2011. UK Power Networks. All rights reserved

Consulting on our Business Plan

‘Critical Friends’ Stakeholder Panel

Session 1

4 October 2012

2

Safety and Housekeeping

• No planned fire alarms

• Emergency exits

• Fire assembly points

• Toilets

• Mobile phones

• Disclosure - we intend to record our findings and publish a report and our actions

3

AGENDA10.00 – 10.15 INTRODUCTIONS, WHO WE ARE AND WHAT WE DO

10.15 – 10.20 WHAT WE ASK OF YOU

10.20 – 10.35 THE ROLE OF THE STAKEHOLDER

10.35 – 10.55 LOW CARBON ECONOMY: OUR PATH TO INNOVATION

10.55 – 11.25 DISCUSSION – LOW CARBON IMPACT & THE ROLE OF THE DSO

11.25 – 11.35 COFFEE BREAK

11.35 – 11.50 WHAT IS RIIO? KEY TOPICS AND OUR INITIATIVES

11.50 – 12.10 FOCUS TOPIC: QUALITY OF SUPPLY

12.10 – 12.40 DISCUSSION – QUALITY OF SUPPLY

12.40 – 12.55 OPEN FORUM

12.55 – 13.00 NEXT STEPS

13.00 LUNCH

INTRODUCTION: VISION & VALUES

Matt Rudling, Director of Customer Services

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About UK Power Networks

• UK Power Networks is responsible for keeping the lights on for some 8 million customers - regardless of who they pay their bill to.

• As an electricity distribution company, we own and operate the network of cables and power lines that bring the electricity to your door.

• Altogether, there are 170,000 kilometres of underground cables and overhead lines and more than 130,000 substations.

• We employ over 5,000 people across our regions.

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UK Power Networks – What we do

We are an electricity distribution company –not an electricity supplier.

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Stakeholder engagement is at the core of our values

INTEGRITY Stakeholders can trust us to deliver their requirements and have confidence in our expertiseCONTINUOUS IMPROVEMENTCustomer and stakeholder experience driving continual improvement in our performanceDIVERSITY AND INCLUSIVENESS Being open to different opinions and balancing the needs of various stakeholder groupsRESPECT Stakeholders feel that we are treating their requirements and their opinions seriouslyRESPONSIBILITY Stakeholders regard us as a company that takes its social and environmental responsibilities seriouslyUNITY Stakeholders see us as an organisation that helps them achieve their needs – a help not a hindrance!

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UK Power Networks Critical Friends Stakeholder Panel

EDF EnergyMajor Energy Users(MEUC)

Citizens Advice

Southern Water

West Sussex NHS

Edward Pearce & Partners

Tandridge District Council

Premier Energy

Mott McDonald

Electrical ContractorAssociation

London Borough of HaveringHertfordshire Fire & Rescue ServiceUtility Partnership LtdEnglish HeritageEnergy Networks Association (ENA)Royal Borough Kingston Upon ThamesLondon Ambulance ServiceRedbridge CouncilEonNHSBritish Red CrossLondon Infrastructure (City of London)Major Energy Users Council (MEUC)Davis LangdonBritish GasCarbon Trust

Bernard Matthews LtdBritish Red CrossConstruction ISGEONCambridgeshire HorizonsElectrical ContractorsAssociationLondon Borough of HaringeySir Robert McAlpineKWD ConnectMervad Electrical ContractorsEssex County CouncilRSK Group LtdHaven PowerEssex County Fire and RescueSkanska Utilities

London Panel South East Panel Eastern Panel

We have surveyed our customers to better understand what they want from us

The key messages were:

• Keep electricity prices down (distribution charges make up 18% of the average household electricity bill)

• Reliable quality of supply

• Efficient response to power cuts (including information)

• Fast and customer friendly connections service

• Maintain and invest in the network

• Facilitate the low carbon transition

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What do our customers want?

• Feedback on how effective UK Power Networks’ initiatives are in addressing consumer issues/concerns

• Act as a 'sounding board' for new ideas

• Advise/draw attention to key issues of current or emerging consumer concern

• Raise matters of public or regulatory concern with UK Power Networks so as to ensure the company is addressing the issues in a pro-active manner

• Influence UK Power Networks strategic objectives and future investment plans

• Scrutinise UK Power Networks business plans to ensure that they are well-articulated and reasonable

• Support and facilitate joint-working between UK Power Networks and consumer groups

• Offer advice on any other issues that may be referred to it by UK Power Networks

Purpose of the Critical Friends’ Stakeholder Panel?

