support and ensuring that gas is paid for by the user, engender trust. customers living in vulnerable situations. We had Our commitment not charged in other customers’ bills. We have significant success in GD1, working together to We take pride in being one of the top performers been one of the leading networks in identifying, drive PSR sign-ups and jointly leading our first ever Further support vulnerable and fuel poor for customer service in all UK sectors, with an ICS investigating and recovering theft of gas in the ‘Stronger Together’ conference with WPD and customers by investing £750,000 a year in score of 93.6. We are also the first gas distribution UK, and we will be increasing our focus in this Welsh Water. wide-ranging initiatives with partners and network (GDN) to be accredited against the British area further by using industry data and additional increasing CO support measures – almost resources. Both SMEs and domestic customers Standard for Inclusive Service Provision (BS 18477). Our commitment doubling our GD1 investment. These accreditations allow us to benchmark confirmed that they were willing to pay for this. ourselves against the best companies in the UK. Work alongside partners and carer networks to Our commitment They also enable us to look beyond the Ofgem increase the number of PSR sign-ups by 200% standards that we already use to compare our to 12,000 per year, compared to 2018/19. Do more to proactively identify theft of gas to performance against that of other GDNs, where protect the safety of our customers and to we are consistently first or second. support fair charging; we propose a bespoke 3 Click for the BEIS Fuel Poverty Report, June 2018. financial incentive to support this.

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Chapter 1. Executive summary (continued)

Our increased focus on sustainability will be ignore smaller elements of our carbon footprint Customers want to know they can trust Delivering an underpinned by the UN SDGs, with a promise which impact local communities, such as waste us to deliver a low-carbon, reliable and environmentally to report against these going forward. We are and transport. Reducing waste was the second affordable source of energy in future sustainable network passionate about taking responsibility for highest commitment our domestic customers We have undertaken extensive research sustainability matters in areas that are beyond and SMEs were willing to pay for. and stakeholder engagement to consider our direct control. We work with our supply the future of energy, and have developed a Customers care about the Our commitments chain, partners and other stakeholder groups vision of a reliable, affordable, sustainable and environment and want us to to effect change in this area. Reuse and recycle at least 80% of our waste decarbonised future. This whole systems vision act to make sure they have a by 2026 and send zero waste to landfill by 2035, combines hydrogen cities, green gas and smart Our commitments clean, reliable and affordable to achieve our ambition to be a zero waste hybrid heating systems, all working to keep bills Align our priorities to the relevant UN SDGs. company by 2050. source of energy in future. low, maintain reliability and minimise householder Invest £6.8m to assess, manage or reduce Further reduce gas shrinkage by 10% against disruption. Industry workshops highlighted that the negative impacts of historical gas works the 2021 target value of 454,000 tCO2 through stakeholders want us to continue our innovative Customers want us to improve at around 70 sites in our communities; we the continued replacement of over 400km of old focus on integrating alternative gases into the the environment propose a bespoke price control deliverable metal pipe and 20,000 services each year – the existing network and to ensure that any new We have always taken steps to minimise to support this. equivalent of permanently taking 46,000 cars low-carbon solutions are safe. off the road. our impact on the environment and to make National stakeholders involved in our sure that our network is sustainable for the Our stakeholder research clearly demonstrated Move 75% of company cars to hybrid or ultra- engagement programme called for a ‘national future. In developing this plan, our customers, that the environment is becoming increasingly low emission vehicles by 2026, explore green conversation’ about the future of heat. The gas stakeholders, the independent CEG and important. The issues were wide-ranging, alternatives for our commercial fleet, and reduce networks are viewed as central to promoting Ofgem’s RIIO-2 Challenge Group have including a continued focus on reducing network mileage to achieve a zero emissions fleet by this, and helping consumers understand the challenged us to be even more ambitious. leakage (which accounts for 96% of our carbon 2035 – supporting biodiversity and improving need for change and the realistic options. emissions) and the view that we should not air quality. As part of our commitment to sustainability, we will embed this across our entire business. Our commitments We are making a commitment to further reduce Deliver a net zero ready network by 2035. the less environmentally friendly impacts of our activities and to increase the positive social Invest in innovation to support the national and environmental impacts. strategic energy challenges, working collaboratively with Ofgem, BEIS and the wider industry. 80% reused and recycled waste by 2026, with zero waste sent to landfill by 2035.

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Chapter 1. Executive summary (continued)

We are committed to developing our This has led to our new commitment to offer Customers want us to invest Maintaining digitalisation strategy throughout GD2 in increased compensation above the regulatory in a skilled workforce a safe and resilient collaboration with the wider industry to provide standards and new voluntary compensation Our people are vital to our business network more tailored services for customers. for interruptions over 12 hours, as well as also performance, and we will continue to invest paying those who do not qualify under the Our network is also resilient for the longer in the competence and resilience of our statutory regulations. Customers want a safe and term, as our plan delivers a low cost network workforce. In conjunction with our employees and stakeholders, we have updated our reliable gas network that that supports all future energy scenarios, Our commitments accommodating hydrogen and synthetic gas Workforce Resilience Strategy for GD2. is responsive to changing with hybrid heating solutions. Increase our commitment to reliability by Through our engagement, the ageing workforce demands and challenges. promising an average time off gas of less than was raised as a key concern, despite the Our commitments 10 hours for unplanned interruptions through significant investment made in the upskilling of a new licence obligation. our workforce in GD1, including the recruitment Our customers’ number one priority is Significantly reduce the safety risk for over half of almost 200 apprentices. The increasing to continue knowing their gas network a million people living in the vicinity of an ageing Enhanced compensation for failures under retirement profile was also recognised, with is safe and reliable metallic gas main, by investing a further £400m the Guaranteed Standards of Performance stakeholders suggesting we must continue to in our mains replacement programme. and voluntarily pay customers £25 if their Throughout GD1, safety has consistently been gas is interrupted for longer than 12 hours. focus on attracting and retaining skilled staff. a priority for our stakeholders. Our research Continue our risk based approach to asset We propose a bespoke penalty only financial Our customer research and challenge from found that maintaining a safe and reliable gas intervention on our network – with an effective incentive to support this. the CEG led us to expand our commitment supply was the number one priority, with a clear monitoring regime endorsed by the HSE. to diversity going forward. expectation that we will maintain our excellent Customers expect us to protect our Attend gas emergencies in under an hour, performance in responding to emergencies, network from cyber attacks Our commitments and continue to replace old and leaking pipes. on average, to keep our customers safe. We are proactively working to combat the Continue to make our workforce inclusive, In our most recent willingness to pay research, growing threat from cyber attacks. As a business ensuring it better reflects the communities attending emergencies was the most important Customers want to be off gas for the that forms part of the UK critical national we serve. commitment and the one customers and SMEs shortest amount of time possible infrastructure, we offer essential services, so it is were most willing to pay more towards. We understand that being without gas Deliver a Workforce Resilience Strategy to crucial we maintain the integrity and availability inconveniences our customers and we have maintain and evolve the skills of our people to We have met all safety standards set by Ofgem of data and business operations to ensure the worked hard to reduce the length of our meet our customer needs now and in the future; and the Health and Safety Executive (HSE) in gas supply is safe and available for consumers. interruptions in GD1. Our performance is the including ongoing investment in high-quality GD1, and have also been classed as an exemplar best in the industry and we will go further than Apprenticeships to Levels 3 and 4. performer in our safety leadership by the HSE. Our commitment ever to make sure we limit our customers’ time We are proud to be fully delivering our mains off gas. We are committed to delivering a reliable Increase our focus on preventing and detecting replacement programme in GD1, making our 4 service which now includes a new licence cyber attacks – investing a further £7m in our network safer for our customers in the process. obligation promising an average time off gas technology platforms in GD2 to reduce the increasing risk. £400m of just10 hours, including large incidents. Investment in our mains Our customer research confirmed that replacement programme compensating customers when things go wrong to reduce the safety risk for over was very important. 4 Excludes costs for NIS improvements which will be subject half a million people. to a reopener mechanism.

Wales & West Utilities | Business Plan 2021–26 9 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 1. Executive summary (continued)

Customers support our spending on 5. H ow costs and investments are changing Delivering value innovation and expect us to collaborate In addition to engaging with our customers and stakeholders to develop our commitments, we have for money Through GD1, the multitude of innovations been considering in detail the expenditure we will need to deliver these in GD2. The following table we have implemented have clearly helped describes our expenditure proposals for GD2 against our expenditure in GD1. to control our costs efficiently, resulting in Customers want us to keep lower network charges. Similarly, the use of Average financial expenditure in GD1 and GD2 our unique simulation tool, the 2050 Energy bills at a level they can afford. £m Average annual Average annual Pathfinder, has been highly effective in modelling 2018/19 prices Examples of expenditure GD1 spend GD2 spend Difference future energy supply and demands across Customers want our charges to be as low Controllable Attending gas escapes, and repairing 92.0 96.9 4.9 the communities we serve. Our innovations opex and maintaining an ageing network. as possible, while also making sure we stay have benefitted customers both directly and Repex Replacing metallic mains with plastic pipes. 80.0 88.4 8.4 financially sustainable indirectly, and we will continue to seek innovative Capex Investment in assets such as our 52.6 51.1 -1.5 Against a backdrop of increasing energy bills solutions to energy issues going forward. network, plant and equipment. and more families in fuel poverty than ever This includes a focus on supporting those living Totex Business as usual total expenditure. 224.6 236.4 11.8 before, a key priority for us is to make sure we in vulnerable situations. keep our component of customers’ bills as Ofgem has ranked us as one of the most We will also need to use the more expensive low as possible. In regional Gross Value Added Our commitments efficient GDNs in GD1, supported by its ‘open cut’ technique much more frequently regression analysis. – where the cheaper insertion technique terms, Wales is considered to be the poorest Ensure that the investments we make today will is not viable. area in the UK (last out of 12), with the south support future energy scenarios and therefore In arriving at our GD2 totex requirements, we west of England 6th. represent a ‘no regrets’ energy solution. have built our plan using the unit costs we LTS investment. The requirement to replace a have incurred in GD1, carrying forward the 13km stretch of our LTS network during GD2. We are recognised in Ofgem’s latest annual Continue to invest in innovation, working with efficiency savings from GD1 into the GD2 cost In GD1, we were able to maintain the health of report as being one of the most efficient around 500 external organisations during GD2 base. Between GD1 and GD2, our average this network through intervention work, rather networks, with our charges among the lowest (compared to 350 in GD1) and sourcing over controllable totex is set to increase by £11.8m than full-scale replacement. of all the gas networks. Our willingness to pay 50% of our ideas from outside of our business. research showed overall acceptance for our as a result of the following: Loss of non-formula metering work. Unlike customer bill and efficiency proposals, alongside Mains replacement contract. Benefits in GD1, we have no ability to defray some maintaining our current high performance levels. achieved under our eight-year alliance contract, of the necessary ‘downtime’ of emergency Our commitments £18m which resulted in our partners incurring costs First Call Operatives (FCOs) to support 24/7 money we will save in they could not charge to us under a pain/gain cover into paid metering activity outside Keep network charges down to the lowest efficiency savings in GD2. sharing arrangement, will not be achievable the regulated business. practical level, maintaining the average GD1 at the same level in GD2. household bill of £133 a year into GD2. Efficiency.As part of our commitment to Innovation rolled out to BAU Mains replacement workload and technique. continuous improvement, we will deliver a Continue to improve efficiency levels, targeting in GD1 and planned for To deliver the risk reduction required by the HSE, 0.5% per year compounded efficiency challenge, an efficiency challenge of 0.5% per year – to GD2 is denoted by this logo work is moving to extremities of our network, higher than the 0.3% UK economy forecast make sure that customers get best value for throughout the plan. and to smaller schemes where we lose some in GD2 – equating to 3% a year in 2025/26. money, saving a further £18m over GD2. economies of scale. This is in addition to the GD1 efficiencies that will be carried forward into the GD2 cost base.

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Chapter 1. Executive summary (continued)

6. Ensuring a financeable network We argue that there is a clear duty placed Our GD2 customer bill includes the funding of our efficiently incurred debt, as well as necessary on Ofgem to assess against the particular increased expenditure and the NPV neutrality adjustment from the move to inflating by CPIH, instead We are determined to deliver excellent value for circumstances of each real life actual company. of RPI. These increases are subsequently offset by reductions resulting from increases in the number money services for customers, as we have done It cannot be considered on the basis of a of consumers served, and the share of GD1 outperformance no longer being paid for by customers. in GD1. To do this however, we must have a purely Notional Company if this does not reflect financially sustainable business – one that is also real circumstances. We also do not accept Cost of capital capable of delivering fair and reasonable returns that financeability is properly discharged by WWU business Ofgem actual to our investors. accelerating significant amounts of revenue Real CPIH stripped plan GD2 company GD2 Allowed cost of debt 5.25% 1.93% Because the business is efficient, fully invested from future control periods through NPV neutral Allowed cost of equity 6.1% 4.80% with no regulatory output backlogs, and has an adjustments into GD2. Notional leverage 60% 60% efficient highly secured capital structure, we are Cost of capital in GD2 Allowed WACC 5.59% 3.08% confident bills can continue to be minimised. For GD2, we expect the headline annual average Our assumptions for cost of capital for GD2 are based on extensive work with independent 7. Business plan commitment and a number of the appendices. The reviews domestic bill to be flat in real terms with GD1. included checks for accuracy, consistency and consultants. For example, we have submitted Our business plan has been through three completeness. However, despite being one of the top performing reports to Ofgem from independent experts elements of assurance: networks with some of the lowest charges, cash Oxera5 which affirm that our debt and derivatives –– Efficiency. Assurance on the efficiency of returns to Shareholders in GD1 have been almost were efficiently undertaken and incurred. –– Ambition. Assurance on the level of ambition our plan was undertaken by Oxera using the a third lower than Ofgem’s allowed return of As submitted to Ofgem, our assumed cost in our plan by our full Board, including our benchmarking data available for historic costs, 6.7%. This is due to a significant shortfall in the of equity is at the lower end of the range advised Independent Non-Executive Directors. The our independent reports, the Total Factor allowance for cost of debt. by Oxera to the Energy Networks Association Board’s review has encompassed the vision Productivity forecasts for the UK and other in November 2019. and strategic direction of the plan, as well as relevant evidence. They have concluded that Financeability cost and financing proposals. In addition, they based on their approach of a macro economic Our financeability assessments affirm that our Customer bills have reviewed the ambition of the outputs review, our costs are relatively efficient WWU business plan should be financeable, We are determined to keep our element of and commitments, the new CVP and other and consistent with underlying economic but that it would not be if Ofgem’s current charges as low as possible, at an average of areas of ambition, including the Environmental assumptions. assumptions of cost of capital were applied, £133 in GD2, in line with the GD1 average. Action Plan and net zero ready vision. They ie under the Ofgem Actual Company plan This is consistent with a fully invested business, conclude that this business plan is ambitious Based on our track record, we are confident we assumptions. We also find that when assessed efficient business operations and capital and represents excellent value for money for can deliver the plan. To demonstrate our business at a target BBB+ rating level, Ofgem’s Notional structure, which serves the needs of our customers – the delivery of which is conditional plan commitment, we will closely align Executive Company plan is financeable for GD2, but consumers. Had our efficiently incurred cost on the totex within this plan being fully funded. and Management team objectives with the we have significant concerns about its longer of debt been appropriately funded through –– Accuracy. Independent management delivery of our GD2 commitments, with up to 50% term financeability. GD1, average charges would have increased assurance on the accuracy of our plan has of executive bonuses attributed to this. We disagree with Ofgem’s stated position by £10 from £133 to £143 (2018/19 prices). been undertaken by KPMG. They performed Click Appendix 1F for Board assurance on Ambition. on its statutory duty in respect of financeability. However, Shareholders have instead borne a combination of review and comment tests, this cost. and agreed upon procedures in relation Click Appendix 1G for KPMG assurance on Accuracy. to the narrative in the business plan, the Click Appendix 1H for Oxera assurance on Efficiency. supporting data tables, the Network Asset 5 Oxera report, entitled ‘RIIO-2 preparation: Cost of Debt’ dated 26.04.19. Risk Metrics tables, the Cost Benefit Analyses

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Chapter 1. Executive summary (continued)

Sustainable Development national and global impacts – and report on our commitment was acceptable to them. had identified, and our plan now aligns to all our progress. In this section, we illustrate how They want our alignment with the SDGs to 17 goals. We still have seven priority goals that Goals across the plan our plan is aligned with the SDGs. The tables deliver tangible environmental benefits that we believe we can influence the most, but we As mentioned earlier in this Executive map the SDGs against our plan, showing how can be measured and want to see us working will endeavour to work towards all of the goals summary, we are aligning ourselves with the our activities will continue to deliver on the more collaboratively with the electricity sector. through our company ambition, priorities and UN SDGs in GD2 to illustrate our commitment UN SDGs as we move into GD2. Expert stakeholders were particularly keen to values during GD2. to being a sustainable network. see carbon emissions at the forefront of our Stakeholders have shown broad support for considerations, and in general, the feedback Click Appendix 1I for the UN SDG methodology. We are also aligning ourselves with the our commitment to aligning our priorities to received suggested that stakeholders Click Appendix 5F for further information Well-being of Future Generations (Wales) Act. the UN SDGs based on nine engagement understand that some goals are more on our engagement. events with c.2,200 stakeholders. We want to embed sustainable processes applicable to us than others. across every area of our business, making Generally, stakeholders were in favour of Our commitment The independent CEG challenged us to go sure that we are doing our best to limit our aligning our plan to the SDGs, and our wider than the original six primary goals we Align our priorities to the relevant UN SDGs. negative and improve our positive local, acceptability testing confirmed that 65% felt

SDGs How our plan aligns to the SDGs SDGs How our plan aligns to the SDGs

–– Committing to the Real Living Wage. –– Positively responding to the gender pay gap. –– Delivering long-term, sustainable employment, including Apprenticeships. –– Evolving our Diversity and Inclusion Strategy. –– Offering support to those in fuel poverty with our Hardship fund and –– Promoting diversity and equality within the workplace; encouraging more Healthy Homes, Healthy People project. females to consider an apprenticeship and careers in engineering. –– Funding first time gas connections to fuel poor households via our Fuel Poor Network Extension Scheme (FPNES). –– Monitoring and managing contaminated land to ensure no risk is –– Rolling out our Community project fund. posed to controlled, surface and ground waters. –– Offering support to those in fuel poverty with our Hardship fund and Healthy Homes, Healthy People project. –– Handing out emergency food packs. –– Funding first time gas connections to fuel poor households via our FPNES. –– Reinforcing our network via our mains replacement programme to limit leakage. –– Rolling out our Community project fund. –– Preparing our network to transport green gases. –– Responding swiftly to emergencies. –– Committing to a net zero ready network by 2035. –– Promoting and increasing sign-up to the Priority Services Register (PSR). –– Promoting best practice via a Wales Green Gas Panel. –– Raising awareness of the importance of positive mental health. –– Funding first time gas connections to fuel poor households via our FPNES. –– Partnering with the emergency services around CO safety. –– Offering support to those in fuel poverty with our Hardship fund and –– Targeting our provision of CO monitors to those most in need. Healthy Homes, Healthy People project. –– Educating communities on gas safety. –– Maintaining a sustainable and competent workforce. –– Installing locking cooker valves. –– Developing the skills of our workforce by providing comprehensive training programmes –– Maintaining the wellbeing of our colleagues via an extensive Wellbeing Strategy, to upskill and multiskill colleagues, as well as apprenticeship and graduate opportunities. supported by comprehensive Occupational Health services. –– Attracting and retaining the right talent to deliver our commitments to customers and –– Educating school children on the risks of CO. communities. –– Working with universities to develop innovative ideas and to better understand consumers. –– Maintaining secure systems and our ability to control our intellectual property to ensure –– Upskilling our workforce through numerous training opportunities. economic growth. –– Providing apprenticeship opportunities. –– Working hard to provide employment opportunities to service leavers, parent returners and other ‘harder to reach’ groups.

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Chapter 1. Executive summary (continued)

SDGs How our plan aligns to the SDGs SDGs How our plan aligns to the SDGs

–– Introducing new technologies to enable more customer feedback. –– Delivering our Environmental Action Plan. –– Continuously improving our services, ensuring we continue operating –– Analysing climate change adaptation methods. a safe and reliable network. –– Supporting future energy scenarios. –– Innovation becoming business as usual. –– Enabling hybrid technologies. –– Developing a quality, reliable infrastructure through new connections. –– Carbon offsetting. –– Increasing green gas supplies, CMG, hybrid heating systems and whole system solutions. –– Meeting our decarbonisation targets, committing to a net zero ready network –– Replacing old metal pipes with polyethelene ones to future proof our network. by 2035 and net zero by 2050. –– Limiting risk and maintaining our assets. –– Preparing our network to carry green gas. –– Upgrading GIS and SAP systems to maximise our understanding –– Reducing emissions due to leakage, via our mains replacement programme. of asset performance and risk. –– Further evolving our cyber security strategy to secure the IT network. –– Undertaking climate change mapping. –– Encouraging and influencing our supply chain to reduce carbon. –– Recognising customers’ needs and requirements, including vulnerable –– Understanding our impact on air quality, whilst planning work. customers, making sure ‘no one is left behind’. –– Promoting and increasing sign-up to the PSR. –– Monitoring and managing contaminated land to ensure no risk is posed –– Fostering a multi-generational workforce. to controlled, surface and ground waters. –– Promoting diversity within our workforce by evolving our Diversity and Inclusion Strategy.

–– Working closely alongside stakeholders and community groups. –– Committing to a net zero ready network by 2035 and net zero by 2050. –– Addressing contaminated land risk. –– Communicating regular updates on the progress of our works. –– Reducing waste generation that is sent to landfill. –– Engaging with local authorities and customers when planning work. –– Planting five trees for every one we have to cut down. –– Funding first-time gas connections to fuel poor households via our FPNES. –– Committing to improve the environment via our Biodiversity pledge. –– Rolling out our Community project fund. –– Preserving and enhancing the natural capital in our environment. –– Supporting communities through match-funding and sponsorship. –– Working to combat cybercrime to help safeguard our network –– Offering support to those in fuel poverty with our Hardship fund and and the communities we serve. Healthy Homes, Healthy People project. –– Safeguarding customers’ data. –– Supporting the development of hydrogen cities and CMG transport. –– Improving safety and reducing emissions via our mains replacement programme. –– Managing network and assets securely.

–– Market testing goods, works or services that have a value above –– Maintaining and forging new partnerships across Wales and the south west of England £5,000 and are sourceable. to ensure we deliver a sustainable customer service to everyone in our network, eg local –– Ensuring procurement expenditure is considered ‘fair and reasonable’ authorities, developers, charities, subject experts. as evidenced by use of external benchmarks. –– Collaborating to share best practice and develop innovations. –– Recycling our pipe off-cuts. –– Engagement with the Welsh Government on fuel poverty and decarbonisation. –– Continuing our investment in the replacement of inefficient iron mains. –– Investing in stakeholder engagement and collaboration with local and national institutions such –– Investing in minor and major refurbishments, rather than replacement. as Cardiff University, Cornwall Energy, Freedom, BEIS, Energy Network Association, etc. –– Ensuring the resilience of our assets. –– Creating a new Citizens’ Panel to seek feedback, co-create solutions and measure success. –– Tackling the theft of gas. –– Reducing the amount of spoil to landfill. –– Increasing the amount of recycled aggregate used. –– Reducing the amount of office waste and paper usage.

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Chapter 2. Our consumer value proposition CVP

1. Highlights of our plan 2. Introduction Our approach The tool and its components are designed As a business we have always used cost benefit in line with the HM Treasury Green Book –– Building on our performance in GD1, our This chapter summarises aspects of our plan (compiled by the UK Government to help that go beyond our minimum requirements and analysis (CBA) to evaluate our assets and to customers will benefit significantly in GD2 direct decision making. The CEG encouraged organisations standardise appraisal methods from the added value services we are offer additional benefits and value for money to to justify public spending); and guidelines set our customers and to wider society. The benefits us to go further, by ensuring that our activities offering. Our services will go above and provide a net financial or social benefit to by the UK Cabinet Home Office for SROI. beyond the minimum requirements expected are expressed in terms of the benefits in GD2, GD3 and, where applicable, beyond GD3 to customers. In response we invested in our of a gas distribution network. SROI tool. We used the tool initially to evaluate Click Appendix 7C for our measuring benefits 2050. We also identify which customer groups methodology and a more detailed description –– We have tested our commitments with our will benefit. specific aspects of our social obligations. of our SROI model. customers and assessed the value, leading We were pleased with the value the tool Most benefits were measured using our SROI to our Consumer Value Proposition (CVP). Click Appendix 2A for our CVP summary. The CVP totals over £122m in GD2 and a delivered, and therefore welcomed the tool. Each CVP has an SROI model and a further £20m in GD3 and beyond. Our methodology and outcomes have been requirement from Ofgem to evaluate our supporting Appendix in which the assumptions independently substantiated by Sia Partners CVP. We were able to adapt the SROI tool to and evidence to support the financial and social –– To measure the value of our services, encompass wider priorities across the full plan. we have used tools that we had already and reviewed by the CEG. processes are detailed. developed in GD1. In particular, our industry The SROI framework builds on traditional CBA by leading Social Return on Investment (SROI) Click Appendix 2B for a letter from Sia Partners also measuring and accounting for the qualitative Our CVP proposals independently substantiating our CVP. tool helps us understand and measure the social impacts of a project, as well as the direct The following table summarises our overall value we are delivering to different consumer financial benefits for a customer. This is done by CVP. For each activity we show how we have groups. The CVP is an extension of this Customer and stakeholder feedback using financial proxies to quantify social benefits determined the value – using the SROI to assess approach, which we welcome. We have reviewed the commitments we are that are not generally monetised. the financial (£) value and/or the social value. –– Our proposals have been independently making in our business plan to consider areas A summary is provided for each output assessed and validated by Sia Partners, that qualify under the CVP as being above category of our business plan below. and were reviewed by the independent CEG. ‘minimum requirements’. These commitments have been tested with our customers and CVP £122m –– We will use our CVP models in GD2 to Consumer Value Proposition stakeholders during our business plan evaluate the services we have delivered, in GD2. engagement, and more detail is provided compared with our forecasts. We also in the appropriate chapters. commit to use the models to drive business decision making when weighing up We tested our approach with the CEG in different service options and evaluating new August 2019 and incorporated more detail into Summary of our CVP proposals (net value, 2018/19 prices, £m) programmes of work. the commitments. We also agreed to produce GD2 GD3 Future a supporting appendix and CBA models for Topic Financial Social net total net total net total each CVP line. Customers and network users ✓ ✓ 72.9 7.6 1.2 All CVP areas are Environmentally sustainable ✓ ✓ 31.4 11.4 0.0 denoted by a CVP logo network CVP across the plan. Safe and resilient network ✗ ✗ 0.0 0.0 0.0 Value for money ✓ ✓ 18.0 0.0 0.0 Total 122.3 18.8 1.2

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Chapter 2. Our consumer value proposition (continued)

Delivering for customers and network users (net value, 2018/19 prices, £m) Delivering for CVP GD2 net GD3 net Future Net benefit per £1 customers and Topic Commitment Value proposition Financial Social total total net total invested network users Service levels Enhanced GSoPs and Additional payments to customers when ✓ ✗ 0.32 0.00 0.00 £320k additional voluntary payments we fail to provide an agreed level of payments to customers Click Appendix 2C1 service above statutory requirements. We take pride in the fact that we already Click Appendix 2C2 deliver UK leading service. During GD2, Interruptions Voluntary payments for customers left ✓ ✗ 0.45 0.00 0.00 £450k additional our customers will benefit further from our compensation off gas for more than 12 hours. payments to customers increased focus in this area. This will include Click Appendix 2C3 less disruption by reducing time off gas and Click Appendix 2C4 continuing to pay more compensation than Volunteering in the Wellbeing of volunteers and ✓ ✓ 0.2 0.00 0.00 £204k value to we are required to pay – in recognition community communities and value of volunteers’ communities and Click Appendix 2C5 time and match funding. organisations of the inconvenience caused when things Click Appendix 2C6 do go wrong. Vulnerability Fuel poverty Tackling fuel poverty through income ✓ ✓ 7.32 5.03 0.10 £11.71 We will provide further support for our ‘use it or lose Click Appendix 2C7 maximisation, tackling energy and communities through our volunteering it’ allowance Click Appendix 2C8 water debt/tariffs, and energy efficiency savings due to measures and advice. programme, giving staff the opportunity to Carbon monoxide Safeguarding customers’ lives and ✗ ✓ 0.28 0.70 0.02 £1.19 raise money for charities which we will match. Click Appendix 2C9 health through CO awareness and provision of free CO monitors. Our support for customers in vulnerable Click Appendix 2C10 Community Community Community project fund reaching out ✓ ✓ 2.70 0.00 0.00 £10.74 situations will be greatly enhanced. We are project fund to hard to reach groups on energy providing more Customer Support Officers Click Appendix 2C11 efficiency, CO awareness and the PSR. (CSOs) on the ground who will be knocking on Click Appendix 2C12 PSR referrals and data sharing with ✓ ✓ 60.04 0.00 0.00 £270.80 doors and providing bespoke support where Priority services utilities leading to customers being it is needed. We are also increasing our efforts register (PSR) safeguarded and prioritised during utility to provide support by encouraging people to Click Appendix 2C13 outages. Click Appendix 2C14 Customers can benefit financially via sign up to the Priority Services Register (PSR), Warm Homes Discount and access to including by working with other utilities social water tariffs and discounts. and partners. GDN Collaborative Projects – these ✓ ✓ TBC TBC TBC TBC have yet In addition, increased numbers of partnerships to be defined and the benefits assessed. will help to maximise the income for more Theft of gas Theft of gas ODI Tackling theft of gas through proactive ✓ ✓ 1.59 1.90 1.10 £20.67 people in fuel poverty, as well as protecting Click Appendix 2C15 work leading to reductions in people from carbon monoxide. Click Appendix 2C16 transportation charges. Total 72.9 7.63 1.22 We will go beyond our minimum requirements to identify and resolve theft of gas cases, thereby ensuring that customers in general are not funding the few.

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Chapter 2. Our consumer value proposition (continued)

Delivering an environmentally sustainable network (net value, 2018/19 prices, £m) Delivering an CVP Net benefit environmentally GD2 net GD3 net Future net per £1 sustainable network Topic Commitment Value proposition Financial Social total total total invested Environment Environmental Action Plan Adapting to climate change, avoiding ✗ ✓ 3.23 0.00 0 £11.22 Click Appendix 2C17 future costs for customers. In response to customer and stakeholder Click Appendix 2C18 feedback, we will increase our focus on Preserving the natural capital, reducing our environmental impacts in increasing biodiversity and promoting wellbeing. GD2, underpinned by the UN Sustainable Development Goals (SDGs). We have valued how Education of school children in the we adapt to climate change and preserve the community on environmental issues. natural capital, benefitting the communities that Data sharing Whole systems data The value of our whole systems data to ✓ ✗ 28.20 11.19 0 £40.37 are impacted by our assets. Click Appendix 2C19 support external projects. Click Appendix 2C20 We also want our network to be net zero ready The value of our Pathfinder model in supporting external projects. by 2035 and are committed to sharing our whole Total 31.43 11.19 0 systems data and Pathfinder model, benefitting local authorities and community groups.

In addition to our main CVP, we have created a separate net zero CVP which demonstrates the value of our net zero uncertainty mechanism. This is separately identified by the net zero CVP logo.

All net zero CVP areas are denoted by a net zero CVP CVP net zero logo across the plan.

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Chapter 2. Our consumer value proposition (continued)

Delivering value for money (net value, 2018/19 prices, £m) Delivering value CVP GD2 net GD3 net Future net Net benefit per for money Topic Commitment Value proposition Financial Social total total total £1 invested Innovation NIA vulnerable Supporting customers financially and ✓ ✓ 0.40 0.0 0.0 £0.45 customers protecting their health. Customers have benefitted through lower bills Click Appendix 2C21 throughout GD1, including as a result of our Click Appendix 2C22 ongoing commitment to innovation and cost Efficiency 0.5% efficiency Reduced customer bills through annual ✓ ✗ 17.60 0.0 0.0 £17.6m bills efficiency. Customers will continue to benefit saving 0.5% efficiency commitment. reduction from this in GD2. We commit to providing Total 18.00 0.0 0.0 financial, service and environmental benefits Distribution of benefits to customer groups Using the CVP in GD2 through our innovation programme. We will also keep bills as low as possible; this includes Most of the value propositions in the table above will benefit all domestic and business customers. We welcome the CVP approach as it provides delivering 0.5% efficiency – resulting in nearly The table below summarises the total benefit by customer group. an opportunity to build further on our existing approaches to evaluating our services and 3% per year by the last year of the price control projects. It will help us demonstrate the value – which is equivalent to an average saving of Summary of CVP benefits by customer group (net value, 2018/19 prices, £m) of our investments to customers and to wider £3.6m every year for our customers. Customer group CVP GD2 CVP GD3 and beyond Total CVP benefit society and, importantly, will help supplement Domestic vulnerable 72.1 5.5 77.6 our decision-making on projects. Domestic non-vulnerable 5.5 0.6 6.1 Business customers 15.9 2.5 18.4 To be accountable to customers, we will monitor Off gas households 0.4 0.3 0.7 the outcome of our commitments and the value 60% Local authorities/communities 28.4 11.2 39.6 these provide on an annual basis, as we move of CVP benefit will be delivered Total 122.3 20.1 142.4 through GD2. Where we cannot deliver value to vulnerable customers in GD2. we will return funding to customers through the The majority of our CVP impacts existing (GD2) Independent evaluation regulatory process. In some cases, this may mean that money will be returned to customers if we do customers. The theft of gas CVP will reduce gas Our SROI tool has been developed, and its We commit to providing financial, not deliver as we said we would. For example, if we bills for future customers. Data sharing of whole correct use and our assumptions substantiated service and environmental benefits do not spend the ‘use it or lose it’ allowance for systems data and the Pathfinder model will by Sia Partners. Sia Partners has previously through our innovation programme. vulnerability and carbon monoxide, or achieve support third party projects into GD3. developed an SROI tool alongside Ofgem to the outputs we have committed to, then the evaluate the Fuel Poor Network Extension appropriate money will be returned to customers. Distribution of benefits geographically Scheme (FPNES). Similarly if an initiative is not delivering the benefits Most CVP geographic distribution is driven by The CEG has evaluated outcomes, providing we anticipated it will either be refocused or our business plan workload. Regarding future feedback and challenging us to only value service stopped. We will use the CVP in our performance of energy and data sharing, the distribution of levels or outcomes that go beyond what would reporting going forwards. This includes in the benefits will depend on who and where we’re be usually experienced by customers. The RIIO-2 annual Regulatory Reporting Pack commentary working. So that vulnerable customers benefit in Challenge Group commended our commitment and other relevant reports, such as the annual all locations, we will work with partners across and approach to quantification using SROI. vulnerability report under new licence obligations. all geographies in relation to the ‘use it or lose it’ allowance.

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Chapter 3. Outputs and incentives

The chapter is presented in the We are committed to delivering At this price control, Ofgem determined that 1. Our methodology following sections: our promises across our full outputs would be aligned to three overall and approach range of services and we use 1. Our methodology and approach – categories. We support these categories and This section describes the overarching approach the steps we take to determine the outputs, this chapter presents our outcomes in this ‘outputs’ to measure and we took, using customer and stakeholder targets and incentives. way. The three categories are as follows: feedback to develop the proposed outputs, report on our performance. 2. Our GD2 outputs – the specific targets targets and incentives for GD2. In GD2 we will further increase we have set for each output. Meeting the needs Our detailed Appendix demonstrates how each transparency and strengthen 3. Our GD2 incentive package – the of consumers and output aligns with the principles for setting rewards and penalties that would apply. our accountability to customers network users outputs that were included in Ofgem’s business and stakeholders. 4. Reporting and consequences for plan guidance document and further challenges non-delivery – the measures in place to from the CEG. This chapter explains our proposed outputs protect customers should we fail to deliver Delivering an for 2021–26. Some of the outputs are common on our promises. environmentally Setting outputs, targets and incentives to all GDNs, while others are bespoke to our sustainable network Although the process to determine our outputs Each chapter in this business plan contains business, reflecting the specific needs and and targets is relatively complex, it can be a more detailed assessment of the outputs priorities of our customers. broken down into a series of steps which are relevant to that chapter. Maintaining a safe Each output has associated targets, and and resilient network described on the following page. this chapter summarises both the targets This chapter is supported by an Appendix and the approach we have used to arrive that provides a much fuller picture and greater at those targets. detail on the rationale behind each common output with a bespoke target, and our The chapter also outlines the reward that bespoke outputs. consumers believe is appropriate for achieving or going beyond the target, as well as the We would therefore strongly recommend penalty that will be applied should we fail to that the chapter is read in conjunction with the meet that target. These incentive arrangements output justification Appendix. ensure that customers get best value and are protected from risk should we fail to deliver Click Appendix 3A for a more detailed justification of the common outputs with bespoke targets, our commitments. and our bespoke outputs.

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Chapter 3. Outputs and incentives (continued)

Step 1: There are two types of outputs: Define outputs –– Common outputs – required by the regulator across all GDNs. –– Bespoke outputs – specific to WWU and important to our customers. Common Bespoke Outputs Outputs

Step 2: There are three types of targets for outputs: Define type of target –– Common outputs with common targets – set by the regulator across GDNs with common targets. Common Bespoke Bespoke –– Common outputs with bespoke targets – set by the regulator across Targets Targets Targets GDNs with GDN specific targets. –– Bespoke outputs with bespoke targets – specific to each GDN.

Customers and stakeholders talked to us about our performance in GD1 Step 3: and proposals for GD2. We have reflected these needs in determining Inform decisions our outputs and the associated targets. Feedback from customers, stakeholders, CEG

To ensure that our bespoke targets are sufficiently challenging and Step 4: ambitious, we looked at wide-ranging sources including benchmarking Set performance across the sector, our historic performance and consumer views. levels Compare, review, check, challenge

Step 5: There are three regulatory mechanisms that govern outputs: Determine regulatory –– L icence obligations (LO) – set minimum standards; failure could lead to enforcement action and penalties. mechanism Licence Price Control ODI ODI –– Price control deliverables (PCDs) – capture outputs with baseline funded. Obligations Deliverable Financial Reputational –– Output delivery incentives (ODIs) – apply to service quality improvements beyond the minimum standard (may be financial or reputational).

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Chapter 3. Outputs and incentives (continued)

2. Our GD2 outputs Meeting the needs of consumers and network users This chapter outlines our targets for GD2 which Common output measures 2018/19 Click for are summarised below. These are presented with a common target Type Explanation performance GD2 target further info according to the three Ofgem output categories. Consumer vulnerability LO A new LO to identify vulnerable consumers and provide support including Met LO Meet revised LO Chapter 7 For reference, where a comparable measure minimum standards partnership working. already exists in GD1, we also show Consumer vulnerability ODI R A new reputational ODI to annually report on the support given to New Annual reporting and Chapter 7 our current performance. reputational incentive vulnerable customers and host an annual joint GDN showcase event. GDN showcase events Customer satisfaction survey ODI F A financial ODI with penalties and rewards based on customer satisfaction 9.18/10 Trials Oct 2019 to Chapter 6 Further details in relation to the targets for each survey scores across the three key work areas. March 2020 year of GD2, the cost assumptions we have Complaints metric ODI F A financial ODI with a penalty only to incentivise the timely and high-quality 2.51 Ofgem to confirm Chapter 6 made and the associated incentive payments/ resolution of complaints. Focused on resolution times, repeat complaints, penalties where a financial ODI is proposed are and Ombudsman complaints. included within the relevant chapters of this plan. Guaranteed Standard of LO A set of legal minimum standards with associated compensation relating Met LO Meet LO Chapter 6 The chapters are signposted in the tables below. Performance (GSoPs) to our core services for interruptions, connections and customer service. Emergency response time LO Licence Obligation to attend 97% of gas emergency calls within 1 hour for 99.4% Exceed LO of 97% Chapter 6 uncontrolled and 2 hours for controlled escapes. Meeting the needs Common output measures of consumers with a bespoke target Consumer vulnerability and CO PCD A ‘use it or lose it’ allowance to focus on initiatives to support vulnerable New £750k per year fund Chapter 7 and network users safety ‘use it or lose it’ allowance customers and raise CO risk awareness. FPNES PCD Funding of first time gas connections to eligible fuel poor homes. 1,083 Average of 500 Chapter 7 Delivering for our customers is a critically connections connections per year important priority and our outputs are Average restoration time for ODI F The average time taken to get supply back on after an unplanned 6 hours Less than10 hours Chapter 6 designed to ensure that: total unplanned interruptions interruption. Major incidents involving over 250 properties will be weighted. (average) (average) –– customers receive a high level of service; Bespoke output measures –– vulnerable customers are protected British Standard for Inclusive ODI R Reputational ODI to deliver best practice measured by BSI accreditation for Accredited Maintain accreditation Chapter 7 Service Provision BS 18477 Inclusive Service Provision across our whole business. (GD2 cost £0.075m). and supported; ICS ServiceMark accreditation ODI R Reputational ODI benchmarking against the best customer service Accredited Retain ServiceMark Chapter 6 –– those in fuel poverty have access providers in the UK. (GD2 cost £0.075m). to cheaper heating; CVP

–– interruptions are infrequent and the time Theft of gas ODI F A bespoke financial ODI to increase the proactive work we do to tackle £326k First £250k to Chapter 17 theft of gas by commercial and domestic customers. (GD2 cost £0.25m). customers. off gas is minimised; CVP £250-£300k to WWU –– we keep people safe by responding (admin costs) to emergencies quickly; >£300k shared 50:50 –– our service is externally verified to Enhanced GSoP ODI F A package of three outputs that maintain our GSoP failure payments which Doubled Maintain GD1 doubled Chapter 6 deliver best in class. doubled our GD1 statutory payments, while expanding the reach to all payments payments Voluntary interruptions payments connections customers and offering voluntary payments to customers who New Voluntary payments Chapter 6 experience long unplanned or planned interruptions. (GD2 cost £0. to customers Click Appendix 3A for more detailed Connections voluntary GSoPs New Alignment to Chapter 6 outputs justification. connections GSoP for CVP excluded customers

20 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 3. Outputs and incentives (continued)

Bespoke reputational ODI – BS Bespoke reputational ODI – Bespoke financial ODI – Bespoke financial ODI GSoP and CVP CVP 18477 – Inclusive Service Provision ICS ServiceMark accreditation Theft of Gas voluntary payments for interruptions Customer and stakeholder feedback Customer and stakeholder feedback Customer and stakeholder feedback and commitments Providing inclusive customer service is a priority During GD1 we have taken pride in delivering We have performed well in the area of managing Customer and stakeholder feedback for us. Although stakeholders had mixed UK leading customer satisfaction, which is gas theft, recovering £2m over the past During GD1 we have voluntarily paid double awareness of BS 18477, and acceptability for externally benchmarked by the ICS through its five years. Customers and stakeholders ranked the statutory GSoP payment to customers. the commitment itself was low, our in-depth ServiceMark Accreditation. We are currently this ODI inconsistently, with regard to both its The new GSoP payments being proposed by engagement and research into vulnerability scoring 9.18 out of ten for overall service, and importance and its perceived value. Ofgem are lower than these values and continue shows that supporting customers in vulnerable our customers have told us that they want us However, given the significant importance to exclude groups of connections customers. situations has a high perceived value – for to continue to deliver at this level. customers place on safety and the potential Stakeholders support higher payments than domestic customers, in particular. those proposed by Ofgem, however they are Despite this output receiving conflicting feedback financial benefits available to them, we are not willing to pay towards this compensation. Ofgem’s Vulnerability Strategy also states that and different levels of acceptability, we know that committing to do more – proactively working 62% consider resolving complaints quickly and networks should demonstrate that services are safety is the top priority for customers – and we alongside others – to manage the issue of compensating when things go wrong as ‘very inclusive and do not penalise anyone. BS 18477 can only achieve this through excellent customer gas theft. We propose an additional financial important’ and a way to facilitate automatic helps us demonstrate this, is recommended service. Given stakeholders’ unwillingness incentive to support our commitment in compensation payments was considered by Ofgem, and fosters trust amongst to pay more for this, we are not proposing a this area. crucial. This ODI will allow us to focus on our customers. financial incentive. Our commitment measuring and improving our performance. Our commitment Our commitment Do more to proactively identify theft of gas to Our commitment Maintain the British Standard for Inclusive Maintain our ICS accreditation. We propose protect the safety of our customers and to Enhanced compensation for failures under the Service Provision. We propose this as a this as a bespoke reputational ODI. support fair charging. We propose a bespoke GSoP and voluntarily pay customers £25 if their bespoke reputational ODI. financial incentive to support this. Our response is to commit to a bespoke gas is interrupted for longer than 12 hours. We have made a number of ambitious reputational ODI to maintain our ICS ServiceMark We are proposing a new financial ODI which We propose a bespoke penalty only financial commitments in our business plan to deliver accreditation throughout GD2. This will ensure would see customers receiving all of the benefit incentive to support this. increased support for those in vulnerable that we are not only benchmarked against the of the first £250,000 recovered each year. We will ensure that all customers are treated situations. In addition, we are committing to a GDNs but externally benchmarked against UK We would then share 50% of everything we are equally in our connections business and we will bespoke reputational ODI to continue to achieve leading companies. In this way, we will make able to recover above £300k at an additional pay the equivalent GSoP payment to developers accreditation against the UK’s British Standard sure that our customers receive the industry cost of £50,000 a year. This will ensure fair and those seeking an isolation, diversion or gas for Inclusive Service Provision across our entire leading service they expect and deserve. charging going forward, because the gas used entry quotations/works. We will also compensate organisation. This will ensure we are continually will be paid for by the user and not charged as customers for interruptions longer than 12 hours, stretching ourselves and improving our services, part of everyone else’s bill, as well as further Click Chapter 6: Customer service 52 on planned and unplanned works, and commit to delivering on behalf of those who need it most for further information. protecting the safety of our customers and getting gas to the appliances within two hours or in society. the public. to offering a two-hour appointment window. Click Chapter 17: Connecting homes Click Chapter 7: Social obligations 62 164 for further information. and businesses for further information. Click Chapter 6: Customer service 52 for further information.

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Chapter 3. Outputs and incentives (continued)

Delivering an Delivering an environmentally sustainable network environmentally Common output measures 2018/19 Click for with a common target Type Explanation performance GD2 target further info sustainable network Annual Environmental Report LO A new LO requiring GDNs to report their environmental New Multiple targets Chapter 14 performance through Business Carbon Footprint (BCF) reporting. Our focus on the future and our role in Common output measures delivering a low carbon network is at the with a bespoke target forefront of our business plan. Our targeted Shrinkage ODI F & R A financial and reputational ODI to measure the volume of gas 351.5GWh 322GWh average Chapter 14 outputs will: lost (GW/h) through leakage, theft of gas and own use gas. per year Environmental Action PCD A PCD to support GDNs to minimise their environmental New Multiple targets Chapter 14 –– deliver a focus on reducing emissions Plan initiatives impact and reduce BCF. to help deliver the UK’s climate change targets; CVP –– minimise the risk of contamination from Bespoke output measures historical gas-producing sites to protect (GD2 cost) people and the environment. Land remediation PCD A suite of outputs to continue our programme 85 land 85 land Chapter 14 of managing and cleaning up old contaminated gas management/ management/ works sites (GD2 cost £6.8m). remediation outputs remediation in GD1 outputs in GD2 Click Appendix 3A for a more detailed explanation (70 sites) of the common outputs with bespoke targets, and our bespoke outputs. Bespoke PCD – land remediation We are committing to a bespoke PCD to assess, manage and reduce historical gas work sites’ Customer and stakeholder feedback negative impacts on the communities and Our portfolio of former gas work sites has the environment where they are located. We will potential to significantly damage human health, commit to investing £6.8m to efficiently and 10% water bodies and the environment that surrounds effectively tackle this complex ongoing problem; further emissions reduction them – and we take this risk seriously. Limiting the if we fail to achieve this we will hand this money by 2026. negative and enhancing the positive impact we back to customers. have on the environment is a major focus for us as we move into GD2. This is guided by the clear Our commitment feedback we have received from customers and Invest £6.8m to assess, manage, or reduce stakeholders, with over half of those we have the negative impacts of historical gas works spoken to being ‘environmentally considerate’ at around 70 sites in our communities – we or ‘environmentally engaged’. propose a bespoke price control deliverable to support this.

22 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 3. Outputs and incentives (continued)

Maintaining a safe Maintaining a safe and resilient network and resilient network Common output measures 2018/19 Click for with bespoke targets Type Explanation performance GD2 target further info Repex – tier 1 mains replacement PCD A programme of work that is mandated by the HSE to Average of 337km 324km per year Chapter 16 Our customers expect us to deliver a safe replace iron metallic mains within 30m of an occupied per year in GD1 in GD2 building by 2032. and resilient network. Our outputs in this Repex – replacement of services TBC The replacement of metallic services to comply with Average of 17,300 86,740 during GD2 Chapter 16 area will: HSE guidance which does not allow a steel service to be per year in GD1 –– deliver a gas mains replacement reconnected following a mains replacement, or to just repair a service following a leak. programme that reduces the risk of an Gas holder demolitions PCD A programme of work to demolish redundant 0 5 during GD2 Chapter 18 explosion and minimises our impact on gas storage assets.

the environment; 1 Network Asset Risk Metric (NARM) PCD A common model across GDNs for calculating the monetary £163m £203m Chapter 15 value of the risk of assets. This is used to assess the impact –– minimise the risk of contamination from ODI historical gas-producing sites to protect on risk from our intervention programme. people and the environment; Cyber resilience PCD As a key utility infrastructure provider, we are at risk from NIS regulations did £7m Chapter 21 a cyber attack that could impact supplies to homes and not exist in GD1 –– provide protection from cyber attacks businesses. We therefore need to ensure appropriate levels and accidental failures of our technical of cyber resilience. infrastructure, which could otherwise NTS exit capacity TBC The value of NTS flat capacity secured to meet 1:20 peak £0.46m Pending outcome Chapter 18 impact the physical integrity of our assets demands against a baseline set in the final proposals. To of UNC678 incentivise GDNs to minimise flows on the NTS to reduce and lead to data breaches; consumers’ costs. –– deliver a risk based programme of Physical security PCD Ensuring we meet Physical Security Upgrade Programme Complied with No PCD proposed Chapter 18 investment, in our assets, based on (PSUP) obligations and monitor alarms on PSUP sites. requirements accurate data, to minimise the risk 1 This cannot be compared with GD1, as monetised risk prices have been inflated for GD2 in line with Ofgem guidance. of an unplanned interruption to supply or safety related incident.

Click Appendix 3A for a more detailed explanation of the common outputs with bespoke targets, and our bespoke outputs.

Wales & West Utilities | Business Plan 2021–26 23 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 3. Outputs and incentives (continued)

3. Our GD2 incentive package Financial incentives proposed for GD2 We have designed a set of incentive GD1 performance Proposed range Click for mechanisms that will support and promote the Incentive Description 2018/19 for GD2 further info effective and efficient delivery of our outputs. Customer satisfaction An incentive to drive improvements that deliver great customer service Rewarded £2.25m Under consideration Chapter 6 Further work will continue throughout 2020 and experience. by Ofgem, trial to develop these incentives with Ofgem and underway Oct’19 other GDNs. to Mar ‘20. Complaints metric An incentive to improve the timeliness and quality of resolving customer complaints No penalty Up to – 0.5% of Chapter 6 The table sets out the package of financial (penalty only). allowed revenue. incentives that we are proposing for GD2. Theft of gas A new incentive to drive identification of consumers not paying for gas consumption, New £327k recovered Retain 50% of Chapter 17 to recover monies due and to start charging them for future usage. through back-billing. money >£300k There are two to support us in meeting the CVP needs of our consumers and network users: recovered. one environmental sustainability incentive; and Shrinkage An incentive to minimise the volume of gas lost through leakage. £0.99m Under consideration Chapter 14 two designed around maintaining the safety by Ofgem. and reliability of the network. NTS exit capacity An incentive to minimise NTS exit capacity bookings and interruption payments £0.46m Decision on Chapter 18 to customers on their own networks. whether to include incentive deferred For every £1 invested to stop until UNC678 has gas theft, there is £21 of concluded. CVP net customer benefit – totalling a value of £1.6m in GD2. We have also made a number of additional –– Additional GSoP payments – Financial commitments in our business plan. These are ODI – these are penalty-only incentives Conclusion our promises to customers and we will report that compensate customers for failures. Based on the customer and stakeholder our performance against them annually. 4. R eporting and consequences –– Land remediation – this is a bespoke PCD, feedback we received in preparing our While they are not all regulatory outputs, they business plan, we believe that this package for non-delivery which by its nature, will ensure that money are all individually sponsored by an Executive is returned to customers if we fail to deliver of outputs and incentives is what customers As a responsible business, and to engender Director, and the consequences of non-delivery the outputs. want from us in GD2. trust among our customers, we will be are directly linked to executive pay. accountable and transparent in reporting our They want a value for money, safe and If we fail to deliver our bespoke outputs, the The consequences of non-delivery of the performance in delivering this business plan and reliable service and an organisation that is consequences for non-delivery are as follows: common outputs and the common outputs with reducing its carbon footprint and supporting will compensate customers should we fall short. bespoke targets will be in line with the Ofgem –– BS 18477 and ICS ServiceMark – the decarbonisation of heat in the UK. We will measure and report progress against guidance and instructions. Reputational ODIs – we will return the cost our outputs and incentives through the annual of these accreditations to customers. regulatory reporting process; the details of this As a responsible business, will be established through the Ofgem working –– Theft of Gas – Financial ODI – we will charge and to engender trust among groups prior to the start of GD2. customers the costs to deliver this until we our customers, we will be recover £300,000 in back billing. accountable and transparent in reporting our performance.

24 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 4. Track record

1. Introduction We invested in a TV advertisement, as part Customer service in specific geographical areas, and we closely of our ‘Let’s Connect’ campaign, which was We exceed customer expectations monitor improvements in their performance. This chapter provides an overview of our track designed to increase awareness of who we We are deeply committed to improving our When customers are repeatedly interrupted record in GD1, including how different groups are and to encourage people to connect service and are proud to be delivering UK- due to poor pressure or water ingress, we of customers have been served in GD1. with us. 21,000 people gave us their views. leading customer satisfaction that is comparable use innovative CCTV techniques to pinpoint It encompasses not only our performance against Other engagement included data mining existing to levels achieved by leaders such as John underlying issues. We have also deployed regulatory measures but also the areas where we customer data in the business and collaborative Lewis and Amazon. This has resulted in us fledgling technology to isolate and deal with gas have gone above and beyond for our customers. engagement on vulnerability. achieving the ICS ServiceMark with distinction, escapes in multi occupancy buildings (MOBs), To summarise, all domestic and business We have continued to listen and respond to scoring 93.6 out of 100 in 2019. aimed at minimising how many and for how users have seen increasing safety, reliability, valuable insights from our long standing Critical As measured through the GDN customer long customers are off gas.We recognise the and customer service. We have developed Friends Panel and bi-annual regional workshops, inconvenience our works can cause and have our services for vulnerable customers, not only survey in 2018/19, we are in the upper quartile with a broad range of stakeholders across our of GDNs, achieving 9.18/10 overall compared voluntarily doubled compensation payments to by safeguarding them during our works, but entire geography. reflect this; one of only two networks to do so. through signing people up to the PSR, providing with 8.69/10 in 2013/14; a direct result of our The feedback we have received has been wide- commitment to improving service every day. CO advice and monitors, offering locking cooker Social obligations and vulnerability valves, and tackling fuel poverty. The FPNES has ranging and we have made many changes as a In addition, we have become faster at responding Among our 2.5 million consumers, many live helped us to extend the gas network by 36km, result. For example, we acted on feedback on when things go wrong by resolving 84% of in vulnerable situations and count on us to reaching off gas communities and homes. improving customer communication by investing complaints on day one (up from 45% in 2013/14). understand and respond appropriately. GD1 Our reach into hybrid heating systems is set in new Customer Support Officers (CSOs). We do not compromise on quality when it comes has seen us make positive strides in this area. to be a key measure in the future of UK heat. The CSOs work face to face in the communities to our complaint resolution, which is evidenced by we serve to support the individual needs very low levels of repeat complaints and the fact We care about those in vulnerable situations of consumers. that we have had no Ombudsman complaints 2. M eeting the needs of In Wales, we have the oldest housing stock, ruled against us for ten years. consumers and network users Another example is our response when told one of the highest poverty levels and the lowest we needed to work with partners to provide average energy efficiency ratings in the UK In 2019, we achieved Customer voice targeted support and services for those in and Europe. Recognising the challenges our the ICS ServiceMark We listen to our customers vulnerable circumstances; this is now a core part customers face every day, we have delivered with distinction. We are committed to increasing the voice of of the way we deliver as a responsible business. vulnerability training to over 1,680 colleagues the customer in order to improve the services to help them identify signs of vulnerability, and we offer. We focus on the experience of our giving them the tools to provide additional help. In GD,1 we worked hard to broaden our reach 21,000 worst-served customers We wanted to test our commitment externally with stakeholders and started to develop our people gave us their views in our While our average overall service is high, we are not and have become the first GDN to meet the stakeholder segmentation tool. To gain insights ‘Let’s Connect’ campaign. complacent and we focus specifically on improving requirements of BS 18477 – the British Standard into our customers’ needs and wants, we the experience for our worst-served customers. for Inclusive Service Provision. undertook an extensive and comprehensive We use sophisticated business intelligence tools engagement programme, at the same time for deep-dive analysis to understand where our First GDN to meet as learning from our day to day contact with worst-served customers are and how we need requirements for inclusive our customers. to improve. We use this information to provide service provision. targeted training and development for colleagues

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Chapter 4. Track record (continued)

We work in partnership Our investment in innovative data mapping is However, when we do need to interrupt supplies in We have, for example, developed an innovative Our stakeholders have told us that we need to allowing us to target CO advice and distribute an unplanned way, our aim is to keep the duration Ductile Iron Window Cutter which reduces the work with others to deliver the most effective alarms to those who are most vulnerable. of the interruption to around eight hours on average, time it takes to replace metallic pipes, minimising support for those in vulnerable situations; these compared with the GDN average of 26 hours. the inconvenience to customers. should be partners who are trusted in the local We help to lower heating bills community. Identifying vulnerability is the first Given that gas is 75% cheaper than electricity Unplanned interruptions – GD1 cumulative Planned interruptions – GD1 cumulative challenge, and one that we are overcoming to heat homes, those in fuel poverty benefit Average duration (hours) excl. large events Average duration (hours) by working together with Western Power significantly from moving to gas for heating. Distribution and local water companies to sign In spite of the challenges of changing criteria 00 00 people up to the Priority Services Register (PSR). for connecting fuel poor customers to the gas 000 00 66 6 We now have over 15,000 more people signed network, we are committed to delivering our 2 616 up to the PSR since 2015, meaning they have targets by 2021. As a result, we are proud 200 20 600 2120 access to the vital support they need. to be lifting more than 12,000 families out of 2000 10 200 00 162 fuel poverty by the end of GD1 and saving 11 10 We are also working with local authorities, health 100 00 02 6 customers £680 a year on their energy bills 62 2 boards, GPs and partners such as Warm Wales, 1000 00 by partnering with organisations to connect 10 Care & Repair and the Centre for Sustainable 1 off-grid homes to the gas network. 00 60 0 0 200 Energy to support those in fuel poverty. To offer wider support, we refer customers to trusted 000 100 partners to support with wider energy efficiency, 13/14 14/15 15/16 16/17 17/18 18/19 13/14 14/15 15/16 16/17 17/18 18/19 energy switching and income maximisation £680 WWU nust aeae WWU nust aeae advice. Our support has saved 2,000 families a year saved by 10,000 a total of £1.3m with energy tips and debt families through our Fuel Poor In 2018/19, we average 6 hours for unplanned We experience severe weather from time to 1 advice, among other things – an average Connections Scheme. interruptions. This compared to NGN (7.5 hours), time, but even during the Beast from the East of £650 per household. SGN Sc (13.5 hours), SGN So (23 hours), in 2018, we are proud to have maintained and Cadent at 16 hours (except London at frontier performance, despite our network being Reliability We protect customers from CO 185 hours). worst hit by the extreme weather. Our customers asked us to target our carbon Our customers tell us that reliability is a monoxide (CO) advice to those most at risk of high priority – 80% of households rely on We recognise the inconvenience caused for poisoning. As a result, we have changed our gas to heat their home, and their feedback customers when we have to interrupt gas strategy and now target the youngest and oldest was that we need to maintain our GD1 levels supplies as part of our planned gas mains in our communities. Through partnerships and of 99.97% network reliability in GD2. replacement programme. 99.97% working in schools, we have directly educated We are pleased to report that our planned network reliability in GD1. We minimise supply interruptions more than 100,000 people at risk about the interruptions last just three and a half hours on issue and have issued 29,000 CO alarms To deliver a reliable gas supply, we focus on average, compared with the near six-hour GDN to our priority customers. keeping the number of supply interruptions average. We are constantly looking for innovative to a minimum, and in fact our customers ways to reduce the time our customers are only experience an unplanned interruption without gas. once in their lifetime. 1 Between August 2017 and July 2019.

26 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 4. Track record (continued)

3. M aintaining a safe and Workforce resilience resilient network We invest in people 45 minutes We operate across one-sixth of the UK, Safety On average, we attend gas covering an area that stretches from Wrexham We keep our communities safe emergencies within 45 minutes. to Redruth. Our strong performance in GD1 is Safety will continue to be a constant focus only made possible by the people who work for improvement and is by far the highest Asset resilience for us; they are our greatest asset and we have priority for all customers and stakeholders. We operate a resilient network invested significantly in them. We are proactive in workforce planning and our objective is Our replacement of gas mains is prioritised As reliability is so important to our customers, to develop and maintain a skilled, confident on a risk basis to avoid the devastating we need to ensure that we operate a resilient and resilient organisation. consequences of gas explosions. By 2021, We keep our workforce safe network. By sharpening our focus on asset our network will be 75% plastic and we will Keeping our workforce safe is of paramount health using cutting-edge risk based asset A key response to this is that by the end have delivered all of our outputs, unlike some importance to us and a key part of our DNA. management systems and optimisation of 2019, we will have employed almost networks that are currently significantly behind The RoSPA awards are among the most tools and high-quality data we are able not 200 apprentices since 2006. We are also on delivery of their programme of work. This is prestigious in the sphere of health and safety so only to monitor the health and risk of our proud to have achieved Investors in People despite the substantial challenges on securing we were extremely proud to have been awarded assets more accurately, but can also predict (IIP) – Silver accreditation on our first attempt, resources in our area (due to large projects our 6th successive RoSPA Gold Award and to their future condition. which is further driving our focus on people such as railway electrification and Hinkley C), achieve the ‘Gold Medal Status’ (which is only and development. We use our prescriptive and predictive analysis combined with the challenge of our resources awarded after five consecutive Gold Awards). and extensive cost benefit analysis (CBA) to moving to other GDNs who are paying a We are currently the only network to hold make sure that our investment decisions are the premium for these skills. this achievement. most effective and efficient. These state of the art While we have an hour to attend gas escapes We have also won the RoSPA Oil & Gas Sector tools enable us to improve the resilience of our where customers are unable to turn off their gas, award in 2019 for industry-leading health and network through opportunities to refurbish rather our average time to do so is just 45 minutes. safety performance. than replace assets. For example, we have not We take our regulatory responsibilities very needed to replace any LTS pipelines in GD1, Our commitment to keeping our workforce seriously and are one of only three networks to delivering long-term value for our customers. safe is further evidenced by achieving the new 200 achieve the regulatory targets for emergency apprentices employed response since 2005. Occupational Health and Safety Standard, OHSAS 18001 in 2018; again, we are the first since 2006. GDN to achieve this. In addition we have not received any formal enforcements from the 75% safety or environmental regulators. of our network will be plastic by 2021. Awarded our 6th successive RoSPA gold award.

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Chapter 4. Track record (continued)

4. D elivering an environmentally Sustainable future We expect this to continue to rise, especially We are supporting the Clean Air Strategy given the Chancellor’s Spring statement which sustainable network While focusing on delivering in GD1, we The Government’s focus on Clean Air is resulting are simultaneously looking towards 2050, indicated that the Government will launch a in alternative fuels for transport. We have consultation in 2019 on increasing the proportion Protecting the environment making sure that we lay solid foundations connected three Compressed Methane Gas of green gas into the grid. (CMG) fleets powered by gas which are improving We reduce our impact on the environment for the future. We are taking a leading role in collaborative innovation projects to decarbonise air quality; two bus fleets in Bristol and Plymouth As a major infrastructure provider, we have We are proactive in the area of green gas, heat, power and transport across our homes and a CMG truck fleet in Swindon. We expect an important role to play in minimising our working with other GDNs to develop safety and businesses. standards, simplifying the connections process these types of connections to our network to environmental impact, and we fulfil this role every continue to rise throughout the rest of GD1 single day. The majority of our carbon emissions and taking the lead with the HSE for changes We have a clear energy vision for the future and beyond. are from our pipes, and we have lowered our to gas quality arrangements. Following feedback carbon emissions by 18% since 2013, largely As a leader in our field, we are making significant from stakeholders, we have introduced a through the mains replacement programme contributions to the UK energy decarbonisation ‘self-lay’ process for those wanting to inject and by actively managing gas pressures on debate, from a position of knowledge, trust gas at the higher pressure tiers. our network. and evidence. We are committed to delivering a whole systems approach – making use We are enabling renewable electricity We are committed to limiting the impact of our of the existing gas and electricity networks The use of our network is constantly changing. activities on the environment. To replace gas to provide energy that is reliable, affordable We currently have 37 power stations connected mains, we do have to dig up roads. However and secure; modelled by our unique Energy directly to our network, and these are typically we have reduced our spoil disposals by 16,700 Pathfinder model. generating electricity when renewables are not tonnes, which is a 38% reduction since 2013/14. Our vision is to see hydrogen in some cities and available using the gas infrastructure as a battery Our commitment extends across our business industries in our region and an increase in other when required, powering the equivalent of three and we are delighted to have maintained our green gases elsewhere, with hybrid heating million homes. The development of innovative ISO14001 certification. This means that we meet in homes, alongside renewable electricity. network exit agreements has supported the the international standards for an environmental In support of this, we have delivered ground- flexibility these generators require. We have management system – one that focuses on the breaking innovation with smart hybrid heating also led the industry process to change the continual improvement of our environmental installations in 75 homes in Bridgend, South commercial arrangements enabling GDNs to performance and impact. Wales, delivering lower cost, lower carbon and take more flexibility from the NTS. This in turn more secure energy to those most in need. allowed us to offer more flexibility to these power stations. 175,000 We deliver green gas homes heated by green gas Reduced waste We have a further 23 accepted enquiries for by the end of GD1. and landfill by 79%. Greening the gas network is a key part of power stations to connect to our network. our vision for the future. We have connected When analysing the electricity capacity market, 19 biomethane sites delivering green gas we expect a further 28 power generators into our network and have a further seven to connect in due course. In total, this would accepted enquiries. In total, the 26 sites would power a further one million homes.2 provide heat to 175,000 homes, or around 1 million hybrids. 2 Based on published data from Severn Power – 1.5 million homes powered from 850MW of generation.

28 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 4. Track record (continued)

–– Our implementation rates are 24% compared 5. Delivering value for money Average domestic bill by GDN 2018/19 prices with a UK industry average of 17%. This section explains our work to ensure that 10 we deliver value for money for customers, –– We have collaborated with other networks on 68% of our projects, sharing project costs including the charges that are built into their gas 160 bill. It also covers the financial aspects of our and benefits. This compares to collaboration rates within other GDNs ranging from 48% track record in GD1, incorporating our incentives 10 performance, expenditure against allowances, down to 35%. the returns we earned and the distributions we –– We have delivered financial benefits 10 make to our investors. All of the achievements (saved or avoided costs) of £9.7m. described so far in this chapter have been 10 delivered cost efficiently, delivering more for less and keeping bills as low as possible. 120

13/14 14/15 15/16 16/17 17/18 18/19 Innovation 24% Implementation rates compared with WWU aent Innovation is part of our DNA. It has helped a UK industry average of 17%. us deliver benefits that go far beyond financial Customer bills benefits to encompass safety, customer We keep our portion of the customer bill experience, value and reliability. Innovation projects and benefit as low as possible: value since 2013 We continually innovate: –– Our charges have fallen steadily and are now –– The Network Innovation Allowance (NIA) plays Innovation No. of Benefit £121 per year on average, compared with description projects value an important role in enabling collaboration, £154 in 2013/14. Shareholders have been New technique 28 £5.2m supporting small and medium enterprises subsidising this by partly funding debt costs, New process 4 £2.8m (SMEs) and delivering value for consumers. which equates to £9 per customer. This is New product 37 £1.2m currently unfunded by the GD1 package. –– We have invested in more than 250 business Digital solution 9 £0.5m improvement and innovation projects since Total 78 £9.7m –– At around 35p per household per day, our 2013, representing a total investment of customers tell us this is good value for money. These GD1 cost savings and avoided costs £19.8m. A current total of 78 projects have –– Our bills have consistently been one of the will continue throughout GD2. been implemented and are now considered lowest of all of the GDNs. business as usual status. 35p p/day £9.7m One of the lowest charges saved through innovation. of all GDNs.

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Chapter 4. Track record (continued)

Sharing outperformance We deliver efficiently – saving £119m: We deliver effectively – saving £115m: We share our outperformance with customers: We invest wisely: –– We have optimised our colleague working –– We adopt a totex approach which enables us –– We share 37p of every £1 saved. –– Our total expenditure by the end of GD1 patterns by investing in ‘working time to make the right decisions, saving £115m. –– £72m will be returned to shippers in GD1 will be over £2.5bn. solutions’ software, saving £27m. Our leading asset management strategy who should then pass this on to customers. allows us to minimise capital expenditure –– We are forecasting to deliver our eight-year –– We continuously focus on measuring and –– A further £81m of our outperformance will wherever possible. By refurbishing assets outputs at a saving of 19% of our controllable improving productivity, saving £11m. be returned in future years; resulting from to increase their health, we are able to avoid allowance – outperforming by £421m. –– We have run voluntary severance schemes savings in capex and repex which are costly full replacement. and reduced our ongoing overtime bill, also funded over 45 years. A high-level graph of cost movements over the introducing revised terms and conditions for –– Stakeholder engagement and partnerships eight years of GD1 is shown in the figure below, new employees, saving £40m. help avoid costs, such as unnecessary Impact on GD2 costs: including a forecast for the final three years. street works. –– We have invested in innovation and other –– We have no delayed costs or deferral –– Daily performance information at team We leverage value from competition – company initiatives to reduce our costs, of work going into GD2. mitigate cost increases and improve our level, through our Business Intelligence tool, saving £187m: –– Our GD2 costs base benefits from the service levels, saving £18m (this includes the enables a continual focus on key aspects outperformance we have achieved in GD1, –– For competitiveness, we test and tender £9.7m mentioned previously in relation to of our business. because we will continue to deliver at these 90% of our controllable external spend, innovation projects). saving £41m. unit costs where possible, going forward. –– We have invested in other areas which have –– We have won third-party metering and asset delivered a number of efficiencies, including maintenance contracts. This reduces the updating our processes and systems to Totex forecast outperformance GD1 2013-21 (2018/19 prices) full cost of the First Call Operatives who ensure efficient support costs to our front-line We leverage value from We deliver We deliver operate the emergency service to customers, services, saving £23m. competition £187m efficiently £119m effectively £115m saving £26m. 0 11 21 –– We have significantly restructured our 00 mains replacement contract, which is being 0 2 delivered at a lower cost, saving £120m. 00 1 0 20 11 2 200 120 10 Estimate £m 100 26 0 1 0 GD1 expenditure and outperformance

2017/18 prices (eight-year totals) £m GD1 allowances GD1 forecast Outperformance Totex of FCOs Controllable opex £875.9 £736.4 £139.5 Contract Employee Utilisation Innovation

Repex £828.9 £639.9 £189.0 Productivity Effectiveness improvements and severance re-negotiations Other initiatives Capex £513.8 £421.2 £92.6 outperformance Working patterns contract changes

Totex £2,218.6 £1,797.5 £421.1 Mains replacement

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Chapter 4. Track record (continued)

Revenue, returns and profit Company RoRE based on notional gearing – RIIO-1 period Revenue: –– Despite all of these achievements in GD1, 20% our Shareholders will absorb around £220m 18% WWU RoRE 9.4% 16% of a shortfall in allowances for efficiently 14% incurred debt costs. This is unsustainable. 12% –– We have consistently maintained strong 10% ratings since 2010, with both S&P and Fitch, 8% 6% which we believe is the best track record 4% in the sector. 2% –– We have experienced significant variation in 0% charges from the NTS which are misaligned -2% -4% to cost allowances; varying from around ENWL NPG SP SSE UKPN WPD Cadent NGN SGN WWU NGET (TO) SPT SHET NGGT (TO) -6% £20m to above £40m per year during GD1. -8% RIIO-ED1 RIIO-GD1 RIIO-ET1 RIIO-GT1 This cash flow position is unsustainable. -10% -12% RoRE and distributions: Financing and tax performance Operational performance – Totex RIIO-1 period – Totex out(under)performance Operational RoRE

–– Despite being a top performing GDN, as Allowed Equity Return + IQI Operational performance – other Total RoRE – with financing and tax measured by Ofgem, our Shareholders are receiving the lowest returns on equity (RoRE) Source: Ofgem 2017/18 annual report of all of the GDNs at 9.4% (as reported in Ofgem’s 2017/18 annual report). Distributions expressed as a return on notional equity –– We have lowered our gearing, with support 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 from Shareholders who have received lower Actual Actual Actual Actual Actual Actual Forecast Projected distributions in GD1 of a level significantly Distributions £m 50.0 50.0 51.0 51.0 51.0 34.0 40.0 40.0 below the allowed equity real rate of 6.7%; In year real rate 4.47% 5.33% 6.24% 4.88% 3.01% 1.34% 2.31% 1.44% with cash returns below 4%. Allowed real rate 6.70% 6.70% 6.70% 6.70% 6.70% 6.70% 6.70% 6.70% 4% average shareholder returns received against a 6.7% allowance.

