Redacted Version 171219

Delivering
the future gas

transmission system
National Grid Gas Transmission’s
business plan 2021–26
December 2019
National Grid | December 2019 National Grid Gas Transmission
Who we are and what we do

We are National Grid Gas Transmission (NGGT) Compressor stations located along the network
and we are proud to own, manage and operate play a vital role in keeping large quantities of gas
the high pressure gas national transmission flowing through the system to areas of demand.
system (NTS) in Great Britain (GB). Our network The network must be kept constantly in balance
is a gas superhighway that connects our nation; and meet customer requirements, which is
we balance supply and demand on a day-to-day achieved by buying, selling and using stored gas.
basis to make gas available when and where
it’s needed. We develop, maintain, and operate Part of a leading FTSE 100TM
an economic and efficient network and we company with a social purpose
facilitate competition in the supply of gas We are part of National Grid plc. We support
in GB to keep energy costs to consumers the highest standards of governance required
as low as possible. by the London and New York stock exchanges.
We are committed to being a responsible business.
We are at the heart of the energy system as the We believe we should be a force for positive social
combined gas transmission system operator (TSO), and environmental change, so we act responsibly in
undertaking both the gas transmission owner and everything we do, and in the way we do it. This belief
system operator roles. Today, natural gas delivers is fundamental to the way we work at National Grid.
three times as much energy as electricity; it keeps
80 per cent of the UK’s 28 million homes1 warm
and comfortable, generates electricity and fuels
industrial and manufacturing processes. Failure
to supply natural gas (especially to vulnerable
consumers), and any major uncontrolled release
of gas from the high-pressure network, are
potential threats to life and property.
Our network includes pipes and compressor

stations. We connect production to the distribution
systems, as well as to large, directly connected
consumers. In GB, gas enters the transmission
system through importation, reception terminals,
storage facilities and interconnectors. From our
Gas National Control Centre (GNCC), we meet
changing customer needs by optimising the physical
configuration of assets and using commercial tools.
Our gas transmission network
Our gas transmission network

comprises of approximately:
7,660km 600 24
of high pressure pipeline above ground installations compressor sites
1
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/820843/
Energy_Consumption_in_the_UK__ECUK__MASTER_COPY.pdf
02
A message from our Chair

Welcome to the December 2019 National Grid Consumer and stakeholder priorities drive this plan.
Gas Transmission business plan for the period This is critical as the investment decisions we make
from 1 April 2021 to 31 March 2026. This is have lasting impacts on cost, risk and the level of network
capability we provide. To summarise what we have learnt
the third iteration of our plan, which we have from our engagement, consumers and stakeholders want
developed through detailed conversations a safe, reliable and resilient network that can support
with our broad range of stakeholders and with the changing energy system of the future, whilst keeping
considerable effort on their part for which we bills low. Stakeholders were also clear that they don’t
are very grateful. The plan reflects stakeholder just care about what we deliver, but how we deliver it.
priorities which include maintaining a safe, This plan therefore reflects those requirements. It includes
significant activity to protect the health of our assets, renew
resilient and reliable gas network during this the operational technology and protect the network from
period of transition to a sustainable energy cyber threats. We have identified some projects which
future whilst keeping bills low. require further development or finalised costs before we
Our lives today rely on natural gas, which we transmit across commit to them. We will protect consumers from costs
the country whether from North to South, or from East to associated with uncertainty and continue to engage
West. 80% of homes depend on gas for heating, as do many collaboratively with stakeholders to determine final solutions.
businesses and public buildings. Gas is also crucial for
many large-scale industrial processes including electricity Our stakeholders also want an affordable energy bill, so we
generation, producing 40% of the electricity we use. have challenged our costs extensively and worked hard to
come up with new ways of doing things. Our plan delivers all
Our futures depend on tackling climate change. The UK has the outputs stakeholders need, at a cost of £8.85 (excluding
challenged itself to achieve net zero by 2050, and we have inflation) on the annual domestic consumer bill.
committed to this target for our own work. We recognise
that natural gas has an important role to play in supporting How we will deliver is embedded in our purpose, vision
the transition to a low carbon future, providing reliability and values which underpin all our activities. Our people are
and flexibility to support growth in renewable generation exceptionally proud of the service they provide. The skills
and providing options for decarbonising commercial vehicles they deploy are key to keeping the system safe, reliable
and industry. Gas can also help to decarbonise heat, the and resilient and we are committed to ensuring we invest
biggest source of UK carbon emissions, at the lowest cost in training and development to ensure they can do their job
and with the least disruption to consumers. This is true for today and as it evolves to meet the opportunities the net
both natural gas and other forms of gas such as hydrogen zero ambition offers.
and biomethane.
Thank you to all those who have contributed to the
Over time there will be changes in gas usage as we move development of this plan, together we will keep finding
to net zero. However, during the period of this plan, we better ways to bring energy to life in the UK and ensure
don’t envisage substantial change to the network or what is that we have a sustainable, affordable future.
required of it. Instead it will be a period of developing options
and understanding choices for the future, and hence we are Nicola Shaw
contributing to innovation projects with other organisations, Chair of National Grid
such as investigating the future of hydrogen, testing Gas Transmission
the capability of the network to transport hydrogen, and
enabling broader use of biomethane. Working collaboratively
to develop whole system solutions and driving innovation
is an integral part of our RIIO-2 plan. We will also make
progress on reducing the emissions from our own business.
80%
Today, 80 per cent of homes rely
on natural gas for heating, as do
many businesses, commercial
properties and public buildings,
including schools and hospitals.
03
How to navigate our plan

Our business plan matters to people with a variety stakeholders in mind and it will be reviewed by the
of different interests, including consumers. We have independent stakeholder user group, the RIIO-2
written it with our customers and industry Challenge Group and Ofgem.
Part 1 / Executive summary We have linked the stakeholder priorities to Ofgem’s

This is a high-level outline of how we built our plan, consumer-focused outcomes as follows:
and the benefits it will deliver to consumers.
Maintain a safe and resilient network
1 Key messages 05
2 We have given stakeholders 13 I want the gas system to be safe 56
a stronger voice 06 14 I want to take gas on and off the
3 Delivering stakeholder priorities 07 transmission system where and
4 The cost of our business plan 11 when I want 63
5 Our impact on energy bills 14 15 I want you to protect the transmission
6 What’s changed 16 system from cyber and external threats 103
7 Assuring our final business plan 17
8 Mapping our business plan to Ofgem and Deliver an environmentally sustainable network
Citizens Advice 18 16 I want you to care for the environment
and communities 113
Part 2 / Context 17 I want you to facilitate the whole energy
We describe the context and how this affects our plan. system of the future – innovating to meet
9 Track record in RIIO-1 20 the challenges ahead 138
10 Giving stakeholders a stronger voice
– how we have built a stakeholder-led plan 25 Meet the needs of consumers and network users
11 The changing energy landscape towards 18 I want all the information I need to run
net zero 36 my business, and to understand what
12 Network capability 39 you do and why 152
19 I want to connect to the
Part 3 / Our plan is built on stakeholder priorities transmission system 157
We show how we deliver stakeholders’ priorities
through our proposals by following the below structure: Part 4 / How we deliver the stakeholder priorities
• What is this stakeholder priority about? In this section we describe how our plan is
• Our activities and current performance supported, because we are committed to providing
robust justification for our planned investment. This
• What have stakeholders told us? evidence is referenced within the main document
• Our proposals for RIIO-2 and and full details are included in the annexes.
how they will benefit consumers
• How will we deliver? 20 Our plan is efficient and affordable,
• Risks and uncertainty providing value for money 164
• Our proposed costs for RIIO-2 21 Our plan is deliverable 178
• Next steps 22 We can finance our plan 183
23 List of supporting annexes 199
04
Executive summary
1. Key messages
In building our business plan:
• We have extensively listened to our stakeholders
to develop a plan that meets their needs, and
embraced the new enhanced engagement
arrangements for RIIO-2.
• We have worked to define and determine the
network capability stakeholders need, testing
this against the Energy Networks Association’s
Common RIIO-2 Scenario and the full range
of Electricity System Operator produced
Future Energy Scenarios.
• We are proposing £553m per year of investment
(39 per cent higher than RIIO-1) to maintain
a safe, reliable and resilient transmission system.
• We have challenged ourselves to ensure
our proposals deliver at the lowest cost and
create optionality as we develop the lowest
cost pathway to net zero. We have an efficiency
ambition of 8 per cent on total costs, which
includes an 11 per cent operating expenditure
efficiency ambition.
• We are committed to a whole energy system
approach, having worked with other network
companies and government to identify a
programme of work needed to test and prove
hydrogen conversion options, which are
critical to developing the pathway to net zero.
• We give evidence for why adjustments
are required to Ofgem’s proposed financial
framework to make sure our plan is sustainably
financeable across a range of credible energy
scenarios.
• Our plan delivers all the outputs stakeholders
need, while reducing our portion of the average
annual domestic consumer bill to £8.85
(excluding inflation).
• We have tested the acceptability of our plan
with consumers, finding that 88 per cent of
domestic and 82 per cent of non-domestic
consumers find the average impact of our
RIIO-2 plan acceptable.
8%
Efficiency ambition
£8.85
Cost of this plan
on our total costs on the average
annual domestic
consumer bill
All figures are in 18/19 price base.
05
Executive summary
2. We have given stakeholders

a stronger voice
This plan has been shaped by Figure 2.01 our eight stakeholder priorities are underpinned
the priorities of our stakeholders by three consumer priorities
and consumers; it is ambitious,
innovative and will be challenging
to deliver. We will work towards I want to take gas on and I want you to protect the
its goals with stakeholders, so lder priorit
off the transmission system keho ies transmission system from
where and when I want Sta cyber and external threats
that our actions are transparent,
and we can deliver effectively
on our commitments. mer priorit
I want the
nsu ies I want you to care
gas system
to be safe
Co I want you to for the environment
and communities
We have built our plan by listening facilitate delivery
of a sustainable
and incorporating feedback from energy system
our stakeholders and consumers.

Over the last two years, we have I want to
use energy
I want an
affordable
carried out our most extensive I want you to facilitate
as and when
I want
energy bill
ever listening exercise to the whole energy

I want you
understand their priorities and system of the future –
innovating to meet
C
on s to be efficient
su ie
future requirements. We have the challenges ahead m e r p ri o rit and affordable
engaged with more than 800

stakeholders, 13,000-plus I want all the information
domestic and non-domestic I need to run my business, Sta s I want to connect
ke h old iti e
and to understand what e r p ri o r to the transmission
consumers. Together with National you do and why system
Grid Electricity Transmission
(NGET), we were the first network
to establish the independent 2. “I want to use energy as and Against a backdrop of an
stakeholder user group and its when I want” – consumers uncertain energy landscape,
members have been challenging expect us to provide a highly we are mindful that there is a
and reviewing how we engage reliable service. careful balance to be achieved
in developing our business plan. 3. “I want you to facilitate delivery in delivering these priorities for
We have provided more of a sustainable energy system” current and future consumers.
information about our emerging – consumers want us to support We will make critical decisions
business plan ideas to our the energy system transition, regarding replacing, maintaining
stakeholders than ever before, whilst minimising disruption or decommissioning our assets,
including a consultation in to their lives and our impact as well as driving forward
February 20192 and publication on the environment. innovation to ensure the best
of our full draft plan in July 20193. fit for the future solutions.
Throughout our consumer
We’ve built our business plan engagement programme, we Stakeholder views have made
around what stakeholders have identified that the environment, a genuine difference to our
said. Consumers have told us particularly as we move towards business plan as we explain
their three main priorities: a decarbonised energy system, throughout this document.
1. “I want an affordable energy bill” is very important to consumers. The independent stakeholder
– our network and facilitation We therefore amended our third user group has also made sure
of the market allow our priority to better reflect this. we take account of stakeholder
customers to supply gas where It was previously “I want you to views. In the next section, we
and to whom they want, helping minimise disruption to my life”. summarise how our plan delivers
keep wholesale costs low to the against the stakeholder priorities.
ultimate benefit of consumers.
2
https://www.nationalgridgas.com/document/125911/download
3
06
Executive summary
3. Delivering stakeholder priorities

We are proposing to spend £553m per year
(excluding pass-through costs, real price effects
and non-baseline funded uncertainty mechanisms).
£553m includes £520m of baseline funding and £33m
where we are requesting baseline funding, which is
subject to an uncertainty mechanism. We have also
reduced our costs due to further refinement and
efficiencies across our plan.
We have excluded costs associated with other

uncertainty mechanisms which we have not
requested as baseline funding in our plan.
We have only included more certain costs in the

baseline funding we are requesting. Our baseline
costs are high-cost confidence (a RIIO-2 regulatory
term) because:
• we continue to use native competition (82 per
cent of all external expenditure in RIIO-1
followed this process),
•w e have challenged the vast majority of our
costs against our past track record,
• we have benchmarked our costs,
•w e are proposing uncertainty mechanisms
to facilitate more certainty in scope and cost
of specific activities, and as certainty in the
pathway to net zero becomes clearer.
£553m
Average annual
cost in RIIO-2
Figure 3.01 our proposed spend by stakeholder priority
0.5%
1% 3%
10%
3%
10%
Key
51% Safety: £14m per year

