Utility Business Winter 2011

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UTILITY BUSINESS WINTER 2011

THE QUARTERLY PUBLICATION FROM SBGI UTILITY NETWORKS

INNOVATION IN THE SUPPLY CHAIN

Foreword by David Willetts, MP, Department for Business, Innovation & Skills

In this issue: New SBGI Chief Executive Interview with Mike Foster Utility Metering Smart Rollout – An Olympic Challenge Leading Voice Utility Business talks to John Spellman National Grid Winter Outlook


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SBGI Utility Networks Director: Martin Atkinson martin@sbgi.org.uk

01926 513760

Administrator: Ana Ray ana@sbgi.org.uk

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Marketing & Communications Manager: Caroline Taylor caroline@sbgi.org.uk 01926 513762

Welcome

from your editor Welcome to the Winter edition of Utility Business. This issue focuses on Innovation and provides an excellent opportunity to showcase some of the great work SBGI members are involved in. We are delighted David Willetts MP, Department for Business, Innovation and Skills has contributed his thoughts in a written foreword (see page 10).

Services Manager: Vanessa Webster vanessa@sbgi.org.uk 01926 513763

Of course, the featured case studies only show a very tiny part of the overall picture. We could have filled most of this issue with examples! As usual our regular columnist Michael Pollitt gives us some interesting thoughts.

Services Manager: Gary Cottrell gary@sbgi.org.uk

We are delighted to include an interview with Mike Foster, SBGI’s new CEO. Mike shares a little of what his previous experience brings to this new role, and some of his objectives going forward.

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=================================== Chairmen Utility Networks Board: Steve Murray (National Grid Distribution) Dist/Trans Equipment Group: Richard Stone (AVK UK Ltd)

Our Leading Voice interview features Fulcrum CEO John Spellman. The business has been through significant restructuring to focus on its core connections service and an improved customer experience. I really hope you enjoy this issue. If you have any news to share regarding developments in your own company for the next issue, please do drop me a line.

Caroline Taylor, Editor caroline@sbgi.org.uk

Network Engineering Group: Ian Foster (Fulcrum)

In this issue…

Metering Services Group: Vic Tuffen (Tuffentech Ltd)

Features

Metering Technology Group: Jeff Cooper (Elster Metering) Gas Storage Operators Group: Roddy Monroe (Centrica Storage) Data & Communications Management Group: Mike Buss (Sensus Conservation Solutions) =================================== Editor/Enquries Caroline Taylor caroline@sbgi.org.uk 01926 513762 ISSN Number 1359-9836 SBGI Utility Networks Camden House, Warwick Road, Kenilworth, Warwickshire CV8 1TH Tel: 01926 513765 Fax: 01926 857474 Visit the blog at www.utility-business.org

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THE QUARTERLY PUBLICATION FROM SBGI UTILITY NETWORKS WELCOME FROM YOUR EDITOR // CONTENTS

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UTILITY BUSINESS

Meet Mike Foster

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Interview with the new SBGI Chief Executive

Utility Metering

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Smart Rollout – An Olympic Challenge

Iron Mains Replacement Programme

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Comment from Stuart Godfrey, Radius Systems

Innovation in the Supply Chain

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- Foreword by David Willetts, MP, Department for Business, Innovation & Skills - Funding and Regulated Schemes - Case Studies - PhD in Innovation

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Gas 2011 - Event Review

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Leading Voice

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Utility Business talks to John Spellman

National Grid Winter Outlook

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Regulars Utility Networks News Industry News Regulatory Update Member Directory Viewpoint

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SBGI Utility Business Winter 2011

Utility Networks News Positive Liaison with Achilles We continue to achieve effective and fruitful dialogue with Achilles and the Achilles Steering panel. Distribution and Transmission Equipment Group Chairman Richard Stone presented SBGI views at a meeting of the Achilles Steering Panel in the Autumn and Achilles shared the latest release of their Accelerate Software Package with members at a meeting in Kenilworth in November.

Member Survey We are pleased to report positive results from our 2011 membership survey, which ran in the Autumn. We would like to thank all members who contributed. This feedback plays a valuable part in helping us maintain a high level of service and in developing our focus for 2012 and beyond.

Smart Metering Programme Update

RIIO Stakeholder Meetings

SBGI members and Secretariat are continuing their proactive support of DECC’s Smart Metering Programme.

The Utility Networks Division has been involved in a number of workshops and meetings with the Gas Distribution Network Operators throughout late Summer and Autumn, as they finalised their Business Plans for submission at the end of November. Well justified Business Plans are an essential element of the RIIO price control framework.

The Consequential Changes to Codes Working Group: This group is endeavouring to examine all aspects of current codes of practice and regulations that will need to be changed or modified to suit the new Smart world. This will touch on items such as MAMCoP and MOCoPA. These codes are also being looked at by the Consumer Engagement and Rollout Group (CERG).

National Grid and Scotia Gas Networks both engaged directly with members in workshops at Camden House, Kenilworth. Gary Cottrell attended a Wales & West Stakeholder workshop and two representatives from Northern Gas Networks visited SBGI offices for a one to one meeting with key SBGI individuals as part of their stakeholder engagement – subsequently supplying information for circulation to SBGI members.

SBGI Host Delegation From Chongqing Gas Group SBGI were pleased to host a delegation from Chongqing Gas Group in November. Senior representatives from Chongquing Gas were on a fact finding mission, including visits to the UK, Russia and Germany, gathering information on gas transmission and distribution, installation and jointing, leakage control, pipelining and measuring. The delegation was welcomed by SBGI Chief Executive, Mike Foster, received an overview of the UK Gas Industry from Martin Atkinson and met with member companies Aeon, Wask, GL & Fusion Group.

Management of MAMCoP: is the subject of a consultation by Ofgem, and SBGI will be responding with members’ views on the suggested approach of moving the management of MAMCoP to SPAA. As well as this response we have also written directly to DECC to suggest a workshop to fully analyse the structure and management of both MAMCoP and MOCoPA in future. The SMETS (Smart Metering Equipment Technical Specification) Stakeholder Advisory Group: As a result of lobbying from both SBGI and BEAMA, a stakeholder group has been set up by DECC to facilitate proactive consultation with the Metering Manufacturing Industry to develop the IDTS (Industry Design Technical Spec) into the SMETS. This will be a series of four workshops beginning on 1st November and completing by the end of the year. The Non Domestic Workshop: This was instigated following lobbying of DECC by the Non Domestic suppliers. There are several aspects of the IDTS that do not easily fit with the Non Domestic market but under current proposals would have to be complied with. The first workshop was held on 27th Oct and proved to be very productive. The programme representatives from DECC will circulate recommendations from this workshop and call a second workshop if required. Consultation on Framework for DCC: We are holding a series of meetings to draft the SBGI response to this consultation. The Data and Communications Management Group will lead on this response. Smart Specification Working Group (SSWG): SBGI (Gary Cottrell) has been invited to sit on the Advisory Board for this industry group. The group consists of most of the Meter Manufacturers and some Data and Comms companies and its purpose is to work on industry co-operation to ensure interoperability and interchangeability in the world of smart in the UK. If you wish to be more involved with any of this work or would like to find out more information please contact Gary gary@sbgi.org.uk 01926 513764

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@ SBGIUN

Mike Foster took up his role as new SBGI Chief Executive in October. Utility Business caught up with him five weeks into the post to find out how he’s settling in.

UTILITY NETWORKS NEWS // MEET MIKE FOSTER

Meet Mike Foster

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> Mike Foster in Yemen whilst Minister for International Development

> Mike Foster meeting Bill Clinton, former President of the United States > (Inset) Mike Foster

