Delivering outputs in innovative and lower cost ways REORGANISING RENEGOTIATING REENGINEERING

Transcription

1 August 2013 REORGANISING RENEGOTIATING REENGINEERING Delivering outputs in innovative and lower cost ways Opportunity through innovative approach to planning and delivery Enabled by new process driven organisation

2 Ofgem best view of Transmission capex circa 2.5bn per annum Load-related outputs from existing assets UK Transmission E lectricity transmission system Gas transmission system 1.5bn Load 1.5bn Non-load 1bn Substation Network development process System operator requirement Establish portfolio Select option Develop and sanction Execute project Review and close project Scope Build Condition assessment high definition video LineScout robotic inspection platform Steelwork recovery pilot Asset replacement Additional/future opportunities Significant opportunity replace repair refurbish Commercial solutions Contractual constraint management Demand response Additional outputs from existing infrastructure Smartwire Wide area monitoring New technology and flexible solutions Protection switchbox Mobile bays

3 August 2013 REORGANISING RENEGOTIATING REENGINEERING Developing a model to outperform UK operating model changes Gas distribution model launched in 2011 Transmission model launched in 2012 Key features Separation of Transmission Owner and System Operator Separated regulatory businesses reflecting the nature of regulation Dedicated RIIO delivery function Process oriented structure four core processes delivering customer output and value Capabilities for success Three critical capabilities for success under RIIO: Stakeholder management Contract management Process excellence

4 Core Regulated Businesses Transmission Gas Distribution EU Business Development System Operator Transmission Owner CCS UK RIIO Delivery Emergency Response and Repair Network Development Maintain Operate the System Market Operation Transmission Network Service Electricity Transmission Asset Management Gas Transmission Asset Management Capital Delivery Commercial Network Strategy Customer Operations Operations Strategic Partnerships New Interconnectors UK Offshore BritNed IFA Grain and Metering LNG Grain Metering UK Business Change SSR UK Regulation Finance and Shared Services IS Legal HR Corporate Affairs Process excellence Business focused around four end to end processes: Emergency response and repair Network development Maintain Operate the system Benefits Provides clear accountability for our end to end process performance Provides a focus on root causes and the removal of waste Provides opportunity to optimise process across all functions Enables us to better understand and enhance customer experience Progress Significant benefits delivered in Gas Distribution Number of opportunities identified in Transmission Driving continuous improvement across entire organisation

5 August 2013 REORGANISING RENEGOTIATING REENGINEERING Working with our partners to meet customer needs Two year gas distribution transformation journey Process-based operating model Improved information capabilities Flexible workforce terms and conditions

6 Customer focus is crucial Total Gas distribution RIIO allowances (Ofgem best view, 9bn controllable spend over eight years) 11m Circa 11 million customers 700,000 More than 700,000 direct customer interactions each year Improved customer experience + reduced costs = added value Capex 1.2bn Repex 4.2bn Opex 3.6bn Over half of all capex and repex now contracted with two strategic partners Gas distribution strategic partnerships 400m 8yr 3bn 400 million annual spend eight year partnerships more than 3 billion total spend Manchester Liverpool mains replacement new connections flexible labour provision Birmingham London National Grid s largest ever contracts Strong RIIO alignment Sharing of above target incentives e.g. customer satisfaction and leakage Contracted for outputs Fixed eight year prices Benefit: further potential contract outperformance and encouraging partner innovation Target price improvements 20% More than 20% like for like reduction Benefit: leverage savings through eight year workload commitment Improved planning Take advantage of eight year visibility Benefit: cost savings and better customer experience Labour flexibility Seasonal workforce flexibility Additional workforce during non-seasonal peaks Benefit: cost savings and enhanced customer satisfaction Reduction in alliance partners (six to two) Reduced hand-offs Increased consistency of processes Benefit: full advantage of scale and of the competitive bidding process Success criteria leverage contract management skills fully balance partnering with contractual responsibilities take advantage of labour flexibility never lose sight of the customer

7 August 2013 REORGANISING RENEGOTIATING REENGINEERING Maximising our incentives Consistent feature of UK price controls Encourage output delivery and behaviours to benefit consumers Clear areas and outputs for utilities to focus on

