Business plan for developing the Low Pressure gas network

Gas to the West Business plan for developing the Low Pressure (LP) gas network To the end of December 2022

Contents Why Evolve?.................................................................................................................................... 4 Gas to the West............................................................................................................................. 5 Delivering value for money....................................................................................................... 5 Key elements for our plan.......................................................................................................... 6 Outputs and incentives.............................................................................................................. 7 Stakeholder engagement influence on our plan............................................................. 9 Efficiency of our plan.................................................................................................................. 10 Dealing with uncertainty........................................................................................................... 11 Working together – How to get involved............................................................................ 12

“One of the reasons why there’s so much support for this project is because it’s looking to bring a new energy source to the region, which will help the local economy attract businesses and jobs.”

Danny O’Malley Director, Evolve

Evolve Business Plan Developing the Low Pressure (LP) gas network

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Welcome

Evolve is the second largest operator of gas distribution infrastructure in the UK. Over the years we have been an active participant in Northern Ireland’s gas market providing services including the commissioning of the existing major gas transmission pipelines.

In February 2015 our subsidiary Evolve Natural Gas was awarded the licence to design, develop and operate the new Low Pressure (LP) network which will supply gas to homes and businesses to the west of Northern Ireland.

This publication describes our business plan for the period to the end of 2022 during which time we will deliver around 385km of new LP gas infrastructure for Northern Ireland customers.

In delivering this we will focus on providing value for money for customers and through the regulated price control process the Northern Ireland Authority for Utility Regulation (NIAUR) will set our priorities and allowed revenue.

At Evolve, stakeholder involvement guides, supports and enables everything we do.

This publication supports the public consultation that informs the price control process. It helps us ensure our plans meet customers’ needs and expectations and drives improvements through efficiency, innovation, excellence in customer service, and work in partnership with local communities and suppliers. We believe effective engagement comes from working directly and collaboratively with all our stakeholders.

Evolve Business Plan Developing the Low Pressure (LP) gas network

In addition to the information publications and community events which are on-going, we invite you to share with us your opinions on the project and, on this business plan and if interested, connecting to the network.

Details of how to contact us are in the ‘How to get Involved’ section on page 10.

By working together we can maximise the number of customers who can benefit from gas connections as quickly as possible; invest in a sustainable future, support low income and vulnerable customers in the communities we serve; and contribute to greater regional development in Northern Ireland.

We are delighted to have this opportunity to bring our UK market-leading capabilities of building and operating gas infrastructure to the highest standards of safety, service and quality to customers in Northern Ireland.

We look forward to delivering value for money for all customers who can benefit from this new infrastructure.

David Butler Director, Evolve

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Why Evolve?

1. Our vision is to keep customers safe and warm by leading the way in energy delivery.

Our strategy underpinning the development and operation of the Gas to the West network is driven by the group desire to be the UK’s number one gas distribution company.

To be number one we need to play our part.

We are focused on being ‘the most effective and efficient’ Gas Distribution Network (GDN) in Northern Ireland, being the most ‘customer orientated’; and finally, ‘being the number one employer of great teams’.

These values guide how we operate as a business and in delivering the Gas to the West project, Evolve will adhere to the values developed (as set out below) which are based on our experience operating in the UK: Safety first We aim to be the leading utility on safety, taking responsibility for our own safety and the safety of those around us. This is achieved through our approach to risk management, competence assessment and interactions with third parties.

Driving performance Efficiency, flexibility, innovation and continuous improvement help us deliver engineering excellence, deliver outputs and meet performance standards. We ensure our workforce is competent, efficient and flexible to the changing needs of a start-up business in Northern Ireland. Implementation of best practice and a culture of innovation help us keep costs down and deliver excellent service.

Putting people at the heart We aim to be recognised as a company who Evolve Business Plan Developing the Low Pressure (LP) gas network

cares for the communities we serve. We work with others to build partnerships in Northern Ireland to promote the benefits of gas and collaborate to minimise the impact of our dayto-day activities. We are open and honest with all stakeholders and develop a workforce that is engaged and flexible to changing needs. We treat everyone with respect.

