APPENDIX 4 SOUTHERN NETWORK€¦ · Ref No: 62533 2006 36621 (Update v1.2) Page 1 PB Power APPENDIX 4 SOUTHERN NETWORK A4.1 SUMMARY A4.1.1 CAPEX Southern Network Net Capex £m

Ref No: 62533 2006 36621 (Update v1.2) Page 1 PB Power

APPENDIX 4 SOUTHERN NETWORK

A4.1 SUMMARY

A4.1.1 CAPEX

Southern Network Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission LTS & Storage Capital Expenditure 64.9 75.4 9.7 5.2 6.5 161.8 Connections 8.2 8.1 8.0 7.9 7.7 39.9 Mains Reinforcement 13.8 15.6 14.7 13.9 14.5 72.6 Governors 9.2 9.9 9.8 9.9 10.1 48.9 Other Operational 6.4 5.2 5.6 3.5 4.1 24.8 Non Operational 25.9 12.9 11.3 6.9 17.0 74.0 Total 128.5 127.2 59.0 47.3 60.0 422.0 Normalisation Adjustments Non Operational -0.4 -0.1 -0.9 -0.8 -0.2 -2.4 Total -0.4 -0.1 -0.9 -0.8 -0.2 -2.4 Normalised Capex 0.0 0.0 0.0 0.0 0.0 0.0 LTS & Storage Capital Expenditure 64.9 75.4 9.7 5.2 6.5 161.8 Connections 8.2 8.1 8.0 7.9 7.7 39.9 Mains Reinforcement 13.8 15.6 14.7 13.9 14.5 72.6 Governors 9.2 9.9 9.8 9.9 10.1 48.9 Other Operational 6.4 5.2 5.6 3.5 4.1 24.8 Non Operational 25.5 12.8 10.4 6.1 16.7 71.6 Total 128.1 127.1 58.1 46.6 59.8 419.6 Adjustments LTS & Storage Capital Expenditure -39.1 -37.7 28.5 31.4 0.1 -16.9 Connections -1.6 -1.7 -1.7 -1.8 -1.8 -8.5 Mains Reinforcement -3.7 -5.2 -4.9 -5.1 -5.8 -24.7 Governors -0.3 -0.8 -0.7 -0.8 -1.0 -3.6 Other Operational -0.3 -0.4 -0.5 -0.4 -0.5 -2.0 Non Operational -0.6 0.0 -3.6 0.9 0.0 -3.3 Total -45.7 -45.7 17.1 24.3 -8.9 -59.1 Proposed Capex LTS & Storage Capital Expenditure 25.8 37.6 38.1 36.6 6.7 144.9Connections 6.6 6.4 6.3 6.1 5.9 31.3Mains Reinforcement 10.1 10.4 9.8 8.9 8.8 47.9Governors 8.9 9.1 9.1 9.1 9.1 45.3Other Operational 6.0 4.9 5.1 3.2 3.6 22.8Non Operational 24.9 12.8 6.8 7.0 16.7 68.3Total 82.4 81.3 75.2 70.8 50.8 360.6

Table A4 - 1


Original Southern Network Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed Capex

LTS & Storage Capital Expenditure 27.7 88.8 19.6 5.1 7.6 148.8

Connections 7.8 7.5 7.3 7.1 6.9 36.6

Mains Reinforcement 11.7 12.8 12.2 11.3 11.4 59.3

Governors 9.5 9.7 10.0 10.2 10.3 49.8

Other Operational 6.4 4.4 5.3 2.7 3.2 21.9

Non Operational 19.1 11.7 7.6 7.7 16.9 63.0

Total 82.2 134.9 62.0 44.1 56.2 379.4

Table A4 - 2

South’s net Capex projections for the forecast period 2008/9 to 2012 /13 are detailed in Table A4 - 1 above. Our original recommended net Capex projections are shown in Table A4 - 2.

The GDNs’ recommended total net Capex has reduced from £379.4m to £360.6m, a reduction of 5.0%. The decrease is substantially driven by the revised benchmarking analyses for the reinforcement mains and connections expenditure categories based on the 2006/07 outturn performance, and also and the revised recommendations regarding LTS and Storage Capex. The factors which affect the revised recommendations are considered in the relevant sections of this report.


A4.1.2 REPEX

Southern Network Net Repex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Mains 91.8 97.4 106.2 109.9 115.4 520.7 Services 56.2 60.5 62.5 63.6 65.2 308.0 LTS 2.1 16.1 0.3 0.0 0.0 18.5 Total 150.1 174.0 169.0 173.5 180.6 847.2 Normalisation Adjustments Mains 0.0 0.0 0.0 0.0 0.0 0.0 Services 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ Mains 91.8 97.4 106.2 109.9 115.4 520.7 Services 56.2 60.5 62.5 63.6 65.2 308.0 LTS 2.1 16.1 0.3 0.0 0.0 18.5 Total 150.1 174.0 169.0 173.5 180.6 847.2 Adjustments Mains -12.2 -16.5 -25.2 -28.6 -33.9 -116.4 Services -8.1 -11.1 -13.9 -15.7 -17.8 -66.6 LTS -0.1 -0.8 0.0 0.0 0.0 -0.9 Total -20.3 -28.4 -39.1 -44.3 -51.7 -183.9 Proposed Mains 79.7 80.9 81.0 81.3 81.5 404.3 Services 48.1 49.5 48.6 47.9 47.4 241.5 LTS 2.0 15.2 0.3 0.0 0.0 17.5 Total 129.8 145.6 129.9 129.2 128.9 663.3

Table A4 - 3

Original Southern Network Net Repex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed

Mains 77.1 80.7 80.8 80.9 79.5 399.1

Services 47.9 48.3 46.5 44.9 43.5 231.1

LTS 2.0 15.1 0.3 0.0 0.0 17.4

Total 127.0 144.1 127.6 125.8 123.0 647.5

Table A4 - 4

Southern’s net Repex projections for the forecast. 2008/09 to 2012/13 are detailed in Table A4 - 3 above. Our original recommended net Repex projections are shown in Table A4 - 4.

The GDN’s recommended total net Repex has increased from £647.5m to £663.3m, an increase of 2.4%, which is driven by the revised benchmarking analysis based on the 2006/07 outturm performance. Factors which affect the revised recommendations are considered in the relevant section of this report.


A4.2 LTS AND STORAGE CAPEX

A4.2.1 SUMMARY

The proposed expenditure allowances based on Scenario 1 demand forecasts are shown in the following table.

Net Capex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Pipelines 44.9 53.6 2.8 0.0 1.3 102.5 NTS Offtakes 10.8 12.1 0.2 0.0 0.0 23.2 PRSs 9.2 9.7 6.7 5.2 5.2 36.0 Other storage 0.0 0.0 0.0 0.0 0.0 0.0 Total 64.9 75.4 9.7 5.2 6.5 161.8 Normalisation Adjustments Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ Pipelines 44.9 53.6 2.8 0.0 1.3 102.5 NTS Offtakes 10.8 12.1 0.2 0.0 0.0 23.2 PRSs 9.2 9.7 6.7 5.2 5.2 36.0 Other storage 0.0 0.0 0.0 0.0 0.0 0.0 Total 64.9 75.4 9.7 5.2 6.5 161.8 Adjustments Pipelines -29.0 -27.3 23.4 22.3 0.6 -10.1 NTS Offtakes -6.7 -7.4 3.2 5.0 0.0 -5.9 PRSs -3.4 -3.1 2.0 4.1 -0.5 -0.9 Other storage 0.0 0.0 0.0 0.0 0.0 0.0 Total -39.1 -37.7 28.5 31.4 0.1 -16.9 Proposed Pipelines 15.8 26.3 26.1 22.3 1.9 92.4 NTS Offtakes 4.2 4.7 3.4 5.0 0.0 17.3 PRSs 5.8 6.6 8.6 9.3 4.8 35.2 Other storage 0.0 0.0 0.0 0.0 0.0 0.0 Total 25.8 37.6 38.1 36.6 6.7 144.9

Table A4 - 5

Since the publication of Updated proposals by Ofgem a number of calculation errors have been identified relating to LTS Capex. These errors understated the recommended Net Capex for the network by £5.3m. A table detailing these corrections is given in section 2.9.

Our original proposed expenditures are shown in the following table.



2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

Proposed Pipelines 10.6 67.1 2.9 0.5 3.1 84.3 NTS Offtakes 8.3 11.8 2.4 0.0 0.0 22.5 PRSs 8.8 9.9 14.3 4.6 4.5 42.1 Other storage 0.0 0.0 0.0 0.0 0.0 0.0 Total 27.7 88.8 19.6 5.1 7.6 148.8

Table A4 - 6

A4.2.2 2006/07 FORECAST/OUTTURN COMPARISON

The following table shows the forecast net expenditure for 2006/07 and the actual net expenditure in 2006/07 (2005/06 prices).

Southern 2006/07 forecast £m 2006/07 actuals £m

Pipelines 0.0 0.0 NTS Offtakes 3.2 3.1 PRSs 3.0 2.1 LTS Storage 3.2 9.8 Other Storage 0.0 0.0 TOTAL 9.5 14.9

Table A4 - 7

A4.2.3 IMPACT OF MOVEMENTS ON RECOMMENDATIONS

Southern have reported increased expenditure particularly on the LTS storage project, the Hardwick to Marsh Gibbon pipeline, due to re-phasing of pipe deliveries from April to Feb/March to align with manufacturer’s production schedule and to enable an early start. Some preliminary work was also brought forward to 2006/7 to mitigate against the risk of late delivery/ non-delivery in 2007/8. There is no reported impact on 2008/09 expenditure.

The following changes were also reported by Southern:

• Brands Hatch NTS offtake – expenditure brought forward to secure land for the offtake reducing the risk of losing availability. We estimate that this has reduced expenditure in the plan period by £0.9m.

• Tatsfield AGI NTS offtake – an increase in expenditure with some 2007/8 work brought forward. There is no reported impact on 2008/09 expenditure.

• Hardwick 'A' Rebuild NTS Offtake – lower expenditure due to some work deferred to 2007/8 due to late delivery of materials. There is no reported impact on 2008/09 expenditure.

• Hardwick 'B' PRI – re-phasing of expenditure from 2008/9 to enable replacement of water bath heaters in 2007/08 and avoiding re-validation costs. We estimate 2008/09 expenditure will be lower by £0.8m as a result.

• Folkestone HP PRI – underspent due to late delivery of materials. Costs will now be incurred in 2007/08. There is no reported impact on 2008/09 expenditure.


A4.2.4 REVISED FORECAST

In our original reports, the project programme was based on the demand projections set out in the GDN’s 2006 LTDS.

Apart from peak demand, important drivers of LTS expenditure are the availability of diurnal storage from the NTS and the availability of interruption. Under Scenario 1, NTS storage is assumed to be available unless there is evidence of a constraint, and current levels of interruption are also assumed to be maintained.