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Chapter 4. Track record (continued)

6. P erformance against Performance against our annual outputs GD1 outputs and incentives GD1 primary outputs with annual targets In GD1, we committed to delivering a number Primary output Deliverable Units GD1 target 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 of primary outputs. We are proud to have Connections Guaranteed –        delivered all of these for our customers. We have standards of summarised our performance below – splitting performance the outputs into those that had annual targets (GSoPs) and those that we had to achieve over the Environment Shrinkage GWh 417 417.4 394.8 381.1 378.5 371.5 351.5 eight-year period. Safety – Controlled gas % attended <1hr 97% 99.5 99.6 99.6 99.4 98.6 99.8 emergency escapes Incentive performance response Uncontrolled gas % attended <1hr 97% 98.3 98.5 98.6 98.5 98.0 98.9 Incentives are an important part of RIIO and escapes these help us deliver our commitments to Safety – GS(M)R 12hr –        our customers. We work hard to earn these management escape repair of repairs requirement incentives, and performance is detailed later in this chapter. Mgmt of repairs –        (repair risk) Safety GS(M)R safety –        (major accident case acceptance hazard prevention) by HSE COMAH safety –        report reviewed by HSE Customer service Planned Score/10 8.5 8.59 8.68 8.72 8.62 8.74 8.80 interruptions Emergency Score/10 9.0 9.14 9.44 9.55 9.55 9.53 9.56 response/repair Connections Score/10 8.4 8.34 9.01 8.88 9.17 9.19 9.18 Overall satisfaction Score/10 8.69 9.04 9.05 9.11 9.15 9.18 Complaints metric Score <11.57 7.39 6.93 4.43 2.83 2.80 2.51

32 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 4. Track record (continued)

Forecast performance of eight-year outputs

GD1 primary outputs with eight-year targets Primary output Deliverable Units GD1 target 2018/19 GD1 to-date Forecast to end GD1 Connections Introduce distributed gas –     entry standards Social obligations Fuel poor connections no. 12,590 1,083 10,150 12,590 CO awareness –     Environment Shrinkage (leakage) GWh 357.2 332.1 332.1 321.0 Biomethane connections Total connected     capacity kWh Reliability – loss of supply Duration – planned supply Million minutes 92 6 59 74 interruptions Duration – unplanned supply Million minutes 45 3 25 35 interruptions Planned supply interruptions no. 451,235 34,835 269,647 345,022 Unplanned supply interruptions no. 90,169 8,775 53,045 71,828 Conclusion Reliability – network capacity Achieve 1 in 20 obligation Capacity booked     As we have outlined throughout this chapter Reliability Maintain operational performance –     we have been listening and responding to Safety – mains replacement Iron mains risk reduction (mains risk Risk score 97,675 8,531 97,675 104,500 prioritisation system-based) our customers; delivering world class service Sub-deducts networks off-risk –     and industry leading safety performance alongside increasing our support for those living in vulnerable situations. We are clearly GD1 incentive performance operating in an ever-changing sector and we 2013/14 – 2018/19 will continue to lead locally and nationally to support decarbonisation. Incentive Amount available Amount earned Commentary Broad measure of customer satisfaction +/-£13.33m £12.91m We exceeded the Ofgem targets in most years, so earned close to the maximum Our investment in our network and in our incentive available. people in GD1 provides a strong foundation Stakeholder engagement £13.06m £4.95m Our performance ratings have varied – we are now implementing an improvement from which to move forward. We will be programme based on lessons learned. unable to maintain this performance if National Transmission System (NTS) exit capacity Volume target £3.82m We have faced dramatically changing costs at some offtakes. we cannot recover efficiently incurred Environmental emissions Volume target £12.59m We have been innovative in managing leakage, reducing our impacts on the environment. financing costs. Shrinkage Volume target £2.92m Year on year movement in allowed vs actual shrinkage volumes not as high as expected. We look forward to working alongside our Innovation £11.76m £9.74m This money is passed directly to third party innovators. customers and stakeholders to make sure Discretionary reward scheme (DRS) £4m* £1.74m This incentive is available every three years. that we are delivering against our promises The independent panels have recognised our leadership on future of energy, fuel poverty and commitments as we respond to their and carbon monoxide awareness initiatives, resulting in the discretionary awards. changing needs. * The £4m DRS is shared across all GDNs.

Wales & West Utilities | Business Plan 2021–26 33 B Meeting the needs of consumers and network users

Our business plan is built to In this section: deliver the services our customers 5. Giving customers and stakeholders a stronger voice and stakeholders have told us 35 they value. Our engagement journey in GD1, our GD2 strategy, and the role of the CEG. 6. Customer service Customer service is key to 52 our business as our work Our high-level strategy for customer service. takes us into customers’ 7. Social obligations homes, businesses and local 62 communities. Our services are Meeting and exceeding expectations for those living in vulnerable situations. aligned to Ofgem’s vulnerable customer strategy and we demonstrate here how we meet and go beyond our licence obligations. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 5. Giving customers and stakeholders a stronger voice

1. Highlights of our plan Customer – People who are –– Robust analysis of customer and stakeholder users of our network, who pay evidence has shaped our GD2 business plan for a service from us or who commitments, including acceptability and are impacted by our works willingness to pay consumer studies. – both directly and indirectly. We include businesses, –– We have engaged more inclusively through and domestic and industrial finer customer and stakeholder segmentation consumers in this group. than ever before. Enhanced engagement has become a valued tool, with the evolution of our Critical Friends Panel and Customer Engagement Group, as well as planning Stakeholders – People who a new Citizens’ Panel. affect, or are affected by, our business and the way –– Quantitative analysis has revealed different we operate. customer personas in our region, providing information on what drives satisfaction levels. With broader customer segmentation and understanding of customer priorities and interests, we can deliver services with a more 2. Introduction 3. Our GD1 engagement journey This was, in part, driven by the co-creation targeted approach. of our company ambition, priorities and values In advance of GD2, we have continued to In GD1, our Stakeholder Engagement Incentive –– Our enhanced understanding of the needs with colleagues. engage with customers and stakeholders, (SEI) submission reporting has ranked of customers living in vulnerable situations will following a revised strategic approach. We have us inconsistently. Our evolution is continuing towards becoming enable us to both communicate and deliver sought advice and considered best practice a sustainable business into GD2 and beyond, more tailored services. We scored the highest of all the GDNs approaches from independent experts to and our engagement programmes are focused in 2014/15, however, we have not been –– Engaging with a very broad range of develop our enhanced engagement programme. on authenticity. This will make sure that stakeholders and customers has highlighted able to maintain this level of performance. customers and other stakeholders trust us to strong support for our sustainability ambitions Following a challenge by the CEG, we have Throughout GD1, we have continued to refine deliver sustainable, reliable and value for money and environmental protection plans. worked alongside experts to collect, evaluate the way we identify our stakeholders and services in their best interests. and triangulate all of our stakeholder feedback engagement topics, laying the foundations –– We have embraced a broader range of to further inform our plan. We span diverse of effective stakeholder engagement via an external intelligence so our engagement Click Appendix 5A Our Journey and Lessons communities, and are committed to delivering a ‘inside out’ approach. We have created a Learned Log for our GD1 engagement review is efficient and informed, working with ‘centrally facilitated, locally delivered’ approach culture of engagement internally, committing to and our plans for GD2. experts to effectively analyse and triangulate to engagement via our operational colleagues robust resourcing of our central engagement evidence. Click Chapter 19: Workforce resilience 181 who live and work in the communities they management and insight team through GD2. for more information on colleague engagement. –– We have worked collaboratively with the serve. Connecting with many groups in society Our journey in GD1 has seen us evolve from a other GDNs to reach national and strategic enhances our understanding of their wants and business that led in high-quality customer service stakeholders, an approach that we will build needs, and enables us to shape our services to one recognised as a responsible business. on to include other utilities. to enable us to better support them.

Wales & West Utilities | Business Plan 2021–26 35 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 5. Giving customers and stakeholders a stronger voice (continued)

The engagement strategy Our revised engagement planning process underpinning our plan Our Stakeholder Engagement Strategy Engagement Planning Process has helped us gather informed, actionable and specific feedback at all stages of our engagement plan. This 10-step approach is 1 2 3 4 5 based on a virtual cycle of engagement and Identify Define Identify Tailor Engage was developed as part of a three-month ‘root topics the purpose stakeholders engagement and branch’ review. We worked alongside Sia Partners, engagement experts with significant experience assisting networks in delivering positive outcomes for customers. Review

Our strategy is built to: 6 Capture 7 8 9 10 feedback –– identify engagement topics from external and Co-determine Prioritise Close Act internal insights; actions efforts feedback loop –– formulate a clear question for stakeholders feedback feedback on on quality question to answer at each event; –– select stakeholders with the most appropriate knowledge to provide informed, actionable feedback; Identifying stakeholders, engagement To target effective business as usual Pre-GD2 engagement plan –– choose the best method of engagement topics and channels engagement, we have a new stakeholder We have planned our engagement based on based on stakeholder group characteristics; We’ve evolved our customer and stakeholder segmentation tool, developed with our expert stakeholders’ interests and the services we –– inform stakeholders on our proposals segmentation in GD1, holding manager partners. This enables us to choose the most deliver that may affect them. Subsequently, and allow them to challenge them; workshops to determine stakeholder groups suitable stakeholders to engage with on a we have also engaged on our business plan –– capture feedback and triangulate and priorities for engagement. Further work to specific topic, in relation to their expertise and commitments and outputs. Our engagement stakeholders’ views to influence and further identify potential organisations and individuals to interest. Our revised stakeholder segmentation plan is inclusive and accessible, recognising shape our proposals. engage with has continued, as different teams and planning looks at engagement priorities, regional differences and appropriately targeted develop their engagement plans. risks and assumptions. on both subject matter and channel. Our engagement strategy is underpinned by robust governance. Our Executive team plays Our GD2 preparation has broadened our Click Appendix 5B for a detailed stakeholder Click Appendix 5D for our pre-GD2 a key role at all stages, providing strategic segmentation, with 72 segments now actively segmentation map. engagement plan. direction, taking part in engagement activities tracked and managed. Click Appendix 5C for our stakeholder and making decisions in response to stakeholder engagement strategy. It details engagement topic, stakeholder group, feedback. We have an Engagement Planning engagement channel and intended outcomes. Guide to make sure that colleagues understand This then links to the actions taken as a result the benefits of engagement and they know how of our engagement. to respond to any feedback they receive.

36 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 5. Giving customers and stakeholders a stronger voice (continued)

Customers helped us to co-determine our These organisations included Women Connect To make sure we don’t become complacent quantitative research survey questions in First Cardiff (BAME women speaking circa 16 in our own opinion of our relationship with demographically representative qualitative focus different languages) and The Centre for African stakeholders, we also carry out ‘relationship groups. This helped to make sure that we were Entrepreneurship that enable us to engage with scans’ of our stakeholders, assessing our asking customers questions that were relevant respected senior community members. relationships and identifying which ones we and easy to understand. Our workshops are need to strengthen. We try to make it easier for customers to independently facilitated to encourage openness and we consult beforehand to find out particular engage with us and tell us what they think by: Measuring and embedding our engagement topics of interest. When engaging on complex –– using technologies such as text messaging, Using insight topics, we try to take account of the knowledge social media and QR codes at gas pipe Sentiment analysis from third-party company, levels of customers and stakeholders. We also replacement sites, and apps such as Sign Alva, and Insight, our own real-time Business make use of educated customer panels Video (to assist communication between Intelligence tool allows us to measure our and include educational sessions in regional deaf BSL users and our hearing FCOs); performance. We also interrogate other community workshops. –– regularly testing our communication channels customer data for recurring issues and trends We’ve prioritised engagement with vulnerable with customers, to ensure they remain fit in customer/consumer complaints to help drive customers using elements of ethnographic for purpose. For example, we launched our issue engagement. engagement in their own homes. This helps Click Appendix 5E for our triangulation feedback revitalised website in July 2015, accredited summary for our triangulation feedback summary. to make sure they are comfortable and able by the Shaw Trust for accessibility; Engagement Champions to answer our questions, with the aid of Click Appendix 5F for engagement analysis and Over GD1, we have supported colleagues to triangulation by topic in associated synthesis reports –– embracing the principles of plain English, professional researchers experienced in this better understand the significance of effective for engagement analysis and triangulation by topic in making sure all our standard text and external area. Our engagement programme is planned associated synthesis reports. stakeholder engagement and appreciate the correspondence is clear and concise. to take account of regional differences, benefits it has on all elements of our business. including separate Welsh Language legislative Partnerships Engagement Champions help us embed requirements. Our communications are new stakeholder processes and support their Collaboration and the creation of key strategic dual language when we are engaging in partnerships across our network have been colleagues with Day After Reporting to capture predominantly Welsh-speaking areas and in incredibly valuable to enhance the quality all relevant outputs from external meetings mass communications across Wales. and diversity of the feedback we receive. and events. Partners have helped us to understand Click Appendix 3A for a full explanation Our champions are important in terms of of how engagement has informed more about consumer vulnerability and engagement information management across our GD2 commitments and outputs. the root causes of vulnerability in specific the business. They manage information from communities, so we can better provide targeted Day After Reports so that it is linked into our This records the engagement journey, from support. Our partners and other community Engagement Tracker, and then actions we need identification of customer and stakeholder organisations also help us access hard-to- to take following engagement are allocated to priorities, through to resolution of conflicting reach customers. the correct colleague and actioned appropriately. views, final acceptability testing and willingness This supports our ‘centrally facilitated, locally to pay studies. We plan hyper-local engagement via programmes with small, niche organisations delivered’ engagement approach. that give us access to people we would not normally be able to reach.

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Chapter 5. Giving customers and stakeholders a stronger voice (continued)

We conduct Literature Reviews to look for new Stakeholder engagement making a In 2016, we reviewed our CO Strategy and emerging stakeholder groups and identify difference to what we do and how we do it following feedback that there may be a more cultural trends, and have forged successful We can demonstrate changes to the way we targeted and cost-efficient way to raise relationships with Government departments operate which came from listening to customers CO awareness. such as BEIS, IGEM, universities and the and stakeholders. For example, we have: voluntary sector. This is a cost-effective way This new strategy was presented to our CFP to gain data, by making the most of research –– adopted a more finely targeted approach who wholeheartedly supported our approach commissioned by others. to carbon monoxide awareness to reach and encouraged more partnership working and those most in need; education for school children. Event evaluation and feedback –– used our innovation processes and Consequently, we reviewed all our partnerships To measure the effectiveness of our engagement frameworks to seek support from others and began working with Care and Repair methods and channels, we seek feedback to resolve areas of concern for customers; Cymru and six Fire and Rescue Services through event evaluation forms, reviewing the –– significantly increased the number of to provide free CO alarms to customers in results following each formal activity. This allows customers we engage with directly; vulnerable situations. us to make sure it has been successful and to make adjustments in our engagement planning –– used more sophisticated statistical analysis In 2017 we introduced our schools and activities as needed. Our events regularly to understand the root causes of customer Responding to feedback programme, which saw our newly appointed have stakeholder satisfaction ratings of 90%+. satisfaction using CHAID analysis (a method An example showing how our activities have colleague Gas Safety Ambassadors educating used in this case to identify the drivers been influenced by stakeholder engagement primary school children about the dangers of Providing feedback about what we have done as of satisfaction; is our approach to the provision of carbon CO. In 2018, we developed a ‘super priority a result of listening to feedback is critical, and we –– deployed local Customer Support Officers monoxide (CO) alarms. group’ to further improve our targeting. do this in a range of ways. For example, when (CSOs) to provide information and support to This change meant that we were committing Between 2013 and 2016, we attended the we engage with our major gas users, we give customers in their homes and communities; to 80% of our CO alarms being provided to summer shows, providing free CO alarms and clear feedback about how they have influenced those living in the most vulnerable situations. –– changed our reinstatement contracts to awareness information to around 3,000 people our planning, processes or the development This approach was tested in our training where of new and more efficient technologies. provide a faster service, as this was a (costing c.£100,000/£33.33 per contact). recurring area of customer concern; 100% of partners agreed this was the right By contrast, when we engage with customers In 2013, our CFP challenged us to be more thing to do. –– changed some of the tooling and cleaning on a wide scale basis, feedback needs to be targeted with our CO awareness, to include equipment we provide to operational teams; In 2019, we educated 3,528 pupils through younger generations. In direct response, we bite sized and easy to understand – often using our Gas Safety Ambassadors programme –– stepped up gas pipe replacement initiated partnerships with the Royal Welsh social media. An overview of our activity is given and doubled the number of ambassadors. communications and CSO visits for small College of Music & Drama, Age Cymru and through our annual stakeholder report, which we In December 2019, we anticipate reaching businesses in response to feedback from Devon and Somerset Fire and Rescue Service. promote to key community representatives and a further 300 pupils – totalling 3,828 pupils through social and traditional media. the Federation of Small Businesses on how disruptive our roadworks can for the year. We send reports, written by our independent be for members. facilitators, to our Critical Friends Panel (CFP) Click Chapter 7: Social obligations 62 members and Regional Community Workshop for more information. attendees, post events – and report on our actions at follow-up meetings.

38 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 5. Giving customers and stakeholders a stronger voice (continued)

4. G D2 Enhanced engagement WWU Engagement approach planning Stakeholder engagement Customer engagement Enhanced engagement Approach to enhanced engagement Our revised Engagement Strategy guides our Example groups engaged enhanced engagement planning. Objective of engagement Example events Outputs

We established four categories of engagement Category 1 activities that would help us develop each stage Existing data Data mining Customer High-level customer priorities Legacy of the business planning process by taking mining and customer segmentation and segmentation to inform customers into consideration the needs of our customers and customer segmentation analysis future engagement segmentation and stakeholders. These categories were conceptual phases which would allow us to assess customer Category 2 Broad segments, their priorities and their views on our Identification of outcomes engagement – Establishment Regional community Community groups and performance proposed outputs and commitments. They are establishment of priorities workshops (eg households) commitments also important to help us gain acceptance for of priorities our business plan as a whole. The engagement was an iterative process, with each stage output feeding into the Category 3 Strategic/targeted Community organisations subsequent category. Strategic/targeted Power generators Prioritisation of engagement and business and industry engagement workshop commitments All our engagement has been aligned to a representatives relevant category, as per this graphic showing our engagement approach. Category 4 Acceptability Customer research Acceptability Local business Final agreement testing of and Critical Friends testing representatives on the business plan business plan Panel

GD2 business plan properly supported by customers and stakeholders

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Customer personas and more detailed Category 1 segmentation helped us to understand the most Existing data mining appropriate topics and communication channels and customer we should use to engage with specific types. segmentation This is important, as detailed CHAID analysis of our customer research has shown us that knowing more about WWU drives up customer This category of engagement has enabled us satisfaction of our services. So, it is important to identify high-level customer priorities and for us to raise awareness of who we are and customer segmentation that can be used to what we do in the most appropriate way that inform future engagement. We were able to is relevant across regions. complement our stakeholder segmentation and establish domestic customer segments with For example, we know that minimising our associated profiles, as below. Given we do not environmental impact and decarbonisation have a customer database, this engagement is most important to customers in the south and resulting evidence helps us to understand west of England, and we know that on a who our customers are. Our consultation with customer level this is of greatest interest to 21,000 customers and stakeholders across younger females. the network, as well as the interrogation of Our customer personas are attributed We carried out further segmentation work that We are currently using our customer personas 1.45 million pieces of annual customer data, to four main segments, with the included regional differences and a range of and applying this intelligence to support the have supported this evidence gathering. following characteristics: other differentiations in relation to our business development of more detailed communication activities. Through this, we could make sure plans for each customer type – which will aid our –– Environmentally considerate: 26% of High level customer segmentation that we carried out appropriate engagement, delivery of great customer service and our wider customers tend to be older and more Further engagement and analysis enabled so that feedback and subsequent analysis GD2 business plan. concerned about the environment than us to demonstrate the relative importance, and triangulation would be able to shape our average, and place more emphasis on safety. perceived value and price elasticity of our business planning and hone our GD2 customer business areas, and how this differs across –– Apathetic and unengaged: 29% tend to be commitments. This enabled us to make sure that our population, along with the identification less interested in investing in the environment, we are proposing solutions that are appropriate of domestic customer personas. however they are focused on safety and for the full range of customer needs. reliability of service. Click Appendix 5G for further information –– Live for today: 18% of customers tend to Click Appendix 5B for further information on our on customer personas. be busy young millennials focused on social customer and stakeholder segmentation. issues. They are the least engaged group, have stronger opinions and are only willing to pay for the things that affect them. –– Environmentally engaged: 28% of customers tend to be younger females, and are concerned about environmental issues.

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We directly support others and share findings of We also held one-to-one interviews with Category 2 Category 3 our research, including our Freedom project and 100 customers in vulnerable situations in their Broad engagement – Strategic/targeted Pathfinder, to help local communities develop homes, as well as interviewing carers and engagement their LAEPs. support agency colleagues. This research was establishment vital in building our Vulnerability Strategy and of priorities CVP, so we used experts in this field, Mindset, Click Chapter 13 Our net zero ready vision 110 For this category, we used the outcomes of 2035 for further information. to better understand consumer vulnerability in This category is both broad in terms of category 2 engagement to guide targeted relation to the use of our services and impact engagement with specific stakeholder Click Appendix 13E for outline proposals to the methods employed and the depth of use these plans for further engagement and of our work. Through this engagement, we questions asked, allowing us to understand groups, including engagement on the investment planning from GD2. have identified the growing incidence of the outcomes customers want and the proposed commitments. emotional vulnerability, which appears to be Regular BEIS Smart Metering Operations performance commitments they require. widespread and has been a consideration We engaged with other networks, utilities Group meetings, SPAA Intervention Solutions This engagement included: in the development of our customer GD2 and the wider energy industry, government Sub Group catch ups and supplier bilateral departments, energy groups and academics. commitments – and will play a key role in –– discussions at summer shows with over meetings give us opportunities to engage with their delivery. 7,000 customers in Wales and over 2,000 in We have long supported local decarbonisation others (ie suppliers, GDNs, DNOs, Citizens the south west of England through our 2018 Advice, Energy UK, ENA) to discuss how we can efforts and are involved in Local Area Energy Category 4 ‘Let’s Connect’ Consultation; Plans (LAEPs). We also engage with local reduce faulty installations resulting from smart –– regional workshops with 141 regional stakeholders including local authorities and meter installations. Building on category 1 and Acceptability testing 2 engagement, we undertook a targeted ‘deep community representatives (May 2018 renewable and low carbon energy advocates. of the business plan dive’ on priority topics such as sustainability, and May 2019); These engagements have heavily informed our own net zero ready vision. costs and innovation. Impact Research –– engagement with future bill payers in facilitated a series of qualitative workshops with Acceptability testing has been phased in qualitative focus groups; an educated Customer Panel. two parts, with the second phase including –– a comparison of consumer priorities with Willingness to Pay for domestic and SME industry and topic experts via a bespoke customers. These results are referenced survey and one-to-one meetings; through this plan submission, including the results of face to face interviews with vulnerable –– workshops with community organisation customers to capture their understanding of representatives (Critical Friends Panel); and acceptability for our plan commitments. –– engagement with local government Engagement evidence has informed our departments and elected members to 25 GD2 business plan commitments. understand their communities’ priorities.

Click Appendix 5D to see how the identified Click the Executive summary 4 priorities helped us develop our GD2 business for all of our 25 commitments. plan commitments.

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5. Our engagement findings Customers living in vulnerable situations Customer service Delivering value The following section provides the high-level We were not anticipating the breadth of As a result of our excellent track record in this findings that emerged from our engagement multiple vulnerabilities that some individuals area, customer service was deemed a low for money by topic. have to contend with. It was therefore not priority but we are expected to at least maintain surprising that the services we provide for our current performance, focusing on complaints those living in vulnerable situations are placed and compensation. Overall satisfaction for Innovation Meeting the needs ahead of general customer service. There was connections is 89% but according to CHAID Customers consider innovation to be a business an alarming lack of understanding of the analysis, could increase a further 10% if of consumers and as usual activity, providing an opportunity existence of Priority Services Registers (PSR). communication, quality of work and time taken network users to improve services at a reduced cost. Stakeholders considered raising awareness were improved upon. Informed stakeholders felt that time pressures of the PSR, and working towards a common In response to the above feedback, we will and cost restrictions should not be allowed to Increased awareness of WWU register, a priority. This was also raised as a amend our customer survey to allow feedback stifle innovation, and collaboration between Although our customers have a low awareness challenge by the CEG. by phone and an online survey. Addressing root networks could be incentivised around future of WWU – they want to know more. Strategic stakeholders said they wanted to see causes of complaints – something the CEG energy solutions. Increased understanding of our role was GDNs play a central role in providing support challenged us on – will help us address these We have ambitious innovation plans in response demonstrated to drive greater perceptions of for those living in vulnerable situations as our before they become an issue. to this feedback, including an investment level satisfaction for our services. When explained, energy system becomes increasingly complex. We will improve communications for our of £13.3m. We will use the incentivised funding customers are impressed by what and how well Those up to the age of 55, living in Wales and connections customers, with the relaunch of to deliver large and higher risk projects that bring we deliver – especially on safety and reliability. considered fuel poor were more likely to highly our Connections online self-service portal, societal benefits. Business as usual innovation We are providing services they believed to be rate support of vulnerable customers. the introduction of a ‘track my engineer’ app will continue to deliver lower risk projects that delivered by their suppliers and this drives a Further collaboration with partners will help and identifying a named contact at each facilitate an improved customer experience and more positive perception of the value for money to further increase our understanding of the local authority. reduced costs. Collaboration will allow us to we provide. spectrum of vulnerability. Our promise to increase identify solutions to common challenges. Our acceptability and willingness to pay research Informed, expert stakeholders want to see PSR sign-up by 200% and to campaign for a has shown that in this area our commitments We need to ensure that whilst collaboration greater external promotion of gas network single utility-wide PSR will clearly address this. focusing around our business activities were is beneficial, it may not be compatible with activity. In response to feedback, underpinned Our better understanding of the many ways in rated higher by SMEs, with domestic customers competition. In our acceptability and willingness by our Stakeholder Engagement Strategy, we which we can negatively impact those living in supporting vulnerable customer and gas to pay research, maintenance of average will increase our engagement in GD2 to enable vulnerable situations before, during and after theft initiatives. bill prices was rated the second highest us to connect with more wide-ranging groups our works will serve to ensure that we conduct of the commitments – after attendance at within our communities. We discussed and ourselves in a sensitive manner where for emergency interruptions, by both domestic rejected the possibility of a customer brand example customers are suffering from anxiety and SME customers. awareness campaign. The CEG challenged or issues relating to autism. the idea of a campaign, due to costs and the 200% ‘monopoly’ nature of our organisation. We promise to increase PSR sign-ups by 200% and campaign for a single utility-wide PSR.

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Our vision for a net zero ready network by Significant work is taking place to ensure that Delivering an 2035 also demonstrates our commitment when we start transporting hydrogen, we do so Maintaining a safe environmentally to a greener future. In our acceptability and safely and that our assets are resilient for the and resilient network sustainable network willingness to pay research, both SME and future. We will be continuing to engage at domestic customers agree that sustainability is national and local levels to provide leadership, important. For domestic customers, moving to evidence and modelling capability for future of Safety Sustainability and the environment a zero-waste company is key, while SMEs want heat discussions. Safety is the most important priority for our us to reduce our CO emissions through our Interest in our activities that would support 2 customers and they want us to continue work commitment to our replacement programme. decarbonisation and protect the environment to limit risk to our network. was much more widespread than we had envisaged. The future of energy In our acceptability and willingness to pay Most customers were comfortable with the research, both SME and domestic customers Concerns were wide-ranging and included concept of hydrogen, although did have some ranked attending emergency gas escapes areas such as leakage reduction to protect concerns around safety. Reaching our in under an hour and continuing the gas the environment, the reduction of our carbon decarbonisation targets must be a priority, pipe replacement programme as their most footprint and our use of non-recycled plastic according to expert stakeholders and it is important priorities. For SMEs, the top four rated pipes to upgrade older, leaky metallic pipes. important that we have future-proofed assets. commitments in terms of willingness to pay Our robust Environmental Action Plan (EAP) will They also want a national conversation around related to safety. Those aged 55 and over are help to drive our sustainability agenda in GD2. the future of heat to better engage customers. more likely to rate emergency gas interruptions Our alignment with the Sustainable Development Stakeholders want ‘low regret’ but urgent as important. Although some customers Goals (SDG) will ensure that environmental investment to provide a future-proofed system asked whether we could ‘fast track’ our mains issues remain front of mind for our colleagues, in the short term. replacement programme, we are unable to customers and stakeholders. safely complete this in a shorter timescale. Customers want us to consider improving communication and support for those on the PSR and those living in more rural communities, always aiming to minimise disruption and the number of excavations.

Safety will remain at the top of our priority agenda in GD2.

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maximum amount of value from the evidence. 6. Evidence triangulation A three-stage approach for gaining and utilising evidence The collection and organisation of the evidence How we designed our approach A bespoke approach established to utilise evidence base was conducted by our expert partners, To accurately interpret disparate sources of We have developed a three-stage approach for gaining and utilising evidence. This approach, who extracted specific pieces of feedback feedback and draw the correct conclusions for shown in the diagram below, demonstrates how we worked with the research and engagement from each source, positive or negative, this plan, we have learned from best practice undertaken to develop our proposed business plan. that is associated with each commitment. and legislative guidance, and have consulted Structuring evidence is the foundation on which with independent experts. 1. Engagement 2. Synthesis and evaluation we built a clear link between insight and action 1 – an audit trail taking the reader from source, We have closely scrutinised the use of both –– Planning and scoping of topics –– Collection and management and stakeholders to engage. of feedback by topics in central through feedback, to action. synthesis and triangulation by the water sector database. in PR19. Our approach was informed by those The evaluation of evidence allows our output –– Reporting back to WWU business owners to understand the ‘weighting’ they who were considered ‘best-in-class’, whilst 2 owners on engagement results –– Execution of engagement across and findings. should place on each piece of evidence, also incorporating opportunities to build on regions and customer and 3 their work. stakeholder groups. –– Evaluation of each source knowing how much value to place on each by assigning a ‘weighting’ piece of feedback. We have based our approach We have utilised legislative guidance from the of four different criteria. to evaluating evidence on the principles laid out ‘Magenta Book’ published by HM Treasury, in HM Treasury’s Magenta Book for qualitative building key concepts directly into our approach and other partners evaluation. These include: to evidence this. This provides guidance for 3. Triangulation –– methodologically sound; evaluation, setting out standards for best –– Decision-making by WWU business owners on specific practice and adds an additional level of rigour, commitments and service levels, based on evidence collected. –– rigorously gathered; as do the Cabinet Office’s standards (ie Green –– credibly interpreted. Book) for our quantitative analyses. Finally, we have partnered closely with The objective of the evaluation stage is to provide a consistent, absolute weighting for independent experts to ensure that our Engagement All the feedback and evidence gathered during evidence base is credibly interpreted, providing this process was carefully recorded to maximise each piece of evidence – a clear benchmark In gathering our evidence base for the GD2 with which to prioritise differing opinions. a consistent, unbiased appraisal of the broad business plan, we have tapped into a significant its usefulness for informing our proposals. range of opinions that we have collected in number and variety of sources, including: The evaluation of our evidence base has been preparation for GD2. Synthesis and evaluation conducted by Sia Partners, who, after collecting –– existing research or engagement, conducted Synthesis and evaluation involve all aspects and organising our evidence, applied the by us or others, not directly related to GD2; of collecting, categorising and assessing the principles above to assess the insight gathered –– performance data, benchmarking various evidence received. This is the second and most to date. This ensured a credible interpretation years of our past performance, or comparing important aspect of our approach. of the evidence and maintained consistency our performance to that of our peers; across the database. The objective of the synthesis stage is to –– specific, targeted research or engagement organise insights in a way that can be easily that has been planned and executed for the interrogated and used to inform our early sole purpose of informing our GD2 plan. proposals, allowing us to extract the

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Triangulation The evaluation was performed on an absolute To draw the correct conclusions for this plan, basis to be comparable across all commitments after having collected, accurately interpreted (ie one single measure of ‘Methodologically and evaluated each piece of feedback, we used Sound’ was applied across all sources of evidence triangulation. feedback on all commitments). The scale of scoring sources ranges from 0 to 3 and is The overarching objective of the previous steps, applied across all four criteria. Each score is and triangulation more broadly, is to identify the weighted equally (25% each) in order to derive ideal point of convergence of customer and a final average score for the source, which is stakeholder opinion. We aim to find the proposal rounded to the nearest full value. that satisfies the broadest segment of those surveyed while respecting sound cost benefit All sources and the insight they provided analysis and engineering justification. Each evidence source was examined by on each output were summarised in tables, alongside a weighting score. These scores were We have approached triangulation as an iterative our independent experts to establish key metadata including: used by output owners to inform decisions for process – identifying snapshots of all evidence the business plan. available to output owners at critical points in –– Date of engagement/research This engagement is summarised in the the process. These snapshots depict all the –– Number of stakeholders engaged evidence available to the output owners when triangulation appendices. submitting their proposals at each stage. –– Stakeholder/customer segments engaged –– Type of source (eg RIIO-2 focused, business Click Appendix 5F for full draft synthesis reports for this submission. Overview of this approach in practice as usual engagement) The process to collect and evaluate our –– Method of engagement feedback has been structured at a commitment –– The method used for collection We’ve used independent level; we identified points of view from all triangulation to understand sources concerning each of our commitments. Each evidence source was then read again in our customer priorities. These have evolved throughout the business detail, with key quotes/passages (the ‘feedback’) planning process, further increasing the extracted and linked to the appropriate output. importance of demonstrating how evidence These links were supported with document was used in this process. references included for simple cross-referencing. Triangulation information has been reviewed All the information was stored in a clearly to reflect engagement throughout to clearly referenced database which will remain the single represent how our proposals have evolved, source of truth for our evidence, providing a based on the remaining events of our pre-GD2 granular view of all insight gathered throughout engagement plan and the specific feedback the business planning process. received from the RIIO-2 Challenge Group For all sources of evidence, Sia Partners and CEG. assigned a score for each of the four metrics derived from the Magenta Book.

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Stakeholder conflicts Summary of stakeholder conflicts and resolution Where there is conflicting feedback we have considered a series of questions to help Deliverable Conflict Resolution us resolve conflicts, which include: Consumer Vulnerability ‘use it or lose Differing views ranging from providing CO alarms to all, to targeted Our commitment is based on our SROI tool to target our efforts –– Should all levels of opinion be treated it’ allowance distribution and some felt it was not our responsibility at all. where we can add most value – broad awareness messaging, directly educating school children and using partners to distribute with similar weighting? (no need for CO alarms to super priority customers. expert opinion). Fuel Poor Network RIIO-2 CG and CEG challenged lack of ambition in FPNES The lack of funding for new heating systems limits our ambition –– Is expert opinion more relevant over qual Extension Scheme (FPNES) numbers. Citizens Advice report flagged potential conflict but will be flexible if new funding becomes available. Ofgem or quant customer opinion? with decarbonisation of heat but wider stakeholders support require partners to demonstrate gas is the best option for –– Does the mass of opinion lead to actions FPNES if gas is best option for the home. a property for FPNES funding to be provided. that are cost prohibitive? (eg CO alarms Enhanced GSoP payments Differing views ranging from providing CO alarms to all, to Our commitment is based on our SROI tool to target our efforts for all customers). targeted distribution and some felt it was not our responsibility where we can add most value – broad awareness messaging, –– Would the mass of opinion lead to at all. directly educating school children and using partners to distribute CO alarms to super priority customers unacceptable disruption for society? (eg complete all repex work as quickly Mains replacement Customers asked us to do more mains replacement to The labour market limits our ability to increase repex so our as possible – also cost prohibitive). improve safety and the environment but this was not supported programme is in line with HSE requirement and supports the by Locals Authorities. Ofgem also set a ‘high bar’ for any views of local authorities. Our net zero uncertainty mechanism –– Would taking action on mass opinion result ramp up. includes provision for a ramp up to support heat in an unfair balance of cost split between decarbonisation. current and future customers? (eg complete Company cars and mileage Regional stakeholders disagreed with our focus on company Our commitment now reflects their feedback and we will all repex work as quickly as possible). cars alone – they said it was too narrow and needed to focus explore green alternatives for our operational fleet. We have –– Would acting on mass opinion result in on all our operational travel. also increased our ambition to have zero emissions fleet by 2035 putting customers at an unacceptable safety to support biodiversity and improve air quality. risk? (eg reduce bill costs by not investing Net zero ready network by 2035 Many customers want us to invest now in a low regrets approach To deal with this conflict we have costed up a ‘no regrets’ further in gas pipe replacement/maintenance however there were differing opinions on who pays for this from proposal which offers less risk than a ‘low regrets’ proposal programmes). customers, to government to developers – majority didn’t want however we have not included this in base funding and to protect to see large bill increases for this. customers we have proposed an uncertainty mechanism.

Where we have received conflicting stakeholder Investing in innovation Whilst innovation was widely supported there were differing Our proposal is now balanced to include WWU funded projects feedback, we have outlined the rationale for how and working collaboratively opinions on the balance of innovation that delivers in the that are more certain and deliver in the shorter term in addition we have come to our decision on what action short term RIIO-2 timescales vs the investment needed to to a new innovation allowance for projects addressing UK-wide to take in our output justification appendix. deliver longer-term UK climate change targets. future energy system transition issues. On the latter, we are committed to working collaboratively with BEIS, Ofgem and the wider industry. Click Appendix 3A for our outputs justification document. Click Appendix 5E for our triangulation summary report. Innovation collaboration Whilst there was support that collaboration was beneficial The sector has matured from working in isolation to being highly Click Appendix 5H for full details on there was a conflict that this approach may not be compatible collaborative and the NIA will continue to play an important role stakeholder conflicts. with competition – need a stronger incentive on this to better in this. Our established approach will continue to facilitate a highly achieve shared goals. collaborative programme for shared costs and benefits.

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7. CEG and RIIO-2 Challenge –– topics – specifically challenging us to engage Delivering an environmentally sustainable RIIO-2 CG challenges informing our plan on ‘the hard issues of bills, sustainability and network: The CEG challenged our early net zero The RIIO-2 CG has challenged us in a number of Group (CG) challenges vulnerability’ and consider the trade-offs; strategy, commenting that it was too narrow areas which have served to strengthen our plan. CEG challenges informing our plan –– conflicts and risks. and did not adequately consider scenarios from other sources. They also questioned the level of In response to their feedback, we have The appointment of a CEG has helped to drive ambition in our first draft Environmental Action Within each chapter of this plan, we address strengthened our engagement proposals, our approach to engagement in GD2 and we Plan, noting that the focus was on compliance the relevant CEG challenges. In summary, and included stakeholder trade-offs and shown how have warmly welcomed this development in the rather than proactive leadership and that we had by Ofgem category, they challenged us in the they and the CEG have influenced our plan. regulatory framework. undertaken limited engagement. following areas: We have also clearly demonstrated how we plan The CEG is delivering significant value and has Maintaining a safe and resilient network: to be a resilient entity in GD2. Our outputs and Meeting the needs of consumers and network provided us with challenges that have helped We were challenged to demonstrate how incentives were identified as not being justified users: The CEG was concerned that our ICS to shape our thinking and our plan. the different workload drivers impacted on sufficiently and our October plan included further commitment was based on a small-scale investment and how this linked to monetised At a high level, they challenged us on our overall prompted survey and challenged us to look at justification in response to this. risk and ultimately to benefits for consumers. business vision and long-term strategy, our best practice elsewhere before developing our The CEG also wanted to better understand how Following Ofgem’s letter regarding net zero, the ambition on sustainability, our CVP evaluation Community Fund. They also questioned the we bring the needs of vulnerable customers into RIIO-2 CG was keen to see how this broader methodology and outcomes and our Theft of fact that we did not have a vulnerability strategy; our asset investment decision making. scope had been incorporated into our plan. Gas ODI. They also commented that our outputs that we were insufficiently demonstrating the were not fully justified in our earlier submissions. We now demonstrate the pathway to achieving outcomes we wanted to achieve for those living Increases in repex costs were also flagged by our ambition of a net zero ready network in vulnerable situations; and that our partnership the group; first to clarify their understanding and by 2035 along with a number of detailed approach was insufficiently strategic. We will strengthen our secondly around the robustness of the evidence appendices with supporting evidence. we were providing about these cost increases. consumer voice by Our FPNES ambition in GD2 being lower than it Our ambition with regard to our 0.5% efficiency continuing the Customer was in GD1 attracted comment from the CEG. The CEG also challenged our new theft of gas proposal, the FPNES and our EAP also attracted Engagement Group. They also wanted us to better justify what is best bespoke financial ODI, questioning in particular comment from the CG, and like the CEG, they for customers, with clearer links to fuel poverty why we should receive a share of the benefit flagged the increases in repex costs at deep dive and to our vulnerability strategy, and to the future from this initiative. They commented on the sessions in October 2019. The most significant challenges we received of energy. limited scope of our diversity strategy and that our cyber resilience chapter failed to fully identify from the CEG in reference to our engagement Delivering value for money: We have been risks and solutions. Click Appendix 1E for more information on our approach planning phase have related to: consistently challenged on our 0.5% efficiency response to the RIIO-2 Challenge Group. proposal. The CEG’s view is that this lacks Click Appendix 5I for a summary of the CEG –– stakeholder definitions and segmentation; ambition. This remains our only open challenge feedback and our response. from the group. –– strategy and governance – including Click Appendix 5J for more information on the how we embed engagement into With regard to our innovation portfolio, the CEG CEG governance. 223 our business planning; expressed that it was too heavily focused on challenges received from the technical engineering and lacked consideration –– triangulation and gap analysis; CEG, 222 resolved. of customer service and vulnerability innovation. –– regional differences and addressing the issues around diversity;

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8. Engagement into the future –– assessment guidelines such as the OGC Gateway Process peer review technique. Our evolved strategy will ensure a robust focus CEG Members would assess customer on stakeholder engagement through GD2 and and other stakeholder engagement and will take account of our lessons learned in GD1. subsequent actions in delivering our GD2 business plan and additional customer Click Appendix 5A for a summary benefits. This independent involvement of lessons learned. would allow for a deeper and prolonged scrutiny of engagement plans and costs Setting targets for the future and drive improvements; We will baseline our current performance on –– the CEG has a budget to allow for its our commitments at the end of GD1 to enable own independent stakeholder research, effective target setting for the business across to provide additional levels of assurance the GD2 timeline for delivery of our commitments of our engagement quality; and other deliverables. From here, GD2 –– an annual CEG stakeholder assessment engagement will be planned to make sure we report to accompany an annual stakeholder take full account of the lessons learnt to date. engagement report from the company to We will start with perception testing of our Ofgem, in addition to an annual report for commitment baselines with our stakeholders Taking engagement further our success in GD2. In order to facilitate this, stakeholders on our engagement activities. to help us develop regional delivery plans. We are seeking to build on what we have learnt we propose: We will also develop commitment delivery from our current engagement and research –– an enduring role for the CEG during GD2 – Our commitment milestones with customers and stakeholders and in GD1. Consumer and stakeholder data and to provide independent assurance of delivery Evolve our GD1 Critical Friends Panel and discuss their communication and engagement statistical analysis, mapped to regions and to of our RIIO-2 business plan in line with create a new GD2 Citizens’ Panel, in a ‘centrally preferences. Then we will re-engage with the increasingly defined consumer and stakeholder stakeholders’ priorities and expectations. facilitated, locally delivered’ approach to stakeholder groups with whom we originally demographics, will enable us to develop our Our plan has benefited significantly from the enhanced engagement. developed commitments, taking care to engagement further. This, in turn, will support group’s scrutiny in the lead up to submission. check for new or emerging segmentations. increased, more in-depth and bespoke This analysis has not only helped to shape We’ll also fill gaps noted through our evidence opportunities for a wider range of stakeholders Click Appendix 5F for further information our plan but has changed the way we on our engagement. triangulation, an exercise that we will continue to contribute to our work. operate, encouraging greater cross team during the rest of GD1. collaboration and transparency. In our Our GD2 focus areas This will be critical in the development of our commitment to sustainability this ongoing engagement programme for GD2, which can Enhanced collaboration and challenge in GD2 challenge will serve to keep us on track to be scrutinised quarterly by the CEG. In GD2, we are ambitious and want to achieve this ambition; challenge ourselves to continuously improve our –– that Ofgem’s own assessment process could stakeholder engagement. Ongoing collaboration be realigned to allow for independent and and consultation with engagement specialists, continual assessment of network companies’ topic experts and interested parties within Stakeholder Engagement Strategy and our communities will be central to driving programmes, taking principles from

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Scope of engagement activities for RIIO-2 The ambassador role will be evolved into The broad scope of our GD2 engagement STEM ambassadors to support energy activities has been discussed with the CEG, futures messaging and education campaigns. as well as with our Critical Friends Panel, and This is supported by an increased level of annual customers taking part in enhanced engagement investment in GD2. Investment in external via Educated Customer Panels. resources to support our strategic evolution will continue, as well as to carry out qualitative and Our approach for GD2 quantitative research and provide assurance to our Board and to Ofgem. We will carry out Below, there is a summary of our GD2 an independent relationship scan of business stakeholder engagement plans, using the same relationships with stakeholders twice during four categories as our enhanced programme. GD2, to drive best practice engagement and This will inevitably evolve as priorities and topics support continual embedding of engagement of interest change over the period, particularly in across the business. light of our sustainability vision and net zero ready by 2035 commitment. We’ll continue to communicate with stakeholders via a monthly e-newsletter, We’ve increased our engagement investment summarising engagement and delivery, as through GD1 and will evolve our ‘centrally well as signposting future opportunities to get facilitated, locally delivered’ strategy, using involved. We’ll also be reporting under the SDGs operational colleagues alongside our and Wellbeing of Future Generations (Wales) Act network of Stakeholder Champions and Gas which will be new for GD2. Our reporting plan Safety Ambassadors. will be tested with stakeholders in 2020, along with a detailed sustainability delivery plan.

WWU stakeholder engagement evolution

2013 2013/14 2014/18 2018/19 2019 onwards

–– New reporting requirements. –– Capturing good customer –– Change how we do things. –– New strategic stakeholder –– A stakeholder focused –– Establish relationships. practice. –– Feedback influencing strategy for pre-GD2 business plan. engagement. –– Create a team –– Creating stakeholder operational decisions. –– Ready for the future. and a programme. processes. –– Feedback influencing strategic –– Stakeholders influencing our –– Education internally. decisions. future plans and our day to day decisions.

Start up Build Embed Influence Sustain

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Chapter 5. Giving customers and stakeholders a stronger voice (continued)

Engagement plan for GD2 –– Hyper-local community engagement, led Category 2 by the stakeholder team, including local Category 4 operational involvement – looking at local Category 1 Broad engagement – Acceptability testing establishment issues. These may be topics of interest raised Existing data mining by the community, engagement in advance of the business plan and customer of priorities of new replacement projects or opportunities segmentation in advance of net zero. –– Regular AA1000SES audit of our stakeholder –– Qualitative customer focus groups in support –– Expanded involvement in regional performance. of operational and strategic plans. infrastructure strategy groups – supporting Use our Alva sentiment analysis tool, to gauge –– Use of our SROI tool to assess the benefit –– Evolution of Critical Friends Panel to be more holistic view of significant infrastructure live and trending topics of interest to customers. of initiatives and activities. regionally representative, with more regionally developments and enabling longer-term –– Continue use of acceptability testing for any –– Analyse trends and topics of interest from accessible meetings. joint planning to support development and data gathered from regulatory and internal unexpected plans – particularly changes in –– Continue an annual series of regional minimise disruption in local communities. customer feedback. light of our net zero commitment. community workshops, independently –– Annual site visits for major users –– An annual review of the segmentation facilitated, with sessions enabling us to report complemented by quarterly webinar/webex/ Click Appendix 5K for our AA1000SES customer and stakeholder segmentation on company activities in areas stakeholders e-meetings and sessions to update and independent assessment. and domestic customer personas, to ensure expressed an interest in, with discussions involve these stakeholders. Click Appendix 5A for Our Journey and Lessons accurate reflection interaction with business Learned Log. held in smaller groups. –– A Wales Green Gas Panel to also promote activities, including regional and other –– Ad-hoc questionnaires to seek feedback biomethane best practice and support differentiating factors. from specific groups on particular areas Welsh Government decarbonisation plans. –– More use of existing research from inside and of interest. outside the sector to reduce unnecessary research spend and provide value for money engagement, and development of Category 3 a company research repository as a whole Strategic/targeted business insight resource. engagement –– Commit to annual quantitative customer research study to supplement qualitative Collaborative gas network engagement through customer engagement with topics informed ENA GDN stakeholder group, to support by stakeholders’ priorities as identified national stakeholders and expanded to include in category 2, as well as in support of transmission and an evolved remit to include operational and strategic plans. best practice engagement outside of energy and utilities. Biomethane engagement across networks will also be included in an expanded remit, to encourage broad, informed and consistent engagement across the UK.

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Chapter 5. Giving customers and stakeholders a stronger voice (continued)

9. Our annual business Proposals to measure the value and impact The following table shows the results of this assessment. stakeholder performance We will measure the value and impact of our engagement programmes using our Social AA1000SES rating RAG RAG Cost of our approach Return on Investment tool as well as a new Commit to the AA1000 accountability principles Mobilise resources sustainability index to rate progress, which will Integrate into organisational governance £m (2018/19 prices) GD1 ave pa GD2 ave pa be included in our annual sustainability reporting. Build capacity Stakeholder Integrate into organisational strategy Identify and prepare for engagement risks 0.6 1.1 expenditure AA1000SES rating Integrate into organisational management Invite stakeholders to engage We are proposing an increased investment We are committing in GD2 to an annual Establish the purpose of engagement Brief stakeholders in GD2 of £0.5m to support the requirements audit against the stakeholder engagement Establish the scope of the engagement Engage of enhanced engagement. This is included AA1000SES standard. associated with the purpose in baseline costs. We have had an independent assessment Mandate and ownership Document the engagement and its outputs In response to the request for clarification from against this standard to RAG rate our Stakeholder identification Develop an action plan the RIIO-2 Challenge Group, specific drivers approach to engagement for this business Profile and map stakeholders Communicate engagement outputs and action plan for these costs are: plan submission. Determine engagement level(s) and method(s) Monitor and evaluate the engagement –– the continuation of the CEG (£0.3m per Establish and communicate boundaries Click Appendix 5K: AA1000SES rating. Learn and improve year) – including the payment and expenses of disclosure of members, a small research budget and Draft engagement plan Develop and follow up on action plan report writing costs; We will measure the value and Establish indicators Report on engagement –– the creation of the new Citizens Panel impact of our engagement (£0.03m per year)– including payments to programmes using our Social retained members for consistency; Return on Investment tool. Conclusion We commit to stretching ourselves even more in GD2, proactively listening to what customers –– the evolution of the Critical Friends Panel Everything we do as a responsible and and stakeholders are telling us matters most (£0.06m per year) which will require additional sustainable business must be informed by our to them. facilitation and report writing costs; customers and stakeholders. We will forge new partnerships and make –– the creation of a Wales Green Gas Panel During GD1, we have made significant steps (£0.03m per year). stronger connections with organisations that to improve our stakeholder engagement can help us better understand our customers – processes, reviewing our strategy and further The continuation of our commitment to an all to ensure that we can deliver an exceptional embedding stakeholder engagement across and inclusive service for our customers, long enhanced Stakeholder Engagement Team the business. throughout GD2 accounts for the additional into the future. £0.1m of increased costs.

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Chapter 6. Customer service

1. Highlights of our plan –– Our customers have played a principal role in shaping our plans for today and tomorrow 85% of complaints resolved and have asked us to maintain our excellent within 1 working day levels of customer service. in GD2. –– Customer expectations are continuously increasing, making it a challenge to maintain customer service excellence performance in GD2 at the current levels. –– We are targeting an overall CSAT score 9.18/10 of 9.2 in GD2, compared to 8.6 in GD1. scored in our customer satisfaction surveys in 2018/19. –– Our continued ICS ServiceMark accreditation will demonstrate that we’re delivering UK leading service. We will increase compensation when –– We will push ourselves to consistently resolve things go wrong. over 85% of complaints in just one day. –– Delivering great service will continue to be a fundamental part of our culture with colleagues focused on this from their very 2. Our GD1 performance first day with us through induction, training, performance management and coaching. We have delivered excellent levels of customer service in GD1 and are very –– We’re performing very well against the GSoP –– We have led industry changes that will allow –– We will go beyond our regulatory proud of our performance. and have voluntarily doubled payments suppliers’ customer details to be shared, to requirements when customers need since 2017/18. enable bespoke communications for those more tailored support, communications In summary: –– We consistently go above our regulatory impacted by our works from 2020. or services. –– We’re the only GDN to receive ICS targets, attending emergencies in under –– We rigorously measure our customer service –– We are committed to minimising the duration ServiceMark Distinction status. an hour on average. performance using live customer service of all interruptions and limiting our average –– Our customer satisfaction scores (CSAT) –– On average, our customers only experience performance dashboards, CSAT score unplanned time to under 10 hours. have improved from 8.69 to 9.18 since a gas interruption once in their lifetime. analysis, daily exec-led teleconferences –– Following positive feedback, we will invest and regular benchmarking and auditing 2013/14. –– We’re one of the quickest GDNs to restore in more Customer Support Officers (CSOs) of our processes. –– Our complaints volumes have reduced supply – three and a half hours for a planned to increase our face to face communication by 40% in GD1 from 2,519 to 1,514. interruption and eight hours for unplanned. with customers. –– We’re currently resolving 84% of complaints –– We’ve created a ‘customer-first’ culture –– We will pay higher GSoP payments and on day one, that’s up from 45% in 2013. amongst colleagues in GD1 to drive success. additional voluntary payments when things go wrong. –– We were the first network to develop a Connections Online Quotations portal.

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Chapter 6. Customer service (continued)

3. Our customer first culture We take every opportunity to improve service Our Customer Service Strategy is based upon for customers and focus on exceeding the Institute of Customer Service Model and Since 2005, there has been a cultural shift in the their expectations. is owned by our Executive team and closely business, moving from a mainly engineering- aligned with our Stakeholder Engagement focused company to a now also customer- –– We celebrate great service, holding an and Consumer Vulnerability strategies. focused one. This has strongly influenced annual colleague Customer Conference; our customer service journey (see below). an opportunity for the whole business to Click Appendix 6A for further information The customer is now at the heart of everything come together to shape our future plans on our Customer Service Strategy. we do and this was further reinforced by the and customer services. Our Customer Service Steering Group deliver introduction of new company values in 2013. –– In 2015 we introduced our Customer Service our strategy and meet monthly with operational Championship Cup. This fiercely-fought colleagues to review regional performance annual competition encourages cross- and monitor projects, discuss the latest functional collaboration and teamwork to drive research and sign off any new initiatives innovative solutions to known customer service and innovation projects. challenges. Our CSOs initiative is just one of the many successful innovations to come out In preparation for GD2, we have introduced of this competition to drive our performance. a new omni channel call centre system in October 2019 and begun a trial of new –– Customer service is also a central theme in customer satisfaction survey questionnaires our colleague Celebrating Excellence Awards and channels. New IT systems to be rolled where we take pride in showcasing our best out in 2020 will put the customer firmly at the examples of service excellence. heart of all decision making and reporting.

Our GD1 customer service journey

IGEM Gas Industry Launch of our Hardship fund and Keep ICS reaccreditation Customer/Stakeholder consultation launch Customer Service Award Priorities and Values warm packs at distinction Introduced level BSI 18477 CSOs to improve Platinum service Customer Customer performance service inclusion IGEM communication app introduced Creation of Services dashboards launched accreditation Customer Critical Friends dedicated Priority Championship before, during and Service Wales & West Panel launch Customer Team Cup launched after our work Award 2019 Utilities launch

2005-2012 2013 2014 2015 2016 2017 2018 2019 Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: Ofgem Customer Service scores: 8.47 (1st place) 8.59 (2nd place) 8.69 (3rd place) 9.04 (1st place) 9.05 (3rd place) 9.11 (2nd place) 9.15 (joint 2nd place) 9.18 (joint 2nd place) Won best improvement IGEM Gas Industry Vulnerable customer Dementia strategy award for our contact Customer Service Art-based IGEM Customer training for 1,250 Annual Customer Friends centre at the Welsh Contact Award customer training Service Award colleagues Conference training Centre Awards

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Chapter 6. Customer service (continued)

4. Understanding our customers We have used feedback to map customer Our worst-served customers Whilst we don’t hold detailed demographic data journeys through our key processes. for customers, we plan to develop our capability We have to work harder to understand our Our research – which included 27 attitudinal Ensuring customers all get a level of to use demographic data at an area level to customer base, given that we don’t interact service they expect, which meets their further segment customers in GD2. statements – has allowed us to segment individual needs. directly with most of our customers, unless our customers into four categories with personas works impact their property or community, and In some cases, we can manage customers in and attributes attached to each. We have been real-time such as supporting those left off gas we don’t bill directly for our services or maintain able to identify customer drivers and where Whilst our headline performance against all a customer database. for more than 24 hours by offering not only they would need the most support, along with measures is very good, we recognise that a alternative heating and cooking, but hot meals, what they see as their greatest frustrations and minority of customers are not as well served. transport, or alternative accommodation until we To improve our performance in GD2, we are Our range of customers their communication preferences. This work resolve the issue. In other cases, the root cause will enable us to pre-empt their needs to create developing tools that will help us better identify analysis of an issue or complaint will highlight highly satisfied customers who feel looked after, and manage these ‘worst-served’ customers. areas for improvement in a process or the local understood and considered. delivery of a service. Our Customer Performance dashboards are We serve a diverse group of people in differing accessed by managers across the business and The following table explains how we currently Domestic customers Vulnerable customers regions, with different rules and regulations as discussed at the Executive-led Customer Steering measure ‘worst-served’ customers, what our a result of the devolved Welsh Government. Group and allow us to compare performance by: performance targets are and what positive We need to make sure that our customer service actions we will take to address these issues. –– Worktype. levels remain high across all areas and that we We will also introduce a suite of voluntary –– Geographical area – down to postcode. do not leave anyone behind. payments to ensure all customers are included –– Delivery by direct labour or contractor. Residents of multi Small and enhance the statutory GSoP payments. occupancy buildings businesses

Measurement of ‘worst-served’ customer

Measure Internal target performance ‘Worst-served’ measurement Action Customer satisfaction 9.18 /10 Individual customer satisfaction score Contact customer where details are available to discuss and see Large businesses Shippers and suppliers of less than 7/10. if we can do anything to resolve outstanding issues. Complaints 85% resolution in D+1 Geographic areas where D+1 / D+31 Operations Managers will address localised issues supported by 95% resolution in D+31 resolution is less than 75%. the office to provide additional training. GSoP 100% on each measure Any GSoP failure. Investigate all failures, pay compensation plus any other reasonable costs and undertake root cause analysis of failures.

Local authorities Power generators Interruptions Average less than 10 hours Any customer off gas for more than 12 Offer additional support until back on gas and pay all reasonable for unplanned and 3.5 hours hours. (Gas off to gas back at appliances.) costs. Safeguard during the interruption and automatically pay for planned interruptions voluntary compensation of £25 where interruption is longer than 12 hours, in addition to GSoP. Connections Less than 20 working days Lead time for domestic connections is Liaise with Operation Managers to identify additional resources lead times beyond 20 working days for a customer to deliver the work to meet customer requirements. who is ready for works. Developers Third sector Poor pressures Resolution in 30 days Customers who experience more than Asset Management and Operations will seek interim and final organisations 2 interruptions to supply in a year. solution to resolve the issue.

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Chapter 6. Customer service (continued)

5. W hat our customers and gas interruptions as important vs their younger counterparts. Both domestic and SME stakeholders are telling us customers demonstrated a strong willingness We have engaged in 20,000 face to face to pay for this commitment, second only community conversations, to discuss our work to emergency response. and services with the people that rely on them. Safety remains the top priority for our customers, Enhanced compensation for failures under the and they want us to minimise the disruption our Guaranteed Standards of Performance and services cause to them and their communities. voluntarily pay customers £25 if their gas is interrupted for longer than 12 hours. Over 19,500 The CEG has challenged us to address the stakeholders were supportive of our commitment root causes of complaints, and to better to pay automatic compensation when a gas understand who our worst-served customers interruption exceeds 12 hours. 62% scored are. In response to customers’ requests for resolving complaints quickly and compensating clear, timely and bespoke communications, we customers when things go wrong as ‘important’. will tailor our approach, investing in self-service tools such as customer apps, whilst maintaining Those in fuel poverty place more importance traditional communication channels for those on reliability and compensation than those who who prefer them. Maintain our ICS accreditation and the BSI for conflicting feedback, we are proposing these as are not living in fuel poverty. Qualitative and inclusive service provision. Our ICS commitment reputational, not financial ODIs. quantitative feedback from stakeholders revealed received a low score during our summer 2019 that stakeholders supported higher payments Engagement informing our commitments Increase our commitment to reliability by acceptability testing. Customers also highlighted than those proposed by Ofgem, however Attend gas emergencies in under an hour on promising an average time off gas of less than that they would not be willing to pay more for us they were not willing to pay towards this average, to keep our customers safe. Safety is 10 hours for unplanned interruptions through to deliver this commitment. The CEG challenged the most important priority for our customers a new LO. Despite achieving some of the compensation.We did not include this that our ICS commitment was based on a small- and stakeholders. Based on engagement with shortest interruption times across all GDNs, commitment in our July plan as we already had scale prompted survey, and was not part of the over 2,500 people, we know that attending gas stakeholders tell us that we need to do more to a commitment around limiting average time off standard ICS ServiceMark survey. However, we emergencies in under an hour is accepted by minimise interruption times. The CEG stressed gas to under 10 hours. We did however want went on to evidence that the assessment criteria stakeholders. This was not initially a commitment the importance of minimising the volumes and to commit to voluntary enhanced compensation is based upon a statistically robust external in our July plan, however given the significant durations of our interruptions, whether planned or payment for failures under the Guaranteed benchmarking survey. The CFP responded more feedback, we decided it was a critical service that unplanned. 99% of those attending our regional Standards of Performance when things go wrong. positively, saying that it fosters trust amongst should not be overlooked. In regional workshops, workshops in 2018 asked as part of our ‘Let’s customers, and some customers in vulnerable There was some discrepancy around how much 96% of attendees agreed that an hour’s response Connect’ consultation campaign said keeping gas situations commented that the accreditation compensation payments should be, varying time was appropriate. interruptions to a minimum was ‘important/very provided them with ‘peace of mind’. from £50 (CFP) to those who felt effective important’. Consumer vulnerability engagement Overall, both SMEs and domestic customers Stakeholders had mixed awareness of BS 18477, revealed the significant impact interruptions can communication was more important than considered this to be the most important and acceptability for the commitment itself was have on customers’ emotional wellbeing. financial compensation. We propose to set the commitment and the one they are willing to low. However, our engagement shows that level of compensation at £25 with a view to pay the most for out of all of our commitments. Acceptability testing has shown us that fuel supporting customers in vulnerable situations has keeping this under regular review. There were regional differences regarding this poor customers place more importance on a high perceived value for domestic customers commitment, with SMEs in England showing reliability than those who are not fuel poor and in particular, and our commitment will ensure we Click Appendix 5F for further information more support for it than those in Wales. over 55s are more likely to rate emergency are measured against best practice. Noting the on our engagement.

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Chapter 6. Customer service (continued)

6. Summary of our GD2 outputs Customer service outputs Click Appendix 3A for further justification on these outputs Measure 2018/19 and type Explanation Proposal/target Stakeholder views performance Comparative performance Other requirements Customer benefits Common output measures with a common target Customer A financial ODI with penalties Based on the current Stakeholders recognise our excellent 9.18/10 overall Currently second GDN in overall Revised questionnaire and The CSAT output in GD1 has led Satisfaction and rewards based on customer methodology, we are performance in this area and want us to scores behind SGN Scotland, change of survey channels to a step change in customer Survey satisfaction survey scores across looking to achieve an overall maintain our performance while evolving Emergency 9.56 with overall score of 9.18/10 for to be trialled between service levels, innovations and ODI F the three key work areas: score of 9.2 /10 across the our services to meet changing needs. Planned 8.80 2018/19. Planned work score October 19 and March 20. healthy competition across the three surveys. Connections 9.18 8.8/10 ranks us fourth. GDNs. Customers are receiving –– Emergency work We support static targets with Ofgem will confirm the new an absolute reward or penalty – an overall better service –– Planned work baseline scores and penalty yet to be determined by Ofgem. as a result. –– Connections work and reward mechanism following the trial in 2019/20. Complaints A financial ODI with a penalty only to Maintain performance in Stakeholders recognise and support We achieved a score Overall in GD1 our complaint Ofgem have confirmed that Customers can be assured that Metric incentivise the timely and high-quality dealing with complaints while our prompt response while ensuring the of 2.51 against a score places us 2nd the complaint metric will be when they are not happy with ODI F resolution of complaints. Focused on addressing the root causes quality of our responses. The CEG have target score of less behind NGN. calculated in the same way our work, their complaint will resolution times, repeat complaints, of complaints and driving challenged us to further address the root than 11.57 to avoid The overall GDN GD1 average in GD2. be resolved quickly and with a and Ombudsman complaints. down the volumes – whilst causes of complaints. a penalty. score is 7.27. The target score is yet to quality mutual resolution. also ensuring compliance 84% of complaints be determined by Ofgem. with the Complaint resolved in one working Handling Regulations. day in 2018/19. Guaranteed A set of legal minimum standards Minimise failures and make Stakeholders want us to minimise Met licence obligations. Good performance against No clear driver for new Customers will be automatically Standards of with associated compensation all payments automatic by failures and focus on looking after Payments of £80k paid most standards in comparison GSoPs but some appetite offered compensation for all Performance relating to our core services for GD2. We are committing to worst-served customers. However, to customers under the to the other GDNs. for appointment standard. standards in GD2, avoiding the (GSoP) interruptions, connections and maintaining our GD1 payment there was no consensus on the level of statutory scheme and Paying double payments for Please see our bespoke need for the most vulnerable LO customer service (compensation levels where we will pay payments or new GSoPs. Citizens Advice the voluntary scheme. failure since 2017 compared outputs for details of the customers to claim payments. excluded from base totex) between 45% and 66% more and other stakeholders want to see to statutory requirement. voluntary GSoPs commitment They will receive higher payments to each customer than the automatic payments. to connections customers than the statutory requirements. statutory payment. and voluntary payments for interruptions. Emergency LO to attend 97% of gas emergency Commitment to meet this Stakeholders rank this as their top Uncontrolled 1 hour We have met the LO every year Control the costs of the service Customers can be assured that response calls within 1 hour for uncontrolled LO while controlling costs. priority and an area they are most 99.8%. during GD2 whereas some while exceeding our LO. we will respond to emergencies time and 2 hours for controlled escapes. willing to pay for, agreeing an average Controlled 2 hours GDNs have failed in at least Additional commitment to in under an hour to keep LO of 1 hour to attend emergencies was 98.9%. one year. attend all gas escapes in under them safe. acceptable whilst also flagging the an hour. We will also identify registered importance of prioritising support for vulnerable customers and vulnerable customers. prioritise their calls where practical to do so.

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Chapter 6. Customer service (continued)

Customer service outputs Click Appendix 3A for further justification on these outputs Measure 2018/19 and type Explanation Proposal/target Stakeholder views performance Comparative performance Other requirements Customer benefits Common output measures with bespoke targets Average A financial penalty ODI: the average To keep our annual average Our Critical Friends Panel (CFP)supported 6 hours (average) Our GD1 average performance Direct link to GSoP1 – All customers will benefit from restoration time taken to get supply back on unplanned interruption time the GD1 target of 24 hour restoration excluding of 8 hours compares to a and a new bespoke output shorter interruptions on average. time for after an unplanned interruption. below 10 hours. 90% of the time. 62% of customers large incidents. GDN average of 26 hours. – voluntary payments for Vulnerable customers are unplanned Major incidents involving over 250 said our new average under 10-hour 9 hours (average This comparison falls to 12 hours interruption including safeguarded during interruptions interruptions properties will be weighted. interruption proposal was acceptable including 14 hours if Cadent London 2 hours to connect appliances. including alternative heating and ODI F to them and overall they were willing large incidents) are excluded. NGN are the Our ambition is to deliver our cooking, keep warm packs or to pay more for this. only other gas network with 6-hour GD1 performance alternative accommodation and an average in GD2 of below (excluding large incidents). hot food where required. 10 hours. Bespoke output measures ICS Reputational ODI benchmarking Maintain our ICS Stakeholders have been split over this ServiceMark Utility average 74.7/100. We will access the latest ICS ServiceMark gives ServiceMark against the best customer service ServiceMark accreditation. proposal.They have accepted that the accreditation with NGN also have the research, innovation and best customers trust in us if they Accreditation providers in the UK. cost is low and that there are benefits distinction status. ServiceMark accreditation. practice provided by ICS to do not know the WWU brand. ODI R in building trust with customers. 93.6/100 external Nationally recognised improve our service further. Membership of ICS will help Hence we propose a reputational rather benchmarking survey. benchmarking across all UK keep our service levels high to all than financial ODI. 84% on internal business sectors. customers. We will return the business £15k (<1p per customer) annual ServiceCheck survey. costs to customers if we lose the accreditation. Enhanced A penalty only incentive where we Proposed payments will be Our CFP could not reach a consensus Doubled payments Only one other network – NGN We will publish our new When things go wrong, GSoPs will automatically pay additional 45-66% above those being on payment levels, however the doubling resulting in an – currently pays double GSoP commitment in our customer customers will receive ODI F compensation to customers over proposed by Ofgem – in line and automatic payments were supported additional £80k payments, they also make these charter and automatically compensation that is more and above the statutory GSoPs with the level of our GD1 by Citizens Advice. of payments payments automatically when make all payments. We will reflective of the inconvenience (compensation excluded from doubling of payments. These outputs were supported by 65% to customers. they fail. minimise the failures through caused by the poor service than base totex). of stakeholders and have been discussed effective processes, systems the statutory requirement. with the CEG. and resourcing. Voluntary A package of voluntary We will pay £25 if a customer Our studies revealed that 62% of New for GD2. NGN have been paying GSoP1 will still apply to This new standard will ensure interruption compensation payments for is without gas at their respondents scored resolving complaints some voluntary payments to unplanned interruptions customers are appropriately payments planned or unplanned interruptions appliances for more than quickly and compensating customers if customers for interruptions longer than 24 hours. We will compensated for interruptions ODI F lasting more than 12 hours (gas 12 hours. We will pay things go wrong as ‘very important’. in GD1. publish our new commitment to their gas supplies providing to appliances) and a new 2-hour £20 if we do not attend a Reliability is a top priority and our national in our customer charter additional protection well above standard if a customer was not home customer's property within engagement showed some support for and automatically make the statutory requirements. when we completed our works 2 hours of a call to us or an appointment standard. all payments. They will also be compensated (compensation excluded within an agreed if they don't receive a from base totex). appointment time. prompt response. Connections We will be extending the quotations We will mirror the equivalent A review of our performance shows New for GD2. We will be the first network to We will publish our new All connections customers voluntary GSoPs to isolations, larger GSoP timescales and these customers receive a worse level pay compensation for these commitment in our customer will receive a similar level of GSoPs development sites and mains payments for these of service compared to others and the types of works. charter and automatically make service and compensation ODI F diversions as well as for green gas work types. principle of paying compensation to all payments. payments when we fail enquiries (compensation excluded all was supported. to meet timescales or our from base totex). quotations are not accurate.

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Chapter 6. Customer service (continued)

7. Our GD2 focus areas Customer service excellence Customer service Customers and stakeholders said In GD2, we commit to… Our GD2 planned activities Our overall ambition for GD2 is to better Service levels We should maintain At least maintain our customer satisfaction scores Continue benchmarking ourselves externally via our ICS membership and understand our customers so that we can current levels of customer using an updated survey that better reflects customer understanding of changing customers’ requirements and best practice. create a tailored approach to service and service. priorities and obtaining feedback by phone for Invest in colleagues through values-based training and recognition communication. We will deliver for customers Stakeholders have told us connections and emergency work, as well as and reward. an internet based survey. on the above outputs by focusing on the that scores above 9/10 are Develop our service offering through a structured programme following areas: excellent. Retain the ICS ServiceMark accreditation and score of stakeholder engagement and customer focus groups. over 90 in the external benchmarking survey. –– Continuing to strive for customer Retain Customer Bureau and Complaints management team with dedicated priority customer experts and phone number. service excellence. Complaints Our internal target to Score less than 2.5 under the complaints element Continue Exec-led daily telephone conferences on new and –– Identification of customers living in vulnerable resolve 85% of complaints of the Broad Measure of Customer satisfaction. unresolved complaints. situations (see our social obligations plan for within D+1 is appropriate. Resolve 85% of consumer complaints with D+1 Collect real-time data from site and customer, and build systems to more detail). We must target the root with no Ombudsman findings against us. allow quick collating of complaints information and issue resolution. cause of complaints. –– Connections business. Segment complaints data by PSR customers, area and demographics to tackle top three areas of complaints (communication, length of time –– Planned interruptions. to complete the work and quality of work). –– Unplanned interruptions. GSoPs Stakeholders had little To work to higher GSoP standards than proposed by Identifying and supporting worst-served customers. appetite for new GSoPs, Ofgem with tighter timescales and higher payments to CVP Introduce a suite of voluntary payments targeting and compensating but wanted changes to the customers. Where we fail a standard, the payment will the worst-served customers. The increased GSoPs form part of our CVP, existing ones. automatically be paid to the customer for all standards. benefitting all groups of customers through higher levels of compensation payable when things go wrong. Communications Customers want a Invest in technology to provide omni channel Invest in self-service tools to reflect requirements. choice of channels and service options. Comply with Welsh language directives. clearer and more timely Maintain the traditional channels ensuring our services Our commitments communications. are fully inclusive and no one is penalised for their Maintain our ICS accreditation and the choice of channel. British Standard for Inclusive Service Continue to invest in our frontline CSOs. provision. We propose these as bespoke Click Appendix 6B for more detail on our CSOs. reputational outputs. Enhanced compensation for failures under £320k additional GSoP CVP the GSoP and voluntarily pay customers CVP compensation payable £25 if their gas is interrupted for longer than to customers in GD2. 12 hours. We propose a bespoke penalty only financial incentive to support this.