Looking after customers Listening to our customers, understanding their needs and keeping our promises is essential when we are developing the gas network in our Licenced Area. We aim to always deliver excellent customer service and satisfaction by being responsive to customers’ needs and concerns. However, when we do not get it quite right we will quickly respond.

Sustaining our world We develop gas networks which are reliable and capable of meeting all customers’ needs in a timely and efficient way that maximise connections and customer benefits. We are continuously mindful of the need to ensure value for money for all customers and also aim to maximise community and environmental benefits. Based on the connection targets and transportation volumes set out in this plan we expect to deliver carbon savings of at least £1.3m over the reporting period (to the end of 2022).

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2. Gas to the West background

Figure 1: HP and IP mains network supplying Gas to the West area

Back in February 2015 Evolve was awarded the licence to build and operate the Low Pressure (LP) gas network and infrastructure as part of the overall Gas to the West project.

This publication summarises our business plan, submitted to the Utility Regulator (UR) in September 2015, to deliver gas to seven districts including Strabane, Dungannon, Cookstown, Magherafelt, Omagh, Fermanagh and Derry. The plan is aligned with the UR’s price control period which runs from 2018 to 2022.

Strabane

Our plan proposes to lay gas pipes, commonly known as gas mains, in a timescale which will ensure almost every street within the scope of the project can be connected to gas by 2023. We will achieve this with just under £55m of capital expenditure and just under £17m operational expenditure.

3. Delivering value for money Evolve’s requested spend is based on our desire to deliver on both customers’ expectations and value for money while being reflective of the current economic climate. Over the period of this plan (to the end of December 2022) we are therefore adopting a proactive strategy to exceed targets currently set out in our licence by: Making gas available to nearly all existing properties by the end of 2022 (three times as many households) Underpinning this strategy is a robust sales and marketing package that will allow us to: •

Increase by four-fold the levels of customer uptake

•

Increase by 45% the volumes of gas transported and in so doing reduce the unit cost per customer

•

Deliver £1m in efficiency savings through the scheme design alone

Evolve Business Plan Developing the Low Pressure (LP) gas network

Omagh

Mid-Ulster

Dungannon

Fermanagh

This proactive strategy will ensure Gas to the West remains economically viable and customers’ bills are kept low.

Furthermore, the value of this investment is also expected to bring significant direct and indirect benefits for the wider Northern Ireland community.

In particular, it will: •

Bring more competition to customers in both their choice of fuel and supplier

•

Make available an alternative cost competitive energy source for the long-term

•

Increase the west’s attractiveness to larger energy intensive employers and foreign direct investment thereby promoting greater regional employment and development

•

Create employment opportunities for around 200 people during its period of construction

•

Reduce Northern Ireland’s carbon footprint by switching from oil as the predominant fuel, to more efficient and lower carbon gas

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4. Key elements of our plan Our plan can be summarised as follows: Efficient network design

This business plan includes significant improvements to the originally proposed network design and significant cost savings. This has been achieved by replacing 130km of more costly High Pressure (HP) pipeline with Intermediate Pressure (IP) pipes. Furthermore proactive engagement with local stakeholders following the grant of our licence has given us a more accurate view of the most efficient layout of our network, the number of properties passed and potential connections. We have now developed a more accurate and efficient design which will allow us to make gas available to even more customers while ensuring costs are still economically viable.

Develop our network as quickly as possible over the period

Our plan is focused on an accelerated schedule which will see us deliver all of the spine mains and the vast majority of the infill mains by the end of 2022. The spine mains are the main network infrastructure, and the infill mains helps support connections to customers. Having laid spine and infill mains, gas will be accessible to all potential customers. This is significantly more than the 21% of infill mains and 20% of properties passed target currently stated in our licence. We are seeking to achieve this with just under £55m of capital expenditure over the period to the end of December 2022.