“It’s been really hectic since I started, there is such a lot to learn. Not just about the internal structure and operation, staff and industry colleagues, but also a full understanding of what’s driving our members’ wider business agendas, as well as specific campaigns SBGI is working on to support them. I am extremely fortunate to be taking on an organisation that the previous Chief Exec left in a very healthy position. My current efforts are focused on looking at where I can add value”. And, as a former Head of Communications and MP, Mike is already doing just this. He’s headed a campaign for the heating industry supporting their call for the reinstatement of the boiler scrappage scheme (asking Chancellor George Osborne to get this back on the political agenda) and backed the recent call by the energy select committee for the urgent need for more Gas Storage. Mike’s early career was with Jaguar Cars at Coventry and Castle Bromwich. It was here that he gained his accountancy qualifications and worked as a management accountant. Following this he took up a further education teaching post in Accountancy, Finance and Economics, which he carried out for six years. Then, in 1997 Mike was elected MP for Worcester – a long term ambition and interest. “I consider myself incredibly lucky. A lot of people aspire to be a Member of Parliament but only a few

get the chance. I gained some fantastic experience over the thirteen year period in office working on select committees, in the whips office and in Northern Ireland”. In 2007 a telephone call one Saturday afternoon from the Prime Minister (interrupting viewing of an important football match!) saw Mike start the post of Minister for International Development two days later. It was this post that has probably had the most lasting impact on Mike. “It was a fantastic job opportunity but I visited some of the world’s most troubled spots including Nepal, Gaza, Sri Lanka, Yemen, as well as places hit by awful natural disasters such as Haiti (where, incidentally, he met Bill Clinton visiting the area at the same time!). You learn such a lot about the world being involved in this sort of work and also about yourself. It puts things in perspective. You never forget your first refugee camp – the sights, the sounds, the things the TV cannot relay – it stays with you forever. UK Government really does do some good work in this area”. Having left parliament in 2010 Mike headed up communications for the charity WaterAid for a year, based in London. “Working for SBGI gives me the chance to be back in my home area of the Midlands. After being based in London and only home at weekends for fourteen years, it was an attractive proposition. Although not having worked directly in the energy, heating

or utilities industry, I was familiar with SBGI’s work having come across it doing constituency work, so knew its reputation”. “Going forward, I want SBGI to be much more external facing and for members to see much more of what it does. There’s an awful lot of good work going on, a strong team of people and SBGI is incredibly well respected, both in industry and Whitehall. This puts SBGI in a strong position to affect real industry change and I want members to reap the benefit. Where I can hopefully add the most value is through my parliamentary experience - seeing how Whitehall works, understanding the processes, having a feel for hot topics and possessing the right language. I feel I can really make a difference through adding my broad range of experiences and ‘political eye’ to the strengths this organisation already has”. How this might impact on the strategic direction of SBGI is currently being discussed by Mike, the Divisional Directors and the Management Board. “ICOM became SBGI’s third division on 1 November and is an excellent example of how organisations can collaborate and take advantage of the economies of shared service delivery etc. It is a very interesting model. Looking forward, although we are steeped in the gas industry, and this is a distinguished part of our history, we must ultimately have a broader outlook in the energy and utilities sector which might well be reflected in how we identify ourselves”. 5


SBGI Utility Business Winter 2011

Utility Metering: Smart Roll-out – An Olympic Challenge Event Chairman Richard St Clair of Elster Metering welcomed over 150 delegates to this annual seminar at Birmingham’s Motor Cycle Museum. 1

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1) Kate Smith, Ofgem 2) Jason Brogden, Engage Consulting 3) Steve Cunningham, Landis+Gyr 4) Zoe McLeod, Consumer Focus 5) Geoff Hatherick, DECC 6) Chris Murray, Xoserve 7) Julian Liddy Macquarie Bank 8) Jeff Cooper, Elster Metering 9) David Johnson, Senior Regulatory Manager Europe, Centrica 10) Paul Brodrick, Cable&Wireless Worldwide 11) Jeff Studholme, G4S Utility Services (UK) 12) Chris Rowell, Elexon 13) David Green, Arqiva 14) Stuart Miller, ByBox 15) Martin Deehan, Enterprise 16) Charlotte Wedd, Commercial Director, British Gas Smart Metering

The stimulating programme provided an update on key issues across the Utility Metering supply chain, with a focus on smart metering and the progress of Governments’ rollout programme.

Much more work is required on consumer engagement, which has been slow coming. A change in emphasis is required as much of the focus of the programme so far has been on technical issues. It must be more consumer led. Most speakers echoed this theme.

Content included review of smart trials and early deployment experiences, assessment of consumer issues, thoughts on the DCC, a look at wider industry issues and stakeholders views across supply, meter manufacturing and installation.

The ERA is leading work on the smart metering installation code of practice. This code will help ensure companies do not abuse the opportunity to sell to consumers when they are installing smart meters, and will manage consumer expectations of the installation process.

Smart Trials Ofgem shared headline figures from its now completed Energy Demand Research project (EDRP) which involved over 60,000 households. Their findings show energy savings of between 3% and 5% in households with smart meters. How advice is delivered to households will be an extremely significant part of the overall success of smart meter roll-out. British Gas Smart Metering is moving to market early and already has over 330,000 smart meters installed. Echoing findings from the EDRP, they have identified softer skills such as behaviour and customer interaction, to be just as important as technical aptitude in their meter installers for successful uptake.

Consumer Issues Consumer Focus is campaigning hard on behalf of energy consumers. They support smart metering and the Government’s objectives but are keenly aware of the detrimental effects if industry does not get it right. Cost of the programme to the consumer is their biggest concern along with data access, privacy and security issues.

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Set Up of the DCC Communication of data to and from smart meters in the domestic sector will be managed centrally by a new function covering both the electricity and gas sectors - the central Data and Communications Company or DCC. The DCC will provide a two-way communications channel between smart meters and a central communications hub to which smart meter data users (energy suppliers, network companies and other authorised third parties) will have access. In order for DCC to provide services to its users, it will be required to contract for a number of IT (data) and communication services. The licence tendering of DCC is being conducted in parallel to the procurement of these service providers, who will be appointed in a procurement process being managed by DECC. They have invited companies to bid to provide data communications for three geographically based lots – northern Great Britain (including Scotland), central GB (including Wales) and southern GB, in nine to 15-year contracts at costs of between £330 million and £1.5 billion each. It is also inviting companies to bid for IT services and consulting in a contract lasting between seven and 12 years at a cost of £60-240 million.

Industry Issues The first significant milestone has been reached in the smart metering programme with publication of the Industry Draft Technical Specification (which now has to gain approval from the EU) but there is still an enormous amount of work to do. There are four industry consultations (concluding in November) which will shape the next steps in the programme. These will help define the DCC (perhaps the single biggest challenge), HAN, WAN, interoperability testing, data security and privacy issues. To rollout 50 million smart meters and install in home displays the metering industry will need to grow its workforce threefold, creating significant deployment of resources and skills challenges. The National Skills Academy for Power (Metering Network) will facilitate Smart Metering skills development with a training framework in place by Sept 2011. Smart Metering in Europe is driven largely by the Third package. The gas and electricity directives of the third package require member states to equip at least 80% of customers with smart (electricity) meters by 2020. Identical technological solutions are not required across Europe, however, Mandate M/441 will ensure European interoperability standards of utility meters. The UK is unique in its ambition to roll-out both gas and electricity meters.

Exhibition Further to the seminar programme the day provided a topical supply chain exhibition showcasing the seven event sponsors along with exhibitors Encore Energy, Origin, Tuffentech and Powerplus Communications.


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Industry News

UTILITY METERING: SMART ROLL-OUT – AN OLYMPIC CHALLENGE //INDUSTRY INDUSTRY NEWS NEWS

Less than One Year to Green Deal With the Energy Act becoming law in October, the legal framework for the Green Deal is now finalised and the programme is expected to be launched in Autumn 2012. Green Deal will help improve the energy efficiency of the nation’s homes and businesses, which are responsible for almost 50% of the UK’s carbon emissions.

US Shale Gas to be Exported Globally ICOM Energy Association The ICOM Energy Association, which serves the industrial and commercial heating sector, became a division of SBGI on 1st January 2012. SBGI now has three divisions - ICOM, HHIC and Utility Networks, all operating on the same basis. SBGI has provided secretariat services to ICOM for over six years, during which time a close working relationship has developed, which has benefitted both organisations. ICOM has 40 member companies, most of which are manufacturers or distributors of boilers or burners for the industrial and commercial market.

Measures to Tackle Rising Energy Prices The Department of Energy and Climate Change’s (DECC) Consumer Energy Summit in October agreed a number of measures to support consumers in light of recent months of energy price rises. Government’s main advice remains switching supplier to get a better deal but all gas and electricity bills will now have to include a message directing customers to contact their suppliers to find out if they could be saving money. Ofgem is proceeding with what it calls a radical reform of the energy retail market, proposing a much clearer choice than the 400 tariffs currently available. Ofgem also wants to encourage more innovative tariffs and to encourage new firms to enter the market.

US shale gas could be exported for the first time following a deal between BG Group and US energy firm Cheniere. In the last decade, several new LNG import terminals have been built in the US with the expectation the country would consume more natural gas than it produces. But shale gas production has resulted in a glut of gas which could now be liquefied and sent to countries in Asia and Europe, including the UK. Under the deal, Cheniere will sell 3.5 million tonnes a year to BG for 20 years. Including shipping costs, analysts say US imported gas could be much cheaper than gas in Asia or Europe.

Carbon Capture and Storage Bid Halted Plans to invest £1 billion in a carbon capture and storage demonstration plant at Scottish Power’s Longannet plant have been halted. DECC said that negotiations on the project had concluded. The announcement had been widely anticipated. Although Competition One, as it is known, will not now progress, Government will pursue other projects with the £1 billion funding and take forward the valuable research from the process so far directly to Competitions Two, Three and Four.