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Chapter 6. Customer service (continued)

Connections Connections business Compared to GD1, customers will have more options to self serve or experience reduced Customers and stakeholders said In GD2, we commit to… Our GD2 planned activities timescales for the quotation from the office. Quotations Our Online Connections portal is a Re-launching our Connections portal developed Provide more self-service channels across a full range process great innovation, but can be hard to with customer feedback and collaboration in GD1. of devices. These will be co-created with customers They will have the ability to track engineers use for some. Extend the range of services on the Connections and tested via focus groups and trials. coming to their homes, and when things do go Customers do not rank the Connections portal in GD2 to include housing developers, wrong we will automatically pay compensation application process very highly on the demolition companies, Independent Gas customer satisfaction surveys. Transporters and Utility Infrastructure Providers, above the statutory requirements. This forms biomethane and gas-fired power developers. part of our CVP. Business and developers have told us they would like more ability to self-serve. Planning Timescales are very important to customers. Maintaining lead times for domestic customers Implement new auto-allocation planning tools to optimise ‘Time to provide a planned date’ receives below 20 days on average. work delivery. We believe that these offer the potential one of the lowest scores on the satisfaction Implement a ‘track my engineer’ app to allow to allow up to 80% of customers to get an immediate surveys (despite us achieving 99.9% for customers to know who is coming firm planned date upon payment. 20,000 GSoP 9 and GSoP 10). to their house and when. We’ll provide 20,000 quotes per year GSoP When things do go wrong compensation Paying the same level of compensation Publish a WWU commitment and schedule of to a wide range of customers. should reflect the inconvenience caused. as we are in GD1 which will result in payments payments for Connections GSoPs on our website CVP at least 45-65% higher than proposed under the and in our customer charter. revised statutory requirements. Paying the equivalent of the statutory GSoP payment to those currently excluded (housing developers, isolations and diversions). Making all payments automatic. Local authorities Local authorities require utilities input into the Build a layer on our GIS mapping system Attend local consultation events where we can have development of their local development plans to hold local authority data on sites identified significant input and add value. and site-specific consultations. for development or redevelopment. Provide local authorities with a point of contact within Having a clear point of contact for our business to deal with consultations and development enquiries from all local authorities that plan discussions. we deal with for local development plans Exchange data on our mains replacement programme and planning applications. and other major projects such as reinforcement.

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Chapter 6. Customer service (continued)

Interruptions and emergency services Planned interruptions Our commitment to compensate customers for Customers and stakeholders said In GD2, we commit to… Our GD2 planned activities interruptions over 12 hours forms part of our Communications They understand the need for works, Introduce a new advanced notice letter and simple and timely Use customer forums and feedback to CVP. Based on customer profiles, we expect but want: project updates. evolve our letters and then automate 95% of payments to go to domestic customers –– more advanced communication Provide a follow up reminder 48 hours before the confirmed via our new systems. (25% will reach vulnerable customers.) of a project; interruption of the gas supply. Engage with a wide range of local –– updates when project Using CSOs as the key point of contact on replacement schemes. stakeholders when planning works Our commitments dates change; to minimise the impact to businesses and homes. –– more information on site. For more on our CSOs, see the case study on Page 61 and Increase our commitment to reliability by Appendix 6B. Provide regular customer updates promising an average time off gas of less than on interruptions, giving them the ability 10 hours for unplanned interruptions through to track engineer visits (Track my a new licence obligation. Engineer App). Time off gas Time off gas during a planned We will commit to the planned interruption lasting no more than We will publish these payments on our Attend gas emergencies in under an hour interruption should be kept to 12 hours and paying a customer £25 where gas is not at the ECV website and in our customer charters CVP on average, to keep our customers safe. a minimum. and appliances in this timescale. and communications with customers. If a customer is out when we visit, We commit to responding within 2 hours (purge and relight) All payments will be made they do not like the commitment of if the customer is out when we initially call. If we fail to do so, automatically. New Customer Support 4 hours to attend when they contact we will pay £20. Officers improve customer us – and we should adjust this. satisfaction from 8.66 to 8.80. Emergency service and unplanned interruptions

Customers and stakeholders said In GD2, we commit to… Our GD2 planned activities Customers will benefit Emergency LOs of attending at least 97% Continuing to meet the outputs defined in our licence of attending Seek value for money by negotiation from £450k of voluntary response of escapes within the 1-hour or a minimum of 97% controlled escapes within 2 hours and 97% of the National Emergency Contact 2-hour timescales is appropriate. of uncontrolled within 1 hour, with an additional commitment to Centre contract. CVP interruptions compensation. respond to all escapes in under an hour on average. Effective utilisation of engineers. Proactively supporting vulnerable customers that we have to cut off for A review of how we deal with major safety reasons, keeping them warm and providing access to hot food. incidents with local authority teams.

Time off gas Our average timescale of less than To keep the average interruption time, including incidents, Voluntarily pay compensation if gas 8 hours (excluding large incidents) to less than 10 hours. is off for more than 12 hours. CVP 34,000 was seen as good performance. We will deliver an average GSoP Customer should be financially We will pay £60 to domestic and £100 to businesses for every 24-hour We will publish these payments on our compensated where the gas supply period that gas is unavailable (50% more than the statutory requirement). website and in our customer charters of 440km of replacement mains CVP and around 34,000 service is not available for an extended time. We will introduce a voluntary payment of £25 payable to every customer and communications with customers. interruptions per year in GD2. who is left off gas for more than 12 hours. All payments will be made We commit to responding within 2 hours (purge and relight) if the customer automatically. is out when we initially call, paying £20 if we fail to do so.

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Chapter 6. Customer service (continued)

They proved particularly useful at identifying Conclusion any customers living in vulnerable situations and their specific needs. There is nothing you could do We know that although our performance during GD1 has been excellent, we must The trial was deemed a huge success based to improve the service I have continue to drive our performance in GD2. on increased customer satisfaction scores, received from all I have had Expectations are increasing and becoming reduced complaints, a reduction in enquiry contact with. All staff have been more complex, and to maintain our scores as calls and improved efficiency. Five more CSOs they are currently, we will need to work harder were then recruited to start the 2017/18 helpful, polite, informative, to deliver for customers in the future and stay financial year, covering our entire network. and friendly. When I have ahead of the other GDNs. From when the CSOs started in June 2018, we had questions, these have We want to go above and beyond what saw CSAT scores for planned work improve been answered quickly and people expect from their customer service from 8.66 to 8.80 with a further improvements completely. experience. Informed by stakeholder in 2019/20. We also moved from 4th to 2nd feedback and rigorous data, we will treat Improving communication with place in the GDN rankings. In the same period, You have the most professional customers as individuals by tailoring Customer Support Officers complaints about planned work reduced staff, yet offer a service that our communications and offering a Following a drop in our customer by 12%, complaints about communication bespoke service. satisfaction scores for planned work in dropped by 44%, and customer calls reduced feels like a family concern who We will also innovate, bringing new services 2017, we set about examining our scores, by 20%. care and take a rare pride in to customers. Track My Engineer tools will complaints and customer service data to Based on the positive impact that the CSO what you do. Companies like allow customers to know when an engineer try and discover what was causing this. role has had on our customer satisfaction you make for a better future. will arrive. New self service options developed In-depth analysis revealed that our scores, we are committed to increasing CSO with our customers will transform their communication around planned work needed numbers into GD2 and beyond. In May 2019, experience of dealing with us and offer improving and was negatively influencing along with our planned work contract partners, 24-hour access to our services. overall satisfaction scores. we won the IGEM customer service award for Feedback through our customer survey. our significant improvement in the customer In response to this, and to improve experience for planned work. communication before, during and after the work, we rebranded customer communications In addition, CSO David Carter was a finalist and began a three-month trial, deploying CSOs at this year’s IGEM Young Person’s paper over two geographical patches competition. His paper and presentation covers the evolution of the CSO role and is The new CSOs were able to build relationships entitled ‘Improving communication during within the communities, recognising and mains replacement work’. addressing any issues and providing information and reassurance for customers. Click Appendix 6B for our CSO case study and CBA.

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Chapter 7. Social obligations

1. Highlights of our plan At a glance: Investing in social obligations 3. Our GD1 performance –– We care about our customers and commit to Investing in social obligations Safeguarding customers and delivering value added services is nothing new for WWU. identifying and safeguarding those impacted 2018/19 Prices (£m) GD1 Per year GD2 Per year GD2 total We have: by our works, providing a fully inclusive Provision of alternative heating/cooking 0.24 0.29 1.45 service that does not leave anyone behind. Vulnerable customer services 0.28 0.37 1.85 –– provided alternative heating and cooking –– We will provide additional services and CO and gas safety 0.23 0.19 0.95 to 50,000 homes, completed 500 free support through our colleagues or via Collaborative GDN projects 0.03 0.19 0.95 service alterations, referred 18,000 to the partnerships, with multiple services applied FPNES 2.30 1.64 8.20 PSR, helped over 2,200 homes to tackle to one household if applicable. Total 3.08 2.68 13.4 fuel poverty through maximising income –– We will continue to fund first time gas and accessing energy efficiency measures, connections via our Fuel Poor Network We know that an ageing population and growing provided 25,000 free CO alarms. Extension Scheme (FPNES), delivering at numbers of dementia, diabetes and mental Innovation for customers has been high least 2,500 new connections in GD2. health cases means we will be dealing with on the agenda during GD1. We have: increasing numbers of people living in vulnerable –– We have mapped our services to deliver –– Introduced Keep warm packs, heated seat situations in GD2. against the key five themes in Ofgem’s covers and LCVs. Consumer Vulnerability Strategy 2025. We also expect the requirement for tailored –– Used data mapping to identify off gas fuel –– We’re the first GDN to receive whole services to increase due to a greater demand for poor households and overlay vulnerability business accreditation against BS 18477 communications in Welsh and other languages. data to allow targeting of homes and for Inclusive Service Provision. We commit As a responsible business, we are committed to a communities by our partners. to maintaining this. sustainable approach going forward and making –– Developed FRESH vulnerability mapping with –– We’ll invest £750k a year to identify and support sure we play a positive role in and amongst the Warm Wales and the University of Cardiff, vulnerable customers and reduce the risks of communities we serve. Colleagues go above and allowing us to overlay complex data on carbon monoxide (CO). This will be funded by a beyond to provide customer service excellence 2. Introduction poor health and income to identify areas of ‘use it or lose it’ allowance with 25% ring fenced for everyone, whatever their circumstances, and housing that may require support. The CAB they understand how important it is to make for GDN collaborative projects. We work in around 100,000 homes and recognised FRESH in their local authority sure that those customers who require additional –– We will invest £1m on NIA innovation projects communities each year across our network and guide to tackling fuel poverty and BEIS support have their voices heard. for vulnerable customers in GD2. are well placed to help identify and safeguard referred to it as best practice. consumers in vulnerable situations. In this chapter, we explain how, informed by –– Introduced SignVideo and Language Line Vulnerability comes in all different forms; it may our stakeholders and driven by our Consumer services for customers. We have valued our ‘use it or lose be physical, mental, emotional, geographical or Vulnerability Strategy, we will safeguard people it’ services with a CVP net benefit –– Investigated the safeguarding of customers financial. For some, it is a permanent state but during our works. We also describe the CVP of over £70m in GD2. additional services we can offer, either directly or at streetworks (ongoing). for others it may be a transient one. through strategic partnerships which provide a Our stakeholder research has shown how real financial and health benefit for many years. we can affect our customers and we will do everything we can to mitigate this, providing additional services whenever possible.

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Chapter 7. Social obligations (continued)

4. Vulnerable customer strategy Consumer Vulnerability In GD1, we have evolved our In GD1, we worked with Sia Partners to develop awareness programme to make our Consumer Vulnerability Strategy – in parallel sure we can deliver improved 1 2 3 with our Stakeholder Engagement and Customer Analyse Engage Deliver outcomes for those most at risk Service strategies – to deliver real outcomes for from CO. and identify Understanding what Providing a cost-effective customers living in vulnerable situations. Identifying who needs support communities suite of tailored support Measuring social return This strategy – which we describe in more detail support, when and how want and need to address vulnerability on investment (SROI) at the start of Part B – sets out our ongoing mission to support customers living in vulnerable Working with external partners situations and outlines the practical steps allows us to understand what that will be taken to enable us to achieve our benefits society based on cost. 6 5 4 objective. Our strategy and services are aligned Evaluate Facilitate Partner to Ofgem’s Consumer Vulnerability Strategy Ensuring services have the Giving staff the skills to Delivering services WWU We make sure that all our activities provide either 2025 and we are proud of the contribution intended impact and remain identify and manage is not best placed to offer a net financial or social benefit – or both. our services are making to customers across the most suitable approach customers’ vulnerability through third parties the five key themes. Everything we do provides either a net direct financial benefit or an SROI, which we measure A significant part of delivering our strategy is the via our cost benefit analysis (CBA) tool. successful identification of those who need extra –– We will formalise existing and create –– PSR customers are recorded against one or support. In GD1, we have been identifying those Created with Sia Partners, our SROI tool new partnerships in GD2 under a new more of 35 Needs Codes that are common living in a vulnerable situation by: incorporates both traditional CBA and valuation LO proposed by Ofgem. Our partnership to the gas and electric sectors. However, with of the social impacts using the –– Accessing existing suppliers’ Priority evaluation tools enable us to identify and 500k1 (21%) of the 2.4 million households HM Treasury Green Book methodology. Service Register (PRS) via a secure evaluate potential organisations before we with a gas connection in our area on the xoserve portal. commit to entering into a partnership with PSR, we further prioritise that data to ensure Combining these two approaches allows us to –– Training customer facing colleagues them and then to set measurable SLAs we target those most in need first. The three demonstrate the total economic value, including to identify and sensitively manage priority to monitor and value the partnership. priority groups are those living with a serious both the financial and social impact, of a project, customers, including those not registered –– We are also working with other utilities physical health condition, those with physical making sure we meet an individual’s needs. on the PSR. to ensure PSR data is shared effectively impairments and those with mental health We can then decide whether to deliver the conditions. service directly or via a third party. –– Tapping into Local Authority Resilience and quickly. We are currently building a programme of work with Welsh Water and teams in the event of a major incident. Click Appendix 7A for our Consumer Click Appendix 7C for an overview of the methodology are part of the Welsh Government Jigso –– Combining services with our partners vulnerability strategy. used in the models supporting the investments laid out project looking to link up priority customer We work with partners who have access to Click Appendix 7B for our strategy mapped to Ofgem’s in this chapter. data across multiple sectors. We will apply Consumer Vulnerability Strategy 2025. hard to reach vulnerable homes, are trusted, this learning to other organisations across and have good geographical coverage and the south west of England in GD2. access to funding.

1 Research shows this figure could be as high as 40%

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Chapter 7. Social obligations (continued)

5. O verview – customer and Engagement informing our commitments Work alongside partners and carer networks to those homes most in need. Local authorities to increase the number of PSR sign-ups by want the FPNES to continue as it provides key stakeholder feedback Continue our leading work in data sharing agreements, with the aim of aligning the gas, 200% compared to 2018/19. funding to support local initiatives such as Warm up Bristol, Warm and Well Cornwall and the Working with others to identify customers’ water and electricity sectors into a virtual Respondents to our vulnerability interviews needs and also to identify and support Welsh Government NEST and Arbed projects. common PSR – while working towards a single were surprised that utilities and suppliers hard to reach, vulnerable customers. The CEG and the RIIO-2 challenge group both PSR for all utilities in GD3. were not already working together to raise challenged why our GD2 FPNES ambition is awareness of the PSR and increase sign-ups Our consumer vulnerability engagement lower than it was in GD1. We explained to them In-depth customer focus groups and one to and wanted us to work harder to collaborate. programme demonstrated the lack of how our engagement with partners and central ones with customers living in vulnerable situations Stakeholders asked us to do more to identify knowledge around the PSR and the various heating system funding providers has led to this – alongside conversations with partners and those harder to reach people. In our July plan, types of vulnerabilities that exist. Based on forecast. We will continue to review this on a representative organisations such as Hijinx we committed to increase PSR sign-ups by 10 engagement events in total, including regular basis and are committed to undertaking theatre and BAME organisations – have helped 150%, however following additional insight, we 3,362 stakeholders, there was strong support additional connections if funding is available for us to better understand the sheer breadth and decided to adjust this commitment to 200% complexity of consumer vulnerability. for sharing data and information between more heating systems. utilities and third parties to avoid multiple (12,000 per year). Domestic customers are more The CEG challenged us on the numbers of sign-ups to different registers. SMEs are more willing than SMEs to pay for support to those Stakeholders support increased awareness people we have engaged with, however, our willing than domestic customers to pay for considered vulnerable. However, acceptability of the dangers of CO. Policy Connect wants research has had to be qualitative, rather than increased partnerships across the utilities. testing carried out in June 2019 revealed that GDNs to remain engaged with the All Party quantitative, due to the complex nature of the Stakeholders also believe that WWU should only 28% of those surveyed would be willing Parliamentary Committee on CO, to influence topics. They also challenged that our partnership work towards a common PSR with shared to pay more on their bill to fund this, so we have policy and raise awareness. Some stakeholders approach was not strategic enough and we access. Our CFP suggested that suppliers taken this into consideration when adjusting believe that our involvement with the distribution were not clearly demonstrating the outcomes work together to share PSR data, as well our commitment. of CO alarms is not necessary, whilst others we wanted for vulnerable customers. In direct as smart meter data. would like us to give every home a free CO response to this, we have produced a Consumer Further support vulnerable and fuel poor customers by investing £750,000 a year in wide monitor. At Regional workshops and our CFP Vulnerability Strategy and developed a new This commitment was reinforced in 2016 at stakeholders advised us to establish formal partnership evaluation tool. two cross utility Stronger Together Conferences ranging initiatives with partners and increasing CO support measures, almost doubling our partnerships with selected third parties to for gas, electric and water utilities that we help deliver our services and provide referrals Click Appendix 7A for our vulnerability strategy. GD1 investment. co-hosted. These conferences identified a This would create mutual benefits and Click Appendix 7D for our Partnership tool. desire to collaborate; sharing data on PSRs This commitment is endorsed by over 20,000 cost efficiencies. and working jointly in communities impacted stakeholders, however there was some conflict Our consumer vulnerability research highlighted Stakeholders support our proposal to create the impact of even a short interruption on by our works. This feedback has led us to make around how much of a role we should play in a Community Project fund to expand the customers in vulnerable situations. Our a firm commitment in this area. supporting fuel poor customers. Whilst our reach of services and key messages to priority engagement revealed that in general, vulnerable input is seen as admirable, stakeholders felt we customers. The CEG challenged us to look at individuals and their carers do not know about the Stakeholders support should be working alongside partners outside support available to them, but are impressed at our proposal to create a the gas network to deliver. As a result, we have best practice elsewhere before developing our the assistance WWU provides. Many customers Community Project fund amended our commitment. Fund, we since had discussion with UKPN and believe that priority groups within the broader to expand the reach of NGN are now learning from others. Expert vulnerability stakeholders such as ‘vulnerable customer’ category must be identified; services and key messages for example, emotional vulnerability is often linked National Energy Action (NEA), want to see the Click Appendix 5F for further information to priority customers. on our engagement. to other more visible vulnerabilities. FPNES continue into GD2, with funding going

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Chapter 7. Social obligations (continued)

6. S ummary of our GD2 outputs Customer service outputs Click Appendix 3A for further justification on these outputs Measure and type Explanation Proposal/target Stakeholder views 18/19 performance Comparative performance Other requirements Customer benefits Common output measures with a common target Consumer A new LO to identify We will identify customers, Stakeholders support the focus and Met LO £0.4m reward Comparable performance Further work needed to define Customers in vulnerable situations vulnerability vulnerable consumers and provide a range of services services for vulnerable customers at SEIS panel. amongst GDNs but behind requirements for this output with will be proactively identified and minimum provide support including and expand our partnerships. including our partnership working some DNOs, particularly Ofgem in 2020. supported before, during and after standards partnership working. but ensuring we don't duplicate on SEIS. our works. the work of others. LO

Consumer A new reputational ODI We will produce an annual Stakeholders support the focus New requirement. New requirement. Further work needed to define The annual report will provide transparency Vulnerability to annually report on report inc some common on vulnerable customers during requirements for this output and the annual showcase events will Reputational the support given to GDN metrics to be agreed. our works and the additional with Ofgem in 2020 inc the allow smaller local groups as well as larger Incentive vulnerable customers and We plan to hold a series of services we offer. three or four key GDN metrics organisations to help us develop services host an annual joint GDN annual regional stakeholder and how the annual report will and partnerships. ODI R showcase event. showcase events. be assessed.

Common output measures with bespoke targets Consumer A ‘use it or lose it’ A programme of works based Overwhelming support and New output. Comparable with the other GDNs. The GDNs have set up a new Customers will benefit financially through vulnerability allowance to support on an annual fund of £750k acceptance from customers Recognition at DRS for work with group from Jan 2020 working increased household income, lower and CO safety vulnerable customers and with 25% ring fenced to following extensive engagement health sector. with key stakeholders from tariffs, energy efficiency measures as well ‘use it or lose it’ raise CO awareness. collaborative GDN projects. albeit with some conflicts across the gas industry and as warmer and drier homes leading to allowance of opinion in terms of charity sector to create the social benefits. our role in CO. process and projects for GD2. PCD

Funding of first time A total of 2,500 connections Customers support the FPNES 1,083 connections. On target in GD1 along with SGN Ambition limited by third party Homes that receive a connection will save FPNES gas connections to eligible (£8.2m) to fuel poor homes where gas is the best option. CEG Scotland and NGN. funding for first time central on average £680 a year on heating bills fuel poor homes. in GD2 – 700 per year in & RIIO-2 CG want more ambition heating systems and Ofgem and improvements to health and wellbeing PCD Unlike SGN Southern and 2021/22 reducing to 300 but accept our caution given the Cadent who are at risk of missing require partners to demonstrate delivering wider societal benefits as in 2025/26. lack of visibility of funding for central their target. gas is best option before measured by our SROI tool. heating systems. FPNES funding given.

Bespoke output measures British Standard Reputational ODI to Maintain standard through The BS 18477 standard is seen BS 18477 Leading – first GDN to receive The annual audit ensures our Vulnerable customers will be provided for Inclusive deliver best practice annual audit process. as best practice, recommended accreditation. accreditation. NGN and SGN employees are trained and with improved service levels which are Service Provision as measured by BSI by Ofgem and endorsed by our recently accredited. delivering services business- bespoke and best practice. We will return – BS 18477 accreditation across customers and stakeholders. National benchmark standard. wide, and are adapting to any the £15k (<1p per customer) annual costs our whole business. new statutory requirements. to customers if we lose the accreditation. ODI R

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Chapter 7. Social obligations (continued)

Innovation in GD2 for vulnerable customers 7. Consumer vulnerability We have identified £1m of spend on NIA incentive (Network Innovation Allowance) funding for Working towards a future where vulnerable customers in GD2. Key themes of all customers’ needs are met, projects as agreed with stakeholders will be: ensuring no one is left behind. 1) Use of data sets to better identify vulnerable customers combined with analytics to drive We will produce an annual report to support effective and targeted programmes of work. the Customer Vulnerability Incentive Licence We envisage this work will allow us to: Obligation. The report will set out: –– identify vulnerable, low income households –– how we identify and safeguard customers for fuel poverty and energy efficiency during our works; programmes; –– our social obligations work and outcomes –– identify homes at most risk of CO incidents for customers; and target awareness and free alarms. –– our response to the annual stakeholder engagement incentive. 2) Development of technology to reduce interruptions numbers and duration, and to The report will include how our partnerships help provide further support to customers; eg us to identify and support homes, and how we The additional services we offer provision of hot water for cooking, hot drinks have evaluated the social return on investment. to customers in vulnerable situations and bathing and improved forms of temporary It will also refer to how we have met our LOs heating which is particularly important if the and GSoPs, and utilised the ‘use it or lose interruption is protracted. it’ allowances. 3) Studies and trials of sensors linked to We will work with Ofgem and the other GDNs appliances for customer safety and energy to develop a small number of key metrics efficiency in the home. We need to do further for the report and how the report can mirror work in this area to scope projects and these Ofgem’s Consumer Vulnerability Strategy 2025 Maximising Tackling energy and Energy Sign-ups to the Priority may be joint GDN projects.Examples might be key themes. income water debt efficiency advice Services Register new CO monitors and gas detectors linked to shut off devices on the meter or appliances. As per the proposed new LO, we will run three We will also work with partners on developing to four annual showcase events across our smart controls to drive energy efficiency network. We will invite local stakeholders to following up our hybrid heating work in GD1 discuss what we have achieved and how with PassivSystems. we can improve outcomes for those living in vulnerable situations. Tariff advice Accessing energy CO awareness Locking cooker and switching efficiency measures and alarms valves

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Chapter 7. Social obligations (continued)

8. Safeguarding customers This might include: Dealing with large incidents during works in GD2 –– regular updates via preferred If/when a large incident does occur, we commit to the following actions: In GD2, we will focus on the following seven communication method; –– Resourcing the incident appropriately, £50k areas to make sure we are best placed –– alternative heating and cooking; We have included an extra £50k for to safeguard our customers, whatever seeking support from local contractors and –– keep warm packs seat covers; alternative heating and cooking their situation. other GDNs where required. –– prioritised reconnections/2-hour for when gas suppliers are interrupted. –– Planned interruptions appointments; –– Setting up an incident room and customer contact centre on site and utilising our –– Unplanned interruptions –– voluntary payments for extended customer support vehicle. Connections interruptions and enhanced GSoP payments. In the case of a new gas connection, the –– Dealing with large incidents –– Deploying our incident app to engineers, customer will not have a gas supply contract –– Connections allowing us to segment the area and prioritise in place and will therefore not appear on the –– FPNES Unplanned interruptions the most vulnerable. suppliers’ PSR. Our staff have been trained to –– Fuel poor connection targets Responding to emergency calls –– Providing specialist customer support identify vulnerability and will record any agreed on site via our CSOs and via our office-based –– ‘Use it or lose it’ allowance. to ensure the health, safety and actions to be taken on site so that our engineers wellbeing of the general public Customer Service team. is a priority. are informed when they arrive on site to deliver –– Offer and provide alternative heating the work. Planned interruptions and cooking. Our mains replacement and associated service We forecast that 8,000 customers may We will ensure that communications with the experience an unplanned interruption to their –– Arrange hot food catering and provide food customer are in a format and channel that work will impact around 34,000 customers each vouchers, and ad hoc financial support. year in GD2. With 21% of customers being on supply each year in GD2. best suits them. On site, we will ensure that –– Where required, seek support from Local customers have regular communication either the PSR, we estimate that over 7,000 vulnerable We are committed to identifying PSR customers Resilience forums via the local authority. face to face or by text on the progress of customers will be impacted each year. via our IT systems and providing support on site. –– Promptly pay any GSoP payments due. their job. We will ensure everyone on the PSR is identified The range of services will be as laid out above and the works programmed to minimise impact. for a planned interruption. Working with our partners, we will clearly The smart meter roll-out is communicate the funding we can provide from Customers will receive a written communication Our engineers have been provided with language expected to reduce our ability our Fuel Poor scheme and help the customer from us at least seven days before the translation and British Sign Language Apps to aid to provide a temporary meter, to identify sources of third party funding for the interruption, followed by a visit from a CSO. communication and we will also make sure that as we currently do for suppliers boiler and heating system. They will identify and agree any specific actions every customer receives a written explanation under PEMs contracts. for that home, and communicate this to the outlining the situation and next steps. In the case of service alterations, we can identify customers on the PSR. We will offer funded team leader. Our social obligations team will provide additional alterations to the gas supply in line with our LOs support if we need to shut off a vulnerable Customers worry about the costs Through training and contracts we will ensure and will ensure that any customer who meets customer’s supply and ensure they are back on of using the alternative heating all customers are treated equally, whether served the criteria, whether on the PSR or not, is treated gas as soon as possible. We will help them contact and cooking we provide, so we by our own engineers or contractors. the same. landlords and source funding for repairs and will provide a £10 fuel voucher broken boilers and use our Hardship fund where to each household in GD2. required, to ensure no one is left in a cold home.

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Chapter 7. Social obligations (continued)

We will look to collaborate with organisations 9. FPNES Funding streams funded to identify vulnerable customers and Ensuring all households have tackle fuel poverty. Our GD1 fuel connection New gas heating Forecast heating Forecast heating access to affordable energy, target was increased from 10,800 to 12,590. systems forecast End date systems forecast systems forecast doing our best to bring customers Scheme or source of funding for 2019 of funding in 2021 in 2025 out of fuel poverty. Significant changes made to the eligibility of the scheme following our reforecast have made Welsh Government NEST 150 2022 100 0 Making sure that all households have access Welsh Government Arbed 600 2022 300 0 achievement of this target very challenging. to affordable energy is a key priority. The FPNES ECO 3 None directly 2021 50 0 provides eligible households with funding National Grid Warm Homes Fund 500 2021 0 0 Fuel poor connection targets in GD2 towards a new gas service. Social landlords 100 Ongoing 100 50 Analysis has shown that we have around Private landlords 100 Ongoing 100 150 We are not able to fund the heating system and 90,000 homes in our network that would Local authorities/Direct Funding 100 Ongoing 50 100 must therefore work with partners to link up the be economical to connect. Based upon from household funding streams to deliver a joined-up service. fuel poor statistics, this equates to around Total 1,550 700 300 We have taken a proactive approach to this in 10,000 homes that could be eligible for the A realistic view of the workload is therefore as follows, and we are asking for funding GD1, along with our main fuel poor partners scheme. Our ambition would be to connect for this volume of connections. Warm Wales and Flintshire Council. We have all of these homes if the customers so wished. supported bids for funding and then worked However, we are limited by customer choice, Forecast workload to develop efficient processes and delivery and also funding for new heating systems, of works to ensure we hit our targets. and a recognition gas is not always the best Year 2021 2022 2023 2024 2025 Total option for a household. Wales 400 300 300 200 200 1,400 The NEA UK fuel poverty monitor report 2018 South West of England 300 300 200 200 100 1,100 shows that 11% of homes in England are in fuel The following table shows the current funding FPNES total connections 700 600 500 400 300 2,500 poverty. This is higher in some areas, particularly streams and how these change or stop where there is limited access to the gas network. during GD2. 2018/19 prices For example, in Cornwall, only 60% of homes In GD2, we commit to: are connected to the gas network. This, GD2 (£) Customer Social return per year GD2 total benefit (£) on Investment combined with low average incomes, results –– at least 2,500 FPNES connections; FPNES costs £1.6m £8.2m £5.8m £4.3m in almost 15% of homes being in fuel poverty. –– using our SROI tool to demonstrate In Wales, a newly published 2018 fuel poor household savings (c. £680 per year) report2 shows 12% of homes are in fuel poverty. and social benefits of the scheme; As part of our innovation project REACH, –– ensuring all customers are provided with we have developed tools to identify those available funding and advice on tariffs properties which are not on gas, are economical and energy efficiency. to connect, and who display characteristics of being in fuel poverty.

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Chapter 7. Social obligations (continued)

Ofgem have stated they will put in place a 25% of the £30m ‘use it or lose it’ allowance Priority Service Register (PSR) CVP 10. ‘Use it or lose it’ CVP reopener which will retain the flexibility to stop allowance strategy will be ringfenced for work with the other the FPNES in response to development in GDNs. This equates to £7.5m during GD2 or government heat policy. Ofgem has proposed a new GD2 ‘use it or lose £1.5m per year. This is a large sum of money Understanding our customers allows us to take adequate steps to look after it’ allowance output to provide additional support compared to the collaborative work done in We wish to see this extended so a re-opener the most vulnerable. to vulnerable customers. This forms part of our GD2 and will require us to work with national would allow us to reforecast numbers and obtain CVP. We will be building upon GD1 programmes stakeholders to create projects that are both funding in response to a significant change in of work, increasing the level of our ambition. ambitious and far-reaching. We will use part of the funding to raise government policy in England or Wales, which The services will be delivered via: awareness of the PSR, providing multi-channel supported major investment in gas connections We have already met as a group of networks to options to sign up customers and to refer and extension of the gas network (such as –– follow-up services to customers who have agree a structure for future coordination of this these sign-ups to suppliers, electricity network a national infrastructure project for energy been impacted by our works at that property funding and the sub groups that will support the operators and water companies. efficiency or decarbonisation). in their community; initiatives that will commence in January 2020. –– working with partners to identify vulnerable Going forward, we will continue to provide homes and communities, finding the most support to ‘on gas’ homes in fuel poverty and hard to reach, vulnerable people. to use the ‘use it or lose it’ allowance described over the next pages to support this work. Stakeholders want us to invest even more in Proposed vulnerable customer services for GD2 We are already working with organisations to this area. We will review opportunities as they Volumes Annual GD2 take a more holistic view of rural off gas areas. arise with a view to adding additional funding Service P. A . investment investment Net CVP Opportunities to use farm waste (to create into schemes which demonstrate real value PSR sign up 12,000 £0.05m £0.25m £60.0m biomethane which could serve a local pipe for the customer and/or society, either directly Hardship fund 200 cases £0.04m £0.2m – network) do exist, although the challenge of or through partnerships. 61% of stakeholders Locking Cooker Valves 100 £0.01m £0.05m – seasonal demand needs to be addressed. support the PSR, but this is far higher for Fuel Poverty and Energy Efficiency 1,200 homes £0.22m £1.1m £12.5m vulnerable customers and their carers. helped We are also promoting the concept of hybrid Community Project Fund £0.05m £0.25m £2.7m heating systems as a solution to reduce the Total £0.37m £1.85m £75.2m costs of homes that are on LPG or oil heating systems. Case studies have shown savings of 50% on energy bills are achievable by Our investment in CO in GD2 combining a heat pump and controls with Volumes Annual GD2 the existing heating system. Service P. A . investment investment Net CVP Promote CO messages (homes) 250,000 £0.015m £0.0750m We have already seen some supplier-led CO monitors and awareness 5,000 £0.075m £0.0375m schemes for hybrid heating systems and Awareness only including measurement of understanding 5,000 £0.050m £0.0250m controls, and we will signpost customers Schools events and support for GDN school competition 50 £0.050m £0.0250m who are off gas/use LPG and oil systems Total £0.0190m £0.0950m £1.000m to these schemes.

Wales & West Utilities | Business Plan 2021–26 69 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 7. Social obligations (continued)

We will also work alongside the other GDNs Locking Cooker Valves (LCVs) Fuel poverty and energy efficiency We are committing to help at least and seek support from other utility companies LCVs reduce the chance of a gas related 1,200 homes per year to achieve average to work with the energy and water regulators Working with partners to make savings of £650 per household during GD2 incident by allowing a carer to lock/unlock the sure all customers have access to create a single cross utility PSR by the end supply to a gas cooker. This service is delivered to affordable heating. with delivery across our geography. of GD2. in-house by our engineers and was developed with third parties and through collaborative For every £1 invested in fuel Our commitment Whilst the FPNES provides funding for first- work with other GDNs. Our stakeholders time gas connections to homes, we recognise CVP poverty and energy efficiency, Continue our leading work in data sharing support the installation of LCVs, with 63% of that fuel poverty also impacts those already there will be £12 of net value agreements, with the aim of aligning the gas, the consumer vulnerability research participants connected to our network, as well as off gas to customers. water and electricity sectors into a virtual considering our provision of them to be homes in towns and rural areas. common PSR – while working towards a single essential. Feedback highlighted that LCVs PSR for all utilities in GD3. could also be useful for parents with small Under our Healthy Homes Healthy People Community Project Fund CVP project with Warm Wales we are working with children. We will continue to promote this service We have trained our colleagues and partners to local authorities and health professionals to The ‘use it or lose it’ allowance provides us to health professionals and landlords with a sign customers up to the PSR via apps, forms identify vulnerable homes. with a mechanism to support community- forecast of 100 installations per year in GD2. and websites. We will also use social media based projects in GD2. This proposal – based We then visit the home and assess the person campaigns to reach targeted priority groups. on a similar scheme run by NGN in 2018 and Hardship fund and the property. Services we can offer include: In GD1 we have signed up 12,000 homes over a larger UKPN scheme – has been tested at regional workshops and is supported by 86% a 4-year period from 2014 to 2018. A social Helping to support customers –– maximising income through media trail in 2019 has opened our eyes to the that are in fuel poverty, providing unclaimed benefits; of the 50 organisations that attended. We will advice and financial assistance. work with stakeholders to create the detail of power of social media and the cost efficiency –– tackling energy and water debt; of their channel. We are forecasting 10,000 the scheme and to assess fund applications. –– tariff advice and switching; sign-ups in 2019. We commit to ensuring no customer is left in Applicants will need to show the expected –– accessing energy efficiency measures; impact of their projects and how they will acquire In GD2 we are committing to at least a cold home. Where a customer requires our –– energy efficiency advice; additional funding and volunteers. 12,000 sign-ups per year. support following a gas escape we will work with partners to access funding to repair and replace –– sign-ups to the PSR; We propose £50k is made available each These customers will be added to the gas, broken boilers and appliances. Our Hardship –– CO awareness and alarms; year for community groups, charities, social electric and water PSRs and will receive a range fund will allow us to contribute towards the enterprises, not for profit companies and –– locking cooker valves (LCV). of support services as well as financial benefits. costs, or fund in full where necessary. councils. Communities will be able to apply Based on the number of customers receiving for grants between £1k – £10k to deliver We will allocate £40k a year into a In 2018, we helped 1,239 homes access these benefits, we calculate the CVP as having energy-related services for vulnerable Hardship fund using any unused money savings and measures worth £886k for a net value of £60m. customers. This forms part of our CVP. for other initiatives. an investment of £223k. This project was Our commitment acknowledged and rewarded at the 2018 DRS panel with a reward of £150k. Work alongside partners and carer networks For every £1 invested in the to increase the number of PSR sign-ups PSR, there will be £270 of net CVP value to customers. Click Appendix 7E for our Healthy Homes, Healthy by 200% compared to 2018/19 to People case study. 12,000 per year.

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Chapter 7. Social obligations (continued)

Carbon monoxide (CO) We expect to issue 5,000 free CO alarms We are also in the process of developing to the most vulnerable homes. These will be materials for older pupils/university students and Conclusion Increasing awareness of the dangers people we engage with on fuel poverty and are looking for opportunities to create sessions of CO within schools and communities, We take our social responsibility very seriously making sure we target those who are energy efficiency. Evidence shows that people that cover gas safety, energy efficiency and how and want to make sure we continue to have a most vulnerable. on low incomes and in vulnerable situations are to decarbonise the UK energy system. positive impact on the communities we serve. more likely to not service their appliances and This work forms part of our CVP, valued at £1m Our stakeholders have reviewed the services In the UK, CO poisoning in the home accounts dangerously heat their home with appliances across GD2 and GD3 – and is based on the we have offered in GD1 and support the for an average of 50 recorded deaths a year intended for camping or outdoor use. We will avoided costs to the health service and society services into GD2 and beyond. and up to 4,000 medical visits. measure their understanding of CO before and in order to deal with the impact of CO exposure after our engagement. We will continue to work alongside our existing Most deaths occur when people are camping, (from GP visits to avoided deaths).ent and new partners to develop additional tools boating or in commercial properties. Despite a We also commit to expanding our schools to help us better identify those who need our low number of deaths being due to domestic programme in GD2, targeting at least Our commitment support most. We will also be more robust in appliances each year, we continue to work with 50 schools and 4,000 pupils per year. Further support vulnerable and fuel poor customers evaluating the impact of our services on homes Policy Connect and APPCOG, providing alarms This programme includes Safety Seymour by investing £750,000 a year in wide ranging and society, and will refine our range and advice to those most in need. training sessions delivered by our Gas initiatives with partners and increasing CO support of service and the delivery year on year. Ambassadors to KS1 and KS2 children. In GD2, we commit to reaching 250,000 measures, almost doubling our GD1 investment. Because of conclusive stakeholder feedback, homes each year with CO awareness We have run a schools CO awareness our primary focus will be on raising the profile messages, partly through our works, but also competition with other GDNs during GD1. At the For every £1 invested in CO of the PSR and encouraging customers through partners and organisations such as new GDN working groups, we will be looking to awareness and CO monitors, to sign up. the landlord’s registration agencies. Each year, refresh this idea and seeking opportunities to run CVP there is a net £1.20 in We will tackle fuel poverty by continuing to 10,000 homes will be engaged face to face a nationwide campaign to engage with future societal value. provide funded gas connections through the by our staff and partners. energy users via schools and colleges. FPNES. We will tackle wider fuel poverty by addressing household income and energy Her quick thinking has been praised Caerphilly girl, 7, saves family costs of existing gas users and those close by engineers and Sean Ward, a WWU to the gas network. from CO poisoning emergency engineer, said: ‘The actions of Jaydee-Lee Dummett, of Caerphilly, Jaydee-Lee have saved her family’s lives. We will continue to promote the dangers of recognised the deadly signs of CO Jaydee-Lee’s school, Fochriw Primary, CO, but focused on the most vulnerable and poisoning when her four-year-old brother said she had become a ‘role-model’ for at risk in society; doubling our provision of free awoke disorientated in the night. other pupils. issue CO monitors. She remembered the gas emergency phone Jaydee-Lee was recognised at the Pride of We will also focus our business volunteering number after spotting the detector alarm Britain awards 2019 with a Child of Courage activities on improving communities and had turned from green to red. Jaydee-Lee award https://www.prideofbritain.com/ the lives of vulnerable customers, with a had recently attended a Safety Seymour gas component/k2/jaydee-lee business commitment to matchfund and safety session delivered at her school by allow colleagues time during working hours three WWU Gas Safety Ambassadors. to participate in projects.

Wales & West Utilities | Business Plan 2021–26 71 C Delivering value for money

This section of our business plan In this section: sets out the ways in which 8. Customer bills we will provide an efficiently 73 priced energy solution to meet Our proposals for customer bills over GD2 and an explanation of our customers’ needs. the movements from GD1. 9. Cost efficiency We do this by keeping our 77 component of customers’ bills Summary of our costs for GD2 (totex, opex, repex and capex) with as low as possible and by using explanations of the movements from GD1. competition and innovation 10. Using competition to deliver best value to drive efficiency across the 87 business. We also set out how Our plan to ensure best value for our customers by using competitive uncertainty should be dealt with. tensions and good procurement practice. 11. Our innovation strategy 92 Our strategy and plan for innovation. It highlights the areas in which we plan to innovate to deliver overall efficiency throughout GD2. 12. Dealing with uncertainty 104 Our proposals for dealing with uncertainty throughout the price control. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 8. Customer bills

1. Highlights the gas network are charged to customers 3. B uilding blocks of our We do not agree with the current Ofgem via their supplier and are paid for through the working assumptions for the cost of capital –– Our eight-year average GD1 charge per customer’s energy bill. Our charges typically network charges revenue allowances. This is covered in more domestic customer is £1331; one of the make up around 20% of the total gas bill. During GD1 our average charge has been £133 detail in Chapter 22: Financeability. The current lowest across all gas networks. We are committed to keeping our proportion for a domestic customer. This is one of the lowest Ofgem cost of capital assumptions result in –– As a result of our efficient delivery, we will of the bill as low as possible. of all of the GDNs, based on a comparison of a c.£63m pa shortfall in revenues required to charges that we have referenced and which uses cover our efficiently incurred financing costs. have returned £72m to shippers through A number of elements make up these charges: The average domestic GD2 bill would be lower charges in GD1 that should be passed the information that is published by the GDNs. –– Our operating expenditure, known as ‘fast £114 using these assumptions. on to customers. Customers will also receive The network charges that Ofgem publishes money’ and is recovered on an annual basis. a further £81m benefit over future control in its annual report, by contrast, are based on Based on our business plan, we set out below periods as a result of our performance during –– Our capital expenditure, known as “an estimate” that uses a 12,000kWh average a comparison of the building blocks of average this price control. ‘slow money’ and is paid for by customers quantity of gas in order to ensure comparability domestic customer charges between GD1 and GD2. –– During GD1 our owners have subsidised over 45 years. with the retail bill publications. This analysis does charges by around £10 a year of the average –– Non-controllable items, which include not, however, show a true comparison of the It should be noted that all of the charges set bill, because efficiently incurred debt costs licence fees, formula rates, pensions, charges for individual networks as recognised out above exclude NTS charges, which are were not fully funded. This is not sustainable National Transmission System (NTS) by Ofgem, which is why we use the GDN described later in this chapter. This approach and needs to be properly addressed for GD2. charges and shrinkage. published data. is consistent with the comparisons that are currently provided by all of the GDNs through –– If this £10 were included our GD1 average –– The costs of financing our business, Our commitment to delivering value for money industry and regulatory reports. charge would be £143 – still placing us well including the cost of capital. has been demonstrated through our totex within the range of gas distribution networks. outperformance, which is detailed in Chapter Click Appendix 8A for a further explanation of the –– We will keep our charges as low as possible This chapter provides insights into: 4: Track record. This will result in £153m being bill in response to CEG feedback. in GD2, while ensuring that we continue –– the building blocks that make up our network handed back in lower charges. to operate a safe and reliable network. charges and the movements between GD1 GD1 average annual domestic customer charge –– At £133 the forecast average charge in GD2 and GD2; is flat compared with our current level, and is –– The views of our customers and stakeholders GD1 average GD1 debt GD2 average lower than the fully funded charge of £143. about our charges; annual charge costs added annual charge (£s) (£s) (£s) –– The factors that will impact on the future bill Cost of debt 9.86 19.26 17.0 8 for current and new users of our network; 2. Introduction Cost of equity 16.47 16.47 13.68 –– The bill impact of NTS operator charges. Tax allowance 3.63 3.63 4.35 Our commitment RAV depreciation 38.33 38.33 38.62 Keep network charges down to the lowest Customer bills for the GD2 period will be an Non-controllable opex 19.98 19.98 22.66 practical level, maintaining the average GD1 outcome of the finalised Allowed Revenues Fast pot expenditure 42.08 42.08 29.91 household bill of £133 a year into GD2. at the end of this price control process. Incentives 2.19 2.19 0.75 Ofgem will publish its final determinations in Other 0.52 0.52 -2.01 As a regulated gas network we do not bill November/December 2020. The process does Total 133.06 142.46 125.04 customers directly. Our charges for running include an appeals mechanism. The GD2 Transition to CPI from RPI 0.00 0.00 7.9 9 period begins in April 2021. 1 All figures quoted in 18/19 prices unless otherwise stated. Total after RPI to CPIH transition 133.06 142.46 133.03

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Chapter 8. Customer bills (continued)

We explain the changes in charges through the following figure and accompanying narrative, We then adjust for: which shows a full trace of bill movements between GD1 and GD2. –– the handback of the totex incentive reward Waterfall of our charges between GD1 and GD2 (£) we earned in GD1 through outperforming £133 our totex allowances; forecast average annual customer bill 150 –– the increased totex costs we will in GD2, broadly aligned with GD1. 145 161 16 1001 incur in GD2 to ensure that we deliver 11 2 140 our commitments; 135 106 20 6 10 130 6 –– the impact of increased domestic customer 4. C ustomer and 125 120 numbers, lower gas volumes consumed stakeholder feedback 120 by domestic customers, and increased Working in partnership with others to better 115 non-domestic customers. understand stakeholders’ needs. 110 This provides a comparable GD2 charge 105 of £125.04. 100 Finally, we adjust for the NPV neutrality During 2018 and 2019, we held a series of ‘value Other adjustment, which reflects the forwarding of for money’ exercises and workshops with our Underlying Underlying revenues from future price controls into GD2,

RAV growth Critical Friends Panel (CFP), customers and lower WACC growth trend

Increase due to to compensate for the estimated cost of the Underfunding of Removal of GD1 Decrease due to Decrease due to

outperformance stakeholders across the network. Average bill GD2 Average Bill GD1 cost base in GD2 totex and revenue transition at the start of GD2 for the move repex capitalisation continued customer comparable GD1 bill efficient debt in GD1 comparable GD2 Bill Move from RPI to CPI Increase due to higher and recovered in GD2 Regional stakeholders were very much of the Decrease due to higher Revenue earned in GD1 from RPI to CPIH. view that we deliver good value for money for the Waterfall includes movement for customer growth trend which is allocated over totals in the table on the previous page. This results in a GD2 charge of £133.03. services we provide. When asked to vote on this the average score across all of the workshops GD1 charges GD2 charges At the headline level between GD1 and GD2 our bill has stayed flat, at £133. The bill based was 8.6 out of 10. Our average charge for a domestic customer In GD2 there are then structural on the assumptions for the ‘Ofgem Actual in GD1 is £133.06. adjustments comprising: A number of stakeholders were not actually Company’ would be £114. aware of all of the services we deliver, or how –– The underfunding of our efficient debt cost –– assumed lower allowances for the much of the gas bill is related to those services. during GD1 has been subsidised by our cost of equity; Click Chapter 22: Financeability for 194 At the end of the workshops, when stakeholders owners, which is not sustainable. –– offset by a higher return on capital from further information. were asked to reflect on value for money, there –– There are some items that occur in GD1 growing Regulatory Asset Value (RAV); was overwhelming endorsement that current which are funded in GD2 (as a result of the –– In addition, mains replacement expenditure However, the underlying comparable bill has charges represent excellent value for money. adjustments two years after they are earned). reduced by almost £20 from £144.68 in GD1 will all be treated as slow money in GD2, after More recently, in July 2019, we held a ‘deep dive’ to £125.04 in GD2. This ensures that we remain –– This provides an underlying GD1 charge transitioning from 50% to 100% slow money around the subject of value. Here customers financeable and deliver on our commitments of £144.68. over the course of GD1. expressed their views about financial risk to our consumers, representing value for money. and the areas where costs are increasing, including the mains replacement programme and cyber security.

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Chapter 8. Customer bills (continued)

Customers also considered financial returns to Overall, those who live in south west England We will deliver on our commitment by: fair share of charges. This is becoming more our owners and debt costs. The overall view of and in urban areas are more likely to pay more for important as the use of our network evolves –– Continually looking for ways to improve the customers who attended qualitative focus groups enhanced services compared with other groups. and supports more electricity generation and efficiency of the services we provide for was that our forecast bill levels appeared to be fair. Future customers (18-24) are also more likely to customers and stakeholders. green gas injection. This further testing, including informing pay for enhanced services overall against the –– Excluding uncertain costs such as net participants about the regulations in place average, with particular monetary support for zero spend from base totex requests. For 6. Considerations impacting and how we make a profit, showed a higher reliability, the transition to a green fleet, example, we are proposing a new industry- future charges acceptance of our charges. Stakeholders felt continuing with a risk-based approach wide uncertainty mechanism to be co- reassured that if they were paying more, the and investing in innovation. ordinated by Ofgem so that only fully justified Considering how our network can be money would be put into investment and not used in the future; delivering a green Based on 11 engagement events, including investments are undertaken by all networks. into profit. They thought that we were doing a lot energy solution at a reasonable cost. 3,441 stakeholders, there is overall support for This will avoid unnecessary cost stranding. for the minimal proportion that we took from the maintaining our performance levels and keeping –– Decision making with affordability as a key customer bill. When comparing our consumer network charges as low as practical – at the consideration. We cannot offer social tariffs/ We are committed to ensuring that our bills are bills with those of other GDNs, stakeholders felt same cost as in GD1. Based on this feedback, subsidies, but we use cost benefit analysis cost reflective for all users, and we engage with that they would accept a slight increase in the we are committing to maintaining the GD1 (CBAs) and our social return on investment other gas networks, shippers and Ofgem to bill if it was in line with the market and justified 2 household bill at £133 average a year into GD2. (SROI) tool to evaluate cost decisions. make sure this happens . in terms of the work done. –– Continuing to provide the Fuel Poverty We engage on an ongoing basis with shippers, The acceptability testing of our initial plan Click Appendix 5F for detailed information scheme to lower the cost of connection for who operate in an evolving marketplace. We are about our engagement. revealed an overall acceptance of the bill those who meet the eligibility criteria. Our pleased to act as the lead network in providing commitment of 65% (one of the highest results); partners also provide additional services this key stakeholder with the information they 27% would be willing to pay more if we could 5. Affordability and fuel poverty to support those in most need, including need to help their charging to customers. ensure delivery. efficiency measures advice, fuel switching Independent bodies such as the Energy Savings Citizens Advice has called on gas networks support and access to the Priority Services The CEG challenged us to better justify what Trust and Which recognise that it is cheaper to including ourselves to make ‘voluntary Register (PSR). is best for customers, with clearer links to fuel heat homes by gas central heating than heating contributions’ back to consumers related to poverty and to our vulnerability strategy, and to the by electricity: –– Ensuring that our innovation strategy windfall gains. Their analysis is flawed and future of energy. In response we have developed “The average annual cost for heating and hot continues to address fuel poverty and there are no windfall gains being received by our Consumer Value Proposition (CVP) which water using electricity in the UK would be around vulnerability and supports us in our ambition our owners. The cash return to our owners is demonstrates the additional value that is delivered £776 per year if you use 4,200 kWh of electricity to find the lowest cost solutions for the significantly less than the base allowed return to different groups of customers. More information and are on a standard single rate tariff. That is different communities in our region. For for GD1. During GD1 our regulatory allowance can be found in Chapter 2. The CVP has been £200 more per year than gas heating.” (Electric example, we will continue the ground- for debt costs is lower than our actual efficiently reviewed by the CEG. central heating 2019, Which). breaking research that uncovered the incurred costs. Our regulatory licence defines benefits of hybrid heating (Project Freedom), Our Willingness to Pay research in autumn 2019 our obligations and charges. We continue to We are committed to keeping customer bills which found that an off-grid property saved concluded that after safety, the next area of priority deliver on our regulatory commitments, and as low as possible through GD2. The CEG up to £700 a year in heating costs while for domestic and SME customers is keeping to provide service and safety standards that challenged us to demonstrate how we have providing a warmer home. network charges down to the lowest practical level position us as a top performer in our sector. considered affordability, fuel poverty and the –– Keeping our charging methodology under by maintaining the average bill at £133. future of energy impacts on customer bills. review so that every network user pays their 2 This is also a Gas Distribution Licence Obligation for all networks.

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Chapter 8. Customer bills (continued)

This is endorsed within the Ofgem annual The chart above shows that our non-domestic 7. NTS charges within the bill Given our experience in GD1, we will engage performance reports. customers (power stations and large industrial weekly with the NTS charging team. We have users) make up just 1% of the supply points Since 2012, and following industry consultation, been the lead network representative at NTS The use of our network is constantly changing. connected to our network. At peak times, it was agreed that ‘Gas Exit Charges’ from the industry charging forums and have kept Ofgem We now have 19 biomethane connections and however, these customers account for 44% of NTS Operator would be charged to GDNs who updated with any issues. We must develop 37 gas fired electricity generators connected to total network usage. By contrast, non-domestic would charge shippers. This was a significant an outcome for NTS charges that delivers a our network. This is in addition to the current load currently accounts for around 18% of change to industry arrangements. Prior to this, more stable and predictable charging regime 2.5 million supply points that rely on gas for revenues. Charges to each user category are the NTS charged shippers directly. The principle for shippers. There needs to be a regulatory their heating and cooking. subject to our charging methodology, which is behind this move was to incentivise GDNs to solution that avoids any windfall gains To give context, there are times when a large approved by Ofgem and is consistent across all book appropriate capacity on the NTS system or losses for GDNs as a result of changes power station demands more gas than the GB gas distribution networks. These charges to minimise overall costs to shippers – and to NTS charges. whole of south Wales. This evolution has taken reflect the costs of serving those customers ultimately customers. We support this principle. We will continue to work with all industry place over GD1, and is likely to continue as we at different pressure tiers. During GD1, NTS charges have been volatile, participants to ensure a satisfactory outcome develop whole systems energy solutions to Domestic customers’ charges can vary if impacting our customers. This is not sustainable to this disruptive volatility for GD2. meet our carbon targets. significant large industrial loads are added to or and the process needs to be corrected to removed from our network. We are committed benefit all parties. At over £40m a year in some Domestic vs non-domestic network usage (%) Conclusion to keeping our charging methodology under years during GD1, the charge from the NTS is review so that all network users pay appropriate the single biggest cost we incur. The volatility We will seek to keep customer bills as low as 1 100 charges. For example, as we connect more has been significant, particularly in comparison possible through GD2, by continually looking with our upfront allowances. This has resulted

1 to improve our efficiency levels. biomethane sites, we will ensure biomethane 0 in two key issues: producers pay appropriate charges. Similarly, as In order to deliver our services sustainably, 2 more electricity generation is connected to our –– Significant volatility of charges for shippers. it is critical that we are properly funded. 60 network we will need to make sure customers –– Significant cash flow shortfall for us, as Shareholders cannot continue to subsidise also pay the correct charges. 0 6 a result of a two-year lag between NTS the business for underfunded debt costs GD2 charges are currently forecast based on changes and our funding allowances. in GD2. These costs were efficiently incurred, 20 our existing methodology. However, we are still and Ofgem has an obligation to ensure that exploring alternative charging options, should In addition to this significant volatility, NTS we are financeable as a business – subject charges must comply with new European Union to the usual tests of efficiency. % supply Revenue System the use of our gas network continue to change. points offtake We will explore whether the gas network’s charging arrangements by October 2019. This quantity Modelling shows that our business is energy storage and flexibility provided as a has introduced more uncertainty, potential esti nesti sustainable, at an average domestic charge backup to renewable energy could be billed volatility and cash flow shortfalls. We have of £133 through GD2 – albeit with very differently. This work will take into consideration seen significant increases in NTS charges to limited headroom. Stakeholders consider We will keep bills as low as the changing nature of the energy system and us from 2014/15 to 2017/18 – an almost 100% that we are delivering excellent value for possible in GD2 by continually its usage. increase from £23m to £42m. There has also money and support us maintaining our looking for ways to improve the been a large variation in forecast charges to performance levels, keeping charges as low efficiency of our services. us for the period 2018 to 2021. We will seek as practical – the same as in GD1. to keep customer bills as low as possible in GD2, continually looking to improve efficiency.

76 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency

1. Highlights of our plan by the end of the period. This is at a higher 2. GD1 totex expenditure rate than the current UK economy average –– By the end of GD1, our total expenditure forecast of 0.3% per year (Bank of England Totex position including non-controllable costs will be over TFP), which creates a very stretching target Since 2005 we have reduced costs year on year, whilst delivering all outputs and work targets. £2.5bn. We are forecasting to deliver all of when also considering the costs already our eight-year outputs at a saving of 19% taken out of the business to date. GD1 allowances and forecasts of controllable allowances – outperforming –– The underlying unit costs of work to be controllable totex by £421m (2018/19 prices). GD1 GD1 undertaken are broadly similar between the £m 2018/19 Prices allowance forecast Difference –– We will have returned £72m to shippers two price controls, despite the obvious growing Controllable opex 875.9 736.4 139.5 in GD1, and a further £81m of our cost pressures on many of our activities. Repex 828.9 639.9 189.0 outperformance will be returned in future –– We recognise the unpredictable nature of Real Capex 513.8 421.2 92.6 years. For gas consumers to see the benefit, Price Effects (RPEs) and therefore support an Controllable totex* 2,218.6 1,797.5 421.1 shippers will need to pass these savings approach using appropriate indices. * Non controllable forecast for GD1 is £0.7bn. on through lower energy prices. –– The table below shows the summary of The graph below shows the controllable totex –– To deliver all outputs required by our Click for detailed average costs across both price controls, Chapter 4: Track record 25 movement across six years of actuals and explanations of spend and outperformance. stakeholders in GD2 in an efficient manner, along with the average allowances for GD1. the final two years forecast to the end of GD1, annual totex of c.£236.4m per year (2018/19 which demonstrates how we are actively prices) is required. In delivering these outputs managing costs through the period. we strive to maintain an upper quartile Our commitment efficiency position. With this in mind we Continue to improve efficiency levels, targeting have externally benchmarked the majority an efficiency challenge of 0.5% per year – to Totex moving through RIIO-GD1, 2018/19 prices (£m) of our business activities, with very positive make sure that customers get best value for 20 feedback on our level of efficiency. money, saving a further £18m over GD2. 2 2 12 –– Further improving on our performance 20 in GD1, we are targeting an ambitious 2 average 1.5% per year (0.5% pa 20 6 22 1 0 11 226 compounded) efficiency challenge to the 2 0 220 21 whole of totex in GD2 – amounting to around 0 216 £18m over the five years, or a cumulative 3% 21 210 20 Price control average comparisons 200 Average GD1 Average GD1 annual spend Average GD2 £m 2018/19 prices annual allowances (8-year forecast) annual spend metering metering Fuel poor Workload Innovation Innovation movements movements connections Non formula Controllable opex 109.5 92.0 96.9 Non formula Management Repex 103.6 80.0 88.4 GD1 13/14 totex Other small cost Labour utilisation GD1 2018/19 totex GD1 2020/21 totex Capex 64.2 52.6 51.1 Workload changes Winter assumptions BAU totex 277.3 224.6 236.4 initiatives/efficiencies

Wales & West Utilities | Business Plan 2021–26 77 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency (continued)

GD1 expenditure to date (2013/14 – 2018/19) Labour utilisation GD1 forecast expenditure (2019/20 – 2020/21) back in 2010/11, when we experienced costs Our controllable expenditure has reduced over Improved utilisation across all work activities has As we move into the final two years of GD1 almost £2m greater than milder winters – the six years to date as described below: brought many benefits – from reducing external there are a number of assumptions built into however even this winter was not a 1 in 20. An spend on contractors to service improvements and the forecast. assumption of a more severe winter is made for Management initiatives improved productivity. Examples of this include first the forecast years (but not a 1 in 20). The higher Workload phasing – and output delivery is Delivering an affordable and clean energy call operatives undertaking mains replacement and costs mostly relate to the additional leakage solution for the future. maintenance activities, and repair staff working on increasing workloads by £2.1m, linked to the we would face – coupled with the additional replacement activity in the summer months when phasing of asset intervention cyclical work, as logistical difficulty of getting to these escapes, leakage is at its lowest well as plant and vehicle replacement cycles. particularly in more remote areas. We are still on target to achieve all outputs by Throughout GD1 we have focused on delivering Fuel poor targets – and demand for new outputs, improved service levels and cost Workload variations the end of GD1. This is related to workload cyclical processes not deferral of work. connections is estimated to increase in 2020/21. reductions. The £12.8m of management initiatives Due to the specific requirements of each year’s This results from fuel poor targets and projected has delivered benefits to WWU, whilst reducing programme of work, and our drive to complete Non-formula metering contracts – loss of economic activity. This will also affect the costs to the consumer. The introduction of new this work early in the price control for consumer non-formula metering activity discussed above volume of our reinforcement work. shift patterns and performance management systems has improved the productivity of field benefit, workloads have fluctuated annually. For will result in the inevitable stranding of non- example, a higher mains replacement workload productive time for emergency service staff – workers. Cross training our staff across different Click Chapter 17: Connecting homes and 164 activities to utilise unproductive time and ensure at the start of the period has enabled us to get resulting in a £2.8m increase in formula opex. businesses for further information. ahead with the risk reduction in our programme. all work is completed has added to the benefits. Winter forecasts – winters experienced so Changes to terms and conditions, a younger Customer driven work also varies from year far in GD1 have been very mild compared with GD1 comparative totex performance workforce and a focus on productivity have also to year, along with asset intervention cycles. and cost assessment methodology contributed to the efficiencies. the ‘1 in 20 winter’ we are required to plan and resource for. While the ‘Beast from the East’ Whilst we constantly review our performance Non-formula metering Innovation experienced in 2018 had some characteristics internally, we also seek to ensure we are efficient We have successfully secured this non- of a more severe winter, it was very short lived. across our sector. The benchmarking regression Investment in new working practices brings formula work since 2005, which is outside of monetary, safety and social benefits. The last severe winter we experienced was results that Ofgem published in the 2017/18 the regulatory deal. The work is carried out performance report on business efficiency by our first call operatives in the downtime that inevitably occurs due to the nature of the Top down totex regression Investment in new working practices has emergency work. The revenue generated by resulted in a benefit of £6.4m since the start of 2013/18 this work offsets the full (unsubsidised) costs GD1 (this equates to a total of £9.7m including GDN 5-year 2017/18* 2018/19 2019/20 2020/21 Cumulative of the 24/7 emergency activity – with customers cost avoidance). As a result of these innovative EoE 5 8 5 7 6 5 techniques we have improved productivity, benefitting from lower residual regulatory Lon 8 7 8 8 8 8 safety and the customer experience, and have cost. We are currently unique among GDNs NW 7 4 4 4 4 4 ensured a reliable energy supply for the future. in offsetting emergency cost in this way. WM 3 3 3 2 2 3 NGN 1 2 1 3 3 1 Process innovation has delivered Click Appendix 9A for further information on loss of metering. SC 4 5 6 5 5 6 a £0.5m/yr cost reduction, SO 2 6 7 6 7 7 increasing our first time permanent WWU 6 1 2 1 1 2 reinstatement rate vs 2012. * From the Ofgem annual report 2017/18.

78 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency (continued)

(the most recent available) are detailed in the Cost assessment methodology 3. GD2 totex expenditure table below. We have included forecast data for We are currently working alongside Ofgem and all GDNs to the end of GD1. the other GDNs to improve the assessment Explanation of average GD1 to GD2 total controllable totex Ofgem’s analysis shows that we are the methodology used in setting GD1. Our high- To deliver all our commitments in GD2 we have assessed in detail the expenditure we will need most efficient network in totex regressions level findings so far, which are supported to make. The table below shows the average expenditure between price controls. for Ofgem’s most recent annual report and by our consultant’s report, are: our projections show us as second for the –– current regression analysis does not consider Average price control totex remainder of GD1. This does not consider the the relative condition of assets between GDNs; Average GD1 one-off benefits we have achieved in GD1. If we –– the weightings of Composite Scale Variables annual spend Average GD2 adjust the regressions for these benefits, we are £m 2018/19 prices (8-year forecast) annual spend (CSVs) do not consider the relative cost of each placed in the middle of the pack for 2017/18. Controllable opex 92.0 96.9 of the underlying activities or the effort involved Repex 80.0 88.4 in carrying out those activities; Click Appendix 9B for details on one off cost savings. Capex 52.6 51.1 –– modern equivalent asset value (MEAV) is a Controllable totex 224.6 236.4 The work we have undertaken to enhance scale driver and does not reflect anything other our efficiency includes initiatives such as than the scale or relative size of the network Our average controllable totex is increasing between GD1 and GD2. In summary, this is due to maximising the utilisation of resources, measuring assets, while the main cost drivers include some significant changes to market factors, workloads and addressing stakeholder feedback. and managing performance at the granular team condition, health and customers. An alternative The material movements are discussed below. level, optimisation of asset decisions and work, cost driver needs to apply health indices to and fully market testing activities and expenditure. current MEAV calculations to consider the Totex GD1 average v GD2 average, 2018/2019 prices (£m) additional effort in more frequent maintenance, Our performance during the first five years has 20 involved accelerating workload where appropriate call out, faults and intervention required; 2 20 to generate consumer benefits earlier, along –– cost drivers do not take account of the fixed 20 6 with investment in systems and performance costs of departments – the underlying costs for 26 20 20 management, to help deliver lower network fixed overheads should be removed 1 2 0 22 1 charges in the second half of GD1. from regressions and dealt with as a 226 0 non-regressed cost item. 220 We forecast and monitor workload and outputs We explain our views in relation to the more detailed against Ofgem targets monthly in order to 210 identify any impacts to consumer bills and opex, repex and capex regression analysis in delivery changes. We are not anticipating any the sections that follow. We are committed to 200 workload deferrals into GD2 from GD1. continuing to work with Ofgem and the other GDNs to develop the cost assessment methodology further true-ups Despite the positive results of current in the lead-up to Initial and Final Determinations. trade off Innovation movements movements benchmarking, we believe the current movements assumptions NF stranding requirements Opex workload Repex workload methodology does not fully reflect the Click Appendix 9C for further information on methodology Capex workload RIIO-GD1 benefit GD2 average totex legislative changes New cyber security GD1 average totex

and cost driver alternatives. Efficiency challenge

real underlying cost drivers of the networks. IT SAAS opex/capex Xoserve reclassed to Non controllable costs We have shared our own analysis and New incentive cost and evidence with Ofgem, which we also set out in the next section.

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Chapter 9. Cost efficiency (continued)

GD1 benefit true ups – in GD1 we have Cyber security – while Ofgem is now the IT software as a service (SAAS) – as Efficiency challenge – we have applied an benefited from some one-off credits and relevant Competent Authority on cyber security technology changes and cloud storage is ambitious 1.5% average (0.5% pa compounded) contractual wins. Releasing £6.7m of accruals for the energy networks, they are currently introduced, the need for physical storage totex efficiency saving which reduces totex by relating to pre GD1 has lowered our cost base consulting on their requirement, so we have diminishes, which in turn increases opex costs £3.6m per year. This has been applied across by an average £0.8m per year. However, these included a re-opener mechanism to address and reduces capex costs resulting in a net all areas included in totex. Over the five-year costs need to be added back to the future cost these costs. Our cyber investment as part of our reduction in IT costs of £0.3m per year. price control this is just under £18m and a base as they are classed as ‘atypical’ costs IT security plan is £1.4m per annum on average. c.3% challenge. We plan to achieve this through and we will not benefit from these again. Our Click Appendix 9E for more information on the IT BAU innovation projects and the continuous SAAS costs. current mains replacement alliance contract has focus we have on improving the productivity Click Chapter 21: Business IT security plan 189 benefited from a pain/gain sharing mechanism for further information. Repex workload movements – the of our workforce. and, as this contract ends in 2020/21, £1m pa expenditure is increasing by an average needs to be added back to reset the artificially Innovation – we welcome the recent decision £8.7m per year due to: Click Appendix 9F for the productivity reports – WWU specific low costs we have incurred in GD1. to retain the NIA. We have excluded innovation –– the workload mix and technique to lay mains Click Appendix 9G for the productivity reports – costs until we understand the funding is changing as the work becomes more joint GDN Click Appendix 9D for our GDI mains mechanism. Our innovation chapter discusses replacement performance. challenging; this accounts for around half future requirements. Real price effects – Ofgem has indicated Click Appendix 9B for information on our one off of the increase; benefits for information on our one off benefits. they are looking to index RPEs. Until the –– the pipe material mix moving towards more indices are agreed as part of the business Click Chapter 11: Our innovation strategy 92 ductile iron and steel, increasing the labour The PSUP costs incurred in GD1 will not for further information. plan process, and as agreed with Ofgem, effort, adding an additional £2.6m per annum; be repeated into GD1; which amounts we have not included a forecast of RPEs to £2.3m average per year. –– regional movements in work have resulted in our base submission. Non-formula meter work is reducing in GD2 in mobilisation costs and material prices and New incentive costs & legislative changes – to zero. Customers have benefitted in GD1 from changes of £1.7m per year. Click Appendix 9H for the RPEs consultant’s report. we have included £0.8m per year for the our gaining non-formula meter work contracts vulnerability ‘use it or lose it’ allowance. (around £6m less charged to customers – as Independent benchmarking reports This is included following Ofgem’s confirmation an average year in GD1). We have made use We estimate a cost avoidance of the allowance in the May 2019 RIIO-2 of the unproductive time which occurs as a of £0.5m/year if trials of our live We have commissioned external organisations Sector Specific Methodology Decision result of our LOs, however this is coming to an innovation project ‘Cryogenic to test the efficiency of a number of our Document and has been tested for support end due to the loss of meter work. As smart Cracking’ are successful. back office functions including Finance and by our stakeholders. meters are installed and older meters removed, Procurement, People and Engagement, the requirement to do this work for suppliers IT and Office and Deport Property Portfolio. The Alliance pain/gain contract benefit Click Chapter 7: Social obligations for our diminishes, therefore pushing non-productive of £1m per year is also impacting the cost proposals on the value we plan to add by 62 Click Appendix 9I for the finance independent time back into opex. We have not included increases within repex. investing this money. costs on the impact of smart metering in our benchmarking reports. base totex, this is explained in Chapter 12: Click Appendix 9J for the people & engagement independent benchmarking report. Street works legislation and small workload Uncertainty mechanisms. movements are contributing a minimal cost Click Appendix 9K for the office & property independent £3.6m benchmarking reports. increase across opex, repex, and capex Click Appendix 9A for further details on loss of metering. cost efficiency reduction Click Appendix 9L for the IT independent per year. per year. benchmarking reports.