• Avoid assigning intentions, beliefs, or motives to others (Ask others questions instead of stating untested assumptions about them)

• Honour each party’s right to “pass” if he or she is not ready or willing to speak

• Allow others to express their opinions completely

• Make sure that the opportunities for input are evenly distributed

• Respect all confidentiality or anonymity requests that the group has agreed to honour

• Adopt a solutions-oriented approach

• Stay focused on the issue that is the subject of the agreement

UK Power Networks’ proposed ground rules for engagement

What we ask of you

• We will introduce the topics which we would like to discuss with you today and in the next two sessions

• We will ask you what you need, value and want• We would like you to comment on the issues that we have identified • We would like you to raise any additional issues that are important to you

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• Your views will inform and shape our business plan. • Your views will help us strike the most appropriate balance of

short and long term impacts on customers and investors.

WHY DO WE WANT TO ENGAGE WITH OUR STAKEHOLDERS?

Nawaz Ahmad, Head of Stakeholder Engagement

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The role of the Stakeholder

• Who are our stakeholders?

• How do we include their input?

• What difference does it make?

• How the Critical Friends Panel Works?

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Our Stakeholders

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We place special emphasis on:

• Understanding stakeholder requirements & preferences;

• Targeting engagement to the audience;

• Capturing feedback & proposing solutions to stakeholders; and

• Reporting back to explain what we have accomplished.

Our Engagement Principles

Desired Outcomes

Panel Engagement Timeline

To test our investment plan & help shape it

LONDON PANEL(4th Oct 15th Nov 10th

Jan)

To ensure we capture and act on your issues

Robust Investment plan Well Articulated and

Justified

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Critical Friend Stakeholder PanelsPurpose of Engagement ?

To use your views in our BAU improvement plans

SOUTH EAST PANEL(18th Oct 29th Nov 24th

Jan)

EASTERN PANEL (1st Nov 13th Dec 7th

Feb)

Agenda for future panels – Prioritised list of Stakeholder Issues

Business improvements and actions update

FUTURE PANELS

(Ongoing)

How the Stakeholder Panel Engagement Works?

BusinessInvestment

Planning

Panel Session 1

Panel Session 2

PanelSession 3

Issues & operational

plans to test

PreviousEngagement

To determine outputs for our Business Plan

-On line-Expert Panels-Consumer Focus Groups-Work shops & seminars

UKPN Feedback Session 4

Report 1

Report 2

Report 3

Business PlanImpact ?

Next PanelSession

Feed into businessplan project

team

Acted upon as Business As Usual

(BAU)

Yes

No

Update /Feedback on Actions

Stakeholder Issues for

New Agenda

Working together to improve performance

To date, we have undertaken three major phases of stakeholder engagement:

• A consultation on stakeholder requirements to inform the development of outputs for the business plan. This took the form of a large event, online consultation, interviews and domestic consumer focus groups.

• A series of workshops, targeted at expert stakeholders, to debate the planning scenarios and outputs which might underpin the development of the business plan.

• A series of seminars designed to review and improve our performance in emergencies, such as the storms of 2011-12.

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LOW CARBON ECONOMY:OUR PATH TO INNOVATION

Dr. Cristiano Marantes, Low Carbon Networks Development Manager

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Challenges

The challenges of the low carbon economyContext: UK Government's carbon and security of supply targets

Reduction of UK’s CO2 emissions- 34% (2020), 50% (2025), 80% (2050) (against 1990 levels)- Electrification of heat and transport

Security of UK’s energy supply- Increasing generation from low carbon and renewable sources

Strong UK Low Carbon Economy Affordable Low Carbon transition

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Role of Distribution Network OperatorsFacilitate the move to a low carbon energy sector in a cost-effective way

Distribution networks are not designed to accommodate

local renewable generation and low carbon demand

Uncertainty about the location, timing and impact on the

network of local generation and low carbon demand.

Challenges

The challenges of the low carbon economy

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Role of Distribution Network OperatorsFacilitate the move to a low carbon energy sector in a cost-effective way

Distribution networks are not designed to accommodate

local renewable generation and low carbon demand

Uncertainty about the location, timing and impact on the

network of local generation and low carbon demand.

Key driver of future

investment needs

DNOs will need to innovate to explore

smarter ways to integrate these technologies.