Report Reveals Fatalities from Carbon Monoxide Poisoning have Tripled A report by the Gas Safety Trust reveals a dramatic rise in the number of deaths resulting from carbon monoxide (CO) poisoning in the UK since 2010. The Carbon Monoxide Hotspot Report 2011 shows that in the 12-month period between 1st July 2010 and 30th June 2011 there were 50-recorded incidents involving CO poisoning. The report calls on householders to be more aware of the dangers of CO, particularly now people have turned their central heating on for the winter months.

SBGI Golf Circle Programme ‘12 Once again the Golfing Circle is pleased to announce three fantastic venues and networking events for its 2012 season: Spring Meeting Ladbrook Park GC, Warwickshire, 10th May Captain’s Challenge Day Olton GC, Solihull, 6th July (for Corporate Teams) Autumn Meeting Kirby Muxloe, 11th October > Neil Williams receives the Captain’s Salver from outgoing Captain Gary Wignall

Circle members and their guests are invited to join Captain, Neil Williams for what promises to be an excellent programme next year. If you would like to join the Golfing Circle, or find out more about these events please contact ana@sbgi.org.uk

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SBGI Utility Business Winter 2011

Regulatory Update Iron Mains Replacement Programme

Annual Energy Statement

HSE and Ofgem have concluded their review of the iron mains replacement programme and the outcome, accepted by all GDNs, is a 3-tiered approach to the work programme determined by diameter size.

Government’s second Annual Energy Statement was delivered to Parliament in November, describing progress and policies underway. A crucial part of the Department for Energy and Climate Change’s strategy is to reduce the amount of energy used in homes. The statement had a particular focus on the impact of policies on energy prices and bills. Government also announced £200m new and additional funding to support Green Deal, as well as launching a consultation on the programme. The Green Deal framework will be launched from October 2012.

Water White Paper Government’s Water White paper, Water for Life, was launched in December, calling for a change in attitudes to water use from Environment Secretary Caroline Spelman. Water efficiency measures will be encouraged under the Green Deal.

Up to 8” pipes (Tier 1) will continue to be replaced under the former ‘30/30’ approach, with the top 20% of risk pipes replaced in any year with the remainder of pipes selected to produce safe, efficient, and environmentally acceptable schemes. In Tier 2 (>8”, <18”), a risk threshold will be set above which action to mitigate this risk will be mandated; pipes below this threshold will be subject to benefit/cost assessment with options for remediation as well as replacement being considered. Above 18” diameter (Tier 3) all pipes will be subject to this benefit cost assessment, with a focus on risk management of these pipelines rather than prescribed replacement. Benefits of the revised approach are in a more holistic approach to managing all asset risks, not just pipelines, greater flexibility in designing replacement schemes to improve efficiency, and a focus on innovative risk management approaches as an alternative to larger diameter mains replacement. Opponents of the approach are nervous about the lack of a risk threshold in the Tier 3 class. Depending on where the Tier 2 risk threshold is, the overall replacement volumes would appear to be 90 – 95% of legacy levels of the previous price control period when measured on length. However, as the unit cost of replacement of the largest mains are in order of magnitude higher than for the smallest mains, there is likely to be a downward revenue impact associated with mains replacement activity.

The Dr Michael Pollitt Column

SUPPORTING INNOVATION IN UTILITY SECTORS One of the significant impacts of privatisation of the electricity sector in 1990 was the rapid fall in the amount of energy research and development (R&D) undertaken by electricity companies. This fall was mirrored in significant falls in overall public sector support for energy research. Initially this did not show up in innovation output statistics, as measured by the number of patents published by electricity companies, but by 2003, this too had collapsed, partly due to the passing into foreign ownership of much of the electricity sector. New technology remains crucial to the delivery of the secure, cheap and low carbon utility services. Learning about such technologies means that it may be worth subsidising high cost investment now in order to get cheaper utility services in the

future. Such learning can arise from either learning by research or learning by doing, i.e. either by more early stage R&D or by more strategic deployment of currently expensive capacity. A key question is, how to get the balance right between the two? The UK, in line with many countries across the world, has substantially increased expenditure on strategic deployment. However this remains an expensive and risky way to learn. It has also been addressing the need to increase learning by research. The Low Carbon Networks Fund (LCNF), begun in 2010, has increased by 5-fold the resources going into R&D projects in electricity distribution utilities. A key innovation in this scheme was the introduction of a competition between utilities to propose projects which could be funded via a levy on all utility bills. A similar scheme has been proposed for the water industry in the Cave review.

The LCNF concept is a good starting point, but it can be extended in two key ways. First, LNCF projects must still be initiated by incumbent network companies and hence the competition is somewhat limited. A better scheme would substantially increase the number of potential initiators of projects, subject to requiring the co-operation of incumbents. Second, the innovation gap is not just on the network side. It is also on the demand side as well. Substantial amounts of customers’ money are being spent under the Carbon Emissions Reduction Target (CERT) to reduce energy consumption. However the demand side is ripe for a LNCF type scheme, where competitive bids are submitted by both energy retailers and by third parties for innovation projects aimed at piloting ways of getting consumption down that can then be rolled out over a wide area.

Michael Pollitt is a University Reader in Business Economics at the Judge Business School, University of Cambridge and Director of Studies in Economics and Management at Sidney Sussex College, Cambridge. Between 2007 and 2011 Michael was external Economic Advisor to Ofgem, advising on Project Discovery, the Fifth Distribution Price Review, the LENS project, RPI-X@20 and the smart meter rollout, among other projects. He is currently a member of Ofwat’s Future Challenges expert panel and an advisor to the Consumers’ Association. He is also an Assistant Director of the ESRC Electricity Policy Research Group.

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REGULATORY UPDATE // IRON MAINS REPLACEMENT INDUSTRY PROGRAMME NEWS

Iron Mains Replacement Programme An independant view… Stuart Godfrey, Radius Systems, poses the question whether from a supply chain perspective this new approach is self-defeating or not, and perhaps a better solution is in more commercial as well as technical innovation.

Indeed there are those whose view is that a continued replacement approach relative to a repair and monitor regime would actually save money when adding in the benefit of reduced levels of shrinkage or methane leakage. Furthermore there is a high risk that the law of unintended consequences will come into play, higher unemployment, lower industry capability and less funding for future innovation, not more. Having listened carefully to many presentations at the recent SBGI/ IGEM Gas 2011 conference which referred to this issue in the context of the “RIIO” debate I felt that the industry is in danger of becoming a victim of its own success and at the same time opening itself up to worst kind of criticism, that it deliberately decided to stop removing known risk to life on grounds of cost. The success of the current version of the gas mains replacement programme – the so called 30/30 programme – has meant that lives lost due to gas escape events associated with ageing iron infrastructure have fallen. Even if the costs of programme delivery were constant, it should come as no surprise therefore that the cost per life lost (or the cost of lives saved) has shown a dramatic increase – this an expected and positive KPI of this programme’s success. Yet it is this metric (the cost of life saved (~200m) not the cost of life lost) which is being used to justify slowdown. A Metric which ignores the cost of injuries, however severe, and the loss to the economy of those injured or killed. It is a brave man who puts a value on human life and decides that a specific value is too much to ask. That same cost per life lost can rapidly and dramatically reverse its direction of travel should we have another rare but catastrophic incident. Only then, it would appear, would the enquiries start into such a decision, when, I would suggest, it is too late. The proposed change in the replacement programme would see all mains over 8” diameter and below an agreed risk threshold (Tier 2 only) be subject to much more scrutiny and economic justification before their de-risking, in many ways a reversion to a previously discarded policy. The population of this group of mains is around 15 – 18% of the at risk population of remaining iron infrastructure – if measured simply in kilometres.

I would suggest – having discussed with experienced colleagues in the industry – that this measure of that population is far too simplistic from many viewpoints. From a risk viewpoint, whilst this population of mains (>8”) may create fewer incidents, any such incident would typically have the potential to be much more severe than those created by smaller mains. From my own perspective, a simple kilometre metric is totally unrepresentative of the impact on the supply chain. That 15 – 18% population of iron mains represents 33% of the output of the plastic pipe sector and I suspect this skew is representative of all the supply chain. Such a shift would have more dramatic implications for the size of many businesses and the resultant impact on the price of the remaining products the industry would still expect to procure. This effect I am sure would be reflected in all parts of the supply chain, notably in the contracting community. I suspect such an impact has not been factored into the forecasts for RIIO based business plans. More broadly, when our wider economy is at best flat lining and it is government policy to rebalance the economy in favour of high value British manufacturing, it begs the question as to whether it makes sense at this point in time, to drastically reduce the level and spend of a safety based infrastructure replacement programme with the inevitable impact on primarily home based manufacturing and contracting capacity and capability. To cut back a privately funded (not publicly funded) source of ”shovel ready” employment and its flow through to the economy in general seems perverse. There is indeed an argument for its acceleration. There is still time to think about the wider implications of the safety regime and the cost regime in this industry from 2013 and beyond. We have, as a nation, developed this industry to be world leading, and its skills are exportable, more so as other nations’ infrastructure ages, Hong Kong is a key replacement market, Queensland a new resources market, Egypt and Libya of key potential.