Gas on and off: £280m per year
Protect from cyber and external threats: £118m per year
Environment and communities: £55m per year
21.5% Whole energy system: £17m per year
Information: £8m per year
Connections: £3m per year
Business support: £75m per year
– Capital and operating expenditure
– efficiency commitments: -£17m per year
07
Executive summary
We have presented what we plan to do against The costs shown below have had the efficiencies
each stakeholder priority, organised into Ofgem’s from our stretching UK efficiency programme applied
three output categories. and include our baseline costs and the uncertainty
mechanisms we have included in our baseline.
Maintain a safe and resilient network
I want the gas system I want to take gas on and off I want you to protect the
to be safe the transmission system transmission system from
Forecast cost £14m per year where and when I want cyber and external threats
(RIIO-1 forecast £17m per year) Forecast cost £280m per year Forecast cost £118m per year;
Key changes from RIIO-1 (RIIO-1 forecast £207m per year) £83m of which is cyber-driven
We have made efficiencies in our systems Key changes from RIIO-1 asset health operational technology
and people-related safety costs. Increased expenditure required to
(OT), £9m of which is business IT
maintain the health of our ageing assets. security plan, £26m of which is
Commitment physical security (RIIO-1 forecast
• We will maintain our first-class level Commitment per year £36m; £2m OT, £9m
of safety whilst continuing to pursue • Invest in our asset health programme to business IT security plan, £25m
the highest level of safety culture
maturity to protect the public,
comply with legislation and our Safety physical security)
Case, whilst maintaining our current
our assets and people. level of reliability, resilience and availability, Key changes from RIIO-1
supported by an annual process to Significant increase in cyber resilience
Consumer benefits assess network capability. expenditure driven by age and
“I want to use energy as and when I • 76 per cent of our asset health spend obsolescence of existing OT, growing
want” – our commitment to safety-related will be delivered through Ofgem’s level of cyber threat and new legislative
inspections, maintenance and asset defined Network Asset Risk Metric. requirements.
replacement avoids disruption to • Redevelop the Bacton terminal using
continuity of gas supply. Commitment
a price control deliverable (PCD) and
“I want you to facilitate delivery uncertainty mechanism (UM) to adjust • Deliver a risk-based strategic
of a sustainable energy system” allowances once final design and costs long-term programme to replace
– our focus on safety protects society are known. key OT used for the safety and
from potential disruption and damage control of critical systems at high
• Address subsidence at King’s Lynn use, high criticality sites using PCDs.
to public health, business, transport using a PCD and UM to adjust
and the natural environment. allowances once final design and • Our business IT security plan will
costs are known. implement a suite of initiatives
to improve cyber resilience across
• Undertake residual balancing, our enterprise IT environment and
maintenance and constraint implement new capabilities in line
management subject to an ODI. with Network Information Systems
• Take a risk-based approach to (NIS) Regulations.
environmental resilience, specifically • Deliver new physical security
to manage the risks with pipeline upgrade solutions where
watercourse crossings. government has determined
• Invest to develop the capabilities of our it to be in the national interest.
people and systems; to allow us to plan, • Regularly review our programme
maintain and operate our network and and utilise UMs to flex our delivery
markets in the most cost-efficient way. if circumstances change, e.g. change
in level of threat or criticality of sites.
Consumer benefits
“I want to use energy as and when I want” Consumer benefits
– enabling a wide range of supplies “I want to use energy as and when
ensures gas is reliably available. I want” – our investments improve the
“I want you to facilitate delivery safety and resilience of the network to
of a sustainable energy system” ride through and recover from malicious
– stakeholders have told us it is in events that threaten to disrupt continuity
consumers’ interests to keep future of GB energy supplies.
energy options open and we will deliver
by determining and delivering the network
capability our stakeholders need.
“I want an affordable energy bill” –
network reliability enables access to the
lowest cost gas supplies, reducing the
08 wholesale cost energy consumers incur.
Executive summary
Deliver an environmentally sustainable network
I want you to care for the environment I want you to facilitate the whole energy
and communities system of the future – innovating to meet
Forecast cost £55m per year the challenges ahead
(RIIO-1 forecast £43m per year) Forecast cost £17m per year
(RIIO-1 forecast £13m per year)
Key changes from RIIO-1
Increased expenditure for compressor emissions compliance Key changes from RIIO-1
programme to reduce our carbon footprint and NOx emissions. Taking a leading role in the decarbonisation of heat
Increased commitment to reduce our overall carbon footprint for gas transmission.
in other activities.
Commitment
Commitment • Lead the development of options associated with gas
• Comply with emissions legislation through replacing transmission to facilitate the decarbonisation of heat, industry
two compressors at our Wormington site with more efficient and transport, specifically hydrogen, supported by a UM.
ones, that will reduce NOx emissions from 2026 (via a PCD),
• Lead the development of the gas markets framework by
to meet stakeholder network capability requirements.
collaborating with others to enable the pathway to net zero.
• Deliver a programme of works for emissions legislation
• Collaborate across industry on a hydrogen workplan and
compliance by 2030, we’ll continue to work on solutions
on innovative solutions.
at three more sites using UMs.
• Invest in skilled people and IT systems so we can lead
• Increase our focus on reducing all methane emissions
regulatory change, anticipate future regulatory developments,
through monitoring leaks on the network, and working
and understand how these might affect stakeholders and
on ways to reduce them, supported by a greenhouse
our network.
gas ODI.
• Reduce the carbon footprint of our business by replacing Consumer benefits
100 per cent of our operational vehicles with alternative fuel
“I want you to facilitate delivery of a sustainable energy system”
vehicles where there is a market alternative in 2019, installing
– defining the solutions for decarbonising heat, providing costs
solar panels on our sites, ensuring the energy we use in
and implications for consumers will support a pathway that
our office buildings is from renewable sources and reducing
minimises disruption.
carbon in construction projects.
• Address 80 redundant assets, asset groups or sites measured “I want an affordable energy bill” – whole energy system
by a PCD, enhancing the natural environment around these. collaboration offers networks the potential to respond to
changing needs and reduce consumer costs in the most
• Deliver benefits to wider society, including committing
effective way. Focusing on delivering and embedding
0.3 per cent of the value of major projects spend to support
innovation to deliver the energy transition ensures the
community initiatives and ensuring new construction projects
most effective long-term solutions are taken forward.
protect and promote biodiversity.
Consumer benefits
“I want you to facilitate delivery of a sustainable energy system”
– cutting greenhouse gas emissions reduces our impact
on climate change, with clear benefits for society including
improved air quality. Improving biodiversity and enhancing the
environment when we have demolished a site, brings positive
benefits to nature and communities.
“I want an affordable energy bill” – responsible demolition
protects future consumers from the costs of disposing
assets they may not have benefited from, whilst promoting
environmental net gain activities.
For more information on our price control deliverables (PCDs), uncertainty mechanisms (UMs)
and output delivery incentives (ODIs), please see annexes A3.01 to A3.03 respectively.
09
Executive summary
Meet the needs of consumers and network users
I want to connect to the I want you to be efficient I want all the information I need
transmission system and affordable*
Forecast cost £8m per year
Forecast cost £3m per year Key changes from RIIO-1 (RIIO-1 forecast £8m per year)
(RIIO-1 forecast £4m per year) Building on our RIIO-1 learnings to drive
an enhanced efficiency ambition in RIIO-2. Key changes from RIIO-1
Key changes from RIIO-1 Enhancing our capability
We will be more responsive to the Commitment to share information.
needs of our customers. • Sustain a £30m per year operational
cost efficiency from our RIIO-1 Commitment
Commitment efficiency programme. • Implement best practice open data
• Continue to support the liquidity • Deliver a further £6m per year sharing and governance across the
of the energy market by providing operational cost efficiency across RIIO-2. energy industry, working with network
an efficient process for connection • Deliver a further £11m per year companies to build a whole system view.
and capacity applications. efficiency on our direct capital • Retain our quality of demand
• Actively promote connection investments across RIIO-2. forecast ODI.
opportunities to new customers • Continue to benchmark, market • Invest in our people and IT systems,
including biomethane entry customers test and use native competition taking advantage of technology to
and gas-powered vehicle refuelling throughout RIIO-2. develop new capabilities allowing us
station exit customers. to share information in better ways.
• Be more responsive to the needs Consumer benefits • Be more transparent by continuing
of customers, incentivised through “I want an affordable energy bill” to provide regulatory reporting,
an ODI. – embedding efficiencies, focusing continuing to update our business
• Optimise use of the existing system on the most efficient and effective plan with stakeholders, retaining the
by substituting capacity where possible solutions and reducing returns from independent stakeholder user group
rather than building new capacity, day one of the new price control will and ensuring our leadership team’s
informed by robust options analysis. keep costs down for consumers. remuneration is clearly aligned with
delivering outputs for stakeholders.
Consumer benefits UMs ensure spend is directed
to maximum consumer benefit, Consumer benefits
“I want to use energy as and when even when circumstances change.
I want” – making it easier for new sources “I want an affordable energy bill”
to connect ensures diverse domestic Facilitation of the wholesale market – our information and insights provide
and international sources of gas has a positive impact on the wholesale value for consumers by ensuring that
can access our network efficiently. energy cost for consumers. the gas market runs smoothly and
promotes competition in the wholesale
“I want you to facilitate delivery of a Balancing costs between current and
market, keeping wholesale costs low.
sustainable energy system” – actively future consumers ensures fairness.
promoting new low carbon connection
opportunities assists decarbonisation
with minimal disruption to consumers. Figure 3.02 our consumer value proposition
“I want an affordable energy bill” Our plan provides significant value to consumers; delivering a safe, reliable and resilient
– where possible, we provide capacity network for homes, businesses and communities both today and into the future, and playing
without building new assets, facilitating our part in decarbonising Britain’s energy system. The consumer value proposition focuses
liquidity in the competitive wholesale on those parts of our plan (these could be commitments, outputs or incentives) that go
energy markets which keeps costs beyond minimum requirements and beyond the functions typically undertaken by an energy
low for consumers. network company as business as usual. We have monetised five items:
1. Gas on and off – Resilience solution at Blackrod
2. Protect from cyber and – Security innovation application
external threats
3. Environment and communities – Business carbon footprint reduction
through construction
4. Environment and communities – Natural environment improvements
5. Environment and communities – Community initiatives.
For more information please see annex A10.05.
*Business support costs to deliver stakeholder priorities: forecast cost £75m per year (RIIO-1 cost per year £73m)
Capital and operating expenditure efficiency commitments: -£17m per year
Pass-through costs such as licence fees and tax: forecast cost £192m per year (RIIO-1 cost per year £201m)
10
Executive summary
4. The cost of our business plan

Context deal with these issues in RIIO-1 by investing more
To achieve the outcomes stakeholders need, our than £100m over our asset health allowances to
proposals forecast an average annual cost in RIIO-2 maintain the safety, resilience and reliability of our
at £553m. This is an increase from £399m per year network. For RIIO-2, we have provided evidence that
in RIIO-1. We have worked extensively to ensure our we will need to increase our spending to both meet
plan is fully justified and deliverable, and we believe our legislative obligations and Safety Case, whilst
it represents the minimum total cost to meet maintaining the health of our assets, network
stakeholder needs. capability and reliability. Our commitments are
underpinned by Ofgem’s Network Asset Risk Metric
We are mindful that, to meet our commitments, we covering 76 per cent of our asset health spend.
must get the balance right between network capability For the remainder of our costs, we have either
and the cost to consumers today and into the future. proposed price control deliverables or uncertainty
Within the changing energy landscape, we are mechanisms that will adjust allowances once the
managing an ageing network with many assets at or final design and cost are known. For work on our
beyond the end of their design life. The decisions we compressor fleet, we have aligned our proposed
make today have lasting impacts on cost, risk and the investments to meet current and future network
level of network capability we offer to stakeholders. capability stakeholder needs. As we move forward,
Our plan has been developed through an iterative our asset decisions will continue to be assessed
process to understand the impacts of different options using this approach and we will iterate and report
on our customers and consumers. We are proposing annually on the required capability of the network.
investment to maintain, replace or decommission our
assets, as well as deferring decisions to keep options 2. P
rotecting the transmission network from
open until the future becomes clearer. Our RIIO-2 rising cyber security threats
plan will reduce network capability in the future due to
decisions we are proposing now and we have worked Our operational technology assets used for safety
closely with stakeholders to ensure the trade-offs are and control at our compressor sites are at the end of
understood and the plan meets their needs. their design life and are not capable of supporting the
enhanced cyber resilience required by new legislation.
RIIO-2 expenditure
We have optimised our cyber plan as part of a
For the majority of our baseline cost (£520m)
compressor site strategy that takes account of
we have high confidence on the volume and cost
needs arising from network capability, asset health,
of work to deliver our stakeholder commitments.
emissions and cyber threats. Our plan for RIIO-2
We have therefore included those costs which are
is to fully replace systems at high use/high critical
primarily related to delivering network reliability and
sites and deploy a RIIO-1 innovation solution as a
resilience into our baseline cost. Where there is
lower cost cyber resilience mitigation at other sites.
more uncertainty around either the scope or cost
This risk-based approach will continue into RIIO-3.
of work required to meet stakeholder requirements,
We are working with the Department for Business,
in particular around future network capability, we
Energy & Industrial Strategy (BEIS) and Ofgem in
have utilised uncertainty mechanisms. Stakeholders
their joint role as NIS Competent Authority, and with
have supported this approach as it protects
the Health and Safety Executive (HSE) to confirm
consumers and customers from paying for outputs
the confidential detail of our plan to protect against
they might not require or paying a price that is
these threats.
currently unclear. The section below outlines the
major cost areas to deliver our stakeholder
3. M
eeting environmental and community
commitments, how we have utilised uncertainty
commitments
mechanisms and our efficiency commitments
underpinning the business plan.
We have 28 compressor units that are subject to the
Medium Combustion Plant Directive (MCPD) which
Key cost drivers included in our
require compliance by 1 January 2030. We need
baseline cost
to make decisions now to ensure we can meet this
1. Managing an ageing network with many deadline whilst maintaining capability during any
assets at the end of their design life construction works.
Across our network, we’re experiencing more
condition-related issues. We have started to
11
Executive summary