The impact of constraints on the availability of NTS diurnal storage and reduced levels of interruption under UNC mod 90 from 2011/12 are discussed in the scenario analysis section below.

For each LDZ, the LTS Capex projects are reviewed under the two categories of expenditure; load related, and non-load related.

Load related expenditure- South LDZ

The following table shows the assumed peak demands for South LDZ, the diurnal storage % and the diurnal storage volumes used as the basis for the project plan set out in the GDN’s Scenario 1 projections.

South LDZ

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LDZ Peak demand mcm / day 38.09 38.69 39.24 39.76 40.44 41.071 41.939 Diurnal storage % 15.5 15.5 15.5 15.5 15.5 15.5 15.5 Diurnal storage volume required mcm 5.904 5.997 6.082 6.163 6.268 6.366 6.5

Table A4 - 8

The forecast peak demand in 2012/13 of 41.939 mcm/day (South LDZ) is 1 mcm/day above the value used in Southern’s 2006 LTDS (40.83 mcm/day). This increase appears to be due to an updating of the base year peak demand (2006/07).

The following table shows South LDZs proposed mix of diurnal storage resources to meet the requirements set out in Table 1.

Diurnal storage resources mcm

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LP holders 1.053 0.941 0.891 0.841 0.791 0.741 0.691 HP bullets 0.077 0.077 0.077 0.077 0.077 0.077 0.077 Salt cavities - - - - - - - LTS Linepack 3.146 3.1 3.169 3.134 3.082 3.05 3.015 NTS 1.628 1.283 1.143 1.419 1.419 1.419 1.419 Hardwick to Marsh Gibbon 0.428 0.629 0.629 0.629 0.629 0.629 Barton Stacey to Stoneham Lane 1.3 1.3 1.3 1.3 Total diurnal storage provided mcm 5.904 5.829 5.909 7.4 7.298 7.216 7.131 Diurnal storage surplus mcm 0.000 -0.168 -0.173 1.237 1.030 0.850 0.631

Table A4 - 9

The following table shows the projects proposed by Southern to meet the transmission and storage capacity requirements in the period 2008/09 to 2012/13 under Scenario 1. The table includes the rationale for the project with the proposed GDN cost, and our proposals in relation to each project.


South LDZ

Load related projects

GDN proposed expenditure over period 2007/08 to 2012/131 PB proposal

Pipelines Proposed for 2009/10 to meet South LDZ storage requirements.

Project deferred to 2011/12 See analysis below

Barton Stacey to Stoneham Lane (34.5km 1200mm) Proposed date: 2009/10

SGN cost £51.36 m Proposed date: 2011/12 Proposed cost £46.7m

The main component of expenditure is for the completion of Hardwick to Marsh Gibbon pipeline for 2007/08.

Other pipelines

SGN cost £13.68 m No change proposed PRSs

Proposed for 2009/10 – linked to match the Barton Stacey to Stoneham Lane pipeline

We have deferred the project to 2011/12. See analysis below

Stoneham Lane PRS

Proposed date: 2009/10 SGN cost £5.65 m

Proposed date: 2011/12 Proposed cost £6.9m

Other PRSs This includes £7.5m of costs associated with the Hardwick to Marsh Gibbon project SGN cost £19.11 m

No change proposed

NTS offtakes Proposed for 2009/10 – linked to match the Barton Stacey to Stoneham Lane pipeline

We have deferred the project to 2011/12. See cost analysis below.

Barton Stacey Offtake

Proposed date: 2009/10 SGN cost £11.1m


Proposed for 2008/09. Required to meet expected growth in flow particularly peak hour flows. Costs included in SE LDZ.

Winkfield

No change proposed Proposed for 2008/09. This project was reviewed in our original reports

Braishfield A


No change proposed

Table A4 - 10

Barton Stacey to Stoneham Lane

The following table shows the diurnal storage surplus/deficit assuming the GDNs’ project proposals.

Diurnal storage surplus/deficit mcm

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

SO LDZ -0.173 1.237 1.030 0.850 0.631 SE LDZ -0.352 1.234 1.174 0.846 0.583 Total surplus -0.525 2.471 2.204 1.686 1.214

Table A4 - 11

1 All expenditure figures exclude RPEs


The above table assumes the Farningham Phase 2 pipeline (providing 1.317 mcm of storage) and the Barton Stacey to Stoneham Lane pipeline (providing 1.3 mcm of storage) are constructed.

Leaving aside transfer constraints between the LDZs, the table shows that one of the projects is needed in 2009/10 and that both projects need to be constructed by 2012/13 (offtake constraints are considered below and show that both projects are needed by 2011/12). Each project provides similar amounts of storage and since Farningham Phase 2 is the lower cost project, we propose that this is constructed first.

In Section 3 we discussed the availability of NTS storage and the storage generated by LDZs in the South East. We noted that NTS had identified constraints in the provision of diurnal storage to GDNs in its Zone 16.

We proposed that GDN investments could be optimised across SO and SE LDZs, with possible further opportunities in the longer term involving East Anglia and London. However, the optimisation might be constrained by NTS offtake capacity.

The offtake which provides the main opportunity for the transfer of storage between the LDZs is the Winkfield offtake. There are three separate offtakes at Winkfield supplying South LDZ, SE LDZ and London LDZ. Southern has included proposals for upsizing the Winkfield SO and SE offtakes in the Scenario 1 plans.

Winkfield SO offtake capacity amounts to 8.926 mcm per day. Currently the flow through Winkfield offtake is about 7.5 mcm per day at peak with a diurnal storage take of about 0.5mcm, giving a peak hour flow of about 8.5 mcm per day equivalent. This means that Winkfield can absorb a further 0.2 mcm per day of diurnal storage.

The above table shows that with the construction of Farningham Phase 2, SE LDZ has a diurnal storage surplus in excess of 1 mcm in each of the years 2009/10 and 2010/11. Our proposal is for 0.2 mcm of this surplus to be released to the NTS at Winkfield SE offtake and transferred to Winkfield SO. This will not affect any constraints that the NTS may have on the provision of storage to GDNs.

Southern provided a report (dated December 2004) on the ability of South LDZ to absorb NTS linepack (an NTS storage volume of 1.65 mcm was assumed in the report). This highlighted the Hardwick area as a particular concern, and Southern have works under way at Hardwick offtake and are constructing the new Hardwick to Marsh Gibbon pipeline. Also, since that report, work is in hand to increase the capacity of the Braishfield offtake. These changes make it difficult to determine the validity of the report to the network as planned for 2009/10 and 2010/11. We recommend that this analysis is repeated with the latest network configuration.

Our proposal is based on South LDZ deferring the Barton Stacey to Stoneham Lane pipeline from 2009/10 until 2011/12 as shown in the following table.

Diurnal storage surplus/deficit mcm

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

SO LDZ (GDN proposals) -0.173 1.237 1.030 0.850 0.631 Defer Barton Stacey pipeline -1.3 -1.3

Transfer storage from SE 0.2 0.2 LDZ net surplus/deficit -0.173 0.137 -0.07 0.850 0.631

Table A4 - 12

This table shows the South LDZ is in a small storage deficit fin 2010/11, but we consider that that could be accommodated within the overall offtake capacity available to SO, with the storage supplied by South East increased to 0.27 mcm.


Load related expenditure - South East LDZ

The following table shows the assumed peak demands for South East LDZ, the diurnal storage % and the diurnal storage volumes used as the basis for the project plan set out in the GDN’s Scenario 1 projections.

South East LDZ

2006

/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LDZ Peak demand mcm / day 48.55 49.33 50.07 50.83 51.77 52.495 53.272

Diurnal storage % 15.9 15.9 15.9 15.9 15.9 15.9 15.9 Diurnal storage volume required mcm 7.719 7.843 7.961 8.082 8.231 8.347 8.47

Table A4 - 13

The forecast peak demand in 2012/13 of 53.272 mcm/day (South East LDZ) is 0.6 mcm/day above the value used in Southern’s 2006 LTDS (52.66 mcm/day). This increase appears to be due to an updating of the base year peak demand (2006/07).

The following table shows South East LDZs proposed mix of diurnal storage resources to meet the requirements set out in the above table.

Diurnal storage resources mcm 20

06/7

2007

/8

2008

/9

2009

/10

2010

/11

2011

/12

2012

/13

LP holders 2.565 2.212 2.112 2.012 1.912 1.812 1.712 HP bullets 0.726 0.896 0.896 0.866 0.836 0.806 0.776 Salt cavities - - - - - - - LTS Linepack 4.551 4.301 4.418 4.365 4.307 4.225 4.215 NTS 0.203 0.203 0.756 1.033 1.033 1.033 Farningham Phase 2 1.317 1.317 1.317 1.317 Total diurnal storage provided mcm 7.842 7.612 7.629 9.316 9.405 9.193 9.053

Diurnal storage surplus mcm 0.123 -0.231 -0.332 1.234 1.174 0.846 0.583

Table A4 - 14

The following table shows the projects proposed by Southern to meet the transmission and storage capacity requirements in the period 2008/09 to 2012/13 under Scenario 1. The table includes the rationale for the project with the proposed GDN cost, and our proposals in relation to each project.


South East LDZ

Load related projects

GDN proposed expenditure over period 2007/08 to 2012/132 PB proposal

Pipelines Proposed for 2009/10 to meet South East LDZ storage requirements

We have examined South East’s storage requirements and consider that the project is justified by SE’s diurnal storage requirements. We consider that the cost estimate is at the high end of the likely range. (see analysis below)

Farningham Phase 2 (22km 1200mm) 41.19m



Other pipelines SGN cost £10.52 m No change proposed PRSs Other PRSs SGN cost £13.2 m No change proposed NTS offtakes

Proposed for 2009/10 – linked to match the Farningham Phase 2 pipeline

See cost analysis below Brands Hatch offtake



Proposed for 2008/09. Required to meet expected growth in flow particularly peak hour flows.

Winkfield


No change proposed

Table A4 - 15

Project cost assessment

Southern have provided us with different sources of cost information and we have our own cost estimates as set out in Appendix 18.

Southern have provided information from the BPQ submission, from investment papers (SGNIC), and from contractor sources.



Farningham Phase 2

The following table summarises the cost information

BPQ SGNIC papers SGN contractor information

PB Power estimates

(Appendix 18)

Farningham Phase 2 Pipeline £47.4m £40.7m £50.5m £40.1m

Brands Hatch offtake £11.6m £ 7.8m N/A N/A

Include SGN RPEs

2006/7 prices assumed 2007/8 prices 2007 prices

Table A4 - 16

Excluding RPEs, the BPQ figures are £41.2m for the pipeline at 2005/06 prices and £10.1m for the Brands Hatch offtake.