It would appear to me that the proposed amendments to the Iron Mains Replacement Programme in the UK gas industry are predicated on a rather short term insular monetary view of the industry rather than a view of the greater economic and environmental impact.

Has Ofgem really considered the implications for the whole supply chain on the countless number of SME’s who will be impacted by such a change? If the current proposal were adopted and its likelihood, I would suggest, has already damaged investor confidence in future investment, then a resized industry may not be able to react to a subsequent rethink triggered by future unfortunate events. Thinking of the wider economic impact on our country would indeed be innovation in the Supply Chain.

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SBGI Utility Business Winter 2011

INNOVATION FEATURE

UTILITY BUSINESS

FEATURE

Foreword

> David Willetts meets apprentices at the Jet Fusion Experiment at Culham Centre for Fusion Energy.

Innovation is the key to sustainable growth and higher living standards in today’s global economy. The utility sector faces a unique set of challenges and opportunities including a low carbon future, the move towards integrated infrastructure, and compliance with environmental regulations. The sector has strategic importance to the UK. It provides us with essential services – light, heat, water. It plays an important part in the UK economy, contributing around £36billion of UK GVA across water, gas and electricity in 2009 and employing over 150,000 people. Innovation will be critical for the sector to grow and meet its challenges. It is encouraging to see the range of initiatives to increase innovation that are showcased in this edition of Utility Business. We recognise that Government also has a stake in encouraging innovation to meet social challenges and deliver more efficient services. That is why we launched our Innovation and Research Strategy in December, setting out how we will support innovation and research in the UK and where our investment can add value. We considered how innovation can be better supported across all sectors of the economy and in particular areas with growth potential, including utilities.

Danish engineering firm Bystrup beat 250 rivals to win the Royal Institute of British Architects Pylon Design Competition. It set the challenge to replace the familiar “triangle” pylon design - in use since the 1920s. The 20-tonne T-pylon would stand at just 32m (105ft) 28 metres shorter that current pylons and could be coloured to blend in with the countryside, while a stainless steel version for coastal areas would offer protection against corrosion from airborne salt.

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That is why we committed ourselves to work with a range of businesses, academia and other experts to address the innovation barriers that the utilities sector faces and enable greater levels of innovation and growth across the sector. We will focus on areas including improving skill levels in the industry and increasing exports. We will also help utilities businesses to access Government support including from the Technology Strategy Board. We look forward to working with the sector to address the challenges you face. David Willetts, Minister for Universities and Science Department for Business, Innovation & Skills


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UTILITY BUSINESS

INNOVATION IN THE SUPPLY CHAIN

INNOVATION IN THE SUPPLY CHAIN // REGULATED SCHEMES & FUNDING AGENCIES

Innovation in the Energy Industry GOVERNMENT Technology Strategy Board The Technology Strategy Board is the UK’s national innovation agency working to stimulate business-led innovation. It operates across government, business and the research community to remove barriers to innovation and bring organisations together to focus on opportunities, as well as investing in the development of new technology-based products and services for future markets. It was established by Government but operates at arm’s length as a business-led executive non-departmental public body and is sponsored and funded by the Department for Business, Innovation and Skills (BIS). The Government’s spending review allocated over £1 billion over the four year period, 2011-15 and the budget available this year (2011-12) is £317m. The Technology Strategy Board operates very closely with other organisations involved in innovation and research, combining and focusing resources, so activities are often jointly funded by research councils (RCs), other government departments, regional development agencies (RDAs) – until 2012 when they close - and the devolved administrations of Scotland, Wales and Northern Ireland. As well as investing in programmes and projects, much of its work is in spreading knowledge, understanding policy, spotting opportunities and bringing people together to solve problems or make new advances. It operates a range of innovation programmes including Knowledge Transfer Partnerships, Knowledge Transfer Networks, Collaborative Research and Development, Grants for Research and Development and the new network of technology and innovation centres. The Innovation Funding Incentive (IFI) and Regional Power Zone (RPZ) schemes were introduced by Ofgem as part of the price controls 2005-2010. They encouraged Network Operators to invest in appropriate Research & Development activities to do with network design, operation and maintenance and to develop and demonstrate, innovative and more cost effective ways of connecting and operating generation.

REGULATED SCHEMES Innovation Funding Incentive

PRIVATE PARTNERSHIPS Energy Technologies Institute The Energy Technologies Institute is a private sector organisation, established as a unique private-public partnership, funded equally by member companies and the Government and governed by an Executive Board. Their target is to secure up to 10 private sector investors, each contributing up to £5 million per year for 10 years, with the UK Government matching these investments to create a potential £1 billion investment fund for new energy technologies.

Low Carbon Networks Fund Under the electricity distribution price control April 2010 to 31 March 2015, Ofgem established the Low Carbon Networks (LCN) Fund. The Fund allows up to £500m support to projects sponsored by the DNOs to try out new technology, operating and commercial arrangements. These projects involve the DNOs partnering with suppliers, generators, technology providers and other parties to explore how networks can facilitate the take up of low carbon and energy saving initiatives such as electric vehicles, heat pumps, micro and local generation and demand side management and smart meter roll out. At the end of the price control in 2015 the LCN Fund will be folded into the electricity NIC (see below).

The ETI has a holistic approach which involves considering the assembly of all the components required to make systems work in the ‘real world’ and understanding how individual technologies contribute to the performance of the UK energy system to 2050. Its core areas of focus include offshore wind, marine, distributed energy, buildings, energy storage and distribution, carbon capture and storage

Energy Innovation Centre The Energy Innovation Centre is a power focused partnership between CE Electric, Electricity North West, Scottish Power, Scottish & Southern Energy, UK Power Networks, NWDA and EA Technology Group. Specific areas of interest include improving the management of networks, such as towers, substations, underground and overhead cables, improving and enhancing energy supplies to customers, Smartgrids and technology transfer - where pioneering technology and ideas being used in another industry eg telecoms, retail etc, may have the potential for deployment in the energy sector.

Network Innovation Competitions As part of the RIIO Electricity transmission T1 and Gas Distribution GD1 price controls in 2013, Ofgem will introduce Network Innovation Competitions (NIC). The NIC is currently being designed and will learn from the Low Carbon Networks (LCN Fund). There will be two NICs, the gas NIC will be for projects related to gas transmission and distribution, whereas the electricity NIC will only be for projects related to electricity transmission. To encourage a wide range of high quality network innovation ideas the participation of non-network companies in the NIC, including other industries such as the telecoms and information technology sectors, will be important. However, non-network companies will only be able to access NIC funding by collaborating with licensed network operators.

Water Sector Innovation Leadership Group The Water Sector Innovation Leadership Group was established by the Department for Environment, Food and Rural Affairs (Defra) and is managed by water regulator Ofwat. In March 2011 the group identified areas of water and wastewater delivery where innovation should be a priority which will be promoted through the various incentives and frameworks within which the water sector operates and, where appropriate, the group will seek to challenge and adapt these frameworks in order to continue to stimulate innovation. 11


SBGI Utility Business Winter 2011

UTILITY BUSINESS

INNOVATION IN THE SUPPLY CHAIN

Keyhole Technology for Gas Mains

> The busy site at The Broadway Woodford where Synthotech’s SynthoCamT CCTV camera system was used

Innovative keyhole technology has been successfully used to locate and fix leakage from gas mains beneath a busy London road junction. Some 48metres of 18 inch diameter gas distribution main were surveyed and treated to reduce leakage in a pilot scheme. The innovative technique for the maintenance of buried gas pipelines helps both reduce costs and minimise surface disruption. The project was made possible by the Gas Network Innovation Funding Initiative, and involved National Grid utilising specialist expertise from Synthotech Limited, ALH Systems and GL Noble Denton. The pilot project took place at The Broadway, Woodford, under a road with a huge curve and major junctions on either side. The area to be inspected was located between a bus station and a railway station. Traffic had to be kept flowing throughout the exercise, and the road had to be fully re-opened at peak times. The team was able to survey, excavate and reinstate in just two days, where traditionally the job would have normally taken seven working days and required four-way traffic lights. Access to the 98-year-old cast iron main was gained using National Grid’s Core and Vac machine combined with the ALH Beam Drilling system. Two overlapping 18 inch core holes were cut, creating a figure of eight in the road surface, which was then vacuum excavated until the main was exposed.