Evolve Business Plan Developing the Low Pressure (LP) gas network

Ensure value for money and affordable energy The more customers who connect to the network the lower the cost per customer. With our extensive revision of the route and design we have sought to maximise the opportunity for connections and volumes of gas transported while also optimising pipe pressure. This has helped deliver savings and shows our plan to be efficient delivering excellent value for money.

Increase support activities to encourage maximum switching

We are requesting £6.76m to encourage customers to take advantage of an efficient and sustainable gas supply. It will allow us to deliver meaningful and effective support to domestic, commercial and industrial customers to assist them through the connection and conversion process.

Stakeholders have informed us through recent engagement that they require assistance to convert to gas which includes, where relevant; technical, project management and an element of financial support. While it was expected this would materialise through public grants and other third parties, the prevailing economic conditions, exchequer cuts and limited lending now makes this unlikely. Through requested allowance we can help bridge this gap and increase take-up levels to 20% and reduce costs to customers.

“Shows our plan to be efficient, delivering excellent value for money.”

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Greater volumes in the large industrial and commercial market

Better route planning, more cost effective scaling of infrastructure and effective support for customers means we will be best placed to maximise connections, securing over 85% of larger customers during this period. Cost effective gas connections will also increase this region’s attractiveness to large energy customers and foreign direct investment, helping deliver more balanced regional development in Northern Ireland.

Increased IT investment

Information Technology (IT) is now more important than ever to delivering high quality, long-term, and value for money services that meet customers’ expectations. Stakeholders have told us they want their journey through registration, switching, and subsequent service delivery to be easy and effective. Our IT infrastructure must ensure we can manage the asset base safely and securely. Based on further assessment following grant of licence and bench-marking with similar systems we are seeking to invest an additional £1m. Our plans seek to balance minimum cost while ensuring we meet IT system reliability, IT security needs and customer expectations.

Business plan

GD17 (by the end of 2022)

Cumulative properties passed target

28,614

Cumulative connections target

5,918

Customer take-up rate (Number of connections relative to properties passed)

20%

Infill mains lay (km)

283

Spine mains lay (km)

102

Annual volumes of gas transported (million therms)

26.3

Capital expenditure (£m)

54.6

5. Outputs and incentives 5.1.

Outputs

This business plan has been developed based on Evolve’s experiences of GB’s regulated price control mechanism. Known as RIIO, this mechanism ensures regulated utilities deliver value for money for customers by assessing their performance against specific measureable outputs. To secure its potential revenue in a given period a utility must meet and exceed its target outputs. RIIO also demands utilities, such as Evolve, act innovatively both in how they make their activities more efficient and in the quality of service they deliver to customers. In preparing our business plan we have adopted this approach and developed six core outputs for the price control period to the end of 2022.

Evolve Business Plan Developing the Low Pressure (LP) gas network

They reflect our values, vision and key strategic objectives as we develop the network and start to connect customers. They are: • • • • • •

Safety Network development and connections Reliability Customer satisfaction Environment Community

Against each output we have developed clearly defined and measurable deliverables that will provide a focus for our business. Evolve’s experience in GB is this clear focus helps drive innovation and efficiencies. Table 1 below summarises the deliverables against each output.

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Table 1 – Outputs and Deliverables for GD17

Output

Safety

Network development and connections

GD17 Deliverable •

Deliver a network that meets all relevant safety standards for Northern Ireland and complies with good industry practice

•

Embed safety standards in policies, procedures, risk management etc.

