Commission for Regulation of Utilities Reporting and ... · the mechanisms operate in practice, as part of the PR5 process. Distribution ESBN as DSO/DAO operates the distribution

An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities

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PR4 Reporting & Incentives Decision

Reference: CER/18/087 Date Published: 10/05/2018 Queries to: [email protected]

An Coimisiún um Rialáil Fóntas

Commission for Regulation of Utilities

Reporting and Incentives

under Price Review 4 Decision

www.cer.ie

An Coimisiún um Rialáil Fóntas

Commission for Regulation of Utilities

www.cer.ie

mailto:[email protected]


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Executive Summary In December 2015, the CRU set its price controls for the electricity networks Price Review 4 (PR4)

period for EirGrid as Transmission System Operator (TSO), and for ESB Networks (ESBN) as

Transmission Asset Owner (TAO) and Distribution System Operator (DSO)/Distribution Asset

Owner (DAO). In the Decision, the CRU also committed to update the reporting and incentive

arrangements. The PR4 period runs from 2016 to 2020.

Monitoring and reporting gives visibility to what each company is delivering, and improves

accountability. Incentive mechanisms go a step further by attaching additional financial rewards or

penalties to specific reported measures of performance. Data generated through reporting and

incentives helps to inform the more detailed cost assessments and forecasts involved in future

price reviews, and ongoing regulatory scrutiny. They are, therefore, important instruments through

which the CRU seeks to protect the interests of customers.

This document sets out a set of twenty decisions for improving reporting and incentives

arrangements, covering the totality of the activities undertaken by TSO, TAO and DSO/DAO on

behalf of current and future customers and market participants. These decisions will improve

outcomes for electricity customers and market participants during the PR4 period and create a

robust platform for the continuing development of reporting and incentives for PR5 and beyond.

This decision represents an important step in the CRU’s development of an enhanced and more

consistent approach to regulating and incentivising our critical electricity, gas and water network

companies. The overall objective is to ensure that network companies are focussed on:

delivering better outcomes for customers,

using innovation to deliver services more efficiently, and

meeting key national strategic objectives.

While this decision relates to the current electricity network price control, the CRU intends that this

approach, including the key elements of reporting and reputational and financial incentives, will

further evolve and have wider application for the gas and water network companies.

This approach is aligned with CRU’s mission to regulate water, energy and energy safety in the

public interest and its goal of ensuring best practice regulation.

Transmission

EirGrid as TSO is responsible for operating the power system in real-time, and planning

transmission network development. It also contracts with generation and demand customers for

connection and use of the transmission system. ESBN as TAO is responsible for maintaining the

transmission network and undertaking transmission investment at the request of the TSO.


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Under PR4, allowed revenues of €1,961m for the period were provided on behalf of customers to

fund the activities of the TSO and TAO. This was set to support total new investment of €1,024m1,

and operating costs of €810m.

Reporting and monitoring (Decisions 1-3)

The CRU is making the following changes to strengthen monitoring and reporting of how these

allowances are spent, and what levels of performance they deliver for customers:

A re-positioned Annual Performance Report for the transmission system, jointly produced

by the TSO and TAO, providing an accessible summary of network performance.

A clear reporting framework for the TSO and TAO documenting the methodology applied

to identify investment needs, assess options and deliver these investments for network

users.

Introducing a new mechanism and trigger point to amend capex or opex allowances

during the Price Review period (e.g. where a material change in circumstances are

agreed).

Incentives (Decision 4-11)

The total amount at stake through incentives was set at 4% of operating costs for the TSO, and 5%

of operating costs for the TAO in PR3, were rolled forward for PR4. The CRU is retaining these

overall incentive “pots” for the remainder of PR4, by increasing the pot size for the TSO in 2018,

2019 and 2020 by 0.5% and retaining the 5% for the TAO. The CRU is refocusing the incentives in

the following ways:

Maintaining the System Performance incentives for the TSO, System Minutes Lost and

System Frequency, however reducing the total incentive value compared to PR3.

Replacing the PR3 Project Milestones (PM) incentive and the Delivery of Enhanced

Network Capacity (DENC) incentives, with a new incentive to assess the quality and

rigour of the TSO’s end-to-end process for investment planning and delivery.

Introducing a similar investment planning incentive for the TAO, focussing on its role in

investment planning and delivery (replacing the existing PIP and Construction and

Energisation (CE) incentive)

1 All values are in 2014 prices unless otherwise stated.


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Introducing a new incentive for the TSO targeted at its performance in issuing connection

offers to all applications processed under the “2018 Batch” (as defined in the

CRU/18/058, published in March 2018).

A re-calibrated outage management incentive, with new financial value placed on the

interaction between the TSO and TAO in short-term outage planning.

A new stakeholder engagement incentive, providing upside for the TSO for the quality

and outcomes/impact of its stakeholder engagement activities.

Introducing a new framework to assess performance against the TSO’s strategic

objectives.

A new level of transparency around the TSO’s current innovation projects, submitted to

the CRU on an annual basis. This reputational incentive will be complimented with new

funding available for new innovation projects, where the needs and benefits are clearly

demonstrated to the CRU.

Collectively, this constitutes a combination of updating existing, proven incentive mechanisms for

new data on achievable levels of performance, and introducing new incentive mechanism to focus

better on the TSO and TAO behaviours that in CRU’s view make the biggest difference for

consumers and market participants.

These mechanisms will be applied to TSO and TAO performance in 2018, 2019 and 2020.

Continuation beyond this date is expected and will be considered in the light of evidence on how

the mechanisms operate in practice, as part of the PR5 process.

Distribution

ESBN as DSO/DAO operates the distribution system in real-time, and plans and delivers

extensions, maintenance and reinforcements to the distribution network. It also manages the

allocation of rights to connect to and make use of the distribution system.

Under PR4, allowed revenues of €4,127m for the period were provided on behalf of customers to

fund the activities of the DSO/DAO. This was set to remunerate existing investment, to support

total new investment of €1,837m and operating costs of €1,362m.

Reporting and monitoring (Decision 12)

The CRU is making the following changes to strengthen monitoring and reporting of how

allowances are spent by the DSO, and what levels of performance they deliver for customers:

A re-positioned Annual Performance Report or the DSO providing an accessible

summary of network performance over the previous calendar year.

Incentives (Decisions 13-20)

https://www.cru.ie/wp-content/uploads/2017/04/CRU18058-ECP-1-decision-FINAL-27.03.2018.pdf


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The total amount at stake through incentives was capped at around 4% of annual allowed

revenues in PR3, and was rolled forward for PR4. The CRU is retaining this overall incentive “pot”

for PR4, with this total concentrated over the remaining three years of the PR4 period. The CRU is

refocusing the DSO suite of incentive mechanisms in the following ways:

A re-calibrated incentive for the DSO’s performance in continuity of supply/unplanned

outages. This incentive will be maintained from PR3, with the total financial incentive

reduced for PR4.

A new financial incentive to improve service quality for worst-served customers.

Retaining the customer satisfaction incentives from PR3 (National Customer Contact

Centre performance and the overall customer satisfaction survey), with updated targets

for PR4.

Retaining the traditional metering incentive for the DSO, maintaining the value of the

incentive from PR3.

A new Smart metering incentive for the DSO, based on the roll-out profile set out in the

smart metering roll-out plan. The Smart metering incentive will be asymmetric with an

upside of €4m and a downside of €20m.

A new stakeholder engagement incentive for the DSO to match the incentive developed

for the TSO. The incentive will assess the scope, quality and outcomes/impacts of the

DSO’s stakeholder engagement activities.

A new framework for the Strategic Innovation Fund, available for strategic and innovative

thinking related to the transition to a low carbon energy system. The assessment will be

based on an annual submission to the CRU.

A new incentive will be introduced based on the timely processing of connection

applications under the Enduring Connection Policy – Phase 1 (ECP-1), the “2018 Batch”

as defined in the CRU’s decision of March 2018.

Collectively, this constitutes a combination of updating existing, proven incentive mechanisms for

new data on achievable levels of performance, and introducing new incentive mechanism to focus

better on the DSO/DAO behaviours that in the CRU’s view make the biggest difference for

consumers and market participants.

These mechanisms will be applied to DSO/DAO performance in 2018, 2019 and 2020.

Continuation beyond this date is expected and will be considered in the light of evidence on how

the mechanisms operate in practice, as part of the PR5 process.


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Public/ Customer Impact Statement

The CRU allows ESB Networks and EirGrid (“the network companies”) charge money towards the

cost of building, safely operating and maintaining the electricity system in Ireland. These charges

are reflected in customers’ electricity bills and make up the network companies revenue

allowances.

The CRU’s role is to protect electricity customers by ensuring that the network companies spend

customers’ money appropriately and efficiently to deliver necessary services. The CRU does this

through what is called a Price Review which is carried out every 5-years, the current Price Review

(PR4) started in 2016 and will end in 2020.

In order to monitor the network companies during Price Reviews, the CRU requires the network

companies to report annually on their activities by way of annual reporting. The annual reports

assist the CRU in its decision making and helps inform future Price Reviews.

In some instances, if the network companies over perform they are rewarded financially and

customers will see an increase in network cost that reflects the increase in the level of services

provided to them. However if the network companies underperform the customer will see a

decrease in network cost that reflects the decrease in the level of services provided. This provides

the network companies with a financial incentive to provide a high quality of service in areas such

as customer service and number of customer supply interruptions.

The CRU has reviewed best practice, the existing incentives and reporting regime and is now

introducing what the CRU considers improvements to the current incentives and reporting regime

through the decisions in this paper. The aim is to provide the customer with better value for money

and improve quality of services provided to the customer. The incentives will have a direct impact

on transmission and distribution tariffs over the period 2019 to 2021

The decisions in this paper will also provide energy customers and the wider public with more and

better information on what is being delivered in return for the revenue allowances being provided

on their behalf. In addition the information generated through these reforms should over time lead

to improvements in the CRU’s ability to make regulatory decisions that protect the interests of

customers.


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Table of Contents

Glossary of Terms .................................................................................................... 8

1. Introduction ........................................................................................................ 9

1.1 Commission for Regulation of Utilities ........................................................................... 9

1.2 Background ................................................................................................................... 9

1.3 Purpose of this decision ................................................................................................. 9

1.4 Related documents ..................................................................................................... 10

1.5 Structure of this document .......................................................................................... 10

2. Context ............................................................................................................. 11

2.1 Industry structure ....................................................................................................... 11

2.2 The role of reporting and incentives ............................................................................ 11

2.3 PR3 reporting and incentives ....................................................................................... 12

2.4 CRU’s objectives for PR4 .............................................................................................. 13

3. Transmission – reporting ................................................................................ 15

3.1 Output-based reporting ............................................................................................... 15

3.2 Capex monitoring ........................................................................................................ 17

3.3 Capex adjustment process ........................................................................................... 18

4. Transmission – incentives .............................................................................. 21

4.1 System performance – TSO .......................................................................................... 21

4.2 Investment planning and delivery (IPD) – TSO .............................................................. 22

4.3 Project delivery – TAO ................................................................................................. 24

4.4 Delivering New Connections ........................................................................................ 25

4.5 Outage management ................................................................................................... 27

4.6 Stakeholder engagement ............................................................................................. 29

4.7 Delivering against strategic objectives ......................................................................... 31

4.8 Innovation .................................................................................................................. 32

5. Distribution - reporting .................................................................................... 34

5.1 Output measures ........................................................................................................ 34

6. Distribution – incentives ................................................................................. 36

6.1 Unplanned outages ..................................................................................................... 36

6.2 Worst-served customers .............................................................................................. 38

6.3 Customer service/satisfaction...................................................................................... 39

6.4 Metering – traditional ................................................................................................. 40


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6.5 Metering – smart ........................................................................................................ 41

6.6 Stakeholder engagement ............................................................................................. 43

6.7 Strategic and innovative thinking ................................................................................. 44

6.8 Delivering New Connections ........................................................................................ 46

7. Incentives as a package .................................................................................. 49

7.2 TSO incentives ............................................................................................................. 49

7.3 TAO incentives ............................................................................................................ 51

7.4 DSO incentives ............................................................................................................ 51

Annex A: Responses to Consultation ....................................................................................... 55

Annex B: Guidance on Annual Output Reporting ..................................................................... 58

Annex C: TSO System Performance Incentive .......................................................................... 61

Annex D: Guidance on Investment Planning and Delivery annual reporting .............................. 62

Annex E: Guidance on Stakeholder Engagement Incentive ....................................................... 63

Annex F: TSO Strategic Incentive ............................................................................................. 65

Annex G: DSO unplanned outages/continuity incentive ........................................................... 67

Annex H: DSO Customer Service Incentives ............................................................................. 69

Annex J: DSO Metering Incentive ............................................................................................ 70

Annex K: DSO Smart Metering Incentive ................................................................................. 71

Annex L: Guidance on Strategic Innovation Fund ..................................................................... 74


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Glossary of Terms

Abbreviation or Term Definition or Meaning

APR Annual Performance Report

CI Customer Interruptions - the average number of interruptions per customer connected in the year (CI) – Distribution System

CML Customer Minutes Lost - the average number of minutes without supply per customer connected in the year (CML) – Distribution System

DAO Distribution Asset Owner – ESBN Networks

DSO Distribution System Operation – ESB Networks

PIP Project Implementation Plan

PR3 The third electricity price control set by the CRU, spanning the period January 2010 to December 2015

PR4 The fourth electricity price control set by the CRU, spanning the period January 2016 to December 2020

RoCoF Rate of Change of Frequency

SF

System Frequency (SF) – aims to maintain the frequency

of the transmission system within a target operating range of 50 +/-0.1 Hz

SIF Strategic Innovation Fund

SML

System Minutes Lost (SML) –is an index that measures the severity of each system disturbance relative to the size of the transmission system. It is determined by calculating the ratio of unsupplied energy during an outage to the energy that would be supplied during one minute, if the supplied energy was at its peak value

SNSP System Non- Synchronous Penetration

TAO Transmission Asset Owner – ESB Networks

TSO Transmission System Operator – EirGrid

WSC

Worst Served Customer: Typically these customers are supplied on rural single phase overhead networks and experience more than or equal to 5 interruptions in the previous 12 month period and more than or equal to 15 interruptions in the previous 3

years


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1. Introduction

1.1 Commission for Regulation of Utilities

The Commission for Regulation of Utilities (CRU) is Ireland’s independent energy and water

regulator. Our mission is to regulate water, energy and energy safety in the public interest.

Further information on the CRU’s role and relevant legislation can be found on the CRU’s website

at www.cru.ie.

1.2 Background

The CRU is responsible for the economic regulation of the system operators and asset owners for

electricity transmission and distribution.

Price controls, which limit the revenues that the relevant licensees can recover from electricity

consumers, are set every 5-years. The CRU also has powers to require licensees to submit or

publish reporting information, and to set incentive schemes (with associated financial or

reputational rewards or penalties) for specified areas of activity.

In December 2015, the CRU set its price controls for the Price Review 4 (PR4) period for EirGrid as

Transmission System Operator (TSO), and for ESB Networks (ESBN) as Transmission Asset

Owner (TAO) and Distribution System Operator (DSO)/Distribution Asset Owner (DAO). In the

PR4 Decision, the CRU also committed to update the reporting and incentive arrangements.

In December 2017, the CRU published for consultation a range of proposals on how it intended to

update the reporting and incentives arrangements for the remainder of the PR4 period, and as a

platform for Price Review 5.

1.3 Purpose of this decision

The purpose of this document is to set out the CRU’s decisions on the reporting and incentives

arrangements to apply for the remainder of the PR4 period, together with the supporting reasoning.

This includes details where the CRU’s positions have changed, or been refined, in the light of

consultation responses and further analysis. The objective of these decisions is twofold. First, to

improve outcomes for electricity customers and market participants during the PR4 period.