Based on the network capability stakeholders have Where the uncertainty relates to the likely cost of
currently indicated that they need, we are proposing doing the work, but not the need for the work, we
two new compressor units (at Wormington) in RIIO-2. have included an estimate of the cost in our baseline.
We will utilise an uncertainty mechanism to test the We propose the cost would be set in RIIO-2 once
solutions at a further three sites (St. Fergus, we have finalised the detailed design and have
Peterborough and King’s Lynn). For the remaining tender-backed prices. Where there is uncertainty
compressor units, we are exploring whether around the need for the work and the cost, we have
decommissioning or derogation is the most not included the costs in the baseline but have
appropriate solution. This will be supported by provided estimates for transparency purposes. We
an annual process to assess network capability. propose the RIIO-2 framework would only provide
In addition, we will deliver commitments to address allowances for this work if the output is needed in
redundant assets, support communities and RIIO-2. How these mechanisms have been used in
enhance the environment. our business plan is described in the section below.
Our costs are fully justified and our plan • Uncertainty mechanisms included in our baseline
is deliverable For asset health works we have forecast the
Our plan is ambitious and the detailed planning costs to address issues at both our Bacton
we have done confirm it is deliverable. The planned terminal and King’s Lynn site. We have proposed
increase in work on the network has required us to include these costs in baseline at £33m per
to think very differently about how we manage our year. However, due to a need to finalise the scope
maintenance and construction activities, whilst and cost for the solution, we propose to adjust the
ensuring we can deliver the service our customers cost at a defined period once we have fully
need. We have considered our plan over a ten-year tendered outcomes for these sites within RIIO-2.
period to accommodate network outages in RIIO-2
and RIIO-3, to minimise network disruption, costs and • Uncertainty mechanisms not included
constraints for our customers. We have proposed clear in our baseline
commitments in the form of price control deliverables Further uncertain mechanisms have not been
to ensure that our activities have clearly defined included in our baseline, but may be necessary.
outputs, against which we can be measured. We are They protect consumers from either the cost
confident our business plan is underpinned by solid uncertainty in our proposal or where we need to
foundations. We have extensively listened to our undertake further work to ensure our proposals
stakeholders and triangulated the outcome of these meet the needs of the customer requirements,
discussions to build a plan that meets their needs. external legislation, future network capability
We accompany our plan with engineering justification needs or as certainty in the pathway to net zero
papers, cost benefit analysis and external becomes clearer.
benchmarking to evidence that our plans is robust.
For our emissions driven investment for compressors
We use native competition to extract value from and associated works at St Fergus, Peterborough and
our supply chain, with 82 per cent of all external King’s Lynn, we propose to use our new annual network
expenditure during RIIO-1 going through a competitive capability process to firm up the requirements at
process. For asset health, all of our capital expenditure these sites. Once the full design and solutions are
over £100k during RIIO-1 was subject to competitive known, we will use a reopener window to agree the
tendering. We will continue to develop these processes solution and associated costs. For transparency,
to extract as much value as possible from the supply we have included an estimate of the likely costs in
chain into RIIO-2. our plan and the trigger points required to ensure we
can deliver the network capability in a timely manner.
Protecting consumers against uncertainty
Uncertainty mechanisms are designed to allocate risk to For external threats, whether physical or cyber,
whoever is best placed to manage it. We have protected uncertainty mechanisms allow us to adjust our
consumers by proposing uncertainty mechanisms plans should we be asked by the external competent
for less certain costs to ensure if customer or authorities to do more to ensure we can deliver
consumers’ needs change so do our allowances. a highly reliable and resilient service. Where our
scope or costs are not yet sufficiently well defined,
We have two types of uncertainty mechanisms to we have provided an estimate of likely costs. We will
deal with the types of uncertainty we are managing. use the uncertainty mechanism reopener windows
to request adjustments to our RIIO-2 allowance
when the details are fully defined.
12
Executive summary

We have challenged ourselves to be more efficient We have also proposed to maintain the demand
To deliver our proposals as cost-effectively as possible, forecasting incentive, as providing accurate demand
we have challenged ourselves to make sure our costs are forecasts helps the market function efficiently. Accurate
as low as they can be. We have embedded the benefits of forecasts will become increasingly important in RIIO-2
successful recent innovations, undertaken benchmarking as the energy landscape becomes more challenging
analysis and made stretching efficiency improvement due to increased volatility and uncertainty, reflecting
commitments. This has resulted in our plan being greater use of renewable energy sources, and shifting
£47m lower each year than it otherwise would have supply and demand patterns.
been, representing an 8 per cent efficiency
ambition on our total costs. Financial framework
We have developed our business plan to deliver on our
• Sustain operational cost efficiencies from RIIO-1 consumer and stakeholder priorities and provide value
Having undertaken our stretching UK efficiency for money. Part of this is ensuring that our plan balances
programme, we have moved to our new structure in the needs of investors with the needs of consumers
readiness for RIIO-2. Doing so ahead of the next price today and into the future. Getting an appropriate financial
control means we can be transparent with our framework which is transparent, robust and reflects the
stakeholders about our costs going forward and risks and long-term nature of the investments is vital in
reduce our RIIO-2 plan by £30m per year. We’ve used ensuring networks are able to fund future infrastructure
available benchmarking data and other analysis to efficiently and sustainably.
show that our costs are efficient as we start RIIO-2.
An appropriate return is important to the resilience of
• Deliver further operating expenditure the energy sector as a whole, but nowhere is it more
efficiency ambition pronounced than in transmission, where the uncertainty
and complexity of investment required, and the scale
We are making an ambitious commitment to further
and pace of market disruption is markedly higher than
reduce our operating costs by £6m per year.
in other sectors. We have seen growth in the cyber
Representing a 1.1 per cent per year operating
threat to our assets and the risk of political intervention
productivity target. This is nearly three times the
in our operations over the last few years. These are risks
government’s forecast of UK productivity growth and
we as a network company are best placed to manage
consistent with our ambition to be innovative and keep
because our customers and consumers do not have
striving for efficiencies. Our underlying operating
the ability to mitigate.
expenditure will be 11 per cent lower than today.
Our stakeholders want us to take a leading role in
• Deliver capital expenditure efficiency ambition
ensuring a healthier and greener, net zero future for
We are also building in the benefits of our past the UK, whilst maintaining energy security at the lowest
successful engineering and asset management possible cost for consumers. The scale of this challenge
innovations and a further 4 per cent efficiency on is significant, requiring substantial investment. It is
our direct capital investments, saving £11m per year. therefore vital that we have a progressive regulatory
framework which encourages long-term investment
We positively impact wholesale energy costs and provides an adequate financial reward for the
We are conscious that the cost of our activities isn’t risks we take in leading the change.
the only thing that has an impact on consumer bills.
By facilitating the effective functioning of the gas market, Within our plan, we provide evidence that Ofgem’s
we have a positive impact on the wholesale energy proposed financial framework, including the use
cost in a way that benefits consumers. This impact was of 4.3 per cent cost of equity, does not enable us
supported by a recent study by professional services to maintain current financial resilience and reduces
firm EY. This concluded that, even with perfect foresight our ability to take risks and innovate in a critical period
and without taking account of an unexpected short-term of whole system change.
shock, failure to maintain the existing capability of the
NTS could have significant impacts on GB consumers, Ofgem’s proposed framework reduces our bill impact
for instance by adding up to £877m per year to gas in the short term but will increase total energy bills
and electricity costs by 2035. in the medium and long term. We set out an alternative,
sustainable financial framework which reduces our
Given the potential impact of system constraints, we impact on consumer bills in the short, medium and long
have proposed to retain the constraint management term, yet still incentivises investment at a time when it
incentive as part of our plan. This is because it will be critical for the UK in achieving a net zero future.
encourages us to act in both the short and long-term
interests of consumers, by encouraging us to minimise
the likelihood of, and cost to manage, any system 13
constraints.
Executive summary
5. Our impact on energy bills

The RIIO-2 regulatory framework determines Non-domestic consumer and customer bill impact
the revenues we recover, paid for directly by The effect of our plan on charges will depend on
our customers who pass the charges through our customers’ location, the type of contract they
to end consumers. We considered the impact have and their energy use. To understand their bill
of our plan to both our customers and consumers impacts for RIIO-2, our customers and non-domestic
(domestic and non-domestic). consumers asked for visibility of our forecast revenue
trends. This allows them to calculate their own specific
bill impacts based on their individual circumstances.
The table below shows our forecast revenue, after
deduction of directly connected customer revenues.
Table 5.01 RIIO-2 forecast revenues
Year £m RIIO-2 RIIO-1

2018–19 price base 2021/22 2022/23 2023/24 2024/25 2025/26 average average
Our revenue 935 935 999 990 978 967 919
Domestic bills Acceptability was largely driven by perceived

On average across RIIO-1 to date, our charges to affordability of the transmission bill, as well as the
domestic consumers account for £9.05 per year. need to maintain high levels of reliability for non-
Under our proposed package, the average RIIO-2 domestic consumers. The high level of acceptability
consumer bill is expected to be £8.85 per year, is subject to limits to changes to the overall energy bill.
before inflation, an average reduction of 20p per year.
This change is influenced by seven main drivers: Figure 5.02
• Framework changes (the transition to a new An indication of how our portion of the domestic bill breaks down
Consumer Prices Index (CPIH) which accelerates
Rates and licence Funding the
cashflow): +40p, and regulatory asset lives and fees (13%) network (22%)
depreciation proposals: +20p.
• Total expenditure associated with our plan: +70p.
• Impact of previous price controls: +25p.
• Financial package (changes to allowed equity
return, cost of debt allowances and gearing): -85p.
• Demand projections (we use the medium Typical
Domestic Consumption Values as published by
Ofgem): -75p.
• Adjustments from pass-through and incentive
income: -15p.
If we apply Ofgem’s financial framework, the bill

would be £8.35 per year, a reduction of 70p per year. Cost of running Past investments
and operating the in the network (17%)
network and investment
Following the publication of our July draft business in network capability (48%)
plan, we tested the acceptability of our plan with
Funding the network: upfront spend comes with an associated cost of
consumers. 88 per cent of domestic and 82 per cent raising funds, this is similar to the interest paid on a loan.
of non-domestic consumers said that the average Past investments in the network: the cost of past investments in the gas
impact of our RIIO-2 plan was acceptable. Consumers networks is spread so consumers pay over the life of the assets. This portion
relates to cost in prior regulatory periods.
were asked “What is the maximum acceptable Cost of running and operating the network and investment in network
change in your transmission bill by 2026?”, the capability: the cost of work to deliver network capability within the current
average response was to pay a further £11 (therefore regulatory period is spread so consumers pay over the life of the assets.
This also covers the day-to-day costs of running and operating a safe and
double today’s bill impact) for domestic consumers reliable network.
and a 7 per cent increase for non-domestic Rates and licence fees: the obligatory charges that we have to pay
in order to operate.
consumers. For those who did not find our plan
acceptable, reasons mainly related to financial Note: We do not have a margin included in our costs. The price control
is set up to fund the right level of cost to deliver what our stakeholders need.
considerations including objections to paying a higher Our accounting profit is generated from performance against the set price
bill and energy companies making too much profit. control and the return required for our equity investors to take on the risk
of the network.
14
Executive summary
5. Our impact on energy bills