•

Target zero injuries to people

•

Target zero significant incidents

•

Provide a 24/7 telephone and emergency response service

•

Deliver 102km of spine main and 283km of infill main

•

Deliver 28,614 properties passed and 5,918 connections

•

Deliver a strong sales and marketing programme to support customer connections

•

Develop a culture of innovation to improve business efficiency and customer satisfaction

•

Develop a network capable of meeting ‘peak’ and ‘within day’ energy needs over the short, medium and long-term

•

Minimise the number and duration of interruptions

•

Implement robust processes to deliver excellent customer service and satisfaction

•

Develop and trial courtesy calls and customer satisfaction surveys

•

Achieve an overall customer satisfaction score of 8 out of 10 over the period to the end of GD17

•

Meet overall and individual standards of performance

•

Conduct effective stakeholder engagement and reflect views in our plans

•

Develop KPIs to ensure all customer enquiries and complaints are dealt with in a timely manner

•

Implement a business model and Green Plan to deliver wider environmental benefits and minimise our business carbon footprint

•

Target connections and energy efficiency to help reduce customer carbon emissions

•

Develop a business plan to meet the challenges of climate change

•

Raise gas safety and carbon monoxide awareness

•

Deliver gas connections to 2,000 fuel poor customers

•

Support community projects

•

Ensure nature gas transportation charges remain affordable relative to other energy sources

Reliability

Customer satisfaction

Environment

Social objectives

Evolve Business Plan Developing the Low Pressure (LP) gas network

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5.2.

Incentives

Incentives are designed to ensure utilities continue to evolve their standards of delivery and reward high performance against targets imposed through the regulation. For Evolve these target areas include:

Innovation

Fuel poor

We have set out proposals for an additional incentive of £50 per fuel poor customer connected.

We plan to use this to help stimulate fuel poor activity in Northern Ireland and help offset the additional costs associated with liaising with funding bodies and supporting fuel poor connection applications.

To provide strong incentives to innovate and connect fuel poor customers, this business plan sets out proposals for additional mechanisms to help stimulate innovation and fund higher risk projects that couldn’t be funded through day-to-day allowed revenue set by the UR. They include annual competitions that would be open to all Northern Ireland gas distribution network operators and provide additional funding of up to £2m per annum, or adjustments to day-to-day allowed revenue.

Over the long-term the cost of this incentive would be offset by savings arising from the initiatives undertaken.

Customer satisfaction

6. Stakeholder engagement influence on our plan

conditions and customers’ desire to ensure the availability of technical, project management and financial support. In response we have included in our business plan £6.76m to support customers seeking to connect.

On receipt of our licence to deliver the Gas

to the West project Evolve has actively sought to engage with the broadest set of stakeholders possible. This has included communications with the business community, particularly energy intensive customers; councils; councillors; Assembly Members; land owners, business representative groups; and most importantly, the communities along our pipeline route. This engagement has brought about valuable knowledge, a selection of which is summarised below:

While proposals do not include a customer satisfaction incentive under this price control, we have set out suggestions for developing and implementing common industry surveys to measure customer satisfaction over this price control. This could then form the basis for developing incentive arrangements from the next price control period.

We want to see local employment arising from this project. Stakeholders have confirmed they support this view and our accelerated build maximises this potential.

Feedback from potential commercial and domestic customers has allowed us to develop a more efficient route that aims to maximise the number of connections and volume of gas in our pipe thereby delivering the best possible unit cost to customers.

Customers, gas suppliers and other stakeholders expressed concern with the prevailing economic

Evolve Business Plan Developing the Low Pressure (LP) gas network

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7. Efficiency of our plan Capital expenditure

Capital expenditure is mainly that which is required to deliver the physical assets of the new LP gas network. To ensure we are delivering best value for money for customers we have utilised the experience and efficiency of Evolve in GB in deriving our unit costs. Our unit costs also reflect the regional differences we expect to realise compared with the rest of Northern Ireland/GB (e.g. wage rates and geography).

Given the cost impact of the unique characteristics associated with Northern Ireland, we have encouraged the UR to fully consider these when conducting its benchmarking activities. The analysis we have conducted has provided robust evidence based on experience to inform the benchmarking process and subsequent optimal capital expenditure allowances.

Evolve Business Plan Developing the Low Pressure (LP) gas network

Operating expenditure

Operating expenditure covers the day-to-day business running. Our forecast costs of operating the network seek to leverage Evolve’s experience and by entering service provision agreements, build on group efficiencies and expertise. The business plan operating costs have been informed by our engagement with stakeholders. This includes provisions for the necessary sales and marketing activity to enable conversions to take place and the costs associated with accelerated timelines for the price control and capital programme build.

