NETWORK OUTPUT MEASURES CONSULTATION Great Britain s electricity transmission network transmits high-voltage electricity from where it is produced to where it is needed throughout the country. It broadly comprises circuits operating at 400, 275 and 132kV, owned and maintained by three transmission companies: o o o National Grid Electricity Transmission plc (NGET) for England and Wales 14,114 km of overhead line and 630 km of underground transmission cable routes interconnecting over 300 substations. Scottish Power Transmission Limited for southern Scotland 4,000 circuit km of overhead line and cable interconnecting 137 substations Scottish Hydro Electric Transmission plc for northern Scotland and the Scottish islands groups. 4,896 circuit km of overhead line and cable interconnecting 117 substations 1. BACKGROUND Under the RIIO (Revenue = Incentives + Innovation + Outputs) regulatory model, the companies performance is assessed by the regulator, using a set of primary outputs. These demonstrate how they will have delivered end services to consumers, customers and stakeholders. The Network Output Measures (NOMs) are secondary outputs, designed to show that the three transmission companies are providing consumers with long-term value for money. The outputs provide a set of early warning measures or lead indicators, to assess the underlying performance of their transmission systems. The NOMs are designed to demonstrate that the transmission companies are targeting investment in the right areas to manage network risk effectively. This will make sure that the transmission companies will continue to deliver their primary outputs in the future. There are five Network Output Measures 1. the Network Assets Condition Measure, which relates to the current condition of the assets, their reliability and the predicted rate of deterioration; 2. the Network Risk Measure, which relates to the overall level of risk to the reliability of the transmission system; 3. the Network Performance Measure, which relates to the technical performance of the transmission system. This can have a direct impact on the reliability and cost of services; 4. the Network Capability Measure, which relates to the level of the capability and use of the Transmission system at entry and exit points; and 5. the Network Replacement Outputs, which are used to measure the licensee s asset management performance. The Network Output Measures are defined in Licence Condition 2L. As network investment takes place over the longer term, there would be a time lag before any under-investment in the assets would affect the primary outputs. Using the NOMs, the transmission companies can identify the work needed to manage their assets to deliver a
known level of network risk and hence provide assurance that they will maintain performance in future price control periods. Asset condition is measured using Asset Health Indices AH 1 AH 2 AH 3 AH 4 AH 5 New or as new Good or serviceable condition Deterioration, requires assessment or monitoring Material deterioration, intervention required End of serviceable life, intervention required Criticality is defined with three elements: Safety Criticality: risk of direct harm to personnel/public as a result of asset failure. Environmental Criticality: environmental impact caused by asset unreliability or failure. System Criticality: impact of transmission system not delivering services to the customers and any indirect impact to the safety to the public (through energy not supplied (ENS)) or the smooth operation of UK infrastructure and economy. This can be broken down into three elements: Support of vital infrastructure Economic key points Transport hubs Control of Major Accident Hazard Sites (COMAH) Black start (sites designated to be able to restore power without relying on energy from the transmission system in the event of a blackout) Nuclear sites Substation demand System security (A coordinated set of criteria and methodologies that transmission licensees use in the planning and operation of the electricity transmission system) The principle of redundancy is embedded in the System Security element of the Criticality scoring. This treatment takes into account constraints on the system based on the National Electricity Transmission System Security and Quality of Supply Standards (NETS SQSS). Redundancy and backup are inherently taken into account in these constraints. The System Operator expects a level of redundancy because outages are needed for interventions (such as maintenance or asset replacement) and redundancy is needed to cover unplanned outages.
C1 C2 C3 C4 Asset Condition Health Indices combine with Criticality Scores to produce Replacement Priorities according to the matrix below. This enables us to prioritise the replacement or refurbishment of assets, RP1 assets having the highest priority.