Balancing costs between current Through our engagement activity, domestic
and future consumers consumers have a strong preference for the cost
Within our RIIO-2 business plan, we are focused of asset decommissioning and new gas equipment
on ensuring consumers are protected against to be borne by current consumers. They hold this
uncertainty over the future net zero pathway. view on the understanding that this would mean
We have used the full range of Future Energy that gas bills today will go up, but gas bills in the
Scenarios, published by the Electricity System future will go down. They cited fairness as a driver
Operator (ESO), to determine the network capability for this view. In contrast, non-domestic consumers
needed long term and to ensure that the decisions and customers expressed concerns about a
we make now will be fit for purpose in all scenarios. potential shift of greater costs to current consumers
We have then stated our plan against the agreed and customers. In particular, they were concerned
ENA Common RIIO-2 Energy Scenario. about the impact that any reduction in the
depreciation period could have, given that this
would shift more costs on to current consumers and
Based on stakeholder feedback to our draft July customers. We appreciate the affordability concerns
business plan, we have proposed appropriate of non-domestic consumers and customers, and the
uncertainty mechanisms for our compressor trade-off between these views is challenging. On the
investments and terminals, described earlier in basis of intergenerational fairness, we have listened
our summary. These allow us to adjust our plan as to the views of domestic consumers and proceeded
certainty in the net zero pathway becomes clearer with our proposals to protect future consumers
and should actual demand requirements change. against uncertainty over the future net zero pathway
We have also explored with our stakeholders the recognising that we have built in defined uncertainty
most appropriate way to balance costs between mechanisms that will allow for changes and would
current and future consumers given future minimise impacts into the future.
uncertainties, changes to the mix of our investment
and changes to economic parameters. We have
reflected this in our plan in the following ways:
• Our proposed asset investments in RIIO-2 have
an average technical asset life of 25 years, which
is different to the current regulatory asset life
of 45 years. For these new investments we are
proposing to align the regulatory asset to the
technical asset life of 25 years.
• Ofgem proposes a move to a new consumer
prices index (CPIH) metric for indexing our
revenues, which will increase bills for today’s
consumers but lead to lower costs to consumers
in the future. We are supportive of this change,
which reflects the replacement of RPI as a national
statistic. The impact of this change should be
neutral to consumers and investors, and not be
used as a tool to reduce the cost of equity for the
transmission business, continuing to reflect the
risks and long-term nature of our investments.
• To manage and recognise the uncertainty driven
by the future transition to a net zero carbon
economy, we are proposing to accelerate regulatory
depreciation for RIIO-2 additions to the Regulatory
Asset Value (RAV). This is intended to match
revenue with use of our assets and manage
the potential risk of higher charges to future
consumers given the uncertainty linked to the
energy transition.
15
Executive summary
6. What’s changed
This is the third iteration of our business plan, • We have worked extensively to ensure our plan
and the second version we have published. is fully justified and deliverable, and it represents
We have made several changes to reflect the minimum total cost to meet stakeholder needs.
feedback from our stakeholders, the independent We have strengthened the justification underlying
stakeholder user group, the independent RIIO-2 our proposals, including an explanation of all
Challenge Group and updates to Ofgem’s business considered options and enhancing the supporting
plan guidance. engineering justification papers and cost benefit
analyses. We have undertaken a complete review
What’s changed of our unit costs demonstrating where these relate
The main changes we have made to our business to outturn costs in RIIO-1.
plan since July are: • We have explored with stakeholders our role in
• The average annual cost we presented in our meeting the government’s net zero commitment,
July draft plan was £599m (excluding pass-through enhancing our proposals to reflect this. We have
costs, potential customer triggered network included more uncertainty mechanisms to adapt
reinforcement and real price effects). We are to different routes to achieving net zero and propose
proposing to spend £553m per year (excluding a ‘net zero reopener’ uncertainty mechanism.
pass-through costs, real price effects and • We have explained more clearly how our RIIO-1
non-baseline funded uncertainty mechanisms). performance benefits consumers in our RIIO-2 plan.
• We have completed further work to ensure our • We
have included more information on competition,
plan is underpinned by the network capability covering early, late and native competition.
stakeholders need. We link the capability of our • As requested by Ofgem and the RIIO-2 Challenge
network to our business plan proposals through Group, we are using a financial package with a cost
a robust process which evaluates the range of of equity of 4.3 per cent (subject to CPIH) to test
potential energy futures, the level of physical our plan. We are also testing our preferred package
capability on our network, and factors which with a cost of equity of 6.5 per cent (subject to
impact the delivery of this capability. To support CPIH), which is consistent with our July plan.
the development of our plan, we have developed
• We have produced our consumer value proposition
some high-level compressor fleet strategy
(CVP), explaining where our plan provides value for
principles. We have also proposed the introduction
consumers above Ofgem’s minimum requirements.
of an annual process to assess network capability
and reflect any changes as they arise. • We have included more information on price control
deliverables, and our proposed package of output
• We have focused on ensuring our proposals
delivery incentives that stretch our performance
are joined up across the key activities of asset
in areas where additional consumer value can
health, compressor emissions and protection
be attained.
from cyber threats.
• We have triangulated the output of our stakeholder
engagement and applied the conclusions to our
proposals, including the results of the independent
acceptability testing of our business plan.
16
Executive summary
7. Assuring our final business plan

The Board of National Grid Gas has been fully Our assurance statements
involved in developing this submission and has The following assurance statements are made
provided review and challenge to ensure the by the Board with reference to this document
evidence and assurance demonstrate that the plan only (“the Company’s Business Plan”), as submitted
is of a high quality. The Board has been actively to Ofgem on 9 December 2019:
involved in defining the nature and approach
• The Board owns the overall strategy and direction
of the assurance undertaken on the plan and in
of the Company’s Business Plan.
reviewing the findings of the assurance programme.
We summarise the assurance processes we have • The Board is of the opinion that the Company’s
undertaken and the statements we feel confident Business Plan is accurate and based on high
to make as a result of this. Further details of the quality data. The Board has reached this
assurance approach are provided in annex A7.01. conclusion through implementing an overall
strategy for data assurance and governance
that has sought to deliver a business plan that
Our plan uses accurate, high-quality information
is accurate and based on high quality data.
We have undertaken a programme to make sure
• The Board has challenged and satisfied itself that,
that our Board members have the information and
in the opinion of the Board, expenditure forecasts
confidence they need to assess the quality of the plan.
included in the Company’s Business Plan are
robust and efficient.
We have a strong control and assurance culture,
built on the tough rules that apply to us such • The Board has challenged and satisfied itself
as the London Stock Exchange listing rules, and that, in the opinion of the Board, the Company’s
the UK’s corporate governance code. Our RIIO-2 Business Plan is ambitious.
assurance plan builds on these strong existing • In the opinion of the Board, the Company’s
assurance systems. Business Plan represents good value for
money for existing and future gas consumers
We have performed a full risk assessment of our as a consequence of it being a robust, efficient
RIIO-2 business plan and designed an assurance and ambitious plan.
plan appropriate and proportionate to the level • The Board has sought to implement a strategy
of risk. We have developed our assurance plan to satisfy itself that the Company’s Business Plan
using the three lines of assurance model utilising; achieves stakeholders trust and confidence, and
business unit management, internal independent is of the opinion that this is achieved as a result
teams and external or internal audit. of the high levels of transparency and engagement
with stakeholders during its development.
We have mapped supporting evidence and • For details of the level of assurance given over
assurance work results to the statements below the financeability of the business plan and key
to give the Board confidence to make them. definitions in relation to these statements see
annex A7.01.
We have engaged an external expert consultancy
to independently review and advise us on our risk
assessment and planned assurance approach.
They have also reviewed the execution of our
assurance programme and given views
to the Board on the validity of the statements
below based on the evidence reviewed.
Our National Grid Gas Transmission Board members
Nicola Shaw Phil Sheppard Chris Bennett Alan Foster Fintan Slye Cathryn Ross Dr Clive Elphick Alexandra Lewis
Chair Director Gas Director Chief Financial Director System Sufficiently Sufficiently Treasurer
Transmission Regulation Officer Operator Independent Independent
Director Director
17
Executive summary
8. Mapping our business plan to Ofgem

and Citizens Advice
We have built our business plan around the key guidance. Our business plan is supported by
stakeholder priorities and the table below shows various annexes including cost-benefit analysis
how our plan maps to Ofgem’s minimum business and engineering justification papers, these reports
plan requirements (references in bold). Annex A8.01 explain in detail the need for and the benefits
shows how our plan maps to all of the business plan of the investment we are proposing in each area.
Ofgem business plan

No. Business plan narrative Annexes or additional information
guidance reference
1 Track record in chapter 9 (2.3). Our annual RRP reports.
Each of our stakeholder priority chapters includes track record
in section 2 – our activities and current performance.
Track record
2 Chapter 7 – Assuring our final business plan (2.4). Annex A7.01 assurance report.
Annex A7.02 irregular submission
assurance report.
Business plan
commitment
3 Chapter 10 – creating a stakeholder-led plan. Annex A10.01 independent stakeholder user
Each of our stakeholder priority chapters includes section 3 – group set-up report (2.6).
what have stakeholders told us? Annex A10.02 gas RIIO-2 stakeholder
Giving consumers engagement strategy (2.7, 2.8).
a stronger voice Annex A10.03 stakeholder engagement
report (2.6).
There are also engagement logs per stakeholder
priority chapter.
4 Chapter 3 summarises our key commitments, the associated Annexes A3.01–A3.03 to describe our output
consumer benefits and our consumer value proposition. delivery incentives, price control deliverables
Each of our stakeholder chapters includes section 4 – our and uncertainty mechanisms annexes (2.12).
proposals for RIIO-2 and how they will benefit consumers. Annex 10.05 consumer value proposition.
Meet the needs
of consumers and Chapter 12 – network capability. Annex A12.02-A12.05 network capability reports.
network users
Chapter 20 – Our plan is efficient and affordable, Annex A21.02 sustainable workforce strategy.
providing value for money and chapter 21 – our plan is
deliverable (2.13, 2.20, 2.21).
Chapter 18 – I want all the information I need to run
my business, and to understand what you do and why.
Chapter 19 – I want to connect to the transmission system. Annex A19.01 non-customer
funded diversions.
5 Chapter 13 – I want the gas transmission system to be safe.
Chapter 14 – I want to take gas on and off the transmission
system where and when I want (2.18–2.19).
Maintain a safe Chapter 15 – I want you to protect the transmission system Annex A15.02 business IT security plan.
and resilient network from cyber and external threats (2.22–2.31). Annex A15.07 cyber resillience plan.
6 Chapter 16 – I want you to care about the environment Annexes A16.01 Environmental action plan
and communities (2.32–2.35). (EAP).
Deliver an
environmentally
sustainable network
7 Chapter 17 – I want you to facilitate the whole system
of the future – innovating to meet the challenges ahead
(2.48–2.52).
Enabling whole
system solutions
8 Chapter 20 – Our plan is efficient and affordable, providing value Annex A3.02 uncertainty mechanisms.
for money (2.63–2.64). Annex A22.02 RPEs and ongoing efficiency
Each of our stakeholder chapters includes section 6 – risks (2.61).
Uncertainty and uncertainty.
18
Executive summary
Ofgem business plan

No. Business plan narrative Annexes or additional information
guidance reference
9 Chapter 17 – I want you to facilitate the whole system of the Annex 17.03 Innovation strategy.
future – innovating to meet the challenges ahead (2.68–2.71
and 2.74–2.75).
Each of our stakeholder priority chapters includes innovation.
Innovation
10 Chapter 20 – our plan is efficient and affordable, A20.16 Native competition plan.
providing value for money (2.78–2.82, 2.84–2.86, 2.88–2.89).
Competition
11 Chapter 11 – the changing energy landscape (3.1–3.5).

This chapter also includes net zero (3.6–3.9).
A consistent view
of the future
12 Chapter 20 – our plan is efficient and affordable, providing value All annexes associated with chapters 20 and 22
for money and chapter 22 – we can finance our plan (3.10–3.16). and as per annex A8.01.
Each of our stakeholder chapters includes section 7 – Business plan data templates and investment
our proposed costs. decision pack, which includes our engineering
Cost information justification papers and cost benefit analyses
(3.21).
13 Chapter 22 – we can finance our plan (3.23, 3.26–3.28). Annexes A22.01 finance, A22.02 real price
effects and ongoing efficiency.
Financial cost
How our plan aligns with

Citizens Advice five principles
Citizens Advice is the official representative for RIIO-2 to really deliver for consumers. This chart
energy consumers in Great Britain and it has summarises how our plan maps to the five principles.
designed five principles that we must meet for
No. Citizens Advice principle How our plan aligns with the principle
1 Profits are lower than the previous price We are proposing a lower base return in the RIIO-2 period,
control, to more accurately reflect the lowering profits from RIIO-1. Our proposals reflect the risks
relative low risk for investors in this sector. associated with our business, whilst maintaining financeability.
2 The value of any unspent funding We are proposing many measurable outputs (PCDs) in our
for infrastructure projects is returned business plan. If we don’t deliver an output and there’s no
to consumers promptly and in full. good reason, we will return the money to consumers.
3 Industry business plans and regulatory We have built our business plan around our stakeholders’ eight
decisions are directly informed by consumer priorities and our consumers’ three priorities. We will involve
(including future consumer) feedback our stakeholders, including consumer representatives, in annual
and research. updates so it continues to meet consumers’ needs.
4 Companies are required to publish complete We report a lot of information on our performance to financial
information on their performance, financial markets and our regulator. In future, we will clearly show the
structures, gearing and ownership. link between what we deliver for consumers and our financial
rewards. The independent stakeholder user group will
challenge us on the quality of our annual reports.
5 Innovation funding and incentives support We will focus on innovation in a number of areas to reduce
consumers in the transition to a low-carbon carbon emissions. We are also focusing our innovation on
future, particularly those consumers reducing costs for consumers in the medium term, such
in vulnerable circumstances. as applying new digital technologies to our network.
19
Track record in RIIO-1
9. Track record in RIIO-1