80 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency (continued)

–– Work management needs its own set of 4. GD2 operating expenditure Click Appendix 9C for cost efficiency drivers, which are currently not reflected benchmarking consultant’s report. Explanation of cost movements in the CSVs. The waterfall below shows the main movements In order to better understand our cost base and ensure we are as efficient as possible we look across the comparative average years for at our regression position. We have run the period to date and forecast positions using the GDN Our suggested approach GD1 and GD2 in detail, with the main drivers submitted data. –– Cost drivers need to apply health indices explained in the totex section previously. Below is the opex regression that Ofgem currently uses to benchmark the GDNs. to current MEAV calculations to consider the additional effort in more frequent We continue to focus on efficient costs and delivering our outputs and maintaining safety Opex regression top down forecast annuals maintenance, call outs and faults and intervention required. standards, which is reflected in our cost base 2013/18 and is not significantly changing between –– Work management needs workload GDN 5-year 2018/19 2019/20 2020/21 Cumulative price controls. EoE 8 4 7 7 7 drivers including MEAV and relevant Lon 6 8 8 8 8 operational workloads. NW 3 7 6 6 6 –– Cost drivers ignore the fixed costs of WM 7 6 5 3 1 departments – more underlying costs NGN 2 2 3 2 5 for fixed overheads should be removed SC 1 3 4 5 3 from regressions. SO 5 5 1 1 4 WWU 4 1 2 4 2 Opex GD1 average v GD2 average 2018/2019 prices (£m)

We are upper quartile for the GD1 price control, As set out above, the current methodology for 102 demonstrating an efficient level of costs. opex benchmarking is not fully reflective of the 100 0 1 However, we deteriorate in 2020/21 due to the cost drivers and should be updated to include 0 0 0 0 1 stranding back of FCO waiting costs currently the observations below. 12 being charged to non-formula metering work 0 6 on the expiry of our contracts for that work, 6 0 Opex cost efficiency methodology 2 and a prudent winter assumption. Other GDNs Our observations 10 have already lost non-formula work earlier in this 0 price control. –– Current regressions do not consider the 2 20 02 relative condition of maintained assets We are striving for upper quartile in GD2 and 0 will displace as much stranded non-formula between GDNs or the opex/capex trade-offs costs by using FCOs on other workloads and for IT or network management work. efficiently delivering work. Some of the non- –– Weightings of the CSVs do not take into Innovation Other small movements and permitry assumptions NF stranding Special Opex traditional workloads we utilise FCOs on include account the cost of each of the underlying requirements Cyber security incentive costs purge and relights for mains replacement, Holder and land

activities or the effort involved in carrying future stakeholder RIIO BP costs and Mild winter impact GD1 average opex GD2 average opex IT SAAS offset with capex IT reductions Efficiency challenge remediation changes Xoserve reclassed to One off cost releases connections surveys and maintenance activities. out those activities. workload movements Non controllable costs EAP new requirements Streetworks legislation Consumer vulnerability in RIIO-GD1added back

Wales & West Utilities | Business Plan 2021–26 81 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency (continued)

5. GD2 replacement expenditure The regressions run as part of the Our suggested approach Special crossings – these are unique mains benchmarking are not reflective of the most replacement projects which require specialist –– Synthetic unit costs need to reflect market current data available and Ofgem should labour, specific planning and technical leads to Explanation of cost movements rates of work by diameter, technique and consider the items below. complete, and are typically found on bridges The benchmarking of repex is carried out using number of connections required. over rivers or railways. synthetic unit costs based on an historical Repex cost efficiency methodology –– Special crossings and MOBs should be part average of the GDN’s performance. We have of non-regressed activities and efficient costs Many of these expensive projects have been forecast the last three years using this approach Our observations assessed separately. completed in GD1 in line with risk profiles; and the shared RRP forecast cost and –– Current regressions do not reflect latest a notable project completed in GD1 is the workload data. unit costs because they are not updated for Click Appendix 9C for cost efficiency Bideford Bridge project, a listed bridge with benchmarking consultant’s report. the current experienced unit costs and are a specific requirement costing us c.£1.1m Repex regression – Top down missing some activities from the synthetic to complete. We are in the top half of the table for the five unit costs calculation. The waterfall below shows the main movements Other service replacement – the average winter years’ regressions and, based on our analysis, across the average comparative years of GD1 and –– The weightings of the CSVs do not consider assumed for GD2 is higher than the mild weather are improving towards the end of GD1, GD2, in detail, with the main cost drivers explained. the cost of each of the underlying activities experienced in GD1 as already mentioned. to upper quartile. and effort involved in carrying out activity, MOB work – is reducing from GD1. Our focus Therefore there is a small increase in non-mains Efficiency improvements made at the latter end which means the driver is not reflective on replacement and refurbishment reduces from replacement services and relays following escapes. of the price control are masked by the pain/gain of the cost base incurred. GD1 based on volumes of these type of buildings contractual mechanism. –– Special crossings and multi occupancy in our network and the risk removed over GD1. building costs are not reflected in synthetic Click Appendix 9C for cost efficiency Repex GD1 average v GD2 average 2018/19 prices (£m) benchmarking consultant’s report. unit costs used by Ofgem and therefore any spend in these areas impacts the ranking 0 1 We will continue to negotiate competitive market in the regression. During the last five years prices for mains replacement works. we have completed large expensive special 6 crossings, which will have an adverse impact 1 26 on our position. 2 10 0 00 02 00 02 Repex regression top down forecast annuals 6 2013/18 GDN 5 year 2018/19 2019/20 2020/21 Cumulative 2 EoE 3 5 6 6 5 0 Lon 8 8 8 8 8 NW 1 3 3 3 3 WM 7 2 4 4 4 buildings NGN 5 1 1 1 1 RIIO-GD1 replacement replacement benefit reset of workloads Other service SC 6 6 5 5 6 average repex DI and ST mains Multi occupancy Special crossings Mains replacement SO 2 7 7 7 7 GD2 average repex Technique changes Efficiency challenge Regional movements WWU 4 4 2 2 2 Pain/Gain contractual

82 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 9. Cost efficiency (continued)

While we have fully delivered on our GD1 –– The work involving more ductile iron and Our efficiency improvements are made at Our suggested approach commitment, including by diameter band within Tier steel mains replacement, which have greater the latter end of the price control as land and –– Using synthetic unit costs that reflect market 1 work, we are forecasting an increase in costs for engineering challenges than spun and property costs reduce and the phasing of work rates of work by diameter, technique and this work in GD2 by an average of £9.7m per year. cast iron, totals £2.6m.The resetting of the and asset replacement varies. current pain/gain sharing mechanism with number of connections required (for both Mains replacement cost drivers our Alliance partners and a shorter five-year The regression drivers that are currently in connections and reinforcement) would contract duration, totals £1.0m. The savings use are not fully reflective of the cost base; improve the regressions and add missed unit Reviewing how we contract our mains from the existing pain/gain mechanism within recommendations for improvement are below. costs such as Fuel Poor. replacement work. our current eight-year repex contract to –– Updating MEAV to consider the health of assets deliver mains replacement will no longer be Capex cost efficiency methodology along with volume and scale would balance the available as this contract ends in 2021. We Our observations CSV and better reflect the cost base incurred. –– Smaller and more diversified projects leading will need to renegotiate a new contract based –– The weighting of the CSVs should be updated to reduced efficiency. There is diminishing on current efficient costs for GD2. –– The current capex regression does not opportunity to create the very large and reflect workload weightings in the CSV; to reflect workload and costs, which would 2 efficient projects that we achieved in GD1, Click Appendix 9D for further detail on our mains connections and mains reinforcement are help improve the R and result in improved because the remaining risk profile is driving replacement performance in GD1. less than 10% but incur closer to 50% of the correlation between costs and the driver. work to the network extremities and to costs, impacting the driver weighting and not –– Any benchmarking should also be done on smaller schemes, which are less efficient reflecting the costs incurred. a consistent gross cost basis for all work to and relatively more costly. 6. GD2 capital expenditure –– Fixed costs of departments are not avoid the inconsistency on income, including –– Higher levels of open cut work or technique Explanation of cost movements considered in regression; departments timing and rate differences between GDNs. changes (versus insertion), which is more Capex regressions are based on a mixture such as connections quotes and diversions expensive, with smaller projects, totals £4.4m. Click Appendix 9C for cost efficiency of weights and the majority is a scale driver back office teams are required regardless of benchmarking consultant’s report. –– The pipes that need to be replaced in GD2 determined using the asset base of individual workloads so need to feature in the CSV. have been analysed extensively and we networks (MEAV). We have run future year –– The MEAV driver does not consider the will need to use the ‘open cut’ technique regressions using the Ofgem methodology and the relative condition of assets, only the network’s significantly more than in GD1 where the forecast information included in the annual RRPs. scale, as discussed in previous sections. insertion technique is not viable. This is Please see table below. more expensive because of the increased materials needed to reinstate the excavations, Capex regression ‘top down’ forecast annuals Capex regression top down forecast annuals the longer time taken for the increased excavations, and the disruption to roads Our performance during the first five years is 2013/18 requiring more street furniture (barriers and impacted by the inclusion of £18.5m worth of GDN 5-year 2018/19 2019/20 2020/21 Cumulative traffic lights). Open cut, which is a main cost PSUP costs, which have no cost driver included EoE 2 6 6 5 4 driver, is increasing to 20% compared to 8% in the regressions, and therefore moves us down Lon 7 5 5 7 7 of total workload in GD1. the rankings in comparison to some of the other NW 5 4 4 3 3 –– More work being undertaken in Devon & GDNs’ CPNI work. WM 3 1 1 2 1 NGN 6 7 8 8 6 Cornwall causing regional movements, Connection workloads are not fully accounted for SC 4 8 7 6 8 where aggregate and tipping related in the weightings and some work types are missed SO 1 2 3 1 2 costs are higher, totals £1.7m. from the scale driver ie fuel poor workloads. WWU 8 3 2 4 5

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Chapter 9. Cost efficiency (continued)

The waterfall below shows the main movements across the comparative years, in detail, EV charging stations – part of our Using this basis for costing makes our cost base with the main drivers explained. environmental strategy includes decarbonising certain. All uncertain costs are included in the the network as much as possible. To support uncertainty chapter and are not in base totex. Capex GD1 average v GD2 average 2018/2019 prices (£m) this we will be installing charging stations in our The forecast unit costs are based on our depots and offices across our region to enable historic performance. 01 0 the move to hybrid/electric company cars in 01 the future. 1 Click Appendix 9E for details, along with the cost drivers. 26 10 Property strategy – work is expected to be 0 2 01 02 0 2 completed in GD1, rationalising our property CVP 1 11 portfolio and purchasing depots where possible 8. Improved productivity 0 to save ongoing, more expensive rental costs. growth 0 The costs required into GD2 relate to replacing We recognise the need to deliver ongoing end of useful life office furniture and some major efficiency benefits to consumers. We have fixture and fittings improvements. commissioned a joint GDN report and a IT SAAS capex and cyber security – separate WWU report to understand the current Other please see comments under totex above macroeconomic factors in establishing the

reductions for an explanation. growth rate. This provides a suitable challenge capitalisation rationalisation LTS wholesale Reinforcement IT connections Cyber security relevant to the gas industry and the wider Xoserve capital Electrification of pipeline workload Property and land PSUP in RIIO-GD1 other interventions UK economy. company cars – EV workload increases GD1 average capex GD2 average capex Efficiency challenge

IT Capex reductions Our commitment Xoserve reclassed to associated with SAAS Non controllable costs A number of factors determine the level of Ensure that the investments we make today will efficient costs and productivity challenge. support future energy scenarios and therefore PSUP costs – have been incurred and This pipeline accounts for on average a £2.6m These include frontier shift efficiencies, catch represent a ‘no regrets’ energy solution. agreed through the uncertainty mechanism per year increase; the remaining increase is up efficiencies, input price efficiencies, and scale process and we are not expecting these to linked to the capital interventions required to efficiencies. These factors are all linked and reoccur in GD2 now that the sites that required maintain the health and condition of the asset. 7. Unit cost analysis need to be considered when looking at future upgrade were all completed by 2018/19. To understand the costs of carrying out work and past performance for the gas industry. Click Chapter 18: Transmission and pressure 173 we analyse our work activities on a unit cost Historically there has been no consensus by IT connections capitalisation – we changed management for further information. our accounting policy in 2017/18 to capitalise IT basis. This means we can understand materials, regulators on how a benchmark for productivity costs associated with the connections business labour and the support required to deliver the growth is established across regulated to allow us to reflect the costs incurred and Reinforcement workloads – are increasing workload and outputs. companies. include in the connections charges. between price controls, due to the need to provide more gas connections in response All costs are established on a ‘bottom-up’ basis using labour times per job, detailed material LTS wholesale pipeline – the inclusion of to increased demand in some areas and to GD2 unit costs are lists per activity, and fixed and overhead a 13km pipeline replacement over three years, support gas fired power stations in others. based on our assumptions for back office departments. 2022-24, is pushing up LTS costs. We have not historic performance. carried out any of these workloads during GD1 This allows us to understand the impact of the Click Chapter 16: The distribution network for 148 and by nature they are expensive, at around further information on the drivers of the increase. variability of workloads on the cost base and £1m per km to install. to drive efficiency.

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Chapter 9. Cost efficiency (continued)

The efficiency challenge set by Ofgem for GD1 The urban areas are impacted by high customer We therefore propose just two regional factors Our efficiency savings will was linked to total factor productivity growth density compared to less extreme networks, for consideration, which reflects the Ofgem create an £18m saving to (TFP) (the ratio of all inputs to all outputs for which also drive costs up in relation to above sector specific methodology and our cost base. CVP customer bills in GD2. an industry) for a number of UK sectors from ground congestion including roads and 1990 to 2007. Since then, due to the economic buildings and low average speeds of travel. Click Appendix 9M for calculations on how this down turn, loose monetary policy and future mechanism would work. Given this relationship between sparsity uncertainties, many industries have been forced Our commitment and density, we propose a joint regional to reduce short-term forecasts of productivity. Continue to improve efficiency levels, targeting factor to address this. 10. Real price effects Our view on improved productivity growth an efficiency challenge of 0.5% per year – to Regional wage differences have traditionally Real price effects can have a significant impact currently sits at 0.5% per year compounded make sure that customers get best value for been calculated using a London weighting, on our cost base, from wages to material prices over the five years, resulting in nearly 3% per money, saving a further £18m over GD2. with areas outside of the M25 receiving zero including any linked to the oil price. We fully year by the last year of the GD2 price control. impact. Our consultants have identified that support the indexation of these costs to receive This is a core part of our CVP. 9. Regional factors and wages in London (industry specific) are not an allowance for the cost pressures we incur This assumption is linked to the Bank of cost pressures systematically different to the rest of the UK. in the gas industry. England view on the inability to replicate Regional factors identify cost differentials We are facing challenges in terms of labour Ofgem has already stated in their Sector pre-crisis productivity and assumes we across the eight gas networks. Where Ofgem’s availability and associated wages. This Specific Methodology Decision dated 24 May are an upper quartile company as per costs models do not capture these and is partially due to demographics, local 2019 that they are considering setting upfront our GD1 performance. This should set the adjust accordingly, we require a regional cost large projects such as Hinkley C and rail RPE allowances with an annual true-up relative benchmark for the other GDNs in relation to adjustment claim as part of the Ofgem cost electrification, and the pull of higher wages to the outturn indices in each year of the catch up efficiencies. Below shows the Bank assessment toolkit. offered by other GDNs as they attempt price control. of England’s TFP view in the short term. If this to deliver on their GD1 outputs. was extrapolated forward, the 0.5% assumption We have identified only two overarching factors Our report considering our approach covers we have included will be challenging to deliver which Ofgem need to consider for us. These are Additional factors discounted on the basis of the the following items: in GD2. sparsity/density and regional wage differences. sector specific methodology direction, based on –– our view of indexation We also considered other ‘in the round’ factors materiality, are Welsh Government and Welsh Table 4: Average annual total factor which we document below. language obligations. These cost us c.£0.8m –– the preferable indices’s selection productivity growth Sparsity/density impacts us in GD2 in a similar per year in Welsh translation, additional printing, –– how we would calculate RPEs 2018 manner to GD1 – our network is long, irregularly road signs and resources to communicate with –– implementation of indexation both governments. This is a cost we incur and 2015 Q3 shaped and drawn out. This is clearly different –– expenditure categories impacted 1998 2008 2011 /18 /22 from some other networks, most notably the currently absorb as part of totex. –– evidence for all proposed RPEs. /07 /10 /14 Q3 Q1 West Midlands which is almost circular in TFP 1.0% -0.6% -0.1% 0.2% 0.3% shape. We have clusters of customers and large We face labour growth1 Our analysis concludes a labour RPE for GD2 empty patches, with long driving times between challenges in GD2 1 Bank of England February 2019 inflation report. of 0.6% per year based on our forecast cost local networks. Interestingly, 5 (33%) of the 15 due to Hinkley C structure, which is the most material area of UK national parks are found in our network, and rail electrification, RPEs. Our justification for other RPEs is covered Click Appendix 9F for the WWU specific consultant report. adding to the situation. amongst others. Click Appendix 9G for the GDN shared consultant report. in the appendix.

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Chapter 9. Cost efficiency (continued)

Its key indexation is consistent with the frontier However, our innovation deep dive workshops In summary, the feedback that was collated We have also consulted on our pension shift assumptions and RPEs are reflective of indicated more interest in the non-financial from the eight engagement events that we scheme. We are proactive at managing costs cost pressures experienced by the GDNs. aspects because participants expected bills have held with over 2,000 stakeholders and risks associated with the scheme and the to go up anyway in the long term post GD2. indicates that there is wide support for our interests of our consumers. We consulted with Considering this proposal and our view on commitment to an average 1.5% efficiency over 400 stakeholders to understand the risk ensuring the RPEs are cost reflective, the The independent CEG has consistently (0.5% pa compounded), as demonstrated appetite using a variety of questions framed design of this framework and the RPE indices challenged our 1.5% (0.5% pa compounded) by an overall acceptability score of 60%. around simple everyday scenarios. selected are key. efficiency proposal. Their view is that this lacks ambition, which is in line with the feedback we Overall customers were fairly risk adverse when The indices also need to be applied to the Click Appendix 5F for detailed information about also received from the RIIO-2 Challenge Group. it came to investment/repayment strategies and correct expenditure categories. Ofgem our engagement. this is consistent with our current investment mentions using the notional company, which While we understand that the 0.5% per year profile, with around 40% less risk being taken we would recommend is reflective of the upper efficiency target (compounded) may seem low, under the current investment strategy which quartile company in GD1. That considers the it is well above the current UK economy average has been in place since 31st March 2013. efficient company totex cost base to calculate forecast of 0.3% per year (Bank of England the RPEs. We fully support the indexation TFP); as such it creates a very stretching target 5/25 Improving efficiency levels was Click Appendix 9N for further information of RPEs. of almost 3% per year by 2026. the 5th most important commitment the pensions stakeholder engagement. This is also combined with the cost already Click Appendix 9O for pension evaluation. Click Appendix 9H for a principles log for establishing for our domestic customers. the relevant indices documented by our consultants. taken out of the business to date and our leading position on efficiency within the industry. This remains an open challenge from the 11. Customer and independent CEG. Conclusion Our plan contains our view of the efficient stakeholder feedback costs to deliver the growing number In addition to conducting a series of stakeholder Our controllable costs are increasing by 5% We have sought customer feedback on of commitments and outputs we are workshops in 2019, we undertook a deep on average (between GD1 and GD2), coupled our commitment to target a 0.5% efficiency required to deliver. dive session on the topic of value for money. with improved service quality and a reliable level each year. Through a series of regional Those who attended were supportive of our network with a firm reputation for achieving Ofgem has recently consulted on the cost stakeholder workshops, we were given an ambitious efficiency target stating that it is good licence obligations. toolkit for GD2, and has said it will take that average score of 8.6 out of 10 for our efforts to challenge ourselves, especially with the future consultation into account when it assesses in delivering value for money, while one uncertainties and economic factors that are The main changes in the cost base relate the business plans that are submitted workshop scored it 10 out of 10. outside of our control. to mains replacement which include increases in December. in contract costs, changing techniques Our stakeholders told us to, at least, maintain Improving efficiency levels was the 5th and smaller projects that are less efficient. Our benchmarking results show us to be our efficiency in order not to change their (out of 25) most important commitment In addition, the loss of non-formula meter at least upper quartile in all areas of totex perception of the value we provide them. to domestic customers and SMEs during work increases operating costs. through GD1. We have broadly used our Customers found the complexity of our willingness to pay research, with overall GD1 unit costs in preparing our business There are some additional costs due to understanding how efficiency is calculated acceptability for the 0.5% pa compounded plan and therefore we expect to maintain legislation changes for street works and difficult which limited the amount of per year target. that upper quartile position into GD2. increased investment in cyber security stakeholder feedback we received. as well as some small workload increases.

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Chapter 10. Using competition to deliver best value

1. Highlights of our plan 2. O ur approach to early, late This includes our activities in relation to asset The key elements of our procurement strategy resilience and to deliver our net zero vision. are as follows: –– To ensure best value for our customers and native competition –– We have an annual procurement plan (native and deliver the outputs they require we use Our operations comply with relevant legislation Early and late competition competition) and run a programme of tender competitive tension and good procurement including UK competition legislation and EU Procurement Regulations. These regulations events to establish the correct mix of value practice. We take our responsibilities in this Ensuring a fair, transparent and for money, risk reduction, and fit for purpose area very seriously. responsible procurement process. operate under the principles of equal treatment, non-discrimination, proportionality and solutions. This programme also ensures that –– Each year we purchase goods, works and transparency. Importantly the regulations an appropriate quality of goods and services services to the value of approximately £220m. encourage early market engagement and in 2015 are contracted. We fully support Ofgem’s proposals in We market test the vast majority of the goods, were updated to mandate tender specifications –– The process we undertake to create our relation to early and late competition, as works and services that have a value above £5k being available at the beginning of tender events. competition plan is summarised in Figure 1 1 outlined in its Sector Specific Methodology and are sourceable (ie are delivered through the (overleaf). We have included the outcome of decision document. We believe that our supply chain). This equates to a programme Native competition plan this process – our Native Competition Plan existing procurement process aligns with of around 75-80 procurement events a year. for GD2 – as Appendix 10A. Ofgem’s approach. Native competition involves competitive –– Our approach has enabled us to maintain processes occurring within the price control, –– Around 80% of the purchases we make our overall expenditure at £220m a year As part of our annual planning process we test where the incentive is native to the totex are covered by contracts or framework (by driving cost efficiencies, ensuring we projects against the criteria that are currently incentive mechanisms. agreements that we have run through this secure the best market rate, and helping applicable to electricity transmission (new, We believe that the procurement policy and programme. This includes connections jobs us to mitigate cost increases). separable, high value) to identify whether procedures we have put in place facilitate strong and the reinforcement and diversions projects –– We are currently undertaking a substantial any projects would be eligible for early or late native competition and will continue to do so that exceed £50k. This approach goes above programme to fully market test all of our competition. None of our projects currently into GD2. Our procurement process covers and beyond the minimum requirements of operational activities, representing a qualify for early or late competition under these the whole life cycle – from identifying needs, the EU Procurement Regulations. procured value of around £100m a year. criteria. Table 1 sets out a number of sample through to the end of life of the asset or service. –– We have a policy requiring all remaining It involves options appraisal and critical ‘make GD1 projects, and the results against the criteria. purchases over £5k to be market tested –– An external benchmark of our back office, or buy’ decisions (ie whether or not to provide (where contracts or a framework agreement including the procurement team, that was Looking ahead to GD2, it is also the case that services in-house). carried out in 2018, found that we are sector none of the projects in this business plan will do not exist). We have an escalation process leading in efficiency2. qualify for early or late competition. in place if market testing is not appropriate, which is signed off at Executive level. –– The tender pre-qualification process and introduction of a Supplier Charter will align –– 100% of our above-threshold market testing our procurement plan with our Environmental Table 1: Sample projects is notified through either Achilles or the Official Journal of the European Union (OJEU). Action Plan. Project New (complete High value –– Environment, sustainability and bio-diversity Project value new asset) Separable (>£50m) –– Where possible we use collaboration with will feature heavily in our decision making Centre for the Protection of National £15m Yes Yes No other utilities and GDNs to increase market and contract award criteria. Infrastructure Security leverage, achieve lower costs, and to share Enzen Support £3m pa No Yes No best practice and innovations. In GD1, this Aerial Surveillance £2m pa No No No collaboration has led to combined savings of 1 Non-sourceable items are those we are not able to test £1.5m, on a £6.5m award value, with a 23% such as business rates, taxes and pension payments. Western Gas Alliance Contract £60m pa No No Yes 2 ImprovIT & Alchemmy, 2018, Click Appendix 9I.

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Chapter 10. Using competition to deliver best value (continued)

competition plan, which will reflect actual Figure 1: Planning process to create our competition plan events. We will also publish the outcome of project awards, at the end of each year. Does the project Initiate –– Conflicts of interest are managed through Type of competition qualify for early or Yes early competition late competition? process a formal process for all tender events. Declarations from stakeholders are sought prior to the market being engaged. Category No –– We use frameworks, innovation, partnerships, Spend categorisation model electronic catalogues and sourcing tools to encourage and foster competition. –– Our default approach is the Negotiated Sourcing Sourcing management Stakeholder Procedure as defined in Articles 47 and drivers 50 of the EU Procurement Regulations as this approach encourages competition and alternative solutions to be considered. Contract Savings Risk Spend Engagement Key identifiers status potential When market testing, we make sure that we consider the full range of quality/outputs/service and other regulatory requirements (such as those required by the HSE). In other words, Adherence Savings Effective Mitigation Coverage Sourcing objectives to policy target sourcing we consider value to be about more than simply cost but to encompass aspects such as delivering excellent customer service, quality, reliability, sustainability and risk reduction. Contract Competition plan This is particularly pertinent in areas where Delivery management procurement decisions can support and deliver the outcomes of our Environmental Action Plan.

saving. The full list of our collaborative tender –– We focus on strategic, high-value, high-risk regards to stakeholder engagement. This The planning process covered in Figure 1 events in GD1 is set out in Table 2 (overleaf). areas and use the best market intelligence includes within the business itself (to identify describes the process we go through to identify tender events that make up the Native Competition –– We have strong governance arrangements we can to inform our analysis, identify trends consumers’ and stakeholders’ needs) and Plan. Our plan for GD2 is attached as Appendix in place, including the use of supplier and carry out benchmarking. through engagement with the supply chain. 10A. In practice the plan is a rolling 18-month performance scorecards and our –– Tender events are run when potential benefits For example, in GD1 we held an event to forecast of tender events that is refreshed every management of supply chain risk, via are not outweighed by event costs. Decision consult with potential suppliers ahead of six months and reported to our Executive team. a detailed pre-qualification questionnaire making takes a holistic view to ensure that tendering our reinstatement work. for suppliers and the use of an approved we meet the interests of all gas consumers. –– As part of our commitment to ongoing vendor list (AVL). transparency, in GD2 we intend to start Click Appendix 10A for our Native Competition –– We follow procurement good practice with Plan for GD2. publishing our annual above-threshold

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Chapter 10. Using competition to deliver best value (continued)

We also balance implementation and transition 3. Benefits to date The efficiency of our 5. Future plans costs with future operational costs and residual award-winning team values to make sure that whole life costs are The benefits for customers of our strategic We are currently undertaking a substantial is evidenced by the use considered in procurement decisions. Supplier delivery model can be judged by our outputs in exercise to market test the full range of of external benchmarks. solutions must be technologically agnostic the GD1 period to date. In summary, we have sourceable spend across the whole business. been able to: to ensure open competition and uphold the Our delivery mix for GD2 will be determined principles of the EU Procurement Regulations. –– deliver 550 procurement events, bringing 4. Regional variance by this market testing and will enable us to We will ensure that this continues by specifying savings of on average 2.5% per year, against Our network is unique in that it serves two select the solution that delivers the best value outcomes and deliverables. We will also avoid an average annual contract volume of 230 countries with different governing bodies. As and service for our customers. We made the brand specifications and any other limiting contracts; a result we often have to secure contracts that strategic decision to carry out this exercise technological criteria in scope documents. –– deliver environmental benefits from our serve the requirements of those bodies. An as our current delivery mix is coming under We carry out our market testing and purchasing supply chain; example of this is the procurement of our road strain due to labour market pressures. activities through a directly employed procurement –– save £1.5m per year by collaborating furniture signage which must be in the language Our decision to carry out this level of market organisation. The efficiency of our award-winning with other UK utilities. appropriate to the region. While we clearly have testing was informed by the successful market team is evidenced by the use of external to include the Welsh language on our signs, testing exercise of our large mains and services benchmarks, which have found our procurement there are also separate requirements in North replacement work, which we undertook in expenditure to be “fair and reasonable” (ImprovIT Wales and South Wales, meaning that securing 2007/08. The exercise led to the creation of & Alchemmy, 2018). We run all procurement efficient contracts can be challenging. an Alliance contract, which we judged would events via an online portal for accessibility, £1.5m Our network is also unique in terms of its get the best value from cost and risk sharing. automation of repeatable processes and to saved per year by collaborating geographical layout. We have a number of The contract included pain/gain terms that provide a robust audit trail. The toolset we use with other UK utilities. extremity areas, such as Devon and Cornwall, have delivered significant benefits for customers is considered upper quartile and best in class. Pembrokeshire, Anglesey and Mid Wales. to date (by reducing customers’ exposure to Many of these areas have seasonal and variable any cost overruns, and incentivising contractors populations as they are holiday locations; to outperform, which also benefits customers in the long run). Table 2: Delivering savings through collaboration as such they provide challenges for recruiting contract labour, and labour rates can be higher. Nature of contract Year Savings pa Award value pa The transport links to these areas are also Courier services and external mail 2014 £40,000 £133,000 relatively poor, which in certain areas of our Access covers and frames 2015 £1,300 £21,565 business pushes up rates. Meter cabinets and housings (non-domestic) 2015 £10,000 £79,000 Mobile communications 2017 £75,000 £275,000 As an example, the waste and excavated PE pipe and fittings 2016 £644,000 £4,331,000 spoil removal costs in Devon and Cornwall Stationery 2017 £19,000 £109,000 are 50% higher than the average for the rest Purchase of mobile devices (WGA) 2017 £51,000 £85,000 of our network. Purchase of mobile devices (WWU) 2017 £345,000 £543,000 Customer satisfaction surveys 2017 £130,000 £80,000 Call handling 2013 £213,200 £846,213 Total £1,528,500 £6,502,778

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Chapter 10. Using competition to deliver best value (continued)

6. Delivering value for money To help mitigate costs from rising labour market An example of this is the contract with our 7. Governance prices we will continue to: odorant suppliers, where we have secured a contract rate for the supply of this product to We have clear governance arrangements in Our cost profile –– capitalise on innovation within our own our odourising facilities. This has protected us place to mitigate risk and ensure best value. While the results of market testing and supply chain; procurement have helped us to achieve and our customers from a market rate increase These include the following processes: –– prioritise our Native Competition Plan significant benefits since 2005, the ‘cost to for this product. Our procurement team has to ensure that we are responding to –– Compliance with EU Procurement Regulations. serve’ of our procurement team has also mitigated cost increases to below prevailing identified business needs, and market –– Periodic internal audits across our supply chain. improved (see Table 3). For an average team market rates. test on that basis; cost of c.£800k, the team has been delivering We have also taken steps to encourage market –– Annual audits by our owner, the CKI Group. –– be agile and responsive, so that we are able c.£2m annually of cost avoidance through growth and have engaged with Tier 2 contract –– Monthly Purchase Order governance to respond to changes in external conditions; robust contracting. organisations to work on specific programmes checks – ensuring compliance with the –– collaborate with other utilities to improve our procurement policy. The cost profile of our procurement activity has of work, such as mains reinforcement. This sort market leverage. been generally reducing to a level where the of work has been ideally suited to these types The audits that are carried out assess our cost to serve and the level required to ensure of organisations. We vary our contract durations with suppliers to performance against our procurement policy effectiveness and compliance have converged. balance market conditions, supplier investment, and result in findings that are graded by risk price certainty and business continuity. Typical value. All findings from audits are acted on and Mitigating rising market rates contract terms are three years with rights of closed out as agreed with the auditing body. Chapter 19: Workforce resilience sets out in extension. We do not commit to volumes and more detail the issues that are leading to rising the vast majority of contracts are non-exclusive, An important focus for our procurement team labour market rates. These include substantial allowing us to remain agile in dynamic markets is to ensure that the risk profile of supplier infrastructure projects such as HS2 and Hinkley and to protect customer interests. activities is managed and mitigated. Projects Point, with which we must compete in order to entailing greater risk are subject to higher levels of scrutiny. As part of this, we have used attract skilled labour. We have also experienced We collaborate with an approved vendor list and performance adjacent GDNs, which have struggled to other utilities to improve scorecards since 2013. All suppliers and achieve their programmes, being able to attract our market leverage. our resources by offering higher rates of pay. providers on the list have met our minimum standards in terms of quality, HSE compliance, financial stability, and insurance coverage. The scorecards we use are based on their strategic importance to our business and/or the contract value. They provide the mechanism 3 Table 3: Procurement costs (GD1, nominal prices) for us to measure and report on performance £m 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 against four areas of quality, cost, service and Gross procurement costs 0.73 0.92 0.85 0.82 0.77 0.77 0.78 0.81 innovation/customer. Since their introduction FTE as per section 3.1 9 9 12 10 13 12 12 12 the scorecards have led to improved supplier 2018/19 RRP performance. We also use the scorecards as a record of past performance when evaluating 3 Initial costs taken from RRP as reported. Added back £0.1m per year of ancillaries to gross costs up. Accounts payable deducted from procurement figures in 2018/19 – 2020/21. new tender submissions from those suppliers.

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Chapter 10. Using competition to deliver best value (continued)

8. A good corporate citizen In practice this does not deliver the ‘cheapest’ The review focused on totex for each service –– Our annual Procurement (Native Competition) offering, but considers a much wider range of category, comparing the cost and staffing Plan underpins the procurement team’s Working in partnership to promote fair factors (whole life cost, maintenance, disposal, against the market by means of comparative activities. Our GD2 plan captures all elements and ethical procurement practices. recyclability, environmental impact etc) in a analysis and a ‘reasonableness’ assessment. of the tender events. This includes (but is not balanced view to get the best result possible The analysis was of our procurement expenditure limited to) category of spend, business unit, for the business and ultimately the consumer. across 2017/18. The assessment report noted sourcing strategy, saving type, contract terms, Our procurement team understands its role in that “the level of staffing and cost presents fair spend value, savings generated, supplier supporting local businesses and communities 9. External benchmarks value to WWU and its customers”. name(s), and contract type. The plan is focused on delivering value for money through: and in limiting the impact of our activities on the To test our cost to serve efficiency, we looked competition; risk reduction (via an extensive environment. We also recognise the influence externally for appropriate mechanisms to 10. O ur above and beyond pre-qualification process); contract coverage (by the supply chain can play in meeting these goals. benchmark our procurement activity. We approach including all of the goods, works and services To ensure that we maintain ethical sourcing Our procurement strategy and supporting policy have summarised below the findings from two required); and commercial security (through practices, the team captures and monitors a ensure that competition is embedded in the way independent benchmarks. effective contracting processes). wide variety of supplier attributes through the we award work. They also ensure that suppliers pre-qualification stage of each tender and the The Hackett Group’s procurement benchmark are reputable and that our purchases are ‘fit for Click Appendix 10A for further information. supplier creation process for suppliers that empirically defines world class procurement purpose’, technologically agnostic, and represent ask to join our AVL. The types of data covered performance on a balanced set of effectiveness best value. –– In GD2 we will publish our annual, include compliance with legislation (anti-bribery, and efficiency metrics. above-threshold competition plan, modern slavery, and financial standing) along –– The principles of the EU Procurement showing actual events. with accreditations such as ISOs, Health & Regulations are equal treatment, non- External benchmarks –– Benefits to consumers are implicit in the Safety, and environmental performance. discrimination, proportionality and delivery of the plan. Our approach to WWU transparency. These are applied to all As part of working towards compliance with World class procurement procurement events – both above and competition ensures that the vast majority ISO20400, we make sure that we contribute Benchmark procurement (as at June 2019) below the EU threshold. of spend is market tested at least once in positively to the businesses we work with and to GD2. Our tenders are focused on delivering Costs as % 0.6% 0.375% –– The policy requires all spend to be exposed the economy by making sustainable purchasing of spend5 fit for purpose solutions that are safe, to competition above £5k – through either decisions and by encouraging suppliers and FTE per £ billion 69 FTE 65 FTE reliable, reduce risks and are selected pre-negotiated contracts and frameworks or other stakeholders to do the same. of spend6 under the principles of Most Economically through a three-quote process for purchases Savings as % 5.6% 6.5%8 Advantageous Tender (MEAT). By virtue of the areas in which we operate we of spend7 between £5-£50k. Expenditure above £50k requires the involvement of the procurement support local businesses and the vast majority In summary, our procurement has been team. This is above and beyond the EU of suppliers (98%) are UK based. We pay 99% We commissioned an independent value for externally recognised by industry awards, Procurement Regulations. of supplier invoices within 60 days, exceeding money and effectiveness assessment of our has been assessed as ‘world class’ by three the Prompt Payment Code benchmark of 95%4. back-office services, including in the area of –– We operate an AVL to guide purchasers to the Hackett Group measures and evaluated as ‘fair To support SMEs, our standard payment terms procurement from ImprovIT & Alchemmy in 2018. correct contracts and frameworks, and to value’ by an independent benchmark. It is the are 28 days following the month of invoice. ensure that health, safety and environmental success of our procurement in GD1 that has Click Appendix 9I for further information. risks are mitigated. The AVL performs other delivered a track record of cost avoidance and The key decision criteria in all of our tender checks, including in relation to bribery, contractual coverage – allowing us to maintain events is based on the principle of most 5 Hackett, 2018. corruption and modern slavery, and ensures high levels of safety and customer performance, economically advantageous tender. 6 Hackett, 2012. that there is adequate insurance coverage for while ensuring that regulatory outputs are met. 7 Hackett, 2018. 4 https://check-payment-practices.service.gov.uk/report/15244. 8 The equivalent score for our peers is 3.3%. the products and services provided.

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Chapter 11. Our innovation strategy

1. Highlights of our plan our sector leading levels of partnership and Building on these GD1 successes we will Our plan has benefited from the input of wide- collaboration – sharing expertise, solving continue to use innovation to create both ranging partners through our joint contributions We have identified our strategic aims to 2050 challenges together and delivering transformational and organic improvements to the ENA’s Gas Network Innovation Strategy and these align with what customers want and successful projects. for our customers and employees. (March 2018). The Energy Innovation Centre value from networks. We have determined our –– Key to our success will be the ability to (EIC) has undertaken an extensive programme innovation focus areas for the 2020s, which monitor and measure the benefits of our Click Appendix 11A for our GD1 innovation track record. of engagement on our behalf. It provides access build on the ENA’s Gas Network Innovation portfolio and use innovation to support the to an ever-growing innovation community that Strategy (March 2018). These activities have delivery of a 0.5% efficiency (equivalent currently stands at over 7,100 individuals and to c.£18m efficiency over GD2), as well as 3. W hat our customers and been discussed and agreed with customers 5,700 unique companies. and have also been reviewed by the CEG. delivering long-term benefits such as our stakeholders told us future of energy research. We are active members of the Welsh Highway –– It is an extremely exciting time for our sector, Understanding the needs and Authorities and Utilities Committee and Click Appendix 13D for our future of energy research. requirements of others has allowed with new technologies emerging and many consult with them on our innovation priorities. opportunities being created to help our us to work effectively in partnership to find solutions. Engagement in 2018, for example, indicated customers receive higher-quality services, 2. Introduction that their priorities for innovation included lower bills and to meet the ever-increasing Customer and stakeholder feedback has minimising excavation of the highway, and importance of delivering an environmentally We have been committed to innovation helped us to develop an ambitious and locating and avoiding underground apparatus. sustainable network. since day one. This is led from the top by our leaders who believe that investing appropriate sustainable innovation plan that delivers the This is an area of focus for us in GD2 as a result. –– Our strategic aims for 2050 reflect the services people want. commitment and resources into innovation will In terms of measuring the benefits of innovation outcomes that our customers and help us improve our performance year on year. stakeholders have told us they want, including In summary, based on ten engagement expenditure, we have received strong support Our innovation team ensures that innovation events, involving over 20,000 stakeholders, it from wide-ranging stakeholders for the a safe and reliable service, environmental is delivered at pace and that benefits are improvements, a sustainable energy source has become clear that they value innovation. new framework we have been developing. recorded and shared across all relevant parts They particularly value innovation that brings Engagement on this subject has taken place for today and the future, and support for our of the business. Our investment in innovation is customers in vulnerable circumstances. improvements in areas such as safety, reliability through the EIC, with Ofgem’s innovation team, supported by our customers and stakeholders. and decarbonisation. In direct response to this, and more widely with organisations such as –– We plan to invest £13.3m in high value They are keen to see us innovate across a we will continue to use innovation to develop BEIS, Sustainability First and Ofwat. innovation during GD2 using the reformed broad range of our services. new sustainable technologies, products and Network Innovation Allowance (NIA) funding. The CEG has challenged that our innovation equipment that minimise the need to excavate, Both NIA and business as usual innovation Our innovation has delivered the following value: portfolio was too heavily focused on technical allow us to return customers back to gas quickly will be delivered via open collaboration and engineering and lacked consideration of –– Improvements in safety, reliability and when they have been disrupted, and support partnerships, continuing the methods we customer service and vulnerability innovation. In customer service. the mains replacement programme. adopted during GD1. –– Providing real evidence of the way in which response to this, we have widened our portfolio, –– We have a strong track record of innovation the gas network plays a critical enabling role It was suggested to us that there was a lack of while also responding to Ofgem’s guidance delivery and since 2013 have developed in achieving net zero. visibility around innovation in the gas industry, to invest in innovation to support those living and embedded a culture that enables the –– A framework to roll out proven innovation – so we have raised the profile of our work in in vulnerable circumstances. The group also organisation to innovate. We apply a framework 78 projects embedded through our innovation this area more actively and are now an anchor challenged us about the extent to which for innovation to embrace change and roll out programme have delivered overall cost savings company for the Welsh Government, promoting innovation is embedded within our business. proven innovation into the business. or costs avoided to the value of c.£10m. open innovation in Wales. These costs savings will continue into GD2. –– Our approach for GD2 will see us build on

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We have updated our business plan to more Some of our customers thought that working For each of the three Ofgem areas we present: –– While NIA innovation will focus on speculative clearly demonstrate how innovation has with 500 external organisations over GD2 is research and development projects, BAU –– Our ambitions – a graphic illustrating our enabled, and will continue to enable, the overly ambitious and suggested we focused on innovation will focus on deployment of approach over the next three decades delivery of many efficiency savings, service quality rather than quantity. solutions for the business. BAU innovation is to 2050 built from the industry’s strategic improvements and other benefits. likely to be the predominant contributor to the We acknowledge all the feedback on this direction. Looking ahead we are engaging in a regional financial value that will be unlocked in GD2. commitment. However given the positive impact initiative ‘Co Innovate’, embracing open –– Our plans to meet these challenges through We have set a challenging target of £18m innovation can have on safety, efficiency and innovation to scope five common challenges business as usual innovation and NIA in efficiency savings, while also delivering sustainability levels, and the benefits we derive across a range of sectors. This will develop funded innovation for projects that we will substantial societal and environmental from significant collaboration, we will still maintain new solutions, create a strong network, and deliver in GD2. benefits for customers and businesses. an ambition to work with 500 organisations, share insights. This represents a doubling of the innovation ensuring a focus on quality at all times. In light of the successes in GD1, we would like to savings that we have achieved in GD1. Engagement informing our commitment see the final NIA scheme details closely aligned –– We propose that the existing contribution Click Appendix 5F for detailed information to the existing GD1 funding scheme. In return we Our commitment about our engagement. levels and IPR arrangements are maintained will make a 10% compulsory contribution, deliver Click Appendix 11B for feedback from our for projects relating to vulnerability and Continue to invest in innovation, working with a high reward innovation portfolio, maximise SME community. energy system transition. around 500 external organisations during GD2 collaboration opportunities, deliver a business- (compared to 350 in GD1) and sourcing over led programme using third party innovators, –– Our programme includes: work with existing 50% of our ideas from outside our business. 4. O ur 2050 strategic focus and monitor, track and report innovation spending partners; work we will undertake to leverage new partnerships; work we will conduct with Using innovative solutions to and benefits. The benefit of collaborative work in this other networks; and work led by others that become more efficient and –– In our plans we are making a clear distinction area has been made very clear to us by reduce costs. we will adopt for our own networks. between NIA and BAU innovation (see tables stakeholders. We have collaborated significantly –– We will continue to build on the good on pages 95, 97 and 99). We will fund lower in GD1 and will continue to do so in GD2. practices and working relationships We plan to use innovation in GD2 to help us move risk projects that deliver short-term financial established between networks. We In our consultations with nine experts, it was closer to delivering our strategic aims for 2050. efficiencies as BAU innovation. These have processes to avoid duplication and highlighted that increased collaboration on We will build on our processes, frameworks, projects will be self-funded. We will use NIA disseminate project learning using meetings, innovation could open the door to several networks and lessons learned to make sure that funding primarily for more speculative, higher project logs, reporting protocols and events. operational improvements and assist we unlock the full benefits of innovation projects risk small-scale projects that deliver benefits decarbonisation initiatives, while helping to keep that have been implemented in GD1. in the longer term or where the benefits are –– At this time, we have not identified a need to customers’ bills as low as possible. use the new funding mechanism for roll-out Our strategic approach to innovation activities not directly related to our business. of a specific proven innovation. However, This commitment was given an average are categorised according to Ofgem’s three –– During GD2 we propose to invest £13.3m we plan to re-assess this position during the level of importance compared with the other output areas and information about them is (equivalent c.0.3% of revenue) of NIA funded course of GD2 with Ofgem. commitments, according to our latest round of presented in the following six pages. innovation. We are seeking £12m to fund acceptability testing. In general, there was limited third party innovators for the identified project support for continued investment in innovation, themes and £1.3m to finance the cost of although SMEs in Wales with over 250+ the delivery team. We want to access this employees rated this higher than the average. funding on a ‘use it or lose it’ basis across the GD2 period.

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Meeting the needs 2020s 2030s 2040s 2050s

of consumers and Optimise data to Our customers are recognised as understand customers’ individuals, listened to, valued and are Meeting the needs network users wants and needs informed instantly and effectively of consumers and Partner with others to offer enhanced services – network users Meeting the needs of consumers shared economy CVP and network users – strategic aims Use digital tools Continually invest in our for self-service skilled and professional to provide instant Provide services to workforce to deliver high information to Benefiting society and communities match consumer profiles quality services Our communities All residents and by developing bespoke and tailored tailor support business owners for customers are supported in services that meet the needs of the eradication of have access to our customers. extreme poverty, affordable, tailored Provide co-working spaces inequality and energy services Develop new practical dissolving traditional climate change Between now and 2050, we will use innovation solutions to improve HQ and offices security and peace to support the provision of tailored services to serviceCustomer of mind Provide affordable, reliable, all our customers, including those in vulnerable sustainable, modern energy circumstances, and to ensure that we are a resilient for all consumers in our region A multi-skilled workforce business, as well as environmentally and socially Enable vibrant communities with energy efficient homes, responsible. We will deliver value adding projects good links to transport and aligned to Ofgem’s Vulnerability Strategy and the A flexible pay and shared amenities Deploy innovative training reward package outcomes of Sustainability First’s Project Inspire. methods eg digital twin, We will use NIA funding to support projects that augmented reality, self service e-learning bear uncertainty or where benefits are valid to No engineering plant or vehicles society but difficult to commercialise. are emitting carbon

Introduce innovative Click Appendix 11C for the Project Inspire summary report. solutions to deliver energy Deliver climate supplies more efficiently change adaptation Although future customer service requirements Deliver smart home services bespoke to are difficult to predict, we know customers Deploy carbon individual needs offsetting measures want a high-quality, inclusive, affordable and Inspiring future generations about future environmentally friendly service. The following key roles in energy pages show how successful innovation Introduce alternatives to diesel will deliver our strategic aims (also detailed fuelled plant/fleet in Section B of this business plan). Resilient workforce Analyse climate change adaptation methods for our assets Use data to identify and locate Support customers on low income For every £1 invested in NIA customers with additional needs or in debt eg a comparison for vulnerable customers, we website tool for energy CVP will deliver £1.45 of net value to customers. Responsible business Supporting the vulnerable

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Meeting the needs of consumers and network users Consumer benefit Projected project Funding Click for Theme Our ambition Focus area for funded projects Focus areas for BAU projects expenditure (£m) justification Safety Service VFM Reliability Sustainability further info Customer Develop new –– Discover new technology to protect customers –– Deploy 24/7 customer service tools – serve myself, £0.4 to £1 To progress Chapter 6 service solutions to during loss of supply. We want to provide hot water eg What is going on in my street? Where is my and adopt improve service, for drinking and washing when a gas supply is engineer? 24/7 chatbot services. technologies that Chapter 7 security and peace interrupted eg more than a hot plate. We want to provide better of mind for our drive improvements to alternative heating methods –– Formulate coordinated solutions for universal services to those customers. when a supply is interrupted eg more than a PSR and social media awareness campaign. affected by temporary electric heater. –– Shape new services and methods of our planned and     unplanned works. –– Design studies and trials of appliances and communicating with multi-lingual customers sensors for customer safety in the home. and individual needs. –– Initiate full use of digital tools for self-service, providing instant information and tailored support for customers.

Resilient Develop and –– Deploy innovative training methods eg digital twin, No additional We will deploy Chapter 19 workforce invest in training augmented reality, self-service, e-learning. funding requests. proven innovative to deliver a skilled solutions and and professional –– Introduce innovative solutions to deliver energy work with third supplies more efficiently. workforce for the parties to deliver      highest quality –– Inspire future generations about future key these initiatives. services. roles in energy. –– Train employees to recognise and support vulnerable customers.

Responsible Reduce our –– Deploy carbon offsetting measures. No additional We will deploy Chapter 14 business negative impact funding requests. proven innovative and increase our –– Introduce alternatives to diesel fuelled plant/fleet. solutions and positive impact on –– Analyse climate change adaptation methods work with third the environment. for our assets. parties to deliver these initiatives.     –– Improve coordination between utilities and highway authorities and new ways of providing information to road users. –– Support resilient community energy programmes.

Supporting Develop solutions –– Using data and analytics to identify and locate –– Grow and maintain networks to help promote £0.2 to £0.4 Investigate, Chapter 6 the vulnerable to help our customers with additional needs. and recruit to the PSR. develop and customers trial solutions in vulnerable –– Jointly work with partners and care professionals. to improve situations. identification –– Trial tools to support customers on low income     and in debt. of vulnerability, solutions to support those with affordability issues.

NIA funding requested to meet the needs of consumers and network users £0.6 to £1.4m

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Delivering an 2020s 2030s 2040s 2050s

environmentally Aligning to smart living Low cost energy for energy and transport is accessible and Delivering an sustainable network services delivered in the provided to all of our environmentally way consumers want network customers Supporting Affordable low carbon regional to consume sustainable energy for all customers network Delivering an environmentally energy on our network solutions sustainable network – strategic aims Using technology to deliver a net Create a whole 50% of energy is Using innovation to minimise cost zero carbon energy system provided to homes ready network landscape for A network and reduce our carbon emissions. and business via Wales and that enables renewable sources south west renewable Enable energy sources consumers of England to maximise All homes and Our 2050 strategic aims in this area are centred flexibility, businesses have DSR services access to on-site on the steps needed to deliver a net zero ready focus Customer energy storage and lower Manage a fully network by 2035, providing more from our current energy prices integrated and Mobilise solutions enabling using smart operational whole network to the homes and businesses that rely access to community energy Enabling communal home technology energy system on our network heat networks on us in their daily lives. capable of serving society Our network facilitates secure and resilient energy for heat, power and transport and enabling Industrial and commercial Roll out of hydrogen network Implement technologies businesses are fully powered cleaner, greener energy is central to our ambition. to significantly reduce carbon by low carbon energy sources Roll out models which NIA funding will be used to support the projects automatically manage energy that will deliver customer benefits and provide the demands and storage lowest cost pathway to heat decarbonisation. It will also build on our excellent record of research, Hybrid technologies are available Create transport energy stations S. Wales demonstrator – demonstration and engagement in GD1. to all customers, including off across the network to support industrial hydrogen gas grid homes, encouraging green gas powered vehicles efficient management of BAU projects will support some regional energy Integrated flexible networks energy consumption solutions, trialling and implementing proven that can manage flexibility and peak demands for heat, power innovation from elsewhere and seeking new Identify and adopt a dynamic and transport collaborative partnerships. Future projects integrated network to support distributed generation and low carbon transport will focus on decarbonising heat, power and Low carbon Deliver a net zero Technology technologies become ready network transport in our region and will enable us to fulfil available for trial our net zero ready ambition. Supporting the UK’s move Support methods and policies to electric vehicles Support the S. West area to Adopt outputs of Hynet project that enable the integration of develop a hybrid network The £10m future of energy whole energy systems’ open data and sharing Supporting communities Joint working with network Investigate, support and enable innovation investment will companies to evolve whole renewable gases to improve CVP system solutions sustainability and affordability net zero produce an NPV benefit of £39m in GD2 and £446m out to 2050. Whole systems Network design

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Delivering an environmentally sustainable network Consumer benefit Projected project Funding Click for Theme Our ambition Focus area for funded projects Focus areas for BAU projects expenditure (£m) justification Safety Service VFM Reliability Sustainability further info Customer Deliver low cost –– Trial home ‘smart’ assets and methods that –– Discovering novel technical and commercial solutions £1 to £3 To discover how Chapter 13 focus modern energy provide greater customer transparency and control to meet peak demand alongside industry. new solutions can services to allow of energy consumption. –– Supporting regional energy solutions. benefit customers, customers to use –– Develop and demonstrate low carbon technologies. to progress energy in the way –– Responding to changing customer needs. technology      they want to use it. –– Identify novel future commercial arrangement –– Supporting energy solutions for rural off grid areas. development and opportunities that reflect changes to energy demonstration supply methods. further than we know today. Technology We want to –– Introduce AI solutions. –– Implement and demonstrate technologies that £1 to £3 Work with third Chapter 13 maximise the –– Test new equipment to facilitate unconventional gas significantly reduce carbon from manufacturers or as a parties to develop adoption of connections to the networks. result of collaboration with other networks. and trial new technology that –– Work with regional bodies to support the availability technology to can demonstrate –– Discover new market developments to achieve net prove the benefits zero. of low carbon technologies to all customers, including flexible, cross vector off gas grid homes, encouraging efficient energy that they can offer or low carbon –– Investigate alternative gas blending, deblending, management and consumption. to deliver a net      technologies. monitoring and safety systems. zero network. –– Find novel ways of clustering low carbon technologies –– Develop demand models that better predict peak/off- for maximum effect. peak demand for short and long term planning. –– Pilot technology for day to day management and meeting changing customer requirements. Whole systems We want to deliver –– Support methods and policies that enable whole –– Develop and maintain our whole system modelling £0.5 to £1.5 Finding and proving Chapter 13 whole systems system data and sharing. services using Pathfinder. solutions that can solutions that –– Develop customer portals for data sharing. –– Develop new processes to manage the impact deliver the UK enable no build of operating a more dynamic gas system. vision for a joint options both within –– Identify and adopt potential whole system solutions. and integrated and outside of our –– Support communities to design and develop energy network.      geographical region. diverse and de-centralised local decarbonised energy solutions. –– Use our network to support the UK’s move to low carbon vehicles. Network Implement the –– Experiment with future network design options. –– Support and enable renewable gases to enter £2.5 to £7.5 This funding will Chapter 13 design technology, methods –– Investigate optimised storage and system the network. build on current and policies to flexibility options. –– Seek collaborative partnerships with network GD1 research deliver a net zero companies to evolve our existing networks. and focus on ready network –– Encourage new methods of carbon capture and developing the by 2035. storage at point of supply or point of use. –– Implement a hybrid and optimised network solution solutions that –– Support national projects investigating within the south west area and Wales. can be deployed hydrogen deployment. –– Enable the NW England extension to N Wales for future trials of blended hydrogen (ref Cadent Hynet project). to evaluate the   –– Drive novel ways of integrating networks eg gas, true benefits water and electricity. –– Work collaboratively with stakeholders to design for customers. –– Increase the use of connected, real-time data energy solutions for heavy industry. when operating the network. –– Discover new tools for the control room to manage new requirements. –– Develop solutions for biogas and/or hydrogen filling stations. NIA funding requested to deliver an environmentally sustainable network £5 to £15m

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Maintaining a safe 2020s 2030s 2040s 2050s

and resilient network Operate safely and compliantly while protecting the public, workforce and society Maintaining a safe and resilient Enable assets to report their network Maintaining a safe and resilient Invest in and Complete iron mains own health network – strategic aims deploy the replacement programme best tools and Achieve a low cost, techniques to self maintaining Using innovation to reduce keep colleagues and rehabilitating safe A dynamic net costs and maintain the safety Using digital, remote and network Deliver financial automated tools and zero network of our network. benefits that guarantees techniques for maintenance to customers and inspection supply to homes Safety Showcase self repairing assets and businesses We will use innovation to help us manage and Establish safety cases and Deliver a smart, maintain our network, at lower cost, to support our policies for connected network excellent safety record, and to ensure a reliable and new gases Data and system resilient supply. We will make the most of emerging intelligence manages Deploy in-pipe repair techniques purchasing technologies and new products and techniques and investment that will help minimise the physical aspects of our Our works are complete without activities and therefore any disruption to customers, supply disruption and improve the data we have about our network. Replacement is prompted Adopt new, innovative methods for and scheduled by the asset This includes creating a safe and resilient repairing metallic, PE and LTS network and risers network for power and transport networks Systems recommend best where the gas network underpins the growth engineering practice based on intelligent asset data and success of renewable technologies. Mobilise trenchless solutions

NIA funding will be used to support projects Enable digital management of reliability Discover life extension solutions In-house manufacturing and health of network that help our business to adapt to a changing technologies are introduced environment – one that will be fit to provide Send no material to landfill energy for generations to come. For example, Minimise disruption to customers from replacement activities Implement technology to we will experiment with remote and automated automatically design and prioritise tools for inspection and repair, set an industry repairs/replacement based Deploy intelligent automation solutions on condition ambition for untethered in-pipe robotics, for repetitive tasks discover new materials, and trial real-time data and effective data management systems. Identify opportunities for introducing new materials, Replace backfill and reinstatement with BAU projects will support solution trials and and replacement Repair tools, techniques and processes to reduce operating costs sustainable alternatives implement proven innovation from elsewhere. Enhance probability of failure Reduce our impact on the environment We will work closely with third parties and the assessment for complex sites other gas networks in this grouping to maximise collaboration, sharing the costs and benefits of Value for money and efficiency Reliability and sustainability these initiatives and stimulating new markets.

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Maintaining a safe and resilient network Consumer benefit Projected project Funding Click for Theme Our ambition Focus area for funded projects Focus areas for BAU projects expenditure (£m) justification Safety Service VFM Reliability Sustainability further info Safety Continue to –– Develop remote and automated tools for inspection –– Trial crash avoidance technologies for vehicles £0.1 to £0.3 To progress Chapter 16 operate safely and and survey. (eg reversing grab hiab contact with overhead lines). and adopt new Chapter 18 compliantly while –– Use available data in new ways – AI. –– Progress GPS live location and calibration tracking technologies that protecting the for resources eg plant and equipment. help us take regular public, workforce –– Investigate new technologies and services assessments of and society. for gas escape management. –– Continually introduce tools and techniques to improve the health of the     delivery of the iron mains replacement programme. network and repair –– Create dashboards and intervention levels remotely to improve safety of public –– Legacy PE condition and failure. and employees. –– Investigate AC mitigation for pipelines.

Repair and Develop and –– Design large diameter and 75mbar – 2bar pipe repair –– Build on riser lining systems developed in GD1. £0.2 to £0.6 To develop new Chapter 16 replacement trial products, methods to improve safety for operatives. solutions for repair –– Explore data requirements to manage just Chapter 18 equipment, –– Discover untethered in-pipe robotics to inspect in time maintenance. and replacement technologies and and repair. that will avoid methods to maintain, –– Exploit trenchless technologies and develop unnecessary –– Shape innovative LTS network, riser and pipe WWU action groups to create new solutions repair and replace capital investment,      our network at low repair methods. that minimise excavations. maximise asset cost with minimal –– Seek zero customer interruption mains life extension and human intervention. replacement techniques. minimise disruption to the public. –– Progress development of sensors and a connected network.

Value for Innovate to improve –– Create advanced manufacturing solutions for bespoke –– Further develop data and systems to recommend best £0.05 to £0.2 Encouraging other Chapter 16 money and data, systems and fittings and fast prototyping. practice and maximise roll-out to business as usual. sectors to innovate Chapter 18 efficiency technology solutions –– Enable a smarter network across pressure tiers –– Develop and use automated processes (RPA) with us to deliver a to deliver the most for real-time decision making. for repetitive tasks. network that is fit effective and for the future, low efficient decisions in –– Seek data and systems intelligence for optimum –– Develop the skillsets of our operatives to avoid cost, safe, reliable terms of timing and record keeping and data sharing initiatives. unnecessary intervention and therefore cost. and efficient.     optimal solutions. –– Discover life extension solutions. –– Challenge third parties to innovate to avoid cost increases on repex programme. –– Managing new streetworks legislation in day to day operations. –– Facilitate drone flights.

Reliability and Protecting the –– Find solutions to reduce emissions not relating to mains –– Explore how technology can help us manage, maintain £0.15 to £0.4 Seeking Chapter 16 sustainability environment and and services. and repair without impacting on excellent safety sustainable Chapter 18 safeguarding –– Pilot schemes to reduce our impact on the environment. performance or reliability. alternatives to supplies to homes traditional methods –– Prioritise repair/replacement based on data sources –– Research and develop how we can best manage and businesses assets that are nearing their end of life. wherever possible. in anticipated and using novel methods and technology. Delivering a low     unanticipated –– Pilot AI, data and system intelligence. –– Discover ways to gather information on how assets fail, cost network events. when they fail and what the causes of failure will be. that supports our –– Investigate enhanced Probability of Failure (PoF) –– Identify alternatives to landfill. stakeholders’ assessment for complex assets to improve reliability environmental and ‘just in time’ investment decisions. –– Reduce virgin aggregate usage. ambitions. –– Shape resilience solutions for a changing environment.

NIA funding requested to maintain a safe and resilient network £0.5 to £1.5m

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5. A framework for innovation Step 1: Sources of ideas To identify solutions to our challenges Our innovation framework and problems we work with wide-ranging stakeholders, including customers and supply chain partners, and we engage with them through forums and workshops. Step 1 Step 2 Step 3 Partnerships within and beyond the gas industry Sources of ideas Evaluation & project management Delivery of innovation benefits enable us to share expertise, access funding and unlock potential for delivering newer and better Ease of implementation Implementation Benefit value services as well as preparing for future risks. Publish As part of this process we look for opportunities Business Financial benefits problems and Colleagues Impact assessment to build on past projects that we and other benefit tracking challenges Funding options Safety improvements networks have completed, thereby making the Usage monitoring Project leads Service improvements most of lessons learned. Action groups Strategy Internal promotion Benefits assessment Societal benefits Internal and external sources: Ideas are presented to us in a variety of ways (with 50% Governance Environmental Annual improvements of ideas coming from outside the business). Intellectual property report We have a portfolio of 16 academia-driven Sharing learning Reliability Legal agreement projects delivering research for real industry Customers Innovation calls improvements Project challenges – ranging from short durations to Sustainability report three-year PhD qualifications. Initiatives to Supply chain Industry learning Forums improvements encourage our own colleagues to bring forward Stakeholder views and workshops Productivity Case ideas include open innovation ideas inbox, our Forums and Academia Media, marketing improvements studies Young Persons Network Beermat competition workshops and promotion Modern business and our Customer Service Championship Cup. Collaboration Supporting SMEs Open Innovation programme: Our strategy Demonstration facilities Increasing knowledge to make connections with leading innovators will continue as we believe that third party Supporting UK involvement is a key enabler of innovation. target of 2.4% GDP investment Starting in 2013, we have formed 350 unique partnerships from across 18 different countries. Welsh Gov’t Future These partnerships enabled us to invest in Generations Act 250 BAU and NIA projects. We aim to form 150 new partnerships during GD2. Attaining this Enablers target will be a challenge and we will focus on this commitment by participating in network forums, dissemination events, workshops and Innovation Leadership Engaged external Policy and Communication Fun and reward Failure team people and culture community culture regulation action groups. We will also promote the gas network innovation strategy to communicate our problems and challenges widely and to encourage innovators to connect with us.

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In response to CEG and stakeholder feedback that questioned whether working with so many We will target connecting partnerships could be fully effective, we will with 500 partners focus on developing deeper relationships with by the end of GD2. key innovators, as well as increasing our reach. One of the ways in which we will do this will be to first identify the type of organisation we plan to work with, then engage with those organisations in a more meaningful way.

Step 2: Evaluation and project management Our processes encourage Evaluation criteria: We exercise robust colleagues to bring forward governance in selecting and delivering innovation projects. We want to make sure that every innovative ideas and optimise a project we select has the potential to provide real successful implementation and benefits to customers and that we understand the project’s impact before it is embedded roll-out... we learn lessons from within the business. This includes assessing any past projects. potential impacts on vulnerable customers. Our processes encourage colleagues to bring forward innovative ideas, and in order to optimise a successful implementation and roll- Feedback loop: Not all projects will deliver a successful outcome. As a general rule of thumb, out we ensure that each project has a lead from We understand that in some locations CISBOT within the business. for every 50 ideas, 10 will become live projects Assessing innovation: CISBOT and only two will be great successes. may be a better option (for example if the Governance and risk management: When CISBOT is an NIA project led by SGN. network includes many busy high streets allocating finance for projects we make sure In GD1, 36 projects were not taken forward. It involves using a robot to repair large where repairing with CISBOT is less disruptive that we optimise collaboration opportunities For example, a ground-breaking idea may not diameter mains by travelling along the for customers than inserting a new main). work in practice, an issue that affects another and manage project risk and expenditure. pipe, then injecting a joint sealant to stop However, given the current cost discrepancy in GDN is not a problem we need to solve, or our We use a stage gate system, critical milestones it from leaking. the two approaches its use would not be and clear decision points that allow us to sever methods are cheaper in reality than it would be a viable alternative for our network in practice projects that are not delivering as anticipated. to use the innovation (see CISBOT case study). We undertook analysis to compare the cost of The centralised team uses the innovation toolkit using CISBOT to make a repair with the cost and the pipe would still need to be replaced Our processes to learn lessons include an at a later date. to move each project through the process external cross-section review process that we of replacing the pipe via insertion. Insertion is effectively and with pace. The team also reports initiated in 2016 and plan to repeat. Here we a method we use whereby a plastic main is Using innovation to minimise progress appropriately to Executive leads and worked with other GDNs to identify common inserted into the main that is leaking. We found collaborative project teams. The toolkit was costs and maintain the safety issues and learnings. that it was considerably cheaper, by £162,000 of our network. developed in response to lessons learned during (or 45%), to insert a new main than to repair it GD1 and is accredited by the Welsh Government’s using CISBOT. SMART Innovation Programme.

Click Appendix 11D for a review of our innovation process.

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Chapter 11. Our innovation strategy (continued)

Step 3: Delivery of innovation benefits The innovation measurement framework We aspire to deliver continual year on year growth by embedding innovation to support the Initiation and Demonstration, iteration Deployment and delivery of c.£18m of efficiencies over GD2. evaluation (ideas) and learning (trials) optimisations (build) Benefit tracking: There are a number of Extent to which the strategy focuses challenges associated with measuring the on improving the areas of service value outcomes from innovation. Many outcomes, A strategy is in place such as cultural shifts, are difficult to quantify. for WWU innovation Reliability Strategy Value for money Until now we have measured the benefits of our Sustainability 100% and vision 92– Extent to which innovation trials investment in financial and non-financial terms 101 Customer service align with the strategy using our tracking tool, which we have shared Safety with the gas networks. Innovation measurement framework: More Focus of projects and funding by TRL recently we have successfully trialled a balanced scorecard framework, developed with network partners, to robustly and independently measure Organisation 65% 85% sustainable innovation. This allows us to forecast 200 External Internal £12m and culture External parties involved NIA spend on innovation projects the GD2 end position, as shown opposite. 4 Click Appendix 11E for the detailed innovation FTE core delivery team benefit analysis.

The framework has received support from all gas Focus of projects and funding by TRL and electricity networks, and from stakeholders including BEIS, Citizens Advice, Sustainability Capability 98% 88% First, Ofwat and Energy UK. Ofgem feedback 575 of funded of projects 90 and technology Average days to deploy has also helped to develop the measurement Total number of ideas generated projects will focus costs will focus innovation to BAU framework further. Going forward, we will on TRL <6 on TRL <6 continue to develop the report and will include it in our annual innovation report.

Our BAU project Duraseal £18m 40% has been used over 65 times Net benefits % of TRL projects Results forecast from 2-6 leading to since its roll-out in 2018, 25% mature innovation follow-on project 26% helping engineers to make and outcomes % of innovation ideas taken forward % of TRL 8 projects moved in to BAU repairs without isolating £39m customers’ supplies. CVP value

102 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 11. Our innovation strategy (continued)

Implementation: We are committed to rolling In GD1 some 78 projects were rolled out to out innovation that has been trialled by us business as usual. These projects improve or other companies. We have built a strong safety, reliability and service and are better for innovation operating model (our ‘Innovation 78 projects the environment (see the gasholder sludge case process toolkit’) that uses a range of tools and rolled out into the business. study opposite). techniques that produce clear project strategies Improving safety, reliability, service The benefits of previously proven innovation and plans, engages stakeholders in our vision, and the environment. are reflected in our future expenditure for encourages project success, and supports the activities such as, for example, riser replacement roll-out of equipment, products, research findings using new PE systems and 500m coil and procedures. trailers that reduce PE wastage on mains replacement schemes. Environmental innovation: Gasholder sludge Click Appendix 11F for a full list of implemented projects. Dealing with waste from demolished Shared learning: We are at the forefront of gasholders has long been a problem. sharing our learning with other companies and This NIA project developed a process interested bodies through network forums chain that upcycles hazardous and dissemination events. We participate and contaminated sludge into a re-usable and lead in national industry forums regarding our valuable resource. evidence to support the future direction for low carbon energy. We are proud to be sector The use of the processed sludge reduces leading in our levels of collaboration, at 68% the amount of imported aggregate needed compared with the sector average of just 23%. to backfill excavated gasholder tanks and removes the need for traditional Furthermore, our collaborative drive has resulted off-site incineration. in 57% of the cross-sector portfolio (gas and The process is cheaper (by around £120,000) We launched an NIA project and a total of five electricity networks) being led by us. We plan Service innovation: Ramp Up and results in lower carbon emissions different partners are now working with us to to continue this approach into GD2. associated with quarrying activities and fewer When we learned that some of our design and test a better kerb transition ramp, vulnerable customers can find it hard lorry movements. helping people move from the pavement to the Using innovation from Tokyo, we to navigate around our street works we road and back more smoothly and safely. plan to use the laser methane mini We plan to use this innovative method in the looked to innovation to find a solution. gas detection device 300+ times in demolition of our five remaining gasholders The problem we needed to solve was that A children’s charity, Whizz Kids, will be testing 2019, driving cost savings through in GD2. the traditional kerb ramps that are used the finished footway prototypes and making simple and efficient surveys. recommendations on which they found easiest around street works can create challenges Being responsible and for customers using mobility scooters to navigate. minimising our impact and wheelchairs. The project is expected to finish in January on the environment. 2020 and we will share the results.

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Chapter 12. Dealing with uncertainty

1. Introduction Meeting net zero Options considered –– Where there is uncertainty as to evolution of quantities or demand, we propose the Section D of this business plan outlines our –– Simplification. There is a danger that the This chapter sets out the uncertainty use of volume drivers. mechanisms that form part of our GD2 vision and commitments to be net zero ready current list of mechanisms as documented business plan. by 2035. To deliver this vision our role will within the May 2019 Ofgem Sector Specific –– Where there is uncertainty over the evolution need to evolve, and this will require flexible Methodology Decision document grows as a of prices (such as the price of labour and The aim of uncertainty mechanisms is to funding mechanisms to be available – both result of legitimately justified areas identified construction materials), we propose the use ensure appropriate funding that reflects to protect customer bills and to protect by different networks. Therefore, there may of indexation, where possible. the commitments we must deliver and the network financeability. be the opportunity to simplify the ‘Re- –– For expenditure that is entirely outside of our requirements of our stakeholders. We have therefore included within our proposals opener’ trigger mechanism to simply allow control, we will continue to use pass-through We have reviewed: an outline of a new net zero review mechanism. networks to trigger a re-opener should the costs (such as for business rates). This new mechanism would allow for a timely ‘necessary test’ and ‘materiality’ threshold –– For investments to support net zero we –– the current GD1 uncertainty mechanisms be met. This has been discussed with the (for all sectors); review and delivery of funding requirements as a propose a ‘net zero review mechanism’. result of any future decision by a relevant group – Customer Engagement Group and there –– stakeholder feedback; such as a joint BEIS, Ofgem and industry group. is a recognition that simplification could be –– We have used a mixture of historic costs, –– Ofgem’s proposals as set out within the an option. We would be happy to engage expert knowledge from relevant and Sector Specific Decision document for GD2; Our business plan uncertainty with Ofgem and other networks to discuss experienced managers and to a degree –– information received after the Decision mechanism proposals this option ahead of draft determinations some element of forecasting to justify and during 2020. document, including Ofgem’s net zero Uncertainty in cost forecasts can arise generate the potential cost impacts. letter (dated 8 August); for several reasons, including: –– No uncertainty mechanisms. This has been ruled out as the cost of capital and A summary table of our proposed uncertainty –– feedback received from the CEG and –– the amount of an activity we need to conduct, from the RIIO-2 Challenge Group. totex allowances requested are based on mechanisms is provided to allow easy as well as the cost of the activity; the assumption that the current principles comparison with Ofgem’s proposals. The table External decision makers, regulatory –– uncertainty in relation to outputs that we for funding non-controllable costs are includes the current GD1 mechanism and discussions and decisions after we have are required to deliver which can arise, maintained within the framework. Ofgem’s proposals, as set out within the May submitted our business plan which alter the for example, from changes in legislation –– Application of existing uncertainty 2019 Sector Specific Decision document. It assumptions contained within our plan may or government policy. mechanism principles. This is the basis should be noted that we agree with most of the change the risk profile for stakeholders and of our current business plan. The remainder uncertainty mechanisms as proposed in ourselves. These changes may require us to The decision to move to a five-year price control of this chapter outlines our proposals within the May 2019 document. The Ofgem net zero modify our proposals in order to achieve an period significantly shortens the period over this option. letter (published on 8 August 2019) outlined acceptable level of risk and financeability. which we need to make forecasts. However, it the need for “flexible uncertainty mechanisms” is possible that even within a five-year period For GD2 we are proposing a range of to address future unknown investments and It is clear from the Sector Specific Decision there is significant variation from our base case uncertainty mechanisms to deal with these we include outline proposals within this chapter documents (and net zero letter) that further planning assumptions. forecasting risks: to support this need. collaborative engagement between Ofgem and all stakeholders is required to work through If the uncertainty is outside of our control and –– Where the needs case or the scope The remainder of this document provides an additional detail and ensure a fully developed has the potential to significantly affect our of projects is unclear, we propose the explanation for areas where we propose an package of measures. expenditure and customer bills, then the use use of re-openers. outcome that is different from Ofgem’s current of an uncertainty mechanism is appropriate. proposed treatment and any new mechanisms.