Second, to create a robust platform for the continuing development of reporting and incentives for

PR5 and beyond.


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1.4 Related documents

Further background relevant to this consultation document can be found in the following

documents:

CER/17/335 Consultation on Reporting and Incentives under Price Review 4

Consultation Paper

CER/15/295 Decision on DSO Distribution Revenue for 2016 to 2020

Decision Paper

CER/15/296 Decision on TSO and TAO Transmission Revenue

for 2016 to 2020

Decision Paper

CER/10/206 Decision on TSO and TAO transmission revenue for 2011 to 2015

Decision Paper

CER/10/198 Decision on DSO distribution revenue for 2011 to 2015

Decision Paper

1.5 Structure of this document

The first half of this document sets out proposals relating to Transmission. This covers EirGrid

as TSO, and ESB Networks as TAO. Decisions on changes to the reporting framework are set

out in Section 3 and for the incentive framework in Section 4. Sections 5 and 6 follow the same

structure, for Distribution – and only relate to ESB Networks.

For each area covered, we describe the problem being addressed and the action we are taking.

We then summarise the supporting reasoning.

In developing these proposals, the CRU has analysed the responses to its December 2017

consultation, undertaken further engagement with stakeholders, analysed performance under the

PR3 framework, and reviewed practice in other relevant jurisdictions. A summary of the main

points and themes raised through consultation is included in Annex A.

A total of 18 numbered proposals were included in the December 2017 consultation. For ease of

reference we retain the same numbering convention in this Decision.

https://www.cru.ie/wp-content/uploads/2017/12/CRU17335-Consultation-on-Reporting-and-Incentives-under-Price-Review-4.pdf

https://www.cru.ie/wp-content/uploads/2017/12/CRU17335-Consultation-on-Reporting-and-Incentives-under-Price-Review-4.pdf

https://www.cru.ie/wp-content/uploads/2015/07/CER15295-Decision-on-DSO-PR4-Distribution-Revenue-2016-to-2020.pdf

https://www.cru.ie/wp-content/uploads/2015/07/CER15295-Decision-on-DSO-PR4-Distribution-Revenue-2016-to-2020.pdf

https://www.cru.ie/wp-content/uploads/2015/07/CER15296-Decision-on-TSO-and-TAO-Transmission-Revenue-for-2016-to-2020-1.pdf

https://www.cru.ie/wp-content/uploads/2015/07/CER15296-Decision-on-TSO-and-TAO-Transmission-Revenue-for-2016-to-2020-1.pdf

https://www.cru.ie/wp-content/uploads/2010/07/cer10206.pdf





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2. Context

In this section, we describe the industry structure, the role of reporting and incentives in the

economic regulation of networks, and how it had been given effect during the PR3 period.

2.1 Industry structure

The PR4 Decision covers two companies, and three distinct roles. In summary, the different roles

and responsibilities are:

Transmission System Operator (TSO) – EirGrid: The physical operation of the

transmission system in real-time, including the procurement of system services; the

planning of extensions and reinforcements to the transmission network, and associated

interactions with the TAO; the offering of rights to connect to and make use of the

transmission system.

Transmission Asset Owner (TAO) – ESB: The owner of the transmission network. ESB

Networks builds addition transmission infrastructure at the direction of the TSO, and

maintains the existing network.

Distribution System Operator and Asset Owner (DSO) – ESB Networks: The physical

operation of the distribution system in real-time; the planning and delivery of extensions,

maintenance and reinforcements to the distribution network, the offering of rights to

connect to and make use of the distribution system.

Distribution Asset Owner (DSO) – ESB

2.2 The role of reporting and incentives

The key task for the economic regulation of regulated monopolies such as EirGrid and ESBN is to

align the interests of the regulated businesses more closely to the long-term interests of customers.

There are a variety of methods used by regulators to pursue this objective.

The Price Review process determines how much revenue each licensee is permitted to recover for

a 5-year period. The allowances are set to enable each licensee to recover efficient operating and

capital costs, including a reasonable return on capital. Companies can earn additional returns (for

a limited time) by “beating” the cost forecasts used in setting the allowance. Cost saving are then

shared with customers through lower charges.

Reporting requirements complement the “core” incentive to minimise costs in the short-term. By

giving visibility to what each company is delivering, there is less potential for companies to boost

short-term returns by reducing quality, or storing up problems for the future by deferring necessary


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investment or maintenance. Incentive mechanisms go a step further by attaching additional

rewards or penalties to specific reported measures of performance.

There are also wider informational benefits to use of reporting and incentives. They increase

understanding by network users and other stakeholders on how EirGrid and ESBN are performing

– which in turn improves accountability. Data generated through reporting and incentives also

helps to inform the more detailed cost assessments and forecasts involved in future price review.

2.3 PR3 reporting and incentives

Under PR3, the TSO, TAO and DSO/DAO were subject to a range of financial incentives, which

resulted in reward or penalty during the price review period. The PR3 incentives have been the

starting point for the PR4 incentive packages presented in this consultation. Future behaviour and

incentive targets have been calibrated with historical performance to ensure continued

improvement in service provision for consumers.

Table 1 TSO and TAO incentives and performance under PR3

Incentive Description and PR3 performance

TSO – EirGrid

Transmission System Performance

- System Minutes Lost Measure of minutes lost per year (planned and unplanned). <1.5 minutes per year target met in all years of PR3.

- System Frequency Measure (percentage) of network frequency, between the limits of 49.9 Hz and 50.1 Hz. Frequency target (96%) met in all years of PR3.

Transmission System Development

- TSO Project Milestones

Incentive for successful completion of project milestones for pre-defined projects. The TSO received positive payments every year under this incentive during PR3.

- Delivery of Enhanced Network Capacity

Demonstration of benefits of network solutions, using cost-benefit analysis to quantify benefits delivered in previous periods.

TAO – ESBN

Transmissions System Development

- Issue PIP Incentive for successful completion of project milestones for pre-defined projects. The TAO received positive payments under this incentive during PR3.

- Scheduled outages

Incentive linked to difference between planned and actual outage days (where subject to TAO control). The incentive resulted in payments to the TAO each year under PR3.


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- Construction and Energisation Incentive linked to spend against agreed PR3 budget submission. Full incentive payment received each year in PR3.

Table 2 DSO/DAO incentives and performance under PR3

Incentive Description and PR3 performance

Continuity of supply Customer Minutes Lost (CML) – duration of interruptions Customer Interruptions (CI) – frequency of interruptions. Target met in 2 of the 5 years in PR3.

Overall customer satisfaction survey2 Measure of customer perception of ESBN services (measured through a customer survey). 74% target met every year in PR3 (average performance of 81.6%).

Customer satisfaction Measure of speed of telephone response, abandonment rate, mystery caller, call back survey and call referral rate. Overall target rate of 85.3%, met every year in PR3.

Metering Meter reading targets: 98% of meters should have 1 reading per year, and 99% of meters will not have back to back block estimates. Targets met in all but 1 year in PR3.

Worst served Customer €10m fund available to improve services to customers experiencing large number of interruptions.

2.4 CRU’s objectives for PR4

As part of the PR4 final decisions (2015) for the TSO, TAO and DSO/DAO PR4, the CRU

committed to consult on the incentive packages for PR4. At the time, the CRU commented that a

number of existing incentives, applicable during PR3, remained relevant for PR4. In addition, the

CRU identified areas where significant review was required before the full incentive packages could

be introduced.

For the DSO/DAO (Ref CER/15/295), the CRU committed to consider:

Incentives relating to continuity of supply.

An incentive to improve service of the DSO’s ‘worst served customers’.

Incentives relating to the quality of service provided by the DSO customer call centre and

an overall customer satisfaction survey incentive.

Incentives to reduce the level of electrical losses on the distribution system.

2 Currently carried out by RedC


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An incentive relating to the DSO’s meter reading for non-quarterly-hour metered

customers.

An incentive relating to the connection of renewable generation.

Other items for which there are no financial rewards/penalties, but which do nevertheless

encourage the DSO to maintain or improve its performance.

The introduction of a Strategic Innovation Fund for the DSO.

For the TSO and TAO (Ref CER/15/296), the CRU committed to:

Carry out a review of the incentive mechanism that currently applies to the TSO and TAO

in relation to service delivery and targets.

Put in place strategic incentives separately to incentives focused on operational and

service level targets.

Consult on the objectives against which the incentives would be assessed and the details

of the mechanisms themselves (noting that objectives should be time limited, clearly

measureable, and be a strategic objective related to the TSO’s role in the transition of the

system to one with a large penetration of renewable energy).


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3. Transmission – reporting

This section sets out the CRU’s decisions on the reporting requirements that will apply to EirGrid as

TSO and ESBN as TAO, for the period 2018 to 2020. In making these decisions, the CRU is also

seeking to put in place arrangements that can endure, subject to review and refinement as part of

the PR5 process.

3.1 Output-based reporting

Objective

The CRU’s objective in revising the framework of reporting for Transmission is to increase

transparency for all stakeholders on what is being delivered over time by the TSO and TAO in

return for the revenues made available through the Price Review. Further, to ensure that relevant

information is easy to access and interpret – and capable of adapting over time to continue to

ensure reporting on the full range of ways in which actions by the TSO and TAO impact

stakeholders.

Without a robust framework for reporting, there is a risk that consumers, stakeholders and the CRU

cannot easily discern how the TSO and TAO are performing – and hence are less able to hold the

TSO and TAO to account, or understand the levels of performance that it is reasonable to expect

the TSO and TAO to deliver. This could, over time, dilute the pressures on the TSO and TAO to

deliver services effectively and efficiently. It could also constrain the quality of regulatory decision-

making on behalf of consumers.

Decision 1

The TSO and TAO shall jointly prepare and publish a summary report documenting how

their activities and behaviours over the previous calendar year have delivered outputs

relevant to the needs of customers, market participants and other stakeholders. Consistent

with the CRU guidance set out in Annex B3, the report shall provide a comprehensive and

accessible summary of performance using relevant and appropriate performance indicators

and metrics.

The report of performance during calendar year 2017 shall be published on or before 31st

December 2018, this will be an initial report and based on indicative incentive performance

3 And as might be updated by the CRU from time to time.


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that will not be subject to CRU assessment. Thereafter, each subsequent report shall be

published on or before 30 September that will be subject to CRU assessment.

Reasoning

The decision represents a refinement of the proposal that the CRU consulted on. The core

elements of a consolidated TSO and TAO report, combined with more stakeholder-friendly and

output-focused content has been retained. The CRU has however strengthened and clarified the

guidance to support the decision and has amended the timetables for publication following

discussions with the TSO and TAO.

The key reasoning for the decision, and the refinements to the proposal consulted on, is set out

below. Where relevant, it makes references to points made by respondents to the CRU

consultation.

The current performance reports prepared and published separately by the TSO and TAO

do not, in the CRU’s view, meet the objective outlined above to provide stakeholder with

clear and easily-digestible information on which to understand performance. The coverage

and choice of output measures is partial and limited in the amount of information it provides

stakeholders. Further, the separate reporting by TSO and TAO make it unnecessarily

difficult for stakeholder to understand the performance they received from the transmission

sector as a whole.

The approach of obliging the TSO and TAO to work jointly to produce a consolidated report

that complies with guidance set by the CRU is a proportionate means of introducing a step-

change improvement in the completeness of reporting and quality of presentation – while

not being unduly prescriptive. Further, the ongoing obligation on the TSO and TAO under

the CRU guidance to seek feedback from users of the report on how it could be improved

provides a further channel to ensure that the report remains fit-for purpose over time. The

initial CRU guidance reflects input from respondents to the consultation on identified gaps

and deficiencies.

The revised timetable for publication reflects the reasonable requirements of the TSO and

TAO to design and prepare the report, in the first instance and on an enduring basis. The

decision to require publication on an enduring basis by September means that the

performance report will be available at approximately the same time that tariffs are finalised

for the forthcoming year.

While the CRU notes that a variety of documents are published by the TSO and TAO on

different aspects of their activities to varying degrees of detail and technical complexity, the

CRU also considers that the absence of a complete, high-level annual summary of

performance – from the perspective of stakeholders – is a significant omission. This


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additional layer of summary will, among other things, provide a platform from which

stakeholder can navigate to other more detailed material.

3.2 Capex monitoring

Objective

The CRU’s primary objective in revising the framework of capex monitoring is to increase its own

capacity to understand the processes that result in transmission investment, and hence better

protect customers from the risks and costs of inefficient investment in its regulatory decision-

making.

Regulatory reporting is a core function of any regulatory price review process. It allows regulators

to monitor the progress of companies both during the price review (in reconciliation at the end of

the review) and as a key input to the next review. Effective reporting helps to overcome the

asymmetric information problem inherent in monopoly regulated network industries – including by

helping networks users and other stakeholders better understand, and engage with, plans for how

the network is being developed.

Decision 2

The TSO and TAO shall move to an annual cycle of capex reporting. Further, the annual

cycle shall include, in addition to the project-level reporting to the CRU, a report designed

for stakeholders – as a companion document published alongside the new consolidated

annual performance report (see Decision 1), with comparable levels of accessibility for the

reader.

The reporting shall be increased in scope to include reporting on all aspects of investment

planning and delivery, from the initial identification of needs based on planning studies

through to the delivery and energisation of individual projects. The choice of metrics for the

reporting to both the CRU and stakeholders will be informed by the CRU guidance

provided under Decision 5 below.

The stakeholder report for calendar year 2017 shall be published on or before 31st

December 2018. Thereafter, each report shall be published by the 30th September

following the end of the calendar year being reported on. The timing and scope of the

more detailed reporting to the CRU will be agreed between the CRU, TSO and TAO (for

example, continuing to report on project progression and project costs).

Reasoning

The decision confirms the proposal that the CRU consulted on and clarifies certain aspects of how

it will operate – and interact with existing, more detailed regulatory reporting.


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The key reasoning for the decision is set out below. Where relevant, it makes references to points

made by respondents to the CRU consultation.

Quarterly, project-level data is unnecessarily detailed, and there is a risk that provision of

such frequent, detailed data blurs or dilutes the primary accountability of the TSO and TAO

for investment planning and delivery decisions. There are also the administrative

resources involved for the TSO, TAO and the CRU in processing but not routinely using

these data. This has both an absolute cost and an opportunity cost, i.e. resources could be

deployed in other regulatory activities with potentially greater benefits for consumers.

The decision increases the range of activities relating to transmission investment planning

and delivery where performance is routinely reported on to stakeholders. This increases

transparency and accountability, in a manner which is proportionate given the costs and

market impacts at stake. It also makes such information easier to understand and engage

with for stakeholders, when presented in a clear and consolidated form. In particular it will

ensure greater transparency over how needs for transmission investment are identified,

and how options to address those needs are evaluated and optimised.

There is evidence in other jurisdictions of arrangements that provide much greater

transparency on needs and options working effectively in practice. Both as a mechanism

for enabling stakeholders to engage actively in the investment planning process, and as a

means of supporting better informed decision-making.

The CRU also notes that this form of reporting to stakeholders by the TSO and TAO is, in effect, a

summary of the information that will be submitted to the CRU and evaluated under the new

Investment Planning and Delivery incentive mechanism set out in section 4.2 below.

3.3 Capex adjustment process

Objective

The CRU’s objective in tightening up the mechanism for adjusting capex allowances during a price

review period is to provide flexibility in response to significant new information, and hence avoid

delays to necessary investment – but without diluting the incentives on the TSO and TAO to

manage costs efficiently.

The nature of PR4, and all regulatory price controls, is that investment funding is provided in

expectation of what will be required. Market developments may however result in the efficient level

of investment being very different to what was expected. An adjustment mechanism is intended to

address the situation where the differences are so large as to risk delaying necessary investment,

or placing unreasonable financial demands on the TSO or TAO (or on consumers, e.g. if capex

allowances were set much higher than was revealed to be needed).