Our RIIO-2 plan is based on our strong track record for capability. Our structured approach provided us with a
delivering value for consumers in RIIO-1. We have taken better understanding of the work required to maintain the
learnings from RIIO-1 to inform how we can better deliver health of our assets and identify lower cost options to
in RIIO-2, carrying forward delivery, cost and innovation mitigate risk on the network. Given the scale of the work
performance and benefits. Annually, we produce a required to make our compressor sites compliant with
regulatory reporting pack allowing stakeholders to emissions legislation, we have targeted innovative
understand how we have performed throughout the RIIO- improvements to ensure the programme is delivered in
1 period4. the most efficient way. Through this, in delivering our first
IED-compliant unit at Aylesbury we saved in the region of
Overall, we have delivered strong output performance £68m against our allowance for entire new units. In RIIO-
throughout the RIIO-1 period with network reliability of 1 (2013), we undertook a major restructuring programme,
over 99.9% each year. We have provided value for which optimised our organisation to respond to the
money for consumers through the outputs we have challenges of the RIIO-1 period. The benefits can be
delivered. We have maintained both high safety seen in lower opex figures early in the RIIO-1 period. We
performance of our assets and first-class levels of safety have recently completed another restructuring
for our people and contractors, of which we are very programme to drive efficiencies in our operating model.
proud. We have undertaken a significant programme of For us, this equates to £15m in 2019/20 and £30m per
work to better understand the condition of our assets and year. from 2020/21 which will start to be realised ahead of
improve our processes and capability to prioritise our the RIIO-2 period. In addition to business improvement
asset health programme efficiently. Despite these activities, we have utilised innovation funding to change
activities, we are forecasting a spend above our how we operate and facilitate the gas network of the
allowance on asset health activities within the RIIO-1 future.
period. Reliability has been maintained, despite some of
the challenges we have faced including an increasing How we operate and maintain the system is heavily
trend of our customers using the network in different and influenced by how our customers use the system,
more flexible ways and some extreme weather conditions particularly in terms of where gas is brought on to it and
experienced. We have delivered timely customer within-day variability of flows. In 2016/17 and 2017/18
connections, flexing the network to avoid the need for flows through the St Fergus entry terminal increased
deeper reinforcement. Additionally, we have exceeded significantly, leading to a 100% increase in compressor
our targets for customer and stakeholder satisfaction, running hours. This results in more compressor venting
although we acknowledge we have more to do in this and higher fuel costs, particularly impacting our
area. greenhouse gas emissions performance. This output has
been the most challenging throughout the RIIO-1 period
In RIIO-1, we have undertaken transformation and so we were pleased to report that, through our
programmes to improve capability and drive efficiency, for proactive actions and more benign flow patterns, we
example, investing in our data analysis capabilities to managed to beat the target for the first time in 2018/19.
assist with building a modern asset management
Table 9.01 summary of our output delivery performance over the first six years of the RIIO-1 period and where
appropriate our expected performance over the eight years
Our output Performance
Safety
Comply with Health and Safety Executive (HSE)
1 Complied with throughout the period
legislation
Meet requirements for enhanced physical site
2 On track to deliver our BEIS commitments
security
Introduced in 2019. On track/subject to review with the Networks and
3 Meet requirements for enhanced data security
Information Systems (NIS) Regulations Competent Authority
Reliability and availability
Maintain our security of supply obligations in
4 Strategy in place to ensure compliance with 1 in 20 licence obligation
Scotland (network flexibility)
Meet our targets for investing in our assets to
5 In aggregate, on track to deliver eight-year target
maintain their health (NOMs targets)
Replace Feeder 9 (pipeline that runs across the
6 On target – construction underway, commissioning planned Sept 2020
Humber Estuary)
4https://www.nationalgridgas.com/about-us/business-planning-riio/how- https://www.nationalgridgas.com/sites/gas/files/documents/National Grid

were-performing Gas SO Incentive Supporting Information 2017-18 v10.pdf
20

Deliver benchmark performance for Performance has been above target each year with number of days
7
maintenance outage days called ranging from zero to six
Minimise National Grid-driven changes to
8 Performance above target each year with no changes initiated by us
maintenance planning
9 Meet constraint management target Performance above target each year with costs ranging from £0-£0.58m
Meet target for transmission support services
10 and for constrained liquefied natural gas (LNG) No costs incurred during the period
and long-run contracting
Deliver existing capacity obligations in
Throughout the period each year, a minority of capacity auctions have
11 accordance with Unified Network Code (UNC),
been impacted by system issues, including planned outages
licence and Gas Act
Deliver accurate 13:00 day ahead demand We missed the target one year out of the six. Forecasting error has
12
forecasting ranged from 7.75 million cubic metres (mcm) to 8.90 mcm
Deliver accurate demand forecasting at the two Performance has been above target each year. Forecasting error has
13
to five days ahead stage ranged from 12.06 mcm to 13.10 mcm
Meet target for residual balancing linepack Performance has been above target each year, with average daily
14
performance measure linepack change ranging from 1.61 mcm to 1.99 mcm per day
Meet target for residual balancing price We missed the target one year out of the six. The average difference to
15
performance measure SAP has ranged from 0.64% to 1.77%
Procure operating margins in an economic and We have continued to stimulate the market and drive down the cost of
16
efficient manner procuring operating margins
Environment outputs
Develop an integrated and cost-effective plan to
ensure the remainder of our compressor units
17 are compliant with the Integrated Pollutions Integrated plan submitted in May 2018.
Prevention and Control (IPPC) and Industrial
Emissions Directive (IED) legislation
Undertake works at Peterborough and
18 Huntingdon compressor stations as part of IPPC On track to deliver works at each site
legislation
Undertake works at Aylesbury compressor
19 Successfully commissioned 2018
station to ensure compliance with IED
20 Report on our business carbon footprint Published each year in our annual report
We have missed the target five years out of the six. Methane emissions
21 Meet greenhouse gas emissions targets
have ranged from 2,857 to 3,928 tonnes
We have missed the target three years out of the six. Energy usage has
Meet our targets for the amount and the cost of
22 ranged between 3,223 GWh and 4,746 GWh, whilst cost has been
the energy we use to run the network
between £70.5m and £101.2m
Customer satisfaction outputs
Undertake annual satisfaction survey with our Performance has been above target each year. Customer satisfaction
23
customers and stakeholders has ranged from 7.2 to 8.0 and stakeholder satisfaction from 7.8 to 8.1
24 Submit annual stakeholder engagement report Performance above target each year. Scores ranged from 4.3 to 6.5
Customer connections outputs

Achieve our obligated times for delivering extra
25 Compliant – no incremental capacity due for delivery within this period
capacity on the system
Meet timescales for connection applications as
specified in UNC Modification 373 and comply Timescales have been met five years out of the six, with the one
26
with reasonable requests for a customer instance where this was not achieved being agreed with the customer
connection to the NTS
21

Customer performance 1 as the regulatory benchmark tracks towards the level of
We survey our customers on a yearly basis and also our interest costs.
stakeholders with whom we have engaged recently. The Table 9.04 totex performance of the TO business
measure of the surveys is a score out of ten, which is Forecast
Forecast
used to determine our incentive performance. Allowance vs
Activity spend
Table 9.02 customer satisfaction in RIIO-1 to date £m allowance
£m
£m
2013 2014 2015 2016 2017 2018/
/14 /15 /16 /17 /18 19 TO load related
45 46 1
capex
Score 7.15 7.64 7.55 8.03 7.6 7.93
We have undertaken a range of actions to understand TO non-load
1,338 1,189 (149)
and fulfil our customers’ needs better and you can read related capex
more about these in chapter 19. TO non-
146 72 (74)
operational capex
Financial performance TO opex 890 758 (132)
Return on regulatory equity (RoRE) Total 2,419 2,065 (354)
RoRE is an economic performance measure comparing
delivered and forecast performance to the equity TO load related capex
investors’ investment in the RAV. This can be used to Costs are broadly in line with allowances, but this is a net
compare networks’ performance against peers and position of higher cost on compressor assets at Felindre,
allowed equity return. It can be applied to our reduced Scotland 1-in-20 compliance costs due to higher
transmission owner (TO) business but not consistently to than predicted St Fergus flows and network flexibility
our system operator (SO) business due to the smaller work being delivered as opex rather than capex.
RAV value.
TO non-load related capex
From a TO perspective, the RoRE across RIIO-1 is Our forecast spend is £180m higher than our allowances
forecast to be 7.2%. The constituent parts are shown mainly due to:
below.  The requirement to spend £99m more than allowances
Table 9.03 RIIO-1 RoRE forecast breakdown on our asset health works to maintain network risk and
2018/19 eight- reliability.
Activity  A £38m shortfall of funding for Feeder 9 works which
year view
Allowed equity return 6.8% were triggered by risks of Humber riverbed erosion.
Totex overspend -1.0%  £40m of overspend on environmentally-driven
Incentive performance 0.3% compressor works representing a delay in work from the
RoRE – operational performance 6.1% last price control partially offset by efficiencies in RIIO-1
Financing performance 1.1% delivery.
RoRE – including financing
7.2%
performance
We have introduced several efficiency improvements and
innovations throughout the RIIO-1 period, such as:
There has been considerable interest from commentators
 Adopting a campaign approach to deliver asset health
on the returns that networks are forecasting in RIIO-1,
works more efficiently. Work is batched by asset type or
with many considering them to be too high. In contrast to
major site, e.g. St Fergus entry terminal which enables
other networks, our return has been negatively impacted
efficient utilisation of outages and project resources. It
by asset health risks which have materialised during the
also creates the opportunity to focus innovations and
period and required investment in asset health capex, IT
produce standard designs and work scopes.
infrastructure and data capability. This has meant our
 Using building information modelling (BIM) to run high
totex performance has been a drag on the allowed equity
quality virtual rehearsals which engage stakeholders,
return which applied in the period to the extent that our
assess process safety, verify constructability and
operational RoRE is below the allowed return. We explain
reduce cost, time and programme uncertainty. Savings
these variances to initial totex allowances in more detail
through widespread deployment are significant; for
in the following section. The 0.3% incentive performance
example, at Brisley exit point works were delivered
relates to our positive performance in stakeholder
within three months under a single outage, saving
satisfaction and managing incremental capacity delivery.
around £2m compared to a potential stopple and
bypass.
Our financing performance has bolstered our overall
 Installing high efficiency gear boxes on non-critical
RoRE figure, where we have worked hard to secure debt
remote valve actuator replacements to generate savings
funding at rates below the benchmark set by Ofgem in the
of £50k per site. In addition, by removing the
allowances. Chapter 22, “We can finance our plan,” sets
connectivity of the remote valve to our core systems we
out our sustainable approach to financing which explains
enhance our cyber security. They also provide other
how we do this in more detail. It should however be noted
benefits such as reducing Dangerous Substances and
that this performance relates mainly to the early years of
Explosive Atmospheres Regulations (DSEAR) risk,
RIIO-1 and diminishes to almost zero by the end of RIIO-
reducing maintenance costs and improving reliability.
22

However, we have the challenges of an ageing asset office systems, which mainly related to our core asset
base have been significant and have required an management system, Ellipse and our geographical
increased number of extensive interventions than we had information system. This level of funding was largely
foreseen. For example, at the St Fergus entry terminal, sufficient to provide a like-for-like replacement of
for the first time since the site was built in 1975, we have common elements of the IT infrastructure. As we have
taken individual plants within the site out of service for progressed through the RIIO-1 price control, it became
inspection. This has identified significantly higher levels of evident that to be able to optimise investment, manage
corrosion than modelled, requiring extensive remediation. an ageing asset base and drive efficiencies in our
It should be noted that the allowance provided in the processes, we needed to enhance these systems and
period for our asset health works represented a circa 17% our associated process. Key requirements for the
reduction to that proposed in our RIIO-1 business plan. enhancements have been:
Our current forecast is £26m less than our original plan. o easy access to better data through enhanced
structure
Our forecast spend on environmentally driven o improved analytical reporting to model condition
compressor investments has been different to allowances data and degradation trends
for three main reasons: o improved investment planning, delivery and
 £52m of works at three compressor stations were not compliance.
completed within the previous price control, in part due We currently forecast a £25m overspend for this
to the main works contractor entering administration. No additional scope.
allowance had been requested for these works in RIIO-
1, as at the time of the submission these were expected TO opex
to be complete. Our TO opex forecast is £120m above allowances,
 We developed an innovative oxidation catalyst solution predominantly due to a shortfall in funding for our
at Aylesbury, that avoided the need for a full business support activities.
compressor replacement, saving over £70m for
consumers through returning allowances. By applying As we entered the RIIO-1 period, we were facing growing
this approach to works at Peterborough and Huntingdon maintenance requirements from an ageing asset base as
we were able to deliver four small new compressor well as a shortage of adequately trained workers. The
replacements for the allowance of two larger units. The level of opex allowances received for the RIIO-1 period
overall net position of this is a forecast saving of £8m. did not fund these upward pressures, nor our existing
 We were provided with an uncertainty mechanism to business support spend and consequently gave us a dual
fund any additional compressor investments. As part of challenge of delivering the increasing workload whilst
this, we were allowed £12m to develop an integrated reducing our costs. Against this backdrop, we reset our
plan, which includes, amongst other things, network operating model at the start of the RIIO-1 period and
analysis, engineering studies, tendering and design restructured our business to realign accountabilities. This
works. We have been able to deliver this at a saving of allowed us to mitigate some of the upward pressures in
£6m. workload and reduce our workforce by over 100 roles.
TO non-operational capex However, our response to the asset health challenge in