Innovation to play a key part in the DNOs

delivering at efficient cost and dealing with

uncertainty

DNOs will need to be proactive to be in a position to respond

across the range of low carbon solutions scenarios in ED1 and

adapt and evolve their current practices.

Response Through Innovation

Flexible EV Charging and Home HeatingSystem level

117 GW

0

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120

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Dem

and (G

W)

Time

Non‐optimised EV and HP operation

EV charging

HP demand

Original demand

78 GW

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40

60

80

100

120

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02:00

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Dem

and (GW)

Time

Optimised EV and HP operation

EV charging

HP demand

Original demand

Source: ENA / SEDG

Note: optimised operation highly dependent on storage

Non-optimised heating / charging cycle Optimised heating / charging cycle

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A different world by 2030

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Technology EPN LPN SPN Total

Solar PV installation2011 14k 2k 9k 25k2023 286k 93k 165k 544k2030 418k 135k 240k 793k

Onshore wind (MW)2011 140 0.3 64 2042023 724 10 214 9482030 869 12 257 1,126

Heat pumps(% of houses with HP)

2011neg neg neg neg

2023223k 61k 121k 403k6% 3% 6%

2030625k 172k 334k 1,131k19% 8% 16%

Plugged in electric vehicles2011 neg 2k neg 2k2023 243k 130k 156k 529k2030 545k 227k 349k 1,122k

Peak demand (GW)2011 6.5 5.2 4.0 15.72023 6.9 6.0 4.4 17.32030 7.6 6.6 4.7 18.9

Strategic direction

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Distribution Network Operator

Non-flexible demand

Non-flexibleDG

DSO

EVs

Heat

pumps

Cooling

Flexible Demand

Present (fit and forget) - Passive

Possible Future (fit and flex) - Active

Non-regulated

Ancillary S

ervices

Enabling Infrastructure

Com

mercial

Aggregation

Technical Aggregation

Sm

art appliances

Storage

Dispatchable Resources

Netw

ork S

torage

DG

Contracts

Dem

and R

esponse

“As DNOs actively manage the local levels of demand, whilst at the same time

accommodating varying amounts of generation on the network, they will start to behave like system operators (i.e. locally

balancing demand and supply on their networks)”

“If, in the future, DNOs start to deploy a large number of smart grid solutions, they may have

to start managing and co-ordinating demand side response, storage and send

signal to consumers to manage their consumption. This would see them behaving more like distribution system operators”

“The driver for any DSO role will be the penetration of renewable generation on the

distribution network and volume of demand it is asked to accommodate. There is uncertainty around this penetration.”

Transition to a low carbon future:Response through innovation

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We are using or trialling smart interventions on our networks today

Flexible networkse.g. dynamic network

reconfiguration (Flexible Plug and Play),

Advanced Voltage Control (GenAVC project) and

Fault Current Limiters (ETI project) to increase DG

penetration without major reinforcements

Demand side response

• aggregators• commercial• Domestic• Trialled in Low

Carbon London (LCL)

Controlled Generators

i.e. system operation, LCL & FPP

Intelligent EV charging

i.e. Westminster council and Plugged in

Places

Electricity storage

At Hemsbyand new

LCNF T2 bid

Real time thermal ratings

on lines and transformers

(FPP)

Smart enablers: automation, network monitoring, comms, IT, design, smart

meters

UK Power Networks in the low carbon economy

• To be recognised as a low carbon leader - facilitating the decarbonisation of the electricity industry and playing our full part in enabling the electrification of heat and transport;

• To deliver for our eight million customers a secure, affordable and environmentally sustainable electricity distribution system;

• To evolve as a truly smart distribution business – applying technological and commercial innovation.

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Open Forum – Low Carbon Impact and Role of the DSO

Given that the future use of the network will entail power going into and out of the network, we see our role moving from an operator of a network to an operator of a system that has both power pulled from it and pushed to it.

1) How realistic do you feel the forecasted planning scenarios for the impact of low carbon economy are?

2) Do you see the DSO scenario as a likely outcome of the future? If so, how probable is the outcome likely to be?

3) Would your organisations and the stakeholders you represent be likely to take up more DER solutions going forward? If so, how probable is the outcome likely to be?

4) How do you think our role would change to help facilitate low carbon distributed resources?

5) Do you understand the concept of a DSO, should we factor this in to our future plans?

6) What implications and benefits would you imagine from us as a system operator instead of a network operator?