> The new Pan and Tilt model with 360 degree circumferential vision

The inspection was undertaken using Synthotech’s new live launch ‘Pan and Tilt’ CCTV camera system, which provides 360 degree circumferential vision at up to 270 degree angulation. Eighteen joints were discovered as well as two tees, one suspected fracture and twenty-one plugs, together with various service and side entry tappings. The camera provides a clear picture viewed on a daylight visible screen, and footage can be recorded on the 160 gigabyte hard drive. The system is also useful for finding blockages, obstructions and water ingress.

Assuring the Integrity of Electrofusion Pipe Jointing Asset integrity is currently a big talking point in the utility sector. Whilst PE pipe systems have been accepted by gas utilities as a significant step forward, serious doubts remain about the control of site practice and the absence of non-destructive tests that prove the quality of joints in the ground. Fusion Group, has supplied electrofusion control boxes and fittings for several decades. Analysis of failed electrofusion joints has identified that more than 85% of failures are directly attributable to three factors: bad alignment, inadequate scraping, and joint contamination.

> Fusion Cyclops Camera & Redbox Telemetery System in Action

ControlPoint, a Fusion Group company, has recently launched a new system that addresses, in real time, the prime causes of electrofusion joint failure: n JointManager is a free web-based system which securely manages butt fusion and electrofusion joint data online n RedBox is a revolutionary telemetry product fitted to a QBOX electrofusion control box that enables joint data to be uploaded in real time to ointManager n Cyclops is a rugged ‘point and shoot’ digital camera which clips to the frame of the QBOX. The user is prompted to take a photograph of the scraped, clamped and aligned joint. The photo is then sent across the internet to JointManager via RedBox Project managers can now verify joint integrity, and take any corrective action, before the pipe is buried. Responding to feedback from utility and contractor clients, ControlPoint is launching a joint analysis service. Real time data collected from RedBox-equipped electrofusion control boxes will be reviewed by Fusion’s PE experts to identify joints that don’t comply with standards set by the client. The client can be alerted by SMS or email to non-compliant joints. The result? Fewer costly joint failures,

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> Fusion Cyclops photo highlighting good electrofusion practice


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UTILITY BUSINESS

INNOVATION IN THE SUPPLY CHAIN

INNOVATION IN THE SUPPLY CHAIN - CASE STUDIES

Electricity And Gas Location Enquiry System (EAGLES) Third party damage to apparatus is a significant source of disruption and danger to energy sector workers and members of the public, and can result in utility companies incurring serious losses, both financially and reputationally. Advanced warning of potential threats can be a critical trigger for taking targeted action to prevent damage, such as site supervision or offering focussed guidance to third parties. National Grid currently receives hundreds of enquiries every week concerning activities that may affect their assets. These enquiries are assessed and dealt with by a dedicated team, who evaluate the enquiries against the gas distribution network, high pressure gas transmission system and the electricity transmission network. The high volume of enquiries received, and the requirement to respond in a consistent, comprehensive manner across disparate asset types, makes it difficult to implement a manual process to deal with enquiries in a timely and accurate manner. GL Noble Denton, in collaboration with National Grid, has implemented the EAGLES system (Electricity And Gas Location Enquiry System) to allow an appropriate response to be automatically generated and provided to third parties in a timely manner, while flagging activities judged to pose a potential high risk to apparatus for manual assessment. EAGLES is a web-based system that allows third parties to specify the details of proposed works via an intuitive user interface. The information provided is then passed to an expert system which incorporates National Grid’s damage prevention rules and policies. These rules dictate which activities are determined as likely to pose a risk to apparatus, based on the type of activity and its proximity to that apparatus. Once the expert system assessment has been applied, the third party enquirer receives an email response containing further instructions, guidance relevant to the activities specified and scaled asset location maps covering the area affected by the proposed works.

Software for Utilities Maintenance Workflow Management Corona is workflow software which increases the company-wide performance of organisations with field-based teams. In some businesses it has saved hundreds of thousands of pounds within the first year of use and is revolutionising profitability, raising staff morale and radically improving the overall business performance of companies. Now its inventors, Lightsout Computer Services, have delivered a superior product. Corona 2012 meets many of the needs included in the Government’s Highways Maintenance Efficiency Programme (HMEP). The new system further reduces: n project timescales n private and public sector costs n public inconvenience and frustration n inaccurate decision-making and incorrect assumptions. Corona 2012 minimises or eliminates time lags between tasks, dramatically reducing the length of the overall project, sometimes from a week to a matter of days which minimises public nuisance and traffic delays. By automating roadworks projects, its workforce and the materials involved, Corona 2012 enables management to focus on weightier issues. The areas of automation log any manual intervention to create additional intelligence which is channelled towards future projects. Downtime owing to severe weather, sickness, flooding or any other type of unforeseen event need not represent lost revenue. Corona 2012 recalculates resources and timings producing new start dates or reassigning to other personnel enabling project continuity. Corona users have commented that the software is so well attuned to the needs of the utilities and highways industries that it was almost as if the software had been designed specifically for them. Building on the precedents set by its predecessor, Corona 2012 adds innovative improvements to functionality which then go on to have a significant positive effect on cost savings and efficiency levels.

The Corona product won the 2010 Bright Sparc Awards for its innovative use of technology in both traditional and complex industries.

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SBGI Utility Business Winter 2011

UTILITY BUSINESS

INNOVATION IN THE SUPPLY CHAIN

Supply Chain Partnership: Collaboration Breeds Innovation As part of the Network Construction Alliance, a five-year framework to deliver essential infrastructure investment for United Utilities in the North West, Balfour Beatty Utility Solutions was presented with an 18% efficiency challenge for the contract. Recognising that a challenge of this extent could only be overcome by engaging the whole supply chain for the project, which would be responsible for delivering approximately £250m of the projected turnover of £500m, Balfour Beatty set up a supplier’s ‘Dragon’s Den’-style event to encourage a culture of innovation and knowledge sharing. It was during one of these events that the idea of producing booster pump houses off-site was presented, with Bailey Offsite being selected as the company with the best cultural fit for both Balfour Beatty and United Utilities. Over 50 booster pump houses, which are used to increase water flow for local residents in areas of low pressure, were to be used on the project. Because these areas are usually remote and in challenging terrain, both geographically and for environmental reasons, the chance to build prefabricated buildings off-site would offer significant cost, time and impact reductions, both for the environment and the local community. The first opportunity to see the benefits of building these units off-site came when the team had to deliver a booster pump to the small village of Slaidburn, Lancashire in March 2011. Working in collaboration, United Utilities, Balfour Beatty and Bailey Offsite developed a design which could be built in a factory. Given the harsh winter experienced in 2011, this innovative, yet relatively simple idea proved to be invaluable to ensuring schedules could be achieved, as conventional techniques would have proven impossible to deliver. In particular, the building needed to be clad in locally-sourced stone to satisfy planning conditions. Building in a clean, dry, indoor environment allowed the team to use innovative cladding techniques, further cutting down on build time. The result of using this method was that time on site was cut to just 21 days, from the usual 55. Given the weather conditions at the time, it is unlikely that even this standard schedule would have been met, but building off-site meant harsh weather conditions became irrelevant. This resulted in significantly less disruption to local residents, both from the construction itself and from site traffic. Furthermore, because of the removal of the need for heavy plant and other construction material, environmental impact was drastically reduced and the site was considerably safer for workers, with no safety incidents reported. Finally, the overall project cost was reduced by 10%, and the costs of the procurement elements reduced by up to 30%. These savings can be improved upon even further in future projects, as the benefits of standardised products and procedures are realised, as opposed to treating each construction as bespoke. Colin Kelly, Director of Gas and Water at Balfour Beatty Utility Solutions commented: “This project shows that technical innovation is only one aspect of what we collectively call ‘innovation’. Equal priority must be given to creating a culture in which innovation can thrive and putting in place innovative processes for carrying out work. Only by addressing these three tiers of innovation in unison – technical, cultural and process – will the industry be able to deliver the step changes required over coming years.” “Balfour Beatty Utility Solutions were the first supplier to come forward with an idea for a supplier association, and this project has not only delivered significant benefits for the booster pump programme, but the concept proven through this project will now be rolled out to other programmes at UU.”

For more information on any of these systems contact details are below: Keyhole Technology for Gas Mains Sophie Stanhope, Synthotech 01423 816071 sophie.stanhope@synthotech.co.uk

Software for Utilities Maintenance Workflow Management Rachael Bean - For further information and to book a free demonstration, 08450 554455

Asset integrity of Electrofusion Pipe Jointing Nick Mark, ControlPoint 07918 720666 nmark@fusiongroup.com.