This cost area covers capex not directly associated with RIIO-1 our investment required investment in asset
network assets, predominantly IT related which is where condition data management systems, as well as the
the overspend has arisen. The main reasons for the resources and capability to analyse and assess the data
increase in costs within this area are: we collected. IT costs increased because of the IT
 Project One – this is a project to replace our existing systems we invested in to support our asset condition
enterprise resource planning system. In addition to data and as we developed our capability in identifying and
updating the existing system, it will improve data managing the increasing cyber threat to our operations.
management and reporting. The costs for the project We also needed to increase the scope of our financial
are shared across the different business entities within control activities to respond to increasing compliance
National Grid. The TO allocation is £11m, which was not requirements and focus. The benchmarks that set our
included in the RIIO-1 business plan. allowances did not take these increased activities into
 Asset data enhancement – we have undertaken a account and we were not able to contain these costs
programme of collecting more granular asset data at all within our allowances.
of our sites. The data is required to enable the
systematic collection and storage of additional condition Overall, we have consciously overspent opex allowances
and defect information at an appropriate level to target in RIIO-1 because this was the efficient level of costs
investment and support our Network Output Measures required to support our business.
(NOMs) methodology. The overall cost of this
programme is forecast at £19m, these costs were not
foreseen in the RIIO-1 business plan.
 Replacement and enhancement of core asset
management systems – as part of the RIIO-1
settlement, we were allowed c£22m to replace our front
23

System operator (SO) From a broader perspective RIIO-1 SO improvements
In considering the performance of the SO, there are two include:
main elements; totex and incentive performance.  Delivery of the NIC Project Customer Low Cost
Incentives performance is discussed in annex A3.03. Connections (CLoCC) which resulted in a pre-approved
and pre-appraised connection designs for a range of
Table 9.05 totex performance of the SO business. flows at existing sites, a new application portal and
Forecast simplified templates and processes. This was to
Forecast
Allowances vs address some of the feedback we were receiving from
Activity spend
£m
£m allowances stakeholders where they told us that our costs and
£m timescales could be a blocker to connecting to the NTS.
SO capex 275 332 57  PARCA reform – The Planning and Advanced
SO opex 501 525 24 Reservation of Capacity Agreement (PARCA) process
Total 777 857 81 was developed during the early years of RIIO-1. This
was an important commercial regime development for
SO capex industry looking to connect to the network. PARCA
This activity is mainly concerned with the investment in helped mitigate the risk created for developers of the
information systems to operate the network and the connection and capacity processes being separate. The
commercial arrangements. The costs are split between process now allows users to be confident in the
our own internal systems and those operated and availability of capacity once their connection is
developed by Xoserve on our behalf. The key projects concluded as it allows a reservation of capacity prior to
undertaken and forecast within the current price control the financial commitment to capacity on the network.
are as follows:  Future of Gas programme5 – An 18-month stakeholder-
 IGMS refresh – £69m led programme of work to determine the medium to long
 data centres – £47m term role of gas under a range of credible scenarios in
 cyber security – £28m the UK’s transition to a low carbon economy. This
 telemetry – £23m programme concluded that gas has a critical role in the
 Gemini development for regulatory driven changes – transition to a low carbon economy in all scenarios and
£21m set out a number of National Grid commitments and
policy recommendations. One such commitment was
 Gemini re-platforming - £16m.
the development of the Gas Market Plan.
Typically, allowances are not provided at individual
project level, although there have been reviews of both
Xoserve costs (Gemini) and enhanced security (data
centres and cyber).
The main area of variance to allowance is Xoserve costs

where we have altered our strategy in terms of system
replacement and where we have experienced less need
to modify the Gemini system because of changes in EU
regulations. We are in the process of re-platforming the
system to extend the life of the Gemini platform into RIIO-
2 and ensure system security, availability and resilience.
The strategy of re-platforming Gemini was agreed in
2017/18 after customer engagement and completion is
expected in 2020/21. The other area where costs are
below the original forecast is telemetry, as we have
undertaken less telemetry separation projects at the gas
distribution network (GDN) offtakes, prioritising the sites
and using spares.
SO opex
SO opex has been subject to some of the same
pressures as TO opex in terms of financial control and IT
activities. However, business support allowances were
determined more specifically for the SO rather than using
a broad, incomplete benchmark which meant costs are
more in line with allowances in this area. In addition, we
have delivered savings in our Xoserve costs through
lower market change activity and efficiencies.
5 https://futureofgas.uk/
24
Giving stakeholders a stronger voice – how we have built a stakeholder-led plan
10. Giving stakeholders a stronger voice –

how we have built a stakeholder-led plan
We have listened to our stakeholders plan and we are committed to making sure they do. This
Over the last two years, we have carried out our most chapter demonstrates how we have taken those views on
extensive listening exercise ever to create this board and our evidence on meeting Ofgem’s business
stakeholder-led business plan. By looking more plan guidance (BPG) 2.6 for robust and high-quality
externally, listening, and focusing on what all our engagement. We have further information on all the
stakeholders want from us, and by being more open, details of our stakeholder engagement in annex A10.03
collaborative and flexible, we are creating plans which our RIIO-2 engagement report.
reflect our stakeholders’ needs. For the first time, this has
included talking directly to consumers away from our Creating a stakeholder-led business plan
major project consultations. We have gathered insight We manage the network on behalf of stakeholders and
from more of our stakeholders, from more segments, on we recognise more than ever the importance of bringing
more topics and through more channels than ever before. their voices into our decision-making processes to give
We’ve done this by following a best-practice enhanced our decisions legitimacy. Our stakeholders shown below
engagement process and using independent challenge in figure 10.02, include customers who pay us for our
and review to help us continually improve. We’ve products and services; consumers including domestic,
engaged more than 100 times, with 800+ individuals. We business and industrial users of gas; government and
have engaged domestic and major energy consumers non-government organisations; regulators; consumer
more than ever before, surveying more than 12,000 groups; interest groups; consultancies; and academics.
household bill payers, 750 non-domestic consumers and We continue to expand our engagement as new
68 major energy users. In addition, we have used segments are identified.
consumer trend data and other third-party publications as Figure 10.02 our stakeholder segments
additional sources of insight. We have used this insight to
build our plans with those they affect and, by broadening
the scope and reach of our engagement, so our plans
reflect, and will deliver, what our stakeholders need from
us.
We championed enhanced engagement and we are

proud to be the first network company to set up an
independent stakeholder user group. We have provided
more information about our emerging ideas for our
business plan than ever before, including a consultation
in February 2019 when we played back what we had
heard from stakeholders and publishing our draft plan in In a time of such unprecedented change, we must all
July 2019. We thank our stakeholders for shaping our work together to make sure our future business plans
thinking, challenging our ideas and helping to develop our meet the needs of all stakeholders and have flexibility to
business plan. In each of our stakeholder priority adapt to whichever future plays out. This business plan is
chapters, we share what we have heard, and this chapter intended to deliver our services efficiently and effectively
shows how we have built our business plan with while being flexible enough to adapt to the constantly
stakeholders as per figure 10.01. Stakeholders expect changing environment.
their views to make a genuine difference to our business
Figure 10.01 our approach to building a stakeholder-led plan
25

Our engagement approach approach, we looked at where we need (and want) to be
We follow the AA1000 stakeholder engagement and what we needed to change to deliver what our
standard stakeholders need from us. We identified key learning
Our engagement has been based on an outcomes- from our RIIO-1 stakeholder engagement approach,
focused approach, following the AA1000 Stakeholder working closely with Ofgem, Citizens Advice and others
Engagement Standard (AA1000SES), an internationally- with price control experience across sectors, such as
recognised framework for stakeholder engagement PwC, to support in shaping the process that all networks
excellence. This framework is based on the principles of: will be following.
 inclusivity: being accountable to our stakeholders
and including them in our decision-making processes We have worked closely with a range of other
organisations to learn from what they’ve done, both good
 materiality: engaging on topics and issues that
and bad. These organisations include other energy
influence our decisions, actions and performance
networks, other industries (notably water and aviation)
 responsiveness: acting on what stakeholders have and consumer experts. We have also taken advice from
told us. expert consultancies who have supported other
The AA1000 framework fits well with our strategy of: organisations with enhanced engagement programmes.
 engaging our stakeholders on the topics that are most We have used this knowledge to shape our engagement
important and relevant to both them and us process.
 engaging only on topics where stakeholders can
genuinely make a difference to our plans Our engagement approach is led from the top
Our stakeholder-focused approach is supported by
 being clear upfront on the desired outcomes of each
leadership at all levels within our organisation, up to and
piece of engagement
including our CEO. Many senior leaders (including board
 engaging with the right stakeholders through the right
members) have been personally involved in our
channels through a coordinated and tailored
engagement activities, including meeting customers and
engagement programme
consumers, attending workshops and hosting webinars.
 using stakeholder insight to develop our plans, then
Our leadership team have also attended each
sharing these plans with stakeholders to check we’ve
independent stakeholder user group (SUG) meeting to
understood their requirements.
understand first-hand what they expect us to deliver and
Since adopting AA1000 in 2016, our engagement they have been joined at some by our non-executive
activities have been independently assessed against the directors. Our internal governance processes have been
standard on an annual basis. In March 2019, National changed to ensure that stakeholder evidence plays a key
Grid was ranked 4th highest out of the 14 energy and part in the decision-making processes for the
utilities companies assessed to this date by research and development of our RIIO-2 plans.
consulting firm AccountAbility against the A1000SES.
National Grid is among the top 15 per cent of companies Converting insight into plans: our decision-making
reviewed by AccountAbility globally against the framework
AA1000SES since 2012. For more information on our One principle of the AA1000SES is responsiveness,
approach and use of AA1000 see annex A10.03. which means we need to act on what stakeholders have
Figure 10.03 our engagement approach based on told us, and for our RIIO-2 submissions, this means
AA1000SES creating plans which genuinely reflect what we’ve heard.
Details of how we’ve developed our plans from the insight
we’ve obtained can be found in each of our stakeholder
priority chapters. In some cases, this was a
straightforward process because we were working with a
limited number of stakeholders and/or there was
consensus about what we need to do.
However, for some parts of our plan, stakeholders have

provided different views, and so we have developed a
decision-making framework to help us draw the right
conclusions from our engagement. We created this
framework after taking advice from a range of
organisations who have worked on similar projects. We
found there is no exact science to triangulating different
insights, so we developed a principles-based approach. It
is simple, transparent and flexible to adapt to different
Learning from others to develop our engagement topics and sources of insight as shown in figure 10.04. It
We recognise that simply following the AA1000 involves looking across all the insight we’ve received,
framework is not a guarantee of high-quality engagement, from stakeholders, consumers, research studies or
so we’ve worked with others to understand what best secondary sources, and assessing it against a set of
practice looks like. In building our enhanced engagement principles to determine how we shape our plans. This is
26

done on a topic-by-topic basis. Throughout the chapters  relevance: more weight is given to insight relating
of our plan, we have explained how we have done this directly to the topic in question, than to more general
and (where applicable) the trade-offs we have made, to insights.
provide transparency around the process and a clear link
between what stakeholders have said and the content of How we have built our plan
our plan. We recognise the importance of quality engagement with
Figure 10.04 triangulation decision-making our stakeholders if we are to deliver what they need from
framework us. Much of what we do can be shaped by what our
stakeholders need and expect from us, so we’ve not just
been sharing our plans and asking for feedback, we have
involved our stakeholders from a much earlier stage than
ever before. Starting with establishing their priorities, and
then working through each of these in more detail to build
a plan that reflects their needs. We have tailored our
engagement to make sure we are talking to the right
people about the right topics; and we’ve used a broader
range of channels to ensure we’re engaging with
individuals in the most effective way.
The decision-making principles we have used are:
 Impact: where stakeholders are impacted more At the start of our RIIO-2 engagement, we set out a three-
heavily by a particular topic, their views are given phase enhanced engagement programme as shown in
more weight. figure 10.05. We then applied the strategy, approach and
 Recency: recent evidence is given more weight. principles detailed above, including our learning from
 Robustness: this covers several areas, but mainly others, to create an engagement plan for each
insight from a more representative or more informed stakeholder priority topic. We developed this approach
group of stakeholders would carry greater weight. because it fitted well with best practice we had seen
 Consistency: although outlying views are always elsewhere. Our approach starts broad to make sure we
considered, less weight is given to a small number of are not missing anything. We then focus on specific areas
conflicting views if the majority of other views are in more detail, so that by the end of the process, we have
aligned (assessed in conjunction with impact). We will a plan that reflects what our stakeholders want from us.
assess if further research is required to provide further This approach allows us to show the clear link between
clarity. what stakeholders have told us and what is in our plans.
Figure 10.05 RIIO-2 engagement phases
Phase 1: establish priorities of consumers and 2018-2019 to ensure we reflect evolving stakeholder and
stakeholders consumer needs.
The first phase of our engagement focused on We established eight stakeholder and three consumer
understanding what is important to our stakeholders. We priorities around which our plan has been based as
used insight from business-as-usual (BAU) activities to shown in figure 10.06. We validated these priorities with
target engagement for RIIO-2 from several channels. our stakeholders throughout phases 2 and 3 of our
These included ongoing conversations during our day-to- engagement. We produced our comprehensive ‘listen’
day interactions, specific meetings, workshops, webinars report6 to detail everything we heard in this phase.
and online consultations.
We tested these priorities with stakeholders at a webinar
in January 2018 and continuously over the course of
6 https://www.nationalgridgas.com/sites/gas/files/documents/RIIO T2 Listen Report.pdf
27