8 Typical incentive structure Outcome for National Grid Cap X% Upside Sharing Factor Target Deadband Y% Downside Sharing Factor Collar Profit Loss Outcome for Measure of performance (e.g. cost) Potential upside Gas Distribution Potential downside Gas Distribution Stakeholder engagement Customer satisfaction Complaints Shrinkage and leakage Capacity Gas Transmission Max + 52m Min - 52m Transmission Transmission Customer and stakeholder satisfaction survey Stakeholder engagement Electricity Transmission Environmental discretionary award SF6 leakage Balancing services incentives scheme (BSIS) Energy not supplied Renewable generation forecasting Gas Transmission Residual balancing Demand forecasting New project permits Entry and exit capacity Transmission support services Greenhouse gas emissions Maintenance Electricity Transmission Max + 65m Min - 65m Gas Transmission* Max + 42m Min - 77m *Not including permits, includes plausible range for non capacity SO incentives. Customer and stakeholder satisfaction Electricity transmission incentives Balancing services incentive scheme (BSIS) Measured via survey and complaints Cap/collar of +1%/-1% revenues p.a. Covers the next two years Retrospective from 1 April 2013 Cap/collar of +/- m per annum (p.a.) Reduced exposure to external factors Shrinkage and leakage Customer and stakeholder satisfaction Incentivises to minimise losses from the network Uncapped incentive, but subject to 63% totex sharing ratio Plausible range of +/- 19m p.a Cap/collar of +1.5%/-1% revenues p.a. Customer stakeholder satisfaction assessed via survey (+/-1%) Stakeholder engagement assessed by panel (+0.5%) Capacity Gas transmission incentives Exit and entry capacity Rewards effective estimation of gas usage Uncapped but graph displays reasonable assumption of performance Gains/losses subject to 63% totex sharing ratio Incentive value driven by minimising costs of constraint actions and maximising revenues from capacity products Cap/collar of 23m/- 70m p.a. Unless otherwise stated numbers are theoretical max/mins and do not forecast performance. They include National Grid s view of a plausible range for uncapped incentives and a plausible range for SF6 and energy not supplied, rather than a theoretical maximum. Figures stated are on an annual basis in 2013/14 prices.

9 August 2013 REORGANISING RENEGOTIATING REENGINEERING Delivering capital solutions at the lowest sustainable cost Six strategies to deliver lower unit costs 1 Alliance realignment 2 Contract management 3 Competitive contracting 4 Rigorous project development 5 Programme and performance management 6 Procurement efficiencies

10 Ofgem best view of Transmission capex circa 2.5bn per annum 5 Programme and performance management supported by good quality information systems Benefit: enable execution of contract management d 1.5bn Load 1.5bn Non-load 1bn 1 Alliance realignment clear client and contractor accountabilities clear responsibility for development and scope of projects 6 Procurement efficiencies Demand driven Specification World class supply chain Benefits: order the right quantity at the right time deliver fit for purpose equipment leverage scale and international market e.g. Shanghai procurement office e.g. international cable suppliers Benefit: close control of scope and cost 2 Contract management skills development commercially rigorous Benefit: improve contract performance 3 Competitive contracting base workload assigned regionally target over % of workload to competitive process Benefit: competitive base price and price tension North America 1 Europe 6 Asia 5 e.g. sourcing of supergrid transformers 4 Rigorous project development improve costing accuracy focus on scope Benefit: lowest cost fit for purpose scope Approximate breakdown of Electricity Transmission spend High voltage direct current Tunnels Transformers Protection and Control Other Overhead lines Cables Substation Switchgear

11 Cautionary statement Factsheets Important notice This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information with respect to National Grid s financial condition, its results of operations and businesses, strategy, plans and objectives. Words such as anticipates, expects, should, intends, plans, believes, outlook, seeks, estimates, targets, may, will, continue, project and similar expressions, as well as statements in the future tense, identify forward-looking statements. Furthermore, this document, which is provided for information only, does not constitute summary financial statements and does not contain sufficient information to allow for as full an understanding of the results and state of affairs of National Grid, including the principal risks and uncertainties facing National Grid, as would be provided by the full Annual Report and Accounts, including in particular the Risk factors on pages 176 to 178 of National Grid s most recent Annual Report and Accounts on Form 20-F. Copies of the most recent Annual Report and Accounts are available online at or from Capita Registrars. Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this document. The content of any website references herein do not form part of this document.