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8. Dealing with uncertainty Our business plan is based on an Intermediate Pressure (IP) build in 2016 and 2017. We will, however, require the opportunity to resubmit the business plan if there is a significant change in the HP or IP build programme.

Risk/uncertainty

In addition, we also face a number of other risks and uncertainties under the project in the price control period for GD17. They are summarised below alongside proposals or mechanisms to deal with them.

Description

Mitigation/price control adjustments

Network route, length and mix of pipe

Network development is still at the early stages. Ground survey work has still to be completed before detailed design can be undertaken.

Capital expenditure unit rates

There is uncertainty around our capital Differentiating factors expenditure as it is a forecast of construction to other regions to be considered in costs in a region of Northern Ireland that capital expenditure benchmarking. does not currently have a gas network.

Total allowance adjusted to reflect actual length of pipe laid and diameter/material mix.

• •

Volume re-opener at 15% Appropriate sales and marketing allowance for Gas to the West Flexible under-recovery arrangements (i) to ensure prices remain affordable and (ii) to provide adequate compensation for Evolve

Number of connections secured and actual volume of gas

There is unprecedented uncertainty around penetration levels. This could have a detrimental impact on connections and transportation volumes, which in turn could impact on affordability.

Engineering difficulties

The network design used to determine capital expenditure requirements is still • based on an initial high level design presurvey. Some engineering difficulties may be encountered. They are difficult to predict or quantify at this stage.

Delay in delivery of HP and IP network

This Business Plan is based on an IP build in 2016 and 2017.

Opportunity to resubmit the business plan if there is a significant change in the IP build programme.

Significant industry, regulatory or legislative change

The plan does not provide any flexibility to deal with changes that would require additional activities or costs to be incurred

by Evolve e.g. TMA, Smart Metering etc.

Special Review.

We will need to enter into arrangements which will commit significant expenditure Investment committed before e.g. on IT, materials, gas governors etc. draft and final determination before the Utility Regulator (UR) announces its draft and final determination.

Evolve Business Plan Developing the Low Pressure (LP) gas network

•

Re-opener where there are significant additional costs – materiality threshold £100,000 pa

Some form of comfort or commitment will be required from the UR.

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9. Working together – How to get involved Our Business Plan is just the start of the process to deliver gas to the west of Northern Ireland.

Over the next three months the Utility Regulator (UR) will be reviewing our plan and discussing it with us before reaching an initial view on future priorities and revenues in March 2016. We will also be separately discussing and agreeing with the UR our distribution tariffs with a view to publishing cost reflective tariffs early in 2016 for all customer groups, domestic, commercial and industrial.

If you’d like to talk to us about how you can get involved please contact us:

We really value your opinion and would appreciate your views to help inform these discussions. You can write to us about any aspect of our business plan using the email or address below. Responses should be submitted by Friday, 27 November 2015. Please indicate if the contents are confidential or whether you’d be happy for us to share your views.

Or Write to us: Evolve 3rd Floor 83/85 Great Victoria Street Belfast BT2 7AF

The UR currently plans to publish a final decision on price control arrangements for the period through to the end of December 2022 in September 2016 and its decision will determine our future charges.

We currently plan to publish an indicative view of transportation charges in April 2016 and this will be updated in October 2016.

Email: info@evolvenetwork.co.uk Phone: 0800 975 7774

For general updates and information, please visit our website: evolvenetwork.co.uk

There are many other ways that you can also get involved in our project. We’d be very happy to hear from you if you would: •

Consider taking part in our online surveys;

•

Like to be invited to our events;

•

Like to be involved in our customer panels; or

•

Like to receive any notifications of future publications or consultations.

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0800 975 7774 evolvenetwork.co.uk info@evolvenetwork.co.uk

Evolve Business Plan Developing the Low Pressure (LP) gas network

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