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Decision 3

By 31st March in any given year, the CRU, TSO or TAO may trigger a process to amend

allowances by either (a) a submission to the CRU by the TSO or TAO setting out in detail

the nature of the material change, and its net impact on the level of capex and opex over

the remainder of the PR period; or (b) a determination by the CRU requesting a submission

by the TSO or TAO, and citing the nature of the material change to be costed.

The process may only be triggered if there has been a material change in circumstances

(relative to when capex allowances were originally set) such that either: (a) the total capex

allowance for the 5-year PR period is likely to be breached by more than 10% in the next

calendar year; or (b) there is a high likelihood that the total capex allowance will be

underspent by more than 20% by the end of the 5-year PR period.

The process, if triggered, will conclude with a determination by the CRU on any

applications submitted, and will involve consultation with relevant stakeholder prior to a

determination being issued.

Reasoning

The decision confirms the proposal that the CRU consulted on. The key reasoning for the decision

are set out below.

It is appropriate to have some flexibility to revisit allowances in the light of significant new

information, and this should allow for the fact that the new information might reveal the

allowances to be significantly higher or lower than expected. Further, a degree of formality

of how this process will operate increases regulatory certainty and provides a more

transparent regime for stakeholders. For example, by affording stakeholders an

opportunity to be consulted on the need for, and value of, adjustments to capex

allowances.

But there should be a “high bar” to trigger such a mechanism, to avoid diluting the

incentives on the TSO and TAO to manage their costs efficiently under the allowances that

have been set. Further, if the allowances are to be re-opened, then the impacts should be

considered broadly – recognising that material changes in capex drivers could have direct


20

and indirect impacts on the overall capex programme and might also impact on opex4.

4 For example, a change in circumstances that means that replacement capex needs to be accelerated could also have a reducing impact on maintenance costs over the period. If such second-order impacts were not recognised, then the adjustment to allowances could be too high (or low).


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4. Transmission – incentives

This section sets out the CRU decisions on the incentive mechanisms that will apply to EirGrid as

TSO and ESBN as TAO, for PR4. In making these decisions, the CRU is also seeking to put in

place arrangements that can endure, subject to review, refinement and updating as part of the PR5

process.

The CRU’s overarching objective in proposing these mechanisms is to ensure that incentives are

targeted on the TSO and TAO behaviours that can make the most positive difference to network

users and consumers. Further, that the performance targets against which the TSO and TAO are

measured are based on the most appropriate and up-to-date data.

The proposals have also been calibrated such that, in aggregate, the financial exposure for the

TSO and TAO are broadly consistent with the PR3 Decision. For the TSO, this translates to 4.5%

of internal opex; for the TAO this translates to 5% of allowed opex.

4.1 System performance – TSO

Objective

The CRU’s objective in putting in place an incentive mechanism for system performance is to give

the TSO an appropriate financial stake in maintaining appropriately high standards of system

performance. It reflects that customers and market participants place a high value on supply

reliability and quality, and that the actions of the TSO can be a significant influencing factor on

outcomes.

Decision 4

The TSO shall be subject to financial incentives in respect of (a) System Minutes Lost

(SML) and (b) System Frequency (SF). The incentive payment or penalty will be

calculated based on the difference between actual performance and the levels of target

performance set out in Annex C.

For the remainder of PR4, the maximum payment for strong performance will be 0.5% of

TSO internal opex per incentive. The maximum penalty for poor performance will be 1.0%

of TSO internal opex per incentive. The detail of how payments or penalties are calculated

with this range is set out in Annex C.

Reasoning

The decision confirms the proposal to have an incentive mechanism of the form adopted in PR3

that the CRU consulted but adjusts the target levels of performance and the revenue at risk relative

to the consultation proposal. The key reasoning is summarised below:


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System Minutes Lost and System Frequency are well-recognised, robust ways of

measuring the reliability and quality of supply delivered by an electricity transmission

system. The metrics are proximate to outcomes that users of the transmission system

place a high value on. The use of standard metrics also allows the TSO’s performance to

be understood over time, and relative to other jurisdictions.

The structure of incentives used in PR3 has proven to be workable in practice, and

consistent with delivering high levels of performance, and trend improvements. The

symmetric nature of the scheme means that over-performance is rewarded and under-

performance is penalised, and increments in performance are valued at the same rate.

Respondents challenged both the incentive targets, and the value of the incentive available

for EirGrid. The TSO suggested that the incentive targets were unachievable given the

future system operation challenges of managing the transition to I-SEM. The CRU agrees

that the TSO will face new operational challenges under I-SEM, in particular, moving to a

lighter system, with greater SNSP and a faster RoCoF limit. This will be managed by the

TSO through a broader range of ancillary services and improvements to control centre

tools (through the DS3 programme).

To reflect these new challenges, the CRU therefore has decided to maintain the PR4 SML

and SF targets with those set for PR3. These targets better align the TSO PR4 incentives

with the I-SEM programme objectives.

The total value of the SML and SF upside incentive pot will be reduced from 0.8% to 0.5%

of TSO internal opex for the remainder of PR4 (the downside remains at 1.0%). The CRU

agrees with one respondent, that there is a strong reputational incentive for the TSO to

manage SML and SF, therefore reducing the incentive value is unlikely to worsen

outcomes for consumers – and that scaling back this aspect of financial incentive will

enable other aspects of TSO behaviour to be subject to financial incentive, to the benefit of

stakeholders and customers.

4.2 Investment planning and delivery (IPD) – TSO

Objective

The CRU’s objective in putting in place an incentive mechanism for investment planning and

delivery is to improve transparency over the efficiency with which these key processes are

undertaken. Further, to give the TSO a proportionate financial stake in maintaining consistently

high standards in what these processes deliver. It reflects the fact that the TSO has significant

discretion over investment planning and delivery, and these decisions ultimately (and cumulatively)

have a significant impact on network performance and customers’ bills.


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Decision 5

The TSO shall be subject to a financial incentive on the quality and rigour of its end-to-end

processes for investment planning and delivery. This will encompass how needs are

identified, how options are identified and optimised, and how investment schemes are

delivered. Overall performance across the full range of activities will be evaluated and

reported on annually.

The incentive payment shall be set by the CRU informed by of an independent audit. The

audit will use a “Balanced Scorecard” framework proposed by the TSO (with TAO input)

and approved by the CRU, consistent with guidance published by the CRU. The initial

guidance is set out in Annex D.

Based on the audit report and other evidence deemed relevant by the CRU, performance

shall be graded as “strong”, “acceptable” or “below acceptable”: “Strong” = payment of

2.0% of TSO internal opex; “Acceptable” = payment equal to the reasonable cost of the

audit; “Below acceptable” = penalty of 2.0% of TSO internal opex5.

This mechanism will apply to TSO performance in calendar years 2018, 2019 and 2020.

Hence the first audit will be undertaken in 2019, reviewing processes and activities during

2018.

Reasoning


it will operate. The key reasoning for the decision is set out below:

In its proposals for consultation, the CRU contended that the PR3 framework for financial

incentives relating to transmission investment had significant limitations. In practice, it

focused only on whether milestones for the currently “live” list of transmission projects are

being met. This approach does not incentivise, for example, the analysis of the need for

investment, or the choice of option to meet that need. By implication, this means that the

TSO could be rewarded under the scheme even if the “wrong” mix of projects was being

delivered. The focus on project milestones is not sufficiently proximate to the outcomes

that matter, i.e. a transmission network that is optimised to meet the needs of current and

prospective network users, at efficient cost to customers.

5 Less the reasonable cost of the audit.


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Further, the CRU’s own analysis of performance under the PR3 framework identified a

disjoint between rewards under the scheme and a broader assessment of the timeliness

and efficiency with which necessary transmission investment was being planned and

delivered.

The core proposition advocating a broader framework for incentives was supported by the

TSO and other stakeholders.

One respondent observed that the “pass through” type nature of the process for setting

revenue allowances, in tandem with historically low financing costs relative to the

regulatory cost of capital, should be sufficient incentive – and an additional incentive should

not be necessary. However, the same respondent also observed that in its view the TSO

had been slow to deliver investment to support the operation of the market, e.g. to enable

non-firm access rights to be made firm.

The CRU recognises that while the proposals address the concern about the current

incentive mechanism being too partial in scope, it does introduce more subjectivity into the

assessment of the TSO’s performance. The use of an independent auditor working to a

“scorecard” that is developed from a proposal by the TSO (with TAO input) will mitigate this

concern. The role of the CRU in setting guidelines for the developed scorecard will ensure

balance and completeness. Initial guidance is published as Annex D.

4.3 Project delivery – TAO

Objective

The CRU’s objective in putting in place an incentive mechanism for project delivery by the TAO is

to give the TAO a proportionate financial stake in the efficient and timely implementation of the

TSO’s investment plans. While the role of the TAO is narrower than the TSO’s in the sense that

the TSO does generate the investment plans, the TAO’s efficiency and timeliness in delivery can

have significant impacts for market participants and customers.

Decision 6

The TAO shall be subject to a financial incentive on its performance in contributing to

investment planning and delivery. The incentive payment shall be based on performance

against a KPI framework proposed by the TAO to be consistent with relevant aspect of

guidance published by the CRU. Initial guidance is published as Annex D.

Based on performance against KPIs and other evidence deemed relevant by the CRU,

performance shall be graded as “strong”, “acceptable” or “below acceptable”: “Strong” =

payment of 4.2% of TAO opex; “Acceptable” = payment equal to the reasonable cost of the


25

audit; “Below acceptable” = penalty of 4.15% of TAO opex6.

This mechanism will apply to TAO performance in calendar years 2018, 2019 and 2020.

Hence the first analysis of performance against KPIs will be undertaken in 2019, reviewing

processes and activities during 2018.

Reasoning

In its consultation, the CRU set out two options for an incentives framework for the TAO in respect

of its role in investment planning and delivery – which the CRU recognises is much narrower than

the role of the TSO. The reasoning for the decision, which combines elements of both options, is

set out below:

The role of the TAO within the framework of investment planning and delivery is much

narrower that the TSO. In broad terms, responsibility for investment planning sits with the

TSO, and the TAO’s role is to build the projects defined by the TSO as necessary. Hence,

incentives linked to meeting milestones or planned expenditure on individual projects might

continue to be appropriate.

However, the move to an audit-based approach to support a broader, less mechanistic

approach to assessing performance – which could on balance be more accurate. While

meeting milestones and expenditure plans for identified projects will continue to be relevant

(and significant) in a TAO “scorecard”, the audit approach does allow for other relevant

metrics or evidence to be considered also.

The decision provides a framework to enable an appropriate set of KPIs to be developed,

based on TAO input – but consistent with guidelines set by the CRU. This provides a more

flexible and transparent mechanism for ensuring that an appropriate range of evidence is

considered in a balanced way, when determining incentive award or penalties for the TAO.

4.4 Delivering New Connections

Objective

The CRU’s objective in putting in place an incentive mechanism for the timely processing of

connections applications under Enduring Connection Policy – Phase 1 (ECP-1) because new

connections are critical to well-functioning, competitive wholesale markets and to the process of

6 Less the reasonable cost of the audit.


26

decarbonising the energy sector – and the TSO has a key, enabling role. The immediate task for

the TSO is now, pursuant to recent decisions by the CRU, clearly defined. Hence, suitable for a

more direct, explicit delivery incentive.

The delivery of new connections was not subject to separate incentive mechanism under PR3, and

policy was still under development when the CRU published its proposals for incentives under

PR4. Given the increased clarity on the policy framework within which the TSO and DSO will now

operate, the CRU considers it reasonable and appropriate to integrate an explicit incentive

mechanism into the framework for the remainder of PR4.

Decision 7

The TSO shall be subject to a financial incentive on its performance in issuing connection

offers to all applicants being processed pursuant to the “2018 Batch” as defined in the

CRU’s decision of March 2018.

TSO performance shall be measured by the average elapsed time between (a) the date by

which the identity of the projects to be processed under the 2018 batch is known, and (b)

the date by which each offer (or input to the offer process of the DSO) is delivered.

The CRU will set a target average elapsed time (measured in working days). Payments or

penalties for TSO performance relative to this target will be determined in two steps. First,

an unadjusted amount based on out-turn performance. Second, the option for the TSO to

submit evidence to justify and quantify the impact of factors outside the control of the TSO.

The CRU may then recalculate performance adjusting for impacts justified as outside the

control of the TSO.

The maximum payment or penalty will be 0.5% of TSO internal opex, accumulated over the

years 2018, 2019 and 2020. The mechanism will be settled once during the PR4 period,

once the batch has been processed in full.

Reasoning

The decision introduces a new element into the incentive framework to reflect and complement the

newly confirmed role of the TSO (and DSO) in delivering connections under ECP-1. The key

reasoning for the form of incentive being implemented is set out below:

Receipt of a connection offer is a key step in the process of new generators being able to

participate in the market. The date of receipt is objectively measurable, and in large part

under the control or influence of the TSO.

Absent an incentive mechanism, the TSO may undervalue timeliness relative to the needs

of the connecting party (and future parties wishing to connect in subsequent batches).

While reputational incentives obviously have a role to play, the CRU considers that


27

outcomes can potentially be improved for parties seeking a new connection if the TSO is

subject to a financial incentive also in respect of the speed with which it issues connection

offers.

The CRU has adopted a design in which performance is measured when all projects in the

batch have received a connection offer. This is because under a group processing

approach, the next batch can only start once the offers under the current batch have been

issued. Further, sub-groups within a batch can only be managed efficiently once there is

certainty over which projects are in the sub-group. Hence, the CRU considers it

appropriate to focus on the milestone of all offers being issued, as this has a stronger link

to the impacts that matter to market participants – and by extension customers.

The CRU notes that the financial incentive is assessed on the processing of projects that

form part of the 2018 Batch. For the avoidance of doubt, this does not imply that the

processing of non-batch connections offers have a lower priority. The TSO has a duty not

to discriminate between classes of market participant. Hence, its incentive to deliver the

2018 Batch in a timely way should benefit other classes of connection applicant also.

Connections was highlighted by some respondents to the CRU’s consultation as an area

where TSO and DSO performance was important. Further, the CRU has engaged with the

TSO and DSO in the context of the ECP-1 decision to develop and consider different

incentives scheme models. The TSO and DSO are supportive of the principles of

incentivising ECP-1 delivery, although they have expressed a preference for a model which

is more capable of adjustment in target timelines than the model the CRU has adopted in

this decision.

The CRU recognises that there are some factors which could influence timescales, and over which

the TSO and DSO have less ability to control – and that the process for making ex post

adjustments on the basis of evidence is the most appropriate mitigation. The alternatives of

making ad hoc adjustments, or agreeing detailed delivery schedules jointly with the TSO and DSO,

is in the view of the CRU likely to dilute incentives and accountability for the TSO and DSO relative

to the approach being implemented.

4.5 Outage management

Objective

The CRU’s objective in putting in place an incentive mechanism for the management of outages by

the TAO is to give the TAO a proportionate financial stake to minimise the total net costs

associated with the agreed outage plan, having regard to its own costs and costs imposed by


28

outages on the TSO and market participants. It reflects that at times, there can be a tension

between the least cost outage plan for the TAO, and the least cost outage plan for the system as a

whole (and, by extension, consumers).

Decision 8

The TAO shall be subject to a financial incentive on its management of outages. The core

mechanism shall continue to relate to its ability to meet the 3-weekly outages plans

published on the TSO website. Performance is measured as number of actual outage

days relative to the baseline of the published plans.

If actual outage days are not more than 5% higher than the baseline, then the full incentive

payment is received. If actual outages days is between 5% of 10% over the baseline level,

then a partial incentive payment is received. If actual outage days total more than 10%

over the baseline level, then no incentive payment is received. 17% of the total TAO

incentive pot will be at stake under this mechanism (equal to 0.85% of opex).