Barton Stacey to Stoneham Lane

The following table summarises the cost information

BPQ SGNIC papers SGN contractor information

PB Power estimates

(Appendix 18)

Barton Stacey Pipeline £56.1m £48.25m £58.2m £51.2m

Barton Stacey offtake £12.1m £ 8.7m N/A N/A

Stoneham Lane PRI £6.1m £7.1m N/A £7.3m

Include SGN RPEs

2006/7 prices assumed 2007/8 prices 2007 prices

Table A4 - 17

Excluding RPEs, the BPQ figures are £51.7m at 2005/06 prices, £11.2m for the Barton Stacey offtake, and 5.7m for the Stoneham Lane PRI.

PB Power Proposals

The above analysis shows that the SGNIC estimates are closely in line with our own cost estimates and we have therefore used the SGNIC estimates in our proposals.

We have reduced the SGNIC estimates by 3.2% to bring them to 2005/06 prices.

Our proposed costs are therefore as follows:

2005/06 prices (excl RPEs) PB Power Proposal

Farningham Phase 2 Pipeline £39.4m

Brands Hatch offtake £ 7.6m

Table A4 - 18


2005/06 prices (excl RPEs) PB Power Proposal

Barton Stacey Pipeline £46.7m Barton Stacey offtake £ 8.4m Stoneham Lane PRI £ 6.9m

Table A4 - 19

Non-load related expenditure (South and SE LDZs)

Non-load Capex is expenditure which does not contribute to increased transmission capacity (eg the expenditure is required to meet safety or environmental requirements), or where the timing is determined by plant condition.

The following table shows the projects proposed by Southern in the period 2008/09 to 2012/13.

South & South East LDZ3

Non-load related projects SGN proposed expenditure over period 2008/09 to 2012/13

South LDZ Obsolete equipment £0.1 m

PRS Asset condition and obsolescence £1.1 m

Reported under Operational Capex £17.2m Total expenditure £18.4 m

Table A4 - 20

The level of non-load expenditure by Southern is reviewed against other GDN proposals in the main chapter. We consider that Southern’s proposed level of non-load expenditure is reasonable.

Scenario analysis

Southern were asked to review their Capex requirements under Scenario 2 in which NTS diurnal storage is assumed available up to the NTS zonal cap and under which some or all of the current interruptible loads become firm.

Scenarios 2a and 2b were designed to give the range of Capex requirements under the possible outcomes to recent industry initiatives. Under Scenario 2a additional NTS diurnal storage is assumed to be available (unless there is evidence of a constraint) and required interruption is assumed to be procured by the GDN at economic prices.

Under Scenario 2b, it is assumed that NTS diurnal storage is not available without NTS investment (generally this means that NTS provision is capped at the 2010/11 level) and that all of the GDN interruptibles become firm.

South LDZ has 59 interruptibles and SE LDZ has 71 interruptibles. There are no NSLs in Southern GDN.



Southern’s analysis of the Scenario 2 conditions showed the following (all statements are relative to Scenario 1):

• If NTS diurnal storage capped at 2010/11 values o South LDZ required additional LTS Capex of £45 m in order to supply all

interruptible loads at Peak– Scenario 2b South East LDZ required additional LTS Capex of £19 m in order to supply all interruptible loads at Peak– Scenario 2b

• If additional NTS diurnal storage available from 2011/12 o Southern believe that the availability of NTS flex to South East LDZ is

constrained and that therefore Scenario 2a is identical to Scenario 1. We asked SE LDZ to look at the hypothetical scenario in which unlimited NTS flex were available. This indicated that the Farningham Phase 2 pipeline could be deferred but that additional expenditure on NTS offtake capacity would be required at a cost of about £20m. This result indicates that if the detailed network analysis of South LDZ proposed in Appendix 12 identifies constraints on taking the proposed volume of storage from the NTS in 2010/11, then the alternative solution of constructing the Barton Stacey to Stoneham Lane pipeline for 2009/10 and deferring the Farningham Phase 2 pipeline until 2011/12 should be considered.

o South LDZ indicate that even with additional NTS storage available, network constraints (discussed in Appendix 12) require the construction of the Barton Stacey to Stoneham Lane pipeline for 2010/11. Some additional expenditure on NTS offtake capacity upgrades would also be required, but projects programmed for the period after 2012/13 could be deferred.


PB Power Analysis

In the above sections, we have analysed the major load related project proposed by the GDN and our conclusions are set out in Tables A4-10 and A4-15. The following table summarises our proposed changes.

Load related project

GDN proposed year of construction and total cost

GDN proposed expenditure in period 2008/09 to 2012/13

PB proposed year of construction and total cost

PB proposed expenditure in period 2008/09 to 2012/13

Summary rationale

Barton Stacey to Stoneham Lane pipeline

Date: 2009/10 Cost: £51.3m

£48.8m

Date: 2011/12 Cost: £46.7m

£46.7m

Deferred as diurnal storage assumed to be available from/via NTS.

Barton Stacey offtake

Date: 2009/10 Cost: £11.1m

£10.2m

Date: 2011/12 Cost: £8.4m

£8.4m


Stoneham Lane PRS

Date: 2009/10 Cost: £5.9m

£5.2m

Date: 2011/12 Cost: £6.9m

£6.9m


Farningham Phase 2 pipeline

Date: 2009/10 Cost: £42.7m

£41.2m

Date: 2009/10 Cost: £39.4m

£37.9m

Cost review

Brands Hatch offtake

Date: 2009/10 Cost: £10.9m

£9.6m

Date: 2009/10 Cost: £7.6m

£6.2m

Cost review

Total for plan period £115.0m £106.1m

Table A4 - 21

Note: All costs exclude RPEs

As in our original report, we have tested the GDN load related expenditure projections against the reference unit costs of £100m per mcm, and where appropriate the £50m per mcm value.

As discussed in Section 3, we consider that the lower reference unit cost (£50/mcm) approximates to NTS costs (if it were to build diurnal storage capacity) and that the range £50m per mcm to £100m per mcm approximates to the GDN costs of building their own capacity.

Appendix 12 shows the path of diurnal storage under each scenario together with the path of load related expenditure under the different scenarios against the reference expenditure of £100m per mcm.

The tests show the following:

• South LDZ o Under Scenario 1 the SGN expenditure and the PB proposed

expenditure are higher than the reference expenditure. Taking into account the requirement to replace some LP holder capacity, this level of expenditure is reasonable.

o Southern’s proposed expenditure under Scenarios 2b is higher than the reference expenditure but of a similar order


• South East LDZ o Under Scenario 1 the SGN expenditure and the PB proposed

expenditure are lower than the reference expenditure, even allowing for the requirement to replace some LP holder capacity.

o Southern’s proposed expenditure under Scenarios 2b is lower than the reference expenditure.

The above results indicate that the unit cost of diurnal storage projects in South East LDZ is lower than in South LDZ, and that measures should be investigated for the transfer of storage between South and South East LDZs. We believe that such an arrangement would reduce the exposure of Southern as a whole to the possible capacity and cost risks associated with mod 90. Assurance on the availability of NTS diurnal storage would also be significant in informing economic tests in relation to securing interruption rights under mod 90.

A4.2.5 REVISED RECOMMENDATIONS

Based on the above analysis our proposed expenditure in each of the plan years is set out in the following graph. The expenditure proposals are based on the Scenario 1 assumptions in relation to demand and the availability of NTS diurnal storage.

Proposed Net Capex - Southern

0

5

10

15

20

25

30

35

40

45

2008/09 2009/10 2010/11 2011/12 2012/13

£m 2

005/

06 P

rices

NTS Offtakes Pipelines PRSs Other storage

Figure A4 - 1


A4.3 CONNECTIONS CAPEX

A4.3.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission New Housing 0.8 0.8 0.8 0.8 0.8 4.1 Existing Housing 7.3 7.2 7.1 6.9 6.8 35.3 Non-Domestic 0.1 0.1 0.1 0.1 0.1 0.5 Total 8.2 8.1 8.0 7.9 7.7 39.9 Normalisation Adjustments New Housing 0.0 0.0 0.0 0.0 0.0 0.0 Existing Housing 0.0 0.0 0.0 0.0 0.0 0.0 Non-Domestic 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ New Housing 0.8 0.8 0.8 0.8 0.8 4.1 Existing Housing 7.3 7.2 7.1 6.9 6.8 35.3 Non-Domestic 0.1 0.1 0.1 0.1 0.1 0.5 Total 8.2 8.1 8.0 7.9 7.7 39.9 Adjustments New Housing 0.0 0.0 0.0 -0.1 -0.1 -0.2 Existing Housing -1.7 -1.7 -1.8 -1.8 -1.9 -8.9 Non-Domestic 0.1 0.1 0.1 0.1 0.1 0.6 Total -1.6 -1.7 -1.7 -1.8 -1.8 -8.5 Proposed New Housing 0.8 0.8 0.8 0.7 0.7 3.8 Existing Housing 5.6 5.4 5.3 5.1 5.0 26.4 Non-Domestic 0.2 0.2 0.2 0.2 0.2 1.1 Total 6.6 6.4 6.3 6.1 5.9 31.3

Table A4 - 22

Original Net Capex £m (2005/06 prices)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

New Housing 1.1 1.1 1.1 1.1 1.1 5.4

Existing Housing 6.5 6.2 6.0 5.8 5.6 30.2

Non-Domestic 0.2 0.2 0.2 0.2 0.2 1.1

Total 7.8 7.5 7.3 7.1 6.9 36.6

Table A4 - 23

Net Capex projections for the forecast period 2008/09 to 2012/13, based on the updated analysis and no change in workload volumes, are detailed in Table A4 - 22. Our original recommended net Capex projections are shown in Table A4 - 23.

It should be noted that our original projections include the GDN’s forecast for specific reinforcement mains.



This section of the report reviews the GDN’s reported 2006/07 out-turn performance and compares this with the BPQ forecasts for 2006/07 as reported in the October submission. The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. However, we have found a wide range of workload, expenditure and unit cost variances across the activities.

Expenditure and workload associated with specific reinforcement is now included under reinforcement mains. To ensure data consistency, the forecast specific reinforcement expenditure and workload has been transferred to reinforcement mains. We have not made any other adjustments to the workload or costs.

Normalisations

We have been advised of an accounting adjustment recommended by Ofgem in relation to Fulcrum related party margins. A sum of £4.41m has been removed from the 2006/07 Connections figures for Southern.

Workload

Comparing the out-turn to the forecast, the workload variances for the principal activities are as follows:

• Connections: o New housing -41.6% o Existing housing -24.7% o Non-domestic 7.3% o Total -30.9%

• Mains: o New housing -34.7% o Existing housing -7.0% o Non-domestic 21.0% o Feeder 3.5% o Total -24.0%

The connections workload volume in all respects is driven by customer demand.