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2929

£6.7m awarded to Flexible Plug and Play (Tier 2)

1,621 smart meters installed through the Low Carbon London

£22.2 m in IFI investment to date

£24.3m awarded to flagship project 

Low Carbon London (Tier 2)

35,509Distributionsubstationinspections

More than 50  project partners

More than 10 technical papers and one book 

LV Current Sensor Technology 

Evaluation will evaluate 7 different LV monitoring solutions

Knowledge will be shared with 

150,000 engineers worldwide

Flexible Plug and Play trial area is 

around 700km2 in the East of England 

2005 UK power Networks starts its innovation journey 

INNOVATION INNUMBERS

Four Tier 1 projects 

registered with Ofgem

£3.7m registered Tier 1 investment to 

date

Portfolio of more than 40 IFI projects

Nine operational 

windfarms with a capacity of 100MW in the FPP trial area

OVERVIEW OF THE RIIO FRAMEWORK AND KEY TOPICS

Julian Rudd, Regulatory Framework & Engagement Manager

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RIIO: New framework for network regulation

1995

Separation from RetailPrivatisation

Introduction of new price regulation

Roll-out of Smart Meters

1990 201020052000 2015 2023ED2ED1

ED1 Business Planning Cycle

• Historically, decisions regarding the development of the network were dealt with under the business-as-usual approach. This meant little or no stakeholder engagement.

• Presently, the energy sector needs to focus on the development of a low carbon economy. This will require major capital investment AND input from stakeholders.

31

RIIO (Revenue = Incentives + Innovation + Outputs) is a response to three primary drivers:

• Low carbon economy: Requires the investment of £32 billion in the electricity and gas transmission and distribution networks.

• Certainty of investment: Networks companies will have to double the amount of investment they have made over the past 20 years. RIIO is intended to give the certainty to companies that will enable them to invest on this scale.

• Burden sharing: A balance needs to be found of who pays for this investment; between current & future customers.

RIIO: New Framework for Network Regulation

Greater stakeholder & customer engagement is required in spending decisions & changes to financing arrangements.

32

RIIO Objectives and Requirements

Desired Outcomes

Requirements

Play a full role in the delivery of a sustainable energy sector

Deliver long-term value for money network services for existing and

future consumers

Long-term focus on value for money

Optionality and flexibilityInnovation

Understanding and responding to needs of existing and future

consumers

Working with others to identify best delivery solutions

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Key topics

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We have taken the time to learn from our past performance.

We are currently speaking to our stakeholders about what we need to achieve in key areas including:

Safety

Connections

Customer Service

Environment

Social Obligations

Quality of Supply

• We will listen to you now and going forward

• Wherever possible, we will act on what you tell us.

Safety

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Zero harm policy We aim to reduce injuries to employees and members of the public to zero

• Behavioural change is a long journey

• Need to learn more from incidents and continue to find pockets from non compliance

• Since 2008, reached over 1 million children with Safety campaign

• Powerup! - interactive website to help promote safety among young people and support teachers

• Promote safety message direct to various “higher risk” sectors

• Offer tool box talks, attend safety awareness days and targeted events such as County shows and Agricultural events

Internally Caused Injuries to Members of the Public - 2011

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Connections

• We complete over 100,000 connections per year.

• Around 55% of these are metered connections (domestic, commercial and industrial customers) and 45% unmetered connections (street light & road signs etc)

• We receive around 120,000 telephone enquiries per year and issue over 30,000 quotations per year

We seek to deliver satisfaction scores of 85% by the end of 2012. We are currently implementing a business transformation programme which will:

• revise and simplify our business processes for customers;• provide more choice to customers regarding the connections

service they receive; and • introduce new technologies to support function such as customer

self serve and order tracking.

Our connections business is one of the largest in the UK.