Figure 10.06 consumer and stakeholder priorities what stakeholder prioritise. Sometimes, we can’t provide
options (where we are bound by legislation, for example),
and in these cases we’ve explained our approach and
why.
A voice for consumers

As we began to build the detail of our plan, we started to
explore certain topics with consumers. For domestic
consumers in particular, this brought its own challenges,
given that the vast majority of the public is largely unaware
of how the energy industry works and of our role within it.
We therefore worked with third parties and with consumers
themselves to create simple, clear and unbiased context
material that we could use at the beginning of any
research or engagement activities. Consumers told us this
really helped them to provide a more informed opinion on
our plans.
Phase 2: build plans by priority with consumers
We also recognised the need to ensure we included the
and stakeholders
harder to reach members of society in our engagement,
In the second phase of our engagement programme, we
particularly those who may be vulnerable and/or fuel
used stakeholder insight to identify specific focus areas
poor. Many of our stakeholders tell us that there are
within each high-level priority. For each of the priority
limited expectations for transmission companies to interact
topics identified in phase 1, we used the AA1000
directly with these groups, and that suppliers and
framework to plan a programme of engagement.
distribution network companies are better placed to
Specifically, this involved:
address their needs because they interact with them on a
 Identifying the sub-topics for engagement. By applying regular basis. However, we worked hard to ensure we
the principle of materiality, we engaged on topics that properly represent the needs of these specific consumers
had been identified as an area of interest by in our plans, so asked our research partners to consider
stakeholders and/or that were an area where in-home interviews to help reach them. Consumers can
stakeholders could genuinely influence our plans. also be hard to reach because of mobility or connectivity
 Following the principle of inclusivity, identifying the issues, for example, so again we’ve made sure we include
interested and impacted stakeholders, mapping them a mixture of face-to-face and online methodologies to
to understand their specific requirements in relation to ensure we’re being inclusive. All of our quantitative
each topic, then using this information to select the consumer research included a representative sample of
appropriate channel(s) for engagement. low-income households.
We held events with stakeholders we have never spoken Willingness to pay research
to before; for example, with the British Ceramic In RIIO-ED1 and recent water industry willingness to pay
Confederation. We also held panel debates on the future exercises, networks were criticised for inconsistencies in
of the gas transmission system, and strategic ‘Future their research methodologies, and in how they had
Needs of the Gas Transmission System’ workshops as chosen to interpret the results. We commissioned a joint
shown in figure 10.08. Following stakeholder feedback, study with the other transmission owners to ensure
we reduced the number of polls used during events, ran consistency. Beginning in 2018, we and National Grid
more webinars and worked with third party specialists to Electricity Transmission led a piece of work with the other
make sure we focused on the issues that matter to transmission networks, Scottish Power and Scottish and
stakeholders. We have all the details of our stakeholder Southern to conduct a willingness to pay study. This is a
engagement in annex A10.03 our RIIO-2 engagement nationally-representative sample of 1,000 domestic
report. consumers, plus 600 business consumers. The report
from this research can be found in annex A20.01.
Giving stakeholders options
One important change in the way we have engaged is the The study covered risk of supply interruptions, improving
development and discussion of options. In the past, the environment around transmission sites, supporting
stakeholders may have felt we only shared plans when local communities, investing in innovation projects to
we had already decided the outcome, and not genuinely create future benefits for consumers and supporting
consulting with those affected. We have changed this to consumers in fuel poverty. We sought advice from
ensure our plans are stakeholder-led and not just focused Citizens Advice, Ofgem and the SUG as we developed
on what we think we should do. We have developed the research approach. There was positive willingness to
themes such as ‘reliability’ and where there is a choice, pay for all topics amongst domestic and business
we’ve also provided details of costed options (including consumers.
the impact on consumer bills) to allow stakeholders to Where applicable, the results from the willingness to pay
make a more informed decision. This is much more detail study are informing our business plan, but we recognise
than we’ve shared before and helped build on plans on
28

there are limitations to this type of research for Figure 10.08 summary of engagement
transmission networks, and therefore the willingness to
pay values alone have not been used to determine our
exact levels of spend. It is one useful data set that we
can triangulate with other consumer data (see below) to
help inform our plans. You can read more about the study
in chapter 20 and annex A20.01.
Other consumer research and engagement

Consumer experts on the SUG challenged us to think
about different ways of engaging consumers, particularly
when it comes to getting into detail on topics that affect
them, but with which they are not very familiar. We worked
with third-party’s who specialise in this type of work to
develop a plan for research and engagement as shown in
figure 10.07. This included listening to consumers face-to-
face, with our senior leadership team attending two
sessions to understand in more detail what consumers
want from us. Hearing this first-hand is very powerful. We
also carried out a nationally-representative study of
domestic consumers, which used an interactive online
slider tool as a way of explaining our plans and asking
what choices consumers think we should make.
Considering the needs of future consumers

We used cultural research and examined consumer
trends to understand the needs of future consumers as
well as current. We undertook deliberative consumer
research to understand views on whether current or
future bill payers should pay for investment which
supports our work on changing regulatory asset lives and
depreciation. You can find all the consumer
engagement in our engagement report annex A10.03. Independent assurance of engagement and
outcomes
We have had independent views on our engagement so
Figure 10.07 consumer research programme
there is confidence that we’ve followed a robust, best
Interactive slider tool
Acceptability testing
practice process of enhanced stakeholder engagement,

Consumer listening
Consumer and MP
Major energy user
Willingness to pay
Cultural analysis
and that our plans genuinely reflect what our stakeholders

need us to deliver in the RIIO-2 period. This multi-layered
Deliberative
Priority
assurance approach helps to give confidence that we
survey
survey
have delivered a truly stakeholder-led business plan.
The independent stakeholder user group has

I want the gas system to challenged us
be safe        
The independent SUG has been meeting regularly since
I want to take gas on and
off the transmission system         July 2018 to challenge the quality of our engagement.
where and when I want The group, chaired by Trisha McAuley OBE, is made up
I want you to protect the of senior representatives from consumer, environmental
transmission system from         and public interest groups, as well as large energy users,
cyber and external threats
large-scale and small-scale customers, and distribution
I want you to care for the
environment and         networks.
communities They have been challenging and reviewing how we
I want you to facilitate the engage in developing our business plan. For example,
whole energy system of         are we properly representing the priorities of all our
the future stakeholders? Are we making sure that stakeholders
I want all the information to
        have the right opportunities for their views to be heard
run my business
I want to connect to the
and are we being innovative? In doing this, the group is
transmission system         assessing us against its own engagement principles.
I want you to be efficient
and affordable         The group has been scrutinising our business plan,
assessing the outputs we’re committing to deliver and our
costs and incentives and how we plan to deal with
uncertainty in RIIO-2. They have checked that these
29

reflect what stakeholders have told us. They will report to We have included in section 3 of each stakeholder
Ofgem on areas of our business plan they agree with, as priority chapter where stakeholders and specifically
well as any areas they are concerned about. For the full the SUG and RIIO-2 Challenge Group feedback has
set-up of the independent SUG, the governance been incorporated into specific areas of our business
arrangements it has in place and their engagement plan.
principles, please see annex A10.01 to meet Ofgem’s
BPG 2.6. Third party assurance
Ensuring we accurately reflect stakeholders’ needs and
The SUG has raised over 100 challenges and we wants in our RIIO-2 business plan and beyond is
identified five key themes that cut across the topics fundamental to delivering a plan that is stakeholder-led.
discussed: stakeholder engagement strategy, consumer For absolute transparency and to give confidence that we
outcomes, topic context, collaboration and benchmarking, have accurately reflected stakeholders’ views, we’ve
and stakeholder segmentation. Following the group’s undertaken robust assurance checks. Partway through
feedback so far: our engagement we took a step back to review our
 We extended our phase two engagement phase to findings and plan the next stage. In October 2018, we
make sure we have enough information to explain fully asked global strategic consultancy Truth Consulting to
the options we’re presenting. carry out a thorough audit of our engagement to date,
 We expanded our consumer engagement programme to looking at stakeholder coverage, whether the
meet their expectations: they have challenged us to engagement is cognitively valid, and have we made
think about different ways of engaging consumers, accurate conclusions based on what we heard.
particularly when it comes to getting into detail on topics
that impact them, but that they may not be very familiar Independent triangulation of views
with. Consumer experts on the group have given us To ensure that we have interpreted stakeholder insight
specific challenges in this area, we worked with third correctly into our business plan we asked Frontier
parties who specialise in this type of work to develop a Economics to provide additional external validation. We
plan for research and engagement. This included more first did this during phase 2; for example, for asset health
qualitative research including focus groups, consumer we provided all the engagement collateral and insight to
listening, cultural analysis and deliberative research to Frontier, so they could draw out outcomes and
add richness to our conclusions. conclusions on the various options to help us understand
 We used ‘engagement logs’ to provide information to which one to carry forward. They evaluated whether our
the group. We created these documents to provide a stakeholder representation was robust, analysed
systematic record of our engagement as we went along. responses to various options based on different
They gave the group and the third-party specialists the stakeholder groups and assessed the validity of the
details of our engagement in one place and allowed engagement. More recently for our October 2019 draft
them to carry out a thorough assessment of our plan, we asked them to triangulate all the additional
approach. We have submitted these engagement logs consumer research we had undertaken and other third-
alongside our plan to offer detail for each priority on party sources to assess our business plan conclusions.
stakeholder mapping, segmentation and the chosen We have included triangulation of our additional
channels of engagement. consumer research and other third-party sources in
 We also commissioned specialist third party each stakeholder priority chapter in section 3 ‘what
organisations Truth and Frontier Economic to assess have stakeholders told us?’ For more information,
our approach and tell us where we needed to do things please see Frontier’s report annex A10.04.
differently to reach the targets the group has set for our
engagement process, which you can read more about Phase 3: iterate a holistic business plan with
next. consumers and stakeholders
We have made sure we are properly reflecting what
RIIO-2 Challenge Group stakeholders have told us in our plans by playing back the
In addition to the SUG, Ofgem has appointed an outputs from individual engagement activities, and also by
independent Challenge Group, which is further playing back our latest ideas to address our stakeholder
scrutinising networks’ plans and approaches. The preferences at appropriate points throughout the process.
Challenge Group will provide a public report on all The AA1000 standard includes steps to make sure we
network companies’ business plans from the perspective have accurately captured what we have heard, check this
of energy consumers. We have been engaging with this with stakeholders, and then act on it in the right way. In
group, particularly regarding their expectations of what our February 2019 stakeholder playback consultation, we
we should include in our RIIO-2 business plans and have pulled together everything we’d heard on all eight of our
used their challenges on our July and October draft plans stakeholder priorities into one document, setting out our
for this final plan. One example is the further detail on direction of travel based on stakeholder views. Then we
RIIO-1 performance which was been requested from the consulted on this, to make sure we were on the right
Challenge Group and is included in our track record lines. As far as we are aware, this is the first time an
chapter 9. energy network company has consulted on its direction of
travel for the whole of its business plan based on
stakeholder feedback. We also published our business
30

plan narrative in July 2019, hosted webinars and bilateral We have included trade-offs in each stakeholder
meetings to gain feedback on our proposals. We have priority chapter in section 3 ‘what have stakeholders
published this final business plan to continue this told us?’
transparency.
Acceptability testing
Examples where stakeholder feedback has directly Once we had published our draft plan in July 2019, we
informed our plan and trade-offs we have made used the information within it to carry out acceptability
Asset health – our plans are based on stakeholder testing amongst consumers. 1,270 household consumers
feedback and triangulation to ‘maintain current risk level’ and a further 163 business consumers participated in the
which was not our original proposal. This proposal acceptability testing across the three stages of research.
represented stakeholder’s views that there should be no To get as clear a picture as possible, we used more than
reduction in the levels of service we provide across all one methodology. Our approach included:
key risk categories. This topic has been independently  Stage 1 qualitative research: to probe consumers’
triangulated by Frontier Economics. They concluded: understanding of National Grid and their overall views
 Based on the stakeholders polled on the asset health on the July 2019 draft plan. Findings also informed the
costed options, there is very little support for (A) design of the quantitative research material, to help
keeping cost the same as in RIIO-1. Stakeholders do ensure it gave the right level of information to
not want to see an increase in risk and are willing to pay consumers to provide informed views on the
more to achieve this. acceptability of our proposals.
 Overall, there is marginally more support for (C)  Stage 2 quantitative research: design, implementation
increasing reliability by 10 per cent compared to (B) and analysis of nationally representative surveys of
keeping risk the same as RIIO-1. However, the household and business consumers. Survey
frequency of response is similar across these two respondents were directly asked whether they found the
options, and the one with more responses recorded overall plan and bill impact acceptable, and whether
varies according to which stakeholder group we focus they supported each of the component investments and
on. Stakeholders who pay the bills slightly preferred associated bill impacts.
option B.  Stage 3 qualitative research: to test and validate the
We traded off the higher supported option C and our survey findings, with emphasis on understanding the
original choice, for option B which was supported more by factors and motivations of consumers when considering
stakeholders who paid the bills. At this time, option B the acceptability of our proposals, including aspects
was 40 per cent cheaper, than option C. such as the value for money of overall energy bills.
Bacton – this was an example of a specific regional issue The main findings from the research show that there is a
which we tailored our engagement to specific high level of support for our proposals, 88 per cent of
stakeholders in the Bacton area including North Norfolk domestic and 82 per cent of non-domestic consumers find
Council. We developed five options based on what we the average impact of our RIIO-2 plan acceptable. More
had heard stakeholders needed and presented them back details on can be found in chapter 20 and annex A20.02.
to gain feedback. Stakeholders chose to redevelop the
terminal, sized to our understanding of future Our enduring stakeholder engagement strategy
requirements but allowing for potential future changes. In the fast-changing landscape, we must ensure we
We tested the output of our targeted engagement during continue to focus on the needs of our customers and
a webinar and 67 per cent of stakeholders supported our stakeholders today and in the future. We must ensure
proposal. we continue to listen and act on their views to deliver
benefit to them on a day-to-day basis. It is going to be
Pay now vs pay later – we carried out deliberative even more critical for us to put our stakeholder views at
research on the challenging topic of whether current or the centre of our business plans going forward. We
future consumers should pay in relation to changes to cannot achieve our ambition without working with
asset lives and depreciation. We traded off the domestic our stakeholders.
consumer view that fairness should be the main reasons
not to pass on costs to future consumers. Major energy We build on the best practice methods learned in
users expressed concerns about any reduction in the RIIO-1 and others
depreciation period which may mean their costs go up in Building on learning and best practice from RIIO-1, our
the near term. stakeholder ambition during RIIO-2 is therefore:
 We want to learn from our stakeholders, we will involve
Whole system – in July 2019 stakeholders told us we them through every aspect of our business, from
hadn’t been clear enough about our role in the transition shaping our strategic business priorities to the day-to-
to a whole energy system. We undertook additional day running of the business, giving stakeholders the
engagement to understand stakeholder views on areas opportunity to be considered in decision-making
we should lead on and areas we should support and processes.
collaborate on. Now we have engaged with stakeholders  We will partner with stakeholders during RIIO-2 to solve
and clarified what we will lead on and agreed this with problems and reach solutions that cannot be reached by
them. These have been incorporated into our final any single organisation such as the transition to net
business plan. zero.
31