The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. However, the variances at the total connections, total mains and at the disaggregated activity levels are significant. In response to a request for an explanation SGN has indicated that the variances generally result from changes in the connections market that were not apparent when the forecast was submitted. Also, unit costs have been adversely affected by the cutover from Fulcrum which resulted in costs attributable to 2005/06 being incurred in 2006/07. SGN estimates this unaccrued cost in the order of £1.0m, primarily associated with new housing stage payments. The issue only affects Southern.

Gross expenditure

The gross expenditure out-turn variance with the forecast is -5.2%.


A4.3.3 IMPACT OF MOVEMENTS ON REGRESSION

Figure 4-5 in Section 4.2.2 shows the regression analysis movements comparing the 2006/07 out-turn to the original analysis with specific reinforcement removed. The overall movement for Southern is substantial and reflects the workload and gross expenditure variations indicated in Section A4.3.2. Southern moves across the regression to the least efficient position relative to the other GDNs.


Introduction

This section of the report updates our workload proposals based on our review of Southern’s forecast submission. We specify the adjustments that we have applied to the forecasts, including changes from our original reports.

Company Proposals

We have examined Southern’s forecast submission and have not identified any significant changes to the assumptions applied by Southern, as summarised in our original report.

Company Workload Forecasts

The workload forecasts for the period 2008/09 to 2012/13 have been reviewed taking into account historical trend levels and Southern’s assumptions.

The workload forecasts for the new housing, existing housing and non-domestic connections activity categories are reasonably aligned with the historical trends, and reflect the implications of the 2006/07 out-turn. We have not identified any issues and recommend that Southern’s revised connections services and mains forecasts are accepted.


Figure A4 - 2 and Table A4 - 24 show our revised recommendations for the GDN’s total connections Gross Capex.

Chart showing Southern's Proposed Connection Gross Capex

20

21

22

23

24

25

26

27

28

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Tota

l Gro

ss C

apex

£m

BPQ Submission Benchmark Performance Proposed Baseline Performance

Figure A4 - 2


Total Connections Gross Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Gross Submission 26.7 26.3 26.0 25.7 25.4 130.1 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Gross BPQ 26.7 26.3 26.0 25.7 25.4 130.1 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -3.8 -4.1 -4.3 -4.6 -4.8 -21.6 Total Adjustments -3.8 -4.1 -4.3 -4.6 -4.8 -21.6 Projected Gross 22.8 22.3 21.7 21.1 20.6 108.5

Table A4 - 24

Connections Net Capex

The recommended connections Net Capex projections detailed below are based on our revised Gross Capex projections. The assumptions to determine Net Capex are unchanged from our original report.

Workload

We recommend that Southern’s revised workload volume forecasts are accepted, as detailed in Table A4 - 25 below.

Workload Projections Volumes

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

District Governors 12.5 12.3 12.2 12.0 11.9 Existing Housing Mains <=180mm 7.3 7.2 7.0 6.9 6.8 Existing Housing Mains>180mm 0.3 0.3 0.3 0.3 0.3 Existing Housing Services 9047 8911 8777 8646 8516 Feeder Mains <=180mm 0.7 0.7 0.6 0.6 0.6 Feeder Mains >180mm 0.4 0.4 0.4 0.4 0.4 New Housing Mains <=180mm 42.9 42.5 42.1 41.7 41.2 New Housing Mains >180mm 1.8 1.7 1.7 1.7 1.7 New Housing Services 9256 9163 9071 8981 8891 Non-Domestic Mains <=180mm 8.1 8.0 7.9 7.8 7.8 Non-Domestic Mains >180mm 2.0 2.0 2.0 1.9 1.9 Non-Domestic Services 1685 1668 1651 1635 1618 Service Governors 0 0 0 0 0 Specific Reinforcement Mains <=180mm 0.0 0.0 0.0 0.0 0.0 Specific Reinforcement Mains >180mm 0.0 0.0 0.0 0.0 0.0

Table A4 - 25


Expenditure

Our revised recommendations for the GDN’s Net Capex projections are detailed in Table A4 - 26, Table A4 - 27 and Table A4 - 28 below.

New Housing Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 0.8 0.8 0.8 0.8 0.8 4.1 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 0.8 0.8 0.8 0.8 0.8 4.1 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment 0.0 0.0 0.0 -0.1 -0.1 -0.2 Total Adjustments 0.0 0.0 0.0 -0.1 -0.1 -0.2 Projected Net 0.8 0.8 0.8 0.7 0.7 3.8

Table A4 - 26

Existing Housing Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 7.3 7.2 7.1 6.9 6.8 35.3 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 7.3 7.2 7.1 6.9 6.8 35.3 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -1.7 -1.7 -1.8 -1.8 -1.9 -8.9 Total Adjustments -1.7 -1.7 -1.8 -1.8 -1.9 -8.9 Projected Net 5.6 5.4 5.3 5.1 5.0 26.4

Table A4 - 27

Non-Domestic Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l BPQ Net Submission 0.1 0.1 0.1 0.1 0.1 0.5 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 0.1 0.1 0.1 0.1 0.1 0.5 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment 0.1 0.1 0.1 0.1 0.1 0.6 Total Adjustments 0.1 0.1 0.1 0.1 0.1 0.6 Projected Net 0.2 0.2 0.2 0.2 0.2 1.1

Table A4 - 28


A4.4 MAINS AND GOVERNOR CAPEX

A4.4.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission General Reinforcement Mains 11.5 13.3 12.3 11.7 12.2 61.0 Specific Reinforcement Mains 2.3 2.4 2.4 2.3 2.3 11.6 District Governors 9.2 9.9 9.8 9.9 10.1 48.8 Service Governors 0.0 0.0 0.0 0.0 0.0 0.1 Total 23.1 25.5 24.5 23.9 24.6 121.6 Normalisation Adjustments General Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 Specific Reinforcement Mains 0.0 0.0 0.0 0.0 0.0 0.0 District Governors 0.0 0.0 0.0 0.0 0.0 0.0 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ General Reinforcement Mains 11.5 13.3 12.3 11.7 12.2 61.0 Specific Reinforcement Mains 2.3 2.4 2.4 2.3 2.3 11.6 District Governors 9.2 9.9 9.8 9.9 10.1 48.8 Service Governors 0.0 0.0 0.0 0.0 0.0 0.1 Total 23.1 25.5 24.5 23.9 24.6 121.6 Adjustments General Reinforcement Mains -3.8 -5.1 -4.8 -4.9 -5.5 -24.0 Specific Reinforcement Mains 0.0 -0.1 -0.2 -0.2 -0.3 -0.7 District Governors -0.3 -0.8 -0.7 -0.8 -1.0 -3.6 Service Governors 0.0 0.0 0.0 0.0 0.0 0.0 Total -4.1 -6.0 -5.6 -5.9 -6.8 -28.3 Proposed General Reinforcement Mains 7.7 8.1 7.5 6.8 6.8 37.0 Specific Reinforcement Mains 2.4 2.3 2.2 2.1 2.0 10.9 District Governors 8.9 9.1 9.1 9.1 9.1 45.2 Service Governors 0.0 0.0 0.0 0.0 0.0 0.1 Total 19.0 19.5 18.9 18.0 17.9 93.2

Table A4 - 29


2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

Reinforcement Mains 11.7 12.8 12.2 11.3 11.4 59.3

District Governors 9.5 9.7 10.0 10.2 10.3 49.6

Service Governors 0.0 0.0 0.0 0.0 0.0 0.1

Total 21.2 22.5 22.2 21.4 21.7 109.1

Table A4 - 30


Net Capex projections for the forecast period 2008/09 to 2012/13, based on the updated analysis and including specific reinforcement mains, are detailed in Table A4 - 29 above. Our original recommended Net Capex projections are shown in Table A4 - 30.

It should be noted that our original projections do not include the GDN’s forecast for specific reinforcement mains.


This section of the report reviews the GDN’s reported 2006/07 out-turn performance and compares this with the BPQ forecasts for 2006/07 as reported in the October submission. The GDN forecasts for 2006/07 were determined mid-year and, therefore, it is to be expected that the out-turn will be aligned with forecast to a reasonable degree. However, we have found a wide range of workload, expenditure and unit cost variances across the activities.

Expenditure and workload associated with specific reinforcement is now included under reinforcement mains. To ensure consistency, the 2006/07 forecast specific reinforcement expenditure and workload has been transferred from connections to reinforcement mains. We have not made any other adjustments to the workload or costs.

Normalisations

We have been advised of an accounting adjustment recommended by Ofgem in relation to Fulcrum related party margins. A sum of £1.11m has been removed from the 2006/07 reinforcement mains figures for Southern.

Reinforcement mains

Excluding specific reinforcement from the out-turn, the workload and gross expenditure variances are -53.1% and -55.3% respectively. The overall unit cost variance is -4.7%. In response to a supplementary question, SGN has explained that the workload volumes for both general reinforcement and upsizing were lower than forecast due to planning and validation processes identifying work that can be deferred. Deferred projects will be incorporated into the revised forecasts.

The reduced <=180mm unit cost results from the general reinforcement diameter mix bias towards the lower end.

Governors

The workload and gross expenditure variances for growth governors are -7.7% and -39.4% respectively, and the overall unit cost variance is -34.4%. In response to a supplementary question, SGN has explained that the unit cost variance results from the mix of installations supplied from the IP and MP pressure tiers. None of the new installations were supplied from the IP system and the influence of the higher cost associated with these installations is not reflected therefore.

The workload and gross expenditure variances for renewal governors are 166.7% and 127.3% respectively, and the overall unit cost variance is -14.8%. In response to a supplementary question, SGN has indicated that misallocation of expenditure has been identified with £639.9k that should have been included within Other Operational Capex - Plant & Equipment. The workload associated with this cost accounted for the complete replacement of 6 governor installations. It is evident that the information for 2006/07 is unreliable and SGN has indicated that the updated forecast will not be influenced as a consequence.

The workload variance associated with service governors is 156.7%. In response to a supplementary question, SGN has explained that the workload volume increased due to carry over of replacement not completed in 2005/06.


A4.4.3 IMPACT OF MOVEMENTS ON REGRESSION

Figure 5-5 in Section 5.2.2 shows the reinforcement mains regression analysis movements comparing the 2005/06 out-turn, including specific reinforcement, to the 2006/07 out-turn. The movement for Southern indicates that workload and expenditure have increased. Also, no significant change in efficiency is indicated by movement in the general direction of the regression.


Introduction

This section of the report updates our workload proposals based on our review of Southern’s forecast submission. We specify the adjustments that we have applied to the forecasts, including changes from our original reports.

Company Proposals

We have examined Southern’s forecast submission and have not identified any significant changes to the assumptions applied, as summarised in our original report.