In addition, that TAO may access a “use-it-or-lose it” allowance to fund, by agreement with

the TSO – and following appropriate consultation with potentially affected parties – actions

to reduce the duration or timing of planned outages at short-notice. The allowance for the

TAO shall equal the reasonable costs incurred by the TAO in meeting each request, plus

an uplift of 20%.

The mechanism to enable short notice changes to outage plans – including the processes

for engaging/informing market participants – shall be consulted on by the TSO and TAO

prior to implementation. Initially, a report shall be submitted to the CRU after each use to

enable implementation to be reviewed and refined, as appropriate.

Reasoning

The decision refines the proposal that the CRU consulted on and clarifies certain aspects of how it

will operate in practice. The reasoning is summarised below:

The joint management of outages by the TSO and TAO is an important process that has

potentially significant impacts on market participants and consumers. It can help minimise

maintenance costs (for network business and generators), constraint costs and supply

interruption risks. Hence, in principle it is an appropriate activity to incentivise.

The focus on incentivising the TAO to meet the rolling plans agreed with the TSO remain

relevant and useful, and will therefore continue.

Flexibility for the TSO and TAO to work together (in consultation with market participants)

to agree short-term variations to the outage plan creates scope for further efficiency

savings. Further, it is reasonable to permit the TAO to retain a share of the realised


29

benefits through a “cost uplift” – although the scale of this uplift will require CRU

authorisation. The process of consultation with stakeholders potentially impacted by

changes to outage plans is important in ensuring that all costs, benefits and risks are

considered, and not just those of the TSO and TAO.

It should be noted that the framework also places an obligation on the TSO to make

efficient choices on when to request a variation, and whether to take up the offer made by

the TAO. The effectiveness of this arrangement will be monitored over time and will inform

whether this type of scheme continues beyond PR4. While the CRU notes the TSO

request for additional funding to undertake its part in these arrangements, the CRU was not

persuaded that the net additional costs would be material – or easy to identify separately

from the costs it routinely incurs in system operation and constraint management more

generally. This might be an area for further review as part of PR5.

4.6 Stakeholder engagement

Objective

The CRU’s objective in putting in place an incentive mechanism for stakeholder engagement by

the TSO is to enable the potential benefits of effective stakeholder engagement to be realised in

practice. It reflects that innovation in how stakeholders are communicated with, and how their input

is used to improve how network services meet the needs of stakeholders has significant potential

value but is inherently difficult to quantify. Hence, without an incentive mechanism there is a risk of

“under-investment” in stakeholder engagement.

Decision 9

The TSO shall be subject to a financial incentive on the scope, quality and

outcomes/impacts of it stakeholder engagement activities.

Performance shall be measured through an annual assessment of the TSO’s strategy for

stakeholder engagement, and the processes and activities undertaken by the TSO

pursuant to that strategy over the preceding calendar year. The evidence to inform this

assessment shall take the form of an annual submission by the TSO, consistent with

guidance set by the CRU.

The assessment shall be undertaken by a panel constituted by the CRU for this purpose

and chaired by a CRU Commissioner – and conclude with the award of a score on a scale

of 1 to 10, consistent with guidance set by the CRU. The initial guidance on the

submission and the assessment criteria is in Annex E.


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The TSO shall lodge its submission by 31st March following the end of the reporting year.

The first reporting year shall be 2018. The TSO will be scored out of 10 and shall achieve

at least a score of 5 in order to receive any incentive payments7. The maximum incentive

payment shall be 1% of TSO internal opex (which translates to around €0.46m per year).

Reasoning


it will operate, e.g. that the scheme with operate with a financial incentive immediately. The

reasoning for this decision is set out below:

The new stakeholder incentive with provide a clear framework for the CRU to assess the

measures taken by the TSO (and DSO) to understand and address the needs of

stakeholders – in an environment in which the energy sector, and hence what different

stakeholders might need, is in a process of transformation.

A consistent assessment approach across TSO and DSO (and, potentially, other regulated

entities over time) will give both the CRU and provide an opportunity to learn from

demonstrated good practice and continually improve engagement methods. It also

provides a platform for the network companies to demonstrate their efforts and success in

these areas.

Stakeholder engagement benchmarking is an approach that Ofgem has developed as part

of the RIIO package of price control incentives (specifically the Stakeholder Engagement

(and Consumer Vulnerably) Incentive). Ofgem employ a panel to advise on DNO

performance, based on a set of pre-defined objectives. The limited number of network

companies in Ireland reduces the competitive pressure compared to GB. Potentially,

consistent application of the CRU’s stakeholder engagement incentive across all network

companies would go some way to address this.

The CRU notes the broad support for introducing an incentive mechanism for this area of

TSO (and DSO) activity, and has therefore concluded that the mechanism should have a

financial element from the start. While the maximum incentive award under the scheme is

lower for the TSO compared to the DSO, this is proportionate given the different

stakeholder bases – and is sufficient to encourage new, innovative forms of engagement

by the TSO.

7 Scoring system 5 = 10%, of available incentive pot, and €82,800 available for every point above 5 (i.e. if the TSO scored 6 they would receive €46,000 + €82,500 = €128,500.


31

The CRU guidance and the process of moderation through a panel convened by the CRU,

based on evidence presented by the TSO (and DSO), provides a workably objective

framework for assessment in the first instance – and a basis from which greater rigour in

evaluation can evolve. The CRU also sees an important role for stakeholder input to the

process of moderation, e.g. through consultation on the materials submitted by the TSO

(and DSO) prior to moderation. The CRU will also explore the scope for stakeholder

surveys and/or stakeholder representation on the moderation panel itself.

4.7 Delivering against strategic objectives

Objective

The CRU’s objective in putting in place a strategic incentive is to create a mechanism to allow the

TSO to retain a share of the value to the market (and, by extension customers) if the TSO

outperforms what might reasonably be expected in specified, strategically important areas. The

areas relate, in various ways, to the ability of different parties to participate in the markets for

energy, capacity and system services.

Decision 10

The TSO shall be subject to a financial incentive on delivery against its strategic objectives

relating to its role in supporting and managing the transition to a low carbon energy system.

Performance shall be measured through an annual assessment of evidence submitted by

the TSO, against objectives and criteria endorsed by the CRU, and reflecting stakeholder

input. The CRU’s initial objectives, criteria and process for the TSO to follow are in Annex

F. In framing its submission, the TSO may propose and seek CRU guidance on individual

KPIs that it considers relevant to the objectives and criteria.


The first reporting year shall be 2018. Good progress, on balance, against the strategic

objectives shall be consistent with the TSO retaining the €1.25m annual allowance in full.

Reasoning


it will operate. The key reasoning for the decision is set out below.

The power system that that TSO is operating, and the market arrangements which sit

alongside that power system, are in a period of rapid change. The TSO has a key role to

facilitate and manage this process change, and in some areas actively leading it. While it

is difficult for the CRU to define specific KPIs in advance that will accurately and

comprehensively capture the quality of the TSO’s performance in this regard, the value at


32

stake for the market and for consumers is significant. Hence, some form of incentive

mechanism appears to be appropriate.

In principle, the outcomes consistent with such “performance bonuses” should be both

demonstrably challenging, and strategically important for the system or market. The

proposed approach, based on an evidence-based assessment against identified strategic

objectives with a maximum incentive payment of €5m in total, is in the CRU’s view a

reasonable and proportionate incentive for the TSO to respond to.

The CRU recognises that to some extent this framework puts the onus on the TSO to

“make the case” against pre-defined but broad objectives. Hence, relative to other more

mechanistic incentive schemes there is a degree of uncertainty about outcomes for the

TSO. However, the objectives and criteria set by the CRU, in concert with the option for

the TSO to propose and seek guidance on individual KPIs, represents in the CRU’s view

an objective and balanced approach – with the ability to flex as the nature and importance

of strategic objectives shifts over time.

4.8 Innovation

Objective

The CRU’s objective in putting in place a more formal process is to track the use by the TSO of

innovation projects to help support and accelerate progress against the strategic objectives. This

process will also be a vehicle to consider the case for additional funding for innovation projects,

over and above the sums already provided or adequately incentivised for under PR4.

Decision 11

The TSO shall be subject to a combination of reputational and financial incentives in

respect of its innovation projects. The core incentive shall be reputational, delivered by

lodging with the CRU and publishing a submission each year on its pipeline of innovation

projects. The submission shall cover (i) projects being initiated, (ii) projects that are in

progress, and (iii) projects that have completed – and shall include relevant, proportionate

evidence on the scope, cost, rationale for and impacts of each project with either activity or

impacts during the reporting year.

The TSO may also include in its submission a business case for additional funding for new

projects. This must include rationale for why the project is innovative, the nature of the

potential benefits at stake, and a description of the project will be managed, reported on

and evaluated. If the application is accepted by the CRU, then reporting on progress will

be folded into the proposed annual process – and commensurate funding will be made

available through the tariff-setting process.


33


The first reporting year shall be 2018.

Reasoning



There are existing provisions under PR4 for the TSO to progress innovation projects.

While the funding is set at a relatively low level currently, it is still important to have a

degree of transparency over how this funding is being used. The new approach is

proportionate to this objective.

The approach also has the ability to flex if additional funding for innovation is made

available, either through the annual reporting process and the submission of a business

case by the TSO, or through the PR5 process.

The ability to increase the funding made available to the TSO ensures that initiatives can

be progressed quickly if a strong case can be made. But also that there are sufficient

safeguards in place when initiating new projects and tracking progress over time to provide

comfort for consumers that value-for-money is being safeguarded. In the CRU’s view the

new approach will, among other things, make it much clearer to stakeholders whether and

how past innovation projects are incorporated in business-as-usual operations.


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5. Distribution - reporting

This section sets out the CRU decisions on the reporting requirements to apply to ESB Networks

as DSO/DAO, for the period 2018 to 2020. In making these decisions, the CRU is also seeking to

put in place arrangements that can endure, subject to review and refinement as part of the PR5

process.

5.1 Output measures

Objective

The CRU’s objective in revising the framework of reporting for Distribution is to increase

transparency for all stakeholders on what is being delivered over time by the DSO/DAO in return

for the revenues being made available. Further, to ensure that relevant information is easy to

access and interpret – and capable of adapting over time to continue to ensure reporting on the full

range of ways in which actions by the DSO/DAO impact on stakeholders.

Without a robust framework for reporting, there is a risk that consumers, stakeholders and the CRU

cannot easily discern how the DSO/DAO is performing – and hence are less able to hold it to

account, or understand the levels of performance that it is reasonable to expect. This could, over

time, constrain the quality of regulatory decision-making on behalf of consumers.

Decision 12

The DSO shall prepare and publish a summary report documenting how its activities and

behaviours over the previous calendar year have delivered outputs relevant to the needs of

customers, market participants and other stakeholders. Consistent with the CRU guidance

set out in Annex B8, the report shall provide a comprehensive and accessible summary of

performance using relevant and appropriate performance indicators and metrics.

The report on performance during calendar year 2017 shall be published on or before 31st

December 2018, this will be an initial report and based on indicative incentive performance,

that will not be subject to CRU assessment. Thereafter, each subsequent report shall be

published on or before 30 September that will be subject to CRU assessment.

Reasoning

8 And as might be updated by the CRU from time to time.


35


it will operate in practice. The key reasoning for the decision is set out below.

The current annual performance report has the “look and feel” of a regulatory submission

or compliance document, rather than a document that might meet the needs of a

stakeholder seeking a clear, concise and comprehensive review of the performance of the

DSO in context. Some aspects of DSO performance are reported in disproportionate

detail, while other areas where the performance of the DSO has significant impacts on the

market or consumers are reported in a relatively superficial manner. While the CRU

recognises that this reflects in part the historic development of KPIs in different areas of

activity, it also considers that the case for an update to improve the completeness and

usefulness of the Annual Performance Report is strong.

The approach of obliging the DSO to produce a report that complies with guidance set by

the CRU is a proportionate means of introducing a step-change improvement in the

completeness of reporting and quality of presentation – while not being unduly prescriptive.

Further, the ongoing obligation on the DSO under the CRU guidance to seek feedback on

the report and to amend its content and format in the light of such feedback provides a

further channel to ensure that the report remains fit-for purpose over time. The initial CRU

guidance reflects input from respondents to the consultation on identified gaps and

deficiencies.

The revised timetable for publication reflects the reasonable requirements of the DSO to

design and prepare the report, in the first instance and on an enduring basis. The decision

to require publication on an enduring basis by September means that the performance

report will be available at approximately the same time that tariffs are finalised for the

forthcoming year.


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6. Distribution – incentives

This section sets out the CRU’s decisions on the incentive mechanisms to apply to ESBN as

DSO/DAO, for the period 2018 to 2020. In making these decisions, the CRU is also seeking to put

in place arrangements that can endure, subject to review, refinement and updating as part of the

PR5 process.

The CRU’s overarching objective in proposing these mechanisms is to ensure that the

performance targets against which the DSO is incentivised are based on the most appropriate and

up-to-date data. Further, that incentives are targeted on the DSO behaviours that matter most to

network users and consumers.

It should be noted that the DSO incentives were not in force for the first two years of PR4 (2016

and 2017). The incentive value caps have therefore been re-distributed to the remaining years of

PR4 (including to accommodate new incentive mechanisms) so that the overall value at risk/reward

for the DSO is maintained. The overall incentive package for the DSO is explained in Section 7.4.

6.1 Unplanned outages

Objective

The CRU’s objective in putting in place an incentive mechanism for unplanned outages is to give

the DSO/DAO an appropriate financial stake in maintaining appropriately high standards of supply

reliability. It reflects the high value of supply reliability to consumers, and that behaviours of the

DSO/DAO can be a significant influencing factor on reliability outcomes.

Decision 13

The DSO shall be subject to financial incentives in respect of unplanned (a) Customer

Minutes Lost and (b) Customer Interruptions. The incentive payment or penalty will be

calculated based on the difference between actual and performance and the levels of

target performance set out in Annex G.

The maximum payment for strong performance will be 2.14% of allowed revenue for each

of the two incentives. The maximum penalty for poor performance will be 1.89% of allowed

revenue per incentive. The detail of how payments or penalties are calculated with this

range is set out in Appendix G also.

Reasoning

The decision confirms the proposal that the CRU consulted on and makes some refinements to the

detailed parameters of the scheme, in the light of further engagement with the DSO. In addition,

the total revenue reward/at risk under these incentives has been adjusted slightly (upside from


37

2.4% to 2.14%, downside from 1.8% to 1.89%) in order to accommodate other elements of the

CRU’s decision within the overall PR4 settlement. The key reasoning for the decision is set out

below.

Unplanned interruptions in supply can impose significant costs and inconvenience on

customers, and it is appropriate for (a) high standards to be set for the DSO, and (b) the

DSO to have a proportionate financial stake in outcomes, both positive and negative.

Further, the structure of incentive in place during PR3 has delivered improvements over

time, and is in line with international good practice in its design and use of metrics.

The use of the most recent performance data to recalibrate the scheme ensures that

targets continue to be reasonable but challenging. It should be noted that the targets set

out in Annex G differ from those included in the consultation – and now more accurately

reflect the rebasing of the historic data for the change in the storm threshold definition.

The rationale for excluding unplanned outages during storm events (which was a feature

under the PR3 incentive scheme also) is to ensure that the rewards or penalties incurred

by the DSO more accurately reflect factors under its control. If storm events were not

excluded, then performance under the scheme could easily be distorted by atypically

stormy (or benign) weather in any given year. This is not to say that storm resilience is

unimportant. The DSO has strong reputational incentives in respect of its performance

during storms, and the CRU expects an efficient, well-justified approach to network

resilience to be a significant part of the DSO business case for PR5.

