APPENDIX 4
Memorandum by East Midlands Electricity
KEY POINTS
— East Midlands Electricity (EME) was
identified in the BPI report following the October 2002 storms
as a "good performer". EME has made further improvements
since then, and continues to review its systems and processes
to further improve the service it offers to customers.
— EME has made significant improvements
in those areas identified by BPI as needing attention, including
strengthening its contractual arrangements with key service providers
and working to improve the information it provides to customers.
— Distribution businesses' high quality
asset management processes have enabled them to extend asset lives
well beyond those envisaged when the assets were constructed.
However, under current levels of allowed investment, many parts
of the electricity networks (such as poles, transformers and cables)
will need to last for over 100 years before being replaced.
— Increased investment is now essential
not only to maintain network performance and risk at current levels,
but also to support distributed generation in line with the Government's
Energy Policy. Ofgem must ensure that the next distribution price
control review incentivises appropriate and efficient investment.
— The co-operative, inter-company NEWSAC
arrangements that enable distribution businesses to request staff
from other companies are an important aid during emergency situations.
There is a danger that the increased use of comparative regulation
could mean that companies will be reluctant to release resources
to aid a competitor, which would be to the detriment of customers
overall.
— It is essential that new and equitable
arrangements for compensating customers are developed to ensure
that a repeat of the lengthy determinations process following
the October 2002 storms is avoided. EME is committed to working
with Ofgem and the rest of the industry to develop robust arrangements
for the future.
INTRODUCTION
1. East Midlands Electricity (EME) is a
wholly owned subsidiary of Powergen UK plc, part of the international
E.ON group of companies. EME distributes electricity to 2.4 million
customers in an area covering 16,000 km2 in the East Midlands,
using a network comprising 39,000 transformers, 44,000 km of underground
cable and 24,000 km of overhead line.
2. This note sets out a summary of EME's
performance during the October 2002 storm and the measures taken
since then to improve future performance, and addresses a number
of wider issues which have a major impact on the ability of network
businesses to provide a high quality, sustainable service to their
customers.
3. EME welcomes the opportunity to comment
on the security and operation of networks under storm conditions.
At the last price review and more recently, through the Energy
Policy Review, we highlighted some of the key investment and security
decisions facing the industry. The original BPI Asset Risk Management
process and the October storm review once again highlighted some
of those same issues, such as tree clearance, undergrounding of
overhead lines and replacement of aged assets.
THE BPI REPORT
4. The October 2002 storm caused substantial
damage to EME's overhead line network and caused loss of supply
to around 191,000 customers. Of these, 175,000 customers were
restored within 18 hours, and 188,000 within 42 hours. 99.98%
of affected customers were back on supply within 90 hours.
5. EME co-operated fully with the review
of storm performance carried out on behalf of the Department of
Trade and Industry by British Power International (BPI).
6. The report identified EME as a good performer
during the October 2002 storm and highlighted many areas of good
performance, such as processing information, initial management
of repairs, housekeeping maintenance, communications with stakeholders,
deploying adequate designs and innovative network developments.
7. However, while the BPI report on EME
was largely favourable, it did identify a number of areas for
improvement. The company has worked hard since the BPI report
was published, and has made significant progress in the areas
identified, as described below.
— Prediction of storm impact and
resource requirements:
EME's use of predictive tools to forecast likely
damage and resource requirements in emergency situations was identified
as "good" by BPI, but the company has continued to review
and further improve its systems and processes.
The BPI report identified the need for the inclusion
of predictive tools in EME's emergency plans, to relate forecast
weather conditions to likely damage to the network and consequent
demand on resources. EME has reviewed its comprehensive emergency
plans, which now include a storm impact prediction tool and improved
linkage to Met Office weather warnings through the Internet.
— Telephone response and answering
service:
There was a widespread problem with the British
Telecom (BT) 0800 number platform during the October 2002 storms,
which adversely impacted EME and a number of other distributors.
Since then, EME has carried out a full internal investigation
and has met with its service provider in order to secure improved
BT performance. EME has now transferred to BT's more secure RIDE2
platform, and has also made adjustments to its systems as a result.
EME believes these improvements will deliver a best practice telephone
service to its customers.
— Management of repairs—beyond
first day:
The BPI report concluded that EME's management
of repairs beyond the first day of the storm was moderate and
could be improved. EME has changed its internal systems and processes
in response to improve performance in future events. Levels of
administrative support at regional operating centres have been
reviewed and will now increase during storms in order to improve
the information flows between field staff and central systems.
This, together with the new technology that is now being used
by EME's mobile workforce, will improve EME's ability to match
and despatch resources to outstanding work more quickly and accurately.
— Management of repairs—NEWSAC
(Northern, Eastern, Western and Southern Aid Consortium—inter
company mutual assistance agreement) notification:
The timing and co-ordination of requests for
resources under the NEWSAC arrangements was raised as an area
for improvement by BPI. EME has improved its processes and updated
its emergency plans to reflect this. In addition, EME is now represented
on the NEWSAC co-ordination meetings. However, EME believes that
there are wider issues that could adversely impact on the availability
of additional resources through NEWSAC arrangements, and these
are discussed in more detail below.