Reinforcement Mains - Company Workload Forecasts

Southern’s reinforcement mains workload forecasts associated with replacement mains upsizing ranges from 14.08km in 2008/09 to 15.81km in 2012/13. These levels of activity are approximately 50% of their original forecasts and reflect our original recommendations regarding adjustments to the workload for this activity. The workload balance has been transferred to Repex and is included in Southern’s forecasts for replacement mains. We have not identified any issues and, therefore, we recommend that Southern’s revised forecasts for general reinforcement mains are accepted.

The revised total reinforcement mains workload forecast associated with eliminating network constraints is 99.1km for the period 2008/09 to 2012/13.Our original recommendation that detailed information regarding the associated planning assumptions, timing of projects and project costings is reviewed to the validate the forecasts still applies.

Specific reinforcement mains have been transferred from connections and are now included in mains reinforcement. The workload forecasts associated with specific reinforcement average 18.21km/year over the period 2008/09 to 2012/13 and reflect the level of activity reported for 2006/07. We have not identified any issues and recommend that Southern’s workload forecasts for specific reinforcement mains are accepted.

Governors – Company Workload and Expenditure Forecasts

The growth governors workload forecasts for Southern are unchanged from the original submission. SGN has a programme commencing in 2007/08 to uprate 27 IP inlet governors over the period of the forecast at a rate of 5-6 per year, which results in a high unit cost forecast. However, this does not explain the exceptionally high unit cost forecast for 2009/10 and, therefore, our original adjustment for that year has been retained.

The renewal governors workload forecasts for Southern are unchanged from the original submission. Planned work to replace a number of large governor installations associated with holder sites results in high unit costs, compared to historical levels, across the forecast period. We have not identified any issues and recommend that Southern’s forecasts for renewal governors are accepted.



Gross Capex - Reinforcement mains

Figure A4 - 3 shows the GDN’s Gross Capex projections for the total reinforcement mains activity over the period 2005/06 to 2012/13.

Reinforcement Mains Proposed Gross Capex - Southern

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

£m

Normalised BPQ Baseline Performance Proposed Net Benchmark Performance

Figure A4 - 3

Workload

We recommend that Southern’s workload forecasts for reinforcement mains and governors are accepted, as shown in Table A4 - 31, Table A4 - 32, Table A4 - 33 and Table A4 - 34.


General Reinforcement Mains Length (km)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

BPQ <180mm 27.9 29.4 28.9 27.4 27.5 >180mm 24.6 27.2 25.6 23.5 24.7 52.5 56.7 54.6 50.9 52.1 Normalisation Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BPQ <180mm 27.9 29.4 28.9 27.4 27.5 >180mm 24.6 27.2 25.6 23.5 24.7 Total 52.5 56.7 54.6 50.9 52.1 Work Load Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected <180mm 27.9 29.4 28.9 27.4 27.5 >180mm 24.6 27.2 25.6 23.5 24.7 Total 52.5 56.7 54.6 50.9 52.1

Table A4 - 31

Specific Reinforcement Mains Length (km)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

BPQ <180mm 13.5 13.4 13.3 12.7 12.9 >180mm 5.2 5.2 5.2 4.9 4.9 18.6 18.6 18.4 17.7 17.7 Normalisation Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BPQ <180mm 13.5 13.4 13.3 12.7 12.9 >180mm 5.2 5.2 5.2 4.9 4.9 Total 18.6 18.6 18.4 17.7 17.7 Work Load Adjustments <180mm 0.0 0.0 0.0 0.0 0.0 >180mm 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected <180mm 13.5 13.4 13.3 12.7 12.9 >180mm 5.2 5.2 5.2 4.9 4.9 Total 18.6 18.6 18.4 17.7 17.7

Table A4 - 32


Number District Governors

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

BPQ Workload Growth 14.0 15.0 16.0 16.0 16.0 Renewal 67.0 64.0 63.0 63.0 63.0 Total 81.0 79.0 79.0 79.0 79.0 Work Load Adjustments Growth 0.0 0.0 0.0 0.0 0.0 Renewal 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected Workload Growth 14.0 15.0 16.0 16.0 16.0 Renewal 67.0 64.0 63.0 63.0 63.0 Total 81.0 79.0 79.0 79.0 79.0

Table A4 - 33

Number Service Governors

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

BPQ Workload Domestic 30.0 30.0 30.0 30.0 30.0 Non-Domestic 0.0 0.0 0.0 0.0 0.0 Total 30.0 30.0 30.0 30.0 30.0 Work Load Adjustments Domestic 0.0 0.0 0.0 0.0 0.0 Non-Domestic 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 Projected Workload Domestic 30.0 30.0 30.0 30.0 30.0 Non-Domestic 0.0 0.0 0.0 0.0 0.0 Total 30.0 30.0 30.0 30.0 30.0

Table A4 - 34

Net Expenditure

Table A4 - 35, Table A4 - 36, Table A4 - 37 and Table A4 - 38 summarise our net expenditure projections.

General Reinforcement Mains Net Capex All figures

£m 2005/06 prices 2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 11.5 13.3 12.3 11.7 12.2 61.0 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 11.5 13.3 12.3 11.7 12.2 61.0 Total up to 180mm 3.9 4.2 4.2 4.1 4.1 20.5 Total above 180mm 7.6 9.1 8.1 7.6 8.1 40.5 Total Adjustments -3.8 -5.1 -4.8 -4.9 -5.5 -24.0 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -3.8 -5.1 -4.8 -4.9 -5.5 -24.0 Proposed Net 7.7 8.1 7.5 6.8 6.8 37.0 Total up to 180mm 2.8 2.8 2.7 2.5 2.4 13.1 Total above 180mm 5.0 5.3 4.9 4.3 4.4 23.9

Table A4 - 35


Specific Reinforcement Mains Net Capex All figures £m 2005/06

prices 2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 2.3 2.4 2.4 2.3 2.3 11.6 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 2.3 2.4 2.4 2.3 2.3 11.6 Total up to 180mm 1.4 1.4 1.4 1.4 1.4 7.0 Total above 180mm 0.9 0.9 0.9 0.9 0.9 4.6 Total Adjustments 0.0 -0.1 -0.2 -0.2 -0.3 -0.7 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment 0.0 -0.1 -0.2 -0.2 -0.3 -0.7 Proposed Net 2.4 2.3 2.2 2.1 2.0 10.9 Total up to 180mm 1.3 1.3 1.2 1.1 1.1 6.1 Total above 180mm 1.1 1.0 1.0 0.9 0.9 4.8

Table A4 - 36

District Governor Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Net Submission 9.2 9.9 9.8 9.9 10.1 48.8 Normalisation Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Normalised Net BPQ 9.2 9.9 9.8 9.9 10.1 48.8 Growth 1.8 2.4 2.2 2.2 2.3 10.9 Renewal 7.4 7.5 7.6 7.7 7.8 38.0 Total Adjustments -0.3 -0.8 -0.7 -0.8 -1.0 -3.6 Workload Adjustment 0.0 0.0 0.0 0.0 0.0 0.0 Efficiency Adjustment -0.3 -0.8 -0.7 -0.8 -1.0 -3.6 Disallowed Costs 0.0 0.0 0.0 0.0 0.0 0.0 Proposed Net 8.9 9.1 9.1 9.1 9.1 45.2 Growth 1.8 2.0 2.0 2.0 2.0 9.8 Renewal 7.1 7.1 7.0 7.0 7.0 35.3

Table A4 - 37

Service Governor Net Capex All figures £m 2005/06 prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ 0.0 0.0 0.0 0.0 0.0 0.1 Domestic 0.0 0.0 0.0 0.0 0.0 0.1 Non-Domestic 0.0 0.0 0.0 0.0 0.0 0.0 Total Adjustments 0.0 0.0 0.0 0.0 0.0 0.0 Proposed Net 0.0 0.0 0.0 0.0 0.0 0.1 Domestic 0.0 0.0 0.0 0.0 0.0 0.1 Non-Domestic 0.0 0.0 0.0 0.0 0.0 0.0

Table A4 - 38


A4.5 OTHER OPERATIONAL CAPEX

A4.5.1 SUMMARY


2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission Plant & Equipment 5.9 4.7 5.1 3.0 3.6 22.3 Land & Buildings 0.5 0.5 0.5 0.5 0.5 2.5 Total 6.4 5.2 5.6 3.5 4.1 24.8 Normalisation Adjustments Plant & Equipment 0.0 0.0 0.0 0.0 0.0 0.0 Land & Buildings 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ Plant & Equipment 5.9 4.7 5.1 3.0 3.6 22.3 Land & Buildings 0.5 0.5 0.5 0.5 0.5 2.5 Total 6.4 5.2 5.6 3.5 4.1 24.8 Adjustments Plant & Equipment -0.3 -0.3 -0.4 -0.3 -0.4 -1.8 Land & Buildings 0.0 0.0 0.0 -0.1 -0.1 -0.2 Total -0.3 -0.4 -0.5 -0.4 -0.5 -2.0 Proposed Plant & Equipment 5.6 4.4 4.7 2.7 3.2 20.5 Land & Buildings 0.5 0.5 0.5 0.5 0.4 2.3 Total 6.0 4.9 5.1 3.2 3.6 22.8

Table A4 - 39


2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l Proposed

Plant & Equipment 5.5 4.4 4.7 2.7 3.2 20.4

Land & Buildings 0.9 0.0 0.7 0.0 0.0 1.5

Total 6.4 4.4 5.3 2.7 3.2 21.9

Table A4 - 40


Southern underspent relative to their forecast for Plant & Equipment. However, they materially overspent their Land & Buildings forecast. SGN have stated that this was due to bringing forward the purchase of a building freehold (Horley) and that this is reflected in their revised forecasts for 2007/08.


For Land & Buildings, the high expenditure in 2007/08 has not received our support as no business case has been made for the freehold purchase of offices and depots. We will therefore not be supporting the request for £4.6m for the same purpose in 2010/11 which now appears in Non Operational Capex (Other - Property); please see section 4.6.5 below.



Net Capex £m All figures in 2005/06 Prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Land & Buildings 0.5 0.5 0.5 0.5 0.5 2.5 Table A4 - 41

Land & Building Net Capex

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2005/06 2006/07 2007/08 2008/09 2009/10

£ m

EoE Lon No NW Sc So WM WW

Figure A4 - 4

Net Capex £m All figures in 2005/06 Prices

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l Plant & Equipment 5.9 4.7 5.1 3.0 3.6 22.3

Table A4 - 42


Plant & Equipment Net Capex

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2005/06 2006/07 2007/08 2008/09 2009/10

£ m

EoE Lon No NW Sc So WM WW

Figure A4 - 5

The annualised costs of Land & Buildings are a little higher than for other GDNs. However, we recognise that these costs are higher in the South and South East of England and therefore support the proposals.


After adjustment for RPEs we support in full the proposals for allowances shown above.