The updated performance report (see Decision 11) has an important role to play in how the

reputational incentives around planned outages and supply continuity during storm events

work in practice. The CRU expects clear quantification of absolute and benchmarked

performance in these areas to form part of the new reporting. Further, the CRU will review

the use of the metrics around supply continuing during storm events as a basis for separate

financial incentives for PR5. This recognises the anticipated trend towards more frequent

and/or extreme weather events, and the importance of network resilience for customers.

The decision to focus the financial incentives solely on unplanned interruptions, and to

reposition the DSO’s performance on planned outages as a “reputational” incentive is

driven by the following: First, the costs and inconvenience imposed by planned outages

(where customers are notified in advance) are lower than for unplanned outages, hence

there is a case for giving unplanned outages a lower weighting in any given incentive


38

scheme9. Second, the reputational stake for the DSO in managing planned outages

efficiently and meeting its targets is high – hence the addition of a financial element might

well have a limited additional impact on actual outcomes. Third, there are other areas of

DSO performance where the use of financial incentives might be expected to a more direct

impact on outcomes, e.g. Worst-served Customers.

6.2 Worst-served customers

Objective

The CRU’s objective in putting in place an incentive mechanism for worst-served customers is to

improve outcomes for those households and business who would otherwise have a sustained and

materially lower standard of supply reliability. It reflects a desire to introduce a greater degree of

social fairness into the outcomes that would otherwise prevail if investments to improve supply

reliability were chosen on the basis of narrow economic cost-benefit alone.

Decision 14

The DSO shall be subject to financial incentives in respect of its use of allocated funding to

improve service quality for its worst-served customers, aligned to funding of €6.7m

(increasing from €1.4m). The DSO states that this level of funding is sufficient to improve

service to 6000 worst-served customers.

An incentive will be available to the DSO such that non-delivery against the incentive will

result in a penalty of €6.7m (offsetting the value of the funding award, resulting a net

payment of €0m).

There will be an incentive upside for the DSO, so that over-delivery against the incentive

target of 6000 customers, results in a payment per customer up to a total incentive cap of

€6.7m.10 The incentive payments are explained in Section 7.4.

Reasoning

The decision represents a confirmation of the proposal set out by the CRU in its December 2017

9 The comparable scheme in place in Australia’s National Electricity Market, for example, places a weighting of zero on planned outages, i.e. only unplanned outages are subject to financial incentives. 10 The incentive will include a dead-band with no incentive payment or reward where successful delivery against the incentive, measured where a WSC receives a 20% improvement in reliability, is achieved for 70-80% of the 6000 customer included in the incentive. The incentive rate, upside and downside, is equal to €1,595 per customer calculated based on €6.7m/ (6000*70%).


39

consultation. The key reasoning is as follows:

The incentive mechanism for worst-served customers has not been clearly defined to date,

and has resulted in limited success.

Worst-served customers are by definition hard to reach, and therefore the DSO should face

a strong incentive to target these customers and improve reliability.

The incentive is based on an assumed 6000 customer base, as proposed by the DSO,

however the full upside incentive will not be realised unless 9000 customers have reliability

improved by over 20%. This provides a strong incentive for the DSO to expand the

programme beyond the existing 6000 customers.

The incentive will be assessed during PR4, with the targets, funding and incentive value re-

calibrated based on success of the scheme between now and 2020.

6.3 Customer service/satisfaction

Objective

The CRU’s objective in putting in place an incentive mechanism for customer service/satisfaction is

to give the DSO/DAO an appropriate financial stake in maintaining appropriately high standards of

service. It reflects that customers and market participants rely on the quality of services provided

by the DSO/DAO, and they do not have the option of choosing an alternative service provider in

response to poor service quality.

Decision 15

The DSO shall be subject to financial incentives in respect of the quality of its customer

service/satisfaction. As under PR3, this will continue to be measured using a range of

metrics relating to the performance of the DSO’s contact centre (National Customer

Contract Centre (NCCC) metrics), and through the overall customer satisfaction survey11.

The incentive payment or penalty will be calculated based on the difference between

actual performance and the levels of target performance set out in Annex H.

The incentive targets for PR4 will be based on actual performance during PR3. The

NCCC target will be fixed at 90% for 2018, 2019 and 2020. The customer survey target

will be set at 81% for 2018, 2019 and 2020.



40

The total value of the customer service/satisfaction incentive will be calculated based on

deviation from the target performance, at a rate of €0.738m per % point from target (this

is the PR3 (i.e. real 2009) rate of deviation adjusted to real 2014).

Reasoning



The customer service incentives are core elements of the DSO incentive package. The

DSO has a central responsibility to its customers and should therefore take every effort to

continue to improve customer services. Performance targets under PR3 were easily met

under both of the customer services incentives. This results in payments to ESBN. To

ensure a continued improvement in performance, the incentive targets for PR4 are more

stretching. The total value of the incentives are unchanged, providing ESBN with strong

incentive to continue to deliver customer service through the remainder of PR4.

The CRU notes that the measures of performance relate in large part to how the DSO

manages customer contact by telephone. The CRU recognises that other channels

through which the DSO engages with customers, and delivers customer service, are

becoming increasingly important – and the CRU will review as part of PR5 whether and

how these developments should be reflected in the performance incentives that the DSO

faces. However, in the interim the quality of telephone-based customer service remains an

important aspect of DSO performance, and should continue to be subject to financial

incentives.

6.4 Metering – traditional

Objective

The CRU’s objective in putting in place an incentive mechanism for metering is to give the

DSO/DAO an appropriate financial stake in providing customers and market participants with a

regular supply of accurate metering data on which to bill. It reflects that inaccurate billing imposes

costs and inconvenience on suppliers and customers, and that the DSO/DAO is the monopoly

provider of metering data.

Decision 16

The DSO shall be subject to financial incentives in respect of its meter reading

performance. The incentive payment or penalty will be calculated based on the

difference between actual and performance and the levels of target performance set out

in Annex J.


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The PR3 incentive rate for both incentives will be maintained for PR4. This will be set at

€0.1m per 0.1% deviation from the target (with a 0.2% dead-band, whereby no incentive

payments are made). The total value (cap and collar) of the metering incentive will also

be retained at +/-€1m.

Reasoning



The traditional metering incentives are core elements of the DSO incentive package. They

drive network company behaviour that is desirable for consumers, market participants and

for the CRU. The CRU considers that the strength of the incentive remains appropriate,

and the target levels of performance have been recalibrated to actual performance by the

DSO under the regime.

The implementation of the National Smart Metering Policy will change metering policy in

the medium-term, and will be incentivised separately, as explained in Section 6.5. In the

short-term, and for the remainder of PR4, the traditional metering incentive remains

applicable for ESBN.

6.5 Metering – smart

Objective

The CRU’s objective in putting in place an incentive mechanism for smart metering is to give the

DSO/DAO an appropriate financial stake in delivering its part of the revised plan for the National

Smart Metering Programme (NSMP). It reflects that customers and market participants are reliant

on DSO/DAO’s delivery before the benefits of smart metering can be realised in full.

Decision 17

The DSO shall be subject to financial incentives in respect of its installation of smart meters

with supporting smart functionality, to specified timescales. Performance will be measured

against a target cumulative profile of “smart meter delivery days”.

The incentive payment or penalty will be calculated based on the difference between actual

and target levels of performance. The target is calibrated to the goal of 250,000 smart

meters being installed and operational with phase 1 functionality by the end of 2020 – with

the rollout of smart-ready meters commencing in Q4 2019. The detailed parameters, which

include scope for the DSO to present evidence to support an adjustment to target profiles

(via a “grace period” to reflect factors outside the control of the DSO), are set out in Annex

K.


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The maximum penalty under the scheme is €20m in total. The maximum upside under the

scheme is €4m.

Reasoning

The decision confirms the proposal to introduce a new incentive mechanism linked explicitly to the

DSO’s delivery of its components of the National Smart Metering Programme over the period 2018

to 2020. The parameters of the scheme have been adjusted to reflect more accurately the target

timescales, and to introduce the scope for the DSO to earn an incentive award for delivering

against the end 2020 target under its current plan.

It should also be noted that although the mechanism being introduced for PR4 only covers the

initial delivery by the DSO of phase 1 functionality, it could be readily adapted to incentivise the

DSO’s delivery of future phases of the smart metering programme – and its enduring service levels

following completion of the mass rollout and transition to full functionality.

The key reasoning for the decision is set out below.

The DSO’s preparations for the delivery of its component of the NSMP have been ongoing

for a number of years and have been funded by customers. Further, the revised plan for

delivery has been developed in large part by the DSO, in consultation with the CRU and

other stakeholders. Hence, it is reasonable to assume that the delivery plan should be

capable of being adhered to.

There are substantial benefits at stake for consumers and for market participants through

delivery of the NSMP, and significant costs for market participants in managing their own

readiness. Therefore relatively high value associated with this incentive is, in the view of

the CRU, proportionate.

However, the CRU recognises that even in the context of a DSO-led re-plan, the NSMP is

a large and complex programme requiring careful and active management by the DSO.

Further, there are substantial benefits for market participants and consumers if the current

plan and timescales can be adhered to. Hence, on balance the CRU considers that it is

appropriate for the incentive mechanism to have a financial upside. The proposal the CRU

consulted on was “downside-only”. This change aligns the smart metering incentive to

other forms of incentive applying to the DSO customer service, under which there is an

incentive award for good performance – but in this case, the penalties for under-

performance are potentially much larger.

The mechanism is focused on the measurable delivery of outputs that impact directly on

customers and market participants. The CRU consider that an output-based mechanism is

more appropriate than, for example, a regime based on the DSO’s progress against interim

milestones – in seeking to promote clear accountability, and to drive efficiency in delivery


43

by the DSO.

The option for the DSO to apply for a “grace period” reflects that not all factors influencing

delivery are within the control of the DSO, e.g. there will be a role for Suppliers to enable

the rollout of smart-ready meters and in being ready to operate phase 1 functionality

themselves. Hence a degree of flexibility might be appropriate, if there are mitigating

factors.

6.6 Stakeholder engagement

Objective

The CRU’s objective in putting in place an incentive mechanism for stakeholder engagement by

the DSO/DAO is to enable the potential benefits of effective stakeholder engagement to be realised

in practice. It reflects that innovation in how stakeholders are communicated with, and how their

input is used to improve how network services meet the needs of stakeholders has significant

potential value, but is inherently difficult to quantify. Hence, without an incentive mechanism there

is a risk of “under-investment” in stakeholder engagement.

Decision 18

The DSO shall be subject to a financial incentive on the scope, quality and

outcomes/impacts of it stakeholder engagement activities.

Performance shall be measured through an annual assessment of the DSO’s strategy for

stakeholder engagement, and the processes and activities undertaken by the DSO

pursuant to it over the preceding calendar year. The evidence to inform this assessment

shall take the form of an annual submission by the DSO, consistent with guidance set by

the CRU.

The assessment shall be undertaken by a panel constituted by the CRU for this purpose

and chaired by a CRU Commissioner – and conclude with the award of a score on a scale

of 1 to 10, consistent with guidance set by the CRU. The initial guidance on the

submission and the assessment criteria, which is common for the TSO and DSO, is in

Annex E.

The DSO shall lodge its submission no later than 31st March following the end of the

reporting year. The first reporting year shall be 2018. The DSO will be scored out of 10


44

and shall achieve at least a score of 5 in order to receive any incentive payments12. . The

maximum incentive award shall be €1m per year (upside only).

Reasoning


it will operate, e.g. that the scheme with operate with a financial incentive immediately. The

reasoning for this decision is set out below:

The new stakeholder incentive with provide a clear framework for the CRU to assess the

measures taken by the DSO (and TSO) to understand and address the needs of

stakeholders – in an environment in which the energy sector, and hence what different

stakeholders might need, is in a process of transformation.

A consistent assessment approach across TSO and DSO (and, potentially, other regulated

entities over time) will provide an opportunity to learn from demonstrated good practice and

continually improve engagement methods. It also provides a platform for the network

companies to demonstrate their efforts and success in these areas.

Stakeholder engagement benchmarking is an approach that Ofgem has developed as part

of the RIIO package of price control incentives (specifically the Stakeholder Engagement

(and Consumer Vulnerably) Incentive) in the UK. Ofgem employ a panel to advise on DNO

performance, based on a set of pre-defined objectives. The limited number of network

companies in Ireland reduces the competitive pressure compared to GB. The consistent

application of the CRU’s stakeholder engagement incentive across the TSO and DSO (and

potentially other regulated companies) will go some way to address this.

The CRU notes the broad support for introducing an incentive mechanism for this area of

TSO (and DSO) activity, and has therefore concluded that the mechanism should have a

financial element from the start. While the maximum incentive award under the scheme is

higher for the DSO (€1m per year) compared to the TSO (€0.46m per year), this is

proportionate given the different stakeholder bases – and is sufficient to encourage new,

innovative forms of engagement by the DSO.

6.7 Strategic and innovative thinking

12 Scoring system 5 = 10%, % of available incentive pot, and 180,000 available for every point above 5 (e.g. if the DSO score a 6 they will receive €100,000 + €180,000 = €280,000.


45

Objective

The CRU’s objective in putting in place an incentive mechanism for strategic and innovative

thinking by the DSO/DAO is to encourage and reward the DSO/DAO for actively, and

imaginatively, tackling the sizeable challenges associated with the transition to a low carbon energy

system. This could include the accommodation of distributed and micro-generation, storage and

more active management of demand. It reflects that the DSO/DAO has an important role in

articulating the variety of commercial and technical challenges, and working with market

participants, the TSO, the TAO and other stakeholders to develop and test practical, workable

solutions.

As indicated by the CRU in the PR4 decision, the innovation will be incentivised through PR4 via

the Strategic Innovation Fund (SIF) – providing funding for research, development, demonstration

and adoption of innovative technology, as well as operating and commercial arrangements.

The value of the SIF for PR4 is set at €100m. The size of the fund reflects the scale of challenge in

the short-term (i.e. to 2020), and the significance of the consumer benefit from the successful

delivery of innovation.

Decision 19

Funding under the SIF will take place under a clear submission and assessment

framework. An annual assessment will be completed by the CRU to determine the quality

of the process to identify innovation, the efficiency in deliver of innovative projects and the

way that project learnings or outcomes have been used by the DSO.

The assessment will be based on an annual submission by the DSO, consistent with the

CRU guidance. The CRU’s initial guidance is in Annex L of this document. The evidence

presented in each year shall be consolidated by the CRU into an overall assessment of

“strong”, “adequate” or “weak”. An “adequate” score would result in a €5m being held

back, and a “weak” score would result in €15m being held back.

The DSO shall lodge its submission by 31st March following the end of the reporting year.

The first reporting year shall be 2018.

Reasoning



There is already some innovation underway as part of PR4, and earlier price review

periods. Innovation is currently funded through the main Price Review revenue

allowances. The SIF was introduced to respond to the step-change in innovation spend

that is required to keep pace with industry and technology change. The nature of


46

innovation spending, and in particular the risk and uncertainty inherent in investing in

untested projects or trials, calls for a process that recognises these risks and possible

rewards. Without a dedicated and clear investment route, there is a risk that socially

beneficial innovation investment is not progressed to the detriment of consumers.

The SIF design provides a clear framework for innovation investment for ESBN. The

assessment and reward will be aligned with outcomes that are valuable for consumers –

i.e. socially beneficial projects that are demonstrably not business-as-usual activities for the

DSO (and therefore funded elsewhere in the Price Review). It will reward ESBN for

innovative projects that are supported and validated by third parties, further reinforcing the

wider value of innovation. The size of the fund, and costs to ESBN of sub-standard

performance, will provide a strong financial incentive to drive these behaviours.

6.8 Delivering New Connections

Objective

The CRU’s objective in putting in place an incentive mechanism for the timely processing of

connections applications under Enduring Connection Policy – Phase 1 (ECP-1) is because new

connections are critical to well-functioning, competitive wholesale markets and to the process of

decarbonising the energy sector – and the DSO has a key enabling role. The immediate task for

the DSO is now, pursuant to recent decisions by the CRU, clearly defined. Hence, suitable for a

more direct, explicit delivery incentive.