Supply Chain Partnership: Collaboration Breeds Innovation James Merrylees, Balfour Beatty Utility Solutions, 0114 232 9562 james.merrylees@bbusl.com

Electricity And Gas Location Enquiry System (EAGLES) Neil Slater, GL Noble Denton 01509 282324 neil.slater@gl-group.com 14


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INNOVATION IN THE SUPPLY CHAIN

TACKLING OUR ROADS INNOVATION IN THE SUPPLY CHAIN - CASE STUDIESDISRUPTION // WATER ON DRAGONS 2011

UTILITY BUSINESS

Water Dragons 2011 With the water industry regulator, Ofwat, placing ever greater emphasis on efficiency, water companies recognise that innovation is fundamental in delivering continued profitability for shareholders. In turn, innovation can give water industry contractors, product manufacturers, consulting engineers, distributors and service providers a significant competitive advantage over their competitors. It is against this background that four years ago SBWWI – the water and waste water industry trade association – established Water Dragons. Based loosely on the prime time television programme, Dragons’ Den, Water Dragons gives eight innovators the opportunity to pitch their product, service or process to four senior water industry executives. After a ten minute presentation, the Water Dragons have twenty minutes to cross-examine each innovator, the focus being on the business case for each product and the impact it will have on improving water company performance. As well as having the opportunity to win the prestigious Water Dragons trophy, the innovators also receive invaluable feedback on the strengths and weaknesses of their proposition.

The indications are that Water Dragons 2012 is already to set to be even more hotly contested. The full list of entrants was as follows - UK Drainage Protocol - The Drainage Hub, Morrison - The Water Siren, Clancy Docwra - Electrofusion Detection Clamp, GPS - Excel 3c Pipe with integral Towing Head, Kobus - Pipe Puller, MeterCheck – Metercheck, Fusion Provida – RedBox Electrofusion Joint Integrity, 3M - In-situ lining of Lead Service Pipe

Water Dragons 2011 was sponsored by Saint Gobain PAM. This years Water Dragons were: Martin Kane, Severn Trent Water; Richard Price, Southern Water; Darrell Griffith, Yorkshire Water; and Viabhav Tyagi, Anglian Water. John Batty (Bluejohn Marketing) who developed the original concept acted as compere and facilitator. The eight shortlisted entries were clustered around two main areas: lead pipe replacement, and asset integrity. The quality of presentation was exceptional. After much debate, the Water Dragons were unable to split 3M’s in-situ lining system for lead service pipes, and Kobus’ pipe puller. They were jointly awarded the award for Best Innovation.

> Joint Winner 3M receive their award

Joint Winner KOBUS Pipe Puller The innovative KOBUS Pipe Puller has been designed to solve a key problem of water companies and their contractors. It replaces lead or leaking water supply pipes with a new MDPE pipe in a single action without the need for a trench to be dug. This not only reduces the time and cost of the work but also ensures that no damage can be caused to other underground cabling or services in the process.

> Kobus

The KOBUS Pipe Puller works by feeding a cable through the pipe to be removed and filling the pipe with special formula Kobite. The cable is attached to the new MDPE pipe and as the old pipe is pulled out, the new pipe replaces it.

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SBGI Utility Business Winter 2011

UTILITY BUSINESS

INNOVATION IN THE SUPPLY CHAIN

PhD Examining Innovation in Utilities Gerard Duff is a PhD Student from Leeds University working on a research project examining innovation in the Utilities Industry. Almost half way through the project now, Utility Business caught up with Gerard to find out a little bit more. Gerard is funded by the Engineering and Physical Sciences Research Council working on a project that was jointly set up between Leeds University and Balfour Beatty Utility Solutions. The focus of the research is an in-depth study into how Balfour Beatty approaches innovation and how industry more generally incorporates innovative ideas and practices. The study is three years in duration and initially Gerard took time to understand the industry feeling it is important to have a clear understanding of context and environment before delineating and assessing a specific focus, in this case understanding utilities innovation. To help him in this endeavour his approach has included involvement with a variety of stakeholders including interviews with industry regulators as well as key individuals within Balfour Beatty. He has found the sector intriguing, made up of many different aspects that have shaped and influenced the way in which challenges have been approached and overcome. It is often forgotten that the utilities sector provides the means by which every single one of us can function on a daily basis. Modern society relies on it to keep our lights on, keep our homes heated and water to drink, bath and grow food stuffs, yet it is a little bit taken for granted. If it was not for advancements in the utilities sector, it could be said that we would still be reading by candle light or cooking over an open fire. Much of the first year of the study has been spent understanding what innovation actually is - not an easy task, says Gerard. In fact, he concludes that broad sweeping definitions of innovation often lose their meaning and as a result are rendered useless. He believes that although broad definitions have their merit, they subsequently have to be bolstered with further refined sets of goals and objectives, specific to a particular organisation, department or market, i.e. context specific. Gerard feels privileged to be working on this highly relevant area of research at such an important time. Innovation has been seen as a means to help UK plc

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pull its self out of the current global recession. There are downsides of course, one being that innovation is often seen as a cure for every problem and often its complexities are misunderstood, Gerard explained, that already his work is seen to be extremely relevant to industry regulators who are continually pushing the boundaries to create greater and greater sources of technical innovation, yet the missing ingredient appears to be the management of the innovation if it’s potential is to be realised to produce the game changing advancements sought. An immediate contribution from the research is the need for a definition of innovation within the utilities sector, this he feels could help give wider scope to innovative practice and assist with long term planning.

His research has also identified those drivers that lie behind innovation in the utilities industry, including cost, safety, process, gaining competitive advantage as well as regulatory requirements. When posed with the question can someone be taught how to innovate or is it innate in the individual, Gerard replied ‘I feel it is a bit of both, in some ways it is like the entrepreneur, some people are natural entrepreneurs that can spot gaps in the market, however the skills required to be an entrepreneur, such as how to start up a company, can be taught in the same way as individual can be taught the skills to develop an innovation’. Asked to site an ‘innovative champion’ from any sphere Gerard gave Google as a good example. Their innovative practices and cultural perspective is excellent, he said, they are open to change, open to innovation, they are proactive and flexible, but then the market they are operating in dictates that they have to be. He concluded by reminding me that there is a very fine balance between being innovative and being radical and this is a balance companies need to be aware of. Although the utilities industry is a low risk sector for investors, innovation might well be seen as a risk.


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Kindly sponsored by GL Noble Denton and Balfour Beatty with special thanks to Phil Brown, Stuart Godfrey and David Morgan, Chairmen throughout the day.

www.utility-business.org > Chris Barton, DECC

> James Grayburn, Ofgem

IGEM and the Utility Networks Division of SBGI jointly organised this year’s annual one day Gas 2011 Seminar. Around 90 delegates gathered at the Sir Denis Rooke Building, Holywell Park, Loughborough and gained insight into what is currently shaping the UK Natural Gas Industry at this highly anticipated industry update. An extremely positive message came out of the event, not only that of the significant role gas and will continue to play in the UK’s future energy mix but also the diverse and exciting work going on in the sector. The breadth of topics covered at the event and depth of knowledge illustrated served to highlight just what a dynamic industry this is.

Summary Points Gas will continue to be a crucial part of the energy mix both in energy and production of energy. In fact as far out as 2050 gas will still represent around 72% of the energy mix, even with significant renewable plans. Shale gas could be a game changer. Global recoverable resources have huge implications for world gas markets and could change the way gas is viewed on the planet, though the environmental lobby still pose a number of concerns about its development. Much work has already been done on Carbon Capture and Storage and much has been learnt but it is an expensive business therefore funding will be critical to its success. The limited framework in place is not helping investment questions. In gas distribution the new regulatory framework is imposing new requirements on the network companies and requiring them to think very differently about their businesses. This should be embraced and

INNOVATION IN THE SUPPLY CHAIN - PhD IN INNOVATION // GAS 2011

Gas 2011 > Professor Mike Stephenson, BGS

> Jim Ward, National Grid

used as a lever to improve, though may require cultural change. The environmental challenge and carbon targets are demanding greater innovation and necessitating a shift in mindset in the whole industry. In gas networks we are seeing innovations such as biomethane injection into the gas grid, hydrogen blending, microgeneration, fuels cells and improved methods of working practice. By 2020, 26 million British homes will be smart enabled, transforming the energy supplier’s relationship with the customer and the customer’s relationship with energy. Consumers will benefit in lots of ways from the smart world but these improvements will only be delivered if the legal, regulatory and standards framework supports innovation and competition. Heating and hot water is responsible for 27% of total UK carbon emissions and is increasingly prominent in policies and legislation to reduce emissions and combat climate change. Key policy include Feed in Tariffs - a scheme that pays people for creating their own “green electricity”, Renewable Heat Incentive, a similar measure for heat, and Green Deal, due to launch in 2012 which will encourage people to take measures to make their homes more energy efficient by providing finance upfront by way of a loan.