A4.6 NON-OPERATIONAL CAPEX

A4.6.1 SUMMARY

GDN Capital Expenditure £m (2005/2006 prices)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

System Operations 1.0 0.0 0.0 0.0 0.0 1.0 IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems 14.5 4.8 0.0 0.0 0.0 19.3 xoserve 2.9 0.2 3.1 2.4 0.2 8.9 Vehicles 2.8 3.3 0.3 0.2 13.4 19.9 Telecoms, Office 1.0 1.0 1.0 1.0 1.0 4.8 Tools & Equipment 1.9 1.6 1.6 1.6 1.6 8.3 Other 0.0 0.0 4.6 0.0 0.0 4.6 Total 25.9 12.9 11.3 6.9 17.0 74.0 Normalisation Adjustments xoserve -0.4 -0.1 -0.9 -0.8 -0.2 -2.4 Net Total -0.4 -0.1 -0.9 -0.8 -0.2 -2.4 Normalised Capex System Operations 1.0 0.0 0.0 0.0 0.0 1.0 IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems 14.5 4.8 0.0 0.0 0.0 19.3 xoserve 2.6 0.1 2.2 1.7 0.0 6.5 Vehicles 2.8 3.3 0.3 0.2 13.4 19.9 Telecoms, Office 1.0 1.0 1.0 1.0 1.0 4.8 Security 0.0 0.0 0.0 0.0 0.0 0.0 Furniture and fittings 0.0 0.0 0.0 0.0 0.0 0.0 Tools & Equipment 1.9 1.6 1.6 1.6 1.6 8.3 Other 0.0 0.0 4.6 0.0 0.0 4.6 Total 25.5 12.8 10.4 6.1 16.7 71.6 Efficiency Adjustments System Operations -0.6 0.0 0.9 0.9 0.0 1.2 Other 0.0 0.0 -4.6 0.0 0.0 -4.6 Net Total -0.6 0.0 -3.6 0.9 0.0 -3.3 Proposed Net Capex System Operations 0.4 0.0 0.9 0.9 0.0 2.2 IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems 14.5 4.8 0.0 0.0 0.0 19.3 xoserve 2.6 0.1 2.2 1.7 0.0 6.5 Vehicles 2.8 3.3 0.3 0.2 13.4 19.9 Telecoms, Office 1.0 1.0 1.0 1.0 1.0 4.8 Tools & Equipment 1.9 1.6 1.6 1.6 1.6 8.3 Other 0.0 0.0 0.0 0.0 0.0 0.0 Total Proposed 24.9 12.8 6.8 7.0 16.7 68.3

Table A4 - 43

The table above shows the final figures, after our revised recommendations

The table below shows our original recommendations.



2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

Proposed Net Capex System Operations 0.4 0.0 0.9 0.9 0.0 2.2 IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems 8.4 3.6 0.0 0.0 0.0 12.0 xoserve Capex 2.9 0.2 3.1 2.4 0.2 8.9 Vehicles 2.8 3.3 0.3 0.2 13.3 19.8 Telecoms, Office 1.0 1.0 1.0 1.0 1.0 4.8 Security 0.0 0.0 0.0 0.0 0.0 0.0 Furniture and fittings 0.0 0.0 0.0 0.0 0.0 0.0 Tools & Equipment 1.9 1.6 1.6 1.6 1.6 8.3 Other 0.0 0.0 0.0 0.0 0.0 0.0 Total 19.1 11.7 7.6 7.7 16.9 63.0

Table A4 - 44


The following table shows the outturn costs for 2006/2007 compared with the originally submitted forecast costs.


2006

/07

Fore

cast

2006

/07

Out

turn

2006

/07

Var

ianc

e

System Operations 0.1 0.0 -0.1 IS Infrastructure 0.0 1.4 1.4 IS Systems 0.4 13.7 13.3 xoserve 0.0 0.0 0.0 Vehicles 0.0 0.0 0.0 Telecoms, Office 0.5 0.2 -0.3 Security 0.0 0.0 0.0 Furniture and fittings 0.0 0.0 0.0 Tools & Equipment 1.0 0.9 -0.1 Other 0.0 0.0 0.0 Total 2.0 16.2 14.1

Table A4 - 45

Southern’s outturn figures show that they have spent £13.2m more than forecast on IS Systems.

In response to a specific question, SGN said this was due to bringing forward of expenditure on FOMSA replacement, and the additional cost of provision of enhanced systems functionality over and above that provided by existing NG systems, not just the cost of like for like replacement.

SGN say this approach has been discussed and agreed with Ofgem.


We have not made any amendments to our recommendations as a result of the outturn figures.



The revised forecast is shown at the top of Table A4 - 43. The xoserve Capex is not included in SGN’s revised forecasts due to the revised format of the BPQ. Normalisation adjustments have been applied to add back xoserve Capex calculated from the xoserve BPQ.

The revised forecasts show an increase of some £7.2m for IS Systems expenditure over the 5-year period. SGN say this is due to increased development costs associated with the Back Office System Project. In line with our comments in relation to the outturn adjustments, we assume this has also been agreed with Ofgem.

The revised forecasts also show an increase in Vehicles expenditure. This is a result of xoserve costs being categorised as Vehicles expenditure (in line 52, C5), as the line for xoserve was removed from the update BPQ.

Additionally there is a sum of £4.55m in 2010/11 allocated to Property in ‘Other’ which was previously allocated to Land and Buildings in Other Operational Capex.

There are therefore no other actual changes to Southern’s Non-Operational Capex forecasts.


Our original recommendations allowed a net increase of £1.2m for System Operation Capex costs (resulting from the deduction of non-allowed phase 1 costs, net against the reallocation of non-SCADA systems costs across all the GDN’s) and a reallocation of £8.86m from Opex into Capex in relation to xoserve project costs. There was also a reallocation of £7.1m into IS Infrastructure from IS Systems, following amendment of the BPQ submission by SGN.

The reallocation from IS Infrastructure to IS Systems is no longer required as SGN have made this amendment in their update.

Xoserve costs have been allocated to vehicles, and at present we are removing them entirely from non-op Capex, for consistency with the other GDN’s who have not reported xoserve costs in the July update.

Our recommendations in relation to System Operation costs remain unchanged.

For Property in 'Other', the high expenditure in 2007/08 had not received our support as no business case had been made for the freehold purchase of offices and depots.

We had asked SGN to indicate where the payback was for this Capex in terms of Opex reduction (owning the building removes the rent costs) but this was not offered. We had also indicated that we were not convinced that freeholds are necessarily the right business solution as they are inflexible when business needs change and can lead to high void costs later.

We therefore do not support the request for £4.6m for this purpose in 2010/11: please see section 4.5.3 above.

Our revised recommendations are shown in Table A4 - 43

For reference, the table below shows our original recommended adjustments.



2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

5 Y

r Tot

al

System Operations 1.0 0.0 0.0 0.0 0.0 1.0 IS Infrastructure 0.0 0.0 0.0 0.0 0.0 0.0 IS Systems 10.3 5.6 0.8 1.7 0.8 19.1 xoserve Capex 0.0 0.0 0.0 0.0 0.0 0.0 Sub Total Submitted 11.3 5.6 0.8 1.7 0.8 20.1 Normalisation Adjustments IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems -1.9 -2.0 -0.8 -1.7 -0.8 -7.1 xoserve Capex 2.9 0.2 3.1 2.4 0.2 8.9 Net Total 2.9 0.2 3.1 2.4 0.2 8.9 Efficiency Adjustments System Operations -0.6 0.0 0.9 0.9 0.0 1.2 Net Total -0.6 0.0 0.9 0.9 0.0 1.2 Proposed Net Capex System Operations 0.4 0.0 0.9 0.9 0.0 2.2 IS Infrastructure 1.9 2.0 0.8 1.7 0.8 7.1 IS Systems 8.4 3.6 0.0 0.0 0.0 12.0 xoserve Capex 2.9 0.2 3.1 2.4 0.2 8.9 Sub Total Proposed 13.6 5.8 4.8 5.0 1.0 30.2

Table A4 - 46


A4.7 MAINS AND SERVICES REPEX

A4.7.1 SUMMARY

Tables for Forecast section for each area of spend £m (2005/06)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

BPQ Submission HSE Enforcement Policy 76.9 80.6 84.3 87.9 92.8 422.5 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.3 0.3 0.3 0.3 0.3 1.5 Other Policy & Condition 14.7 16.5 21.6 21.7 22.3 96.8

Mains

Rechargeable Diversions (Net) 0.0 0.0 0.0 0.0 0.0 0.0 Non-Domestic Services 1.0 1.1 1.1 1.2 1.2 5.6 Domestic Services 51.2 54.6 55.7 55.8 56.5 273.9 Services Multi-occupancy Buildings 3.9 4.8 5.7 6.6 7.6 28.6

Total 148.0 157.9 168.7 173.5 180.6 828.7 Normalisation Adjustments Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised

HSE Enforcement Policy 76.9 80.6 84.3 87.9 92.8 422.5 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.3 0.3 0.3 0.3 0.3 1.5 Other Policy & Condition 14.7 16.5 21.6 21.7 22.3 96.8

Mains


Total 148.0 157.9 168.7 173.5 180.6 828.7 Adjustments

HSE Enforcement Policy -8.3 -10.5 -14.0 -17.1 -21.7 -71.5 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.0 0.0 -0.1 -0.1 -0.1 -0.3 Other Policy & Condition -3.9 -5.9 -11.2 -11.4 -12.2 -44.6

Mains

Rechargeable Diversions (Net) 0.0 0.0 0.0 0.0 0.0 0.0 Non-Domestic Services 0.3 0.3 0.3 0.2 0.2 1.3 Domestic Services -6.1 -8.6 -10.8 -12.1 -13.6 -51.2 Services Multi-occupancy Buildings -2.3 -2.8 -3.3 -3.9 -4.4 -16.7

Total -20.3 -27.6 -39.1 -44.3 -51.7 -183.0 Proposed

HSE Enforcement Policy 68.6 70.0 70.3 70.8 71.1 350.9 MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0 Non-Rechargeable Diversions 0.2 0.2 0.2 0.2 0.2 1.2 Other Policy & Condition 10.8 10.6 10.4 10.3 10.1 52.2

Mains


Total 127.8 130.3 129.6 129.2 128.9 645.8

Table A4 - 47


Original Tables for Forecast section for each area of spend £m (05/06)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed

HSE Enforcement Policy 67.0 70.9 71.2 71.6 70.4 351.0

MP Ductile iron 0.0 0.0 0.0 0.0 0.0 0.0

Non-Rechargeable Diversions 0.4 0.4 0.4 0.4 0.3 1.9

Other Policy & Condition 9.8 9.5 9.3 9.0 8.8 46.4

Mains

Rechargeable Diversions (Net) 0.0 0.0 0.0 0.0 -0.1 -0.2

Non-Domestic Services 1.3 1.3 1.3 1.2 1.2 6.3

Domestic Services 45.5 45.9 44.1 42.5 41.0 219.0 Services

Multi-occupancy Buildings 1.1 1.1 1.2 1.2 1.2 5.8

Total 125.0 129.0 127.4 125.8 123.0 630.1

Table A4 - 48

The outcome of the updated regression analysis is to increase (from our last report) the cost of replacement mains and services for the five years to 2012/13 by £15.7m (2.5%). Whilst the Network’s efficiency has improved in 2006/07 this effect is offset by changes to our workload forecast for the period. The factors which affect the revised recommendations are considered below.