Decision 20

The DSO shall be subject to a financial incentive on its performance in issuing connection

offers to all applicants being processed pursuant to the “2018 Batch” as defined in the

CRU’s decision of March 2018.

DSO performance shall be measured by the average elapsed time between (a) the date by

which the identity of the projects to be processed under the 2018 batch is known, and (b) to

date by which each offer is delivered.

The CRU will set a target average elapsed time (measured in working days). Payments or

penalties for DSO performance relative to this target will be determined in two steps. First,

an unadjusted amount based on out-turn performance. Second, the option for the DSO to

submit evidence to justify and quantify the impact of factors outside the control of the DSO.

The CRU may then recalculate performance adjusting for well-reasoned external impacts.

The maximum reward/payment will be +/€0.5m per year. The mechanism will be settled

once during the PR4 period, after the point at which the final project being processed under


47

the 2018 batch has been issued with a connection offer.

Reasoning

The decision introduces a new element into the incentive framework to reflect and complement the

newly confirmed role of the DSO (and TSO) in delivering connections under the latest form of batch

processing determined by the CRU. The key reasoning for the form of incentive being

implemented is set out below:

Receipt of a connection offer is a key step in the process of new generators being able to

participate in the market. The date of receipt is objectively measurable, and in large part

under the control or influence of the DSO.

Absent an incentive mechanism, the DSO may undervalue timeliness relative to the needs

of the connecting party (and future parties wishing to connect in subsequent batches).

While reputational incentives obviously have a role to play, the CRU considers that

outcomes can potentially be improved for parties seeking a new connection if the DSO is

subject to a financial incentive also in respect of the speed with which it issues connection

offers.

The CRU has adopted a design in which performance is measured when all projects in the

batch have received a connection offer. This is because under a group processing

approach the next batch can only start once the offers under the current batch have been

issued. Further, sub-groups within a batch can only be managed efficiently once there is

certainty over which projects are in the sub-group. Hence, the CRU considers it

appropriate to focus on the milestone of all offers being issued, as this has a stronger link

to the impacts that matter to market participants – and by extension customers.

The CRU notes that the financial incentive will be measured on the processing of projects

that form part of the 2018 Batch. For the avoidance of doubt, this does not imply that the

processing of non-batch connections offers have a lower priority. The DSO has a duty not

to discriminate between classes of market participant. Hence, its incentive to deliver the

2018 Batch in a timely way should benefit other classes of connection applicant also.

Connection was highlighted by some respondents to the CRU’s consultation as an area

where TSO and DSO performance was important. Further, the CRU has engaged with the

TSO and DSO in the context of the ECP-1 decision to develop and consider different

incentives scheme models. The TSO and DSO are supportive of the principles of

incentivising ECP-1 delivery, although they have expressed a preference for a model which

is more capable of adjustment in target timelines than the model the CRU has adopted.

The CRU recognises that there are some factors which could influence timescales, and over which

the TSO and DSO have less ability to control – and that the process for making ex post


48

adjustments on the basis of evidence is the most appropriate mitigation. The alternatives of

making ad hoc adjustments, or agreeing detailed delivery schedules jointly with the TSO and DSO,

are likely to dilute incentives and accountability for the TSO and DSO relative to the approach

being implemented. For the DSO, the CRU notes that a candidate for ex post adjustment would

evidence of delays in necessary input from the TSO.


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7. Incentives as a package

This section sets out how the component parts of the CRU’s incentives proposals combine

financially as a package, for each of the TSO, TAO and DSO.

For each network company, the CRU presents the total revenue at risk, i.e. the maximum cost to

the network company of poor performance, and the total revenue reward, i.e. the maximum

additional revenue that can be earned for out-performance.

The tables presented in this section show the incentive revenue/reward on an annual basis. This

shows that value that can be earned by the network companies in each year. The recovery of this

incentive value will be subject to CRU assessment of performance against the incentive, which will

take place in the year after the incentive period (year +1). This decision will allow the network

companies to recover the incentive value in the following tariff year (year + 2). This process is

unchanged from PR3.

These values presented in the following section show indicative value only. The actual incentive

payments will be calculated by CRU annually during PR4, and calculated in nominal terms.

7.2 TSO incentives

Table 3 TSO incentive revenue reward for PR4 (upside)

Incentives for the TSO (€m, 2014)

PR 3 Annual

%

PR4 Annual

% 2016 2017 2018 2019 2020 Total

PR4 internal opex 46.70 47.80 47.20 45.50 45.80 233.00

System Minutes Lost 0.8% 0.5% 0.37 0.38 0.24 0.23 0.23 1.44

System Frequency 0.8% 0.5% 0.37 0.38 0.24 0.23 0.23 1.44

TSO Project Milestones 1.4% - 0.65 0.67 - - - 1.32

Delivery of Enhanced Network

Capacity 1.0% - 0.47 0.48 - - - 0.95

Investment Planning and

Delivery (NEW) - 2.0% - - 0.94 0.91 0.92 2.77

Stakeholder engagement (NEW) 1.0% - - 0.47 0.46 0.46 1.39

ECP-1 (NEW) 0.5% - - 0.24 0.23 0.23 0.69

Total 1.86 1.91 2.12 2.05 2.06 10.00

Percentage of internal opex 4.0% 4.5% 4.0% 4.0% 4.5% 4.5% 4.5% 4.29%

The CRU has adapted the incentive package for the TSO in the following ways:


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ECP-1 incentive: This is a new incentive for PR4. The value of the incentive is 0.5% on

internal opex per year for 2018, 2019 and 2020. For the TSO, the incentive value for the

ECP-1 incentive is additional to the other incentive packages, and therefore increases the

total incentive upside value to the TSO to 4.5% of internal opex in 2018, 2019 and 2020.13

Stakeholder Engagement incentive: This incentive was introduced in the consultation,

however the incentive value was left undecided. The CRU has decided to provide an

upside rewards for the TSO equal to 1% of annual opex. The incentive value for the

Stakeholder Engagement incentive has been re-distributed from the System Minutes Lost

and System Frequency incentive (reduced to 0.5% of annual opex, from 0.8% in the

consultation) and from the Investment Planning and Delivery incentive (reduced to 2.0% of

annual opex), from 2.4% in the consultation).

Table 4 TSO incentive revenue at risk for PR4 (downside)

Incentives for the TSO (€m, 2014)

PR 3 – Existing Annual

%

PR4 – New

Annual %

2016 2017 2018 2019 2020 Total

PR4 internal opex 46.70 47.80 47.20 45.50 45.80 233.00

System Minutes Lost 0.8% 1.0% 0.37 0.38 0.47 0.46 0.46 2.14

System Frequency 0.8% 1.0% 0.37 0.38 0.47 0.46 0.46 2.14

TSO Project Milestones 1.4% - 0.65 0.67 - - - 1.32

Delivery of Enhanced Network

Capacity 1.0% - 0.47 0.48 - - - 0.95

Investment Planning and

Delivery (NEW) - 2.0% - - 0.94 0.91 0.92 2.77

Stakeholder engagement

(NEW) - 0% - - - - - 0.00

ECP-1 (NEW) - 0.5% - - 0.24 0.23 0.23 0.69

Total - 1.86 1.91 2.12 2.05 2.06 10.00

Percentage of internal opex 4.0% 4.5% 4.0% 4.0% 4.5% 4.5% 4.5% 4.29%

The total upside and downside incentive value remains the same in the Decision (capped at 4.5%

of annual opex).

13 The ECP incentive has been presented as an annual allowance in this table. In practice, the incentive will be awarded based on completion of connection offers, which will be achieved at one point in time during PR4.


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The CRU has re-distributed some incentive value in the downside for two reasons:

Stakeholder Engagement incentive: This incentive is upside only, and awarded at the

discretion of the CRU based on the assessment approach set out in this Decision. To

maintain the total incentive value at 4.5%, the capped value of the SML and SF incentives

for 2018, 2019 and 2020 have been increased in the downside to 1% of annual opex

(compared to 0.5% in the upside).

Changes to incentive targets for SML and SF: As explained in Section 4.1 the CRU has

decided to align the PR4 performance targets for System Minutes Lost and System

Frequency with the PR3 targets. Introducing an asymmetrical incentive for System

Minutes Lost and System Frequency will increase performance incentives, whilst allowing

the TSO to effectively manage system operation uncertainty with the introduction of I-SEM.

7.3 TAO incentives

The incentive package for the TAO remain unchanged from the consultation. The CRU consulted

on the option to introduce a Stakeholder Engagement incentive for the TAO, to align with the TSO

and DSO incentives. This proposal has been dropped for the Decision, as described in Section

4.6.

The incentives for the TAO remain symmetrical, with the same value at risk and reward for PR4.

Table 5 TAO incentive revenue at risk/reward for PR4

Incentives for the TAO (€m, 2014)

PR 3 – Existing Annual

%

PR 4 – New

Annual %

2016 2017 2018 2019 2020 Total

PR4 opex 54.10 58.50 60.50 62.70 64.80 300.60

Issue PIP 0.40% 0.22 0.23 - - - 0.45

Scheduled outages 0.85% 0.85% 0.46 0.50 0.51 0.53 0.55 2.55

Construction and Energisation 3.75% - 2.03 2.19 - - - 4.22

Investment Delivery (ID)

(NEW) - 4.15% - - 2.51 2.6 2.69 7.8

Total 2.71 2.92 3.02 3.13 3.24 15.02

Percentage of TAO allowed

opex 5% 5% 5% 5% 5% 5% 5% 5%

7.4 DSO incentives

For the DSO, the CRU has maintain the asymmetrical nature of the incentive packages, as


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proposed in the consultation.

Table 6 DSO incentive revenue reward for PR4 (upside)

Incentives for the DSO (€m, 2014) Annual

% 2016 2017 2018 2019 2020 Total

PR4 Allowed Revenue 737.07 817.12 835.83 857.72 883.23 4130.97

Continuity – Customer Interruptions 2.14% - - 17.88 18.35 18.89 55.12

Continuity – Customer Minutes Lost 2.14% - - 17.88 18.35 18.89 55.12

Overall customer satisfaction survey14 0.32%* - - 2.72 2.72 2.72 8.16

Customer Satisfaction 0.34% - - 2.86 2.94 3.02 8.82

Metering – 1 read/year 0.10%* - - 0.85 0.85 0.85 2.55

Metering – Estimated reads 0.10%* - - 0.85 0.85 0.85 2.55

Smart Metering (NEW) 0.15%* - - - - 4.00 4.00

Stakeholder engagement (NEW) 0.12%* - - 1.00 1.00 1.00 3.00

Worst served customer (NEW)15 0.26% - - 2.17 2.23 2.29 6.69

ECP-1 (NEW) 0.06%* - - 0.50 0.50 0.50 1.50

Total 0.00 0.00 46.71 47.77 53.02 147.49

Percentage of DSO allowed revenues 0.00% 0.00% 5.59% 5.57% 6.00% 3.57%

*indicates where the annual incentive value is fixed €m rather than as a percentage of allowed revenue (percentages are

indicative)

The total incentive package for the DSO is unchanged from the Consultation. These caps are

calculated annually by the CRU in nominal terms and taking into account adjustments made

between years of the PR period.

Following consultation, the CRU has adapted the upside incentive package for the DSO in the

following ways:

ECP-1 incentive: This is a new incentive for PR4. The value of the incentive is €0.5m per

year, and is symmetrical for 2018, 2019 and 2020.16 For the DSO, the value of the new

ECP-1 incentive (upside and downside) has been re-distributed from Customer Satisfaction

incentive (reduced by €0.5m per year compared to the Consultation). The decision to

reduce the Customer Satisfaction survey aligns with Consultation responses, highlighting

14 Currently carried out by RedC 15 €1.4m capex already provided in PR4 plus €5.3m Capex awarded through this decision 16 The ECP incentive has been presented as an annual allowance in this table. In practice, the incentive will be awarded based on completion of connection offers, which will be achieved at one point in time during PR4.


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some aspects of the incentive as outdated, and of less valuable to consumers going

forward. The effectiveness of the Customer Satisfaction survey will be assessed as part of

the Stakeholder Engagement incentive.

Stakeholder Engagement incentive: This incentive was introduced in the consultation,

however the incentive value was left undecided. The CRU has decided to provide an

upside rewards for the DSO of €1m per year. This is roughly double the incentive award

available to the TSO, to reflect the larger customer base of the DSO. The incentive value

for the Stakeholder Engagement incentive has been re-distributed from the CI and CML

incentive. There is no downside risk for this incentive.

Smart Metering incentive upside: Following consultation, the CRU has introduced an

upside element of the Smart Metering incentive (new for PR4). The incentive will be

capped at €4m, to be awarded in 2020, subject to successful delivery against the incentive

(as explained in Annex K). The incentive value has been accommodated by reducing the

Customer Interruption and Customer Minutes Lost incentive value.

CI and CML incentive value: To accommodate the Stakeholder Engagement and Smart

Metering incentives, the CI and CML upside incentive value is marginally reduced (both

reduced to 2.14% of Allowed revenue, reduced from 2.30% in the Consultation).

Table 7 DSO incentive revenue at risk for PR4 (downside)

Incentives for the DSO (€m, 2014) Annual

% 2016 2017 2018 2019 2020 Total

PR4 Allowed Revenue 737.07 817.12 835.83 857.72 883.23 4130.97

Continuity – Customer Interruptions 1.89% - - 15.80 16.21 16.69 48.70

Continuity – Customer Minutes Lost 1.89% - - 15.80 16.21 16.69 48.70

Overall customer satisfaction survey17 0.32%* - - 2.72 2.72 2.72 8.16

Customer Satisfaction 1.55% - - 12.92 13.25 13.65 39.82

Metering – 1 read/year 0.10%* - - 0.85 0.85 0.85 2.55

Metering – Estimated reads 0.10%* - - 0.85 0.85 0.85 2.55

Smart Metering (NEW) 0.75%* - - - - 20.00 20.00

Stakeholder engagement (NEW) 0.00% - - - - - 0

Worst served customer (NEW) 0.26% - - 2.17 2.23 2.29 6.69

ECP-1 (NEW) 0.06%* - - 0.50 0.50 0.50 1.50



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Total 0.00 0.00 51.60 52.82 74.25 178.67

Percentage of DSO allowed revenues 0.00% 0.00% 6.17% 6.16% 8.41% 4.33%

*indicates where the annual incentive value is fixed €m rather than as a percentage of allowed revenue (percentages are

indicative)

For the downside/revenue at risk for the DSO, the CRU has made the following change since the

Consultation:

Smart Metering incentive downside: The total value of the Smart Metering incentive has

been reduced by €4m over PR4. The full incentive value will now be awarded in 2020, to

reflect performance against the Smart Metering incentives as explained in Annex K. To

maintain the total incentive downside with PR3, and the Consultation position, the reduced

value of this incentive has been re-distributed to the CI and CML incentive. The CI and

CML incentive maximum downside value has been increased from 1.89% of annual

Allowed Revenue in the Consultation to 1.9% in the Decision.


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Annex A: Responses to Consultation

This Annex summarises the main points and theme raised by respondents to the CRU’s

consultation document on PR4 reporting and incentives. The CRU received a total of five

response, all of which were non-confidential. These responses are available in full on the CRU

website.

Decision area Response overview

1 New reporting framework for Transmission

- The network companies were supportive of a move to a consolidated APR covering TSO and TAO activities. They proposed an alternative timetable for 2018, suggesting a report by the end of Q4 was appropriate, followed by publication in Q3 on an enduring basis.

- Some respondents sought confirmation that the APR proposed would be additional to existing material provided to the CRU for the purposes of incentive calculation for tariffs setting.

- Most respondents sought further detail on the content of the new APR and confirmation of the publication timetable.