— Provision of information to customers
on restoration times:
EME's ability to deal with customer enquiries
during the storm was adversely impacted by the BT 0800 platform
issues, as discussed above. However, BPI also found that the actual
information available for customers was below the minimum level
reasonably expected. In response to this, EME has made improvements
to its processes, which have been thoroughly tested and found
to work well, both in normal operations and during a recent emergency
exercise. In addition, EME has expanded the type of information
given to customers, for example, it now includes help and advice
on practical issues such as protecting freezer contents.
8. EME believes that, as well as the issues
identified by the BPI report following the exceptional weather
last October, a number of other important issues have a major
impact on the ability of networks businesses to provide a high
quality, sustainable service to their customers.
TREE MANAGEMENT
9. The BPI report did not highlight tree
trimming as a particular issue for EME, but EME's own investigation
into the storm found that a high percentage of the incidents on
the network were caused by trees. EME already had a substantial
tree management programme in place, but has since expanded its
scope. As well as an ongoing programme of tree trimming to maintain
safe distances between trees and our equipment, we have negotiated
permission from councils, local landowners and the Forestry Commission
to carry out a tree felling programme to give much greater clearance
for key elements of the network. We then offer to supply two new
trees for each one that we fell, in line with our environmental
objectives.
IMPACT OF
CAPITAL INVESTMENT
ON NETWORK
PERFORMANCE
10. Electricity networks businesses have
been the subject of RPI-X regulation since they were privatised
13 years ago. This approach has been very successful in driving
costs out of the businesses, with the distribution portion of
consumers' bills having halved in real terms over this period,
to around £60 a year for a domestic customer. Companies are
now leaner and smarter, with high quality systems and processes
in place to manage the networks under their control. However,
given the regulatory focus on cost reduction, there is no longer
the level of in-house resource that could previously be deployed
in exceptional emergencies. Rather, there is necessarily increased
reliance on better focussed planning, resourcing, deployment and
implementation.
11. Distribution businesses have developed
high quality processes to manage the operation, maintenance, repair
and replacement of the network assets in their control, based
on risk assessment. This has enabled them to extend the lives
of those assets, including transformers, overhead lines and underground
cables, well beyond the lifetimes envisaged when the assets were
constructed, but network risks have now begun to increase. The
need for increased levels of investment in networks must now be
recognised, not only to deliver the changes that are needed to
support the Government's targets for increased renewable generation
connected directly to distribution networks, but also to maintain
current levels of performance and system risk.
12. EME is one of the largest electricity
distribution businesses in terms of the number of customers it
serves, but has had one of the lowest capital allowances under
its regulatory settlement. Good asset management practices extend
the life of assets, but refurbishment does not obviate the need
for replacement in time and the "bow wave" in renewal
investment (see graph) created by extensive electrification in
the 1950s and 1960s is simply being deferred. Recent investment
levels have replaced only a small fraction of the network infrastructure,
and asset replacement timescales now stretch beyond a 100 years,
which is clearly not sustainable.
13. The regulator needs to take account
of these issues as part of the distribution price control process
that will set the framework in which distribution businesses will
operate for the five years from April 2005. The aim of the price
control must be to incentivise efficient investment whilst ensuring
that Government Energy Policy objectives are met, The networks
are ageing, and replacement of these assets requires a long term,
coordinated approach in order to minimise disturbance to customers,
protect security of supply and ensure adequate skills, resources
and funding are available.
NEWSAC RESOURCE SHARING
ARRANGEMENTS
14. The BPI report looked at the NEWSAC
arrangements under the terms of which distribution companies provide
each other with resources in emergency situations. The ability
of a donor company to provide staff to help a neighbour has always
been dependent on the donor not being affected by a similar emergency
situation, but in general terms, NEWSAC has contributed to reduced
restoration times for customers.
15. Ofgem must take account of the possible
adverse impact increasingly competitive regulation could have
on the co-operative NEWSAC arrangements. There is a risk that,
in a world of benchmarked restoration times, companies may be
more reluctant to send their resources to assist a competitor.
This would therefore extend overall UK restoration times rather
than reduce them, and would only be to the detriment of the service
that companies are able to give to UK customers.
COMPENSATION FOR
CUSTOMERS
16. EME believes that the existing arrangements
for compensating customers affected by power cuts as a result
of severe weather do not work well, and this was illustrated very
clearly by the recent determinations process following the October
2002 storms. An unprecedented number of customers (around 3,000)
asked Ofgem to determine on their claims for compensation, which
had a significant impact on Ofgem in terms of resources. Ofgem
has recognised the welcome gestures of good faith made by companies
in going beyond their legal obligations to resolve these claims
expeditiously.
17. The existing arrangements form an integral
part of the overall settlement made by companies with the regulator
at the last price control, and would normally only be changed
at the next review, for the period beginning April 2005. Any increase
in the level of compensation paid to customers must therefore
be considered in the wider context of the overall price control
arrangements.
18. EME believes that it is essential to
consider new and equitable arrangements to ensure that a repeat
of the protracted determinations process following the October
2002 storms is avoided. We have asked Ofgem to work proactively
with the industry to review the existing arrangements for customer
compensation, and will participate fully in future discussion
on the issue.
28 August 2003
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