2006/07 Performance against Forecast

This section reviews the Network’s actual 2006/07 performance and compares this with the forecasts contained within the Network’s October 2006 submission.

In undertaking this review it is recognised that some costs are allocated to activities rather than being attributed to a unique cost centre, e.g. the allocation of mains costs to diameter bands. We have therefore only identified significant movements between the October forecast and the actual results.

Mains

The commentary below refers to mains laid under the HSE Enforcement Policy (including MPDI where this occurs) Other Policy & Condition mains and non-rechargeable mains diversions. Re-chargeable diversions have been omitted because of the relatively small volumes and net costs.


Gross Cost

Forecast (£m) Actual (£m) Change (£m) %Change

74.2 69.6 -4.6 -6.2%

Table A4 - 49

Installed Mains

Forecast (km) Actual (km) Change (km) %Change

510.7 537.2 26.5 5.2%

Table A4 - 50

Unit Cost Movements

In order to make a forecast/outturn comparison we have allocated overhead within the forecast in proportion to expenditure.

There has been a variance from forecast in the key unit costs:

<=75mm -5.8%

>75mm to 125mm -5.6%

>125mm to 180mm -2.6%

>180mm to 250mm -6.2%

>250mm to 355mm -0.4%

>355mm to 500mm -4.2%

Volume Movements

There was a significant variance from forecast in the volume of <=75mm mains

<=75mm +62.5km (+49.8%)

Other significant changes

>75mm to 125mm -30.5km (-12.3%)

>250mm to 355mm -18.5km (-38.3%)

>355mm to 500mm +10.1km (+104.4%)

Various changes in the other diameter bands combined to give the net variance to forecast shown above.

Abandoned Mains

Forecast (km) Actual (km) Change (km) %Change

582.0 567.3 -14.7 -2.5%

Table A4 - 51


HSE Enforcement Policy

Abandoned main (536.7km) was less than forecast (539.3km), a shortfall of 2.6km.

The Network is still increasing production and will reach its plateau rate of 712km/yr in 2009/10. This is the correct rate to complete the programme over the next 25 years.

Abandoned/Installed Ratio

Forecast Actual

1.14 1.06

Table A4 - 52

Target Population at 31.03.07

Forecast (km) Actual (km) Change

17,648.5 *17,651.1 -0.01%

Table A4 - 53

*This number reached by deduction from the 2005/06 population (as no revised population provided) and therefore excludes any other changes such as dynamic growth.

The population remaining at 31.03.07 (and to be replaced over the next 25 years) is consistent with the workloads forecast in our last report.

Services (including non-domestic services and multiple occupancy buildings)

Forecast (£m) Actual (£m) Change (£m) %Change

50.37 43.32 -7.05 -14%

Table A4 - 54

Unit Cost Movements

Unit cost of the three principal activities reduced from forecast:

Relaid services associated with mains replacement -15.2%

Service test & transfer to new or other main -17.8%

Services relaid after escape -13.8%

Domestic Services Jobs (Excluding Purge & Relight)

Forecast Actual Change %Change

67636 69475 1839 2.7%

Table A4 - 55


Volume Movements

A small decrease from forecast in the number of relaid services (associated with mains replacement) and in the numbers of services tested and transferred, was offset by increases in services relaid after escape and services relaid as a result of alter meter position work.

Relaid services associated with mains replacement -1.0%

Service test & transfer to new or other main -2.4%

Services relaid after escape +9.0%

Reposition domestic meter - service relays +70.3%

Multiple Occupancy Buildings

Whilst there were costs of £4.0m forecast, actual costs of only £1.0m have been recorded representing the cost of replacing 369 lateral connections and associated risers. The Network has explained that during 2006/07 it did not fully implement a policy for proactive replacement in the light of ongoing industry discussion with Ofgem.

Key Ratios

Relaid services/km mains abandoned – 62.1

Transferred services/km mains abandoned – 33.2

% transferred services – 34.9%

Services jobs/km mains abandoned – 95.4

Whilst there was a slight increase in the number of services relaid/km mains abandoned, overall services workload is in line with previous years.

A4.7.3 REGRESSION ANALYSIS AND THE 2006/07 BASE YEAR

Normalisations

We have been advised of an accounting adjustment recommended by Ofgem in relation to insurance expenditure. A sum of £0.29m has been removed from the 2006/07 Mains figures. A further adjustment of £0.3m has been advised for Related Party Margins for Repex activities, which we have removed from services.

In the 2005/06 regression analysis we normalised some costs associated with “relay service after escape” to the Emergency process, believing that some of the cost of this activity was actually attributable to monitoring gas levels at the site after the replacement work was complete. We have now received further information on how these monitoring costs are allocated and we have reviewed and withdrawn this normalisation.

We have made no adjustment to 2006/07 mains or services volumes.


Installed Mains Base Year (2006/07) Assumptions and Adjustments (Excluding Re-Chargeable Diversions)

Volume (km)

Gross (Including Overheads)

£m

BPQ Submission HSE Enforcement Policy 519.5 67.3 MPDI Programme 0.0 0.0 Other Policy & Condition Mains 17.3 2.4 Non-rechargeable Diversions 0.4 0.4 Total Repex Mains 537.2 70.0 Normalised BPQ HSE Enforcement Policy 519.5 67.0 MPDI Programme 0.0 0.0 Other Policy & Condition Mains 17.3 2.4 Non-rechargeable Diversions 0.4 0.4 Total Repex Mains 537.2 69.7

Table A4 - 56


Replacement Services-domestic Base Year (2006/07) Assumptions and Adjustments Volume

Gross (Including Overheads)

£m

BPQ Submission Domestic Services Relaid services associated with mains replacement 35243 20.2 Relaid services not associated with mains replacement (bulk relays) 0 0.0 Services relaid after escape 10502 7.7 Service test & transfer to new or other main 18868 7.1 Reposition domestic meter - service relays 4390 5.0 Purge & relight after domestic service work 69003 1.7 Service relay domestic meterwork 472 0.0 Other domestic services 0 0.3 Total domestic services 42.1 Non-domestic Services 581 0.3 Multiple Occupancy Buildings Renew risers 2093 1.0 Renew service connections 492 0.0 Total - Multiple Occupancy Buildings 1.0 Total Services 43.4 Normalised BPQ Domestic Services Relaid services associated with mains replacement 35243 19.9 Relaid services not associated with mains replacement (bulk relays) 0 0.0 Services relaid after escape 10502 7.7 Service test & transfer to new or other main 18868 7.1 Reposition domestic meter - service relays 4390 5.0 Purge & relight after domestic service work 69003 1.7 Service relay domestic meterwork 472 0.0 Other domestic services 0 0.3 Total domestic services 41.8 Non-domestic Services 581 0.3 Multiple Occupancy Buildings Renew risers 2093 1.0 Renew service connections 492 0.0 Total - Multiple Occupancy Buildings 2584 1.0 Total Services 43.1

Table A4 - 57


A4.7.4 2005/06 – 2006/07 COMPARISON

Log Regression Chart Total Net Repex Against Weighted Workloads

EoE

Lon

No

NW

Sc

So

WMWW

3.6

3.8

4

4.2

4.4

4.6

4.8

3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9

Log Weighted Average Workload

Log

Net

Exp

endi

ture

(RF

appl

ied)

2005/06 (Rev) 2006/07 Linear (2005/06 (Rev)) Linear (2006/07)

Figure A4 - 6

The R2 value of the analysis has improved from 0.9112 (2005/06) to 0.9297 in 2006/07.

There were significant improvements in key unit costs (2005/06) over the year with the cost of installed mains in the <=75mm band falling by 7.0% and the >75mm – 125mm band falling by 5.9% although most of the larger diameters showed increases. In addition, relaid services associated with mains replacement fell by 7.4%; services relaid after escape fell by 10.0% and service test & transfer fell by 8.9%.

The Network’s 2005/06 position was improved by a normalisation to Emergency Opex of £1.3m. There is no corresponding normalisation in the 2006/07 analysis and the Network has moved to the right on the regression chart and parallel to the regression line. On a comparable basis the Network, driven by the unit cost improvements above, would have moved closer to the regression line and shown a more marked improvement.

The Network has not commented on its improved performance.


Comparison with the Network’s October 2006 Submission:

Abandoned Mains - There is no change in the volume of mains to be abandoned.

Installed Mains

HSE Programme - There are adjustments to lengths within the diameter bands and a total change of 66.7km (+2.1%) over the five years of which an additional 19.3km is allocated to the diameter bands <=180mm.

Other Policy and Condition Mains – There are adjustments in lengths in all diameter bands but the total is unchanged over the five years.

Services - There is a reduction in relaid services jobs of 9656 (-3.9%) offset by an increase in test and transfer services of 6023 (4.5%). There are significant increases in services relaid after escape (5831; +14.3%), reposition domestic meter-service relays


(8898; +84%) and service relay domestic meter work (1276; +55%) Other increases sum to give a net change of 12502 services jobs (+2.9%4) over the five years.

Multiple Occupancy Buildings – Workload has been reassessed from 28920 to 12921 service connections over the five years.

Revised Workload Submission GDN Volumes (as

presented) (Excluding Re-Chargeable

Diversions) 2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains (km) HSE Programme 519.5 521.2 595.6 644.3 650.3 656.3 662.4 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.4 2.0 2.0 2.0 2.0 2.0 2.0 Other Policy & Condition Mains 17.3 46.3 51.3 56.4 71.9 69.1 69.8 Total Installed Mains (km) 537.2 569.5 648.9 702.7 724.2 727.5 734.2 Replacement Services - domestic Relaid services associated with mains replacement 35243 41304 45287 48227 48530 47806 47575

Relaid services not associated with mains replacement (bulk relays) 0 0 0 0 0 0 0 Services relaid after escape 10502 10187 9881 9585 9297 9018 8748 Service test & transfer to new or other main 18868 22664 25438 27706 28477 28629 29053 Reposition domestic meter - service relays 4390 4258 4131 4007 3886 3770 3657 Purge & relight after domestic service work 69003 78413 84737 89525 90191 89223 89033 Service relay domestic meterwork 472 620 679 723 728 717 714 Other domestic services 0 0 0 0 0 0 0 Total Domestic Services 138478 157446 170153 179772 181110 179164 178779 Replacement Services - Non-domestic 581 682 748 799 814 809 806 Multiple Occupancy Buildings Renew service connections 492 1477 1846 2215 2584 2953 3323 Total riser renewals (m) 2093 6281 7852 9422 10993 12563 14133

Table A4 - 58

A4.7.6 VOLUME ADJUSTMENTS (2008/09 – 2012/13)

We have adjusted installed mains volumes to increase the proportion of smaller diameter mains and scaled back Other Policy & Condition mains for the reasons described in our last report.