2 Capex monitoring - The proposals for capex monitoring were supported by the network companies. - One respondent asked for confirmation that annual, detailed, capex reports will

remain in place (citing these as essential to the Price Review decisions). - A number of respondents sought clarity on the interaction between the proposed

investment planning and delivery documentation and existing network planning documents (such as the Ten Year Plan).

- One respondent suggested that any network planning documentation should also consider the trade-off between capex and opex.

3 Capex adjustment process

- The simplification and formalisation of the capex adjustment process was supported by respondents.

- One respondent flagged that an annual trigger date may not be appropriate given the way that extraordinary network costs may materialise (suggesting a more ad-hoc approach is required).

- One respondent welcomed the proposal to consult on changes to the PR settlement process.

4 Transmission incentives

- Respondents broadly supported the continuation of System Performance incentive for SML and SF.

- One respondent questioned whether continued improvement in system performance was appropriate given the system operation challenges faced with I-SEM. They suggested that any target be based on forward looking challenges and not historical performance.

- Two respondents suggested that the incentive value should be re-distributed given historical over-performance against these incentives (for example moving value to the stakeholder engagement incentive under PR4).

- Another suggested that minimum performance against SML and SF should be considered Business-As-Usual and therefore not be subject to financial incentive (replaced with a reputational incentive).

5 Investment planning and delivery - TSO

- The inclusion of the IPD incentive was supported by most respondents, with one disagreeing, suggesting that system planning was the core function of the TSO and therefore should not be further incentivised (outside of the PR settlement).

- One respondent suggested that a panel assessment should be part of the Balanced Scorecard assessment of the IPD incentive.

- Most respondents suggested the assessment approach for the IPD should be more clearly defined - for example including SMART standards and KPIs, developed through further engagement with stakeholders.

- Penalties for poor performance were welcomed.

6 Project delivery - TAO

- Respondents were split on whether to adopt the new approach (b) or maintain PR3 incentive (a).


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- Respondents were clear that any incentive should only be targeted on elements that the TAO was able to control, and take into account and that coordinated input may be required from the TSO and TAO.

- On the incentive payment structure, one respondent suggested a more gradual reward structure across a spectrum of outcomes.

7 Outage management

- One respondent suggested that the outage management incentive should take into account both TAO and TSO costs in short-term changes to outages.

- Another suggested that any funding should be additional to the exiting incentive value for outage management under PR3.

- The cost plus incentive rate of 25% of costs was considered too generous by one respondent.

- Another respondent suggested using other options for outage management, such as distributed generation.

- One respondent suggested that any new outage management incentive should be monitored during PR4 to ensure value for money for consumers.

8 Stakeholder engagement

- All respondent welcomed this incentives, with the majority of respondents suggesting this incentive was relevant for the TSO and DSO but not the TAO.

- Further clarity was sought on the assessment metrics and performance targets taking into account feedback from stakeholders. The role of the consumer panel or an independent audit was welcomed, but further clarity was requested on its role and objectives.

- One respondent suggested the incentive should be financial from 2018.

9 Delivering against strategic objectives – TSO

- Overall, respondents supported this incentive, but suggested that it was too vague, with a lack of clarity on what outperformance would actually look like. Respondents suggested further consultation on the strategic objectives and assessment metrics.

- One respondent flagged the risk of double payment – where strategic objectives were already accounted for in the PR4 settlement.

- More generally, one respondent wanted more clarity on the wider strategic objective of PR4, separately to any incentive mechanism, suggesting these were unclear.

10 Innovation - TSO - The innovation incentive was broadly welcomed with one respondent suggesting that funding should be available to parties other than the network companies.

- Further clarity was sought on the definition of innovation, compared to Business-As-Usual.

11 New reporting framework for DSO

- Respondents were supportive, overall, of the changes to the APR for the DSO, including a more targeted and transparent summary of performance.

- Some requested further detail on the KPIs or content of the APR. One respondent suggested that benchmarking against other DSOs would be valuable.

- As with the TSO report, the timing of the DSO APR was suggested for Q4 2018, followed by Q3 on an enduring basis.

12 DSO incentives – supply interruptions

- Overall, the continuation of the supply interruption incentives was supported. - ESBN provided further detail on the re-calibrated incentive targets, based on

historical performance and the updated storm threshold (for unplanned outages). - One respondent suggested that the targets were not challenging enough for the

DSO. - Most respondent supported a reduction in the value of this incentive, suggesting the

value could be used elsewhere – for example as upside to the smart metering incentive.

- The approach to the treatment of storms was questioned by some respondents, suggesting they should be included in the financial incentive.

13 DSO incentives - Worst-served customers

- The WSC incentive was broadly supported by respondents, with some clarity requested on the mechanism details.

- Some respondent questioned why there appeared to be a cap on the number of customers that could be helped under this incentive.

- Another suggested that the dead-band should be removed, but welcomed the symmetrical nature of the incentive.

14

DSO incentives – customer service

- Maintaining this incentive was supported by some respondents, however others, questioned its relevance, citing the importance of other communication channels alongside call handling.


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- The DSO agreed that RedC remained a valid representation of customer views, but also noted the challenges it faced in meeting these incentive historically. Lower targets were proposed for the customer satisfaction survey (RedC).

- One respondent suggested that incentive value from 2016 and 2017 could be re-distributed to the stakeholder engagement survey to provide a stronger financial incentive for the remainder of PR4.

15 DSO incentives – metering, traditional

- All respondents supported retaining this incentive, providing it is included alongside the smart metring incentive.

- One respondent sought further details on how hard-to-reach customers would be dealt with to reduce the number of residual unread meters.

16 DSO incentives – metering, smart

- The DSO challenged the introduction of the Smart Metering incentive, suggesting its value was too large and asymmetric, and not reflective of the challenges in Smart Meter roll-out. A grace period was suggested, along with other detailed improvements.

- One respondent called for a stronger negative downside for under-delivery, whilst another called for a symmetric incentive.

- One respondent suggested that although the roll-out was ambitious, it supported the strong downside incentive to prevent further delays.

17 DSO incentives – stakeholder engagement

- The incentive was supported overall by respondents. - Some further clarity was requested on how different stakeholder groups should be

compared (for example TSO stakeholders are different to DSO stakeholders). - One respondent suggested the incentive should be funded from 2018 (and not just

reputational). - Another suggested that the incentive should be a core element of the PR (citing the

central role of stakeholder groups and incentives in GB).

18 DSO incentives – strategic and innovative thinking

- Overall, an incentive for innovation funding was supported by respondents. - The DSO expressed concern about the incentive downside given the need for SIF

funding for PR4 commitments. - Another respondent suggested that weak performance should receive zero funding. - Other respondents called for innovation funding to be make available to third parties,

other than the network companies, based on an innovation competition (citing Ofgem’s approach). A clear distinction is needed between how innovation and Business-As-Usual is defined.

- Another respondent challenged the approach to 2016 and 2017, suggesting this was ‘free money’ and requesting a review of existing innovation projects to ensure these were up to standard.


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Annex B: Guidance on Annual Output Reporting

In this Annex the CRU sets out it initial guidance to the TSO, TAO and DSO on the requirements

for the annual reports they will prepare and publish pursuant to Decision 1 and Decision 11 of this

document. The guidance covers both format and content.

Purpose

Each year to provide customers, industry participants and other interested parties with a clear,

accessible, comprehensive, quantified but non-technical report on performance over the past 12

months. It shall provide information on (i) outcomes experienced by customers, industry

participants and other stakeholders, and (ii) the contributions of the TSO, TAO or DSO towards

these outcomes.

Format

Each report shall be short in length, and visually appealing. It shall contain no appendices and

annexes but may provide links to other relevant material for a reader seeking more detailed

information. It shall make effective and proportionate use of tables, charts and diagrams – and

supporting commentary – such that a nontechnical reader can easily discern:

Outcomes - experienced by customers, industry participants and other stakeholders;

Contributing behaviours and activities – by the TSO/TAO/DSO to deliver or influence the

reported outcomes;

Context on past, target or reasonably expected outcomes, behaviours or activities.

It shall be easy to compare and reconcile to past reports prepared under this framework.

Content

The range of outcomes and contributing behaviours and activities of the TSO/TAO/DSO included in

each report shall be comprehensive. It shall include all areas where the activities or behaviours of

the TSO/TAO/DSO have a material impact on the outcomes experienced by customers, industry

participants or other stakeholders.

The content shall be grouped into logical sections based on types of outcomes. Within each

section a range of qualitative and quantitative indicators shall be used to provide a balanced and

objective perspective on performance – providing information and insights on costs, quality and

volumes. Indicators shall be placed in appropriate context, e.g. relative to the past, relative to

targets, relative to demand for services.

While not all indicators used in the report will have associated financial incentive, it is expected that

all KPIs used for determining awards or penalties pursuant to regulatory incentives will be used in

some capacity in the performance report.


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The choice and grouping of indicators is to be developed by the TSO/TAO/DSO consistent with

these guidelines – where practicable in consultation with stakeholders. The CRU does, however,

expect appropriate coverage of the following areas or topics:

TSO/TAO

System performance

Network usage and capabilities – including changes consequent to investment

Investment planning and delivery

Network resilience – including in context of severe weather

Network outages

Network constraints – curtailment volumes

Network constraints – curtailment costs

Network constraints – tools for managing

Network losses and the financial impact of losses on consumers

Supporting market operation, e.g. demand forecasting

Managing new connections and facilitating market participation

Utilising innovation

Engaging with stakeholders

Expenditure against PR4 allowances and a breakdown of expenditure

Financial Key Performance Indicator – for example liquidity ratios

Safety

Managing environmental footprint.

DSO

Maintaining reliable supplies of electricity – including during storm events

Managing new demands for connection

Managing the network, and optimising network investment – including network loading

Network resilience - including in context of severe weather

Network losses and the financial impact of losses on consumers

Delivering new connections and facilitating market participation

Supporting market development, e.g. smart metering, schema releases

Utilising innovation

Engaging with stakeholders

Expenditure against PR4 allowances and a breakdown of expenditure


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Financial Key Performance Indicator – for example liquidity ratios

Safety

Managing environmental footprint.

Ongoing improvement

The usefulness of the performance report shall be review annually, including through a structured

process of consultation with stakeholders. Improvements, such as new metrics for measuring

performance, shall be developed and introduced promptly.


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Annex C: TSO System Performance Incentive

This Annex sets out the parameters to give effect to Decision 4, which puts in place a financial

incentive on the TSO’s performance in respect of target levels of System Minutes Lost (SML) and

System Frequency (SF).

Table 8 PR4 System Minutes Lost incentive targets for the TSO

Incentive 2011 2012 2013 2014 2015 PR4 Decision

Actual performance 0.183 0.372 0.357 2.881 0.049 -

Dead-band 1.5-3.0 1.5-3.0 1.5-3.0 1.5-3.0 1.5-3.0 1.5-3.0

Upper Bound 3.5 3.5 3.5 3.5 3.5 3.5

Lower bound 1.0 1.0 1.0 1.0 1.0 1.0

The incentive rate for the CML incentive will be the same for PR3 and PR4:

Plus €66,000 per 0.1 minute below dead-band.

Minus €66,000 per 0.1 minute above the dead-band.

Table 9 PR4 System Frequency incentive targets for the TSO

Incentive 2011 2012 2013 2014 2015 PR4 Decision

Actual performance 99.6% 99.3% 99.3% 99.2% 99.4% -

Target 96.0% 96.0% 96.0% 96.0% 96.0% 96.0%

Upper Bound 98.0% 98.0% 98.0% 98.0% 98.0% 98.0%

Lower bound 94.0% 94.0% 94.0% 94.0% 94.0% 94.0%

The incentive rate for the SF incentive for PR3 will be retained for PR4, set at:

Plus €33,000 per 0.2% above the target.

Minus €33,000 per 0.2% below the target.


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Annex D: Guidance on Investment Planning and

Delivery annual reporting

In this Annex the CRU sets out its initial guidance on the requirements for its annual reporting of

investment planning and delivery, that it will prepare and publish pursuant to Decision 5.

Purpose

Each year to provide customers, industry participants and other interested parties with a clear,

accessible, comprehensive, quantified but non-technical report on how investment in the

transmission system has been managed over the preceding 12 months. It should serve to

complement and expand on the associated material in the TSO/TAO annual report on outputs and

performance (see Annex B above).

Format

Each report shall be short in length, and visually appealing. It shall contain no appendices and

annexes but may provide links to other relevant material for a reader seeking more detailed

information. It shall make effective and proportionate use of network maps, tables, charts and

diagrams – and supporting commentary.

Content

The content shall be sufficient for a nontechnical reader to understand:

The methodology used by the TSO in planning the development of the transmission

network, and by the TAO in supporting that development;

How that methodology has been applied over the preceding 12 months in respect of:

o Identifying or update the quantified need for network investment at different

network locations;

o Determining the range of technologies and/or demand-side solutions for

consideration in meeting a particular quantified need;

o Choosing the right solution to deploy – and how analysis of costs, benefits,

technical considerations, and other impacts feature in that choice;

o Choosing the routes for new grid infrastructure;

o Securing the necessary planning consents;

o Prioritising and scheduling construction across the portfolio of projects;

o Construction, energisation and benefits sharing.

The content shall also be sufficient for a non-technical reader to understand the nature of and

reasoning behind changes to needs cases, proposed solutions and delivery timings from one year

to the next.


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Annex E: Guidance on Stakeholder Engagement

Incentive

In this Annex the CRU sets out its initial guidance for the TSO and DSO on the requirements and

assessment criteria for submissions under the stakeholder engagement incentive being introduced

by the CRU pursuant to Decision 9 (TSO) and 18 (DSO).

Objective

To actively promote cultures within the TSO and DSO that put stakeholders at the centre of what

they do, through the design and implementation of high quality, comprehensive and effective

channels for stakeholders to understand, respond to and help shape what the TSO and DSO do on

behalf of customers, market participants and the wider community.

Requirements

To demonstrate, with evidence, the presence of the following:

a comprehensive, up-to-date stakeholder engagement strategy, and management

systems and processes within the business to enable its delivery;

a delivered set of channels and initiatives for engaging with stakeholders, consistent with

the documented strategy;

demonstrable positive impacts on stakeholders, stakeholder groups or the business

consequent to the delivered channels and initiatives.

Form of reporting and nature of evidence

The TSO and DSO shall by the 31st March following the end of the year being reported on submit a

report to the CRU of no more than 15 A4 pages in length describing, with evidence, the following:

what its stakeholder engagement strategy was during the year being reported on; how

the strategy relates to the identified needs of stakeholders, and the strategic or

operational challenges facing the business; how the strategy is given practical effect

within the business – including how stakeholders are identified and categorised, and

accountability and management reporting in respect of the strategy works within the

business;

what engagement channels and initiatives were deployed during the year being reported

on; how these were tailored to the issue(s) and stakeholders involves; the range and

diversity of issues and stakeholders involves; the innovative nature of methods used; and


64

what impacts18 the deployed channels and initiatives had on stakeholders, and the

business, during the course of the year being reported on.

The CRU may subsequently publish and seek views on these submission as part of its assessment

process.

Assessment

The CRU shall adopt the following broad weightings in considering the evidence presented by the

TSO and DSO:

20% - quality of stakeholder engagement strategy, and management systems and processes

within the business to enable its delivery;

40% - quality of delivered set of channels and initiatives for engaging with stakeholders,

consistent with the documented strategy;

40% - quality of demonstrable positive impacts on stakeholders, stakeholder groups or

the business consequent to the delivered channels and initiatives.

18 Where “impacts” should be interpreted broadly to include quantified descriptions of the engagement activities themselves, and consequential impacts on customer, stakeholder or business outcomes or plans.


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Annex F: TSO Strategic Incentive

In this Annex the CRU sets out its initial guidance for the TSO on how its eligibility for the €1.25m

per year allowance for progress against strategic objectives shall be determined over the period

2018 to 2020.