Exhibition

> Tony Hetherington, HSE

> Mark Horsley, Northern Gas Networks

> Stewart Myles, GL Noble Denton

> Paul Deniff, Scotia Gas Networks

> Sian Gardner, British Gas

> Chris Yates, HHIC

> Matt Eastland, British Gas

> Fiona Barbour, Phoenix Natural Gas

> Huw Clarke, Cuadrilla

> Jonathan Chapman, Balfour Beatty

The day provided a topical supply chain exhibition showcasing the event sponsors along with exhibitors Radius, Lowri Beck, GMI, Denholm Pipecare, Steve Vick, Expedient, UKSTT, Sperryn & WASK, Corrosion Services, Expedient, Develop and Sick.

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SBGI Utility Business Winter 2011

UTILITY BUSINESS

SIEMENS METERING SERVICES INCREASES EFFICIENCY OF ENGINEERS THANKS TO BYBOX Pre 8am deliveries ensure engineers start work with right parts Engineers who service energy meters in millions of homes and businesses in the UK are working more efficiently because ByBox, the UK market leader in field service solutions, is ensuring they start each day’s work with the right parts. Siemens Metering Services, a specialist division of Siemens plc, installs, maintains and reads meters at 14 million premises and is the leading independent expert provider of metering services in the UK. With so many homes and businesses depending on the reliability of the meters to keep accurate track of their electricity and gas usage, it is clearly vital that engineers are not held up waiting for essential spare parts to be delivered before they can complete a job. Siemens Metering Services has found that ByBox’ unique approach of delivering parts in-night, pre 8am to a network of 18,000 drop boxes at 1,350 locations across the UK ensures that no engineer is left waiting around for a vital part to arrive in the middle of a day’s work. Not only has the productivity of its field service engineers increased since it outsourced its stock management to ByBox, but Siemens Metering Services now no longer has to retain its own warehouse operation, thus directly saving on costs as well.

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James Townsend, Head of Contract Management, Siemens Metering Services, said: “We met with ByBox and together came up with a solution that worked for us. ByBox provides us with the results we need with regards to both meeting our Service Level Agreements and increasing efficiency for our customers. We are very happy with the flexible solution that ByBox has helped us put into practice.” Under the arrangement, Siemens Metering Services continues to manage its own ordering system, working out what parts an engineer should have for their list of jobs and then ordering those into the ByBox system. ByBox delivers the parts in-night, pre 8am and engineers travel to the nearest convenient drop box to pick them up. Reliability is also key and ByBox has an enviable first time delivery success rate pre 8am: in 2010 it was 99.63% despite spells of the worst winter weather for decades which caused havoc for many traditional carriers. Founded in 2000, ByBox has gone from strength to strength, extending its operations into the Republic of Ireland, France and the Benelux countries, and more recently launching into the internet delivery market.

Do you have a last minute technical training requirement? Call 080001133 00 or visit lastminutetechnicaltraining.com to find out how we can help

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BYBOX // LEADING VOICE

LEADING VOICE

Marwyn Capital Investments acquired the gas connections business and independent gas transporter, Fulcrum, in July 2010 from National Grid. Now publically owned, the business has been through significant restructuring - including a new corporate identity and move to new premises - to focus the business on its core connections service and delivery of an improved customer experience. Utility Business caught up with Chief Executive Officer, John Spellman, to find out a little more about the new Fulcrum. A chartered accountant by profession, John Spellman has spent his working life in the upstream and downstream oil and gas and utilities industries. He has had an extremely successful career which is clearly more than just a job - he exudes a tangible passion for the sector. Having spent 20 years living in Canada buying up oil and gas companies, he was then head hunted back to the UK. A self declared number cruncher John also possesses a keen organisational eye, demonstrated by a history of taking small companies and successfully growing them. These experiences and skills see him well placed for his current challenge as Chief Executive Officer of Fulcrum. The acquisition of Fulcrum came about following a chance conversation over lunch with an industry colleague, Mark Watts of Marwyn Capital. “I recognised that Fulcrum was a jewel”, explained John,”but simply because it existed within National Grid. Within this larger entity, it did not get the same level of management attention and main board consideration that it would existing on its own.” In July 2010 Marwyn Capital Limited acquired Fulcrum in a reverse takeover from National Grid plc, and a new management team was put in place. “The past 12 months has been very interesting – good and bad!” shared John. “There were no real surprises. We knew what to expect when we took the

business on. Fulcrum has never made money, never been profitable but we will not fund continued losses. Our objective is to change the way in which Fulcrum operates and turn the business into a commercially focused, profit making company, earning a reasonable return for our efforts and for the shareholders’ investment.” Interestingly John feels economic conditions are not currently inhibitive for Fulcrum. He is optimistic and feels there is sufficient (in fact plenty of) connections work out there. Fulcrum has national field personnel, a legacy of its National Grid heritage, which makes it genuinely unique and places it in a strong position. Fulcrum is exceptionally well placed to take advantage of the major opportunity smart metering rollout will bring and John expects to be a part of this over the next 1-5 years. Fulcrum designs and delivers domestic, industrial and commercial gas connections, disconnections, meter installations, outlet pipework and multi-utility works nationwide. As part of the first phase to reach an initial set of objectives a number of changes have been put in place, explained John. “First and foremost it is about getting the basic business – gas connections – right. It is about working efficiently and satisfying customers. We are not there yet, but did not expect to be. A cultural shift is required and that does not happen overnight.” Among key business changes is the placement of Business Development Managers across the country whose remit is specifically to drive sales, improve customer interaction and deliver improved response times. Significant investment has been made in new IT and telephone systems to support the new service delivery model. New procurement processes are in place to support the design, planning and scheduling

undertaken within Fulcrum, with the physical work now being outsourced to Carillion, McNicholas & Turriff covering three regions. The acquisition included 360 staff and the new Fulcrum brought with it a different way of working, which, John explained, they were keenly aware of. “People find change difficult. Some embrace it, others find it harder. It is so important to be clear about why you do things and what you want to achieve and to hear what people have got to say about it. You must be fair and reasonable and take people with you, not dictate. This can be achieved through selecting and building the right management team (John has hand picked the team purposefully) and by building and communicating a clear and cohesive strategy. It is also about managing the ethos carefully and fostering the right management philosophy.” Fulcrum is now settled into its new offices in Sheffield across three floors (20,500 square feet) of comfortable working space which offers an improved environment and good proximity to major transport links. It has launched a new logo and is undergoing a period of re-branding with a new website unveiled in December 2011. The new identity was developed to reflect the rapidly changing Fulcrum business and to get the message across to its customer base that this is not the old Fulcrum, that it has an entirely new way of operating – probably one of the biggest challenges facing the company, shared John. “The new brand is contemporary, vibrant and its interlinking bands represent the integrated business offering as a multi-utility connections specialist. We are committed to delivering market leading customer service within utility connections and these changes mark the future of the business and the way we position ourselves.”

Our thanks to John Spellman for generously giving up his time for this interview and to the Fulcrum team for putting the arrangements in place, providing images etc.

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SBGI Utility Business Winter 2011

Winter Outlook 2011/12 This article highlights the annual Winter Outlook process undertaken by National Grid. Like the last three years, this year’s process consisted of two parts. In July 2011, National Grid published its Winter Consultation Report 2011/12: this provided a review of last winter and set out preliminary views and analysis. The Winter Outlook Report was published in October, incorporating responses from market participants, along with new analysis.

Summary On the electricity side, notified and assumed generation availability is close to last year, but with a high likelihood of 3 GW of exports to the continent margins could be lower during a 1 in 20 demand period leading to an erosion of operating reserves. However, under such conditions system warnings would be issued ahead of time and it would be expected that the market would respond. For gas, the demand from power generation is forecast at the low end of the range due to current fuel prices indicating coal running at baseload during the winter. This is forecast to limit levels of demand side response, since the majority of this is provided by power generation. Providing there are no supply losses, under average conditions forecast supplies should be sufficient to meet demand, under severe conditions some level of market response, either reduced demand or increased supply, would be required in order to balance supply and demand.