104 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 12. Dealing with uncertainty (continued)

2. Summary table – uncertainties

Uncertainties summary table Section Name of uncertainty mechanism GD1 Ofgem GD2 proposal Our proposal Ofgem licence fee Pass-through Pass-through Pass-through Business rates Pass-through Pass-through Pass-through Miscellaneous pass-through Pass-through Pass-through Pass-through Third party damage and water ingress Pass-through Pass-through Pass-through Cost related to gas theft Pass-through Pass-through Pass-through Review of agency (Xoserve) costs (also in GT2) Re-opener Pass-through Pass-through Review of the non-gas Fuel Poor Network Ex-ante allowance, incentive & re-opener for Re-opener Re-opener Extension Scheme (FPNES) scheme review a Specified street works Re-opener GDNs to propose mechanism otherwise baseline allowance Baseline allowance and/or re-opener b Smart meter roll-out costs Baseline allowance and/or re-opener GDNs to propose mechanism otherwise baseline allowance Baseline allowance and/or re-opener c Net zero review mechanism N/A GDNS to propose mechanism Net zero funding review mechanism Repex – Tier 2A iron mains Volume driver Volume driver Volume driver Repex – HSE policy changes N/A Re-opener Re-opener including stub ends (including stub ends) Real Price Effects Ex-ante allowance Indexation Indexation Pensions (established deficit, pension scheme Re-opener Re-opener Re-opener administration and Pension Protection Fund levy) Pension deficit charge adjustment Pass-through Pass-through Pass-through Enhanced physical site security Re-opener Baseline allowance and/or re-opener Baseline allowance and/or re-opener d Changes to charging boundary Re-opener N/A Re-opener Whole systems N/A Re-opener Re-opener Heat policy N/A Re-opener Re-opener e Cyber resilience N/A ‘Use it or lose it’ allowance and/or re-opener Baseline allowance and/or re-opener f Large load connection costs Re-opener N/A Re-opener g Loss of development land claims N/A for GD; Re-opener for GT N/A Baseline allowance and/or re-opener h Changes to DCC funding arrangements N/A N/A Re-opener i Digitalisation strategy N/A GDNs to propose mechanism Re-opener subject to further stakeholder feedback j Workforce resilience N/A N/A Re-opener to reflect changes in approach to managing working hours from WTD to fatigue management k Materiality thresholds 1% of base allowed after sharing factor applied 1% of base allowed after sharing factor applied Ensure risk/reward balance is maintained as per GD1 l Aggregate cap on network re-openers Aggregate cap N/A Aggregate cap as per GD1 Inflation indexation of RAV and allowed return RPI CPIH Click Chapter 22: Financeability for further information Cost of debt indexation Indexation iBoxx 10 years Indexation iBoxx 11 to 15 years Click Appendix 22A Cost of equity indexation N/A Indexation Click Appendix 22B Tax Base allowance with trigger and claw back mechanism Three options being considered

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Chapter 12. Dealing with uncertainty (continued)

b) Smart meter rollout impacts For any other expenditure, we are concerned 3. E vidence to support our Net zero forecast costs that the other existing uncertainty mechanisms uncertainty mechanisms that The supplier led rollout will now continue until 2024 and, despite incurring costs of £1.5m Cost Cost would not protect customers or networks. differ from Ofgem’s Sector during GD1, we are unlikely to claim a re-opener Work £m per For example: required RIIO-2 year Specific Decision proposal in that control period. The costs incurred to –– A use or lose it allowance could penalise date on smart metering consist of attending Flexible generation customers for a period of time if net zero a) Specified street works emergency calls relating to smart meter faults PRI upgrades 23 1.7 0.3 linked investments are not required for gas The risks we face in GD1 remain for GD2. and metallic service replacement that has been Pipelines for 85km 82.6 16.5 capacity and/or distribution networks. In particular: the legislative implementation identified through smart meter installations. storage of existing NRSWA 1991 sub-sections (ie The risk is carried over from GD1 and we –– A re-opener is not appropriate as networks long-term damage); the Traffic Management Below 7 bar 75km 29.7 6.0 are unlikely to invest ahead of any decision therefore propose to continue with a re-opener reinforcement (MP Act 2004 (ie lane rental charging); changes to mechanism. We would be happy to discuss the and IP) and carry the risk of non-funding if future existing legislation (ie extension of reinstatement use of a possible volume driver as discussed Total 114.0 22.8 decisions are contrary to the spend incurred. guarantee; increase in inspection regime, by Ofgem within the RIIO-2 Sector Specific Green gas 24-hr working); and the Welsh Government’s Decision document. Compressors 12 16.6 3.3 It is for this reason that we are proposing the plans are expected to evolve over the 2021-26 new net zero review mechanism, which should The suppliers have regulatory obligations to Smart systems 12 1.6 0.3 period. It is therefore appropriate to retain a GD2 exist for all regulated networks. This could deliver their smart meter rollout plans and given Total 18.2 3.6 uncertainty mechanism. be triggered at a time linked to updated the delays to date, the probability of rollover to Gas vehicles direction and decisions from a joint group We have included £0.9m per year within 2021 is now certain. The materiality of costs could Reinforcement 16km 6.3 1.3 consisting of BEIS, Ofgem, industry and any baseline totex based on compliance with existing be within the range of £0.3m to £1m per year. Total 16km 6.3 1.3 other party deemed appropriate. We would legislation and commitments, although the System operability support a process that encompasses the requirement for a re-opener remains. c) Net zero review mechanism New IT systems 1.6 0.3 following elements: As outlined previously, we believe that there should and functionality, The probability of legislative development is high be a flexible funding mechanism that will enable including: forecasting –– The mechanism is applicable to all RIIO-2 given the current uptake of permitry and lane us to meet our net zero ambition while protecting system upgrades price controls. rentals. The range of possible additional costs and data controls customer bills and network financeability. is £9m to £18m per year over the GD2 period, Increased manpower Support 0.8 0.2 –– There is a review of options using as broken down below: The table below provides a forecast of costs that net zero robust evaluation. activities may be required to deliver our commitments –– There is a period of consultation to allow –– Legislative road permitry: £4m to Total 2.4 0.5 during and beyond GD2. for stakeholder input. £6m per year. GD3 repex –– Once decisions are confirmed with –– Lane rental: £3.5m to £12.5m per year. To protect consumers and, given the uncertainty preparation around future requirements, we are not Recruitment 10 2 stakeholder support, directions are received –– Reinstatement guarantee: £0.5m proposing a base allowance. and training from Ofgem to update regulatory obligations to £1.5m per year. Total estimate 150.9 30.18 and totex allowances. Where spend meets innovation criteria, we spend propose funding through innovation mechanisms. –– The allowances would then form part of network revenues.

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Chapter 12. Dealing with uncertainty (continued)

The RIIO-1 settlements included a mid-point As the use of the gas distribution network g) Loss of development land claims In either circumstance, we can normally either review mechanism and we would see this evolves, the likelihood of a charging boundary Development loss claims and associated limit compensation by choosing to divert a working in a similar fashion. review increases. We therefore propose to liabilities can arise from claims by land owners pipeline or, to avoid diverting under a ‘lift and retain this uncertainty mechanism. In terms of shift’, by paying compensation. We would At this point in time, we have not consulted with due to the presence of a gas pipeline affecting materiality, the costs could exceed £10m if c.10 normally choose the cheapest, or most stakeholders but would be happy to engage the productivity or limiting potential development connections at £1m cost each are incurred expedient, option if available under a Deed or further on this over the next 12 months and or alternative uses of their land (including farming and costs are ‘socialised’ by all customers through agreement with a landowner. ahead of GD2 draft determinations. and quarrying). Such claims normally arise (as opposed to direct developer funding). because of the terms of a Deed of Grant of Given the high level of uncertainty around the Easement (referred to here as a Deed), which d) Changes to charging boundary volume and financial cost of development loss e) Cyber resilience specifies the rights and restrictions associated Although we now have 19 biomethane claims and the exercise by landowners of lift Following the Ofgem NIS specific guidance with pipeline assets. connections to our network, the throughput consultation on the protection of operational and shift clauses in some Deeds it is difficult is still relatively small (less than 1%). For the avoidance of doubt the following sites (which we have responded to), and the to set baseline funding to cover this area. claims under the terms of a Deed of Easement We have a large number of requests for uncertain timelines for when Ofgem will issue An uncertainty mechanism is therefore required. can include: biomethane connections and the objective any subsequent information, we have not The probability of claims is high and the range is to replace more and more natural gas with included any costs in base totex. –– loss of, or restrictions affecting, land of possible additional costs is £5m to £40m over biogases (including biomethane and hydrogen) development (including in relation to housing In the absence of clear guidance from Ofgem the GD2 period. to efficiently support the delivery of the UK and quarrying); we do not have a certain plan on the level of risk and Wales climate targets. The following points support the case required. Our initial view is in the range of £4m –– loss of crop and drainage; More than 37 gas fired electricity generating to £8m, with a probability of incurring as high. –– sterilised minerals; for a re- opener with regards to this issue: facilities of different scales are also connected We have included this as a specific re-opener. –– landfill and tipping. a. We are exposed to the uncertainty of the risks to our network. As with biomethane connection Consideration of the frequency of the re-opener set out under this section in a similar way as the requests, we have a number of potential window specific to the cyber resilience issue Within these Deeds the grantee, WWU (itself National Transmission System. It has this type additional electricity generation plants that is being considered by Ofgem, given the or as successor to predecessor companies of existing uncertainty mechanism in RIIO-T1 could connect to our network. requirements and spend levels. for Deeds pre-2005) limits the consideration (licence condition SC 5E). As we understand it, and looking at the payable immediately for the grant of rights in f) Large load connection costs b. Under the terms of the Deed, we are also implications from the collaborative H21 exchange for an agreement that if permission is usually required to pay compensation innovation project, Hynet, Hydeploy and other Although this mechanism has not been used in granted for development in the future, WWU will to a grantor for: work from groups such as the national Hydrogen GD1 the risk of such costs remain. Therefore, we then either pay compensation for the impact on transformation group, there is a possibility that propose to retain this uncertainty mechanism. the development, or any sterilisation of part of it, –– the loss of crop yield where liability has we may well need to look at: Severn power station was connected to our or be subject to an obligation to ‘lift and shift’ a been proven and/or reported and there are distribution network prior to GD1 and triggered pipeline in similar circumstances. proven drainage defects and subsidence –– the level of costs that are funded directly by efficient but material reinforcement costs. As the the connectee as opposed to funding from claims; UK Government has ruled out coal generation customers through allowed revenues; and –– the value of minerals that cannot be from 2025, there is the possibility that this large extracted and the possible loss of –– the charging boundary between gas exiting generation gap will be fulfilled by additional the network and gas coming onto the large gas-fired electricity generation plants. It is opportunity to landfill which is lost where network during GD2. therefore a requirement to retain this re-opener. mineral extraction is prevented.

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Chapter 12. Dealing with uncertainty (continued)

These claims are ‘no fault’ claims and arise i) Digitalisation strategy k) Materiality thresholds GD2 under Deeds where we or our predecessors All networks and Ofgem are currently assessing As a starting position for setting the materiality If the totex sharing factor was changed to 35% have prudently sought to minimise the the potential impact on commitments and totex threshold for each re-opener under GD2, Ofgem for GD2 and other existing algebra retained consideration payable upfront for land that has cost impacts of the emerging opportunities for thinks that the GD1 approach and level is then the trigger calculation for WWU would development hope value, as it not clear whether customers and stakeholders from access to broadly appropriate. result in a failure of the GD2 materiality threshold that hope value will ever be realised. data held within networks. However, Ofgem states that some additional as £6m * 0.35 = £2.1m, which is less than £3.41m. In this instance, networks would incur The Energy Data Task Force (EDTF) has recently thinking may be required in this area, and we A re-opener mechanism is required for settling unfunded uncontrollable costs of £2.1m. This is published a paper on the possible future agree. Our business plan assumption is that valid claims for compensation (including the not acceptable. costs associated with a diversion where that is direction. While we support the principle of we are exposed to the existing GD1 materiality threshold on a cash basis for individual and more cost-effective than paying compensation ‘open data’ there is currently no understanding aggregate re-openers. We will be less able l) Aggregate cap on network re-openers and the Deed provides us with such an option) of the impact this may have on stakeholder to absorb non-funded costs during GD2. We accept that re-openers must have a or funding a pipeline asset diversion at short commitments and totex cost requirements. Our proposed cost of equity excludes any materiality threshold. However, there are a notice where there is a ‘lift and shift’ clause We therefore propose a re-opener mechanism additional risk from this exposure. number of potential cost areas that may require exercisable by the grantor/landowner. that would be triggered once there is more clarity significant spend but in isolation fall short of a There is further work for Ofgem and the on the direction of travel. re-opener claim. It is inappropriate for networks h) Data Communication Company (DCC) networks to undertake through licence drafting to fund a number of re-opener costs that user cost (funding arrangements) We would suggest a high degree of future for GD2 related to this area. individually fall beneath the materiality threshold GDNs are not currently required to be individual collaboration between all networks to ensure a consistent and efficient range of outcomes A worked example below highlights the potential but in aggregate exceed it. This principle is users of the DCC nor fund the DCC. This is additional cash risks to networks if this is from networks. At this point, it is not possible contained within the GD1 licence drafting. a function of effectively utilising Xoserve and not addressed: saving customers’ money. Therefore, no base to quantify the potential cost range but the To retain an equivalent risk profile, we allowance is currently required. probability is high given that there is broad Existing GD1 sharing factor for WWU = 63.17%. recommend retention of the existing GD1 support for the EDTF work. Existing GD1 materiality threshold for aggregate re-opener cap subject to the updated There has been some industry discussion about licence drafting outlined above. GDNs potentially becoming individual members We recommend a re-opener mechanism as the WWU = £341.3m. simplest mechanism to address this funding and funding the DCC. If this happens then the Existing trigger % of materiality threshold = 1%. efficiently incurred DCC costs will need to be gap, should it arise. funded. The potential cost range is £5m to Existing WWU materiality threshold after sharing for WWU = £3.41m. (1% * £341.3m). £15m over the GD2 period. j) Workforce resilience Recent engagement with the HSE has GD1 – existing funding The probability is low and is dependent on highlighted the potential for a material change decisions by BEIS and Ofgem. to the maximum hours that individuals –– If we incurred a non-funded and eligible cost We recommend a re-opener mechanism as the can work in any one day. If this change is of £6m; with the existing sharing mechanism simplest mechanism to address this funding implemented it could result in a material (63.17%); this would ‘trigger’ a re-opener as gap, should it arise. increase in our resources to deliver the business £6m * 0.6317 = £3.8m, which is greater than plan commitments and would need funding. the trigger threshold of £3.41m. The impact could be between £5m and –– Subject to efficiency tests, the £6m would £10m per year. be funded.

108 Wales & West Utilities | Business Plan 2021–26 D Delivering an environmentally sustainable network

This section of our business plan In this section: includes our Environmental Action 13. Our net zero ready vision for 2035 Plan. The Plan encompasses 110 our targets in relation to heat Our ambitious whole system plan to decarbonise heat, power and transport in our decarbonisation (in line with regions, delivering a net zero ready network by 2035. Ofgem’s requirements). 14. Environmental Action Plan 126 This first chapter of the section Our activities and commitments to minimise the environmental impacts explains our net zero ready our activities have on our communities and on the natural environment. vision. The vision enables decarbonisation of heat, as part of a wider, whole system pathway to mitigate the threat of climate change. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 13. Our net zero ready vision for 2035 CVP

As part of our extensive programme of research –– Customers with different requirements and 1. Highlights of our plan We will use our ground- we have listened carefully to those with behaviours are having a significant impact breaking and unique Pathfinder –– Our ambitious whole system plan will alternative views. on our network. For example, we are having model to fully support Local decarbonise heat, power and transport in our to increase the frequency with which we Area Energy planning. regions, delivering a net zero ready network Click Appendix 13B for further information on the wider reconfigure our medium and intermediate by 2035. decarbonisation debate with stakeholders. pressure systems to enable green gas –– Based on a broadly defined whole system 2. Introduction This plan defines our net zero ready vision for producers to inject during hot weather (when approach, our plan will facilitate low This is a critical time for the UK energy sector, 2035 – our objective being to anticipate how demand is low). We also expect to implement cost, reliable and sustainable energy for with legally binding obligations to eradicate customers’ use of the network might change as smarter systems to manage changes in generations today and in the future. the UK’s net contribution to climate change they move to using lower carbon technologies network flows to support gas and electric –– We are responding to the clear steer from by 2050. At the same time the energy system and as they move towards lower carbon gases vehicle charging. and avoid the use of fossil fuels. It also describes consumers, organisations such as local (gas, electricity, transmission and distribution) –– Peak demand is set to increase by 11% the investments necessary to allow our network authorities, and public opinion in general that is fast becoming one of complex, dynamic over the next 10 years due to the new to support these new requirements and a society must act now to mitigate the threat interactions, driven by changes in the supply and requirements detailed above. Investment separate net zero CVP has been created. of climate change. use of energy. We therefore must consider the will be required so that we can continue to whole system. provide a reliable and safe supply of gas. –– This steer, combined with our own ambitions, Click Appendix 13C which sets out the net zero This will be necessary in spite of an expected provides the basis for our net zero ready The UK Government’s June 2019 decision1 Consumer Value Proposition. reduction in annual gas demand because vision and for the timeline to achieve this provided greater certainty about the timeframes by 2035 – a pathway that while ambitious, for our sector to deliver a zero carbon energy customers will be using gas in different ways. Our net zero CVP delivers is both credible and achievable. system. Our plan to be net zero ready by 2035 –– Flexible generation tends to be gas powered. £4.3bn of value; our vision represents our contribution to this goal, meaning CVP These generators are making use of the –– Our plan is founded on extensive research net zero delivers over £30 of net value and live trials, and reflects the view from that our network will be able to support the cheap form of storage provided by our required quantities of green gas, eliminating for every £1 invested. wider research and opinion formers that network, offering flexibility and a quick the need for fossil methane. We will be able to a variety of solutions, applied on a regional response at a lower cost than many other support flexible generation and transport, which basis, will be required. 3. Aspects that are certain forms of electricity storage. By making in turn supports decarbonisation of the electricity use of our network, flexible gas generators The sector is going through significant change, –– Our approach will support the development of and transport sectors. We decided to choose can compete in the services they provide Local Area Energy Plans (LAEPs). These plans and clear trends are emerging that have the date of 2035 to reflect the ambition of our for electricity balancing, benefitting electricity will provide substantial value to consumers by informed our investment proposals for GD2 stakeholders and in response to their climate customers. ensuring that energy system solutions offer emergency declarations, including by the Welsh and beyond. –– The Future Homes Standard that is being the lowest cost pathway and least disruption. Government and local authorities. It is also the –– Energy networks are becoming more closely Pathfinder and Pathfinder Plus, our ground- consulted on would prevent gas supplies earliest date that allows a sensible balance integrated, interacting in more complex and breaking energy system simulator, will enable to new housing. In isolation this would limit between the speed and cost of delivery. dynamic ways. Our demand data clearly shows this best value to be extracted. further peak demand growth; however, the increase in the use of flexible gas generation alternative technologies may still have an –T– he proposals in this chapter support Click Appendix 13A for information about our strategic at times when renewable generation approach to the future of energy challenge. impact on gas networks via hybrid heat decarbonisation of heat and as such form decreases due to weather conditions. It also networks and CHP. part of our Environmental Action Plan 1 The Government amended the Climate Change Act in June 2019. This reflects new generation requirements as older was in response to the Committee on Climate Change’s report (Click Chapter 14 for further information). ‘Net Zero – The UK’s contribution to stopping global warming’, coal-fired stations are decommissioned. Click Appendix 17B for further information. 2 May 2019.

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Chapter 13. Our net zero ready vision for 2035 (continued)

–– To minimise whole system costs there is now Figure 1: Progression of our vision a growing consensus that, instead, we must consider all technologies, and on a regional basis. This view was recently confirmed by, among others, the Committee on Climate Change2. It was also supported by our own Green City Vision project3, in collaboration with SSEN and UKPN. 4. Our net zero ready vision Hybrid WWU net accelerator zero ready How we developed our vision 80% by 2050 2035 It is with the above certainties and trends in mind

that we have developed our ambitious, evidence- Level of decentralisation based net zero ready vision for decarbonisation in our regions. Founded on a broadly defined whole systems approach, our vision will facilitate the low cost, reliable and sustainable energy that our customers want for their heat, power, light and Level of decarbonisation transport – both today and tomorrow. A key input to our vision are the results from our Non compliant Original target 80% by 2050 Net zero compliant Regional Future Energy Scenario (FES) innovation (<80% by 2050) Non compliant (<80% by 2050) (by 2050) project. For this project we commissioned Regen to develop forecasts of our customers’ requirements Pathfinder models the whole system energy to biomethane. This is due to carbon capture, The two scenarios to the right (hybrid accelerator through to 2035 for a range of scenarios including flows (on an hourly basis) to meet heat, light, usage and storage opportunities in the north. and net zero ready) are scenarios developed four that were aligned to the National Grid FES power and transport demands for a given by and for WWU, reflecting the specific regional framework and the ‘hybrid accelerator’, which Following the recent net zero announcement scenario using a mix of energy supplies that is factors for our networks. In the case of the last increased the use of hybrids and biomethane. we have used the outputs from regional FES, scenario – WWU net zero ready – we have 4 also specific to the energy scenario. Regen’s forecasts were based on significant learning from Pathways, and stakeholder support increased the ambition to meet the new 100% stakeholder engagement and input from four Click Appendix 13D for information about our future as the basis of our new net zero scenario; this net zero requirement. workshops carried out across our regions, which of energy research. scenario assumes an even greater penetration of included a session looking at specific challenges Click Appendix 13E for information on how Pathfinder green gas in our local distribution zones and also Our commitment around the decarbonisation of industry. will support the development of LAEPs. accounts for hydrogen post 2035 to meet the Click Appendix 13F for information on our whole 2050 net zero requirement. Deliver a net zero ready network by 2035. We have ensured that these forecasts can be system approach. used in our whole system modelling using our The position of the scenarios in Figure 1 innovative and unique whole system energy Learning from the recent all-GDN Pathways reflects their relative level of decentralisation model, Pathfinder5. project which was led by the Energy Networks and decarbonisation by 2050. The first block Association (ENA) showed that the north of 2 ‘UK Housing; Fit for the Future?’, 21 February 2019. of scenarios in the figure shows the National 3 Click Appendix 13D for information on Green City Vision. the UK is most likely to make significant use of Grid FESs, which are well established within 4 Click Appendix 13D for information on Regional FES. hydrogen while the south is more likely to move 5 Click Appendix 13D for information on Pathfinder. the sector.

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Chapter 13. Our net zero ready vision for 2035 (continued)

Our vision Our vision is to meet the levels of decarbonisation supported by the WWU net zero ready scenario above. Decarbonisation will be achieved in the following ways.

Reduced demand: –– Customers’ annual demand for gas for heating will be reduced as they adopt more efficient and flexible systems and continue to make improvements to insulation in their homes and businesses. These savings have most impact away from peak when insulation is most effective and when hybrid systems will operate on electricity. The SSEN/WWU/ UKPN Green City Vision project found that up to 20% CO2 savings were delivered by Biomethane and blended hydrogen for other Power: The research we have undertaken as part of insulation improvements. cities, towns, suburbs, and smaller industry: this work – including our analysis of the rate –– The primary sources of electricity will –– Remaining cities, towns and suburbs will be be renewable. at which new heating technologies are being Click Appendix 13G for further information adopted in our region – supports the investment fuelled by green gas and have hybrid heating. –– Wind, solar, marine and a small fleet of on smart hybrid heating systems. that is already planned in GD2 as part of our –– The FreeNonDom project (a project nuclear power stations supported by back base allowance. As such it represents no investigating the use of hybrid heating up green gas generation plants will keep Hydrogen for industry and cities: systems for non-domestic customers) the lights on. regrets investment. has demonstrated the use of hybrids for –– The UK’s largest cities and big industry will –– A small amount of electricity storage across The vision has been determined using local- non-domestic loads. be converted to run on hydrogen. In our the UK will help balance the grid (including level information from our Regional FES and region the cities are expected to be Swansea, from vehicle to grid), while smart hybrid Pathways projects to understand where transport and green gas investment are most Cardiff, Newport and Bristol. Hybrid heating Transport: systems installed in homes and businesses systems (as trialled in our Freedom project)6 will enable flexibility through the use of smart likely to be needed. In order to determine the will help make the best use of hydrogen –– Many heavy goods vehicles, buses and trains controls that can move demand between potential specific reinforcement required for and renewable electricity. will be fuelled by hydrogen or green gas, gas and electricity to optimise whole flexible gas generation connections we have significantly reducing carbon emissions. system operation. also used information from our connections –– The vast majority of private cars will be register and from the capacity market register electric vehicles, with more than 30m The vision we have set out here is the most for future loads. on the road across the UK, partly fuelled plausible and suitable for our regions; it also by electricity generated from green gas. remains flexible and allows for alternative future –– Gas and electric vehicles are cleaner than pathways. In this way, customers’ interests 6 Freedom was a live trial where we installed air source heat pumps alongside gas boilers in 75 homes alongside smart petrol and diesel and will significantly will be protected. functionality to optimise both appliances. improve air quality. Click Appendix 13G for further information.

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Chapter 13. Our net zero ready vision for 2035 (continued)

5. Enabling whole systems Plans and processes for joint planning We will also continue to collaborate through –– continue to explore whole system solutions with other network companies industry groups such as the single scenario for managing the demands of peak heat As this chapter has already outlined, in recent workgroup and the Open Networks project. while maximising use of available renewable years the need to consider interactions across Working with others and sharing best practice energy and green gas. different sectors – transmission and distribution, allows us to constantly improve for the best. A recent collaboration is Zero2050, an power and gas – has become increasingly initiative led by National Grid to speed up In collaboration with other partners and Western important. This applies locally and nationally, progress of the decarbonisation of South Power Distribution, Project Freedom investigated particularly given that many local authorities are We have a long history of working closely with Wales. The partnership, which encompasses how smart control systems could control hybrid declaring climate emergencies and are looking other gas network companies. In GD2 we will business, community, academia and others, heating systems. The objective was to minimise for decentralised solutions. For example: continue to drive joint planning and collaboration is using Pathfinder Plus to develop a whole the investment that would be required on DNO networks to support peak heating –– the increase in EVs is likely to impact and will formalise our work in this area through our system solution. requirements by using the flexibility available in on demand from flexible gas generators new whole systems charter (described below). the gas networks at peak times; This is supported by formal requirements such Click Appendix 1D for letters from SPEN and WPD as those in our licences and Uniform Network about our successful collaboration in GD1. –– high costs associated with electricity –– This would be done by heating homes via Codes; and workgroups such as the Gas Futures gas boilers when this is a better solution for connection and opportunities to avoid Identification and adoption of potential Group, which is coordinated by the ENA. whole system operation. This work is now high time of use tariffs or provide demand- whole system solutions side response services are leading to being expanded for non-domestic customers For every £1 invested in sharing We recognise opportunities to benefit from increased gas flows to support CHP for through our FreeNonDom project. our whole systems data and standardised processes across networks so on-site generation; CVP Pathfinder model, there is £40 that processes and equipment can be designed –– the uptake of air source heat pump of value to consumers. for use across the whole of the UK. There are Long-term whole system thinking technology has the potential to reduce annual opportunities too for networks to benefit from gas throughput, although where these are Investigating regional streamlined processes such as increased data decarbonisation plans to enable implemented as part of a gas hybrid solution Our culture of sharing learning and best practice is demonstrated by our collaboration sharing and consideration of whole system whole systems thinking can assist we anticipate that peak gas demands in the development of future around both innovation projects and solutions to avoid investment. This would benefit will be less affected. customers by reducing costs. networks and reduce carbon improvement activities. emissions. As far back as 2010, we led an industry review We are the only network to have developed Specific areas of focus will include: We have undertaken extensive research and of the Offtake Arrangement Documents to relax a high-resolution, whole system model in stakeholder engagement to help us and others –– continuing to work closely with the National some of the notification periods required for rate recognition of these increased interactions, understand the impact of future scenarios on Grid ESO, providing input from our research changes, so we could increase the flexibility Pathfinder Plus. The model supports the planning stakeholders and networks. processes across the gas and electricity networks and data from our control systems to support we offer our power generation customers to and can be used by third parties to support the production of their FESs; allow them to participate more fully in electricity In addition to using our Pathfinder model for our development of local decarbonisation plans. –– continuing to support the industry review markets. During GD2 we will: own analysis we have shared it with external groups that are keen to develop regional of NTS capacity access arrangements. –– continue to actively support the Open We have shared Pathfinder with other networks, decarbonisation plans. We engage with wide- Networks project through the advisory group. with SGN having adopted it to simulate Brighton ranging steering groups and advisory panels During GD2 we will build on our relationships We are currently leading Workstream 4, and Edinburgh. Other networks are considering including Flexis, LEPs and the Welsh Government. with DNOs, having already completed energy Product 2: Whole networks real-time operation, its use. We also commissioned and sponsored the innovation projects with SSEN, WPD and UKPN. and supporting Product 4: Investment; national Carbon Connect series.

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Chapter 13. Our net zero ready vision for 2035 (continued)

Whole system investment in GD2 By including transport in our whole systems We describe the investment in the following Pathfinder Plus Our Green City Vision project is a specific approach, we generate benefits for broader sections. We will continue to work with example of the way in which we have used sections of society, such as determining the PathfinderPlus will be utilised with prospective whole system partners and towards Pathfinder and worked with DNOs to consider optimal transport policy for each locality, for organisations across the whole system: the end of 2019 we will also have visibility of how a range of long-term future decarbonisation example whether public service vehicles should the recommendations proposed by the Open approaches would impact whole systems be fuelled by batteries, biogas or hydrogen. Devolved and local government Networks – Whole System workstream. The alternative options can be evaluated and usage in a real location (in this case Swindon). We will review the investment on our network benefits quantified. This whole system approach, This project used a bespoke analytical approach or other opportunities that will support a more which we have led locally, links the energy Supply/ Networks Users to provide a consumer driven solution that generation Transmission Industry coordinated and efficient whole system. In the generation opportunities in a region with the low delivers desired outcomes for future consumers, Renewables Distribution Commercial and meantime, we include the investment within a namely decarbonisation of heat, power and carbon demand requirements. Nuclear Local system domestic Flexible operators Smart proposed uncertainty mechanism to ensure that transport at the lowest cost and least disruption. consumers are always protected. Pathfinder Plus generation appliances Our Regional FES project is a ground-breaking Interconnectors Demand side This tool is a derivative of Pathfinder but includes To further demonstrate our commitment and approach to mapping every locality in our flexibility detailed whole system costing algorithms. It will formalise our work in this area, we propose region as a basis for working with DNOs to find be used with partners in the whole energy a whole systems charter to underpin our optimal long-term solutions for heat, power and Markets and System Operator system, is valued as part of our CVP and approach. The charter will commit us to work transport. This provides net benefit for each provides the following benefits: with stakeholders to create customer focused, sector’s consumers – minimising bills, maintaining least cost and joined up solutions to deliver reliability and enabling decarbonisation. –– Develops proposals that can be valued The Zero2050 project will identify potential net zero: and compared with alternative scenarios, opportunities for the south Wales region, utilising The above are examples of local area energy providing annual dual fuel bill predictions. Pathfinder Plus to seek agreement between 1. Stakeholder engagement planning, whereby we work with DNOs and the wider stakeholders on optimised proposals 2. Data and information sharing and innovative local community to devise optimal approaches –– Identifies and quantifies benefits to and to understand the trade-offs between the solution proposals for specific regions. the broader area of society, such as the consumer and system benefits of whole systems partners. This would include, 3. Whole system Local Area Energy Plans We recognise the value and support we energy efficiency. for example, the optimised use of say battery development can offer local authorities in developing their storage and flexible generation capacity. –– Enables market based solutions to be 4. Understand the customer value decarbonisation plans by providing data, compared and utilised by defining the or ‘business case’ modelling capability and whole systems Implementing whole system whole system as being wider than networks. understanding. We are currently working with solutions in GD2 5. Open the proposals to competition, including a partner to scope out and develop guidance –– Allows comparisons of proposals with Justified by analysis to date, we have created market solutions. documentation in this area. business as usual. costed proposals in the key areas where we We propose to ask the Customer Engagement In GD2, we propose the development of our can contribute as a whole system partner. These include enabling renewable generation, Group to review our progress against the charter future of energy team under an uncertainty on an annual basis. mechanism so that we are resourced to provide the connection of green gas and the facilitation this service. In this way we will make sure that of transport. The proposals described exceed consumers receive the best value from both GD2 historical ‘business as usual’ activity and are and ED2 in a whole systems way. principally designed to enable the decarbonisation of energy.

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Chapter 13. Our net zero ready vision for 2035 (continued)

6. Our contribution Figure 2: Our net zero timeline Figure 2 shows the key elements that will be Cumulative necessary to deliver our ambitious net zero 2019 Baseline 2021 2026 2031 2036 ready vision. It is set out in five-year blocks, A: Enabling renewable electricity generation taking us from GD1 to 2036, recognising the Enabling renewable generation Flexible generation connected (MWe) 628 644 2,002 3,197 4,253 GD2 timeframes. B: Green gas capacity – to enable a biogas These numbers are derived from internal grid in non-hydrogen areas sources such as our enquiries database and BioGases (inc H2 blending) Annual BioGas capacity (TWh) 1.7 2.7 11.3 18 24 external sources such as National Grid FES, Compressors (Nos) 1 12 23 33 as well as reports from BEIS and from the Smart control systems (Nos) 1 12 23 33 Association for Decentralised Energy. In some C: HGV/PSV transport cases we have increased the level of ambition HGV/PSV transport Biogas filling stations (Nos) 3 12 49 61 58 where these reports were based on 80% Hydrogen filling stations (Nos) 0 0 2 10 13 decarbonisation targets. D: A hydrogen ready network for industry and cities Our commitment Hydrogen (100%) National trials  ✓ Ensure that the investments we make today will 1st National Cluster ✓ support future energy scenarios and therefore NW England Extension to N Wales ✓ represent a ‘no regrets’ energy solution. South Wales Cluster ✓ M4 extension to Bristol ✓ E: Enabling low carbon heat networks Heat Networks – Gas CHP/gas hybrid BEIS HNDU supported schemes (Nos) 0 0 9 17 24 £700 General roll-out – FES19 derived (Nos) 440 600 1,900 2,600 3,300 The potential savings for customers using F: Low cost; low carbon distribution system hybrid heating systems, as demonstrated Low Cost; Low Carbon Network PE in Distribution System (%) – LP/MP 75 83 92 100 by Project Freedom. Distribution pipeling leakage (GWh) 256 241 216 110 24 AGI Venting and leakage (GWh) 73 70 60 13 3 Our net zero ready network G: System operability pathway, whilst ambitious, is System operability New forecasting tools ✓ both credible and achievable. Smart system and compressor control ✓ ✓ ✓ ✓ DNO/GDN process and planning alignment ✓ ✓ ✓ ✓ ✓

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Chapter 13. Our net zero ready vision for 2035 (continued)

7. Investment and justification The uncertainty mechanisms by which we As renewable generation cannot provide the We held interruption auctions both this year propose that additional investment is funded resilience of controllable generation and there and last, and to encourage participation we In 2018 Ofgem and the RIIO-2 Challenge to support our net zero vision will take account has been a decline in the use of coal, we have contacted sites directly where interruption would Group asked networks across transmission, of the lower levels of certainty we have about seen a dramatic shift to gas flexible generation. help us offset the pipeline investments above. distribution, gas and electricity to agree a set of growth related to decarbonisation in our region. No contracts were forthcoming at any price. common factors and assumptions in developing In our region we have connected 31 Where proposals are above the levels described flexible generation sites to date in GD1. a single view of the future. The work that was Click Appendix 13I for more detailed evidence, both completed in 2019 forms a baseline for Ofgem, in the single scenario, and are outside our These generators make use of our network’s on the general trends in generation sources and the and for us, and we have used the lowest of current licence obligations, and may mean flexibility in providing significant storage to offer impacts on our network. the range as a comparator for each of our own us taking on additional risk we are proposing more competitive flexible generation services Through our engagement with large industrial scenarios below. appropriate uncertainty mechanisms. that enable electricity network balancing. users we understand the reliance they place Click Appendix 13H for more information By using the existing pipeline system to Click Chapter 12: Dealing with uncertainty on a reliable supply, particularly for high heat on the single scenario. store gas, the UK gas network is providing a processes where disruption could have for further detail on the elements that 104 will be necessary to deliver our ambitious Our investment planning demonstrates that cheap form of storage. The level of value was significant cost impacts on equipment and net zero ready vision. 7 a small amount of investment of £1.7m will recognised in Imperial and Poyry’s 2017 report production. We also know that many businesses be required in GD2 to upgrade some of our Of the seven elements (as set out in Figure 2) for the Committee for Climate Change, which are increasing their use of CHP, and the role pressure reduction installations as part of that make up our contribution, four will require confirmed that using increased flexible gas gas plays in providing a reliable source of our base allowance. In addition we will need investment in GD2. The remaining elements will generation would deliver annual reductions in electricity even where the electricity network to continue with our mains replacement require investment in GD3 and beyond. It should whole systems operating costs of £612m. is constrained. programme (the costs of which are set out in be noted that any investment will be iterative and We anticipate that a large number of flexible An example of the impacts of additional flexible Chapter 16). This investment has a high level will only be made once customers’ requirements generation sites are likely to connect in the next generation on network capacity is the situation of certainty, as in most cases it: are fully confirmed. Until we have that specific few years. in the Swansea area, where accommodating customer information it is not possible for our additional demand for flexible gas generation –– is based on known customer enquiries To make sure that we would not be investing proposals to be fully justified and costed. would materially impact flows in our network or capacity market information which are unnecessarily we have explored the potential and result in supply issues in Pembrokeshire. consistent for all scenarios; or We summarise each element below and for constraining developers’ flexibility and, in This is because a pipeline in this area has –– is based on evidence from the Pathways provide more detailed information in a series some cases, have added new terms to network reached capacity and so would constrain flows. project that every street will still need a gas of appendices, 13I to 13N. exit agreements. Reinforcement on the lower pressure tiers would pipeline, albeit that it may be being used also be required here. This, and other examples, to carry low carbon gases (this applies A: Enabling renewable electricity generation are detailed in the table overleaf. particularly to the mains replacement project); Using our existing infrastructure for energy –– has been included in our BAU totex plan storage keeps costs low and enables more £612m Gas flexible generation will support because it supports any current licence renewable electricity generation. Using the flexibility provided by our decarbonisation of the whole system by obligation delivered through our current network avoids £612m a year whole providing the flexibility needed to enable connections policy. systems operating costs. the continued increase in the use of As outlined above, in recent years there renewable generation. has been a rapid increase in electricity generation connecting to the local power 7  https://www.theccc.org.uk/publication/roadmap-for-flexibility- distribution networks. services-to-2030-poyry-and-imperial-college-london/

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Chapter 13. Our net zero ready vision for 2035 (continued)

This is valued as part of our net zero CVP. We have identified that the following investment will be required in GD2. It supports whole system operation by acting Flexible generation funding mechanisms as a primary interface between the gas and electricity networks. Flexibility in the gas GD2 Proposed funding mechanism network supports the requirement in the costs (note as ex-ante totex, or net electricity network, and facilitates increases in Work required £m zero review mechanism) electricity demand for electric vehicles and other Pressure Reduction 1.7 Baseline totex Installation upgrades new technologies. Pipelines for capacity Northern System 7.7 Net zero mechanism Investment required in GD2 and/or storage 7.7km x 450mm diameter from Wickwar, north towards Berkeley Road Central System 2.2 Figure 3 shows our projection compared with 2.2km x 500mm diameter from Corston Field, west towards Brislington tee (Queen Charlton) the lowest range of the single scenario allocation 13.8km x 300mm diameter from Corston Field, south east towards Trowbridge 13.8 for our region. It can be noted that we are East Dundry rebuilt to operate with a minimum inlet pressure of 10 bar – already above single scenario levels. (it is currently designed to operate down to 12 bar) Southern System 8.9 Click Appendix 13I for further information 8.9km x 500mm diameter from Choakford, east towards Tigley on our projection. 20km of at least 200mm ST pipeline from Bancyfelin Pig Trap to Lampeter Velfrey 20.0 + another 30km post t-4 but projected for GD2 30.0 Significant investment for new pipelines Below 7 bar reinforcement (MP and IP) 75kms 29.7 Net zero mechanism would not be funded by us under current Total 114.0 arrangements, which would stifle growth Figure 3 shows the amount of electricity required to support renewable generation. Figure 3: Flexible generation output MWe1 We believe arrangements may need to change that could be generated by gas generators to address the impediments so that the UK’s connected to our network and the status of 000 net zero ambition can be realised. To recognise those connections. This forecast is based on 00 this, and because forecasts are above the single intelligence acquired from the sector, including the scenario, project funding is proposed to be a accepted enquiries and the T-1 and T-4 capacity 000 net zero uncertainty mechanism. This means auction data that has been published. This data 200 was extrapolated to 2035. We recognise this that funds would only be released to us for the 2000 work once evidenced by customer requirements level is a high proportion of the FES projection for or policy change. It should be noted that the this year but the proposed net zero uncertainty 100 developer would still be responsible for the mechanism would protect consumers. 1000 connections costs associated with their project. 00 Our net zero CVP for renewable 0 Click Chapter 12: Dealing with uncertainty generation delivers an NPV 104 CVP 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 for further information. net zero benefit of £40.5m; for every inle senai nnete ete 1 WWU et e £1 invested this delivers a net benefit of £0.40. 1 These figures are for flexible generation that are in addition to a small number of larger connected sites which were originally connected as base load.

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The overall investment required to support Green gas will support decarbonisation by providing low carbon gas to thousands of customers Our OptiNet project is looking at flexible generation in GD2 is £1.7m ex- in all sectors, who will be able to continue to use their existing plant and equipment as they do low-cost ways to increase entry ante totex and £112.3m via the net zero now. It supports whole system operation in the same way that natural gas does now. uncertainty mechanism. This represents a capacity by using compression contribution for customers of 20 pence per and other new technologies. Investment required in GD2 bill per year. This would allow us to support the ongoing and increased use of renewable The investment required to roll out our OptiNet technology to business as usual in other parts intermittent generation in our region and replace In his 2019 Spring Statement the Chancellor of the network would cost £18.2m. This represents a contribution for customers of 43 pence decommissioned coal generation. announced a consultation for later this year on per bill per year, and is valued as part of our net zero CVP. There may also be a requirement increasing the proportion of green gas in the for investment in interday storage to support green gas injection in GD3, unless incentive and Note: this is based on the 2018 single scenario grid in a bid to reduce the UK’s use of natural market mechanisms encourage producers to match local and regional demands on a day to day work, current progress using the outputs of our gas. Research8 suggests that significant regional FES innovation project, and our latest basis. This would also improve network resilience. feedstock is available to support further intelligence of sites being developed in our growth in this area and with a high proportion Finally, we recognise opportunities to further exploit opportunities for decarbonisation by region via our own enquiries database and the undertaking research to deal with fugitive CO emissions that occur during anaerobic digestion t-4 capacity mechanism. of the country converting to hydrogen the 2 potential for our region is substantial. processes prior to gas injection. We are currently scoping innovation projects in this area. B: Green gas capacity We are already experiencing entry capacity The figure below shows our projection when compared with the single scenario allocation for issues in parts of our network and have our region. Enabling the use of greener gases will reduce carbon emissions. had issues with sites being backed out at periods of low demand, usually overnight in Figure 4: Green gas injection (excl hydrogen) Annual TWh the summer. We proactively reconfigure local pressure settings so that existing natural gas 2 We have connected 19 biomethane sites sites do not take priority over biomethane during GD1 and have a further seven accepted sites, with some success. However, as 20 enquiries. In total, the 26 sites would provide the number of connections to our network heat to 175,000 homes if fed into a traditional continues to grow, we will need to look at 1 heating system, or around a million hybrids. longer term, more sizeable solutions such 10

Our current projections to achieve net zero are as compression and storage. nnual W for a further 25–35 sites to connect during GD2. It will be necessary for us to adopt this technology in GD2 so that we can accept Click Appendix 13J for further information on biogases. the required volumes of green gas to 0 support decarbonisation. 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

WWU inle senai tual ete WWU net e

8  http://www.energynetworks.org/assets/files/gas/Navigant%20 Pathways%20to%20Net-Zero.pdf

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Chapter 13. Our net zero ready vision for 2035 (continued)

We have identified that the following investment will be required in GD2. Further information about Figure 5 shows our projection of gas vehicles Our net zero CVP for Transport the various funding mechanisms is provided in Chapter 12: Dealing with uncertainty. when compared with the single scenario delivers a NPV benefit of 92m; allocation for our region. CVP Green gas injection funding mechanisms net zero for every £1 invested this Click Appendix 13K for further information on transport. delivers a net benefit of £14.60. Proposed funding Work required GD2 costs £m mechanism Compressors 12 16.6 Net zero mechanism Figure 5: Numbers of gas vehicles Smart systems 12 1.6 Net zero mechanism Total 18.2 0000

The overall investment required in GD2 is C: Heavy goods and public service vehicles 2000 £18.2m. This represents a contribution for HGV/PSV 20000 customers of 43 pence per bill per year. This would allow us to accept increased volumes Moving to cleaner transport fuels 1000 improves air quality and reduces of green gas onto our network including at times carbon emissions. 10000 of low demand. 000 Note: this is based on us receiving an eighth of We have connected three fuelling stations to the 193 TWh biomethane available (2050) in the 0 support CMG buses in large cities during the Pathways report (balanced scenario), by 2035. past few years and predict a significant increase 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 This is supported by the fact that this project in this area. inle senai – eiles WWU net e concluded that biomethane would be used in the south of the UK, with the north of the UK Fuelling stations are often most active during a The use of gas for transport as CMG will support decarbonisation and improvements to air quality by moving to hydrogen. relatively short number of hours in the day, at least reducing the use of petrol and diesel for transport. Where the gas is green gas the reduction in CO2 in the case of ‘return to depot’ fleets when buses We note that this is an ambitious target and will be even more significant. Where gas is piped through the UK networks there will be a contribution or HGVs come back for refuelling at the end that current progress does not reflect this level to whole systems efficiency in reducing the amount of transport needed to move fuel around the of the day. The impact of increased demand in of ambition because of uncertainty around the country. This in itself will further contribute to reduced energy usage and CO2 emissions. these cases is experienced over teatime, which is Renewable Heat Incentive. We have identified that the following investment will be required in GD2 already our peak. The result is that reinforcement to support these sites is also required, often Gas vehicles funding mechanism Our net zero CVP for green on the lower pressure tiers. The sites use gas and decarbonisation of Proposed funding CVP compressors because the gas in the vehicle net zero heat delivers an NPV benefit of storage tanks needs to be at around 250 bar. Work required GD2 costs £m mechanism £4.2bn; for every £1 invested As applications come in, we undertake bespoke Reinforcement 16km 6.3 Net zero mechanism this delivers a net £246 benefit. analysis for each. We anticipate that in some Total 16km 6.3 cases a level of reinforcement will be required The overall investment required in GD2 is £6.3m. This represents a contribution for customers of to support these flows. If the number of sites 1 pence per bill per year. This is valued as part of our net zero CVP. This would allow us to support is large enough this could also have an impact the increase in use of gas vehicles, which will have a positive impact on decarbonisation and on our diurnal storage requirement. air quality.

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Chapter 13. Our net zero ready vision for 2035 (continued)

D: Heat networks Figure 6: Proposed heat networks – Energy source – BEIS (August 2019) Data from the Regional FES indicates that There are around 14,000 heat networks across blended hydrogen will be injected by 2030 in the UK, which supply around 2% of all heat Other: the south west of England, and by 2027 in demand from UK homes, businesses and 7.9% Biomass/Mine Water – 3.95% Wales. We have been supporting the Navigant industry. Currently 91% of heat networks are EfW (Energy from Waste) – 3.95% Pathways project, coordinated by ENA, which is powered by gas.9 The BEIS Clean Growth looking at a roadmap to decarbonise the gases Strategy suggested that heat networks could, by in our network. 2050, meet 17% of heat demand in homes and Gas Hybrids: The project included the development of case up to 24% of demand in business and public 32.89% EfW (Energy from Waste) – 10.53% studies demonstrating the impacts of difference 10 sector buildings. The UKCCC proposes that Water source heat pump – 7.89% pathways on consumers and networks. This has 18% of homes will be connected to a low carbon Biomass – 7.89% shown that the north of the country would be hybrid heat network in its core scenario, but with 59.21% Ground source heat pump – 2.63% dominated by pure hydrogen and the south of the use of gas to meet peak demand. Waste heat (w/o heat pump) – 2.63% the country – which includes our region – would Biogas – 1.32% As discussed in Appendix 13L, heat networks be dominated by biomethane, with hydrogen can increase local gas demand, and in the case clusters and blending in specific areas. of Combined Heat and Power energy centres, as P as is te The hydrogen pathway comprises the following: 11 double it. Research from BEIS indicates that North Wales is expected to be able to receive a 92% of future heat networks listed for delivery in proportion of hydrogen from the industrial North the 2020s will be sourced from gas CHP or gas E: A hydrogen-ready network The mains replacement programme means West Hydrogen Cluster; and in South Wales hybrids (see Figure 6). for industry and cities that our networks are largely hydrogen ready work is already underway to determine the However, delivery has been slow, with only in our low pressure distribution networks. As a feasibility of using hydrogen to support a regional Changes to infrastructure will result, minimal investment would be required to industry cluster. We anticipate developments in nine of the BEIS promoted schemes being enable us to transport hydrogen in forecast to become operational in the area by the network and reduce make them properly hydrogen ready in order to hydrogen for industry that will support hydrogen 2026. The scale of investment requirements carbon emissions. support the transformation across to hydrogen. for all loads in Swansea, Cardiff, Newport and Bristol. in these circumstances is uncertain and we A number of projects are underway to develop are not proposing investment in GD2 base We anticipate that hydrogen uptake will be evidence and safety cases to support the While the single scenario (2018 FES) did not allowances, but suggest it forms part of a net zero accelerated in response to the Government’s transport in existing pipelines of hydrogen include any hydrogen for us before 2035, we uncertainty mechanism. net zero announcement. blended in natural gas at proportions of up to believe that uptake will accelerate as outlined 20% volume. These projects include Hydeploy, above to meet net zero. In our region this would Click Appendix 13L for further information a trial at Keele University that is looking at the use impact North Wales in GD2, South Wales in GD3 on heat networks and CHP. 18% of blended hydrogen in existing gas networks. and the M4 extension to Bristol during GD4. The UKCCC proposes that 18% of homes will be connected to a low carbon hybrid heat 9 BEIS Clean Growth: Transforming Heating – Overview of Current Evidence (December 2018). network by 2050. 10 UKCCC Net Zero Technical report (May 2019). 11 BEIS: Heat Networks: 2019 Q2 Pipeline, (August 2019).

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Chapter 13. Our net zero ready vision for 2035 (continued)

The use of hydrogen will support F: Low cost, low carbon distribution system Figure 7 shows the forecast reduction in CO2 equivalent greenhouse gas emissions as leakage from decarbonisation by providing low carbon gas our network as we move towards full decarbonisation towards our net zero vision. Renewing infrastructure will to customers who use it. Where hydrogen is reduce carbon emissions and Figure 7: Greenhouse gas emissions (CO equivalent) blended with methane gas no action will be improve infrastructure long into 2 needed by customers to update their equipment the future. 600000 and appliances. However, in the case of pure hydrogen, external enablers will be required. As we outlined above, we will continue our 00000 The use of hydrogen supports whole system mains replacement programme in GD2. This will 00000 operation in the same way that natural gas does support our net zero ambition in two ways. 00000 Firstly, by reducing leakage and the associated 2 now, and its contribution to decarbonisation 22 greenhouse gas emissions, and secondly by will support initiatives in other areas such as 200000 renewable generation and the use of hybrid providing a network that is largely hydrogen 222 102 heating systems to help the UK achieve ready to transport pure hydrogen. 100000 its net zero ambition. 10 1200 Baseline 2019 2021 2026 2031 2035 2036 In addition, the use of power to gas means By 2035 our network that hydrogen can support whole system will be ready to transport balancing and reduce the impact of constraints pure hydrogen. The delivery of a low cost, low carbon system the proportion of green gas (including to renewable generation that would otherwise will help decarbonisation by reducing the amount hydrogen) that is transported by our network be in place. of leakage in our system. At the same time based on an early view of our Regional FES the carbon content of the gas will be reducing project and supported by the findings of the Click Appendix 13M for further details of the because of increases in the proportion of green Pathways project. hydrogen proposals. gas being injected into the network. The ability to transport a range of gases in the system Investment required in GD2 Investment required in GD2 will support whole system balancing, allowing We intend to increase the rate of repex in GD3 The rate of repex will not be increased in decisions to be made about how different and we will have additional costs associated GD2 above the planned mains replacement sources of energy in different regions can be with recruitment and training to support this programme (Click Chapter 16). However, used in the most efficient way. As mentioned during GD2. As we approach transformation we believe that specific investment in this above, our ability to accept hydrogen injection in GD3 we will also need to undertake specific area will be required during GD3 to support into our network will also help make the work associated with rolling out pure hydrogen hydrogen roll-out. best use of renewable generation via power (over and above the work we have undertaken to gas technology when it would otherwise for mains replacement). be constrained. In GD2 we will participate in research and GD3 repex preparation mechanism Note: These projections are based on: assumed development to understand the impact Proposed funding completion of the mains replacement programme of hydrogen and to seek ways to reduce Work required GD2 costs £m mechanism by 2032; increased work to reduce emissions from emissions from our above ground installations. Repex Recruitment and training to support 10 Net zero mechanism preparation increased repex workload starting GD3 our above ground installations; and an increase in Total 10

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Chapter 13. Our net zero ready vision for 2035 (continued)

G: System operability We expect this to grow in GD2 and will increase Other examples of our commitment to an informed Our network must be flexible to deliver our our manpower to facilitate third party research 8. Customer and debate include being the first network to present vision, with smarter controls, more dynamic projects, aligning with our support of LAEPs. stakeholder feedback to the All Party Parliamentary Group for Energy operation and consideration of the whole We have been a leading partner in debates Studies; we have also contributed to all phases systems impacts, especially with local electricity Click Appendix 13E for further information around the future of energy – influencing and of the Carbon Connect work. We are on the on our work with LAEPs. DNOs. We have plans to deliver new system informing and listening at national, regional and Advisory Board of Flexis and chair or participate requirements in relation to day to day monitoring, local levels. This engagement has informed the in many other groups including the Institute of control and optimisation of our assets. System operability improvements will help 2035 vision and our investment proposals. Welsh Affairs’ project Re-energising Wales. These processes will become increasingly decarbonisation, enabling us to support While customers want bills to remain affordable, complex as we develop new gas injection new technologies, new gases and changing Other stakeholder engagement they have identified the environment and strategies and more flexible gas usage. We have customer requirements. These improvements We held two conferences (on green gas decarbonisation as important priorities on which plans in place to address the increasing cyber will help the UK meet its net zero ambitions, and distributed power generation) to share we should focus future investment planning. risk and these are discussed in Chapter 20. supporting whole system optimisation. learning and best practice between networks, We are currently working with the other GDNs There is also a wider sense from the public and developers and other industry parties with a Click Appendix 13N for further information about and NTS to review how daily processes for system operability. organisations that represent them on the urgent view to improving and aligning processes and calculating LDZ calorific values will be passed need to address climate change – expressed gaining insight into future requirements for green from NTS to the GDNs. for example through the declarations of climate gas and power generation customers. The key This is valued as part of our emergencies by local authorities, universities feedback was that stakeholders were pleased to Investment required in GD2 net zero CVP in our renewable and NHS trusts. have an opportunity to engage and share best CVP The below investment is expected in GD2 and net zero generation, decarbonisation practice and keen that gas networks should is valued as part of our net zero CVP. We have of heat and transport models. Government, policy makers and regulators continue to work together and develop standard had increased requests for support in GD1 from We work closely with high-level decision makers approaches where possible. third parties such as community energy projects within government, regulatory bodies and We regularly discuss future of energy and local authorities (in relation to their climate other decision makers, including BEIS and the developments with our Critical Friends Panel, emergency declarations). UKCCC, engaging around aspects such as including at surgery sessions for those who are smart hybrid systems and the use of hydrogen, keen to engage with us further. and sharing the findings of the Freedom project. System operability funding mechanisms We work closely with university academics We are pleased that our views are now being to share practical industry knowledge and to Proposed shared by decision makers, such as within the Work required GD2 costs £m funding learn from their theoretical research, modelling UKCCC’s February 2019 Housing policy report, and expertise. We are currently sponsoring New IT systems/ Improve short, medium and long-term 1.6 Net zero which endorsed smart hybrid heating systems functionality including: forecasting systems and increase visibility of our mechanism PHD students at the University of South Wales network and customer behaviour by linking data and hydrogen cities as a low regrets pathway who are examining production of biomethane, into control systems to the full decarbonisation of heat. As another making processes greener and more Increased manpower This team will include a Director of FOE; Green 0.8 Net zero example the Welsh Government’s Head of controllable. This engagement provides insights Gas Development Manager; System Optimisation mechanism Housing Decarbonisation has expressed a into the way technology may be heading and Manager; FOE Project Manager; FOE Project Officer; keen interest in considering a large-scale future opportunities. FOE Network Analyst; FOE Community Engagement demonstrator of smart hybrid heating systems Total 2.4 within social housing in Wales.

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Chapter 13. Our net zero ready vision for 2035 (continued)

We have routine discussions with our larger Engagement informing our commitments In addition it was clear that we should share users and specifically contacted 14 of these Delivering a net zero ready network by 2035 information, such as the Energy Pathfinder customers around the interruptions auction. tool, more widely to support the development Based on 22 engagements with more than At the Regional FES workshops, attended of future energy scenarios. In our willingness to 22,000 stakeholders, it is clear that our We’ve enjoyed working with Wales by 20 key users, key topics discussed were pay research SMEs scored this commitment commitment is viewed as the right thing to do to & West Utilities on Biomethane their use of gas for power generation, their higher than domestic customers both in terms of help reduce emissions across the UK and for us decarbonisation options, and implications connections – these projects importance and perceived value. to evolve as a responsible business. Our breadth of changes to gas quality specifications as of engagement includes our vulnerable have the lowest cost, least Our collated feedback recognises that investing we look to admit a wider range of gases into customers, 43% of whom said that a sustainable complexity, and most capacity in innovation and working collaboratively with our network. future is the most important objective after innovation within the GB market. the wider industry to support national strategic During early 2019 we conducted specific reliability. Our domestic customers indicated that energy challenges is an important priority to focus group sessions with stakeholders to test investment in innovative and greener technology stakeholders, and we should develop our plans our decarbonisation strategies and to help us is the second most important priority. with this in mind. understand how customers feel about short- Our customer acceptability research from Green gas stakeholder Ensure that the investments we make today will term disruption for long-term gain. summer 2019 showed an overall acceptability of support future energy scenarios and therefore In addition, the CEG challenged our early 64% for this commitment. Its relative importance represent a no regrets energy solution strategy, commenting that it was too narrow in our willingness to pay research showed this as Based on 15 engagement events, including and that it focused solely on heat and did not only 17th out of the 25 commitments; however, over 22,000 stakeholders, we are seen as adequately consider scenarios from other interestingly it came out as the 9th commitment playing a central role in creating a sustainable sources. We have worked extensively with the customers were willing to pay more for. energy future. Stakeholders are encouraging CEG to explain our whole systems data and There is clear stakeholder interest and us to incorporate measures to achieve this modelling. We have also significantly widened approval for our projects (such as Freedom) in our planning. In particular the view of the our GD2 focus to incorporate heat, power and supporting this commitment. Therefore, we Critical Friends Panel was that investment for a transport and have increased our ambition to are now recommending steps that would roll green future was a priority although there were deliver a net zero ready network by 2035. out this work, striving towards industry-wide concerns particularly in Llandudno and Swansea The RIIO-2 Challenge Group acknowledged the decarbonisation. Based on this feedback and about whether the assets would be fit for vision and challenged the fact that no action Government support, we are committing to Invest in innovation to support the national purpose for emerging technologies in the future. is being taken during GD2. They requested delivering a net zero ready network by 2035. strategic energy challenges, working Our national collaborative engagement with further analysis on the options considered collaboratively with Ofgem, BEIS and the experts highlighted that there is a delicate and this is now contained in our net zero wider industry balance between low regrets and the need to act uncertainty mechanism. now. We are therefore committing to ensuring Based on 20 engagement events involving over that the investments we make today will support Click Appendix 5F for further information 22,000 stakeholders; it was clear that we should future energy scenarios and therefore represent on our engagement. do more to inform our stakeholders on future a ‘no regrets’ energy solution. energy and decarbonisation initiatives while ensuring that we are aligning with key players in the industry.

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Chapter 13. Our net zero ready vision for 2035 (continued)

Future engagement 9. Enablers to our vision Financing options Third party enablers In GD2 we will continue our quarterly meetings As outlined previously, we believe that there While this chapter has focused on the with powergen developers, engagement with Innovation CVP should be an uncertainty mechanism that will investment that will be necessary for us to deliver support our net zero ambition while protecting our net zero ready vision by 2035, industry through our annual forecasting process, We anticipate that there will be a requirement and our discussions with other developers customer bills and network financeability. there are a number of areas where the for innovation projects to support this area of actions of third parties will have an impact wishing to connect to the grid. Any current licence obligations delivered through work during GD2 because of the significant and where market forces will come into play. our current connections policy have been We will undertake further research and change in this area. Projects are likely to be We have provided our forecasts of the key included in our BAU totex plan. innovation along with collaborative whole system needed to: enablers below. projects such as Zero2050, a project looking –– deliver low-cost modern energy services Our net zero timeline at decarbonisation pathways for South Wales. to allow customers to use energy in the ways 2019 We will also continue to work with local they want to use it; Enablers Baseline 2021 2026 2031 2036* authorities, as well as with SPEN, WPD and –– maximise the adoption of technology that Hybrid Heating BioGas Areas (Consumers) 70 500 120,000 300,000 625,000 SSEN, to develop agreed scenarios for the areas can demonstrate flexible, cross vector Systems Hydrogen Areas – – – 200,000 375,000 where our geography is coincident. or low carbon technologies; (Consumers) Finally we will set up a Wales Green Gas Panel –– deliver whole system solutions that enable no Off Gas Grid heating Heat Pumps (Consumers) 2,100 3,200 25,000 75,000 130,000 in Wales where we only have one connection build options, both within and outside of our DNO Investment Peak Demand increase (%) 0% 5% 12% 27% 39% to date, allowing us to promote best practice. geographical region; Drivers System Inertia % 70% 67% 64% 59% 55% We will also use our national collaborative –– implement the technology, methods and Storage (MWh) 11,000 12,000 13,000 13,900 15,000 engagement to widen our coverage and further policies to deliver a net zero ready network promote biomethane across the UK. While we by 2035. Renewable Wind 2.3 4.8 6 7.2 8.5 generation capacity are not proposing a bespoke Stakeholder Nuclear 1 1 1 1.1 1.2 Our commitment needed (GW) Engagement Incentive, our commitment to Marine 0.003 0.005 0.08 0.18 0.3 engagement in GD2 is explained in detail in Invest in innovation to support the national Solar 0.14 0.23 0.32 0.41 0.5 Chapter 5 where this Wales Green Gas Panel strategic energy challenges, working is also explained further. Transport EV Cars 29 80 1,000 3,300 3,600 collaboratively with Ofgem, BEIS and the (thousands vehicles) wider industry. EV EV Vans/LGV 1 2 18 200 400 Electric Buses 0.03 0.05 0.4 3.5 9 Our £10m investment in CMG Buses 0.04 0.25 0.5 2.5 5 heat innovation will deliver a CVP CMG HGVTrucks 0.17 2 7.6 12 18.8 net zero consumer value of £82m in GD2, part of our net zero CVP. Energy Efficiency Demand reduction % 0% 3% 5% 10% 15% on 2018 level

Click Appendix 13O for more information about the * Data in this table is shown in the 5 year increments that reflect likely RIIO periods. future requirements of industry in our region.

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Chapter 13. Our net zero ready vision for 2035 (continued)

As part of this wider picture we recognise that our customers and other stakeholders have a role to play in delivering decarbonisation strategies A summary is included below of the investment by changing the ways in which they use energy and the quantities they consume. Support will be necessary for vulnerable customers and those to be delivered through our uncertainty in fuel poverty to assist them to make changes in their current arrangements. mechanism proposal. The table below provides details of the ways in which enablers may be delivered during and beyond GD2. Significant discussion with industry Net zero forecast costs and regulators would be required to determine the preferred approach and to confirm how it would be funded. Work Cost £m Cost per required RIIO–2 annum Enablers to consumer uptake of low carbon technology (eg hybrid heating) Flexible generation Enabler Description Who pays Pros Cons PRI upgrades1 23 1.7 0.3 Energy supplier Energy suppliers deliver on their Immediate pass-through to all Proven methodology. Sporadic obligation obligation by installing innovative consumers via energy bills. Ad-hoc Pipelines for 85km 82.6 16.5 measures to eligible households. capacity and/or storage Delivery provider Installers bid into a central process Immediate pass-through An element of means testing Would compete against other Below 7 bar 75 km 29.7 6.0 auctions to win installation work. via taxation. through taxation processes. departmental priorities eg reinforcement education and health. (MP and IP) Delivery risks around a centrally Total 114.0 22.8 managed process and government funding. Green gas Gas and electricity Networks deliver on their obligation Immediate pass-through to consumers Networks are experienced in delivering Sporadic Compressors 12 16.6 3.3 network obligation by installing innovative measures via suppliers (included in the opex major projects and are delivering Ad-hoc Smart systems 12 1.6 0.3 to eligible households. element of network charges). exceptional standards of service. Total 18.2 3.6 ECO bank funding An obligation to provide low-cost Customer pays. Eases the burden of initial upfront Little incentive exists Gas vehicles finance to customers. costs on consumers. for consumers to act. Reinforcement 16km 6.3 1.3 High delivery risk. Total 16km 6.3 1.3 Network led Networks lead installation of innovative Funding through RAV and paid back over Networks are experienced in delivering New approach. roll-out measures to eligible households. a lifetime of eg 45 years (included in major projects and are delivering System operability capex element of network charges). exceptional standards of service. New IT systems 1.6 0.3 and functionality including: forecasting We propose a total investment of £150.9m, of which £140.9m form system upgrades Conclusion and data the basis of our net zero uncertainty mechanism and are valued as part controls This chapter has set out our ambitious plan to decarbonise heat, power of our net zero CVP at £4.3bn. Increased Support 0.8 0.2 and transport in our regions, delivering a net zero ready network by manpower net zero 2035. We have a clear vision of the role our network will play, what Finally, we are excited to be a part of a broadly defined whole systems activities approach that will provide the flexible and regional solutions that our needs to happen to facilitate this, and how much investment is required Total 2.4 0.5 customers are seeking for today and in future. in GD2. We are confident that decisions taken now will avoid more GD3 repex preparation costly solutions in future, and very much welcome the sense of urgency Recruitment 10 2 that has come from the Government’s June 2019 announcement. and training Total estimate 150.9 30.18 spend

1 This is included in our base totex proposals.

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Chapter 14. Environmental Action Plan

1. Highlights of our plan In GD2, our Environmental Action Plan (EAP) In GD2, we will significantly reduce our carbon Investing in our EAP: will drive our increased environmental ambition footprint and drive down our consumption and We care about protecting and improving the Delivering a sustainable network, whilst keeping by addressing: waste generation, whilst laying the foundations costs as low as possible for customers, has environment. We understand that our works can for even further reductions within WWU and our have a negative impact on the environment, but –– Our Business Carbon Footprint (BCF) been a crucial consideration when producing supply chain in the future. We will also focus on our EAP. We believe that making good business we are passionate about taking responsibility –– Decarbonising heat (as detailed in Chapter new impact areas including biodiversity and air decisions should go hand in hand with making for sustainability matters in areas that are both 13: Our net zero ready vision for 2035) quality taking opportunities to maximise benefits within and beyond our direct control. We will great environmental choices. Delivery of the –– Adapting to climate change to our customers. work with our supply chain, partners and other minimum EAP requirements, mandated in Ofgem stakeholder groups to deliver best practice and –– Resource management/waste Our alignment with the UN Sustainable guidance, make up the majority of the EAP cost, lead environmental innovation, demonstrating –– Sustainable asset management Development Goals (SDGs) will help to ensure with approximately 40% of the costs coming the benefit to businesses and society of and procurement we are reducing our impact and encouraging from the employment of full-time reporting staff. protecting and enhancing the environment. –– Natural capital others to do the same. The following section Special initiatives, over and above the minimum sets out the outputs and environmental benefits requirements, represent a low-cost approach and we intend to deliver. provide significant added value for customers. Special investments associated with tree planting Click Appendix 14A for full details on the EAP and community activities over and above the and supporting methodology. minimum requirement represents £11 of social benefit for every £1 spent. Our EAP delivers over £3m Other larger investments including our award- CVP of societal value in GD2. winning proactive land management programme are fully costed and appraised.

Click Appendix 15A for a catalogue of our CBAs and engineering justification documents.

Summary of the budgeted costs to deliver the EAP Total Cost Average Cost to Deliverables in GD2 (£m) Consumers/yr of GD2 EAP £2.65 21p –– Minimum Requirements £2.30 18p –– Special Initiatives £0.35 3p Land Management £6.80 54p

Note: Click Chapter 13: Our net zero ready vision for 2035 for details on decarbonising heat.

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Chapter 14. Environmental Action Plan (continued)

2. Introduction 2020s 2030s 2040s 2050s The environment remains high on the agenda for government, scientists, industry and Aim to exceed Government targets Delivering an stakeholders. There is also public concern over of net zero carbon by 2050 environmentally issues such as climate change, air quality and sustainable Reduce business carbon Reduce business carbon network plastic use. It’s important to us as a GDN to limit footprint by 63% by 2034 footprint by over 80% whilst our negative and improve our positive impacts Understand ensuring lower energy costs Become a Zero and influence Be a net zero ready to consumers on the environment. In GD1, we have made the reduction Waste Company Create natural network by 2035 capital net gain significant strides to reduce our environmental on supply Embed WWU while delivering environmental chain carbon Own a zero emissions impact by: a safe and principles to drive fleet by 2035 reliable gas sustainability within Continued network –– reducing our annual BCF by 18% since 2013; Eliminate waste from business wider society investment in within upstream suppliers –– implementing a comprehensive recycling replacement of inefficient

scheme across our operational and office- Business carbon iron main Provide national based functions; Ensure zero waste impact by enhancing –– delivering 85 land management outputs, to landfill by 2035 and protecting natural capital stocks significantly reducing the contaminated Eliminate waste from Become an exemplar land risk to consumers and vulnerable WWU activities company for employee driven water bodies; environmental best practice Incorporate circular –– connecting an impressive 19 biomethane Forge partnerships and engage with economy principles producers to the network; innovation to bring existing waste streams within our value chain back into beneficial use –– enabling flexible generation to provide back Deliver measurable net gain to up for renewable energy sources; Employ WWU procurement ecosystems within Wales and the processes to drive waste reduction south west –– maintaining our ISO14001 environmental within subcontractor organisations management system accreditation without Demand the highest environmental Drive down consumption and standards across the company a single major non-conformity. increase circular economy supply chain principles within the business

Our EAP is ambitious. We have recognised our Waste Provide infrastructure and Ensure data integrity around environmental impact areas knowledge to enable employees to long-term environmental aspirations and worked to guarantee high internal standards and maintain trust make environmentally considered backwards to define the steps required to meet with stakeholders choices within their private lives them. In GD2, we will monitor and minimise Deliver biodiversity net gain through the environmental impact we have within all impacting work streams Place ever greater importance on the environment our communities. We will continue to exploit while continuing to deliver safe and reliable services Provide a safe and reliable gas network with minimal opportunities to make a positive impact, looking negative impact on air quality and natural resources Recognising successes and embracing opportunities to improve for innovative solutions to the challenges we face and working hard with internal and external stakeholders to ensure that our EAP delivers for Natural capital Culture & society our customers.

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Chapter 14. Environmental Action Plan (continued)

3. Challenges and opportunities Technological advances will enable us to EMS and commit to retaining our ISO14001 We have reviewed our main activities and their collaborate, innovate and influence stakeholders accreditation, supporting colleagues to meet environmental impacts against stakeholder In GD2, a wide range of challenges and to deliver impactful solutions. our environmental ambitions. We continually views, as shown below; where the size of opportunities will face us as we deliver a leading seek to understand our environmental impacts the circle reflects the number of activities environmentally responsible and value-for-money With over 23 councils in our network having and anticipate our main GD2 impact areas to that contribute to our environmental impact. gas network. Some of the more significant declared a Climate Emergency, we can engage reflect those in GD1. challenges include: on a regional and local level with local authorities We have tailored our EAP to maximise the (LAs) and communities to support positive We will continue to strive to reduce these benefits to the environment and to our The increased amount of work taking place in changes that matter to them. We will continue to impacts; which include, for example, emissions customers, based on a thorough understanding Devon and Cornwall. We know that there are support the development of Local Area Energy from shrinkage which have a significant impact of our impacts and stakeholder expectations. fewer local quarries and limited viable waste on climate change, and the use of virgin Plans (LAEPs). We do not currently have baseline data for new treatment facilities in this area. We also anticipate aggregate as backfill which has an impact on impact areas. Initiatives within existing impact an increase in open cut techniques associated Increasing our focus on changing behaviours resource consumption and climate change (soil areas are not specific enough to provide reliable at work and in our communities provides sequestered carbon). with the mains replacement work (Click Chapter forecasts. Baselines for the EAP will be collated us with the greatest opportunity to generate 16 for more details). This could lead to an The assessment methodology for the EAP from 2020. increase in our BCF, the amount of spoil sent to wide-reaching environmental change. is primarily qualitative and is set out in the landfill and the use of virgin aggregate against Through co-design, co-production and co- appendix. We have assessed options for our GD1 levels. delivery of initiatives, we will create ownership environmental activities in conjunction with our and enthusiasm. Starting in 2020 and continuing The rapid evolution of environmental stakeholders and this process has led to the into GD2, we commit to public reporting on the initiatives we are proposing. improvements. Forecasting which new solutions progress of our environmental initiatives outlined will deliver the most benefit at a reasonable within the EAP on an annual basis. cost will be challenging. Our EAP has been Main activities and environmental impacts developed based on working with stakeholders 4. Monitoring our impact and what we already know. Adaptation Waste climate change management Our continued reliance on national and local Reducing our carbon emissions, government to facilitate the right market limiting our negative and Land management increasing our positive impact conditions. Offering alternative gas connections on the environment. to the network will provide significant environmental benefit; however, we cannot Delivering a reliable, low cost gas distribution Air directly increase the volume of alternative Very important Water pollution network can have a negative impact Use of non renewable Carbon gas ourselves. Noise resources on the environment. Our Environmental Biodiversity Some of the more significant opportunities to Management System allows us to understand, monitor and continually improve our achieve this include: environmental performance. The increased global focus on environmental None of our activities were rated as “not at all important” issues. This supports our mission to increase We are proud to have achieved and maintained Not at all our ambition. our ISO14001:2015 EMS accreditation with important no major nonconformities throughout GD1. In GD2, we will embed our EAP within our Low impact High impact

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5. Consumer and Stakeholders (both domestic and SMEs) expressed positive willingness-to-pay for this stakeholder feedback commitment before any other, highlighting Our customers care about the environment the high perceived stakeholder value involving and want us to act to make sure that they have environmental repex schemes. CEG feedback clean, reliable and affordable energy. In fact, two and internal stakeholder support for carbon of our customer personas, “Environmentally reduction, since October, has resulted in a Considerate” and “Environmentally Engaged” pledge to undertake a trial that may provide make up 54% of our customer demographics. an innovative solution to reducing pre-heat Discussions with leading sustainability experts gas consumption. who have cross sector knowledge on carbon, Move 75% of company cars to hybrid or ultra biodiversity, the circular economy and resource low emission vehicles by 2026, explore green management have helped to ensure our alternatives for our commercial fleet, and achieve ambitions and targets are stretching, align a zero emissions fleet by 2035 – supporting with government policy and are scientifically biodiversity and improving air quality. robust. Customers were impressed that we are planning to align our EAP with the SDGs and Whilst network leakage is the main contributor to sustainability came out as the third priority area our carbon emissions, stakeholders felt that we that customers are willing to support financially. should not ignore smaller elements of our carbon footprint. This feedback very much supports our Councils have suggested that we should remove commitment to address company cars and our trees where they present a significant risk to commercial fleet. our pipe work and to replace them as part of urban community engagement programmes. We had not anticipated the challenge we Engagement informing our commitments Our initial draft commitments in this area did not received around our use of “plastic” pipes address our fleet, only our company cars which Stakeholders want to see even greater Further reduce gas shrinkage by 10% against to upgrade older, leaky metallic pipes. we were challenged about at a recent CFP, and engagement with parish councils in GD2 around the 2021 target value of 454,000 tCO through We explained to customers that PE pipes last 2 subsequent internal stakeholder engagement local waste disposal opportunities, biodiversity the continued replacement of over 400km of old 80 years and that unfortunately recycled plastic has overwhelmingly supported reducing and air quality. metal pipe and 20,000 services – the equivalent pipes could not withstand the pressure required our carbon footprint. SMEs have shown a of permanently taking 46,000 cars off the road. The RIIO-2 Challenge Group has challenged to maintain safety levels. We also explained willingness to pay for our move to a green fleet. our EAP level of ambition, as did the CEG, that our pipe off-cuts are recycled into new Stakeholders have provided unanimous support A Westminster briefing with contributions from along with our limited engagement on this gas pipes. for our work towards reducing shrinkage, as it topic. In response to this, we undertook further Natural England, Balfour Beatty, Network Rail impacts both the environment and the safety of and local authorities has given us beneficial engagement and as a result have increased the our network. The Critical Friends Panel (CFP) level of ambition significantly in terms of our net insights into the protection and enhancement highlighted that 97% of a gas operator’s BCF of biodiversity. zero ready network, improving biodiversity and stems from leakage and was very positive about reducing emissions and waste. our commitment in this area.