2. WHAT WE ARE CONSULTING ON As part of the new regulatory regime RIIO-T1 the transmission companies have a set of Network Replacement Outputs. These are secondary outputs that describe the network risk that will be left on the transmission systems on 31 March 2021. Specifically the Network Replacement Outputs are defined in terms of the expected number of assets in each replacement priority category in each asset type and voltage. These output targets are set out in Licence Condition 2M. One of the clauses of the Licence Condition 2M enables trading between the targets set for each asset type to achieve the overall Network Replacement Outputs by under-delivering in some asset types and over-delivering in others. To enable this trading between the targets set for asset types to achieve the Network Replacement Outputs, the transmission companies have developed a mechanism to convert the Network Replacement Outputs targets into monetised risk. This is achieved by converting the Asset Health Indices into a probability of failure and by converting criticality into a monetary value and combining this with cost of recovery. This probability of failure and monetary value is then combined to give a monetary value of risk. This monetary value of risk provides a common currency for trading between asset types to achieve the overall Network Replacement Outputs. This approach that the transmission companies are proposing is the main focus of this consultation. Each subject area has a reference to the appropriate detailed section within the Network Outputs Measures Methodology. Probability of Failure section 4.5.6 The Probability of Failure is dependent on the Asset Health Indices and is calculated for each asset group, where an asset group represents asset families with the same deterioration characteristics. The Probability of Failure is based upon catastrophic failure because this is the type of failure that the Licensees are trying to avoid with asset
replacement or refurbishment interventions. The Probability of Failure is function of asset condition. It is dependent on asset type, current Asset Health Index and expected future Asset Health Index. It is derived from the asset deterioration curves using an equivalent age approach. The equivalent age approach can be understood in a similar way of calculating human health age by adding heath related factors such as BMI, smoking history, dietary and exercise habits, etc. Determining Monetary Values for Criticality section 4.5.7 The monetary values for safety, system, and environmental criticality levels have been determined through external research looking at the impact of events across the world. These monetary values reflect the social impact of loss of electricity supply. The research generally focused on Western economies. Where events have occurred in other countries, these have converted to GBP at the time of the incident and then inflated to 2015 prices. The diagram below shows the range of costs associated with these incidents. The principles used to derive the criticality monetisation values are: Safety criticality: Value of Statistical Life scaled by fatality; serious injury, reportable injury, and non-reportable minor injury Environmental criticality: Maximum fine from the Environment Agency plus 250k for clean up costs
System criticality: Vital Infrastructure: Economic Key Point (EKP) and Transport hub: assume a 10 minute loss of supply duration (historical median) plus 25 minutes to recover the service (this number varies quite widely; it ranges from an IT reboot to events where restoration of service may take longer). Substation demand: Value Of Lost Load ( 16k/MWhr at 2009/10 prices inflated to current prices) multiplied by the median historic loss of supply duration x High or Med or Low substation demand levels. These are specific to each transmission company, due to the different scales of their networks. System Security: 10 th, 50 th and 90 th percentile of daily generation constraint costs. Constraint management is required where the electricity transmission system is unable to transmit * the power supplied to the location of demand due to congestion at one or more parts of the transmission network. In the event that the system is unable to flow electricity in the way required, National Grid will take actions in the market to increase and decrease the amount of electricity at different locations on the network. Generator compensation costs: average, 10 th and 90 th percentile registered capacity multiplied by generator compensation payments. System Criticality Monetisation 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Substation Demand System Security EKP Transport NB: Substation Demand and System Security figures will be different for each Licensee. Maximum proposed value shown here. Safety Criticality Monetisation Environmental Criticality Monetisation
High Impact, Low Probability (HILP) Events section 4.5.7 There are some circuits and substations that serve sites which could be subject to high impact, low probability events. These include nuclear sites, Control of Major Accident Hazard (COMAH) sites and black start (the procedure to recover from a total or partial shutdown of the transmission system which has caused an extensive loss of supplies. This entails isolated power stations being started individually and gradually being reconnected to each other in order to form an interconnected system again) sites. These events are difficult to predict and occur infrequently so are less well understood. When multiplying a probability by consequence for these type of events, the outcome looks very reasonable, but businesses need to treat assets exposed to these sort of events differently. Given the nature of these HILP type events the proposed approach is that the Licensees do not intend to trade assets which might be exposed to HILP events so assets which fall into this category will be excluded from the trading mechanism. Financial Consequence section 4.5.8 Assets that are in poor condition may fail at any time. Disruptive failures are rare on transmission systems but instances of these failures that have occurred over the past few years have been reviewed to identify the costs associated with the cost of recovery (clean up and replacement of these assets). The Financial Consequences are based upon the greater of the cost of recovery for the failed asset or the cost to replace the asset. How the Trade-off Will Work section 4.5.9 The sum of the monetised risk can be compared with the sum of the target monetised risk. This enables trading between asset classes and enables the comparison of different investment scenarios. For example, the table below shows the total network risk target set at the end of the RIIO- T1 period, i.e. 31 March 2021, using dummy data. Asset Categories Target (31 March 2021) Monetised Risk Switchgear 73,000,000 Transformer 126,000,000 Underground Cables 92,000,000 Overhead Line 1,040,000,000 Total 1,331,000,000 Scenario 1 is presented below and shows an example of underperformance compared with the target. The left hand columns show monetised risk at 31 March 2021 and the right hand columns show the comparison between the declared monetised risk and the target. The total monetised risk is higher than the target, hence the Licensee has underperformed.
Asset Categories Scenario 1 (31 March 2021) Monetised Risk Asset Categories Calculation: Target minus Scenario 1 Switchgear 72,000,000 Switchgear 1,000,000 Transformer 127,000,000 Transformer - 1,000,000 Underground Underground 91,000,000 Cables Cables 1,000,000 Overhead Overhead 1,050,000,000 Line Line - 10,000,000 Total 1,340,000,000 Total - 9,000,000 Scenario 2 is presented below and shows an example of over-performance compared with the target. The left hand columns show monetised risk at 31 March 2021 and the right hand columns show the comparison between the declared monetised risk and the target. The total monetised risk is lower than the target hence the Licensee has over-performed. Asset Categories Scenario 2 (31 March 2021) Monetised Risk Asset Categories Calculation: Target minus Scenario 2 Switchgear 72,000,000 Switchgear 1,000,000 Transformer 123,000,000 Transformer 3,000,000 Underground Cables Overhead Line 94,000,000 1,032,000,000 Underground Cables - 2,000,000 Overhead Line 8,000,000 Total 1,321,000,000 Total 10,000,000 There will be a number of different combinations of interventions that can achieve the same level of network risk.