On the supply side the continued decline of the UKCS is offset by higher Norwegian imports, which were impacted by outages last winter, and slightly higher LNG imports. The assumed level of non-storage supply for demands above 400 mcm/d is 374 mcm/d, this forms the non-storage supply component of the GBA trigger level. Storage deliverability is marginally lower than last winter, although this should increase as new facilities are commissioned during the winter. The 2011/12 safety monitor requirements are similar to 2010/11. Whilst supplies appear sufficient to meet forecast levels of demand there is little room for complacency as external events such as interruption to continental supplies, either those from Russia or North Africa, outages on the Norwegian system or higher than anticipated LNG diversions to Asia, could create a tighter supply demand balance. For this reason supply performance in monitored throughout the winter to ensure the assumptions remain valid.

Cold Spell Analysis for Severe Conditions 550 500

Electricity

• Forecast Normal Demand Levels - 55.8 GW down from last year’s actual peak of 59.7 GW

450

mcm/d

As mentioned above there is a high likelihood of exports through the interconnectors at times of peak demand. This is due to GB forward prices being lower than European forward prices, partly because of the German nuclear closures this winter.

400 350 300

Forecast Average Cold Spell Demand levels – 57.9 GW

250

Forecast 1 in 20 Demand Levels - 59.5 GW

200

Generator Capacity – 81.3 GW up from last year’s 77.7 GW

Assumed Generation Availability (Not including Interconnectors) – 61.3 GW

Peak day NSS

Storage

Very cold week Supply Range

Protected Demand

Very cold month Other Large Loads

Gas

Further Information

Peak gas demand forecast is 474 mcm/d, this assumes relatively low gas for power generation hence reduced options for any demand side response. There is little change in the winter long demand forecast for 2011/12 except for lower gas for power generation.

The 2011/12 Winter Outlook Report is available at: http://www.nationalgrid.com/uk/Electricity/SYS/outlook/

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Very cold winter Large Loads DSR

For a detailed view of the supply/demand balance as the winter progresses: http://www.nationalgrid.com/uk/Gas/Data/GBA/


GAS STORAGE OPERATORS GROUP BGE Ltd (Bord Gais Eirann) Centrica Storage Cheshire Cavity Storage Group Ltd EDF Trading Gas Storage Limited E.ON Gas Storage UK Ltd Eni Uk Ltd Gateway Storage (Stag) Halite Energy Group INEOS Enterprises Ltd Infrastrata Scottish Power Gas Transportation Hatfield SSE Hornsea Ltd Star Energy Group plc Statoil Storengy WINGAS Storage UK Ltd DISTRIBUTION & TRANSMISSION EQUIPMENT GROUP Aeon Pipe Systems Ltd AVK UK Ltd Caldervale Technology Ltd Crane Ltd t/a WASK Drain Center Fiorentini UK Limited Fusion Provida Limited Gas Measurement Instruments Ltd. George Fischer Sales Limited GPS nrg2 PLCS Limited Radius Systems Ltd Sarco Stopper Limited Syddal Engineering Limited Synthotech Special Products Limited Tyco DATA & COMMUNICATIONS MANAGEMENT Alcatel Lucent Arqiva Electralink ELEXON Ferranti Computer Systems Hewlett Packard Logica UK Ltd Sensus Conservation Solutions Serck Controls Ltd Utiligroup Ltd NETWORK ENGINEERING GROUP AMEC Group Limited Balfour Beatty Utility Solutions Bureau Veritas Carillion Utility Services Clancy Docwra Limited

Enterprise plc Fulcrum Future Energy Group GL Noble Denton Morland Utilities Ltd Murphy Pipelines Limited National Grid Northern Energy Connections Ltd Northern Gas Networks Ltd P N Daly Limited PMI Denholm Squire Energy Ltd Veolia Water Outsourcing Ltd METERING SERVICES GROUP EDF Energy Customer Field Services Energy Assets Ltd (was Pulse 24) E.On Energy Services G4S Utility Services Ltd Lowri Beck Services Ltd OnStream Providor Siemens Metering Services Tuffentech Services Ltd METERING TECHNOLOGY GROUP

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WINTER OUTLOOK 2011/12 // MEMBERSHIP DIRECTORY

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SBGI Utility Business Winter 2011

Viewpoint

Are Energy Distributors Meeting the Re

In the UK’s energy distribution sector, power and gas network asset owners are natur environment regulated by Ofgem.

Since privatisation commenced in the 1980s the regulatory landscape facing the sector has evolved dramatically with developments across many areas including corporate ownership, structural change, the development of different operating models and a concerted focus on driving greater levels of efficiency across capital and operational programmes of work. The current DPCR5 and GDPCR review periods are a clear example of this with power and gas distributors today facing an increasingly testing performance challenge. With industry data indicating that the difference between the upper and lower quartile performers in the sector can be anywhere between 20-30%, operators are now being placed under greater scrutiny than ever before to reach best-in-class levels of efficiency that have already been achieved by some players within the market. As a result, operators are looking at a variety of areas to determine where improvements can be made that will help them outperform these regulatory settlements. The opportunities are there for operators to make efficiency savings in both core operational issues and in their future investment decisions. From an operational perspective, some of the areas where operators can drive improvements include their approach to commercial and contract management, the way they measure network performance and health, their strategy for getting more from ageing assets and their ability to benchmark the efficiency of programme delivery. When it comes to future investment decisions, the emergence of smart-grid technology, external pressures to deliver a low-carbon future and changes to the cost of capital are all areas that afford operators the opportunity to drive efficiency savings and receive incentive benefits.

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Responding to a new challenge… Eighteen months into DPCR5, and with RIIO-GD1 due to commence in 2013 with an eight-year framework, operators must ensure they are on course to meet the targets associated with these settlements and that their businesses are well equipped to respond as Ofgem moves toward the RIIO (Revenue = Incentives + Innovation + Outputs) framework for future determinations. As they address these core questions three key areas they need to focus on to help ensure their businesses are set up for success include: Gather accurate cost data: Accurate volumetric and unitised cost data is crucial when it comes to assessing the true cost base of an energy distributor and in gauging how well work programmes are managed and delivered. Historically, utility companies have struggled when it came to collating these metrics to the level of detail required to help validate, compare and challenge what individual modules or units of work are costing them. With the new RIIO model placing more emphasis on innovation to deliver a sustainable energy network that represents value for money for both existing and future consumers, energy distributors will need to ensure that output measures reflecting true performance can be consistently applied across multiple work programmes. A “line of sight” between delivery and regulatory measures will be the cornerstone of any successful operator and maintaining highquality asset records with associated unit cost library and engineering standardisation in work modules will be fundamental in helping to achieve this step change.


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Develop and adhere to a robust asset management plan: An organisation that holds itself accountable when it comes to following a clear asset management plan that includes end-to-end commercial processes and change control is one that will have the appropriate governance in place to efficiently manage capital and operational work programmes. Typically, many distributors look to the execution phase of delivery for efficiency improvements, and whilst much of the scope to do better can be found in this phase of the delivery cycle, unless improvements are made in the asset management and procurement organisations, the overall benefits will always be constrained. Scheme planning and asset condition monitoring will also be key enablers for delivering sustained capital and operational efficiencies. Introduce a commercial edge to programme management: Establishing commercially-led programme management that drives earned value, aligned to robust cost control mechanisms and transparent cost assurance is now being recognised by energy distribution operators as a key part of any successful delivery organisation. With this approach the Programme Management Office (PMO) should act as a central information hub where programme and project status are reported and health checks are maintained. At the minimum level the PMO should collate, interrogate and report on scope, schedule (time) and cost, however as organisations evolve and mature the PMO remit can also be extended to encompass commercial, SHEQ (Safety, Health Environmental and Quality), training, recruitment and even the programme or project management delivery function itself, including gateway governance. The PMO is typically seen as providing holistic governance of a particular programme of work, e.g. capital

VIEWPOINT

egulatory Challenge? Ian Harding, Head of Power Distribution, EC Harris

programme, but can be incorporated at the Enterprise level to provide additional assurance. Building integrated plans that are baselined and utilised across the business to deliver interrelated programmes of work is essential in providing transparency for the PMO to effectively operate and ensure that programme delivery is appropriately supported. This transparency and governance also assists with enabling effective contract management and in ensuring that procurement and supply chain strategies are aligned to regulatory incentives, the long term asset management plan and unit cost measurements.

Looking to the future‌ The introduction of the RIIO model across both gas and power distribution will raise new performance challenges for network operators, but it could also provide a framework against which they can ultimately transform themselves into leaner, more productive organisations. The new RIIO model will provide operators with a longer-term incentive-based price control within which innovation is rewarded, and it will also facilitate their focus and attention on outputs that can be measured and which can be shown to offer real value for money to consumers. With new technology and future smart network development already underway, operators could be on the cusp of a new era – stripping out any business inefficiencies today could play a key role in helping them to generate the capital required to invest in their network in a sustainable manner and in a way that will help them deliver even more value to all of their stakeholders.

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