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Chapter 14. Environmental Action Plan (continued)

6. Our GD2 focus areas Business Carbon Footprint Delivery of our ambition is dependent on Reducing our BCF will assist the regulatory and governmental support. Here we UK Government in achieving a zero set out our six EAP focus areas in GD2: carbon future. –– BCF Today’s consumers, Shareholders and –– Decarbonisation of heat (Chapter 13) governments are demanding that businesses –– Adapting to climate change take responsibility for their carbon emissions, –– Resource management/waste working towards a low carbon future. –– Sustainable procurement Going into GD2, we have adopted a “science –– Natural capital based target” (SBT) approach to our carbon reduction. Click Appendix 14A for details on options considered to arrive at our EAP. In line with best practice, we will be defining two science based target ambitions, one Our commitment long-term target in 2050 and one short-term Reuse and recycle at least 80% of our waste by Invest £6.8m to assess, manage or reduce Further reduce gas shrinkage by 10% against target, which will be within 15 years of the baseline. (Our baseline will be reset to 2020 2026 and send zero waste to landfill by 2035, the negative impacts of historical gas works the 2021 target value of 454,000 tCO2 through to achieve our ambition to be a zero waste at around 70 sites in our communities. the continued replacement of over 400km of old following independent specialist review and company by 2050. We propose a bespoke price control deliverable metal pipe and 20,000 services per year – the verification of our BCF). to support this. equivalent of permanently taking 46,000 cars It is evident from our stakeholder engagement Our overarching, shorter and longer-term off the road. since our draft July plan that there is strong We know that stakeholders want us to be SBT ambitions are to reduce our GHG support for this commitment. Moreover, the ambitious and reduce the less environmentally emissions by 63% by 2034 (1.5°C) and Move 75% of company cars to hybrid or ultra- CFP considers 80% recycled waste to be an friendly aspects of our activities. Our proactive to be a carbon net zero company by 2050. low emission vehicles by 2026, explore green achievable target. Acceptability testing has land management programme and the related alternatives for our commercial fleet, and achieve This represents an increase in ambition from revealed that domestic customers are willing GD2 commitment to assess, manage or reduce a zero emissions fleet by 2035 – supporting the draft October submission, in response to pay for this commitment. the negative impacts of historical gas works at biodiversity and improving air quality. to RIIO-2 Challenge Group feedback and around 70 sites has received a positive response stakeholder mandate. This new ambition Challenge by the CEG and RIIO-2 Challenge from local authorities. Group, and internal stakeholder support since is aligned to our net zero ready vision for our draft October plan, has supported our This ratification is important to us. We have 2035 and associated funding requirements. increase in ambition around waste management. amended our commitment in this area since 75% Should funding be unavailable our short-term the draft July plan and following feedback and of company cars to be hybrid or SBT ambition will be to reduce our GHG acceptability testing as we wanted to make it ultra-low emission vehicles by emissions by 37.5% by 2034 (2°C). more specific. 2026 to support our ambition for a zero emissions fleet by 2035. Click Appendix 5F for further information on our engagement.

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We will achieve these by reducing gas Our GD2 BCF commitments – – challenging our driving behaviours Decarbonising heat and electricity consumption across our In GD2, we will produce an annual environmental and reducing our carbon emissions Our GD1 successes sites, investing in alternative fuelled fleet report verified by a third party expert detailing our associated with our non-operational In GD1, we proactively facilitated 19 biomethane vehicles and addressing fugitive emissions progress against our BCF target. travel by 5% by 2026, where good driving connections and voluntarily reported on a range (including shrinkage). techniques could provide significant fuel of standards associated with responding to We will be challenging business processes to savings per year; Audits of our offices and depots will continue efficiently and economically drive down our BCF connections enquiries. –– collaborating with third parties and whilst we look to invest in more environmentally through several initiatives. We also connected 31 flexible generation gas friendly solutions and our mains replacement distribution networks to understand the potential for alternatively fuelled fleet fired power stations supporting renewable programme and pre-heat efficiency trial will help Scopes 1 & 2 (direct emissions) energy creation, and future-proofed our network to reduce shrinkage. vehicles and tools, taking opportunities In GD2, we firmly commit to: from initiatives delivered by the by investing to enable the supply of greener gas. –– continuing with our mains replacement decarbonisation of heat strategies; Our ambition to be a net zero ready network GD2 commitments and activities by 2035 will see the continued replacement programme to reduce gas loss to –– limiting our energy use; ensuring We will continue to proactively facilitate the of metal mains to ensure the network is ready atmosphere (shrinkage) by 10% by 2026. environmental efficiencies with all new connection of green gas to the network by: to accept alternative gas. During the 2020s, Details on our shrinkage ambition is detailed properties are considered and installed. we will continue to innovate and take strategic within Chapter 13 (our net zero ready vision) –– challenging and reducing the cost to connect steps to address smaller contributors to leakage. and Chapter 16 (the distribution network); Scope 3 (indirect emissions) green gas to the network, ie using available –– ensuring 75% of company cars to hybrid and embodied carbon intelligent management platforms (Optinet or ultra-low emission vehicles by 2026, Preparing for GD2 In GD2, we will: innovation project); exploring green alternatives for our During 2020, in preparation for GD2, we will: commercial fleet, and achieving a zero –– investigating and collaborating with external –– Publicly report on and look to reduce emissions fleet by 2035. We will incentivise parties on opportunities to establish our Scope 3 and embodied (embedded) –– undertake a review of our BCF, covering environmentally friendly company cars to compressed methane gas (CMG) fuelling carbon emissions. Scopes 1 – 3, with the support of external influence behaviours towards zero emission stations within the network; third parties to ensure our reporting is in line vehicles and install electric charging points Click Appendix 14A for our full EAP. –– proactively facilitating future hydrogen cities with industry best practice; in offices and depots; within our network. –– develop simple tools to collate BCF data –– continuing to refresh the commercial fleet for internal and external use; We will undertake a review of Click Chapter 13: Our net zero ready vision 109 from Euro V (which is currently at 46% for for 2035 for further information. –– begin implementation of Scope 3 and cars and light commercial vehicles and our BCF covering scopes 1–3, embodied carbon monitoring and reduction 26% for heavy commercial vehicles) to with the support of external third-parties to ensure our practice to test tools and assumptions; Euro VI compliant vehicles over GD2. We In GD1, we proactively facilitated reporting is in line with industry –– develop internal policies to ensure carbon will be installing telematics that will allow us to 19 biomethane connections best practice. reduction is integrated across the business track carbon emissions and driver behaviours and voluntarily reported and disseminated within the supply chain. from individual vehicles; on a range of standards associated with responding to connections enquiries.

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Chapter 14. Environmental Action Plan (continued)

Adaptation to climate change Resource management and waste Spoil Polyethelene pipe (PE) During GD2, we forecast more open cut PE pipe and fittings contribute significantly to Taking into account climate change will Reducing consumption, ensure we are preparing our network increasing the use of recycled excavation and work within rural areas, our Scope 3 BCF. All waste PE pipe is recycled for future challenges and will inform our material and reducing waste. increasing spoil volumes. and manufactured into new PE pipe. We have investment decisions. ambitions to limit PE gas pipe waste to 5% by Based upon the assumption that additional weight by 2026. waste treatment facilities will become available We recognise the pivotal role we play in During GD1, we drove down consumption and reduced waste disposal to landfill, including in the south west of England, we will commit Continuing to use re-banding and service pipe delivering a safe and secure supply of gas to reuse and recycle at least 80% of excavated bags, we will improve our efficient use of PE to our consumers. The risk from climate change diverting spoil from landfill and segregating operational and corporate waste. spoil by 2026. We will look to minimise waste, pipe, thus reducing our BCF and consumption. has the potential to impact upon the resilience reusing and recycling where possible. We will of our network. In GD2, we plan to tackle our resource continue to pursue innovative techniques to Hazardous waste In GD1 we developed a suite of innovative management by reducing our consumption and avoid open cut, such as close fit liners and Hazardous waste has been systematically climate change impact mapping tools relevant waste generation, further embedding circular pipe bursting. removed from our business. However, our to a wide range of sectors, alongside Landmark economy principles within the business and remaining hazardous waste is typically and Ambiental. The data set can be used to challenging our contractors to increase their Virgin aggregate associated with essential operational activities. identify assets at risk in the near and long- environmental focus. (Within this plan, we refer Greater excavations may require greater use Our aim within GD2 will be to focus on potential term future and to plan appropriate and timely to waste as materials and substances that have of virgin aggregate where LAs prohibit reuse innovations to identify alternative processes or investment to proactively adapt in advance of no future beneficial use.) within roadways. We will work with stakeholders tools/materials to reduce our hazardous waste. an impact at the lowest cost. Initially focusing on reducing consumption to increase use of recycled aggregate where possible, committing to increasing use of Our commitment In GD2 we will use up-to-date government and diverting waste from landfill, we will recycled aggregate to greater than 20% issued climate change projections to assess the achieve our overarching long-term ambition Reuse and recycle at least 80% of our waste by by 2026. risk of climate change to the network. We will to be a zero waste company by 2050 and 2026 and send zero waste to landfill by 2035, test our investments against climate change send zero waste to landfill by 2035. to achieve our ambition to be a zero waste Reduce office consumption mapping to deliver best consumer value.We will In GD2, we will publicly report our progress company by 2050. Implementing the waste hierarchy, we will reduce work with other GDNs and the Energy Networks within our annual public environmental report our consumption and invest in better disposal Association (ENA) to deliver to government and aim to send a maximum of 20% waste practices. We will reduce office waste by 25% We will reduce office waste a GDN holistic UK and network specific to landfill by 2026 and deliver a minimum by 2026, reduce paper consumption by 75% by by 25% by 2026, reduce assessment of the risk. of 80% waste reused and recycled by 2026. 2026 and eliminate single use plastic by 2022. paper consumption by 75% Activities and initiatives that will contribute by 2026 and eliminate We will send zero waste Paper and plastic targets will exclude essential to the above targets include: single use plastic by 2022. to landfill by 2035. customer correspondence and plastics required to deliver a safe and reliable gas network. However, we will seek to collaborate and innovate within these complex areas to determine alternatives to current practices.

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Chapter 14. Environmental Action Plan (continued)

Sustainable asset management Supply chain reporting Preserving the natural capital Biodiversity CVP and procurement Our updated procurement policy will require An increasing understanding of the importance higher environmental standards from our of biodiversity protection has been demonstrated Using resources in a more Protecting and enhancing all sustainable way. suppliers (primarily focusing on embodied areas of the environment through in recent increased legislative drivers, such as carbon reduction and the circular economy). responsible and sustainable the Government’s Defra’s 25 Year Environment See above sections for more detail. practices. Plan. The principle of biodiversity net gain (BNG) is an approach that aims to leave the natural It is our ambition that more than 80% of The circular economy keeps resources in It is essential that, as a responsible business, environment in a measurably better state than suppliers (by value) will meet the environmental use for as long as possible, extracting the we operate in a sustainable manner to protect it was previously. standards within the procurement policy maximum value from them, then recovering and and enhance our natural environment now and by 2026. During GD1, our focus on biodiversity has regenerating at the end of life. Circular economy into the future. centred around impact reduction and legal principles already form part of our successful The number of suppliers included within annual Our GD2 plan focuses on the areas where compliance, however, our long-term ambition asset management strategy. reporting will incrementally increase across GD2, we have the biggest impact and stakeholder is to achieve natural capital net gain as tender events are completed. During GD2, we are committed to embedding endorsement: biodiversity, air quality and soil across all our activities by 2050 and deliver circular economy principles into the business, In addition, to ensure that robust and (the use of virgin aggregate is noted above in measurable biodiversity and ecosystem making sure we: reliable data is provided, we are committed the waste section and below in contaminated services net gain by 2035. Within GD2, we will to undertaking environmentally focused land management). be aiming to achieve no net loss on monitored –– set clear performance requirements including procurement audits of suppliers, focusing on the projects spanning all operational areas, with reductions in embodied carbon; top 80% by value. the ambition of achieving BNG on projects from 2026. –– encourage collaboration and innovation; –– establish a minimum design life; To achieve this, we are committed to making a measurable net gain contribution. –– demand a robust business case, taking Engagement with companies such as Network a whole life cost approach; Rail has highlighted a potential need to trial –– refurbish rather than demolish where the use of existing generic tools (such as the possible; Defra Metric) to ensure it is accurate and robust –– increase the minimum environmental when applied to projects outside of a typical standard procurement questions to include development scenario. During 2020, we will consideration of circular economy principles. begin trialling appropriate processes and metrics to ensure that we can deliver a reliable and accurate measure of our impact.

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Chapter 14. Environmental Action Plan (continued)

Developing robust and accurate reporting Our approach will incorporate biodiversity We commit to planting five trees Society as a whole will benefit from this initiative, We need to make sure that we adopt a principles and we will follow the five step for every tree we cut down. experiencing mental and physical health benefits process of: as a result of living in a cleaner environment. sustainable and best practice approach to BNG. In GD2, we plan to engage employees and (as We will apply the mitigation hierarchy, avoiding –– identifying the presence of high suggested during engagement with LAs on the Air quality the loss of biodiversity that cannot be offset value biodiversity; business plan) school children, to plant trees Air pollution is not only a major risk to human by gains elsewhere. Forging partnerships and within their urban environment. This will provide –– assessing the value of biodiversity affected health; it also has significant effects on the engaging stakeholders will help us to achieve the an excellent opportunity to increase biodiversity, by the project; environment. During internal consultation, best outcomes for biodiversity, making sure we improve air quality, engage children – and by –– engaging with stakeholders, to determine tackling air quality was highlighted as very are transparent about our progress and realistic extension, their communities – in the scientific the most effective application of the important to our employees. about loss and gain. benefits of nature. mitigation hierarchy; In GD2, we are committed to understanding Understanding, monitoring and promoting –– re-assessing the BNG metric and delivering CVP net benefit of £11 for and minimising our impact on air quality. biodiversity and ecosystem services within the project plan in light of any project every £1 invested in protecting our long-term land assets variances; CVP We will use specialist support to drive improved and enhancing the environment process and decision making in GD2 and will We have over 10 long-term land assets; –– reporting on the works undertaken and the report on our progress. including our head office and depots. We are management plan required into the future. currently working with specialist ecological In addition, we will contribute to improved consultants to understand how we can increase We will initially focus on those projects where we air quality via the following initiatives: biodiversity at our sites, providing increased will have the greatest impact, expanding to cover –– All street works will be planned with those at quantifiable ecosystem services. Initial data on a greater proportion of our projects through GD2 risk from poor air quality in mind, eg those a sample of the sites indicated that our holdings and beyond. Our commitment is to develop and suffering from asthma, heart disease, young may typically have 0.06-0.27 biodiversity units apply our biodiversity metric monitoring tool on children and the elderly. (Defra Metric 2.0) and 0-0.9 ecosystem services designated projects. score (Natural England’s Ecometric). Although, –– We will fulfil our vehicle commitments to these metrics show limited current benefit, we Click Appendix 14A for our full EAP. improve the fleet and increase uptake of see value in protecting and enhancing their hybrid and ultra low emission company cars. cumulative contribution. To ensure the integrity of the network, we are –– Our biodiversity pledge to plant trees in both Our pilot project in Bristol will see a depot required to cut down trees. We recognise that urban and rural areas will benefit air pollution. development being undertaken in a designated this has a negative impact on biodiversity within Trees absorb toxic chemicals, effectively Site of Nature Conservation Interest (SNCI), our network and are committed to supporting filtering them from the air. allowing us to make a measurable contribution afforestation across the network in long-term –– Following engagement with a LA about to Bristol City Council’s Biodiversity Action Plan. managed schemes. Therefore, in addition our EAP, it was suggested we should liaise As part of the development, WWU is ringfencing to the above BNG ambition: with them to understand where air quality approximately 1.5 acres vegetated earth bank management areas (AQMAs) are, and look to – in collaboration with local wildlife experts – avoid them whenever operationally possible. to protect and enhance the benefits the site can We will adopt this initiative in 2020. provide to ecosystem services.

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Chapter 14. Environmental Action Plan (continued)

Contaminated land management Engagement with LAs revealed that some of We own a land management portfolio of 167 our remediated sites could be of beneficial use former gas production sites. The historical use to communities. 167 We own a land management £6.8m of these sites has led to poor land asset health. As such, we are committed to ensuring that portfolio of 167 former gas Invest £6.8m to assess, manage or reduce all sites that are suitable for development are We have a duty of care under environmental production sites. the negative impacts of historical gas works legislation to ensure that our assets do not referred to local planning departments. at around 70 sites in our communities. pose a significant risk of significant harm to human health, controlled waters (surface and Our commitment groundwater bodies) and the environment. Invest £6.8m to assess, manage or reduce Our assets are monitored and maintained as part the negative impacts of historical gas works of our long-term land management programme. at around 70 sites in our communities. We propose a bespoke price control deliverable to support this. Our long-term ambition will see environmental risks reduced to a minimum and the divestment of all sites where appropriate to reduce ongoing Cross plan carbon impacts costs to consumers. Carbon reduction contributions provided by wider asset management plans have been Click Appendix 15A for our catalogue of CBAs calculated in the cost benefit analyses (CBAs). and Engineering Justification Papers including details on our Land Management. The total carbon benefit claimed by the asset plans is 458,928 tCO2e over GD2 and

21 billion tCO2e by 2070. Full details of the In GD2, we commit to delivering 85 land carbon benefits claimed are tabulated in the management outputs across 70 sites Environmental Action Plan. We will achieve this through the continuation of our award-winning programme which is Click Appendix 14A for the full version of our EAP. proactive and cost effective, adopting robust risk management techniques and taking opportunities to innovate and collaborate with stakeholders and communities. The programme will benefit local communities and the environment long into the future and stakeholders have praised this proactive approach. We will also seek opportunities to promote BNG and reduce embodied carbon, challenging our supply chain by building the protection of natural capital and reduction of carbon into tenders.

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Chapter 14. Environmental Action Plan (continued)

7. Summary of our GD2 outputs Environmental outputs Click Appendix 3A for further justification on these outputs Measure 2018/19 Comparative and type Explanation Proposal/target Stakeholder views performance performance Other requirements Customer benefits Common output measures with a common target Annual A new LO requiring We commit to new annual Environment is an increasingly New. New requirement. Further work required with Ofgem to Customers and stakeholders will have Environmental GDNs to report their reporting in line with the important priority for our customers define this output. In addition we are access to information to better understand Report environmental performance regulatory requirements. who support the reduction of our proposing wider reporting against the our environmental performance and our through BCF reporting. impacts on the environment. Sustainable Development Goals. contribution to a greener energy future. LO

Common output measures with bespoke target Environmental A PCD to support We propose long-term ambitions Our CEG has challenged us on New. New requirement. Further work required to refine Our customers will benefit through improved Action Plan GDNs to minimise their and interim targets with our environmental ambition which initiatives and derive robust health and the environment achieved by initiatives environmental impact and significant collaboration with a has resulted in wider and tougher reporting protocol. reducing our BCF which impacts air quality and reduce their BCF. wide variety of stakeholders. targets following engagement with biodiversity and limiting waste and resource PCD customers and colleagues. consumption. The EAP initiatives will return £11 in social benefits for every £1 spent. Shrinkage A financial and reputational Reduce gas shrinkage by Customers want us to reduce 351.5GWh Comparisons are difficult Continue to improve shrinkage Our shrinkage targets will deliver a significant ODI to measure the volume 10% – 31 GWH less per annum emissions quickly by accelerating total emissions. to make due to the large modelling through collaborative work reduction in carbon footprint, key to the ODI F and R of gas lost (GW/h) through by 2026. repex – this is not supported by difference in both the with suppliers and GDNs. UK's net zero ambition. Gas lost through leakage, theft of gas and Made up of 51GWh reduction local authorities due to disruption asset base between the Further work on evaluating the transportation is c.1% of the UK carbon own use gas. from mains and service and is not deliverable due to GDNs, as well as the way positive impact on carbon footprint of footprint so any reductions are significant to replacement (reputational ODI). labour availability. in which the asset base connecting green gas. the UK achieving the 2050 net zero position. was designed to operate. Offset by an increase of 20GWh There was strong customer support System pressures will be dependent from raising systems pressures to reduce emissions by 10% on the levels of mains insertion and (financial ODI). against the 2021 target value. customer demand. Bespoke output measures Land A suite of outputs to To deliver 85 land management/ Our customers care about the So far we have Not comparable. Our proactive approach minimises the Our contaminated land assets deteriorate remediation continue our programme remediation outputs in GD2 environment and support work to delivered 85 of the 86 cost of managing our portfolio of land with time and risks can increase with changes of managing and cleaning across 70 sites (GD2 cost clean these sites and bring them land management/ compared to a reactive approach. in the surrounding land use. This output PCD up old contaminated gas £6.8m). back into use. remediation outputs to We also have an ambition to reduce proactively looks to reduce significant risk works sites. be undertaken in GD1. our carbon and biodiversity impact to consumers’ health and the health of the within land management projects. environment in which they live.

Conclusion By committing to globally recognised UN SDGs, Our track record gives us confidence that we’ll Our approach is designed to deliver value for in addition to Ofgem reporting requirements, we deliver positive outcomes for our consumers money for current and future consumers; Our Environmental Action Plan is founded on are publicly affirming our intention to become and stakeholders; focusing on areas where we carefully determining the most effective targets internal and external stakeholder expectations a leading business, tackling key environmental can have a high impact at low cost and alter and strategies to implement, and the right time of what a responsible business must do to issues facing us on a local, national and behaviours to produce long-term results. to implement them. protect and improve the environment. global scale.

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This section of our business In this section: plan sets out the proposed 15. Asset resilience investments we will make in order 138 to ensure that we can provide Our high-level asset strategy including summary information on workloads reliable, high-quality services and costs including Network Asset Resilience Measures (NARMs). both today and in the future. 16. The distribution network 148 We see resilience as Investment in mains and services replacement, multi-occupancy buildings, encompassing the way in which special crossings, and repairs. our assets are run, the ability 17. Connecting homes and businesses of our workforce to respond 164 to and adapt to changing Investment to connect homes and businesses to our network including customer expectations and new service disconnection, alterations and mains diversions. technologies, and the resilience 18. Transmission and pressure management of our assets in terms of cyber 173 and physical security. Investments in our transmission assets including holders, pipelines, pressure reduction installations and governors, including physical security. A key aspect of all of these 19. Workforce resilience 181 investment plans is that they will Our strategy to ensure that we attract and retain the right people over the longer term. support and facilitate the changes that are taking place in the energy 20. Cyber resilience 188 market currently and are set to Technical and organisational cyber security measures to prevent and minimise continue through to 2050. the impact of incidents on our services. 21. Business IT security plan 189 Our plans to identify, prevent, detect, respond to and recover from a cyber attack or data breach. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 15. Asset resilience 

1. Highlights of our plan – – We are proud of our 6th successive At a glance: Investing in our assets RoSPA Gold Award, maintaining RoSPA – – Based on the feedback we have received Gold Medal Status (which is awarded Investing in our assets from stakeholders and customers, our after five successive Gold Awards). We Per year GD1 (£m) GD2 (£m) strategy for GD2 is to maintain the health are the only network currently holding this Distribution 90.2 99.4 of the assets at current levels and to achievement. We also won the RoSPA Oil Connections 19.9 21.5 offset any deterioration. This will ensure that & Gas Sector award in 2019 for industry- Transmission and pressure management 24.1 26 consumers continue to benefit from what is leading health and safety performance. Total 134.2 146.9 an extremely reliable and safe gas network. –– An important part of our strategy is the –– We are one of the top performing value we place on collaboration and Detailed explanations of cost movements can be The figure below illustrates the split networks in developing innovative partnerships – by working closely with found in the respective chapters. The key drivers of these drivers. techniques to manage and prolong many others we share best practice and are as follows: the life of our assets. Most of our GD1 innovation and stay at the forefront of Investment drivers outperformance resulted from our innovation asset management. –– Distribution – an increase in labour costs and in this area. We shared the lower costs –– We value our people and they take fewer opportunities to insert mains due to that resulted with our customers. As these pride in maintaining their competencies reduced capacity in networks. savings are enduring our customers will and in keeping us at the leading edge of –– Connections – an increase in customer 17% continue to benefit from them into GD2. asset management. driven diversions and reinforcement based –– We were the first gas network in the world –– Our strategy has evolved to face new on stakeholder feedback. to achieve accreditation to ISO55001 challenges such as cyber resilience, –– Transmission – a requirement to fully replace (in 2013), and have continued to maintain 12% increased security threats and closer a 13km pipeline because of issues with its compliance since. This accreditation integration of the gas and electricity condition and because refurbishment is no recognises our strong leadership and networks as we deliver the energy network longer a cost-effective option. acknowledges that our asset investment of the future. 71% strategy is understood and embraced at all levels of our organisation. Investment drivers –– Our strategy has been, and continues to Investment drivers can be broadly split into be, to maintain our assets at the lowest three categories: mandatory, discretionary whole life cost. We make investment and customer driven. anat B uste decisions based on high-quality data and inestent s ien on sophisticated predictive and prescriptive –– Mandatory investment is required to comply analytics. In this way we manage risk, keep with the law of the land. We have an excellent track record of costs as low as possible and ensure that –– Discretionary investment is to deliver a there is no ‘gold plating’. We also ensure that delivering investment and work of this nature. stakeholder required outcome or is driven Detailed delivery risks and associated mitigations all investments we make are robust against by Cost Benefit Analysis (CBA)/NARMs. all credible future of energy scenarios. are set out in the CBA documents appended to –– Customer driven investment is as a direct this business plan. result of customer requests to connect to our network or to move our assets. Click Appendix 15A for a catalogue of our CBAs and engineering justification documents.

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2. Introduction 3. C ustomer and points to assets. This means we can assess We have partnered with ICS Consulting who are the risk of asset failure on the vulnerable in our experts in asset risk management and optimising The network of assets that we own and operate stakeholder feedback network and manage this risk appropriately. intervention strategies. They have played a key is critical for a reliable energy supply in Wales We have put in place a targeted engagement role in the water industry and our strategy has The CEG also challenged us to demonstrate and the south west of England, today and in all strategy with key stakeholders to inform benefited from their insights into that sector. credible future energy scenarios. This is vital for our asset plan. As well as engagement how the different workload drivers impacted on domestic and commercial users. with our general consumers, this includes investment and how this linked to monetised They have helped develop our risk modelling risk and ultimately to benefits for consumers. which links asset performance to customer The way in which we manage and operate the talking to industrial users, the renewables sector, developers, local authorities, other We recognise that this is a complex area outcomes. So, for example, we can understand assets is driven by stakeholders’ expectations and one that we have spent time discussing the benefits in terms of reduced customer and by legislation. When making decisions, gas transporters and GDNs, the electricity networks, and BEIS. We also undertake ongoing with the CEG; our business plan has been interruptions that would result if we were to we take account of safety, reliability, the updated accordingly. spend, say, £1m on a district governor. impact of our assets on the environment and engagement with the HSE, which mandates customer satisfaction. In doing so, during GD1 much of our investment. We also take account of the more general steer This has helped shape our intervention we were able to meet all of our stakeholders’ The following chapters (16 to 18) set out in more from the public, for example in their response plan to ensure that it delivers our requirements in terms of the level of safety, detail the results of our engagement on our to the electricity outages over Christmas 2013 customer requirements. reliability and connections. specific asset investment and connection plans. that were the result of a severe weather event. This resulted in £4m of compensation being Engagement informing our commitments This chapter sets out our high-level strategy; Our intervention plan is a response to our given and a government inquiry being set up Continue our risk-based approach to asset detailed information about each asset group stakeholders’ required outcomes in terms in response to the public outcry. This indicated management on our network – with an effective is provided in the chapters that follow. of safety, reliability and the environment. that society in general is unwilling to experience monitoring regime endorsed During GD1 safety has consistently been disruption and that a reliable supply of energy by the HSE During GD1 we were able to reported as a priority for our customers and is of paramount importance. meet all of our stakeholders’ We have undertaken extensive engagement this, alongside reliability, has been confirmed requirements in terms of It is clear from public reaction to the fire at around our risk-based approach to asset in our most recent research. During our ‘Let’s the level of safety, reliability Grenfell Tower and from other safety incidents intervention on the network including deep Connect’ campaign 68% of consumers felt that and connections. that the public expects a high level of safety dive workshops on monetised risk specifically. keeping interruptions to their gas supplies to a performance from companies such as ours. Based on 11 engagement events including minimum was ‘very important’ (and for those more than 3,500 stakeholders, customers During our ‘Let’s Connect’ over 65 the figure was 80%). We have engaged extensively with the other campaign, 68% of GDNs and with National Grid Gas Transmission and stakeholders said that they would like consumers felt that keeping This was further confirmed in our surveys, with to share current and future challenges and to us to ensure that we maintain our approach interruptions to their gas vulnerable customers saying that maintaining a inform each other’s strategies for the benefit and the outcomes it delivers. safe and reliable supply was their top priority. supplies to a minimum was of consumers and the public. They also highlighted that this risk-based ‘very important’ (80% for We have also acted on feedback from the Our asset strategy and investment plans have approach is not solely about replacing assets those over 65). independent CEG, most notably on a challenge been shared with the HSE through six-monthly to ensure safe gas supplies, but also about in relation to the way in which we bring the bilateral meetings with their inspectors and proactively ensuring that the decisions we make needs of vulnerable customers into our asset also through regular meetings with the HSE are in the long-term interest and do not close investment decision making. We have now policy team. off future opportunities. mapped our PSR to meter points, and our meter

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Our willingness to pay research demonstrated 4. Our GD2 commitments in the following chapters. At the highest level, our We forecast to outperform our NARMs target that our risk-based approach to asset strategy and its success will be measured by: in GD1 by removing risk above our GD1 management was in the top three commitments Maintaining assets and commitment, as a result of our targeted asset –– maintaining the ISO 55001 accreditation that domestic customers were willing to pay for, infrastructure will ensure reliability intervention strategy. which demonstrates excellence and in the top four for SMEs. and decrease BCF. in asset management, through In essence, the risk posed by our assets increases As well as listening and learning from our continuous improvement; over time as they deteriorate. Our investment In summary, our GD2 approach to managing stakeholders, we have used our influence to –– maintaining safety (through major accident plan has counteracted this increase in risk. assets is to maintain levels of risk at a broadly flat help steer the gas and wider UK energy industry hazard prevention); We measure risk by monetising it. forward to meet the future challenges of green, rate and to make investments that will support –– acceptance by the HSE of our GS(M)R Our plan is designed to keep network risk at the affordable and reliable energy. the energy network of the future. safety case; end of GD2 at a broadly similar level to the level This approach will keep the chance of an As an example, in GD1, two of IGEM’s –– review by the HSE of our Control of Major at the start. We see GD2 as a key price control unplanned gas interruption to 1 in 250 years presidents came from WWU and they have Accident Hazards (COMAH) safety report; for learning from the NARMs assessment and played key roles in the strategic direction and will ensure that gas incidents remain a very for testing its potential as a benchmarking tool –– maintaining system capacity sufficient to of this organisation and the influence it has rare occurrence. across networks. supply our consumers in the most severe on the energy sector. To do this we plan to invest and will: winter conditions (achieving our 1 winter The chart below sets out the level of monetised risk on our assets as we enter GD2, the level of Click Appendix 5F for detailed information –– replace 2,179km of ageing metallic pipe and in 20 obligation); about our engagement. 86,740 connected services; –– reducing our Business Carbon Footprint BCF risk if we do not intervene, and the level of risk achieved by delivering our GD2 investment plan. –– refurbish or replace more than 8,000 of our from the gas network by 10%; The CEG challenged us to maintainable assets; –– maintaining the health and risk of our GD2 Total Monetised Risk (£m) include vulnerable customers –– connect 50,000 new customers and assets at the current levels accepted by in our asset investment enable the connection of a further 100,000 our stakeholders – measured through 20 decision making. customers by third parties; the NARMs; 200 –– lay 92km of reinforcement main to support –– ensuring that our records are accurate new connections. and up to date as the network changes. 21 10 200 11 The chapters that follow set out further NARMs 100 information about our GD2 commitments and Under Ofgem’s guidance, GDNs have developed the investment that will be required. NARMs through GD1. NARMs play an important 0 role in assessing the benefit of asset intervention GD2 outputs plans across all sectors. Ofgem sees this as the 2021 2026 2026 As outlined previously, we have achieved or primary measure for assessing the success of without with exceeded all output targets in GD1. asset strategies and intervention programmes. intervention intervention Detailed output measures and outcomes tal netise is relating to the performance of our assets and our success in new connections are detailed

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The table below details the bespoke targets we propose for Ofgem’s formal assessment and measurement.

Asset resilience outputs Click Appendix 3A for further justification on these outputs Measure and type Explanation Proposal/target Stakeholder views 2018/19 performance Comparative performance Other requirements Customer benefits Network A common model across Monetised risk level of £203m*, Customers asked us to continue Using the current model, The measure is in its Our ambitious plan to Delivery of this output will keep network Asset Risk GDNs for calculating the maintaining current risk levels, our risk-based approach to asset the monetised risk of infancy and we commit to achieve a net zero ready risk at the current level with no increase Metric monetary value of the risk of counteracting the impact of intervention whilst protecting the our assets is £163m in working with Ofgem and network by 2035 will also in safety, reliability or environmental risk. assets. This is used to assess deterioration of an ageing long-term interests. Our effective 2018/19. Our investment in the other GDNs to develop have significant impacts This will ensure that incidents such as PCD/ODI the impact on risk from our asset population. monitoring regime is endorsed by the final two years of GD1 meaningful comparisons and on the level of monetised loss of supply remain at very low levels. intervention programme. the HSE. will ensure delivery of the to continuously improve our risk on our network in Ofgem target for 2021. own modelling. GD3 onwards.

* This cannot be compared with GD1 as monetised risk prices have been inflated for GD2 in line with Ofgem’s guidance.

5. Our GD2 planned activities In designing our programme, we make We also publish Long Term Development We have gone from 17 feeds into our network sure that we minimise any disruption to our Statements annually which reflect a more to 36 due to new biomethane plants, and from Reducing costs and preparing customers. This focuses on working in an area regional view on future demand forecasts. 8 gas fired power stations to 37 in GD1. our network for a greener only once to clear out all ageing metallic mains. Details of our net zero ready vision can be found energy future. This should mean that we do not return within in Chapter 13. We require investment in compression, pressure most customers’ lifetimes. control, and storage in GD2 as this will allow We are obliged by our licence conditions to us the flexibility we will need to respond to the Improving the consumer and network Finally, we ensure that we have the people ensure that our network can supply gas to rapidly changing shape of supply and demand user experience in place to maintain our industry-leading consumers on the most severe winter days. (and which intermittent renewables are not able Safety is paramount and the programme to position in managing our assets. We have Our peak demand forecast increases slightly and to deliver). replace our gas mains will mean that the risk invested in people to ensure that we have the our investment plans reflect this. range of skills, knowledge and behaviours of an explosion is greatly reduced, keeping We have also ensured that our asset strategy Information about this investment is to manage a safe and reliable network in the our customers and the public safe from harm. aligns with our own vision for the future of included in Chapter 13: Our net zero 110 most cost-effective way. This includes network ready vision for 2035. We will continue to work with the HSE and energy. This entails using our network to enable analysts, data scientists, system operators and other industry experts to make sure that our risk green gases to enter the network and to capable leaders. assessment is robust. provide flexible heating for renewable electricity. This investment has strong customer and In GD2, we plan to invest £61.0m on average Supporting the energy system transition each year to deliver 324km of mandatory mains stakeholder support. Our strategy is to test our investment plan replacement, removing 34% of risk from the against all credible scenarios to make sure that We operate our network 24 hours a day, 365 network and ensuring that 81% of our distribution our customers’ money is spent effectively and days a year. We balance supply and demand to network is plastic. In addition, we will invest in both efficiently and that we make no investment in ensure that gas is safely provided to consumers non-mandatory iron mains and steel mains, both assets that may become stranded. in the most reliable and efficient way. We have of which continue to be a focus point for the HSE. already started making the changes necessary We will invest £17.1m per year to deliver 111km To do so we use a combination of National Grid to balance supply and demand across our of mains replacement in this area. This totals an future energy scenarios and regional future of network, and this will increase during GD2. average of £78.1m per year for mains replacement. energy scenarios. Under each we consider the role our network plays and over what timescale.

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Improving the network and its operation –– climate change mapping to ensure that our We apply the rate of deterioration to forecast future levels of risk. Using this future forecast assets can perform in the changing climate Our investment will ensure that the current of risk, we can optimise intervention plans to manage that risk. condition of our assets is maintained, in line and investing where risks are significant. with customers’ clear preferences. Asset There are a number of factors supporting How we assess and monetise risk Probability criticality Cost Monetised further investment, namely stakeholder required We operate a risk-based approach to managing of failure (consequence of failure risk of failure) outcomes, legislation, and managing future and operating our network. We put a monetised supply and demand. value to risk which enables comparative analysis of risk; To support this, we have invested in and determines the nature We use a number of techniques to forecast developed a Service Measure framework. –– over time; Consequence analysis and type of impact that could occur, assuming consequence of failure: This lists outcomes and outputs delivered by gas –– between geographical areas; that a particular event (ie caused by asset failure) assets and their link to the asset’s performance. –– Statistical analysis of associated failure data. –– between asset groups; has taken place. When an asset fails, there will To understand and forecast how an asset will be an associated impact resulting from that –– Hazard and operability study (HAZOP) perform, we hold considerable data relating to –– with and without different types failure (which is referred to as an event). techniques (risk assessment). condition, deterioration, consequences if the of interventions. –– Historic incident data. asset fails, and the cost of those consequences. Our commitment With this intelligence, we can review the impact Asset failure is defined as “any operation or –– Geographic Information System analysis. of our intervention plan and therefore stakeholder function which the asset fails to correctly perform Continue our risk-based approach to asset –– Network analysis modelling. outcomes. In summary, once we determine which gives rise to consequences”. Failures are intervention on our network – with an effective categorised into failure modes. As an example, a the stakeholder required outcomes, we can monitoring regime endorsed by the HSE. We are in the process of upgrading our asset pressure reduction station could over-pressurise derive the lowest cost investment plan to meet repository and reviewing data requirements for or under-pressurise a downstream network. those outcomes. An event may have a range of impacts of the 2020s and beyond. This will enable us to different magnitudes, and affect a range Our understanding of the investment we will The probability of asset failure can be collect data at a detailed level, further improving calculated to estimate the expected number of of different network assets and different need to make in GD2 has been informed by our asset risk assessment and, in turn, our consequence events in any given time period, stakeholders. For example, there could be a loss our understanding of external factors that could targeted intervention plan. and the deterioration of this curve over time. of supply to customers, or an injury, resulting influence the performance of, and need for, our from a failure. Such impacts are referred to as Our future survey plan is risk-based, with assets. This encompasses: A ‘failure rate’ will be used to calculate the consequences of failure. frequency determined by the current condition probability of failure. The failure rate gives the rate –– growth in demand to ensure that our assets of assets and forecast deterioration. of occurrence (frequency) of failures at a given We categorise consequence into three have the required capacity to supply gas point in time. We have invested in condition main areas: when needed and heat homes on the worst surveys of assets and in systems to record faults –– Safety winter’s day; and that our new connections and failures to inform our assessment of the plan meets our stakeholders’ needs; probability of asset failure. –– Reliability –– developments and infrastructure projects –– Environmental in the vicinity of our assets that require us to relocate those assets;

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The tables below detail the bespoke targets we propose for Ofgem’s formal assessment and measurement.

Summary of monetised risk assessment by asset group Monetised risk Monetised risk Monetised risk end GD2 (£m) end GD2 with our Asset group Probability of failure Consequence of failure Deterioration start GD2 (£m) no intervention intervention plan Offtakes and PRIs All assets have condition Network analysis to determine supply loss and Derived from a series of elicitation workshops, 29.3 41.1 30.9 surveys and a complete record Geographical Information Systems (GIS) queries supported by engineers and industry experts. of performance data. to people, buildings and infrastructure impacted following major loss of containment. Governors All assets have condition Network analysis to determine supply loss and Weibull coefficients taken from a report prepared 14.5 16.7 15.6 surveys and a complete record GIS queries to people, buildings and infrastructure by SEAMS. Takes account of location (pit/housing) of performance data. impacted following major loss of containment. and distance to coast. Adjusted for effective age (based on assessed condition). Pipelines All assets have condition Network analysis to determine supply loss and Weibull coefficients taken from PIE reports. OLI4 56.8 58.2 58.2 surveys and a complete record GIS queries to people, buildings and infrastructure pipes use effective age (condition-adjusted age) of performance data. impacted following major loss of containment. to drive deterioration. OLI1 pipes use remaining wall thickness. Mains All failure data. Site surveys to determine likelihood of gas in Non-PE. Exponential deterioration derived from 63.9 82.4 67.9 building following failure, historical incident data. modelled failure rates, split by material and failure mode. Services All failure data. Historical incident data. Non-PE. Exponential deterioration derived from 24.4 29.0 24.3 modelled failure rates. Risers All assets have condition Site surveys to determine likelihood of gas Expert opinion, aligned to the Services model. 2.9 7.0 6.0 surveys and a complete record in building following failure. Separate deterioration for Non-PE (5% pa) and of performance data. PE (0.5% pa).

Ensuring value for money We also consider carefully the range of We balance timing of investment based on asset When investing in existing or new assets, we We make sure that we provide good value for intervention options available and have a risk, intervening only when necessary and, where take a long-term view of the future requirements money for our customers by extending the history of innovative approaches to extending risk of failure is low, intervening only on failure. of those assets. We apply demand forecasts to life of an asset, rather than carrying out capex the life of assets. As an example, we have This totex approach to asset management our network analysis models in order to assess heavy replacement programmes. We do this developed techniques to restore ageing pressure means we deliver the lowest cost management the future usage and capacity requirements of by understanding the life cycles of our assets management assets in order to prolong their of each asset over its lifetime. our assets. Any investment decisions take future continuing use through complex but low-cost usage fully into account. and adopting a totex management plan, with We have adopted different delivery models for capex refurbishments. multiple interventions. different elements of our plan, each market- In cases where the future asset usage is set to We forecast the performance over time of each We have also delivered innovative solutions tested and benchmarked. The net result is decrease if we can remove the assets and avoid asset and the impact of intervention on that such as rebuilding river banks and redirecting a GD2 plan that costs c.£150m each year opex we will. However, the lowest-cost solution performance. This helps ensure security of rivers as a cost-effective alternative to expensive to manage what is an ageing asset base and is often to leave the existing asset in place, even supply and guards against asset stranding. pipeline diversions. to connect new customers. though it may not be being used to full capacity.

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Testing the robustness of our investments To do this we have used the four Future Energy CBA is a powerful tool in evaluating investment supporting investment in our network. To meet in the longer term Scenarios (FES): plans. The impact of any future uncertainty on the decarbonisation targets there will be; our plan can be tested by varying investment We appreciate that the future of energy in the –– community renewables; –– a push for renewable gas by investment in UK is not certain although there is a clear goal. payback periods. The analysis of FES and its –– two degrees; improving the production technologies; We take our responsibility to invest on behalf of our impact informs these payback periods. –– a medium level of district heating; consumers very seriously. This section highlights –– steady progression; our approach to testing our investment plan against –– consumer evolution. Click Appendix 15A for a catalogue of our CBAs –– many small-scale, renewable and and engineering justification documents. future uncertainty, ensuring that it supports credible decentralised decarbonisation projects; pathways and avoids the risk of asset stranding. These represent, we believe, the extremes The details of this analysis can be found in –– the highest proportion of engaged of future realities. Appendix 15C although we have included an customers. The scenarios example scenario below. We have chosen this We have reviewed the 70+ assumptions scenario as it represents the most challenging We wanted to test our plan across a wide range underpinning each scenario for the impact on The impact of community renewables for future gas networks. All four scenarios are of scenarios. Although the Ofgem sponsored the gas network and on our gas assets. This has on our network cross-network common view of the future (single described in more detail in the appendix. been done at a granular level – LTS pipelines, An increased number of biomethane scenario) is useful, it only looks to 2030. We have offtakes, PRIs, governors, below 7bar pipes, used this to inform and test our GD2 connections Community renewables connections may mean a greater need for gas services and gas pipes feeding MOBs. storage and compression to transport gas and reinforcement plan but we wanted to test The community renewables scenario is based to where there is demand. our management plan for our existing assets We have identified the assumptions that could on a high level of decentralisation and a high over a longer term. impact on each asset group and taken a view speed of decarbonisation. This scenario has the on the role of the asset groups in each scenario lowest gas forecast and has therefore been used Click Appendix 15C for more information over the short, medium and long-term (to 2030, as an example as the worst case scenario for on investment against FES. 2040, 2050 and beyond).

Example showing the impact of the community renewables scenario on our network 2030s 2040s 2050s Conclusion Summary Increase in heat pumps, 70% of homes meet class C efficiency standards or higher, 14.6 million residential heat pumps installed, 12 billion of scenario significant increase in EVs and traditional gas boiler numbers are expected to decrease, 280,000 cubic metres (bcm) of green gas produced, natural cessation of coal fired power. gas vehicles are on the road, 33 million EVs are on the road. gas vehicles will decline in favour of hydrogen. LTS Minimal impact. Capacity requirement may reduce but the LTS network Capacity requirement may reduce further but CBA for asset health investment should consider payback periods pipelines is still required. the LTS network is still required. of >30 years although capacity should be considered carefully. Offtakes May require reinforcement to Capacity requirement may reduce but pressure reduction Capacity requirement may reduce but pressure Investments that do not pay back in 30 years should be and PRIs support flexible generation. is still required. A small number of sites could become redundant. reduction is still required. More significant numbers challenged but investments paying back in 20 years pose of sites could become redundant. little risk of stranding. District May require reinforcement to Capacity requirement may reduce but pressure reduction Capacity requirement may reduce but pressure Investments that do not pay back in 30 years should be governors support flexible generation. is still required. Some sites could become redundant. reduction is still required. Some sites could challenged but investments paying back in 20 years pose become redundant. little risk of stranding. Mains and May require reinforcement to As gas boilers are replaced there may be reduced capacity. As Increased use of heat pumps could start to see more Investments that do not pay back in 30 years should be services support flexible generation. this is likely to be driven by individuals, it is unlikely that gas will be mains and services become redundant. challenged but investments paying back in 20 years pose removed from whole streets or areas, so mains will still be required. little risk of stranding.

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Adoption of district heating could make some mains, services and risers redundant if applied 6. Evidence Assessments of network health to existing buildings, decreasing the number of new mains and services if installed on new sites. As part of our commitment to improving the Maintaining our network by completing network and its operation, we undertake regular The scenario favours increased electrification of the rail network which may impact on the surveys and condition assessments. local transmission system, requiring either pipeline diversion and/or alternating current (AC) assessments of network health. We do so using mitigation schemes. a combination of condition surveys and fault and failure histories. A high proportion of engaged consumers are expected to adopt EVs. This is alongside a great Asset condition surveys number of renewables which may call for an increase in flexible power plants to enable a secure The table overleaf forecasts the health of each To ensure that we have high-quality data, since and reliable electricity supply. asset group at the start of GD2. HI1 assets are we were formed we have: new, HI2 good as new through to HI10 which Costs –– Carried out more than 150,000 physical are end of life requiring intervention. This table shows that the PE network shows little sign The table below summarises the GD1 investment in comparison with our proposed GD2 investment. surveys to collect asset condition data. of deterioration of failure, which is reflected in –– Undertaken tens of thousands of analytical favourable health scores. By contrast, iron mains Proposed GD2 investment in comparison with our GD1 investment operations to understand the consequences and steel services are towards the end of their if assets fail to operate correctly. Work-type GD1 (£m) GD2 (£m) Commentary lives and our investment plan reflects this. Replacement mains, Scheme size/insertion rates decreasing, –– Delivered many data improvement projects, services, MOBs and therefore driving some cost increases. enhancing in the region of 200,000 special crossings 72.3 80.2 Labour costs increasing. asset records. PREs Workload broadly similar in GD2, with slight decrease due –– Invested in cutting edge analytical tools to 5.6 8.4 to lower repairs. Cost increase due to loss of meter work. 200,000 assess current and forecast future performance asset records enhanced through Repair Slight downward trend in numbers due to repex programme and associated risk of our assets. 12.8 13.5 – 1,360 per year by 2026. data improvement projects. Pipelines Increase in diversions. Some additional work for AC mitigation (electricity network in proximity to our pipeline 3.4 7.9 accelerating corrosion). 13km pipeline replacement. Pressure regulation 10.9 9.3 Continuation of refurbishment strategy. Maintenance 9.8 10.3 Continuation of refurbishment programme. Connections Reduction in fuel poor and small reduction in new to existing 15.8 17.0 connections. Increase in LTS diversions. Reinforcement New main is broadly similar to current levels. Some investment 4.1 4.5 in increasing capacity at pressure reduction stations.

Our commitment Ensure that the investments we make today will support future energy scenarios and therefore represent a ‘no regrets’ energy solution.

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Chapter 15. Asset resilience (continued)

In particular we support the two key principles: Volumes – Total for population in PoF/Health indicator band Principle 1: Digitalisation of the Energy System Health (km or Nr) and Principle 2: Presumed Open. Asset category Units 1 2 3 4 5 6 7 8 9 10 Total –– We value the importance of consulting Pipelines km 1,017 654 297 115 62 61 41 19 19 95 2,382 with stakeholders to understand what data <7bar mains km 24,352 0 1,642 79 62 0 1,139 31 0 5,334 32,638 really supports the UK energy network and Services Number of 2,174,760 316,047 0 0 0 10,127 0 0 0 0 2,500,934 the transition to the future energy network. Risers Number of 2,579 3,780 4,088 1,850 547 281 236 42 43 614 14,060 We have started on this work and will Offtake/PRI filters Number of 5 23 49 38 67 36 14 36 12 52 332 continue this into GD2. Offtake/PRI regulators Number of 8 30 66 68 37 26 27 16 12 72 362 –– We currently make a very large amount Offtake/PRI pre-heating Number of 7 36 52 29 23 14 17 9 4 22 213 of data easily available. Although much of Odourisation & Metering Number of 6 5 5 1 1 1 1 1 0 13 34 this data has commercial potential, we make District Governors Number of 0 0 0 0 0 0 1 39 236 2,023 2,299 it available at no cost. This approach reflects our support of the principle of open data. I&C Governors Number of 0 19 79 207 122 91 49 16 9 15 607 –– We ensure that the data we publish is Service Governors Number of 0 1 1831 561 8,879 1,345 1,384 310 0 0 14,311 as useful and relevant as possible for consumers and stakeholders. We are transparent in our approach and make Forecast network usage 7. Our digitalisation strategy and are becoming more and more data driven. We are strong proponents of data sharing with available our decision-making in relation We forecast future customer demand and Data will assist us in investment decisions others within and outside of our sector and to published data. growth in our customer base in the short, and help future proof our work. have been leading in this area. We therefore –– We always maintain compliance with medium and long term. welcomed the Energy Data Taskforce’s review. legislation covering the use of data, We use these forecasts in our assessment in particular the GDPR. of the future use of our assets, future asset Introduction We will achieve a modern –– When providing data to third parties we risk and new connection activity. As digitalisation and ‘the internet of things’ digitalised energy system ensure that we adopt a robust approach grows, we believe that the use of data is key. through collaboration. to cyber security. Click Chapter 13: Our net zero ready vision 110 Data and analytics are at the heart of our for 2035 for more information. Click Appendix 15D for our published business decision making processes; we digitalisation strategy. Click Chapter 17: Connecting homes have invested in analysts and data scientists Our overall approach 164 to unlock data’s true potential in order to drive and businesses for more information. Our digitalisation strategy is published on our Our current data sharing down costs and improve services for customers website. The strategy is based on a number There are clearly benefits to sharing data within and stakeholders. of key principles. and beyond our sector and this is something Data helps us provide more tailored services we already do to a great extent; indeed we –– We support the Energy Data Taskforce’s for customers, and allows us to share good seek opportunities to do this where this will recommendations, as outlined in ‘A strategy practice and research findings. We are already benefit the wider sector, subject to the principles for a modern digitalised energy system’. highly dependent on data to provide our services outlined above.

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Chapter 15. Asset resilience (continued)

potential to bring significant benefits in the –– We share asset data readily. Interested parties Our Network Analysis systems assess the Our plans for GD2 include innovation in: impact of new connections to our network. energy transition. can log onto an internet-based system and –– Asset reliability on complex sites to ensure Experienced analysts maintain these models to within minutes have access We are also active proponents of the ENA cross- reliability at lowest cost. a high degree of accuracy through annual model to our mapping data. sector data group which is developing collaborative validation processes. These models are used to –– Sensors and a connected network to use data-sharing plans. In support of this we will hold –– We issue complete sets of our asset data ensure least cost reinforcement solutions for new data and systems intelligence. a series of joint stakeholder events in early 2020, to key stakeholders such as iGTs and green connections where capacity is not available at –– Robotic techniques to inspect and repair the first of which is on 12th March 2020. The views gas producers. the point of connection. our network. of stakeholders at this event will shape the cross –– We provide an on-line system for connection Our GD2 approach sector digitilisation strategy for GD2. –– Sensors and a connected network to use quotes – so that anyone who requires a gas data and systems intelligence. connection can receive a quote through a We will use GD2 to build on our digitalisation These discussions are at a relatively early simple internet-based process. strategy to date and to achieve a modern digital stage so at this point we have not included –– We have shared our future of energy modelling energy system through collaboration. We are additional base cost allowances to support We have invested in risk based tools such as the unique Pathfinder model with currently undergoing a complete upgrade of our significant industry evolution for data sharing or modelling and data scientists any other future commitments that are agreed interested parties at no cost. This includes local core systems, focused around updating our SAP to better understand risk and collaboratively. If there are changes because of authorities, other utilities including GDNs and product. We have a vision of ensuring that all reduce costs. future stakeholder commitments with additional EDNs, universities and other organisations that asset and workload data will be centralised and easily accessible. This upgrade will be complete costs we would require additional funding. At this can play a role in delivering an energy network point in time, we suggest a re-opener mechanism in 2021 and will significantly enable sharing of Conclusion that supports net zero. to provide a funding mechanism to support this data to interested parties. This project puts us in –– We are undertaking leading work in data future possibility. Our asset intervention plan begins with a strong position for any national developments sharing agreements, with the aim of aligning our stakeholder-required outcomes in in relation to a shared system for hosting data. the gas, water and electricity sectors into a terms of safety, reliability, and environment. Click Chapter 12: Dealing with uncertainty 104 virtual working common PSR while working We will continue to engage on an ongoing basis for more information. Our excellent data and sophisticated towards a single PSR for all utilities in GD3. with our consumers and other stakeholders as analytics help us to derive a plan that delivers these outcomes at lowest cost –– We publish our RRPs and our Long Term current and future users of energy systems data to consumers. Development Statements and have published to ensure that: we meet their requirements of 8. Innovation our TD13 calculator on our website. our data; we anticipate their future requirements; We pride ourselves on keeping at the forefront We will deliver our Network Output and our open data is relevant and useful. As we of asset management. We were the first gas Measures targets in GD1 and have set We have a significant focus on data quality. move into GD2 we will keep our digitalisation network to implement condition-based risk challenging targets to manage what is an We operate a dedicated data accuracy team and strategy under review and ensure that it reflects management tools. We have since implemented ageing asset base in GD2. have many validations, checks and balances in their feedback. cutting edge Asset Investment Manager (AIM) our data collection systems and asset repositories. software, which enables us to derive the lowest Our structured approach is designed to In this regard we are already working with the We also have data mining tools that are run cost investment plan to deliver the required deliver value for money for current and gas and electricity sectors through working regularly to highlight any potential data errors. stakeholder outcomes. We have also upgraded future consumers by helping to determine groups under the Open Networks project. our GIS and SAP systems to maximise our the right intervention on our assets at the We operate a thorough Data Assurance (DAG) This provides opportunities for publishing and understanding of asset performance and risk. right time to deliver the outputs stakeholders process to ensure the accuracy of any data sharing data to the benefit of gas and electricity This enables us to optimise plans to manage require; noting that expenditure and outputs shared outside of our business. customers and particularly new connectors. risk and forecast future performance. are inextricably linked. These groups are in their infancy but have

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Chapter 16. The distribution network 

–– We have been able to outperform in this At a glance: investing in our network area during GD1, through innovation, efficiency and beneficial cost factors1. Investing in our network £7 7.3m This outperformance has been shared Expenditure GD1 Expenditure GD2 a year to be invested in our mains with customers. We anticipate that we will Deliverables (£m per year) (£m per year) replacement programme. face higher costs in GD2 and this chapter Mains replacement programme 69.1 77.3 explains in detail the reasons for this change. MOBs 2.0 1.6 Special crossings 1.2 1.2 1. Highlights of our plan –– Importantly, our programme will deliver a network that supports our net zero Other service replacement 7.2 7.5 –– Stakeholders have told us that maintaining ready vision for 2035 by accommodating Emergency work 5.6 8.5 a safe, reliable gas supply is their number hydrogen and synthetic gas (syngas), Mains repairs 5.2 5.6 one priority and that they support initiatives and by providing a low-cost network Service repairs 0.4 0.4 to encourage more green gas to enter for hybrid heating solutions. Totals 90.7 102.1 the network. –– In line with our net zero ready vision, we plan The area of significant cost movement is mains replacement and we explain the reasons for –– The distribution network is now 73% PE, to replace all iron and steel distribution pipes this further in this chapter. In summary, the movement is a result of rising unit costs rather than as a result of our substantial investment by 20352. workload changes. in replacing ageing and deteriorating –– Our programme also brings considerable metallic pipes. PE is a safe, low cost, environmental benefits; methane emissions Distribution GD1 average vs GD2 average, 2018/19 prices (£m) and reliable material. will be reduced by 10% in GD2, the –– The mains replacement programme equivalent of permanently taking 46,000 110 has been delivered on time and below cars off the road. The mains replacement 10 our allowance for GD1 – a significant programme is core to our strategy to deliver a 2 1 1021 achievement for a programme of this scale. net zero ready network by 2035. 100 0 –– The primary driver for mains replacement –– We are targeting work to further protect 1 is public safety. The programme has those who live in Multi Occupancy Buildings 26 10 significantly reduced actual, and the risk (MOBs), recognising the importance the 0 0 0 00 02 of future, gas explosions in the UK and public places on keeping residents in these we are committed to its completion. buildings safe. –– We are using sophisticated asset health and –– We will continue to carry out around 18,000 0 risk assessments to prioritise the remainder mains and services repairs a year on the of the programme in the most efficient and distribution network as part of our strategy impacts changes buildings cost-effective way. to manage these assets. Pain/Gain increases technique Mild winter distribution distribution contractual of workload GD1 average GD2 average replacement replacement benefit reset NF stranding –– In GD2 we will invest £77.3m a year in Other service DI and ST mains Multi occupancy

our mains replacement programme. The Special crossings Mains replacement Efficiency challenge investment will significantly offset future Regional movements 1 Further information about our GD1 performance is set out in our operating cost increases. paper ‘Mains Replacement Performance RIIO-GD1’, which was submitted to Ofgem in June 2019. 2 Up to 2 bar operating pressure.

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Chapter 16. The distribution network (continued)

The figure below shows how the unit cost of mains replacement has increased through GD1, 3. GD1 performance –– our analysis indicates that our investment in primarily as a result of increasing labour costs. In spite of this increase, the level of costs in GD2 is still metallic mains replacement since 2002/03 significantly lower than it was during the first gas distribution price control (GDPCR1). This is because Mains replacement represents, on average, has meant the avoidance of 148,000 gas of the innovations we delivered in GD1, which have brought enduring efficiencies. around 40% of our total controllable expenditure escapes from our network (of which 15,000 each year. We therefore believe it is important to are the result of fractures), 13,000 gas in Cost (£) per metre across GDPCR’s in 2018/19 prices outline here our performance to date, and the building events, and six explosions, which benefits this has brought for customers. is likely to have prevented six serious injuries 20 –– We have outperformed all of the outputs and three deaths. 220 216 216 21 relating to the way we manage the –– We have delivered the commitments we 202 distribution network. We have improved 200 made in our GD1 plan in relation to the 201 12 efficiency and consumers have benefited diameters of the mains we have replaced; 10 10 10 10 10 12 from a safer network and from lower levels we have not defaulted to the less expensive

£ per metre 12 1 16 of disruption from unplanned repairs. smaller diameters. 160 122 16 166 16 –– In particular, we have: –– An essential part of our public service role 10 –– removed 7% more risk from buried mains is to attend gas escapes that are reported by than our target; members of the public. Through high-quality management, the use of planning tools, –– attended uncontrolled gas escapes in less and strong contingency planning, we have than an hour over 98% of the time (against 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 achieved all output targets in this area. a target of 97%); GDPCR1 GD1 – Actuals Forecast GD2 – Forecast –– Our innovations in GD1 have significantly –– fixed over 50% of leaks in under 12 hours driven down the cost of replacing mains. 2. Introduction Composition of our distribution network (against a target of 40%); These innovations include the use of 500m The distribution network is made up of buried and (as at 2019) –– achieved better performance in interruptions pipe coils and ductile iron cutting tools. above-ground metallic and PE pipes. We use the for customers than was forecast, for both –– By investing in data analytics and network to transport gas from the high-pressure planned and unplanned interruptions; sophisticated control systems we have transmission network to our customers’ homes, kept the pressure in our network as low as –– made sure that when customers were businesses and small power generation sites. possible, while balancing an increasingly interrupted, they were put back onto The pipes are generally located close to where 25% complex system. This brings environmental supply as quickly as possible; people live and work, so our activities in this area benefits as lower pressure means fewer leaks. are critically important to ensuring the safety of our –– reduced our carbon footprint by more consumers and the general public. than 18% by reducing leakage; Our long-term vision is to replace the whole 75% distribution network with PE, delivering a network that is very low cost to operate and is fit-for-purpose for transporting green gas in future energy scenarios. This chapter sets out how we will use the next five years to move P etalli further towards that vision.

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Chapter 16. The distribution network (continued)

In summary, without our investment and targeted risk-based approach, we would be operating Stakeholders strongly support our activities to They support our strategy of clearing areas of a very reactive business with significantly increased risk and disruption to the public. This is keep the network safe. At our regional workshops metallic mains in one visit, where practicable to demonstrated in the figure below. in 2018, 99% of stakeholders stated that ongoing do so, rather than returning and disrupting the investment in the gas network is important. same people. This conflicts with feedback during Historical and projected impact of repex programme on repairs Further research undertaken by Impact Utilities our qualitative deep dive sessions with customers

0000 in 2018 demonstrated that safety was the who, when presented the options, were keen number one priority. Stakeholders, including local for us to invest more in mains replacement; all authorities, support our proactive management stakeholders agreed to spend 90 pence extra on 60000 to mains replacement, preferring this to a reactive the bill in this area, albeit that there was lengthy approach. Additionally, mains replacement was debate about the disruption this would cause one of the highest ranked commitments during (which is more in line with the feedback from the 0000 our acceptability testing in 2019, at 62%, with local authorities). broad consensus across geographies and Local authorities also suggested that we should 20000 age brackets. engage further with a wide group of stakeholders The Customer Engagement Group (CEG) who are affected by our work. Following this challenged the increase in repex costs which feedback, we engaged with commuters on the was in line with the challenge raised by the subject of roadworks disruptions, where there

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 RIIO-2 Challenge Group. We have spent time was understanding that this work is necessary tal eais – n ae tal eais – it ae explaining this, walking through unit costs and that short-term disruption would give much and demonstrating what is changing and the longer-term benefit. drivers behind this. The CEG also challenged As this shows, without the replacement 4. C ustomer and In response to feedback on minimising us to improve the way we presented the cost programme we would be responding to more disruption, we have created a number of stakeholder feedback increases within our business plan. than 38,000 leaks a year (instead of our current strategic planning groups. For example, we held rate of 18,000). Given the seasonal profile of Engaging with partners to meet We appreciate the time and effort that the CEG a session in March 2019 attended by Transport leaks, we would require a repair workforce of their requirements and positively influence local communities. has invested in scrutinising this area of our plan for Wales, Welsh Water, WPD, Cardiff Highways around three times its current level to safely and believe that the final presentation of the Authority and Network Rail. We shared our manage the higher risk of gas escapes. issues has been clarified and strengthened long-term strategies and investment plans for The HSE is a key stakeholder in our management as a result. We have also included additional the Cardiff region to coordinate more closely and Finally, as PE is suitable for transporting plan for the distribution network, reflecting the Appendix 16A and Appendix 16B. minimise disruption to the public. hydrogen and other green gases, our investment fact that the key risk of the distribution assets is will support future energy scenarios and public safety. We are committed to delivering the Engagement on mains replacement activity Engagement on our commitment therefore provides the lowest cost pathway iron mains replacement programme, which is to decarbonising heat using hybrids. We engaged with all 42 local authorities in our Our mains replacement engagement was mandated by the HSE, as this supports our own region, recognising that mains replacement focused around two elements, which form We have built an efficiency value long-term vision to see all ‘at risk’ iron gas mains activities have a significant impact on our two separate commitments (safety and the of £200k per year from the roll-out removed by March 2032. We hold six-monthly communities. They told us that our current levels environment). Our acceptability research during of pipe coil trailers for GD2. engagement sessions with the HSE policy team of activity fit well with their plans, and that they summer 2019 demonstrated that acceptability to discuss our strategy and management plans would not wish to see increased levels. for both the emissions reduction commitment for these assets. and the safety commitment was at 62%.

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Chapter 16. The distribution network (continued)

Our subsequent willingness to pay research 5. Our GD2 commitments We will continue to build on this during –– Maintain current levels of risk on special concurred with that research in that both of GD2. In summary, we will deliver the crossings and MOBs. Our management of these were in the upper quartile in terms of Reducing costs by minimising following outcomes: MOBs may be influenced by the results of the leakage, helping to create a more Grenfell inquiry when this becomes available, importance for domestic customers and SMEs. –– Ensure continuing compliance with the HSE sustainable future. and/or any change in government policy. When asked about their willingness to pay, the mandatory iron mains programme (to remove investment for both commitments received high all ‘at risk’ iron gas mains by March 2032). –– Deliver a pipe network that supports all future support, with reducing emissions being ranked of energy scenarios. During GD1, we have moved substantially –– Significantly improve safety for 520,000 as one of the top four commitments for our towards having a network in place that does not people who currently live in the vicinity of Delivering these commitments will result in domestic customer group. fail; the need for us to react in response to leaks an ageing metallic gas main. will diminish through the 2020s; and operating increased costs as the programme becomes Based on 14 engagement events including –– Counteract deterioration of the rest of the costs of mains repairs will fall too. increasingly more challenging to deliver over 23,000 stakeholders, we have gathered metallic mains network, offering the lowest (the reasons for this are explained later consistent feedback that safety and reliability whole life cost to consumers. in this chapter). of service alongside improving the environment –– Reduce environmentally damaging methane are all of paramount importance. We also emissions by 10%. have broad support for our continued mains replacement programme, which delivers against all of these priorities. 6. GD2 outputs Specific engagement on MOBs The outputs we will use to monitor and report on our performance are set out below. We are very mindful of public concern towards risk and how this might be changing, particularly Distribution outputs Click Appendix 3A for further justification on these outputs in light of the fire at Grenfell Tower, raising the Measure Proposal/ 2018/19 Comparative profile of issues around safety and risk in high and type Explanation target Stakeholder views performance performance Other requirements Customer benefits rise buildings. Repex – A programme of work that Average of HSE mandate this Average of We are on target to deliver There is a cost challenge in Repex reduces the tier 1 mains is mandated by the HSE to 324km per work. Our customers 337km per year the mains replacement GD2 due to labour, regional risk of an explosion, We have engaged with all local authorities and replacement replace iron metallic mains year in GD2. were keen for us in GD1. programme. However, workloads and decreased has significant within 30m of an occupied to accelerate the other GDNs are facing insertion opportunities. environmental building owners of high rise MOBs, asking Repex – building by 2032. programme but this challenges in delivering We plan to increase the benefits and reduces questions on their plans for energy in the buildings tier 2a was not supported their repex programmes. rate of repex in GD3 with unplanned interruptions. and whether any planned work was likely. We also PCD by local authorities preparatory work in GD2 to shared our own investment and management due to disruption enable delivery of a net zero plans. This activity is enabling us to coordinate levels nor was this ready network by 2035 deliverable given the (subject to our net zero activities and to make sure that our plan reflects labour market. uncertainty mechanism). these stakeholders’ requirements. As an example, Repex – The replacement of metallic To relay an Our engagement Average of Replacement volumes are To deliver a net zero ready Replacing metallic Bristol City Council has an ambition to remove replacement services to comply with average of on this subject was 17,300 a year driven by service numbers network by 2035. services reduces the all risers from high rise buildings and we are of services HSE guidance which does 17,348 services included as part of our in GD1. connected to mains in the risk of an explosion and not allow a steel service to per year and a overall engagement replacement programme. delivers environmental Repex – committed to working with them in GD2. be reconnected following total of 86,739 on repex. As this is a function of benefits and reduces mains a mains replacement or during GD2. the mains replacement, unplanned interruptions Click Appendix 5F for further information TBC to just repair a service comparisons between following a leak. networks are not on our engagement. overly useful.

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Chapter 16. The distribution network (continued)

In addition to these common output measures, 7. Our GD2 planned activities Our investment plan will remove risk, as shown in the graph below. The x-axis is time and the we will also use the following metrics: y-axis is £s of monetised risk. It can be seen that investment in mains replacement will have removed £18m of risk by the end of GD2. –– Remove 28% of the total risk on the Removing risk population, to be measured by the NARMS In making decisions about where to direct (monetised risk) methodology, which was our investment, we balance safety, ongoing Impact of monetised risk, with and without investment (£ monetised risk) explained in the previous chapter. operating expenditure, environmental impacts, 16n and the relative efficiency of delivery. –– Attend uncontrolled gas escapes in less than 1n an hour and controlled gas escapes in less Our sophisticated risk assessment process 12n than two hours 97% of the time. takes account of a large number of factors 10n –– Stop more than 50% of all leaks and 60% including: how likely a pipe is to fail, how likely 00 of high-risk leaks in under 12 hours. it is that gas will enter the building, how likely 600 an explosion will be, and so on. This provides –– Reduce shrinkage and leakage by 10%. 00 an objective and accurate indication of the 200 –– On record keeping: safety risk of each pipe. Importantly we put –– Update the record of newly installed assets a monetised value to risk, which enables within 30 days of commissioning (D+30). comparative analysis of risk:

–– Update record errors found on –– over time; 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 Wit inestent Witut inestent existing assets within 30 days of –– between geographical areas; them being identified. –– between asset groups; Responding to and repairing gas escapes more to see it improve. We also see little value –– with or without different types of interventions. Our commitments We provide an emergency service, responding in the increased cost to improve these outputs. to all calls from the public relating to the smell However, we do believe that prevention within Further reduce gas shrinkage by 10% against of gas or other gas supply issues. Some relate a 12-hour target could be refined to place more the 2021 target value of 454,000 tCO2 through to leaks from our network (around 18,000 a focus nationally on higher risk gas escapes. the continued replacement of over 400km of old 80% year). However, the majority relate to gas leaks Although this is not a common measure across metal pipe and 20,000 services each year – the of emergency calls downstream of the gas meter and on the GDNs, we will be keeping this as a Key Safety equivalent of permanently taking 46,000 cars relate to gas leaks in the customer’s pipework or appliances (around Performance Indicator within our business off the road. customer’s property. 70,000 a year). In these instances, if we can fix (as it has been in GD1). Significantly reduce the safety risk for over half the problem we will do so, and if not we ensure We categorise repairs by the risk they pose a million people living in the vicinity of an ageing that it is made safe. and have tighter targets for high risk escapes, metallic gas main, by investing a further c.£400m This is an essential service for public safety and as illustrated in the table on the following in our mains replacement programme. we achieved all output targets in GD1, even page. The risk points are calculated using during the year that included the extreme winter a mechanistic system that considers factors events of 2017/18. including the volume of gas detected in the atmosphere and proximity to buildings. Stakeholders tell us they are happy with this We have performance targets that we monitor level of performance and do not wish to pay at Executive level.

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Reducing emissions GD2 workloads These workloads are broadly similar to those Our repair performance targets Our investment decisions are informed by of GD1. This is not surprising as 90% of our L3 measure Target analysis of the environmental impact of Replacing old metal pipes with planned mains replacement is mandated % of outside escapes over 90.0% each pipe. Mains replacement is the most new PE pipes will improve our by the HSE and all emergency, repair and 400 points within 2 days significant contributor to reducing emissions, network infrastructure and service replacements are a requirement of reduce carbon emissions. % of outside escapes 90.0% delivering more than 90% of our emissions HSE. Workload changes are detailed in the 250–400 points within 7 days reduction in GD1 to date. This equates to a Our investment of £102.1m will ensure compliance following sections. % of outside escapes 90.0% with the iron mains programme that is mandated 20–250 points within 28 days reduction of 214,000 tonnes of carbon dioxide by the HSE. It will also counteract deterioration of Our commitment % of outside escapes 98.0% equivalent (CO2e) saved to date, and a total 0–20 points within 90 days of 360,000 tonnes CO2e forecast to be saved the rest of the metallic mains network, offering the Attend gas emergencies in under an hour, over the current pricing period. lowest whole life cost to consumers. on average, to keep our customers safe. As a result of our analysis, in GD2 we will: Without mains replacement, we would fail The 2021-26 workloads required to deliver our –– attend an estimated 431,000 public reported to meet our emissions targets. We have stakeholders’ requirements are as follows: The HSE will not accept refurbishment of buried iron so there is no option but to replace these escapes. In recognition of the importance set a challenging target for GD2 to reduce –– 2,179km of mains replacement, of which: of this work to keep the public safe, we will environmentally damaging methane emissions assets. We will measure delivery by length maintain our performance on responding to by 10% over the period. This is challenging –– 1,619km of Tier 1 iron (<=8”). replaced and by monetised risk reduction. escapes at >97% within one hour; given that we have an ageing asset base, a –– 2.4km of Tier 2a iron above a HSE –– improve our performance on repairing significant replacement programme to deliver, risk threshold. escapes within 12 hours. We are committing and a requirement to connect in response to stakeholders’ needs. –– 153.8km of Tier 2b and Tier 3 (iron>8”). >£100m to achieve this at >50% of incidents in GD2 investment each year on (compared with >40% in GD1). –– 50km of iron mains over 30m We have invested heavily in ensuring that our distribution assets. we keep pressure as low as possible and from buildings. Connecting green gas will continue to do so during GD2. We have –– 244km of <=2” steel connected to started to develop the approach we use iron mains. Assisting the connection to accommodate increased levels of green of green gas to our network. gas feeding into our system. This has meant –– 110km of steel >2”. reconfiguring networks and running parts with –– 173,500 steel services replacements and revised pressure profiles that can be detrimental PE service transfers. There are a number of credible scenarios to leakage. Our Optinet innovation project is –– Special crossings, of which: for the future of energy, including the use of looking at the next generation of intelligent hydrogen, blended hydrogen, biomethane, and control systems to mitigate any impact on –– 320 crossing refurbishments. syngas, along with more extensive use of hybrid leakage, but also maximise green gas injection. –– 34 replacements. heating systems. –– Replace 634 risers on MOBs. Our investment plans deliver a pipe network Click Appendix 13J for further information that supports all such future scenarios. As PE on our Optinet innovation project. –– 430,603 public reported escapes (PREs). pipework is capable of transporting any gas, –– 50,000 mains repairs. investment in the replacement programme –– 32,500 service relays after escape. represents a ‘no regrets’ investment decision.