3. CONSULTATION It is important to the three transmission companies that we understand from our customers and stakeholders whether we are proposing an appropriate approach to the trading mechanism for the Network Replacement Outputs. We have put together a set of questions we should be grateful if you would consider these and provide a response. Consultation Questions 1) Do you agree that the proposed NOMs methodology fully conforms with the Principles for Network Output Measures (shown in the appendix to this document)? If not, what are the areas you believe need to be further developed? 2) Is monetisation the right approach to enable trade-off of network replacement outputs? If this is not appropriate, what alternative approach would you suggest? 3) Does the proposed NOMs methodology take appropriate account of different types and consequences of failure? 4) Is the proposed approach to calculate probabilities of failure reflecting asset health appropriate? If this is not appropriate, what alternative approach would you suggest? 5) Are the proposed monetised criticality values appropriate, for example taking into appropriate account of system redundancies? If this is not appropriate, what alternative approach would you suggest? 6) Does the proposed methodology take appropriate account of changes in asset health and system criticality? 7) Is it appropriate to include financial consequence and if so, is the proposed approach to calculate financial consequence appropriate? If this is not appropriate, what alternative approach would you suggest? 8) Does the proposed methodology include appropriate risk trade-off mechanism? 9) Is the proposed approach to continue to include High Impact Low Probability (HILP) events (black start sites, Control of Major Accident Hazard (COMAH) sites and sites and circuits which support the nuclear site licence provision) in Network Output Measures methodology but exclude them from trading mechanism appropriate? Is it appropriate that black start sites, COMAH sites and sites and circuits which support the nuclear site licence provision are designated HILP sites or should the designation be based on other criteria on site-by-site basis? If this is not appropriate, what alternative would you suggest? 10) We would be grateful for any other comments you have on the Network Output Measures methodology.
To support this consultation we have revised and published our draft Network Output Measures methodology statement on our websites: NGET: http://www.talkingnetworkstx.com/current-consultations.aspx Scottish Power: www.spenergynetworks.co.uk/pages/tnoms SHE Transmission: https://www.ssepd.co.uk/ Appendix - Network Output Measures Principles The NOMs methodology will be based on the following key principles: 1. Compliance: Ensuring that the measures comply with the law a. The NOMs outputs must be compatible with existing legal obligations, ensuring that statutory duties are not compromised. 2. Measurable: Enable Ofgem to assess whether the NOMs objectives have been achieved and whether the targets have been met. a. The methodology will demonstrate how the NOMs objectives are achieved. b. Allow Ofgem to assess TO performance in relation to the development, maintenance and operation of their networks and in assessing future network expenditure. c. Develop a framework for the evaluation of the NOMs targets: i. Independent assessment of TO performance. ii. Determine whether over or under-delivery is justifiable. d. Develop network risk trade-off mechanism: i. Incorporate health, criticality, risk and overall network risk ii. Describe current asset deterioration as well as future expected deterioration. iii. Include probability of failure (state requiring replacement) with respect to asset condition. iv. Explore options such as monetisation of criticality and utility function. e. Describe how levels of redundancy/backup are incorporated into criticality assessments. f. Devise method for assessing impact of load-related investment. g. Develop testing mechanism for independent assessment of NOMs objectives, principles and against targets. h. Consider framework for next price control period. 3. Consistency: Develop a common approach to ensure that the measures are consistent and comparable.
a. Common approach to Network Output Measures developed by all TOs. b. Ensure consistency as far as practicable between UK regulated sectors (DNO, GDN). c. Engagement with GDNs and DNOs to ensure concepts of health, criticality, risk are common across all sectors. d. Common terminology (definitions of health, risk, criticality, intervention). e. Commentary and analysis of practices in other industries and internationally. 4. Transparency to Stakeholders: Ensure that consumers are getting value for money - minimising the burden on current customers without creating unnecessary costs for future customers. a. To provide a known level of network risk for consumers, demonstrating that the TOs are investing consumers' money wisely in their networks. b. To provide transparency that the TOs are investing in our existing assets appropriately. c. Stakeholder Engagement 5. Applicability: Ensure that the TOs stewardship of their assets is appropriate and proportionate. a. Used internally within each business to enhance current Asset Management processes. b. Understanding business drivers. c. Licensee should have full control over performance against the NOMs outputs. d. Methodology should ensure that the TOs can innovate. 6. Objectivity: Providing data/information for Ofgem to enable evaluation of performance and for TOs to manage their assets. a. Specify details about the type and quantity of data held by each TO. b. Data assumptions/limitations, the level of confidence and how uncertainties can be quantified.