We have adjusted the volumes of relaid and transferred services in proportion the adjustment to mains. We have reduced the number of “Reposition domestic meter – service relay” jobs; volume history is poor and so we have made an adjustment by reference to other Networks.

4 As a percentage of total services jobs excluding “purge and relight” and multiple occupancy buildings.


We have scaled back the Network’s proposals for Multiple Occupancy Buildings. Whilst we support the need to fund a programme of replacement, there is insufficient population data available at present to set an appropriate rate of replacement. We have therefore scaled down the proposals to fund a limited volume of planned or reactive replacement each year. We are aware that Networks are continuing to collect population data and Ofgem may wish to review the recommendation if further information is available later in the year.

GDN Volumes (Adjusted)

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains (km) HSE Programme 519.5 521.2 595.6 644.3 650.3 656.3 662.4 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.4 2.0 2.0 2.0 2.0 2.0 2.0 Other Policy & Condition Mains 17.3 46.3 51.3 51.3 51.3 51.3 51.3 Total Installed Mains (km) 537.2 569.5 648.9 697.6 703.6 709.7 715.7 Replacement Services - domestic Relaid services associated with mains replacement 35243 41304 45287 47884 47179 46659 46403

Relaid services not associated with mains replacement (bulk relays) 0 0 0 0 0 0 0 Services relaid after escape 10502 10187 9881 9585 9297 9018 8748 Service test & transfer to new or other main 18868 22664 25438 27509 27684 27942 28337 Reposition domestic meter - service relays 4390 4258 3000 3000 3000 3000 3000 Purge & relight after domestic service work 69003 78413 84737 88888 87680 87083 86839 Service relay domestic meterwork 472 620 679 723 728 717 714 Other domestic services 0 0 0 0 0 0 0 Total Domestic Services 138478 157446 169023 177589 175568 174420 174040 Replacement Services - Non-domestic 581 682 748 799 814 809 806 Multiple Occupancy Buildings Renew service connections 492 1477 769 923 1077 1231 1384 Total riser renewals (m) 2093 6281 3272 3926 4580 5235 5889

Table A4 - 59


A4.7.7 REVISED EXPENDITURE SUBMISSION

GDN Costs as presented (Normalised) £m 2005/06 Prices

(Excluding Re-Chargeable Diversions) 20

06/0

7

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains HSE Programme 67.0 65.9 76.9 80.6 84.3 87.9 92.8 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.4 0.3 0.3 0.3 0.3 0.3 0.3 Other Policy & Condition Mains 2.4 12.9 14.7 16.5 21.6 21.7 22.3 Total Installed Mains 69.7 79.1 91.8 97.4 106.2 109.9 115.4 Replacement Services - Domestic Relaid services associated with mains replacement 19.9 24.1 26.9 29.1 29.8 29.8 30.2 Relaid services not associated with mains replacement (bulk relays) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services relaid after escape 7.7 7.6 7.5 7.4 7.3 7.2 7.1 Service test & transfer to new or other main 7.1 8.7 9.8 11.0 11.5 11.7 12.1 Reposition domestic meter - service relays 5.0 5.0 4.8 4.8 4.7 4.7 4.6 Purge & relight after domestic service work 1.7 2.0 2.2 2.4 2.4 2.4 2.5 Service relay domestic meterwork 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other domestic services 0.3 0.0 0.0 0.0 0.0 0.0 0.0 Total Domestic Services 41.8 47.3 51.2 54.6 55.7 55.8 56.5 Replacement Services - Non-domestic 0.3 0.9 1.0 1.1 1.1 1.2 1.2 Multiple Occupancy Buildings Renew service connections 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total riser renewals 1.0 3.1 3.9 4.8 5.7 6.6 7.6 Total 1.0 3.1 3.9 4.8 5.7 6.6 7.6 Total Repex 112.8 130.4 148.0 157.9 168.7 173.5 180.6

Table A4 - 60



Forecast & Projected Net Repex

90

100

110

120

130

140

150

160

170

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Exp

£m

Restated BPQ (Normalisation & Workload) Benchmark PerformanceProposed Baseline Performance

Figure A4 - 7


Recommended Costs £m 2005/06 Prices

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Installed Mains HSE Programme 66.5 62.2 68.6 70.0 70.3 70.8 71.1 MPDI Programme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-rechargeable Diversions 0.4 0.3 0.2 0.2 0.2 0.2 0.2 Other Policy & Condition Mains 1.9 9.9 10.8 10.6 10.4 10.3 10.1 Rechargeable Diversions -0.1 0.0 0.0 0.0 0.0 0.0 0.0 Total Installed Mains 68.7 72.4 79.7 80.9 81.0 81.3 81.5 Replacement Services - domestic Relaid services associated with mains replacement 18.7 21.4 22.9 23.8 23.1 22.5 22.1 Relaid services not associated with mains replacement (bulk relays) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Services relaid after escape 9.2 8.7 8.2 7.9 7.5 7.2 6.9 Service test & transfer to new or other main 6.0 7.0 7.7 8.1 8.1 8.0 8.0 Reposition domestic meter - service relays 6.7 6.4 4.4 4.3 4.3 4.2 4.1 Purge & relight after domestic service work 1.5 1.7 1.8 1.8 1.8 1.7 1.7 Service relay domestic meterwork 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Other domestic services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Domestic Services 42.2 45.3 45.1 46.1 44.8 43.8 42.9 Replacement Services - Non-domestic 1.1 1.3 1.3 1.4 1.4 1.4 1.4 Multiple Occupancy Buildings Renew service connections 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total riser renewals 1.0 3.1 1.6 2.0 2.4 2.8 3.2 Total 1.0 3.1 1.6 2.0 2.4 2.8 3.2 Total Repex 113.0 122.0 127.8 130.3 129.6 129.2 128.9

Table A4 - 61

The outcome of the updated regression analysis is to increase (from our last report) the cost of replacement mains and services for the five years to 2012/13 by £15.7m (2.5%). Whilst the Network’s efficiency has improved in 2006/07 this effect is offset by changes to our workload forecast for the period. The factors which affect the revised recommendations are set out above.


A4.7.9 SUPPLEMENTARY INCENTIVE MECHANISM

This table is prepared on the same basis as described in our previous report and excludes re-chargeable diversions as in the current version of the supplementary incentive mechanism.

De-commissioned

Mains 2008/09 2009/10

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

Volume (km)

Unit Cost (£/m)

Total £m

</=3" 44.26 61.24 2.71 26.00 60.81 1.58 4-5" 408.96 66.85 27.34 489.91 66.39 32.53 6-7" 131.44 94.06 12.36 134.39 93.41 12.55 8-9" 55.87 174.00 9.72 42.99 172.80 7.43

10-12" 45.05 243.10 10.95 37.11 241.42 8.96 >12-18" 15.97 352.52 5.63 16.08 350.08 5.63 >18-24" 15.93 492.71 7.85 16.05 489.29 7.85

>24" 5.11 608.03 3.11 7.19 603.82 4.34 722.60 79.67 769.71 80.87

2010/11 2011/12

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

Volume (km)

Unit Cost (£/m)

Total £m

</=3" 29.25 59.44 1.74 31.40 58.94 1.85 4-5" 465.02 64.89 30.17 454.56 64.34 29.25 6-7" 144.02 91.30 13.15 143.06 90.53 12.95 8-9" 46.37 168.89 7.83 51.63 167.47 8.65

10-12" 44.35 235.95 10.46 46.79 233.97 10.95 >12-18" 16.97 342.16 5.81 18.22 339.29 6.18 >18-24" 16.93 478.22 8.10 18.18 474.21 8.62

>24" 6.30 590.16 3.72 4.86 585.20 2.84 769.21 80.98 768.70 81.29

2012/13

£m (05/06) Volume

(km) Unit Cost

(£/m) Total £m

</=3" 28.13 57.63 1.62 4-5" 421.16 62.91 26.50 6-7" 165.94 88.52 14.69 8-9" 64.64 163.75 10.58

10-12" 47.09 228.78 10.77 >12-18" 17.96 331.75 5.96 >18-24" 17.92 463.67 8.31

>24" 5.35 572.20 3.06 768.18 81.49

Table A4 - 62


A4.8 LTS REPEX

A4.8.1 SUMMARY

Repex £m (2005/06 prices)

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Tota

l

BPQ Submission LTS 2.1 16.1 0.3 0.0 0.0 18.5 Total 2.1 16.1 0.3 0.0 0.0 18.5 Normalisation Adjustments LTS 0.0 0.0 0.0 0.0 0.0 0.0 Total 0.0 0.0 0.0 0.0 0.0 0.0 Normalised BPQ LTS 2.1 16.1 0.3 0.0 0.0 18.5 Total 2.1 16.1 0.3 0.0 0.0 18.5 Adjustments LTS -0.1 -0.8 0.0 0.0 0.0 -0.9 Total -0.1 -0.8 0.0 0.0 0.0 -0.9 Proposed Repex LTS 2.0 15.2 0.3 0.0 0.0 17.5 Total 2.0 15.2 0.3 0.0 0.0 17.5

Table A4 - 63

Original Repex £m (05/06 prices)

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Tota

l

Proposed Repex

LTS 2.0 15.1 0.3 0.0 0.0 17.4

Total 2.0 15.1 0.3 0.0 0.0 17.4

Table A4 - 64


Southern underspent relative to their forecast for 2006/07.


There are no issues arising from the 2006/07 actuals which would cause us to change any allowances recommended for 2008/09 to 2012/13.


LTS Net Repex All figures £m 2005/06 prices 20

08/0

9

2009

/10

2010

/11

2011

/12

2012

/13

BPQ Gross Submission 4.5 17.2 1.3 0.8 0.8 BPQ Contributions 2.3 1.1 1.0 0.8 0.8 BPQ Net Submission 2.1 16.1 0.3 0.0 0.0

Table A4 - 65


The forecast is unchanged from the original submission. The major non rechargeable project (Isle of Wight) has been reviewed in line with our process for LTS Capex and the projected costs fall within the acceptable tolerance for this work.


Our recommendations are unchanged. After adjustment for RPEs we support the allowances in full.

Documents

APPENDIX 4 SOUTHERN NETWORK€¦ · Ref No: 62533 2006 36621 (Update v1.2) Page 1 PB Power APPENDIX 4 SOUTHERN NETWORK A4.1 SUMMARY A4.1.1 CAPEX Southern Network Net Capex £m