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Chapter 16. The distribution network (continued)

Mains and service replacements Special crossings interventions To achieve our HSE mandated iron mains replacement requirements and to meet our stakeholder requirements, we plan to replace 2,179km of iron and steel mains and 86,740 attached GD1 average 2022 2023 2024 2025 2026 Total steel services. Special crossings Minor refurbishment 32 26 27 27 26 28 134 (number of) Major refurbishment 41 37 38 37 38 36 186 Mains and service replacements Replace 12 6 12 4 6 6 34 GD1 Survey 258 261 237 301 239 338 1,376 average Category year 2022 2023 2024 2025 2026 Total This can reduce the pipe’s vulnerability to third Mains (km) Tier 1 324 323.9 323.9 323.9 323.9 323.9 1,620 party damage or deterioration from the elements. We have rolled out the use Tier 2 29.0 29.0 29.0 29.0 29.1 29.0 145 This is often cost prohibitive and the decision of PE systems for riser Tier 3 2.2 1.9 2.0 2.0 2.8 2.4 11 is made using CBA. replacement and have built Over 30m 10.0 10.0 10.0 10.0 10.0 10.0 50 £600k/yr cost efficiencies in GD2. Consequential steel 48.8 48.4 47.6 48.1 51.6 48.2 244 MOB record keeping Other steel 22.0 22.0 22.0 22.0 22.0 22.0 110 MOBs are blocks of flats or apartments of three frequency for all MOBs. Our records are updated Total 435.96 435.3 434.6 435.1 439.4 435.5 2,179.8 storeys or above. The workload is directed at following the risk-based inspection to ensure that Services3 Repex services – transfer 17,348 19,197 16,449 16,046 18,115 16,932 86,740 (number of) MOBs supplying multiple consumers that have we hold the most up to date condition data and Repex services – relay 17,348 19,197 16,449 16,046 18,115 16,932 86,740 a gas pipework that belongs to us, running can keep our assessment of risk relevant. within or attached to the building. This pipework 3 The current actuals for the number of transfers and the number of relays are 50:50, therefore our forecasts for GD2 are constructed on this basis. is commonly known as risers and laterals. Click Appendix 16C for more information about MOBs can be split into two groups: our MOB record keeping. Special crossings health further. This will be measured using our Our network includes 1,076 below 7 bar pipes monetised risk approach, NARMs. –– Those of six storeys and above (known We are awaiting the outcome of the Government as high rise). Inquiry into the Grenfell fire and the HSE that are constructed to overcome physical Our workload includes lower levels of –– Those between three and five storeys audit. However, we recognise that the public’s features such as rivers, bridges, and railway replacement activity in GD2 than was lines. We hold excellent condition data on these (known as low rise). acceptance of risk has changed and as a result included in GD1. This is to achieve the we will intervene on 625 MOBs in GD2. assets and all are in a risk-based inspection lowest whole life cost to manage these During GD1, we undertook an inspection survey programme. These are often single points assets. Minor refurbishment would include We are currently delivering a major project of every MOB, reviewing their condition and of failure so to deliver our stakeholder driven patch painting or coating improvement, (SAP) to upgrade our systems and change our making sure that all risers were captured, they reliability targets we need to keep these assets and minor work to brackets and supports. processes in readiness for GD2. The project, were safe and had isolation valves. in good health. Major refurbishment would include a full paint which completes in 2020, will deliver a system Investment in GD1 managed some issues or recoat, new brackets and supports, and We hold a database of MOBs that includes that records asset details and details of any with poor condition and improved the health work on wind and water lines. Replacement of asset details, condition data and consequence customer interruption to a much better level of of the population to an acceptable level. crossings often involves installing a new crossing data. This data has enabled a risk assessment detail than is possible using our current system. Our investment plan is lower cost in GD2 and in situ, ie above ground and exposed to the to be made on all assets. The GD1 and GD2 MOB record keeping is a workstream of the aims to maintain the current level of health and environment. In the design stage, consideration intervention plans are a result of these surveys project. It will deliver significant enhancements risk and offset deterioration, rather than improve is given to moving the crossing below ground and the subsequent review of health and risk. by bringing our MOB data into one place using drilling techniques. We have now moved to a risk-based inspection (it is currently held in two systems),

154 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 16. The distribution network (continued)

Mains repairs MOB interventions –– We have developed asset repositories, Although our network is now 70% PE, this still structured to enable data analysis and GD1 average 2022 2023 2024 2025 2026 Total leaves a considerable length of ageing metallic encompassing in-built system validation MOBs – high rise Replace 7 18 13 10 12 12 65 network, and many of these pipes are over 100 to ensure data quality. (number of) years old. We experience around 10,000 mains Survey 42 21 28 24 31 26 130 failures a year and we repair them as we find MOBs – low rise Replace 178 90 104 122 125 128 569 them. We will consider replacing the main, but (number of) this decision is based on many drivers, so single Survey 485 371 371 371 371 371 1,855 leaks are unlikely to result in replacement. 14,000 surveys of MOBs providing high quality and by providing improved data on The only potential exception to this relates to Our replacement programme in GD1 has data to help us manage risk. unplanned interruptions. the independent Hackitt Review into building broadly offset deterioration, so repair numbers regulations and fire safety (May 2018); as have been relatively consistent, with year on year Although we already run a risk-based inspection a result of this review there may be a move variations driven by winter severity. We expect We have introduced management information regime, the improvements to our systems towards building information modelling (BIM) repair numbers to start to decline in GD2 as the to inform our data quality. outlined above will help us ensure that our to inform decision making. If this were required replacement programme overtakes the rate of understanding of these assets remains fully up –– We have run a number of data cleansing we estimate the impact in GD2 to be in the deterioration. Our forecasts reflect this. to date. We also chair a national Asset Strategy projects, improving more than 200,000 records. region of £2.6m. group which provides an appropriate forum for us to share good practice and learning with This investment is not included within our 8. Value for money Annually, have carried out walking surveys other GDNs and wider stakeholders. business plan and would therefore need to be This section explains how we ensure that of around 5,400 buried pipes each year, and considered for an uncertainty mechanism. we provide value for money for customers in in GD1 to date, 24,090 surveys of MOBs, Given our GD1 investment in new systems we delivering this programme. It outlines the reasons and 6,620 surveys of special crossings. do not foresee additional costs for MOB record for our outperformance in GD1 and, looking These surveys inform our forecasts of the keeping in GD2. ahead, the reasons why we will experience a likelihood of gas escapes in buildings, and more challenging cost environment in GD2. the risk of explosions. Our approach to data Mains repairs management is risk-based, meaning we GD1 average 2022 2023 2024 2025 2026 Total High-quality data determine the importance of each data item, Repairs (number of) 10,312 10,709 10,545 10,338 10,090 9,770 51,361 The justification and drivers for this programme its influence on business decisions, and the are underpinned by high-quality data and sensitivity of that data item to errors. This informs Service relays after escape industry leading predictive and prescriptive our overall assessment of the appropriate level When a metallic service leaks, our policy, which is consistent with the HSE’s requirements, analytics. This ensures that we can forecast the of scrutiny to apply to that item of data. is to replace the metallic service with PE. future performance of our assets with accuracy, and evaluate the cost and benefits of our We undertake regular health Service relays intervention plans. assessments of the network, using a combination of GD1 average 2022 2023 2024 2025 2026 Total We have undertaken a number of activities in Relay following escape/repairs 4,475 4,696 4,696 4,696 4,696 4,696 23,480 condition surveys and fault GD1 to ensure that our investment plans are and failure histories. based on high-quality data:

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Chapter 16. The distribution network (continued)

Cost benefit analysis Volumes – Total for population in PoF/Health Indicator band Our predictive analytics give us the full corporate Health (km or Nr) and societal costs of operating each asset, and Asset category Units 1 2 3 4 5 6 7 8 9 10 Total the cost impact when we intervene on the asset. Iron mains km 0 0 1,642 79 62 0 1,139 31 0 1,988 4,940 This enables a highly comprehensive CBA that PE mains km 24,352 0 0 0 0 0 0 0 0 0 24,352 underpins the investment plan. We apply the Steel mains km 0 0 0 0 0 0 0 0 0 3,346 3,346 principles of the Treasury Green Book and of the Other mains km 0 0 0 0 0 0 0 0 0 0 0 Spackman approach to the analysis. Our CBAs Services Number of 2,174,760 316,047 0 0 0 1,0127 0 0 0 0 2,500,934 are provided as Appendix 15A, supported Risers Number of 2,579 3,780 4,088 1,850 547 281 236 42 43 614 14,060 by accompanying engineering justification Health of the distribution network –– Our assets are recorded on our Geographic Taken as a whole, these analytical tools mean documents. The results are an investment plan that is NPV positive to £938m and pays back in We undertake regular health assessments of Information System (GIS) and we use this that we are now able to predict, at an individual the early 2030s. This is well within the forecast the network, using a combination of condition information to assess the people, properties pipe level: and infrastructure that are located in the operating life of these assets under any future surveys and fault and failure histories. –– The likelihood of future failure and the way vicinity of each asset. This information energy scenario. The following text summarises the health of the pipe is likely to fail. informs our assessment of the risk of death, We have undertaken CBA of mains replacement each asset group at the start of GD2. HI1 are –– The consequences of such failures and injury, and damage in the event of an asset programmes of varying lengths, compared with a assets that are new, HI2 are good as new, etc, associated costs. failure. This ‘spatial query’ process is also baseline of doing nothing. Ageing metallic mains running through to HI10 assets which require used to extract key cost drivers and to –– The cost of intervening on the asset. have direct operating costs (as well as significant intervention. This highlights that the PE network forecast the costs of intervention in relation –– The cost and benefit case for the carbon impacts through leakage) so generally shows little sign of deterioration or failure, which to planned work. intervention plan. cost more to maintain than replace. We know is reflected in positive health scores. By contrast, –– All mains and special crossings are digitised that mains pay back over 15/20 years and, if we iron mains and steel services are towards in a Graphical Network Analysis (GNA) tool. As an example, for every cast iron pipe, we stopped our programme now, we would have to the end of their lives and our investment plan This forecasts flow and pressure around our predict the number of fractures, joint failures pay for repairs, which would be more expensive reflects this. network and predicts the loss of supply that and corrosions it will experience, and the cost of than not having a mains replacement programme. would occur if any assets were to fail. The responding to those failures. We know how likely Prescriptive and predictive analysis tool allows us to design mains replacement it is that the leak will result in gas tracking into a Click Appendix 15A for a catalogue of our CBAs –– Our investment in a powerful optimisation tool, schemes and to make the best use of cost- building and how likely it will be to reach ignition and engineering justification documents. Asset Investment Manager (AIM), links asset effective insertion techniques. levels. We also know the level of methane performance to outputs and puts a monetary –– All iron mains are assessed using our leaking from the pipe to the atmosphere and CBA results value on those outputs. This provides the likelihood that its failure will cause customer predictive tool called the Mains Replacement NPV (£m) invaluable analysis of the costs and benefits Prioritisation System (MRPS). The tool takes interruptions. If we decide to replace, we Asset 2030 2035 2040 2050 of investment options, and allows us to test a failure and survey data and is able to forecast know the cost. This is informed by detailed range of investment scenarios against delivery forecasts at a pipe level of replacement size and Tier 1 + the likelihood of future failure, gas entering <=2” Steel -£102 -£47 £114 £707 of stakeholder priorities. In this way, we ensure technique, the number of services connected a building, and gas igniting and causing Tier 2/3 -£7 £2 £24 £102 that our investment decisions are the most and the number of excavations required to an explosion. Steel £0 £12 £33 £107 effective and efficient. complete the job. MOBs £1 £5 £10 £21

156 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 16. The distribution network (continued)

9. Options Risk removed Environmental outcomes We developed a number of workload The figure below illustrates the environmental benefits of the mains replacement programmes Replacing older pipes to remove scenarios, with associated outputs and cost of varying lengths, compared with the baseline of ‘doing nothing’. risk and reduce carbon emissions. benefit analysis (CBA) of each. The results are shown below. This analysis informed our Shrinkage and emissions (GWh) Total over 15 years (2017-2032) workload levels. To support our stakeholder wants and needs 00 The figure illustrates the safety benefits of the we developed a number of options using our 0 mains replacement programmes of varying optimisation tool AIM. We were able to derive 00 lengths, compared with the baseline of inae stakeholder outcomes and outputs for various 20 W ‘doing nothing’. workloads and investment scenarios. As an 200 example, we can link an investment programme 10 to the impact on customer interruptions and To support our stakeholder 100 the likelihood of an explosion, and injuries and wants and needs we developed fatalities as a result. a number of options using our 0 optimisation tool AIM. We can then analyse alternative investment issins programmes and understand the impact of t2 each on interruptions and safety. 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 Baseline 100km 435km 450km 600km Baseline 600 100 0

Risk remaining (incidents pa) Total over 15 years (2017-2032)

00

02 nients

020

01 Bs

010

00 atalities

2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 atues Baseline 600 Baseline 100km 435km 450km 600km 100 0

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Chapter 16. The distribution network (continued)

Other benefits Mains replacement – annual length options The figure below illustrates the impact on repair numbers and on interruptions to customers of the mains replacement programmes of varying lengths, compared with the baseline of ‘doing nothing’. 650kms Non Tier 1 in T1 Pure CBA Km of metallic mains remaining Total over 15 years (2017-2032) HSE programme projects

12000 ue 330Km iron, 58kms con ST 37kms 250kms ains 10000 eais HSE CBA stakeholder CBA stakeholder 000 mandated support support

6000 -235km 000 ue uste inteutins Delivery constraints and 2000 stakeholder feedback Optimum length 435kms

is 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 uatin a longer period and meant we could negotiate Baseline 600 illins 10. Costs a lower contract cost. 100 0 Baseline 100km 435km 450km 600km Becoming more efficient and More flexible pipe selection criteria: Greater maximising innovation techniques. Stakeholder influence on the programme However, we have had to cap the length of the flexibility, which was negotiated with HSE, provided a short-term opportunity to design Our stakeholders have told us mains programme for two main reasons: schemes that were significantly larger than had replacement is their second highest priority –– Our stakeholders, particularly local The main reason for our outperformance previously been possible. This was reflected (Impact Utility engagement programme, 2019), authorities, tell us that current workload levels in the rates we were charged, and allowed with safety and attending gas emergencies in GD1 has been our focus on innovation in their regions are about right in terms of and the favourable alliance contract that we us to benefit from the following: within one hour as the first. Customers and benefit and impact on their communities, secured. The following factors enabled us to –– Using larger teams in smaller geographical businesses are also prepared to pay more for and they do not wish to see an increase. an enhanced service of reduced leakages, achieve a low contract price and beneficial areas: The success of the five/six-person –– Feedback from our engagement with the 4 for both safety and environmental reasons. contract terms : team model during the first half of GD1 market is that delivering an increase in the Repex is also supported by CBA and the larger improved operational efficiency and produced programme beyond current lengths would A long price control period: In 2013, we the programme, the more NPV positive it is. a level of performance beyond our forecasts. be extremely difficult given the challenges entered into an eight-year alliance contract, made possible by the eight-year GD1 price –– More efficient support functions: Larger We intend to replace on average 435km of in securing labour for this activity. teams delivering larger quantities of work in metallic main each year. The HSE mandated control period. This provided our alliance partners certainty about workloads over a small geographical area can be serviced programme combined with CBA positive It should be noted that we are unable to reduce more easily by support functions. For pipes could take us to a much higher level the size of the programme beyond what is HSE 4 Further information about our GD1 performance is set out in our instance, logistics support functions have of mains replacement. mandated as they would not accept this. paper ‘Mains Replacement Performance RIIO-GD1’, which was fewer projects to service and there is less submitted to Ofgem in June 2019.

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Chapter 16. The distribution network (continued)

travel time between sites. Reinstatement Ductile Iron (DI) cutters: In the first few years teams can also have a higher number of of GD1 we focused on cast iron/spun iron. excavation pits in one geographical location. The reason we did this was because cast iron/ spun iron carries relatively more risk than ductile –– Lower mobilisation/demobilisation costs: iron. We were aware that we would need to larger and fewer schemes reduce the start focusing more closely on ductile iron in significant cost of safe mobilisation and GD2 and in GD3 as we came to the end of the demobilisation of sites. In the remainder of programme to deal with the higher risk cast iron/ GD1, scheme sizes will fall, as will team sizes, spun iron. This will lead to cost increases for whilst the number of schemes will increase – each metre replaced because of the difficulties with a resulting impact on our cost base. of working with ductile iron (specifically the –– Lower management to team ratio: operational difficulty of cutting into the pipe to connect and safety management are most efficient services). We therefore decided to lead on an when team sizes are maximised and the NIA project to develop a tool that would make number of schemes that are in progress are this activity easier and more cost-effective.The kept to a minimum. The change in the design tool that was developed – a ductile iron cutter constraint allowed us to achieve this balance. – is now operational and will help to counteract Now these schemes have been depleted, we (although not fully mitigate) the higher costs of are seeing a fall in the size of our teams with a replacing the ductile iron as we start working related increase in scheme numbers – moving on the higher levels that remain to be replaced back to a similar profile as in GDPCR1. in our programme. Mobile app: During 2014/15 we successfully A favourable labour market: The programme However, this will not be sustainable once the 500m coil trailers: Our self-funded innovation implemented a mobile app-based system for benefited from a reliable and consistent contract expires at the end of GD1, as the project to develop 500m coil trailers has our contract partners to use when recording workforce in the early years of the current contributing factors above will not continue significantly supported insertion and has reduced work on mains and service replacement. contract (before contract negotiations), and in the remainder of GD1 and into GD2. the number of insertion pits, pipe wastage This system brings with it opportunities for the labour rates in our fixed contractual pricing and our environmental impact. These are now Other key factors in our GD1 outperformance significantly improved data capture analysis reflected this. In the past few years, however, this used by all of the GDNs, driving improved to date include: and sophisticated management information landscape has changed significantly, and labour performance for all gas customers. at a team level. These insights enable us to rates are continuing to increase. This is being Reinstatement: In 2015, we implemented Purchase versus hire of plant and equipment: further improve our performance and reduce the driven predominantly by competition with other an incentive scheme with our contractors We regularly review plant and equipment to duration and volume of customer interruptions. GDNs and other capital programmes (including that aimed to reduce our service and mains consider whether hiring or purchasing is the in the water, electricity, nuclear, telecoms and excavation sizes, thereby reducing the costs Special crossing techniques: To achieve most effective option. To avoid paying a premium transport sectors. As a result of securing a associated with backfilling and reinstating the lowest whole life cost we have developed through plant supplier rates, we have purchased favourable alliance contract, our business and the holes. Since implementing the initiative, innovative solutions such as using life extending welfare units, vans and plants. our customers continue to be protected from we have seen an overall reduction of 18% refurbishment options where appropriate and adverse market conditions and to benefit directly in the average size of our network’s holes. cost efficient. In the first six years of GD1, we from our commercial arrangements. refurbished 158 of our special crossings, with a further 33 replaced and 17 abandoned.

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Chapter 16. The distribution network (continued)

Insertion involves digging pits at either end of 11. Challenges on the future Peak demand forecast (GWh) the main to be replaced, then inserting the new cost of delivery main inside the old main. Pits are then dug at LDZ 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 Many of our innovations in GD1, such as each service connection and the services are South West 25.4 256 263 271 276 278 281 284 287 209 the DI cutter, 500m pipe coils and predictive transferred to the new main. Insertion is the Wales North 4.9 49 51 52 53 53 54 55 55 56 analytics, deliver enduring efficiencies in GD2. preferred technique as it: Wales South 194 194 198 201 201 201 201 203 205 207 These are included in the base costs for GD2. Network total 497 499 512 524 530 533 537 542 547 563 There are, however, upward cost pressures that –– minimises disruption to the public as there is are described in the waterfall chart below. less time involved in the replacement and less excavation in the highway or pavement; pressure. We size replacement pipes using The process followed has involved grouping all Movement in these four key cost drivers are –– lowers costs due to less excavation, network analysis models that have all pipes mandatory iron replacement pipes into efficient explained in the sections below. reinstatement and time on the operation; in our network and gas demands for every projects. This includes all pipes that require consumer. These models allow us to simulate replacing by 2032, the end of the HSE iron Mains laying technique –– leaves the new main in a protective sleeve (the old metallic main). replacement pipe sizes and the impact on mains replacement programme. These schemes To minimise disruption to customers and capacity and pressure. We update the models were then put through the network analysis maximise production, we try to maximise use We size replacement pipes using network with views on future demand in the 1, 5 and 10 process to determine which pipes could be of mains insertion techniques and avoid open analysis models that have all pipes in our year planning horizons. We are obliged as part inserted and which would need to be laid in an cutting mains. Open cut involves digging and network and gas demands for every consumer. of our licence conditions to design our network equivalent or larger diameter. backfilling a trench the full length of the main to to keep continuity of supply in a 1:20 winter. The results were that 80% of pipes could be be replaced, laying the new main in the trench These models allow us to simulate replacement This is the worst winter we are likely to see over inserted across the rest of the programme and transferring all services. pipe sizes and the impact on capacity and a 20-year period based on historical experience to 2032, with the remainder requiring open of winters. When we design a replacement cut. This compares with an insertion rate of scheme we can assess the replacement Waterfall GD1 average cost to GD2 average cost (£m) 90% achieved in GD1. This change to open diameter’s impact on the ability to meet gas cut technique impacts cost £3.8m per year. 2 demand in these 1:20 conditions. The table Our GD2 programme is designed to flat phase 0 above shows our forecast of peak demand; 1.4 88.4 delivery costs through to 2032. 2.4 our forecasts are updated on a regular basis

6 0.8 and we would always use the latest version 3.8 Our self-funded innovation project when designing schemes. to develop 500m coil trailers has 2 80.0 Peak demand forecasts – long-term significantly supported insertion 0 development statement. It can be seen that and has reduced insertion peak demand continues to rise even where pits, pipe wastage and our 6 annual demand is falling due to overall energy environmental impact. efficiency. Our replacement programme is designed to support this.

Mains To produce the GD2 plan we have invested a Click Appendix 16A for details on workloads Existing Material Regional Changes Changes and costs analysis. Workload Pressures Technique significant amount of time and skill in analysing Movements Main Laying

Labour Cost Click Appendix 16B for details on workloads GD1 Average GD2 Average Cost – Repex Cost – Repex the pipes and projects we will deliver. and costs analysis.

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Chapter 16. The distribution network (continued)

The table below shows the GD2 forecast insertion rates by mains type. The chart below shows changes in insertion % Workload ductile iron to open cut ratios from GDPCR to GD2. GD2 forecast insertion rates Mains replacement technique (%) Insertion/open cut rates 0 for GD2 km Insertion Open cut Total % insertion 100 Consequential Steel 106 138 244 43% 2 20 Other Steel 108 2 110 98% 0 Over 30m 34 16 50 68% 1 60 Tier 1 1414 205 1620 87% 10 Tier 2a 40 55 95 42% 0 Tier 2b 32 18 50 63% Tier 3 3 8 11 23% 20 Total 1736 443 2180 80% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 Act Act Fcst Fcst The cost of open cut is significantly different from –– additional logistical support for the 2008-13 2013-18 2019-21 2021-26 GD1 GD2 insertion, there are changes to how you plan and work delivery; GDPCR GD1 GD2 deliver along with the costs of the work itself. –– additional machinery and plant usage, nsetin te et Open cut work decreases productivity because movement and size; en ut Our DI tool has already had a considerable it requires us to do the following across the entire impact on helping to offset the cost of the DI –– additional disruption to customers, length of the replacement works: work we have undertaken in GD1. The use of pedestrians and road users. Existing mains material changes this tool will continue to help offset the additional –– carefully excavate a trench to avoid damaging As outlined in the chart below, at the start of costs associated with the increasing amount of other utility apparatus; Example project – prime costs GD1’s eight-year programme we avoided DI to DI work that will be required in GD2. We have –– maintain access to driveways and Tier 1 >75mm to 125mm – reduce the whole life cost of the programme, shared our DI tool with the wider industry businesses; example project – prime while a more cost-effective DI cutter was to make sure that the benefit can be realised –– maintain traffic control and flow. costs Insertion Open cut developed. DI remains more difficult to cut than by other GDNs and their customers. Labour & plant 43.10 90.40 cast iron or spun iron, so an increased cost for labour delivery should be expected year on These productivity issues increase the labour Reinstatement 5.90 42.20 We estimate a cost avoidance year as the ratio of ductile to cast iron/spun iron time on projects and impact the customer Logistics 4.50 32.20 of over £0.5m in GD2 if increases. To date less than 10% of our mains experience. The costs of carrying out the work Backfill & spoil disposal 3.00 21.50 trials of our live innovation replacement workload has been DI. itself is impacted by the following: Pipe & fittings 16.00 23.30 project ‘cryogenic cracking’ –– additional excavated and backfilled material; NRSWA 0.80 6.10 are successful. –– additional travel times to quarry can Cost per metre £s 73.30 215.70 be impacted depending on regions; –– additional reinstatement of surfaces and street furniture;

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Chapter 16. The distribution network (continued)

Labour unit cost (per metre) This includes recruiting 150 new employees Average annual workload in Cornwall in GD1/GD2 across the network to sustain and increase our 0 delivery capacity, including more than 40 new GD1 150 employees in the Cornwall area, to deliver our 0.68 new employees recruited, large programme of work in that county. 9.23 as≈part of our efforts to bring higher 0 21.09 However, moving into GD2 there are likely 8.8 skills≈and training, and increase 6 2.41 to be shortages in transferable skills such as delivery capacity. 60 ground-workers, truck drivers, and traffic light controllers. These are all areas in which we are Labour cost pressures experiencing highest churn levels and increasing 0 GD2 Labour costs make up approximately 37% cost pressures. 13.98 of our annual mains replacement programme This price control has seen a large number 12.04 costs. A current excess of demand over supply 17.98 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 of skilled engineers moving to other GDNs, 10.91 of skilled labour is driving up labour salary 12.7 GD1 – Actuals GD1 – GD2 attracted by the inflated rates on offer; our demands, particularly as other GDNs are offering Forecast alliance partner has been forced into providing extremely high levels of remuneration as they au unit st teams with payments over and above seek to recover their mains replacement shortfall. While we offset some of this risk through the contracted rates to carry out the work as There are major programmes in water, the period has progressed. This will not be early delivery of our programme, we are seeing Light Heavy electricity, nuclear, telecoms and transport our cost base increase significantly to keep our sustainable in GD2 contract negotiations and is workload workload industries – all with significant capital projects. programme on track. During 2017/18 and into therefore reflected in our GD2 investment plan. These projects include: 2018/19, the transient nature of our workforce Quarry costs has disrupted our programme and has resulted –– Hinkley Point C. Click Chapter 19: Workforce resilience 181 in a reduction in the overall amount of work for more information. The table below highlights the tipping costs –– High Speed 2. that we delivered, compared with our internal per tonne by area, highlighting why movement of work to the extremities of our network has –– Thames Tideway. programme plan. Regional workload movements –– The expansion of Heathrow airport. a cost impact. We are mitigating this risk through the continued Regional movements in workload are resulting –– Various projects being run by Network Rail implementation of our Resource Strategy to in cost increases due to the impact of local Tipping rates and Highways England. recruit graduates and apprentices and by more quarry fees and travel time to jobs increasing. Operational areas Cost/tonnes –– Projects as part of city general upskilling of the current workforce For example, the average annual workload East Wales 8.2 regeneration programmes. for supervisor and technician roles. We have in Cornwall in GD1, compared with the average West Wales 7.2 worked hard to apply an innovative approach annual workload in Cornwall in GD2 is shown North Wales 9.6 to the management of our workforce to ensure Many of these projects fall within or close in the following figure. Wilts Glos 15.8 to our network, making us more susceptible delivery of our mains replacement programme, Bristol Bath 10.1 to subcontractors and staff leaving us to work while planning for succession into the future. Devon 34.4 on these projects. Exeter Somerset 14.9 Cornwall 34.4

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Chapter 16. The distribution network (continued)

There are innovations that we have discounted 12. Innovation Embracing innovation from adopting in our business following detailed The ServiceCam allows us to discreetly Using innovative techniques will assist assessment of cost and benefit. An example survey small service pipes, avoiding us to become more efficient and reduce of this is the ‘Large Cisbot’, an NIA project led unnecessary disruption to our customers. costs for the consumer. This saving is built by SGN (see case study in Chapter 11: Our into our GD2 costs. Innovation Strategy). Our approach to innovation is very much focused on solving real challenges. We use innovation to improve efficiency, reduce disruption and lower the cost of our mains Following engagement with internal and external replacement and network riser maintenance. stakeholders, our focus areas for GD2 will be: Our approach to innovation is very much –– exploiting trenchless technologies; focused on solving real challenges. This includes, for example: –– internal inspection of pipes for condition, stresses and strains; –– We have developed a suite of cutting –– internal repair of pipes using latest tools for ductile iron and steel to enable robotic technologies; more live mains insertion and to minimise excavation sizes. –– new solutions for managing pipes feeding high rise buildings. –– We have made significant carbon savings by trialling and implementing a thinner walled PE pipe. Our BAU project ‘MLS Bagging Off’ –– We have reduced the time taken on site is forecast to deliver £80k/yr saving by rolling out new fittings that improve the in GD2 and help our engineers dig efficacy and quality of workmanship. smaller holes, use less fittings and not need to use cranes on site. –– Our predictive analytics and design process has enabled us to achieve an insertion rate of 89%. We use innovation to improve –– Finally, we have developed swifter, safer, and efficiency, reduce disruption less disruptive ways of flow-stopping that and lower the cost of our mains Importantly the pipes reduce the need for reduce excavation sizes. replacement and network Conclusion riser maintenance. costly unexpected repairs and therefore This chapter has outlined our plans to represent real value for money for our We will continue to look closely at innovation continue replacing our distribution network customers. Our planned activities have across GDNs in robotics, no-dig technologies with environmentally friendly plastic pipes, been shaped by our customers and and lines. We plan to test and take these to improving levels of safety for our customers, other stakeholders. commercial use in our business through GD2 reducing the risk of explosions and lessening as they develop. our impact on the environment. We are proud of our track record to date in managing the distribution network, and look forward to building on this in GD2.

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Chapter 17. Connecting homes and businesses 

1. Highlights of our plan At a glance: investing in exit connections 2. Introduction –– Gas provides a reliable source of energy at an GD1 workload GD2 workload GD1 costs GD2 costs Our objective is to protect the interests of current (average pa) (average pa) (£m pa) (£m pa) affordable cost for customers, and continues to and future consumers, whatever the future may be their preferred fuel of choice. This is borne New mains 51km 45km 2.9 2.6 bring. This includes continuing to support the out by current market trends, with 80% of New services 11,310 9,960 9.1 9.3 provision of the cost-effective and reliable energy sources that are vital for the economy. new build properties taking gas as the primary Reinforcement mains 16.4km 18.4km 4.1 4.5 source of heat. Our current assumption is that <7bar diversions 7km 9km 1.4 1.6 As outlined in Chapter 13, the UK is this trend will continue through GD2. experiencing a step change in the interaction LTS diversions 4km 3km 1.7 2.8 –– The Government’s announcement on the between the gas and electricity networks, and Future Homes Standard 2025 proposes to Service alters and disconnections work 5,470 6,000 0.7 0.7 we are confident that under the single scenario, require all new homes to be built without fossil Total cost 19.9 21.5 the gas network will continue to play a key role fuel heating from 2025. We will contribute to a through to 2050 and beyond. consultation but our analysis shows a minimal Connections exit GD1 average v GD2 average 2018/19 prices Connections are made to the network to enable: impact on workload. 2 –– As gas is 75% cheaper per kWh than electricity, –– customers and businesses to take gas from 22 we can help address fuel poverty by promoting 0 0 01 21 our network (known as exit connections); 0 fuel poor connections, which save customers 20 1 –– third parties to put ‘green gas’ produced from who switch up to £700 a year. In collaboration 1 renewable sources (such as biomethane) into with our partners, who are trusted by the network (known as entry connections). 16 consumers and can access funding for internal This is covered in more detail in Chapter 13: measures, we will deliver 2,500 fuel poor 1 Our net zero ready vision for 2035. connections in GD2. 12 Our connections workload is driven by the –– Our plan supports connections to around 10 10,000 domestic and commercial consumers economy and in turn by customers. We pride a year, as well as being a primary or secondary ourselves on the level of service we provide fuel source for the majority of heat networks. to our customers – from their original contact

Diversions with us through to the delivery of new

This, combined with our engagement with the Connections GD1 average GD2 average

Reinforcement gas connections.

independent gas transporters (IGTs), means IT capitalisation connections exit connections exit we are enabling our network to be available to Efficiency challenge 30,000 new households each year. –– Our plan supports an integrated energy network of the future by enabling developments in local power generation, connections to green gas production sites, and for transport including Compressed Methane Gas (CMG) vehicles.

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Chapter 17. Connecting homes and businesses (continued)

The connections-specific Guaranteed Standards Tackling fuel poverty It is expected that BEIS will decide on the UK of Performance (GSoPs) provide a minimum At our regional workshops in 2018 our future of heat strategy by 2021 and the expectation level of service that we always look to exceed for stakeholders and consumers ranked tackling is that this will be a future of renewables, hybrid every customer while providing value for money. fuel poverty as our third most important priority. heating systems and heat networks – all Our commitments to customers are set out in The issue also scored highly in the 2019 supported by decarbonisation of the gas grid detail in Chapter 6: Customer service. stakeholder reports by Impact Utilities and and future decarbonisation of electricity. In this chapter we explain the investment Mindset. In general terms, consumers support In the meantime a report by the Committee on we will make to: a small premium on gas bills to ensure that Climate Change2 in February 2019 has led to those who need additional support are identified an announcement in the Government Spring –– continue to meet the customer-driven needs and helped. At the September 2018 Critical Statement of a Future Homes Standard which of new and existing housing and commercial Friends Panel, 50% of stakeholders supported proposes that gas would not be allowed in new developments by connecting them to the increased investment in this area. Consumers are homes from 2025. Our business plan forecasts gas network; We carry out regular engagement through face also supportive of our working closely with assume a continuation of new gas connections to face meetings with customers and through –– modify our infrastructure to facilitate specialist partners. to new build homes to the end of 2025. development – whether that is through a focus events. In GD1 this included: Other stakeholders, such as National Energy service disconnection, alteration, mains To hit legally binding carbon reduction targets, –– Two customer focus groups (June 2017). Action, have demonstrated strong support for the diversion or network reinforcement. the UK must also tackle emissions from industry –– A connections customer focus group continuation of the Fuel Poor Network Extension and transport. Again, the gas network is playing (May 2018). Scheme (FPNES), and support networks having its part through supporting localised gas fired 1 3. C ustomer and –– A power generator workshop with developers access to funding for internal measures . We are power generation which supports intermittent and GDNs (June 2018). therefore committed to the fuel poor scheme renewable generation, enabling the development stakeholder feedback funding first time gas connections in GD2, with a –– A power generation workshop with Western of heat networks and CMG filling stations for HGVs focus on those most in need, and will work with Working in partnership with others Power Distribution (WPD) and National Grid and buses. We already have three connections will enable us to better understand partners to achieve this. to CMG filling stations to support city bus fleets. customers’ future energy needs. (March 2019). –– Multiple engagement as detailed in Further information about our work to tackle New housing Chapter 13: Our net zero ready vision fuel poverty beyond the FPNES is set out in 62 General feedback for 2035. Chapter 7: Social obligations. As outlined previously, as part of our planning we have examined around 33 unitary authority The investments set out in this chapter have –– Engagement with the Welsh Government development plans and have reviewed existing been informed by our analysis of the economic on energy efficiency, fuel poverty Future requirements for new connections planning applications using the Glenigan site and social aspirations of our wide-ranging and decarbonisation. The conclusion from our stakeholder (a website that provides national and regional consumers, including local communities, and engagement is that developers and home –– Joint GDN engagement with BEIS on information about forthcoming construction local and national government. To support our owners will continue to see gas as the fuel poverty and the future of the Energy projects). We have also participated in workshops understanding of the future requirement for first-choice fuel to heat a home where the Company Obligation (ECO) scheme. with local authorities as they develop their plans new homes, we undertake extensive, ongoing property/developments are close to our network. analysis of the development plans for around –– Engagement with our largest commercial (including Plymouth and West Devon, Flintshire, 33 unitary authorities and engage with local gas consumers. Wiltshire, and Bath & North-East Somerset). and national housing developers. –– Local authority engagement and review of local development plans. 1 NEA response to the Commission for Customers in Vulnerable 2 ‘UK Housing: Fit for the future?’, 21 February 2019, Committee Circumstances’ call for evidence (May 2018). on Climate Change.

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Chapter 17. Connecting homes and businesses (continued)

We also used the data that is published by BEIS to forecast housing growth in each local authority area. We have undertaken many infill schemes to As a group of GDNs, we have worked closely This analysis indicated that 123,000 houses are likely to be built in our region in 2021-26. off gas communities during GD1, including with BEIS during GD1 in developing the DECC mains networks of up to 7km serving 200-300 Central Heating Fund (£25m for new gas boilers). New housing growth in GD2 in our network homes. The service numbers are not significant We reported to the Off-gas Grid group which 2021/22 2022/23 2023/24 2024/25 2025/26 Total but the projects do drive annual peaks in main- in turn reported to the Fuel Poverty and Energy laying. These projects have been driven by local Efficiency Parliamentary Group. The GDNs are England 17,9 01 17,458 17,39 6 17,73 0 17,356 87,8 41 authorities, large social landlords and the Welsh all concerned about the lack of visibility of funding Wales 7,0 3 0 7,49 6 7,118 6,885 6,486 35,015 Government (under the Arbed Community for first time central heating systems after 2021. Total 24,931 24,954 24,514 24,615 23,845 122,858 Energy funding). The Welsh Government has options on its A review of the number of houses built in our area, Existing housing connections Funding is unclear in GD2 but we have assumed Nest and Arbed schemes to extend to 2022. that we will facilitate one such large scheme each We will be participating in a review of the Welsh and the total number of new gas connections Our analysis of workload trends in connections year in GD2, with typically 4km of mains and 200 Government’s fuel poor strategy during 2019. made over the last five years, demonstrated to existing housing over a ten-year period (from new service connections. We have also kept close to developments in that 80% of homes have a gas connection. 2008 to 2019) indicated that there is a clear relation to the Energy Company Obligation (ECO) Our engagement with developers to date downward trend in the number of connections. We have concluded that we will connect 23,000 scheme through to the current phase ECO3. indicated that this position is unlikely to change. This has levelled out over the past 12 months existing homes during GD2 (excluding the fuel BEIS is yet to decide whether the successor to because of changes to the FPNES which result poor scheme). Analysis over the past six years shows that we ECO3 will support gas boilers or be more focused in social housing properties not being funded, have 19% of the new housing market, with the on renewables. IGTs undertaking the other 81%. We forecast that but with social landlords choosing to fund gas Fuel poor connections this will remain largely unchanged over the period connections themselves (as gas still offers the In September 2018 Ofgem engaged Given the uncertainty concerning the ability to up to 2025, which leads us to a forecast workload best cost option for their homes). management consultancy Sia Partners to carry link our FPNES funding to funding for the heating system, all of the GDNs are concerned about of 21,000 connections to new homes during Spatial analysis of our GIS mapping systems out a review of the effectiveness of the FPNES. committing to numbers at this stage, and instead GD2. Heat pumps and district heat networks shows that there are around 90,000 homes within We contributed to the review, which supported 3 favour a mechanism to match our workload to are likely to fill the gap in heating many of these 23 metres of our network that do not have a gas the continuation of the FPNES scheme. funding or any national infrastructure scheme on homes and we discuss district heat connections connection, although many of these homes will The continuation is also supported by National energy efficiency and decarbonisation. under non-domestic connections overleaf. be modern flats or new builds where renewables Energy Action (NEA) and the Welsh Government where it offers the best option for the home. Having assessed the potential impact of a Future are installed as part of the build. The 90,000 figure We are forecasting 2,500 fuel poor connections Homes Standard on new housing in GD2 we is reducing year on year as a result of the 5,000 Stakeholders support a more targeted focus of during GD2. We have phased our workload are not forecasting any material change to our plus homes that we connect each year (including the FPNES towards vulnerable homes that can be reflecting work from the Welsh Government and workloads in this area. fuel poor connections). demonstrated to be in fuel poverty. The modelling ECO3 in the first two years and dropping away towards the end of the period. There is still wide support from social landlords, that Sia Partners carried out showed that to be Click Appendix 17A for English and Welsh and from off gas communities and the councillors of value to society the scheme does need to housing projections. who represent them to extend the gas network. connect at least 50% of homes that meet the fuel Click Appendix 17B for a sensitivity analysis poverty definition. We believe the current eligibility on the impact of the future homes standard. Current funding rules limit what is economic and we have seen no evidence that the UK FPNES criteria meet this requirement. Government intends to facilitate a change.

3 Project report: Options for the Fuel Poor Network Extension Scheme in RIIO-GD2, SIA Partners, 2018.

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Chapter 17. Connecting homes and businesses (continued)

Non-domestic connections We understand that 50-100 sites would like to Diversions The majority of the 600 non-domestic connect by 2026 as detailed. Progress towards The distribution network diversions workload connections we make each year are small electric vehicles and the electrification of trains is relatively consistent year on year, with an businesses such as shops, cafés, offices, and trams in our network area all place a average of 7km and a variance of 1km. and leisure outlets. demand on the electric network that can be supported by the flexibility of the gas network. Most diversion schemes are associated with Fewer than 5% are large loads or higher- new housing, commercial developments and pressure connections, which include process District heat networks transport schemes. A smaller proportion is loads, larger space heating loads, gas fired driven by environmental factors such as river We have worked closely with E.ON on the power stations, CMG fuelling sites, Combined bank erosion and land movement. These can development of district heat networks in Cranbrook Heat and Power (CHP), and supplies to district create a peaky and unpredictable workload. near Exeter, and the Bath Riverside development. heating energy centres. These two developments will supply almost Through our stakeholder engagement we have 15,000 homes with gas as the primary fuel for identified a continuing need to move mains Click Appendix 13I for further information on enabling renewable generation. most of the year, combined with some back-up Reinforcement for development sites and major transport Click Appendix 13K for further information on facilitating from solar and wind in the summer months when Specific reinforcement is associated with specific projects that support the local infrastructure green transport. demand is lower. larger loads, whereas general reinforcement and therefore the local economy and Click Appendix 13L for further information on heat communities. These projects, an example being We have also worked with consultants on is associated with multiple smaller loads networks and CHP. the South Wales metro, will require localised schemes for Bristol and Cardiff. Although these connecting to our network or changes in gas diversion schemes. schemes will use waste heat from incinerators, gas usage across the network. will still be required to support the energy centres Many of the developments that are planned The South Wales metro is a new transport and ensure a reliable supply 365 days a year. for GD2 are to green field sites at the edges system for the Cardiff capital region. It will require us to divert distribution mains and provide a 600 Under BEIS Heat Network Delivery Unit, 92% of towns and cities. We are also anticipating new supply to the site. We are ensuring that we non-domestic connections made will be gas CHP or gas hybrid. growth in towns that are at the end of long each year to small businesses distribution networks. have constructive relationships with the relevant such as shops, cafés, offices, parties in relation to this substantial project, CMG transport Based on our work with local authorities, and leisure outlets. in order to improve the timescales to connect In the past two years we have connected consultants and developers, we are forecasting customers and businesses where our work supplies to CMG filling sites at bus depots in that our reinforcement workload will continue is in close proximity to the railway. Electrical power generation Bristol and Plymouth. We are now working at the rate seen in the later stages of GD1. This reflects trends in the economic outlook Through GD1 we have realised that there is risk Small electrical power generation plants play with developers of public access filling sites during GD1, as well as forecasts in the economy around LTS pipelines as developers are applying an important role in offering balancing services in Avonmouth and Cardiff; we expect this for GD2. The proposed policy change to prevent legal pressures to move the pipes so they can to the power networks, effectively using storage market to grow, with connections taken mainly new gas connections to new builds from 2025 maximise development land. This has led to a in our network to provide flexible generation from the intermediate pressure and high would not remove the need for reinforcement. significant increase in workload and costs for to the electricity network. We continue to receive pressure networks. This is because any gas fired district heat LTS diversions in GD1. enquiries for such plants and have connected networks are also likely to require reinforcement, 31 sites in GD1 to date, providing an additional as would gas fired electricity generation sites 526 MW electricity output from our network. to support heat pumps.

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One scheme in particular in the south west of Isolations Theft of gas illegal connections Following a CEG challenge, England is set to cost many millions of pounds This work category relates to customer-led The management of Meter Point Reference we have amended our theft to resolve and entails our involvement in a court disconnections, due to demolition or because Numbers (MPRNs) is key to billing customers of gas incentive to protect case that is the first of its kind. The case is being gas is no longer required. in the gas industry. Our Connections team customers further. followed with great interest across the industry The workload is relatively consistent year on year manages the creation of new MPRNs and the and we will share what learning we can to although analysis of stakeholders’ plans does maintenance of those MPRNs because of our support other networks and utilities in disputes show that a number of major social housing works. Working with Xoserve and the industry, of this nature. Our GD2 forecast reflects this but redevelopment schemes are due to start in GD2. we made changes to the MPRN creation given the uncertainty around these claims, we 4. Our GD2 commitments An example is the redevelopment of 10,000 process in 2014 to prevent suppliers from believe an uncertainty mechanism to protect homes by Gloucester City Homes over a 20-year creating their own new MPRNs. This allows us Looking to the future and planning consumers and GDNs would be appropriate. to avoid duplication but also to identify potential for alternative and affordable ways to period from 2020. Such schemes will require meet customers’ future energy needs. multiple service disconnections and associated illegal connections and to take appropriate Alterations mains abandonment. action to make the connection safe and Service alterations are primarily driven by work to legitimise it. In summary, our GD2 investment will provide at domestic and small commercial properties, Gas Safety (Installation and Use) We have obligations under the Supply Point connections in a timely way to an affordable and with fewer than 2% on larger commercial Regulations 1998 (GSR) disconnections Administration Agreement (SPAA) to investigate reliable source of energy for more than 30,000 services. Workloads are generally consistent The GSR places an obligation on suppliers to theft of gas where it is either direct from our new households each year (including those year on year. This workload also includes fixing ensure that services are left in a safe condition network, or through a meter but there is connected by the IGTs). It will also ensure that meters and reconnecting the customer’s outlet where a gas meter has been removed and no registered supplier for the meter point. we are able to continue to support the energy pipework where the customer asks us to carry a new meter not installed for 12 months. Stakeholders were surprised that this was an transition by providing flexible gas generation to out this work. Most of this workload (3,800 The workload can vary year on year and peaks issue in the gas industry but supportive of our the district heat network, and to fuel vehicles. a year on average) is fully chargeable to the have been seen in GD1 following portfolio doing more to tackle the problem from a safety customer. However, as a gas transporter we When responding to requests for new reconciliation exercises by suppliers. perspective and to reduce customer bills. have obligations to alter services free of charge connections, we take pride in offering a service for priority customer groups. These number This obligation falls to the GDN as network We have proposed a bespoke output to that meets the customer’s individual needs. more than 100 a year and are set to rise based owner. Data on removed meters is downloaded incentivise us to do more on tackling theft of gas. We always do our best to perform well above on government statistics as a result of an ageing from Xoserve then cleansed using our own The CEG challenged us on this, in particular the guaranteed standard of service timescales population and as health issues increase. data, through liaising with householders and around why we should receive a share of the when it comes to providing quotations, by making site visits to inspect the service. benefit from this initiative. We explained that this undertaking the connections work itself, The outlined workload is associated with the proactive approach benefits customers and that and carrying out any reinstatement work number of physical service disconnections the sharing is asymmetric in customers’ favour. that is required. resulting from that cleansing work (typically However, in response to the CEG we have 4,000 records result in 720 disconnections amended the incentive to take more risk. per year). Click Appendix 5F for further information on our engagement.

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Chapter 17. Connecting homes and businesses (continued)

5. G D2 outputs We believe that performance against the FPNES is essential as one of the ways in which we can support customers who are in fuel poverty. We have encouraged Ofgem to include performance as a GD2 output and this has now been defined by Ofgem as a Price Control Deliverable. We are seeking a volume driver as opposed to an absolute target – reflecting the uncertainty in energy markets and in funding for heating systems.

Connections ouptuts Click Appendix 3A for further justification on these outputs Measure 2018/19 and type Explanation Proposal/target Stakeholder views performance Comparative performance Other requirements Customer benefits Common output measures with bespoke target Fuel poor Funding of first time gas A total of 2,500 connections Customers support the FPNES where 1,083 connections. On target in GD1 along with Ambition limited by third party funding for Homes that receive a connection network connections to eligible (£8.2m) to fuel poor homes gas is the best option for the home. SGN Scotland and NGN. first time central heating systems. will save on average £680 a year extension fuel poor homes. in GD2 - 700 per year in CEG and RIIO-2 CG would like us to Unlike SGN Southern and Ofgem require partners to demonstrate gas on heating bills and improvements scheme 2021/22 reducing to 300 be more ambitious but they accept Cadent who are at risk of missing is the best option for a property for FPNES to health and wellbeing, delivering (FPNES) in 25/26. our caution given the lack of visibility their target. funding to be provided. wider societal benefits as of funding for central heating systems. measured by our SROI tool. PCD

Bespoke outputs measures Theft of gas A bespoke financial First £250k pa recovered Stakeholders support being more £326k recovered. Total of £2m recovered over past Ofgem has previously been supportive Customers will benefit by receiving ODI to increase the given to customers, next proactive to tackle theft of gas five years – one of the leading of further GDN work in this area. the first £250k of any income we ODI F proactive work we do £50k payable to WWU to for financial and safety reasons. 165 cases of theft networks based on population. Ambition to recover over £2.5m in GD2. recover, plus 50% of any amount to tackle theft of gas cover admin costs and CEG challenged this incentive and we of gas stopped. above £300k. The safety risk at CVP by commercial and all money recovered over revised it to protect customers further. those sites is also removed. domestic customers. £300k shared 50:50.

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Chapter 17. Connecting homes and businesses (continued)

Theft of gas Our commitment Do more to proactively identify theft of gas to £2.2m protect the safety of our customers and to Over the past five years, we support fair charging; we propose a bespoke have recovered £2.2m, making financial incentive to support this. us the leading gas network along with Cadent London. Tackling the theft of gas to keep our customers safe and to support fair charging. Where we recover less than £250k, we will only recover the costs we incur in recovering money from customers. We will be incentivised by We propose a bespoke output on tackling theft keeping 50% of the income recovered above of gas. We have obligations under the SPAA £300k. Customers will benefit with more money to investigate direct theft from our network or flowing back to them in year one than if we had in cases where gas is being used and there is just met our obligations. This bespoke output no registered supplier. Until 2014/15 we carried contributes to our CVP. out only our necessary commitments, which They will also see a benefit in future years due was to act on reports and tip-offs. to the theft of gas issue being closed. While we Since then however we have set out to do believe we have tackled some of the larger additional work alongside our existing processes industrial users already, the additional resources to proactively identify gas theft and recover will allow us to focus on more of the medium costs. Over the past five years, we have sized businesses and domestic users. recovered £2.2m, making us the leading gas We will protect vulnerable and low-income network along with Cadent London. homes in our processes by helping the customer Under this output, we are committing to using to register with a gas supplier but not seeking to industry data and additional resources to tackle recover lost income. the problem even more proactively. We will also put dedicated resources into this work at an additional annual cost of £50k and work with industry partners to tackle the problem.

For every £1 invested in tackling theft of gas, customer CVP receive £20 of net value.

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Chapter 17. Connecting homes and businesses (continued)

6. Our GD2 planned activities Facilitating competition in connections Based on our own data analysis, and taking account of stakeholder feedback and reports on the future of energy in the UK, the workloads The IGTs have more than 300,000 customers we forecast to deliver during GD2 are summarised below. connected to our network (as of March 2019) and connect more than 20,000 new services Workload summary each year. In addition, Utility Infrastructure GD2 Providers (UIPs) lay 500 services a year which Connections services Average GD1 2021 2022 2023 2024 2025 Total we then adopt. We forecast that during GD2 we will enable 150,000 connections to be New housing 3,949 4,039 4,043 3,971 3,988 3,863 19,903 made to our network by the IGTs and UIPs. Existing housing 5,209 4,821 4,735 4,649 4,562 4,476 23,243 We will continue to facilitate competition FPNES 1,574 700 600 500 400 300 2,500 in the connections market by: Total non-domestic services 608 610 610 610 610 610 3,050 Total 11,340 10,170 9,987 9,730 9,249 9,249 48,696 –– Sharing data on our network. Connections mains –– Continuing to offer a high level of service New housing (km) 23.2 23.2 23.3 22.9 23.0 22.2 114.6 to these organisations to ensure that the application and design approvals process Existing housing (km) 15.6 15.0 14.7 14.4 14.2 13.9 72.2 is smooth and efficient, and that we then FPNES 5.1 2.8 2.4 2.0 1.6 1.2 9.8 complete any reinforcement required in a Total non-domestic mains (km) 6.1 5.9 5.9 5.9 5.9 5.9 29.3 timely manner. Total 50 47 46 45 45 43 225.9 –– Continuing to monitor the safe control of Connections other operations when third parties are working Alteration 3,616 3,750 3,750 3,750 3,750 3,750 18,750 on our network. Isolations 1,133 1,200 1,200 1,200 1,200 1,200 6,000 –– Undertaking risk-based site audits and GSMR disconnections 721 720 720 720 720 720 3,600 work with those companies and the Lloyds LTS Register (which operates the Gas Industry LTS connections 0.2 1 0 1 0 1 3 Registration scheme) to drive best practice LTS diversions 2 2 2 2 2 2 10 and address issues. Third party –– Providing the emergency service through IGT/UIP final connections – 10 10 10 10 10 50 contracts with the majority of the IGT sites. Reinforcement We will ensure that vulnerable customers on Specific reinforcement (km) 7.9 11 12.8 11 10 10 54.8 these sites are protected, in the event of an General reinforcement 7.6 7.4 7.4 7.4 7.4 7.4 37 emergency, in the same way as we protect customers who are connected to our network. Total reinforcement – 18.4 20.2 18.4 17.4 17.4 91.8 Diversions Rechargeable (km) 7.0 7.6 7.7 7.7 7.7 7.7 38.5 Non-rechargeable (km) 1.7 1.1 1.5 1.5 1.5 1.5 7.1 Services on diversions – 60 60 60 60 60 300.0

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Chapter 17. Connecting homes and businesses (continued)

Comparison with other GDNs’ charges 8. Options –– Heat mapping to help developers identify areas with capacity for gas entry and exit. To ensure that we provide value for money for our customers we compare our standard charges When customers request a new single against the published standard charges of other GDNs on an annual basis. We are pleased to report service connection there is little option other –– Innovation in engineering techniques to that we are either the cheapest or second cheapest of the GDNs while recovering all reasonable than considering the route to ensure it is the reduce excavation sizes, reduce the time costs from the customer. lowest cost possible within the customer’s to complete works, and to reduce costs of requirements. For requests to connect multiple back fill and reinstatement materials, with GDN connection charges – new domestic services (inc. excavation and reinstatement)* properties requiring new mains and services, cost savings passed on to customers via our we have optimisation tools that will consider all charging methodology. 100 combinations of pipe sizes to identify the lowest 12 cost solution. –– Geo-referencing of photos, videos and 1200 records to ensure that our records are If our current gas network does not have the accurate, help engineers and designers capacity to supply the gas volumes required by 00 00 to identify issues, support customer 1 a new customer(s), we will look to reinforce the 0 0 0 communication, and drive a ‘right first time’ 600 £598 62 network. We will consider many options to make this capacity available including: delivery of the quotation and work on site. 00 –– elevating system pressures where the impact on leakage is minimal; An innovative technique 0 –– connecting discrete networks; ‘Minimuss branch saddle Wales & tlan ast t West uten uten ast nn connections’ is delivering West Utilities is West is s 2 is 2 nlia –– targeting repex; a £300k/yr saving by completing –– renegotiating pressure commitments with flow stopping in half the time. * As of December 2018. existing customers, particularly the IGTs.

All options are considered based on viability 7. Costs The main difference in cost is for diversions, with the increase being driven by a higher LTS and cost benefit analysis (CBA) so that the Conclusion To deliver our commitments we require a total lowest cost solution is delivered to customers. workload. This is the result of development Our connections investment will mean that of £108m of allowances to meet our Licence Where we are aware of further growth in an of new housing and commercial sites on the we are able to continue to meet the needs Obligations (Domestic Load Connections area, we will consider this when designing outskirts of cities and towns. We are seeing of our local communities and wide-ranging Allowances, reinforcement and funded reinforcement options to deliver the overall more cases where the easements put in place customers, building on the high-quality alterations), the FPNES, and requirements under lowest whole life cost. up to 50 years ago either have a ‘lift and shift’ service that we provide. the NRSWA Diversions Code of Practice and clause that puts all costs back on the GDN to Our connections plan aligns with the single the Gas Safety (Management) Regulations 1996 move the pipe, or the easement or the developer 9. Innovation scenario that was set out in Chapter 13: over the five-year period. is challenging the validity of the easement Any innovation in the connection business will need to be part of business as usual and show Our net zero ready vision for 2035, which is The workloads and unit costs for each activity because the pipe is in a slightly different location. a clear benefit to us and to customers if it is predicated on the need for gas. This analysis are broadly the same as for GD1 (excluding The impact of this is that a greater proportion to proceed: provides strong evidence that gas continues inflation and real price factors). of the costs of LTS diversions are borne by to have an important role to play in the move the GDN, resulting in the increase in average –– More self-service options for developers to create a dynamic, flexible, integrated, and net costs. to get quotes, accept and pay for work and to track their projects (Click Chapter 6). green energy system.

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Chapter 18. Transmission and pressure management 

1. Highlights of our plan –– The transmission network has substantial Investing in transmission and pressure management storage capacity and is critical to balancing –– To maintain current performance on safety supply and demand to meet stakeholders’ Investment GD1 £m (pa) GD2 £m (pa) and reliability and to meet the needs of our needs. We deploy 59.4MWh of storage Maintenance and refurbishment 9.0 9.5 stakeholders – from end users to power each day – the equivalent of 11.8 million Pressure management 10.9 9.2 generators and the renewables sector – we will Tesla Power walls. Pipelines 3.4 7.9 invest £27.4m a year in GD2 in our transmission –– Malicious damage to these assets is a Holder/storage 0.8 0.8 and pressure management assets. real threat and we have engaged with the Total 24.1 27.4 –– These assets transport large volumes of gas Government’s Counter Terrorism Security at very high pressures; as such there is a Agency (CTSA) on our planned investment Transmission GD1 average v GD2 average 2018/19 prices significant safety and security of supply risk if in security. they are not well maintained and managed. 0 –– Our plan will ensure that we continue to Most of the GD2 planned costs are broadly similar to those of GD1 as we continue our 2 0 0 comply with the regulations governing this 2 critical part of the gas distribution system – successful refurbishment programmes, which 6 the Pipeline Safety Regulations (PSR) and the have maintained the health of our assets. 26 Pressure System Safety Regulations (PSSR). 0 2 An exception to this is LTS pipelines, where the 2 21 These regulations reflect the inherent safety cost is increasing as a result of a higher workload risk of transporting gas and require us to – reflecting our planned replacement of 13km 22 00 keep these assets in a good state of health. of pipeline in GD2. We have refurbished a good –– These assets have benefited from very number of pipelines successfully in GD1, with 20 targeted and significant capex programmes the exception of a 13km section that continues in the price controls prior to GD1. to deteriorate despite our interventions. CBA is –– As a result of the construction standards that showing that from a whole life cost view the best and storage Maintenance GD1 average result is now to replace this pipeline. GD2 average transmission were in place when the pipeline in mid and transmission north Wales was originally built, we face a LTS wholesale revalidation work Holder demolition Another area of cost increase is LTS diversions. AGI electrical and PSUP in RIIO-GD1 and refurbishment other interventions

challenge that is not experienced by any other Efficiency challenge These diversions are customer driven and costs capital interventions GDNs. Our plan includes investment in GD2 to are increasing due to a significant increase pipeline workload and manage the integrity of these pipelines. in development, which results either in our –– To deliver best value for customers in this moving pipelines or our compensating for loss area we adopt a whole life costs approach, of potential earnings if the pipeline cannot viably supported by extensive cost benefit analysis be moved. (CBA). This approach has led to lower costs in GD1 that will continue through to GD2.

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Chapter 18. Transmission and pressure management (continued)

2. Introduction Our asset network Our transmission and pressure management Industrial/ assets move substantial volumes of gas at high Storage commercial pressure from the National Transmission System 17 3 consumer 2,300 (NTS) to the local distribution pipe network. Offtakes ‘Bullet’ storage sites District Governors (DGs) The assets represent a critical part of the Domestic network as a single failure could impact on many These assets take gas from Above ground vessels storing consumer These stations control pressure the NTS and regulate pressure Local gas at very high pressures. as gas is transported through thousands of customers. As the network is used as it passes into our Local transmission the <7bar network. Service pipeline to transport gas at very high pressures, any Transmission System (LTS). governor leaks could have very serious consequences. Gas is odourised, metered Industrial/ and its Calorific Value (CV) Commercial Much of our planned investment is to ensure measured. Local distribution consumer compliance with the law and with requirements zone offtake Intermediate that are mandated by the HSE. We maintain pressure Industrial/ governor commercial best value for customers by adopting a whole life consumer costs approach and using CBA so that we are 306 National Pressure Reduction neither ‘gold plating’ nor under-investing. transmission network inlet Pressure reduction Installations (PRIs) We are responsible for assets that are deemed installation by the Government to be Critical National These sites take gas from the LTS and reduce pressure to Infrastructure (CNI). We work with BEIS to agree safe levels for entry into the Low pressure and implement the Physical Security Upgrade <7bar pipe network. storage Domestic 2,359 consumer Programme (PSUP). We undertook the full range km of High of work to protect our assets that was required Pressure pipeline Medium pressure during GD1. We have consulted with BEIS and Industrial/ Transports gas at pressures district governor with the CTSA on our GD2 plans in this area. commercial Service Service >7bar from the Offtakes consumer governor governor This chapter is presented in three main sections: to Pressure Reduction Installations. There are large Domestic consumer –– How we will manage our transmission and gas users connected directly pressure management assets in order to to these pipelines. This pipe network provides the majority maintain safety and reliability. Domestic Industrial/ of our storage by compressing consumer commercial –– Operating the network – how we will address gas in the pipes at times of low consumer the challenge of balancing the network in demand and releasing when 14,955 demand levels rise. Service Governors (SGs) real time, as demand and supply patterns become more variable. These are units at the end of National transmission pipeline (38-70 bar) the pipe network that control –– Physical security – how we will protect the Intermediate pressure pipeline (2-7 bar) Local transmission pipeline (above 7 bar) pressure to safe levels to a assets from malicious damage. Medium pressure pipeline (75 mbar – 2 bar) Special crossing maximum of 2 properties. Low pressure pipeline (21-75 mbar) WWU owned meter

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Chapter 18. Transmission and pressure management (continued)

3. C ustomer and –– We shared our security plan with CTSA 4. Our GD2 commitments 5. GD2 outputs in late 2018. Their feedback resulted stakeholder feedback in a reduced investment plan – £6m less Making sure that high pressure assets are The network asset resilience maintained and operated correctly. Striving for clean and affordable than the original forecast. measure (NARMs) energy, understanding the needs The key output measure for this group is the of businesses and how our network To avoid investment solutions to capacity NARMs (formerly network output measures, will be used in the future. challenges we have gone out to our large users This part of the network moves substantial NOMs). There are two outputs under NARMs – with the option of lower bills in return for the volumes of gas at high pressure and controls capacity and monetised risk. These two A significant majority of customers in a ability to interrupt their supply to help balance that pressure as it enters the distribution outputs provide holistic measures of safety quantitative research study (base 1000) have our network. In each year we have done this, network. The significant risks associated with and reliability performance. told us that reliability is their top priority (Impact there has been no take-up, despite the potential this activity, which we must manage, are: Utilities). Feedback states that current levels of for significant cost savings for businesses. NARMs have an important role to play in safety and reliability are good and there is little We will continue to innovate in our engagement –– interruptions to gas supply; assessing the benefit of asset intervention desire to spend more to improve. We have process in the hope of stimulating positive –– a loss of containment, resulting in an explosion; plans across all sectors and measuring a listened to this feedback and our investment and responses but the feedback to date does show –– disruption to UK infrastructure or displacement GDN’s performance in managing asset risk. delivery plans reflect this. the value businesses place on an extremely from homes and businesses as a result of We forecast to outperform our NARMs target in reliable gas supply. GD1 by removing £9m of risk above our GD1 We have sought views from key regional and large gas releases at high pressure. commitment as a result of our targeted asset national stakeholders through events across There are a limited number of network users intervention strategy. our network. In summary: that are impacted directly by this asset group, Reflecting these risks, the way in which we including green gas producers, flexible power maintain and operate this network is governed Very simply this means that through our –– HSE, BEIS and emergency planning stations, and large industrial users. We have a by various sets of legislation, most notably the GD1 investment we have improved reliability, committees stress that large-scale supply dedicated team that engages with this group to PSR and the PSSR. Much of the investment that improved safety and reduced the environmental issues or gas explosions are not tolerable cater for their individual service requirements. we plan for GD2 is driven by these regulations impacts of these assets. to society. As an example of this, in practice in GD1 we Our GD2 commitment is to “keep the level of –– The electricity sector and power generators have manually reconfigured networks in order risk in relation to these critical assets at their tell us that reliable gas generation is critical to maximise green gas capacity. Through our current acceptable levels in order to maintain our to balance intermittent renewables (solar and innovation project OptiNet we are developing excellent performance on safety and reliability”. wind) and that storage in our network is vital intelligent control systems that will provide to balancing the region’s energy needs – and further capacity to green gas producers in We will have removed that this will continue to be the case in the GD2. We have formed and chair a transmission £9m of risk above our short, medium and long term. strategy group for the GDNs/Gas Transmission GD1 commitment. –– BEIS and large gas users say that a (GT) to share best practice, look at the future reliable supply is essential to the local challenges associated with managing this and UK economies. network, and ensure that investment is targeted –– Gas consumers are happy with service at the optimum part of the NTS/LTS system – levels and do not wish to pay more for thereby minimising costs to consumers. improvements in this area. Click Appendix 5F for further information on our engagement.

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Capacity Utilisation GD1 versus GD2 monetised risk The purpose of this measure is to ensure that we invest in and manage the network so GD1 Forecast that it has the capacity to supply consumers £31m £1m of risk 20 GD1 removed during the winter period. The measure is In GD2 we forecast to remove £31m Target over target based on PRIs and how close they are to their of risk from our network through 200 maximum capacity. a targeted investment plan. 10

The table below shows our 2018/19 position. 21 211 Having no assets in >100% category illustrates Monetised risk

100 1 16 16 that we are achieving the output and not putting As we explained in Chapter 15, monetised 16 10 supply to consumers at risk, even in the harshest risk is a metric that gives a monetised 161 0 winter conditions. In addition, having 55 assets value to an asset based on its condition, in the 80-100% range demonstrates that we probability of failure, and consequence of are stretching the assets and not investing failure. It then determines the cost associated 2013 2017 until required. with that consequence. 2022 actual allowed 2021 With 2026 With

The value is derived for: 2021 With investment investment

Capacity utilisation investment intervention intervention 2021 Without 2026 Without 2018/19 –– the start of a price control; 1 netise is 2 tal netise is Capacity utilisation (number of sites) –– the end of a price control without 50% to 70% to 80% to 100% – enough to be used to set GD2 allowances, value given to the investment plan and is the all sectors. Our GD2 plan is designed to keep Total 333 we support an aspiration to get to this point output target. The figure opposite shows our network risk at the end of GD2 at a broadly for GD3. Our investment plan will ensure that capacity GD2 forecast and our plan to remove £31m similar level to that at the start. utilisation is kept at <=100% in GD2. of risk from our network through a targeted investment plan, compared with the risk level This will maintain our current levels of safety NTS exit capacity The network has evolved through GD1 with with no investment plan. and reliability, in line with the requirements of This output incentivises us to accurately book a sharp rise in green gas and power station our stakeholders. and minimise capacity reserved from the NTS. connections. Balancing supply and demand has While this approach may not seem ambitious, it This ensures we do not overestimate our become more complex as a result. We need is driven by feedback from our stakeholders that network usage resulting in unnecessary cost to make sure that this measure stays relevant, they are happy with current safety and reliability to the transmission operator and preventing which in the future could mean including storage performance and do not wish to pay more other users from booking capacity they require. capability as well as asset capacity. for improvements. This has worked successfully in GD1 and we support the continuation of the measure in GD2.

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Other outputs We propose some other targets to measure our performance in managing these asset groups. These are detailed below:

Transmission and pressure management outputs Click Appendix 3A for further justification on these outputs Measure 2018/19 Comparative and type Explanation Proposal/target Stakeholder views performance performance Other requirements Customer benefits Common output measures with a common target National The value of NTS flat capacity Our proposed target Customers support keeping £0.46m (nominal) 8-yr incentive income: There is joint industry work Customers will continue to transmission secured to meet 1:20 peak will be based on NTS bills to the lowest practical level. incentive reward. WWU £3.6m ongoing in this area through the benefit in receiving a share of the (NTS) exit demands against a baseline capacity bookings Engagement with shippers and Cadent £147m Transmission working group which financial incentive. capacity set in the final determinations. made through the 2020 the industry shows support SGN £42m may result in future changes. To incentivise GDNs to minimise applications process. for discussions around how NGN £10m ODI F flows on the NTS to reduce unsold capacity can be used consumers’ costs. most efficiently. Gas A programme of work to demolish We will demolish the We engage with the HSE on this We have demolished We have fewer remaining We will try to offset the cost with This investment will remove all holder redundant gas storage assets. last five holders on our issue through bi-annual meetings eight holders in GD1. holders than other GDNs land sales where possible. environmental and safety risks posed by demolitions network in GD2. and the removal of these redundant and have exceeded our these assets and reduce future operating assets is supported. GD1 target for less than costs to zero. PCD our allowance. Physical PSUP is directed by BEIS requiring No further work is When we shared our initial plans We complied with Annual Regulatory We are not required to undertake Investment in security protects Security security fencing, gates, cameras required at this stage. with the CTSA their feedback was requirements in GD1 Reporting and through further work to comply with the critical sites from malicious attack. and access systems linked to our We support a re-opener that the level of investment planned by completing the GDN working groups. PSUP programme at this stage. This significantly protects our consumers PCD system control room at several in this area if legislation on some sites was not necessary work required under We will continue to work with the from large-scale gas interruptions. key sites where we take gas from changes in GD2. and we significantly reduced our the PSUP at a cost of CTSA to ensure that our plans the NTS. investment in this area as a result. £18.6m. remain relevant and appropriate to the perceived risk.

6. M aintaining the network Deriving an intervention plan that will deliver Ensuring good quality data and analytics –– 2010-12; 7,000 surveys of PRIs, district these outcomes requires: We use sophisticated prescriptive and governors and service governors to determine Making decisions based on asset descriptive analytical capability underpinned asset populations and condition data. and financial data to improve and –– decision making based on high-quality by high-quality asset and financial data maintain infrastructure and reduce asset and financial data; –– 2013; Implemented Condition Based Risk to inform our decision making. carbon emissions. –– testing our investment plans against likely Modelling (CBRM). future uses; At our inception in 2005, data on our –– 2014; Implemented Trillium (data quality Our GD2 plan is designed to maintain the level –– understanding the likely impacts of the transmission and pressure management assets assessment software). of network safety and reliability risk. This will lacked any granular detail and was often held environment in which we operate the assets –– 2015; Fully digitised the 2,359km of LTS pipe ensure that interruptions and safety performance in local depots and in spreadsheets. (through our climate change mapping). enabling better management and detailed are maintained at high performance levels. assessment of pipeline risk. This is driven by feedback which tells us that There were gaps too in our asset population stakeholders are happy with our current safety data. We have taken significant steps to address –– 2016-19; Site surveys carried out of all service and reliability performance and do not wish these issues: governors to determine asset populations to pay more for it to improve. and condition data.