Context

The incentive mechanism relates to the TSO’s capacity to promote positive outcomes for

customers and market participants in the context of a rapid transition towards an electricity system

with a large penetration of renewable energy.

There are two broad types of indicators that will be relevant in assessing the TSO’s performance.

First, indicators that relate to scale and timing of the transition itself. Second, indicators that relate

to managing the costs and risks consequent to the transition. The premise of the incentive is that

the TSO can influence both – and that by incentivising TSO behaviours, the transition will be

quicker and more efficient for consumers and market participants than would otherwise be the

case.

Approach

The measurement the TSO’s contribution to enabling the transition and managing the

consequences efficiently will span a wide range of areas and will change over time. Hence, the

CRU has concluded that a narrow range of KPIs, fixed for the period 2018-2020, would not be

appropriate. Further, the indicators should focus on outcomes (e.g. constraint costs) as opposed to

inputs (e.g. TSO deployment of new processes). Finally, there should be a role for stakeholder to

contribute to defining and shaping the indicators over time.

In previous proposals, the TSO has highlighted the following customer and market outcomes as

being of relevance:

Facilitation of renewable generation

Reduced constraint costs

Reduced energy costs

Reduced network costs

Increased SNSP

Enhanced system security

Demand participation

Further, the TSO has highlighted the following channels through which these outcomes might be

pursued:


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System Co-ordination – Rate of Change of Frequency (ROCOF); distributed voltage

control; co-ordinated frequency control;

System Operation – system services, decision-making tools

System Capacity – distributed power flow control; innovative infrastructure.

In addition, the CRU observes that the TSO’s role in supporting the introduction of the I-SEM

wholesale market arrangements is another key strategic enabler for transition, e.g. by providing a

stable, long-term environment for commercial decisions by market participants.

The CRU recognises the need for a degree of certainty for the TSO over how its performance will

be assessed, and potentially rewarded. To this end, the CRU is inviting the TSO to submit its

proposed indicators under the following two headings:

“Delivering the energy transition”

“Managing the impact and costs of the energy transition”

In both instances, the indicators should focus on the outcomes for consumers and/or market

participants. The outcomes for consumers will primarily relate to costs and service quality. The

outcomes for market participants will primarily relate to access to market opportunities and

commercial certainty. Where indicators are proposed that are intermediate to these outcomes,

then the link between the input and the outcome should be clearly articulated. In all cases the

relationship between the metric and the behaviours of the TSO should be clear, or clearly

explained.

Benchmark or target measures should be proposed for each indicator consistent with strong

performance relevant to either the timing, cost or quality of the energy transition.

For performance in 2018, the CRU is inviting the TSO to submit its proposed indicators by 30th

June. For 2019 and 2020, the CRU requires that the TSO submits its proposed indicators before

the start of the year, having first consulted with stakeholders.

The TSO shall make a submission to the CRU by 31st March each year presenting its evidence of

performance against its chosen indicators – plus relevant supporting commentary. The report shall

include a summary of feedback from stakeholders, and how any such feedback has been used in

defining indicators or setting target or benchmark levels.

The CRU will then determine whether any or all of the allowance for that year should be clawed

back, based on the reported evidence on performance. The CRU will also have regard to

information on the costs of any initiatives the TSO has undertaken in seeking to improve

performance under the reported indicators. Finally, the CRU will have regard to the extent to which

reported performance has already been remunerated, e.g. through other incentive mechanisms.


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Annex G: DSO unplanned outages/continuity

incentive


incentive on the DSO’s performance in respect of target levels of unplanned Customer Minutes

Lost (CML) and Customer Interruptions (CI).

Table 10 PR4 Customer Minutes Lost (CML) and Customer Interruptions (CI) incentives

Actual performance 2012-2016 2012-2016

average

PR4 target performance

2012 2013 2014 2015 2016 2017 2018 2019 2020

CML 63.2 85.0 97.3 82.1 79.7 81.48 81.5 79.4 77.2 75.1

CI 83.3 113.8 127.1 103.5 104.6 106.45 106.4 104.3 102.2 100.1

Whilst the target for 2017 is shown on this chart, PR4 performance will not be measured against

2017 performance, but will start in 2018.

An improvement factor has been accommodated into the PR4 target. The improvement factor has

been proposed by ESBN and is approved by the CRU.

Rationale

The Consultation set out the CRU’s policy objective to maintain the PR3 CML and CI unplanned

interruptions incentive for PR4, with the PR4 targets based on recalibrated historical performance.

Planned interruptions would be incentivised as part of a new reputational incentive, reported

through the APR.

This policy position was supported by consultation respondents, with a few additional comments.

ESBN agreed with the overall objective, but disagreed with the use of the 2015 PR3 targets to set

PR4 targets, citing this as inconsistent with the policy objective. ESBN provided detailed

information to the CRU on actual performance over the period from 2012-2016, re-calibrating this

performance for the updated approach for the treatment of storms – as explained below. Other

respondents, including ESBN, suggested that a portion of the incentive pot for this incentive could

be used elsewhere in the incentive package for PR4, for example providing additional upside value

to the Smart Metering incentive.

In this Decision, the CRU has modified the consultation position in two ways.

Firstly, the PR4 targets for unplanned interruptions have been updated using the more

recent information submitted by ESBN. This information is more up to date than the

position proposed in the consultation, whilst maintaining the policy intent. This will


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maintain the strength of the incentive for ESBN for the remainder of PR4. The incentive

targets proposed by ESBN include an improvement factor that will ensure continued

annual improvement during the remainder of PR4.

Secondly, the CRU will reduce the total incentive pot for CI and CML to reflect, to provide

incentive value elsewhere in PR4, in areas of significant value to consumers.

Together, these changes to the final decision will maintain the strength of the CML and CI

incentive, whilst also strengthening ESBN’s performance incentive in other critical areas of the

PR4.

A number of respondents questioned the merit of excluding performance during storm events from

the incentive calculation for CI and CML. The CRU agrees that ESBN’s performance during

storms remains a critical element of its performance. The proposed update to the storm treatment,

accepted as part of this Decision, will more accurately account for the impact of storms on supply

interruptions. This approach ensures a strong incentive for ESBN to maintain supply during normal

conditions. Taking into account storm events in this way will allow the CRU to benchmark

performance internationally to monitor ongoing performance during PR4. During storm events,

ESBN’s performance will be maintained through a strong reputational incentive. This reputational

incentive will be formalised through ESBN’s public explanation of its performance, activities and

actions as a result of storm events, which will form a key part of the Annual Performance Report.


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Annex H: DSO Customer Service Incentives


incentive on the DSO’s performance in respect of customer service. These targets are unchanged

from the consultation position. The PR4 targets are based on the average actual performance

during PR3.

The CRU has corrected an error identified in the Consultation document, whereby the weightings

and performance targets from Customer Call-Back survey results and Mystery Caller survey results

were incorrectly swapped over. This is now corrected.

Table 11 Customer Satisfaction – Incentive components (ESATRAT – National Customer

Contact Centre performance)

Weight 2016 2017 2018 2019 2020

Speed of Telephone Response 25% - - 88% 88% 88%

Call Abandonment Rate 25% - - 4% 4% 4%

Customer Call-Back survey results 15% - - 88% 88% 88%

Mystery Caller survey results 20% - - 83% 83% 83%

First Contact/Call Referral 15% - - 10% 10% 10%

ESATRAT (Total target) 100% - - 90% 90% 90%

Value of % deviation from target19 - - - €0.74m €0.74m €0.74m

Table 12 Overall customer satisfaction survey – PR4 incentive targets

2016 2017 2018 2019 2020

PR4 target - - 81% 81% 81%

Value of % deviation from target - - €0.74m €0.74m €0.74m

19 Adjusted to real 2014


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Annex J: DSO Metering Incentive


incentive on the DSO’s performance in traditional meter reading.

The traditional metering incentive for the DSO remains unchanged to the position set out in the

Consultation.

Table 13 Traditional Metering incentive

PR4

target

Incentive per 0.1% deviation from

target

Dead-band

Total incentive cap/collar

Meters should have 1 reading (DSO or customer) per year

98% €0.1m 0.2%

€1m per year20 Meters will not have back to back block estimates

99% €0.1m NA

20 This will be 1.7m per year for the remaining PR4 reporting years. This is because 2016 and 2017 values are allocated to the remaining PR4 years (2018,2019 and 2020)


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Annex K: DSO Smart Metering Incentive


incentive on the DSO’s performance in supporting the delivery of the National Smart Metering

Programme.

The scheme is based around target milestones for “smart delivery days” over the period Q4 2019

to Q4 2020. A “delivery day” being equal to the provision of the requisite level of smart metering

services to one meter for one day.

The “requisite level of smart metering services” being characterised in two distinct ways in the

period to the end 2020: (a) in the preparatory phase of smart meters being installed but not

operational, the presence of an installed “smart ready” meter will equate to “delivery”; (b) in the

phase when the functionality has been switched on to retrieve data from smart meters and make it

available to the relevant Supplier and customer, then the requirement for “delivery” will increase

commensurately. A 50% weighting is attached to each of (a) and (b) in the financial incentive to

deliver.

The target milestones are derived from a target rollout of smart meters, and target date for “go live”

of phase 1 functionality, submitted by the DSO:

Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020

Meter installed during quarter 10,000 25,000 55,000 75,000 85,000

Cumulative stock of installed meters 10,000 35,000 90,000 165,000 250,000

Stock of phase 1 functionality meters - - - - 250,000

Milestone delivery days21 10,000 250,000

(i) Incentive relating to rolling out “smart-ready” meters

The total incentive pot under this mechanism is allocated to two elements of the DSO’s delivery.

The first element relates to its rollout of “smart ready” meters. The incentive awards or penalties

pursuant to this part of the mechanism will be calculated as follows:

21 As measured on the final day of the quarter.


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If an interim target of 10,000 meters by 31 December 2019 is met or exceeded, then a

maximum upside of €0.5m is earned. This upside is reduced by €50 per delivery day for

every delivery day below 10,000, as measured on 31 Dec 2019. However, if there are

zero installed smart-ready meters on 31 December 2019, then a maximum downside

penalty of €2.5m is incurred.

If the final milestone of 250,000 delivery days22 is met exactly, then an upside of €1.0m

is earned. This upside is reduced by €10 per delivery day, subject to the actual number

of delivery days being not less than 150,000. If the total number of delivery days

<150,000 @ 31 Dec 2020, then the maximum down side of €7.5m is incurred. An

additional payment of €10 per delivery day is made for every delivery day above 250,000

up to a limit of €0.5m.

The key rationale for this structure of incentives is threefold. First, to ensure that the DSO has

strong incentives to deliver a significant number of smart meters for the “go live” of phase 1

functionality – including by exceeding its current target of 250,000 meters. Second, by putting

greater financial weight on the final milestone the CRU is focusing incentives on things that will

more directly benefit customers. Third, by putting some financial weight on the interim milestone

the CRU is emphasising the importance for the DSO to meet its own target start date for mass

rollout.

(ii) Incentive relating to “go live” of phase 1 functionality

The second element of the incentive relates to the DSO’s ability to delivery smart functionality to

the installed base of smart-ready meters by 31 December 2020. This is the step that will start the

process of providing customers with smart services. The mechanism will operate as follows:

If less than 80% of the installed stock of meters are operating with phase 1 functionality

on all days up to and including 31 December 2020, then the maximum downside penalty

of €10m is incurred.

If on any day on or before 31 December 2020 at least 80% of the installed stock of

meters are operating with phase 1 functionality, then the maximum upside award of €2m

is earned.

If 80% or more of the installed stock of meters are operating with phase 1 functionality on

any day during January 2021, then an offsetting payment of €11m is earned (resulting in

a net upside payment of €1m for the DSO).

22 As measured on 31 December 2020.


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If 80% or more of the installed stock of meters are operating with phase 1 functionality on

any day during February 2021, then an offsetting payment of €10m is earned (resulting

in a net neutrality under this element of the incentive mechanism).

Any payment awards under the scheme are contingent on the meter volumes and

delivered functionality being consistent with phase 1 of a mass rollout (and not, for

example a trial involving a small number of meters).

The key rationale for this structure of incentives is twofold. First, to ensure that the DSO has strong

incentives to “go live” with phase 1 functionality on time. Second, the maintain strong incentives

over a period after the target “go live” date for the DSO to deliver “go live” quickly, even if there are

relatively minor delays that make the original “go live” date unachievable. These rationale are

based on the importance for customers and supply competition of the mass rollout of smart

services getting started.

(iii) Adjustment mechanism for factors outside the control of the DSO

The DSO may apply for a “grace period” of between one and six months, if for reasons outside the

control of the DSO the delivery of (a) and/or (b) have been delayed. If the application and

supporting reasoning is accepted (in whole or in part) by the CRU, then the target milestones will

be restated by the CRU consistent with its assessment of the application – and the

rewards/penalties recalculated accordingly.

The rationale for this step is to retain the integrity of the incentive mechanism, even if significantly

unexpected events occurs that impact on what it is reasonable to expect the DSO to achieve.


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Annex L: Guidance on Strategic Innovation Fund

In this Annex the CRU sets out its initial guidance for the DSO on the annual process of reporting

on innovation to support the availability of funds under the Strategic Innovation Fund, pursuant to

Decision 19.

Objective

To put in place a clear and structured assessment framework for innovation activity of the DSO

during PR4 (2018, 2019 and 2020) and to give the DSO the opportunity to demonstrate the

process to identify, delivery and assess the outcomes of innovation activities.

Requirements

To demonstrate, with evidence, the presence of the following:

the approach and methods used to identify, develop and specify innovation projects in

the reporting year.

the approach to the management and delivery of innovation projects in the reporting

year.

the approach to evaluating, communicating and, where relevant, deploying the learnings

from completed innovation projects operationally in the reporting year.

Form of reporting and nature of evidence

The DSO should demonstrate the quality of innovation in the reporting year. This should take into

account:

The quality of the process to identify innovation in the reporting year, including:

o Scoping, planning and opportunity identification

o Metrics used to identify benefits of innovation for network users and consumers

(e.g. Cost-Benefit Analysis), including detailed costs assessments where

appropriate.

o Collaboration with third parties to identify and validate innovation,

o Consideration of consumer and industry foresight

o Demonstration that projects are not Business-as-usual (and not funded

elsewhere in the Price Review).

o Risks and uncertainties identified when assessing the possible outcome of

innovation projects.

o Project plans and risk mitigation measures.

Efficiency in project delivery in the reporting year, including:


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o The status of existing innovation projects, including those which commenced in

the reporting year.

o The process the DSO followed to track progress with existing innovation projects,

including engagement with project partners and wider stakeholders.

o The progress with testing and trialling of innovation projects, where appropriate,

identifying opportunities to improve delivery and the maximising the benefits of

innovation.

Approach and use of project learnings or outcomes, including:

o The assessment of the benefits delivered by innovation projects that are

sufficiently advanced.

o The approach and outcome of the dissemination of the outcomes and learnings

of innovation into the DSO Business-As-Usual operations or decisions making.

o The approach and outcome of the dissemination of the outcomes and learning of

innovation for the wider industry.

o Opportunities to extend the innovation project further where additional expected

benefits can been identified.

The CRU may publish and seek views on these submission as part of its assessment process.

The DSO shall lodge its submission by 31st March following the end of the reporting year. The first

reporting year shall be 2018.

Assessment

The CRU shall adopt the following broad weightings in considering the evidence presented by the

DSO:

33.3% - quality of the process to identify innovation in the reporting year.

33.3% - quality of delivery of innovation projects in the reporting year.

33.3% - quality of dissemination of learnings from innovation in the reporting year.

Documents

Commission for Regulation of Utilities Reporting and ... · the mechanisms operate in practice, as part of the PR5 process. Distribution ESBN as DSO/DAO operates the distribution