Competition Test

(by December 2013)

Stakeholderengagement

CompetitionImprovementprogramme

CompetitionNotice

Extension ofcontestability

In order to achieve this, we will:

• Manage the customer experience, from the point of initial contact through to confirming customer satisfaction

• Proactively make contact with customers at key points within the customer journey

• Better utilises technology and customer data to be more efficient as a Service Delivery Centre, enabling self service, and proactively texting and emailing customers

• Connections: Reduce lead times <20 days (aiming for the day a customer chooses

• Interruptions: Reduce outage duration & repeat faults

• Considerate planning, taking into account the impacts

• Better communications as to why the work needs to be done

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Customer Services

We will be in the top 3rd of all DNOs in the Broad Measure of Satisfaction tables

EnvironmentA concern for the environment underpins all of our activities

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• We seek to ensure the BCF follows a steady downward trend• We aim to be in the upper third in the league tables

Innovation Schemes• Green Rhino technology• New Bunding technology• Heat recovery from transformers• Recycling of plant & equipment• Diverting waste from landfill (street works

waste & wood poles)

Fugitive Emissions (SF6)

Fluid Filled Cable Losses

Safer alternative to oil-filled switchgear and cheaper than vacuums

• The emphasis on replacing the worst performing cables in the most environmentally sensitive areas

• Balancing value for money (early replacement of assets) with environmental performance

Social Obligations

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Community Investment Funds

Volunteering

Conservation

Supporting Vulnerable Customers

Charitable Donations

Street Works

Dedicated budget supporting projects in community groups and charities

Employees can volunteer work time to support a charity or the local community

Employees take part in practical conservation activities at Wildlife Trusts

Addressing Fuel Poverty and partnering with British Red Cross

Allows employees to donate tax free through payroll through CAF

Investing in IT & Customer Service systems to minimise disruptions

CONSULTING ON OUR BUSINESS PLAN – QUALITY OF SUPPLY

Stephen Mockford, Head of Engineering Standards

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How is Quality of Supply measured?

Customer interruptions (CIs)– “The number of customers whose supplies have been

interrupted per 100 customers per year over all incidents, where an interruption of supply lasts for three minutes or longer, excluding re-interruptions to the supply of customers previously interrupted during the same incident”

Customer Minutes Lost (CMLs)– “The duration of interruptions to supply per year –

average customer minutes lost per customer per year, where an interruption of supply to customer(s) lasts for three minutes or longer”

Source: Ofgem 41

Customer Interruptions (CI)

Various UK Power Networks initiatives have provided significant CI savings irrespective of 2012 increased fault volumes:

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Customer Minutes Lost (CML)

Improvements in operational response and business processes has provided significant CML savings:

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Fault volumes

Fault volumes are variable with external factors such as the weather – 2012 showing higher number of faults:

0

2000

4000

6000

8000

10000

12000

2008 2009 2010 2011 2012

HV ‐ EPN

HV ‐ LPN

HV ‐ SPN

LV ‐ EPN

LV ‐ LPN

LV ‐ SPN

44

Housing data

DNO

Number of households

2000 (thousands)

Number of households

2023 (thousands)

Household growth

(thousands)

% of England

total

WPD East Mid 2201 2777 576 12%WPD West Mid 2031 2392 361 8%WPD SWest 2875 1530 -1345 -28%UKPN EPN 1783 3674 1891 39%UKPN LPN 1359 2234 875 18%UKPN SPN 955 2282 1327 28%NPG NEDL 1826 1603 -223 -5%NPG YEDL 2490 2384 -106 -2%SP Manweb 1948 1077 -871 -18%SSE Southern 1183 3066 1883 39%ENW 1874 2298 424 9%Total (England) 20525 25317 4792 100%

The housing market has remained very buoyant in our area

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Ageing Asset base

‐

20.0

40.0

60.0

80.0

100.0

120.0

140.01920

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

33 kV Transformer (GM) TOTAL

33 kV Transformer (GM) TOTAL

46Date of asset installation

Other key challenges

Environmental matters

Access to buried equipment

Low Carbon technology, photovoltaics, heat pumps & electric vehicles

Increased Distributed Generation (DG) penetration

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Open Forum – Quality of Supply

1) Do you feel that the electrical network in your area is reliable enough for

your needs?

2) Have you seen an improvement in the resilience of the electrical network in

your area?

3) When there is a power failure, do we act promptly? What more could UK

Power Networks do to support our stakeholders?

4) Are our initiatives to reduce customer interruptions sufficient? Where should

we focus more effort?

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Next Steps

• Your views will be consolidated and the report will be published on our website

• We will write to you to explain what we have done to include your views in our Business Plan

• We will organise follow-up meetings to discuss with you additional areas of interests that you have raised that are not covered in our three panels

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Before we finish

• Please complete your feedback form

• Please consider sending us an email with:– Additional thoughts after the event– Encourage a colleague to do so

Stakeholder.Engagement@ukpowernetworks.co.ukTel: 07875 113061

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Thank you for your contributions.

Please have a safe journey home.