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Chapter 18. Transmission and pressure management (continued)

–– 2017; implemented Asset Investment We are very aware of uncertainties in the long-term Maintaining a totex approach Manager (AIM), a powerful analytical tool future of energy and concerns around stranded to predict asset risk and derive optimised investment in the gas network. The GDNs and 10 0 0 0 investment programmes to manage that risk. electricity networks have collaborated on producing a common view of the future (the single scenario). These are in addition to our day to day collection of condition, fault and failure data including: Click Chapter 13: Our net zero ready vision 110 for 2035 for more information. –– Pressure reduction installations; annual inspections of safety features and condition. Our investment plan is set in the context of this 1 –– District governors; risk-based maintenance scenario but we have also tested it against the visits but condition assessment at least every four National Grid FES to ensure robustness six years. WWU tte aa – 6 aitinal ae aa – 100 and minimise any risk of asset stranding. –– Real time site monitoring from control room systems. Climate change mapping 7. Delivering value for money GD1 in this area and this will continue to be an area of focus for GD2. –– Pipelines; c.450km inspected for condition It is important we consider the impact of a per year so all are inspected within five years. changing environment on our assets and their Maintaining a totex approach Our underlying strategy is to keep cost ability to function. We have led an innovation As Chapter 15 explained, our approach means savings from GD1 going forwards and to avoid In GD2 we will continue to support our ambitions project to develop climate change mapping we intervene regularly and in a targeted way expensive capex replacement. We do this for detailed prescriptive and descriptive analytics. capability and this will continue to evolve during to maintain the asset health and deliver the through our understanding of the whole life costs We will continue to invest in our GIS, which allows GD2. This has been shared with the other GDNs lowest cost management of each asset over of the assets and by the CBA that we undertake. us to assess the number of people, the type of and key stakeholders such as BEIS. its lifetime. The illustrative figure above shows property, and infrastructure such as road and two representational management plans for a CBA results Analysis of this data has identified the rail in the vicinity of each asset. This assessment typical district governor (DG) and two different following risks: NPV (£m) informs our understanding of the risk of death, management plans. The black line represents Asset 2030 2035 2040 2050 injury or damage in the event of an asset failure. –– River bed and bank erosion exposing pipelines. a capex plan with full DG replacement, which Pipelines £10.79 £19.93 £28.68 £45.15 –– Flash flooding impacting bridges carrying in this illustration typically costs around £50k. Offtake & A network fit for future energy scenarios gas mains. The orange line represents our totex approach. Here, relatively low-cost early investments to PRIs £42.00 £177.71 £676.90 £11,372.00 Gas has a vital role to play in future of energy –– Flooding of pressure reduction installations. scenarios. Our investment plan not only ensures refurbish the asset (in this case costing £3k, Governors –£0.25 £2.38 £5.74 £13.84 that the gas network will meet our stakeholder –– Impacts on our critical supply chain. then £5k, then £8k) extend its life considerably, requirements of a safe and reliable gas supply, but –– Contaminant mobilisation and migration. thereby pushing out into the future the need for a Summary of GD2 activities also that our network supports the whole system more costly replacement. We plan to complete the following workloads operation. We will do this by providing connections This analysis has not triggered significant investment This approach requires excellent quality data to manage these asset groups, keeping our and capacity for local gas fired power stations that in GD2 but it now forms a key part of our risk on asset condition, performance and the consumers safe and warm. More detailed support the use of solar and wind generation. assessment process. Where we are investing in consequence of failure. As outlined above we evidence for each asset group can be found assets we carry out a climate change assessment have put ourselves in a strong position during in our catalogue of our CBAs and engineering that could influence the design of a site. justification documents. ClickAppendix 15A.

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–– We will continue to maintain inspections of These GD2 activities and associated investment We will need to balance gas every day, keeping to understand their plans and strategies, the LTSs and invest in cathodic protection are explained in detail through a series of pressure as low as possible to minimise losses exploring whether they could offer interruptible systems for all pipelines. This will significantly Investment Decision Packs (IDPs), which are and high enough to ensure that we meet peak services to off-set other investment. We will prolong pipe life, prevent leakage and provided as appendices to our business plan. demands and support flexible generation, which build on learnings from our GD1 innovation minimise whole life cost. These packs are combinations of CBAs and may be required at very short notice. forecasting projects and in some cases build Engineering Justification Documents (EJDs) these into our ‘business as usual’ plans. We will need to reconfigure our networks, invest –– In order to ensure that the existing assets that expand on and evidence the investment in intelligent controls and systems for our control –– 10+ years ahead: gather more granular data deliver our stakeholders’ requirements decisions we are making. we will: room, and increase real-time data availability by (at a sub-Local Distribution Zone level), going beyond ‘size’ as a predictor for demand (e.g. Gas holder strategy connecting data sources in a clever way. –– undertake more than 150,000 purpose), as many do not have a flat demand maintenance visits; In addition to the planned work on our live gas Our service in GD1 was extremely reliable profile. Having secured innovation funding assets, we propose investment to demolish – we maintained supply to the end user at –– carry out 2,300 targeted interventions to start using this data in GD1 to inform the and remove our five remaining redundant 99.97%. In GD2 we will use this strength to on LTS pipelines; FES, we will invest in this activity becoming above-ground gas holders. forge ahead and manage the complexities and ‘business as usual’ in GD2. –– replace 13km of pipeline where constraints and deliver against our commitments Our gas holder strategy spans GD1 and GD2. refurbishment is no longer an option, once again. In GD1 we purged the remaining live holders as supported by our CBA1; GD2 commitments on system operability and removed eight of the redundant structures. Forecasting In a rapidly changing operational landscape, –– undertake 4,200 refurbishments or In GD2 we plan to remove the remaining five. we need to continue our journey of adaptation, replacements on pressure reduction All GDNs forecast over several timescales, from This removes the risk of pollution and improvement and innovation that we have been installations. 10+ years ahead to within-day. This is to support contamination of the surrounding areas, reduces processes ranging from long-term investment making since our systems operations and control –– undertake a full revalidation at one of our risk to people trespassing on these sites, and to maintenance and within-day balancing, each team migrated to our Newport head office in 2009. three gas bullet sites in GD2, at a cost avoids any future operating costs. ensuring that the network can always deliver the –– Booking NTS capacity to meet peak demands of around £1m. This is a much more required entry and exit capacity and storage. and working with industry to seek modifications cost-effective approach to providing a 8. Operating the network to these processes to improve efficiency. significant volume of stored energy to In GD1 we developed our forecasting and balance the energy network in our region In addition to maintaining and managing our modelling capability, via in-house and innovation –– Supporting the UK’s decarbonisation of heat than using batteries or creating new assets we need to ensure that we operate our projects and increasing engagement with National agenda by finding low-cost ways to connect storage facilities. network safely, efficiently and effectively each Grid’s FES team. GD2 activity will build on this, to green gas producers and flexible electricity and every day. To do this we forecast short, improve forecasting for all key time horizons: generators onto our network. –– There are some projects in our plan to upsize medium and longer-term requirements and –– Introducing relevant new forecasting and subsystems on PRIs. These are a result make sure that we have the people, systems –– ‘On-the day’ and next day: connect relevant capacity management tools for different of analysis of the requirements for flexible and processes in place to meet those needs. data sources into our central portal, providing generation in our region in GD2 and the a real-time feed into our forecasting model. load types, including generation, industry and domestic. investments are required to provide the system Real-time variability We will monitor the demand impact of flexible generation and develop models to predict –– Increasing the use of connected, real-time capacity needed. These are necessary to As demand and supply patterns become more their use. data when operating the network. deliver our capacity output targets. variable, the challenge of balancing our network in real time increases. –– 1-10 years ahead: increase engagement –– Seeking non-investment options for capacity 1 Click Appendix 18A for a report by DNVGL to review with and visits to large sites on our network increases, eg interruption contracts or this pipeline spend.

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Chapter 18. Transmission and pressure management (continued)

operating systems in wider ranges. The detailed breakdown of our costs is shown below: 12. Innovation –– Resourcing and training colleagues Cost of investment plan Much of our innovation on managing these appropriately, to reflect our network’s assets in GD1 is related to data and analytics to increasing complexity. Average GD1 Average GD2 £m 2018/19 prices annual spend annual spend take our risk assessment and risk management to even greater levels of sophistication. We will Routine maintenance 4.5 4.5 continue to collaborate with others to discover 9. Physical security Non routine maintenance and refurbishment 4.5 5.0 and develop effective solutions to manage this The threat of malicious damage has grown Holder demolition 0.6 0.5 ageing asset population using the latest digital significantly in modern times. An element of Capital investment – – solutions to identify, monitor and manage how managing risk in relation to these assets is to they will fail, when they will fail and what the ensure that they are physically secure. Governors 2.3 2.3 causes of failure will be. Pressure management and monitoring 0.4 0.3 In GD1, we used the uncertainty mechanism (the Our projects have and will continue to recognise re-opener) provided by Ofgem. We were given Cathodic protection 0.3 0.1 best practice technology for asset repair and the list of our six CNI offtake sites that required LTS storage 0.2 0.3 rehabilitation without impacting on our excellent physical security upgrades and the scope of LTS pipelines 2.2 5.0 safety and reliability performance. works required at each site. The regulator allowed LTS Above Ground (installations (AGIs)) 8.2 6.6 us a total of £19.6m to fulfil our obligations at Launched in April 2018, we are spearheading a these sites within the PSUP. LTS diversions 0.9 2.8 cross-industry pioneering project to establish a Total 24.1 27.4 standard, network-wide framework for drone use As a result, physical security improvement works that could revolutionise the way we monitor and at our current Tier 1 sites was completed in GD1 We have perfected techniques for refurbishing maintain these assets. When this project completes and written policies developed and signed off. 11. Options and extending the lives of our assets. in January 2021, it is envisaged that our industry A key driver for investment in the transmission We own five additional offtake sites, all in the These techniques are significantly lower cost will be able to use drones for operations currently network is compliance with the law. For assets south west of England, where the National than asset replacement. Evaluation of our prohibited by the Civil Aviation Authority and with such a high consequence of failure Grid has CNI assets located on our sites. refurbishment strategy is highly positive and potentially unlock even more applications for the there is a balance to be struck between ‘gold Discussions between the GDNs, National Grid, our GD2 plan reflects a continuation of this technology in the energy industry in future. plating’ and making sure that events that are BEIS and Ofgem about which party should pay approach, along with the associated savings. unacceptable to society are highly unlikely to for the security upgrade work on these sites The investment plan required to deliver our occur. As such we have shared our plan with is ongoing. stakeholder requirements and outputs is broadly HSE to ensure their buy-in to the balance we Conclusion similar in total cost to the level of investment in have struck. We have discounted age-based or This plan will enable compliance with UK 10. Costs GD1, although work types vary. The exception time-based investment plans in favour of more law and will broadly maintain the health to this is LTS pipelines where the workload is sophisticated risk-based plans derived using and therefore the performance and service Improving the network infrastructure set to increase due to some condition issues predictive and prescriptive analytics. To ensure provided by the transmission and pressure will help to reduce costs. on a particular pipeline in Mid Wales and a rise that our investment plan is no regrets and does management assets. in customer driven diversions. not result in asset stranding we test our plan It will deliver a network that supports future against all credible future energy scenarios. The cost of the investment plan for our energy scenarios and satisfies the needs of One of the key ways we do this is to test Our GD2 plan for management of these assets current asset base is £27.4m. This compares key stakeholders – from end users to power investment using a detailed CBA with varying benefits largely from our innovations in GD1. to £24.1m in GD1. generators and the renewable sector. payback periods considered.

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Chapter 19. Workforce resilience 

1. Highlights –– working hard to maintain high levels Engagement informing our commitments We serve diverse communities across different of colleague satisfaction; Our engagement with expert stakeholders told nations with varied demographics and –– Our Workforce Resilience Strategy will –– being flexible in our delivery model. us that our July commitment of “Maintaining stakeholders have told us it is important that ensure that we have a sustainable workforce –– We have a detailed people plan which our Investors in People accreditation” was not our workforce is best placed to deliver for all our to deliver our services safely for our customers. Our commitment to be inclusive and customers and one which reflects the diverse outlines how we will deliver workforce important to them, so we have removed this better reflect the communities we serve was communities we serve. resilience between 2021 and 2036. as a high-level commitment, although it is our –– We are focused on the health and wellbeing intention to retain our accreditation to satisfy clearly supported by stakeholders at regional –– We are unique as a GDN, serving very workshops. This was viewed as the right different communities across different nations of all colleagues – recognising a ‘whole ourselves that our people practices are of a approach, rather than having specific targets with varied demographics. Our strategy is person’ approach. good standard. agile and seeks to recruit, retain, develop –– We plan to collaborate with other GDNs and in place. However, it is appreciated that there Our Critical Friends Panel and Trade Unions gave and engage to drive and enhance workforce DNOs to create a consistent way to measure are challenges in the industry to achieve this resilience and diversity. workforce resilience. strong feedback that apprenticeships should be as evidenced by the research undertaken with a clear focus within this strategy, so our revised –– We want to attract and retain a skilled and EU Skills. commitment reflects this. The new commitment talented workforce and will do this by: 2. E volving our Workforce was borne out of the merging of two workforce Click Appendix 19A for an EU skills paper on headcount –– maintaining our colleague and customer resilience commitments we proposed in our July requirements to 2036 for WWU. centric and values-based culture; Resilience Strategy plan, and the new version that features in this Click Appendix 19B for an EU skills paper on headcount –– committing to positively promoting our Providing numerous training plan was reviewed and endorsed by our CFP requirements to 2036 for all GDNs. business and the wider industry through opportunities and upskilling in September 2019. effective recruitment and retention strategies; colleagues for the future. MPs have challenged us to make better use –– making diversity and inclusion central Through the national collaborative GDN of social media to drive female recruitment, to our people practices; stakeholder engagement, the ageing workforce and regional workshops touched upon the Our strategy has been developed based –– planning effectively for the future by was raised as a concern with recognition of a importance of this medium to attract hard-to- on feedback from 2,327 customers and continuing to invest in upskilling, cross- high number of retirements, with participants reach individuals and those living in rural areas. flexing and development; stakeholders, following consideration asking networks to focus on attracting, training of our external risks and influences. The CEG challenged us in relation to the and retaining skilled staff for the challenges limited scope of our diversity strategy. Our initial of GD2 and decarbonisation. Customer and stakeholder feedback business plan commitment in this area made Trade unions were pleased to see that we have specific mention of BAME employees but External uncertainties, technological advances reflected on and responded to the prominent following the CEG’s challenge and feedback and future energy scenarios require us to issue of pay gaps and our focus on upskilling from other stakeholders around the omission continue investing in the skills and resilience and multi-skilling of colleagues has been of people with disabilities and the LGBTQ of our workforce. well received. community, we have amended the commitment Appropriate investment in training will help to reflect all aspects of diversity. Although SMEs did not consider this meet our customers’ expectations and CHAID commitment as important as many others, it analysis on our replacement customer feedback came third in relation to their willingness to pay. Click Appendices 19C for our Diversity strategy. demonstrated that the “skill and professionalism Click Appendices 5F for further information of the workforce is a key driver of the customers’ on our engagement. perception of quality,” and this in turn is a driver for satisfaction.

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Chapter 19. Workforce resilience (continued)

Our progress so far There is a national shortage of suitably qualified with certain roles becoming superfluous; – eg The impact of staff turnover. We have seen During GD1 we have invested significantly in the employees and school leavers with the relevant in GD2 the SMART metering roll-out should turnover more than double during GD1 from 2 skills and development of our people, focusing qualifications for our industry. be completed. New roles (some of which are 3.26% to 7.42%. The median rate of turnover currently unknown) will also become essential in the UK has also increased and currently on all aspects of our colleague journey. Specialist operational and IT skills such due to the energy transition and changes sits at 16.5%3 and we expect this trend to as data scientists and cyber security are We have substantially evolved and modernised in technology, and we may need to recruit for continue into GD2. For contractors this is as in high demand.2 our approach to recruitment, incorporating the these roles externally. high as 44%. Changes in pension legislation has use of technology and more localised campaign Our requirement to have Chartered Engineers driven a significant number of colleagues with A move from traditional IT roles is forecast, deployment; invested in bespoke development for our safety case means we must ‘grow our Defined Benefit pensions taking their pension with more cloud, encryption and automation programmes and technical apprenticeships; own’, investing long-term in graduate entry early – and in some cases joining alternative engineers and data scientists being required in- and transformed our colleague engagement routes and internal development programmes employment. On the other hand, our retention house to ensure the organisation is able to adapt practices, resulting in our silver level accreditation to support qualifications. rate in our apprentice population is around 90% to changing needs quickly and without incurring with Investors in People in 2017. as a result of our excellent training, clear reward In GD2, we will need to compete further for additional costs. strategy and overall commitment to providing We have been innovative in our thinking, for talent. We expect to see more colleagues An ageing and multi-generational workforce. good apprenticeships. example we have removed the requirement leaving for above market rate salaries to the Our industry does not currently reflect the for unnecessary entry qualifications for nuclear and transport industries. We have Increased turnover comes at a cost as each apprenticeships which was instrumental in communities we serve. Although the percentage already experienced the migration of a high of BAME employees across the UK workforce new recruit must be inducted and trained. us winning the CIPD Wales Apprenticeship number of our skilled contractor workforce to We have responded to this by investing more Programme of the Year Award in 2017. continues to increase, the number working in neighbouring gas networks who are offering gas distribution is 8%, compared to 15% in the heavily in our directly employed operating model. premium rates to complete their replacement UK. EU Skills suggested that we should aim In 2014, the directly employed headcount was Workforce Resilience challenges programmes. High value local projects, such as for a BAME representation of 4%. Currently, around 1,300, and in 2019 this has risen to The UK gas distribution network is facing an the Hinkley point nuclear power station and HS2 17% of our employees are over 55, compared nearly 1,600. Our total enterprise headcount 1 impending ‘cliff edge ,’ due to an ageing workforce infrastructure project have also started to have with a UK workforce average of 20%. We are has remained the same. (the south west of England has the highest an impact and this has required us to look at also seeing an increase in over 65s working percentage of retirees)2. reward packages to ensure we are competitive, and a decrease in retirement.3 Currently, our Click Appendix 19A for further information on the EU Skills papers on headcount requirements to 2036 for WWU. with the impact of increasing salary rates. youngest employee is 16 years old and our oldest This, along with growing political and economic Click Appendix 19B for further information on the EU Skills uncertainty, means that our ability to attract, Restricted influence over our contractor is 72. This means we will have an increasingly papers on headcount requirements to 2036 for all GDNs. develop and retain the right people to deliver in the workforce. We continue to see significant diverse workforce with radically differing training future is likely to be harder. contractor workforce churn due to market forces requirements, learning styles, engagement needs (44% in 2018) and contractor turnover in the gas and reward preferences. Our main challenges are listed below: industry is expected to reach 80% over the next The issue of fatigue is becoming more prevalent. Increasing labour shortages which result in a seven years. We currently do not have control We have traditionally covered the need for 24- We were very proud to be awarded a silver accreditation concern over our ability to attract and retain over the way our contractors recruit, develop hour working via a day shift plus standby or shift by Investors in People in 2017 as this highlights our focus on good people practice. This approach will underpin our colleagues with key skills. In the UK, we are and retain their workforce. patterns or a combination of both, within Working Workforce Resilience Strategy for GD2. currently witnessing the lowest unemployment Time Directive requirements. Going forward, A shift in role requirements. As the energy rate since the 1970s, resulting in a skills shortage.2 we will need to work with the HSE to ensure transition gains momentum, we see the potential compliance with guidance and the safety and 1 Sector skills council – Energy & Utility Skills. for stranded resources across our business 2 EU skill report, August 2019. wellbeing of our employees. 3 CIPD: Resourcing and Turnover report 2017.

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3. A n overview: our Workforce 4. D elivering our Workforce Our GD2 commitments and activities The following areas will be our focus in GD2: Resilience Strategy Resilience Strategy in GD2 To attract and recruit the right people for the right Gender: Overall, 17% of our colleagues are roles in GD2, we commit to: female, with 45% of those based at Head Recruiting, retaining and upskilling Delivering on our transparent Office being female. to create a resilient workforce. workforce strategy and improving –– maintaining a transparent workforce diversity in the workforce to reflect resilience strategy which protects and The level of female recruitment into operational the communities we serve. develops skill levels and addresses roles has traditionally been low. However, We have been proactive in workforce planning operational and specialist skills gaps we are seeking to address this; 6% of our since WWU was established in 2005. We have Our Workforce Resilience Strategy we face in the future; apprentice recruits since 2008 have been female been working with sector skills council EU Skills Increasing productivity, enhancing business performance –– improving the diversity of our workforce and in our 2018/19 apprentice campaign we since the 2008 price control, initially to support and driving organisational commitment into GD2 to better reflect the communities we and beyond. attracted 8% of female applicants via improved our regulatory planning, but used as part of serve, having signed up to the sector digital targeting and 20% of those applicants our business-as-usual manpower and skills ‘Inclusion commitment’ in February progressed to assessment. planning processes. Employee 2019. We are already working to address Attraction & Skills & Satisfaction We have a positive Gender Pay Gap with Our workforce plan has evolved into a Workforce Recruitment Development diversity gaps, both individually as WWU & Retention our mean gender pay gap currently at 8% Resilience Strategy in advance of GD2 and and collaboratively via membership of an EU Skills working group. and our median at -8%, although our mean is focused on supporting us to continue to gender bonus gap is 57% and median is 28%, deliver sustainable individual and organisational Workforce Resilience Measurement We are also taking proactive steps to widen our primarily due to the gender mix of our most performance, with colleagues who are engaged senior colleagues. in creating a long-term future for our network. approach to make ourselves more inclusive and accessible to other ‘harder to reach’ audiences We are working with the Chartered Institute Attraction and recruitment Our objective is: “To enable the organisation such as parent returners and service leavers. of Personnel Development, Business in The to meet and exceed the needs of our We will continue building our reputation as an At WWU, diversity is about recognising the value Community and BAME representatives to evolve customers and stakeholders by developing employer of choice so that we attract good of difference, and inclusion is about being fair our recruitment practices to make ourselves and maintaining a skilled, confident and quality candidates and are able to select and making sure we get the best from everyone, more attractive to minority groups and open our resilient organisation that is representative of talented individuals who share our values. regardless of gender, any disability, ethnicity, opportunities via localised advertising. the communities we serve and contributes to Regionalising our recruitment activities and sexual orientation or age. the economic sustainability of our regions”. methods to make our roles relevant and Ethnicity: 4.5% of the population of working age We will achieve our above objective via our three accessible to potential recruits has been well in the south west of England identify themselves guiding principles of inclusivity, transparency received by candidates (see case study on page as BAME and the percentage is slightly less and continuous improvement. 184), so will be an ongoing part of our strategy. in Wales at 3.9%. We do not currently track Our approach and delivery complements our the ethnicity of colleagues although this is currently under review, particularly in light of the colleague journey. We believe that investing Our commitment in Attraction and Recruitment, Skills and Government requirement for us to report on the Development, and Employee Satisfaction Deliver a Workforce Resilience Strategy to Ethnicity Pay Gap. maintain and evolve the skills of our people to and Retention – whilst continuing to measure When we have a process to capture this meet our customer needs now and in the future; Workforce Resilience – will enable us to deliver data, it is our intention to put targets in place including the ongoing investment in high-quality customer satisfaction, increase productivity and for improvement. enhance our performance. apprenticeships to levels three and four.

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Chapter 19. Workforce resilience (continued)

Disability: We are committed to equal Our commitment employment opportunities for people with This situation was unique to us and we disabilities and take affirmative steps to Continue to make our workforce inclusive, therefore had to respond in a unique way. employ, retain and advance qualified individuals ensuring it better reflects the communities Our response consisted of the following: with disabilities at all levels – this includes a we serve. –– A bespoke social media campaign to drive comprehensive in-house Occupational Health applications which targeted the right types service and a sensitive and pragmatic approach Skills and development of people, in the right location. to redeployment when someone is no longer able to fulfil the requirements of their role due We need to have the right people in the right –– Total relocation of our recruitment team for to disability. We have a good track record of roles with the appropriate skills – at every level a period and deployment of locally based redeployment and making adjustments to roles of the business – to maintain a sustainable temporary staff to make ourselves present to support colleagues where there are changes and resilient workforce. Our methods of training and accessible in the local area. to their psychological or physical health. are appropriate and we focus on providing a broad range of development opportunities –– Specialist use of recruitment consultants for General accessibility: We are focused on to support the retention of key individuals certain roles – eg field managers with gas making ourselves accessible to all by making it and levels of competence. specific qualifications, and local Job Centre easier to join our team eg removal of qualification Plus offices for others. requirements where possible. We also Our GD2 commitments and activities –– Evening assessment centres to make promote the benefits of being a values-based To address these challenges, we commit to: it easier for potential recruits in current organisation and recruit people who share our Recruitment drive in Cornwall employment. values. We strongly believe that we can help –– maintaining high-quality apprenticeships to Level 3 or Level 4 working alongside the During 2018, we experienced a serious –– Comprehensive induction packages held colleagues develop new skills if they have an skills shortage for our workload programme approach aligned to our culture. relevant bodies such as EU Skills and City locally to the recruitment area. & Guilds, and offering access to further in Cornwall requiring us to conduct By taking a regional approach to improving our education opportunities; our first-ever targeted social media Our approach proved to be very successful. diversity levels, we will work hard to make sure recruitment drive. –– collaborating with other GDNs where The campaign ran for around six months and that our workforce better reflects our different specialist or ‘niche’ training is required; The issue had arisen due to a higher workload within this period we had filled the vacancies and diverse communities. this is particularly vital in areas where there is in that area, coupled with an ever-increasing and demonstrated our ability to respond, Sharing best practice with others will be key a lack of experienced and qualified trainers retirement profile in the Devon & Cornwall assess and react to a workforce challenge in to ensuring we can be considered a ‘great such as Electrical & Instrumentation. This area and the fact that a significant number of an agile and effective way. place to work.’ We are already collaborating project commenced at the end of 2018 employees had left us to take up higher paid This recruitment drive ran in parallel to similar with WPD and Welsh Water on diversity and and is ongoing. contract work across the UK. concerns for our contract partners, who at the inclusion, taking a localised approach. We are The combination of these factors led to around same time successfully targeted ex-military part of several national working groups – both 100 industrial, operational supervisory and personnel for their organisation. inside and outside our sector – so that we can managerial vacancies. benchmark and share ideas on engagement and other people matters.

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– – Making the best of our workforce by Employee satisfaction and retention Jamie began as an apprentice in 2008. upskilling and multi-skilling. This is Developing our colleagues Two years later, he progressed to the role of Employee satisfaction is underpinned by our particularly important in rural areas where Since our inception, we have maintained First Call Operative – and by 2017 had landed values and we are committed to transparent workloads are seasonal and we could deploy our skills profile by recruiting and upskilling a First Line Manager position. In 2019, Jamie communications with colleagues and TU colleagues onto a broader range of work. in key areas. was promoted into a Commercial Manager representatives. We have a comprehensive In GD2, we will multi-skill colleagues in rural role within our Metering team and is mentoring internal communication and engagement areas to better serve our local communities. Between 2005 and today, we have recruited 185 operational apprentices, helping to reduce one of our management trainees. He is now programme and our silver IiP accreditation our average age from 44 in 2005 to 40 in based in one of our operational depots and is demonstrates our commitment to good Our commitment 2019. Our apprentice programme has a 90% responsible for the team delivering commercial people practices and colleague engagement. Deliver a Workforce Resilience Strategy to retention rate and we’re proud to have been metering contracts. Since 2013, we have worked hard to embed maintain and evolve the skills of our people to a values-led culture where colleagues care awarded the Best Apprenticeship Scheme by Jamie said, “This is a massive step away from meet our customer needs now and in the future; about each other and the communities we CIPD Wales in 2017, and Highly Commended the technical training I had as an apprentice, including the ongoing investment in high-quality serve. We are in the process of developing an in 2018. but it’s given me such a good grounding in the apprenticeships to levels 3 and 4. Employee Value Proposition as a strategy for Of the 185 apprentices we’ve recruited, engineering aspects of our operations, as well attracting and retaining top performers. 13 of these have progressed to management as a total focus on delivering great service.” Investing through supply chain/contractor roles within the business to date. This case We know that fatigue is becoming increasingly models. Our full delivery model will be market He has been given the opportunity to develop study focuses on one of these individuals, important and we are working with the HSE tested during 2019/2020 to ensure best within the role using our bespoke in-house Jamie Swain. and other networks to address this issue. value, whilst retaining our focus on quality. management development and coaching Although networks can be compliant with the Regardless of the model deployed, we will programmes to structure his personal and Working Time Directive, colleagues can still be continue to make sure that all colleagues have professional development. suffering from fatigue. Logically, GDNs will have the appropriate level of competence. Jamie said, “I’m incredibly proud of my journey to consider how they apply rest time to those Continuing to implement a risk-based within Wales & West Utilities and of seeing so due on standby and this could lead to a greater approach to succession planning, ensuring many former apprentices now operating as level of resource required to man existing work that key roles are highlighted and an individual’s team leaders and managers. The focus on the patterns and standby arrangements. aspirations are known to ensure development is combination of extensive technical, behavioural This is not just a work-related issue; external targeted in the right areas, from apprentice right and customer service training really puts our factors will also need to be considered. In a through to senior/board level. apprentices in a great place to deliver for our male dominated workforce, we need to consider customers and progress their own careers.” Adapting our succession planning horizon the impact of a new child in the family or to at least 2036, as turnover increases and more complex health needs that may affect Creating a seamless colleague journey; themselves or their partners – for example male becomes more volatile due to the changing from hire to retire. employment landscape and pension and female menopause. To address this issue, freedom legislation. we will work collaboratively with the other GDNs to look at existing arrangements and practices and conduct a study on the effects of various working arrangements on fatigue.

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It is entirely likely that any increase in working community groups. We will normally supplement Reward and remuneration Our GD2 commitments and activities more than 12 hours in a shift will need to our labour and skills through the provision of arrangements for GD2 Committing to the real living be backed up by robust scientific evidence. materials for the projects and IT equipment, Our recognition scheme is linked to our wage and focusing on colleague Options for commissioning this work are such as refurbished laptops. We are also values and our reward strategy is linked to the wellbeing. currently ongoing, but it is almost certain that in involved in school projects, including Business achievements of specific targets. In GD2, we any event adjustments and increased resources Class, run by Careers Wales and are paired will closely align the objectives of our Executive To address the challenges we face around will be the outcome, hence there may be a with a local school in a deprived area, offering and Management team to the delivery of the engagement and retention, we commit to: requirement to look at this further under the support to the school through assisted reading, commitments and regulatory outputs that are set Uncertainty Mechanisms provided for within the CVs and interview skills. out in this plan. The performance objectives and Maintaining our Investors in People GD2 process. associated remuneration of our Executive team accreditation. We’ve worked with IiP Our Directors and Senior Managers also sit on to benchmark our people practices since the boards or act as trustees to industry and and our senior managers have also been linked Contributing to our communities CVP to the GD1 delivery of customer and regulatory 2016, achieving a Silver level accreditation third party organisations. They provide their outputs and are reviewed each year. at our first attempt. Making sure that our colleagues feel huge experience and skills to help drive forward supported by WWU to make a positive policy and initiatives. Examples include Care They vary in content, depending on role, remit Continuing our focus on our values-based contribution to their communities is really and Repair, Warm Wales, Highway and Utilities and accountability. Colleagues are measured culture, maximising the benefits of our colleague important to us and is part of our CVP. Committees, IGEM, BITC and others. against any outputs that they are solely or jointly engagement group, TU forums and Senior Colleagues are also actively encouraged to responsible for. Our pay structure for colleagues Manager Action Group – ensuring that internal volunteer locally. Evolving our company Ambition, Values and at these levels is based on ‘personal contract stakeholders are engaged in decision making. Priorities to better reflect our work, our people terms’ which are benchmarked both externally Via our matched funding policy, we provide and our communities will allow us to maintain Developing an agile and flexible reward financial support to a significant number of against similar roles and internally to look at the wellbeing and resilience of our workforce. accountability and contribution. strategy which is aligned to regulatory outputs colleagues where their direct involvement working and meets the needs of existing and potential voluntarily with a charity, project or initiative We have a strong track record of supporting colleague wellbeing though a comprehensive In GD2 we will use a very similar methodology colleagues. We will pay more for high performers benefits the local community. Monies donated and update performance objectives in light of strategy, taking a ‘whole person’ approach – who add real value. To overcome existing or or raised is matched by WWU up to £300 per business plan commitments. Each commitment recognising the impact that our work and home emerging areas of higher turnover, we will employee per financial year, from a total fund will have at least one Executive and senior lives can have on each other. benchmark appropriately to make sure that allocated annually by the Board. Since 2007, management owner and will be included in their our colleague offering remains competitive we have match funded nearly £200,000. objectives, reviewed twice a year. and appropriate. The total valuation of our We have a close relationship with Business in volunteering in communities Business plan commitment: pay and reward Committing to the Real Living Wage. the Community Cymru, with our Director of CVP in GD2 is £204k. By signing up as a Real Living Wage Employer, Business Services sitting on the board acting Up to 50% of Executive annual bonuses will be related to the delivery of commitments. This will we have made a clear commitment to fair pay as ‘Community’ lead and one of our senior and reward for our workforce and contractors, managers in the leadership group which shares be role dependent with the remainder being Our CVP is based upon the value of WWU made up of financial, people and personal an important part of our sustainability strategy. best practice and helps drive volunteering volunteer time, plus our matched funding. development targets. For senior managers this activities within communities. Continuing our focus on colleagues’ physical We have also valued the wellbeing of our will be replicated at a similar level. and psychological wellbeing with ongoing colleagues and communities who are involved We promote volunteering to our colleagues and investment in the priority areas outlined in our via BITC. We deliver a minimum of 4 volunteering in volunteering projects. Click Appendix 19D which outlines the governance of our pay and reward and sets out the Executive level ownership Wellbeing Strategy. projects per year, working with schools or local for each of the commitments in this plan.

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Chapter 19. Workforce resilience (continued)

Our Plan Predicted vacancy profile Cost of our resourcing plan Measuring workforce resilience We use historic trends and data to develop our Given retirement and staff turnover assumptions, The average cost per year is estimated to be We propose the following high-level deliverables: annual recruitment plan An operational regional the total number of vacancies and their causes £2.26m throughout GD2 and this is outlined by vacancy profile is then aggregated to form a from now to GD4 is shown in figure 2 below. year in Appendix 19A along with the aggregated –– IiP accreditation as a recognised measure of ‘total workforce’ vacancy profile. The input costs for each entry route for the years within good people processes and development. assumptions that contribute are: The supply of recruits GD2, GD3 and GD4 (+2 years) through to 2038. –– An Exec-led annual people resilience –– the average retirement age of current statement guaranteeing our service, We have developed a resourcing strategy to Cost of recruitment employees; ensure that every predicted vacancy is filled particularly in times of stress on the network –– staff turnover is set at our current rate of 7%; quickly with an appropriately skilled person. The estimated recruitment cost for an (eg a 1 in 20 winter). To achieve this, we use three main entry routes: average role would be £320. We manage –– future headcount is based on our regional most recruitment in-house, making use of Click Appendix 19E for our people workload forecasts. resilience statement. –– Trainees; eg Apprenticeships, Graduates social media. For a senior role, on average it –– Upskilling: All internal promotion is ‘backfilled’, costs around 18% of their salary – based on Retirements meaning that the vacancy caused by agency/head hunter rates. Management time 2.1% of the current workforce is older than someone moving upwards is also filled. is estimated to be two days per vacancy; an their expected retirement age. Based on –– External: Recruitment from any aspect average of £390 per vacancy. existing profiles, we assume the following of the external labour market (eg people retirement figures: moving from another employer/sector, the unemployed, ex-forces, etc). –– By 2035/36, 535 employees are expected to  Figure 1: Predicted number of new appointments (by entry route) during have retired (36% of today’s workforce). the next three price control periods These numbers relate to the number of new –– We expect 3% of employees to retire pre appointees in each year. As apprenticeships GD2 GD3 GD4 GD2. and graduates spend three years in training, Internal promotion – secondment 110 90 93 –– During GD2, 199 retirements are predicted these appointees are recruited ahead of Internal promotion – permanent 243 208 224 (14%); in GD3, 116 retirements (8%) and in actual demand. Also, each ‘upskiller’ is Apprenticeships (three years’ training) 65 65 65 GD4, 166 retirements (11%). subsequently replaced (backfilled) with a new Graduate Programmes (three years’ training) 8 7 8 appointee – hence these recruitment numbers External appointment 603 534 571 do not directly match those for the number of External fixed term 41 37 50 Staff turnover predicted vacancies presented. During GD2, Total 1,070 941 1,011 An annual staff turnover rate of 7% per year this resourcing strategy would result in around has been applied, based on latest data (and is 1,000 appointments being made. Figure 2: Predicted number of vacancies (by cause) during the next three assumed to remain the same through to 2036), price control periods resulting in around 107 vacancies per year. Cause of vacancies GD2 GD3 GD4 Retirements 199 116 166 Staff turnover 536 535 530 Net changes to headcount -20 -11 0 722 643 701 Total vacancies (49%) (44%) (48%)

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Chapter 20. Cyber resilience 

We have taken the decision to omit our Cyber In response to the NIS regulation, we have Resilience Plan from the business plan because conducted a scoping exercise and risk the Ofgem NIS specific guidance was released on assessment using the Cyber Assessment 13 September as a consultation to which Framework (CAF) and submitted our improvement we have responded, and is still in progress. plan to Ofgem. As stated in the Ofgem business plan guidance, we understand that the omission Due to the uncertain timelines on when Ofgem of the Cyber Resilience plan will not lead to the will issue any subsequent guidance, the costs business plan being considered incomplete for the for cyber resilience specific to NIS regulations purposes of the Business Plan Incentive. are excluded from our submission and any costs will be subject to an uncertainty mechanism as Click Chapter 12. Dealing with uncertainty 104 referenced in Chapter 12 of our business plan. for further information.

188 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 21. Business IT security plan 

1. Highlights of our plan 2. Introduction –– This chapter outlines how we plan to identify, In this increasingly complex environment, with the advent of new technologies, cloud services 61% 22,700 prevent, detect, respond to, and recover from of large businesses identified is the average (mean) annual a cyber attack or data breach during GD2 and mobile working, traditional security tactics breaches or attacks in the last cost for large businesses and beyond. are struggling to combat growing numbers of 12 months. that lost data or assets –– A robust risk management framework is cyber threats; some of which are unknown and after breaches. key to identifying and managing efficient difficult to predict. investment and risk reduction across our business. Cyber security is only one element As a business that forms part of UK-critical of business resilience and we will take a national infrastructure and an operator of essential holistic approach to ensure overall reliability. services to our 2.5 million customers across the –– Recognising that some of the cyber threats network, it is crucial that we are able to maintain the confidentiality, integrity and availability of data 22% 13% 12% 12 may evolve over time, we will continue to lost files or System software Website impacted Typical (median) and business operations in the event of a cyber assess the levels of risk and adapt our network access. corrupted or taken down. number cyber resilience strategy accordingly. attack, keeping the gas flowing for our customers. or damaged. of breaches Our strategy will: We have a sophisticated network of physical and identified. –– show how we plan to limit the severity virtual technology with many points of potential and impact a cyber threat could have on attack. Nowadays, being secure and passive to our physical assets, the general public, Source: 2019 Official Gov.uk Statistics Cyber Security Breaches Survey. our reputation, intellectual property and cyber threats is not enough. Cyber attacks remain finances, ensuring we remain resilient; in the top 10 most likely and impactful global risks This strategy will enable us to maintain a reliable We will educate our colleagues to be aware as identified by the World Economic Forum. supply for our customers, meet legal and of social engineering and cyber threats so –– cover both information and operational regulatory requirements such as the Network they recognise suspicious activity and can technology across our business; We know that it is no longer a matter of ‘if’ but and Information Systems Regulations (NISR) and respond appropriately. –– set out the initiatives we have identified ‘when’ we will suffer a cyber attack and so to the General Data Protection Regulation (GDPR), to reduce the risks to our network. Our first line of defence is physical protection ensure our resilience throughout GD2 and beyond, ultimately protecting our brand and reputation. –– Our first line of cyber defence is effective we have devised a strategy that assumes the and our facilities and assets are subject to tight control and monitoring of our technology worst and can manage the inevitable impact. Our response to incidents has a direct impact on controls that prevent unauthorised use. platforms, along with a robust risk how much damage is caused. Whilst technology We will continue to assess physical risk along management process. Our business security strategy not only addresses is important in this, to achieve true business deliberate attacks, but also accidental failures of with cyber risk and develop an effective joint –– We are building a vigilant workforce that security we need to adopt a holistic approach, approach to minimising cyber attacks. is empowered to identify and respond to the technical infrastructure due to operator errors, bringing together cyber and physical security, suspicious activity whenever it is detected. equipment failures, and natural disasters – and also along with organisational and operational needs. potential acts of disruption from inside the business. Click Chapter 19: Workforce resilience –– We will adopt a ‘zero-trust’ stance when 181 We cannot afford to underestimate the role that for further information. designing and building new IT solutions. This reflects the fact that our digital services colleagues play in our systems security and we of the future will run on both public and need to leverage the skills of our people in order private networks, on ‘trusted’ and ‘untrusted’ to improve our IT systems resilience. devices, generating data from wholly-owned and private sites.

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Chapter 21. Business IT security plan (continued)

3. Cyber security in GD1 Our SIEM monitoring and detection tool has There are a number of specific challenges we –– The potential impact is changing as the already alerted and enabled us to react to a variety face which we will address in order to maintain role of the gas network changes. The Controlling intellectual property and of attempts to take over control of user accounts resilient systems: consequence of failure is increasing from just ensuring the cyber infrastructure is and instances of phishing for account details and an impact on heat, to one that would affect robust to stop cyber attacks. unapproved devices connected to the network. –– Cyber awareness needs to be front of mind power generation and all forms of transport. across the whole workforce. Every single We will take this into consideration as we colleague has to take full ownership and identify threat and risk profiles for cyber In GD1, we have seen an increased cyber threat as 4. C hallenges to our work in conjunction with our IT department treatment plans. attacks become more complex and our technology cyber security to fight the threat. footprint continues to grow. We have added cyber- –– Whilst we continue to segregate and protect –– As acknowledged in our Workforce resilience specific resources and event detection tools to our Improving infrastructure and delivering the core control environments, we will see an sustainable cities and communities chapter, we have challenges in recruiting and team’s capability which has given us greater insight increase in flexible back-office working, with with innovations such as IOT. retaining IT specialists with cyber skills which into our levels of security. This has provided us a more transient workforce and stakeholder are compounded by regional variations. early visibility of suspicious behaviours and intrusion groups connecting to our technology attempts that we see on a regular basis. In turn, The global threat of cyber attack is growing, –– With cloud software, mobile workforce and services, from devices that we don’t own this has allowed us to take preventative action and becoming more frequent and sophisticated, personal devices being used to access and locations we don’t trust. strengthen specific defensive controls, thus reducing and we must take decisive action to protect our company resources, the perimeter of –– As we connect additional sources of bio- our risk of successful cyber attacks. network and stakeholders. We have seen in an organisation is harder to define and gas to our network, we are expanding the recent years how disruptive and costly simple therefore protect, so we will build security footprint of telemetry and control systems. and indiscriminate attacks can be on public in at an application level. These sites and the control systems that Significant initiatives completed in GD1 services such as the NHS in the case of the –– The opportunity to exploit data is increasing manage them are not owned or operated by –– Penetration Testing – External ethical hackers WannaCry outbreak. We remained unaffected by this, but should a similar outbreak target our due to increasing volumes of information WWU, making it difficult to enforce our cyber were engaged to test our defences and in circulation and lower connectivity costs. standards on smaller suppliers. determine where the weaknesses are so network, we could see widescale disruption to supply, and significant financial and potential Whilst Artificial Intelligence (AI) and automated –– Global motivation to cause disruption to UK improvement action can be taken. human impact. The cost of operational resource processes will lead to a more seamless, open PLC remains high. We must be vigilant to –– Security Awareness Training – We enhanced to purge and relight a large community after marketplace with improved forecasting and maintain the highest of standards for our user education and messaging to raise a disruption to supply would be significant. control systems, the smarter network is also employees and customers. awareness of the threats and how to respond more vulnerable to manipulation by outsiders. –– Our industry is sizeable with a diverse to them. We will need to make sure the appropriate supply chain. With over 50 regular suppliers Source World Economic Forum controls are in place to combat this threat. –– Disaster Recovery Tests – These trials tested of IT services, plus our subcontractors our ability to recover from a disastrous event Global Risks Report 2019 –– Low cost “smart” domestic energy controls identified the risk of cyber of subcontractors in the Electrical & should the worst happen. attacks as: (Internet of Things (IOT) device) and voice Instrumentation area, it is hard to gain visibility activated personal assistants all present a –– Enhanced Password Complexity – We – 5th most likely of all resources operating on the network. deployed additional tools to ensure target for hackers and a threat of wide-scale We will need to be able to better scrutinise – 7th most impactful versus fluctuations in energy demand beyond our and verify the organisations with which strong controls and policy review other business risks around passwords. control if compromised. Industrial sites, we do business. both consumers and producers with their £92m is the estimated total direct –– Security Information & Event Management own technology beyond our control are also (SIEM) – Central logging and management cost of lost output and IT support as a result of WannaCry. susceptible to cyber attack, but we must of system events allowed us to identify Source: Department of Health ensure we are able to sustain operational suspicious and unusual activities. control despite these potential events.

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Chapter 21. Business IT security plan (continued)

–– The utility industry has typically relied on a The CEG challenged our plan, commenting 6. O ur cyber resilience strategy 1. Ownership and Governance contractor workforce to deliver IT specialist that it failed to fully identify risks and solutions. We will regularly review and maintain policies capability, limiting the amount of in-house The continual shifting profile of cyber risk We have discussed our cyber resilience plans, and standards for cyber resilience. knowledge. This will need to develop in the noting the sensitivity of publishing too much demands a flexible approach in GD2. Our plan future to an in-house model to build skill detail. We have also assessed our levels of is based on risks we have already identified, but  Our Executive team regularly reviews key levels, retain knowledge and guarantee risks and potential mitigating investment against this will change over time. Therefore, we have business risks and performance through the a rapid response. Ofgem’s guidance (as it is the Competent developed a robust strategy that will enable us to Business Operating Committee. In support Authority) and are proposing an uncertainty continuously maintain a cyber resilient business of this, key risks are shared and discussed mechanism to deal with this during GD2. We will faced with a variety of unknown challenges. with the Board through the Audit and Risk 5. C ustomer and reassure our stakeholders by conducting threat If the threat or risk profile changes significantly committee. IT and cyber is specifically owned stakeholder engagement analysis and risk modelling that informs the areas due to unforeseen circumstances such as by the Director of Business Services. in which we will make investments, as identified economic conditions, regulatory changes, or Engagement informing our commitments We have a culture that empowers our senior in our roadmap. technology advances, it may be necessary to managers to act and deliver for their areas Increase our focus on preventing and detecting re-open the plan accordingly. As an example, of responsibility. We have a skilled and cyber-attacks – investing a further £7m in our In response to all the feedback, we are we have not yet included any costs as a direct experienced IT team that works extensively technology platforms in GD2 to reduce the committed to investing £7m in cyber security result of NIS improvements – this will be subject with all parts of the business. As part of our increasing risk. during GD2, given our obligations to protect the to an reopener mechanism. public and our assets, and the high importance normal business operation, we have a well- We have shared our plan with customer that customers place on safety and reliability. established emergency response process Click Chapter 12: Dealing with Uncertainty 104 that is regularly tested. engagement groups and industry experts, Our cyber investment will ensure that we remain for further information. soliciting views and feedback from a wide group resilient, keeping customers safe and warm. 2. Security by design of over 2,000 stakeholders. Our objective is to increase the difficulty for Security and resilience are critical Whilst the plan has been broadly accepted Click Appendices 5F for further information anyone to mount an attack and to prevent requirements considered at the design stage on our engagement. as positive, there have been some challenges impact to our network from any known risk. of any system or solution. on costs. Effective risk management is therefore at the heart of our strategy. 3. Managing digital risk Our investment of £6.8m in IT business security Security investments will be informed by risk represents 7.7% of overall IT spend, and is We also need to meet many security standards management processes and engagement slightly above the average of 6.8%, identified from various regulatory or financial frameworks, at Board level. and these broadly align to the areas of focus by one industry expert. We also understand 4. Security awareness shown above: Identify, Protect, Detect, Respond from our acceptability testing that two thirds We will continuously educate and raise and Recover. of customers would not want to pay more awareness with our workforce on how on their bills for cyber security. All planned activities for GD2 (see below) are to behave safely online. It is necessary to point out that our cost is aligned with one of these five elements. We will 5. Industry collaboration an average over a 5-year period beginning in also align our operations and values to five We will share and communicate with industry 2021, during which time we anticipate threats security principles: peer groups regarding threat intelligence becoming more complex, thus increasing and best practice. average cyber spend for all organisations.

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Chapter 21. Business IT security plan (continued)

7. S ummary of our GD2 outputs IT security outputs Click Appendix 3A for further justification on these outputs Measure and type Explanation Proposal/target Stakeholder views 2018/19 performance Comparative performance Other requirements Customer benefits Common output measures with a bespoke target Cyber As a key utility infrastructure provider, Investing a further This issue is widely recognised as No performance data is There is no benchmarking Our plan will improve our Our work in this area will protect our critical resilience we are at risk from a cyber attack that £7m in our an increasing threat to businesses available from 2018/19 data available other than NGN cyber controls maturity to an control systems and critical business could impact supplies to homes and technology platforms and national infrastructure. as the NIS regulations did and Cadent, and we have enhanced level of protection processes against an NIS threshold event – PCD businesses. We therefore need to ensure in GD2 to reduce the Our engagement on this issue not exist in GD1. undertaken joint work on costs against a sophisticated delivering a secure and reliable gas supply by appropriate levels of cyber resilience. increasing risk. supported our commitment. with both. cyber security threat. reducing the risk of a cyber security attack.

8. Our GD2 commitments Our commitment 9. Our GD2 planned activities –– We will deliver continuous and tailored training programmes to increase cyber –– In GD2, we will deliver enhancements to Increase our focus on preventing and detecting Working with others will assist us awareness and continue to participate in our cyber resilience capability at a total cyber-attacks – investing a further £7m in our in ensuring our IT infrastructure is collaborative learning events to make sure cost of £6.9m. technology platforms in GD2 to reduce the robust and secure. that we are fully informed and ready to react –– We will continue to use our cyber risk increasing risk. in the event of an attack. management framework to meet the needs We will deliver the aforementioned commitments –– We will move our capital assets to more of industry standards such as ISO27001, via the following activities, aligned with our cyber secure and resilient public cloud services NIS and GDPR. resilience strategy: rather than using private data centres. We will design our solutions with data protection and –– Our IT teams will move to an operating model Identify availability in mind. of direct IT employees providing core delivery capability, supported by partners. We will consolidate our risk management –– In GD1, we introduced end-to-end encryption framework to allow us to get a senior group level of our Supervisory Control and Data –– We commit to an evolving and agile cyber and more holistic view of the risks we face to our Acquisition (SCADA) communications to resilience strategy that is able to adapt and business resilience. This will allow better insight, control sites. In GD2, we will strengthen our respond to changing external factors (such prioritisation and reduction of risk. cryptography ciphers and widen the scope of as the evolving national or international threats encryption to other areas of communication, status to UK utilities). Prevent such as our back-office network and –– In GD2, we will increase our investment in SIEM. encryption of email. –– The transformation of our platforms to –– We will implement the security initiatives modern integrated solutions will allow us to –– In GD1, we used third party specialists identified in our roadmap below, to address the establish more efficient and resilient ways to conduct annual testing of our security risks in our environment. of working. We will standardise common defences, but in GD2 we will enhance this components so that they can be maintained with a more frequent cycle of testing. We will to current versions and patch levels improve the way we manage and respond more efficiently. to critical vulnerabilities through automation of the testing and by developing an in-house analysis and response capability.

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Chapter 21. Business IT security plan (continued)

Detect –– We will work with our local universities 10. O ur cyber security roadmap to develop and encourage skills in our –– In GD1, we were able to detect and quarantine area, ensuring a long-term sustainable These initiatives will provide a solid foundation for managing cyber risk into GD2 and beyond. known viruses using anti-virus products. flow of skilled cyber engineers. As the threat and the need for a fast response increases, so does the requirement for investment In GD2, we will upgrade to a new generation in cyber skills. Cyber security must become routine in the daily operation of a critical business of anti-virus products that are able to anticipate –– In the event of a breach we have developed such as ours and so establishing a team to combat the threat is essential. and identify malicious software quicker. a comprehensive incident response plan in which communication channels with –– In GD2, we will expand our SIEM platform our board, regulators and stakeholders to include more control system events from Evergreen Client Cloud are established. Multi Identity Continuous Hosting Factor Management Computing our operational technology systems. This will Vulnerability Legacy allow us to extend our cyber detection into Assessment Migrate control operations, in addition to the back Recover Single office information technology systems. Sign On –– In GD1, we defined and tested our ability Ongoing Security –– Adopting new cloud services will give us to recover from a catastrophic event Awareness access to information protection and data Protect IT/OT through regular business continuity and Phishing Convergence loss prevention techniques. This will allow us disaster recovery planning and testing Simulation to detect and prevent the sharing of personal exercises. As our reliance on technology Faster Disaster Recovery or sensitive data outside of our organisation. increases in GD2, we will leverage cloud technology to improve our recovery times Support Next Gen model Respond and reflect the increasing expectations Firewalls of our stakeholders should a disruptive –– We believe it is necessary to build a capable attack occur. and reactive security team in-house to SIEM ensure that our technology tools, preventative Incident measures and detection systems are We will work with our local Response Plan

effective and we can respond to any threat. universities to develop and Detect encourage skills in our Cyber Attack –– We will promote more integration between Simulation Forensic area, ensuring a long-term our OT (Operational Technology) and IT Support sustainable flow of skilled (Information Technology) teams upskilling cyber engineers. Respond Recover the engineers in each for a greater understanding of the holistic threat. –– We will work proactively alongside relevant 11. Costs security incident management organisations to ensure we are prepared for a Cyber security expenditure significant incident. £m 2018/19 prices 2021/22 2022/23 2023/24 2024/25 2025/26 Cyber resilience capex 0.60 0.50 0.51 0.41 0.51 Cyber resilience opex 0.89 0.87 0.88 0.86 0.89 Cyber resilience totex 1.49 1.38 1.39 1.27 1.40

Wales & West Utilities | Business Plan 2021–26 193 F Financeability

This section contains summary In this section: financeability information. 22. Financeability 195 Click Appendix 22A and Summary of financeability information. Appendix 22B for detailed financeability papers. Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 22. Financeability

1. Highlights timeframe, which can only be resolved through The difference in annual revenues between WWU business plan higher allowed revenues for cost of capital. the assumed allowance for cost of debt of an Our achievements during GD1 and prudence –– Our business plan should be financeable, average 1.93% and the actual cost of debt of from our owners have allowed us to sustain a –– Ofgem’s assumed allowed revenue for cost with continuation of our sector leading ratings 5.25% is £50m p.a. or £42m after assumed sector-leading investment grade rating position of capital is 3.08% (real CPIH), based on an with Fitch and S&P of A- for Class A debt and mitigating actions. through GD1 to date. We are determined to average 1.93% for cost of debt and 4.8% BBB for class B debt. for cost of equity at a 60% notional leverage, continue to keep customer bills as low as –– Due to mitigating measures by WWU already –– It includes an allowed cost of capital of and the assumed actual cost of capital is possible, with an efficient, financeable business, undertaken in GD1 to support GD2, assumed 5.59% (real, CPIH), based on equity of 6.10%, this rate of 3.08%. fully invested and with no output deficiencies. further mitigating measures for GD2, and debt of 5.25% and notional leverage of 60%. –– Average annual domestic customer bills also due to £137m of revenues advanced Supporting evidence and justification has 2. Business plan submissions should be 13.4% less (2018/19 prices) than into GD2 by Ofgem moving from RPI to CPIH been provided to Ofgem. the average of WWU’s bill for GD1. at the expense of future control periods, we Ofgem requires a financeability assessment of conclude that it should maintain a rating of –– Average annual domestic customer bills to the Notional Company structure basis (we refer –– Shareholder cash returns 3% (real, CPIH) remain flat at £133 (2018/19 prices) with GD1. of equity RAV, which is Ofgem’s working BBB- and be compliant with senior lender to this as the “Ofgem Notional Company”) and ratios, albeit with very limited headroom. –– Shareholder cash returns average 2.5% pa assumed rate. the Actual Company structure basis (we refer However ratings would be weakened from (real, CPIH) based on Equity RAV, less than to this as the “Ofgem Actual Company”). Click Appendix 22A, section 7 for further information. current levels; for Class A debt from A- to Ofgem’s assumed distribution rate for its The key difference between these two plan BBB+ negative outlook and Class B debt Notional Company of 3.0% versions relates to the cost of debt capital. from BBB flat to BBB- negative outlook. Ofgem Actual Company Click Appendix 22B for further information. –– Average annual domestic customer bills The Ofgem Notional Company applies Ofgem’s –– The Ofgem Actual Company would not be would be 14.5% less (2018/19 prices) than assumed allowed revenue for cost of debt of an financeable against a target rating equivalent the average of WWU’s bill for GD1. 4. Customer engagement average 1.93% p.a. (real,CPIH). Its actual cost to WWU’s current debt ratings of A- for Class of debt is assumed to be funded by this rate. A debt, BBB for Class B debt and an Issuer –– Shareholder cash returns to be nil, as one We held a deep dive workshop on value for Default Rating (IDR) of BBB. The main cause of the assumed mitigating measures. money, including financial risk, which was The Ofgem Actual Company uses Ofgem’s can be simply stated – Ofgem’s assumed attended by two different age groups of assumed revenue for cost of debt of 1.93% Click Appendix 22A, section 8 for further information. revenue for cost of capital of 3.08% (real, customers (the under and over 45s). (real, CPIH) and WWU’s cost of debt of 5.25% CPIH) is too low to cover WWU’s efficient (real, CPIH), before assumed mitigating actions Understanding was limited given the complexity cost of capital. 3. WWU business plan (4.70% after assumed mitigating actions). of the topic, with most customers not realising Ofgem has confirmed it will allow companies to –– This plan version uses Ofgem’s assumed that utility businesses such as WWU need debt We summarise our position on these two apply different assumptions for allowed revenues allowed revenue for cost of capital of 3.08% to support investment. plans as follows: for cost of capital. As required by Ofgem, plans (real, CPIH), based on an average 1.93% for prepared on this basis must be contained in a However, while noting this was a complex area, cost of debt and 4.80% for cost of equity Ofgem Notional Company separate document (Appendix 22B). We make the over 45s had a broader understanding of at a 60% notional leverage. It uses WWU’s the role of Shareholders, including the cost of –– The Notional Company should be financeable reference to this plan (the “WWU business efficient actual cost of debt of 5.25% (real, plan”) here for comparison with the above two debt funding. The under 45s were pleased that in GD2, with a rating of BBB flat to BBB+, CPIH) before assumed mitigating actions Shareholders have been helping by paying for against a target rating of BBB+. However, plan versions required by Ofgem as we believe (4.70% after assumed mitigating actions) and stakeholders, in particular our investors, will this, and were keen to see what the Company we have reservations and concerns about 60% notional leverage. could do to reduce debt costs further. this Company’s financeability, over a longer be interested.

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Chapter 22. Financeability (continued)

Whilst customers did not fully understand the However, we note: –– do not improve long term financeability; The financing duty is concerned with the need need to fund the cost of debt through bills, to secure that licence holders can finance the –– there is limited headroom under certain –– do not meet Ofgem’s requirement for they did express concern about our long-term activities which are the subject of obligations senior lender interest ratios; justification for shorter asset lives or for sustainability and were also concerned that if resetting the fast/slow totex split. placed on them. It applies in respect of all the cost of debt were not funded, our continuing –– net cash flows are materially negative; actual companies who hold licences, and not in operation may not be feasible. –– there would be a one notch downgrade by WWU’s totex and cost of capital, included within respect of a notional company. For this purpose, Ofgem must take companies as it finds them. Our willingness to pay research concluded that Fitch and S&P to the debt ratings from A- to this Ofgem Actual Company plan version, are at maintaining customer bills at £133 (2018/19 BBB+ for Class A debt and from BBB flat efficient levels. Consequently, Ofgem’s proposed The duty cannot be satisfied by providing only prices) is the second most important priority for to BBB- for Class B debt; and these levels assumptions for cost of capital revenue for the financeability of a notional company if this our customers after safety; the WWU business would be placed on negative outlook; allowances result in a financial profile that is does not reflect the real-world circumstances of plan delivers against this commitment with –– there would be a one notch downgrade by not a comfortable investment grade, despite one or more licence holders.” average bills in GD2 at £133 (2018/19 prices). Fitch to the IDR of BBB flat to BBB-, and assumed nil payments to Shareholders and and, placed on negative outlook; other assumed mitigating measures. 5. O fgem Actual Company – –– equity financeability is undermined – we CMA precedent requires a regulator to exercise “In any event, however Ofgem’s financing duty may be interpreted, it cannot be a further comments apply an assumption of nil payments to caution against setting the cost of capital too low shareholders as one significant measure to in the context of financeability. Therefore Ofgem proper discharge of that duty to ‘put the As noted in section 2, the Ofgem Actual aid financeability, and there is no likelihood should reconsider its assumed revenues for onus on companies to take appropriate Company plan would not be financeable. This is of any material cash returns to shareholders cost of capital in that context, at least. We also action’. By definition, the duty must place mainly because, notwithstanding actual and beyond GD2 if the Ofgem assumed revenues ask that Ofgem’s independent RIIO-2 Challenge obligations on Ofgem itself. These cannot be assumed significant mitigating measures by for cost of capital were to continue; Group reflects carefully on this matter and delegated to the very companies who are the WWU being included, none of which increase demonstrates its independence and objectivity intended beneficiaries of the statutory duty. customer bills, the revenues assumed by Ofgem –– the above profile depends on a significant by challenging Ofgem, given the expert evidence Placing the onus on companies is the avoidance for the cost of capital would be too low to acceleration of revenues into GD2 from future 2 supporting a much higher revenue allowance for of responsibility, and not its fulfilment.” cover the efficient capital costs of WWU. This is control periods consequent upon Ofgem’s cost of capital. even with the benefit of revenue acceleration decision to move to CPIH from RPI. To conclude, and after detailed consideration by from future control periods into GD2 of £137m We disagree with Ofgem’s stance on its statutory WWU of potential measures to aid financeability from Ofgem’s switch from RPI to CPIH from As requested by Ofgem, we have considered duty of financeability. Within our response1 for this Ofgem Actual Company plan version April 2021. We have noted in section 2 that a range of potential mitigating measures to aid to the questions on financeability in Ofgem’s required by Ofgem, resulting in assumed the underlying shortfall in revenue for cost of financeability, and as noted, a number of these December 2018 sector consultation, we made adoption of certain significant measures for debt would be £50m p.a. excluding assumed are included in this plan version. We have also the following points: GD2 in addition to a series of measures taken mitigating measures, and £42m p.a. given consideration to measures to accelerate already in GD1 (both as set out in section 5 “… financeability, of all things, must be assessed including such measures. further revenues into GD2 from future control and 8 of Appendix 22A), the Ofgem Actual periods (ie measures indicated by Ofgem) but against the particular circumstances of each Company would not be financeable. Ofgem’s Mainly due to our mitigating measures already concluded that these are not appropriate, as they: company and cannot be considered on the assumed allowance for cost of capital is too low. taken and assumed, the licence requirement basis of a purely notional company. This conclusion assumes, inter alia, that Ofgem –– increase customer bills; of a minimum issuer credit rating of BBB- decides that it will not take any measures to should be maintained and senior lender ratios –– have limited impact in GD2 on interest make the Ofgem Actual Company financeable. thresholds should be achieved during GD2. cover ratios;

1 Page 79 of the WWU response to Ofgem on 14 March 2019. 2 Ibid, page 78.

196 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Chapter 22. Financeability (continued)

Conclusion We have concluded that Ofgem’s Notional An adequate allowance for cost of capital We remain deeply concerned about Ofgem’s Company should be financeable with a provides financial capacity to sustain positioning for GD2. Our confidence level A financeability assessment acts as a check rating range of BBB to BBB+, although with investment and efficiencies, absorb risks, critically hinges on our expectation, shared to ensure that regulatory decisions for a price reservations about its longer-term financeability. and critically, maintain confidence with debt by many others, of a stable, predictable and control provide for a financeable business. That plan version shows a 13.4% reduction and equity investors. Ofgem’s proposed supportive regulatory regime that achieves Where the results are negative, this may to customer bills over WWU’s annual average working assumptions for cost of capital a fair balance of risk and reward between indicate a need for action by the Company to projected charge for GD1. This conclusion on revenue allowances would not enable that stakeholders. However, we are far from a improve the position. But it may also indicate the Notional Company is without prejudice to our financial capacity to be achieved and would position whereby we could confirm to our that the regulator’s decisions are incapable of evidence based position on allowed revenues for be inconsistent with the CMA’s stated caution investors that Ofgem’s positioning for GD2 providing for a financeable business and are cost of capital. against setting cost of capital too low in the should achieve that fair balance. therefore inconsistent with its statutory duties. context of the regulator’s financing duty.5 However, for the Ofgem Actual Company, we We are very concerned that it may be just In GD1 to date, WWU has made significant have concluded that it would not be financeable With assumed nil payments to Shareholders a matter of time before emerging concerns progress on many fronts and has delivered unless Ofgem takes measures in discharge of over GD2 (and no prospect of payments amongst rating agencies will intensify; consistently strong operating performance, its statutory finance duty to enable financeability thereafter if the assumed WACC revenue transmitting nervousness into investors achieving all required outputs efficiently, to be achieved. This conclusion is despite allowances continue) and average annual and higher capital costs in to the market including regulatory and HSE. This is despite measures already taken by WWU in GD1 to customer bills showing a 14.5% reduction over for regulated energy networks. This would incurring the significant burden of WWU support GD2, and assumed further measures by GD1, Ofgem would not achieve an appropriate not be in the interests of our customers. being denied a fair allowance for its efficiently WWU to aid financeability in GD2, including nil balance between these stakeholders in the incurring debt financing costs in GD1. payments to Shareholders. It is also despite an case of the Ofgem Actual Company. Further, Shareholders have demonstrated restraint efficient level of expenditure for the business and Ofgem’s WACC assumptions would conflict and supported measures to strengthen its capital structure. with one of six principles of economic regulation financeability, including lower cash distributions promulgated by UK Government in 2011.6 and significant early debt redemption to reduce Further, we note that Ofgem’s assumed financing risk in GD23. We approach GD2 with revenues for cost of capital are significantly a fully invested, efficient business and capital below independent and evidenced based structure, and strong focus on minimising reports. Ofgem’s assumed allowed revenue of customer bills. 3.08% (real, CPIH) for cost of capital is too low. This plan version shows a 14.5% reduction We have concluded that the WWU business to customer bills over WWU’s annual average plan should be financeable with average 5 CMA Bristol Water Case 6 October 2015, Para 10.151(a). projected for GD1. 6 Principles for Economic Regulation, Department of Business customer bills (2018/19 prices) flat compared Innovation and Skills April 2011. The economic principle of with GD1. In reaching this conclusion, our Predictability: “(i) the framework for economic regulation should provide a stable and objective environment enabling all those assumed revenues for cost of capital are based affected to anticipate the context for future decisions and to make on independent evidence.4 long term investment decisions with confidence (ii) the framework of economic regulation should not unreasonably unravel past decisions, and should allow efficient and necessary investments to 3 See Section 5.2 (Finance Appendix 22A) for details of steps receive a reasonable return, subject to the normal risks inherent in already taken to support financeability in GD1. markets.” We also refer to Section 4AA(5A)(b) Gas Act 1986; and 4 Independent expert reports outlined in Section 10 to the for the importance the CMA attaches to regulatory predictability: Finance Appendix 22A. Phoenix Natural Gas Case, paras 9.112 to 9.120 and section 8.

Wales & West Utilities | Business Plan 2021–26 197 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Appendices

All Appendices are hyperlinked throughout the plan and in the table below.

6 Customer service 10 Using competition to deliver best value 15A1- Cost Benefit Analysis A Summary of our plan 6A Customer service strategy 10A Native Competition Plan for GD2 15A7 1 Executive summary 6B Case study: Customer support officers 15B1- Engineering justification documents 11 Our innovation strategy 1A Index of Ofgem minimum requirements 15B7 7 Social obligations 11A GD1 innovation track record 1B Navigating our business plan and Data Tables 15C Investment against FES scenarios 7A Our Consumer vulnerability strategy 11B SME insight report 1C Business plan Change Log 15D Digitalisation strategy 1D Collaboration endorsement letters 7B Mapping to Ofgem’s Vulnerability 11C Project inspire summary report 1E RIIO-2 Challenge Group feedback response Strategy 2025 11D SMART funded review of WWU 16 Distribution 1F Board assurance on Business Plan ambition 7C Measuring benefits methodology (SROI) innovation process 16A GD2 Mains replacement programme: 1G KPMG assurance on business plan accuracy 7D WWU Partnership selection tool 11E GD2 innovation benefits measurement response to RIIO-2 CG Deep Dive questions 1H Oxera assurance business plan efficiency 7E Case study – healthy homes healthy people 11F GD1 innovation project list with 16B GD2 mains insertion rate forecast: response benefits mapping to RIIO-2 CG Deep Dive questions 1I UN Sustainable Development 8 Customer bills Goals methodology 16C MOB record keeping 8A Customer bills additional information D Delivering an environmentally 17 Connecting homes and businesses 2 Our consumer value proposition sustainable network 2A Consumer value proposition summary C Delivering value for money 17A English and Welsh housing projections 2B CVP Independent substantiation 13 Our net zero ready vision for 2035 17B Future homes standard: WWU 9 Cost efficiency sensitivity analysis 2C1- CVP supporting appendices 13A Our strategic approach to the future 9A Loss of metering impact 2C22 of energy challenge 18 Transmission and pressure management 9B GD1 one-off cost benefits 13B The wider decarbonisation debate 3 Outputs and incentives 18A Pipeline integrity studies 9C Cost efficiency benchmarking consultant report 13C Net zero consumer value proposition 3A Outputs and commitments justification 9D GD1 mains replacement performance 13D Our future of energy research 19 Workforce resilience 9E Unit cost and back office analysis 13E Local Area Energy Plans 19A EU skills paper on headcount requirements B M eeting the needs of consumers 9F Productivity growth – consultant report 13F Whole system work through to 2036 – WWU and network users for WWU 13G Smart hybrid heating systems 19B EU skills paper on headcount requirements 9G Productivity growth – joint GDN through to 2036 – all GDN 5 Giving consumers and stakeholders 13H A consistent view of the future consultant report 19C Diversity strategy a stronger voice 13I Enabling renewable generation 9H RPEs consultant report 19D Business plan commitment: pay and reward 5A Stakeholder engagement – our journey 13J Biogases 9I Finance independent benchmarking 19E People Resilience Statement and lessons learnt 13K Transport consultant report 5B Detailed stakeholder segmentation 13L Heat networks and CHP 5C Stakeholder engagement strategy 9J People & engagement independent F Financeability benchmarking consultant report 13M Hydrogen 5D Pre-GD2 engagement plan 13N System operability 9K Office & depot property portfolio independent 22 Financeability 5E Triangulation feedback summary 13O Decarbonising industry benchmarking consultant report 22A Finance Annex 1: Ofgem Notional and 5F Synthesis reports on outputs, commitments 9L IT independent benchmarking Ofgem Actual company and environment 14 Environmental Action Plan consultant report 22A1- Finance supplementary reports 5G Customer personas 14A Environmental Action Plan (Full version) 9M Regional factors consultant report for WWU 22A6 5H Stakeholder views – conflicts 9N Pensions engagement consultant report 22B Finance Annex 2: WWU business plan 5I Summary of CEG challenges E Maintaining a safe, resilient network 9O Pensions evaluation consultant report 22C Rothschild & Co letter 5J CEG Governance 15 Asset resilience 9P Business plan to data table (BPDT) mapping 5K AA1000 SES rating 15A Table of our CBAs and EJDs

198 Wales & West Utilities | Business Plan 2021–26 Summary Meeting the needs of Delivering value Delivering an environmentally Maintaining a safe Financeability A of our plan B consumers and network users C for money D sustainable network E and resilient network F

Glossary

AD COMAH GDN ILI OLS SIEM Anaerobic Digestion Control of Major Accident Hazards Gas Distribution Network In-Line Inspection Ordinary Least Squares Security Information and EoE = East of England (Cadent) Event Management AI CPI IWA Opex Lon = London (Cadent) Artificial Intelligence Consumer Price Index Institute of Welsh Affairs Operating Expenditure SMEs NW = North West (Cadent) Small and medium enterprises AIM CSV WM = West Midlands (Cadent) kWh PCD Asset Investment Manager Composite Scale Variable NGN = Northern Gas Networks Kilowatt Hours Price Control Deliverable SROI SC = Scotland (SGN) Social Return on Investment BAME CTSA LDZ PE SO = Southern (SGN) Black, Asian, and Minority Ethnic Counter Terrorism Security Agency Local Distribution Zone Polyethylene Syngas WWU = Wales & West Utilities Synthesis gas BAU CVP LO PRE GDPCR1 Business as usual Consumer Value Proposition Licence Obligation Public Reported Escape TFP Gas Distribution Price Control Total Factor Productivity BEIS CVs 2009-2013 LTS PRI Department for Business, Energy, Calorific values Local Transmission System Pressure Regulator Installation Totex

and Industrial Strategy GDPR Total Expenditure DNOs General Data Protection Regulation MEAV PSR BPDT Distribution Network Operator Modern Equivalent Asset Value Priority Services Register UKERC

Business Plan Data Tables GSR UK Energy Research Centre DRS The Gas Safety (Installation and Use) MOBs PSUP Capex Discretionary Reward Scheme Regulations 1998 Multi Occupancy Buildings Physical Security Upgrade Programme UN SDGs Capital Expenditure United Nations Sustainable ENA MPRS Repex GSMR Development Goals CBRM Energy Network Association Gas Safety (Management) Meter Point Registration Service Replacement Expenditure Condition Based Risk Modelling EU Skills Regulations 1996 MwH RHI CEG Energy & Utility Skills GSoP Megawatt Hour Renewable Heat Incentive Customer Engagement Group EVs Guaranteed Standards of Performance NARM RIIO CFP Electric Vehicles GwH Network Asset Resilience Measure Revenue = Incentives + Critical Friends Panel Innovation + Outputs FCO Gigawatt Hour NIA CHAID First Call Operative HAUC Network Innovation Allowance RoRE Chi-square Automatic Return on Regulated Equity FES Highway Authorities and NIS Interaction Detector Future Energy Scenarios Utilities Committee Network and Information Systems ROSPA CHP Royal Society for the Prevention FPNES HSE NOM Combined Heat and Power of Accidents Fuel Poor Network Extension Scheme Health and Safety Executive Network Output Measure CMG RPEs GD1 HSE NRSWA Compressed Methane Gas Real Price Effects Gas Distribution Price Control Health, Safety and Environment. New Road and Street Works Act CNG 2013-2021 WWU directorate RPI NRSWA Diversion Code of Practice Compressed Natural Gas Retail Price Index GD2 ICS HAUC measures necessary where CNI Gas Distribution Price Control Institute of Customer Service apparatus is affected by major works RRP Critical National Infrastructure 2021-2026 Regulatory Reporting Pack; IGEM NTS Annual Reporting to Ofgem CO Institution of Gas Engineers National Transmission System Carbon Monoxide and Managers SEIS ODI Stakeholder Engagement IiP Outcome Delivery Incentive Investors in People Incentive Submission

Wales & West Utilities | Business Plan 2021–26 Wales & West House Spooner Close, Celtic Springs Coedkernew Newport, NP10 8FZ www.wwutilities.co.uk