 We will work together to build advocacy on topics thinking on how we would create this enduring
where stakeholders have told us we need to use our stakeholder-led business planning process in early 2017,
position in the energy industry to advise and influence and we expect to adopt our improved process for the first
on their behalf, in the wider interests of consumers. time during our 2020/21 planning cycle (during the RIIO-1
 We will embed this approach across our organisation period), producing our first stakeholder-led business plan
and make ongoing improvements to the way we update under this process in early 2021.
engage.
We’ve adopted as simple an approach as possible to
Our stakeholders have told us that the opportunity to changing business-wide processes, focusing on two main
input into and help shape our annual business plan areas of change.
updates is something they would like (and expect) on an 1. We have reviewed our existing business planning
ongoing basis. They expect this to be a genuine two-way process to see where and how we can introduce
engagement process. Ofgem has also set out its stakeholder insight, so that the end product is a plan
expectations for networks’ enduring approach to informed by stakeholders’ needs. In doing this, we will
stakeholder engagement in their BPG 2.8. Further details make sure we are open with our stakeholders,
can be found in our RIIO-2 engagement strategy in annex explaining why we are not able to consult on some
A10.02. areas of our plans, and where we do consult, providing
genuine balanced options to choose between.
Our business plan is our most stakeholder, customer and 2. We are introducing the more complex behavioural and
consumer focused to date, so we want to build on this in cultural changes to our business that are required to
the RIIO-2 period. We are committing to continuing an support this process change, focusing on why a
enhanced stakeholder engagement programme stakeholder-led plan is important and therefore why
indefinitely, outside of the price control preparation our employees need to do things differently.
process. We will make sure we engage with our
stakeholders continually on our plans and not only when Our proposed ongoing business planning process for the
there is a regulatory need to do so. We started our RIIO-2 period, and how stakeholder insight feeds into it, is
shown below:
Figure 10.09 our annual stakeholder-led business plan update process
This shows that:  Our draft plan will then be updated and approved
 The previous year’s updated business plan will be our through our internal governance process.
starting point for the next year’s update.  We will also use the stakeholder insight to inform and, if
 We will collaborate with our stakeholders – the outputs necessary, revise our strategic business priorities.
from our main stakeholder engagement activities,  Although we’re setting out a timeline, we’re always
planned for the first quarter of each year, will be ‘open for business’ if stakeholders want to talk to us –
combined with other inputs to create a draft updated we’ll be in ongoing dialogue with our stakeholders
business plan. across a range of topics.
 We will be transparent and share this draft update with
stakeholders every autumn to make sure we’ve
correctly reflected their input.
32

Based on what we’ve heard from our stakeholders, the  hard-to-reach groups (both consumers and other
SUG and Ofgem, we will adopt the following approach for stakeholders)
our ongoing engagement programme:  vulnerable and/or fuel poor consumers
We will be strategic, proportionate and inclusive  different types of business consumers
We will deliver our stakeholder engagement strategy, as  current and future consumers.
set out in annex A10.02, and we will review and update
this strategy on an annual basis. We will use stakeholder We also include our employees as one of our stakeholder
insight to shape our business at a strategic level, and in segments and will engage them on relevant topics, as
our tactical, day-to-day activities. well as continuing to communicate with them regularly
Our enduring engagement approach will continue to through our range of internal channels.
follow the AA1000 principles of inclusivity, materiality and
responsiveness. We will engage stakeholders on the We will be responsive to stakeholders’ up-to-date
parts of our plan that have a material impact on them, and needs and ensure that these are incorporated across
for which there are genuine options. We will continue to our business
ensure that we are inclusive by having a representative We will carry out an annual review of the stakeholder and
sample of our stakeholders, including our direct industry landscape to ensure our business planning
customers and domestic and business consumers, and process accurately reflects their changing needs as
will continue to map these stakeholders so that we only shown in figure 10.09. We will undertake both strategic
engage with those impacted by or interested in a and tactical engagement focused on what’s important to
particular topic. We will take note of different geographic our stakeholders while also continuing to improve our
regions where applicable, similar to the engagement approach. We are making stakeholder insights a more
undertaken at Bacton where there are specific prominent part of our governance and decision-making
stakeholders who are affected in this region. processes. This will include our senior leadership team
reviewing the latest stakeholder insight at their leadership
We will use multiple engagement channels, continue to meetings and making decisions on the back of it.
listen to how our stakeholders would like to be engaged,
and look for innovative ways to engage them. The nature At a more tactical, operational level, we will further
of innovation means it’s difficult to be specific about embed the AA1000 standard across our organisation and
exactly what this will look like, but it will be a key part of engage on the topics that stakeholders have identified as
our engagement approach. We will work closely with their priorities. Engagement will be centrally coordinated
other networks and partners to identify opportunities for but will be the responsibility of employees across the
joint engagement and reduce the risk of stakeholder business, this process has already begun with the
fatigue. engagement we’ve carried out as part of our RIIO-2
submissions. We will continue to use peer reviews
We will ensure we include the views of current and against the AA1000 standard to monitor how well we are
future customers and consumers. Consumer embedding this process, and the SUG will provide further
engagement will continue to be nationally representative. challenge and assessment (see below).
We use a range of channels and methodologies to
engage consumers and will further develop our consumer Our annual process, shown above in figure 10.09,
engagement programme in the RIIO-2 period, including: includes specific engagement activities to ensure we
 Quantitative research with nationally representative remain up-to-date with what our stakeholders need from
samples of household consumers, including us. This includes a formal check at the start of each
acceptability testing and/or willingness to pay research year’s business plan update process to confirm/update
where appropriate. stakeholders’ priorities, plus more detailed, topic-specific
 Qualitative research to help shape quantitative studies conversations throughout the year to enable us to
and allow more detailed exploration of certain topics respond to changing requirements. We will use our
with targeted groups of consumers. stakeholder relationship management system to record
 Quantitative and qualitative research with business interactions and insights and share these with those who
consumers of all types. need them as decision-making input. We propose to
 Use consumer trend data and specific research studies continue using the same decision-making principles and
to help predict future trends and make sure our plans approach we have used to build this plan to help convert
balance the needs of current and future consumers. insight into plans throughout the RIIO-2 period.
 Using innovative approaches like interactive online
‘gamified’ tools to help explain who we are, what we do, We will set ambitious and stretching commitments
and understand what consumers want from us. and report our progress against these transparently
 Consumer listening events to hear first-hand what to ensure we deliver outcomes that network users
consumers want from us. and society value at a price they are willing to pay
Measuring the impact of our engagement is a
Through our consumer programme, by using the fundamental part of our strategy. Our proposal for the
appropriate channels and by engaging on the appropriate RIIO-2 period is for the independent SUG to set ambitious
topics, we will make sure we gather representative insight targets, against which they would hold us to account. We
from: see measurement falling into three categories:
33
Giving consumers and stakeholders a stronger voice – how we have built a stakeholder-led plan
 stakeholder insight metrics (e.g. materiality analysis and there would be ongoing board member attendance at
segmentation statistics), every meeting.
 operational engagement metrics (e.g. number of
stakeholders engaged, appropriate representation and An effective SUG would be an important part of our
stakeholder satisfaction), and, broader stakeholder engagement programme; increasing
 impact and outcome metrics (e.g. plan/decisions confidence across the RIIO-2 price control, improving
changed, £ saved for consumers). transparency and decision-making. These factors play a
critical role in ensuring that gas transmission delivers its
Ultimately, the enduring SUG would determine these commitments within the RIIO-2 price control for benefits
metrics, including incorporating their engagement for consumers and wider stakeholders. You can also find
principles as described in annex A10.01, set the relevant more information in our annex A10.01.
targets, and outline their expectations of how we should
report and communicate them to our stakeholders, to It’s also important that our engagement activities
ensure we are as open and transparent as possible. We themselves are proportionate and provide value for
will also continue to work with others on how we can best money. Our ambition is that the costs of our enhanced
measure the non-financial impact of our actions. Our
engagement programme will be heavily outweighed by the
enhanced approach to consumer engagement will allow
benefits we create as a result of our stakeholder-focused
us to test and check that we’re continuing to deliver the
approach. We propose to use a model to deliver our
outputs that consumers want from us, both during RIIO-2
and further into the future. engagement which includes some central coordination to
manage the engagement and business planning process,
Our engagement strategy has senior level buy-in but which mainly relies on employees across our business
Our board have signed on to our RIIO-2 engagement to deliver this work on a day-to-day basis. Our costs to
strategy through a stakeholder charter which commits the deliver enhanced engagement across the RIIO-2 period
board to: are £850k per year. This covers the salary costs of a
 the ambition and approach of our RIIO-2 stakeholder small ‘central’ team, the costs associated with running the
engagement strategy enduring SUG, and the costs associated with delivering
 approving stakeholder-led business priorities on an additional engagement activities and carrying out the
annual basis appropriate research studies, including the use of expert
 tracking and monitoring key stakeholder engagement agencies and consultants where required.
performance metrics twice a year
Bespoke incentives – stakeholder reputational
 being actively involved in stakeholder engagement
ODIs to drive performance
activities
We propose two reputational stakeholder ODIs to
 assure across our business, at all levels, we continue to
complement the existing customer satisfaction ODI.
build and further embed stakeholder engagement.
Stakeholder experience reputational ODI - we propose
We propose to retain an independent to continue tracking satisfaction of how we have met the
stakeholder user group to hold us to account needs of stakeholders, through all relevant core
One of the best ways of ensuring we go beyond touchpoints.
expectations is for an independent group to hold us to
account, just as they have done in our RIIO-2 plan Proposed new quality of community engagement
preparations. The high-level role of the group would be to reputational ODI - based on learnings from stakeholder
continue to challenge our engagement activities, feedback and observation during RIIO-1, this is about how
scrutinise our business plans and verify our annual we minimise our physical impact in the community.
reporting, including our preparation for RIIO-3. The group Specifically, the quality of engagement with local
would hold us to account and ensure we deliver what our residents, businesses, communities and their
stakeholders want from us. As it is independent, the representatives, before, during and post-construction. We
group itself would define the specifics of how they wish to held a webinar on reputational stakeholder incentives, 75
do this. We will also engage Ofgem on the nature of the per cent agreed with the stakeholder experience ODI with
group’s enduring role. On a periodic basis, members of 25 per cent of respondents unsure, and 56 per cent
the group would change to ensure continued agreed with community reputational ODI with 44 per cent
independency and to provide the opportunity to bring unsure. For more information see annex A3.03.
fresh perspectives. We propose that the group continues
to have a strong consumer voice.
We would expect the group to provide challenge at the

start of each year’s engagement programme to ensure
our plans are comprehensive, representative and
inclusive, and to challenge us on best practice. They will
shape our engagement based on learning they have
acquired from other sectors and organisations. Our UK
Executive Director will regularly attend the group, and
34

Our consumer value proposition well with our increased emphasis on engagement and
openness in our RIIO-2 business plan.
Our plan provides significant value to consumers;
delivering a safe, reliable and resilient network for homes, Ofgem has asked that we attempt to monetise our CVP.
businesses and communities both today and into the For some areas of our business plan it can be difficult to
future, and playing our part in decarbonising GB’s energy monetise our CVP, even if it is clear they do provide
system. The consumer value proposition (CVP) focuses benefits for consumers. As such we include within our
on those parts of our plan (these could be commitments, CVP only those items which we have a robust
outputs or incentives) that go beyond minimum methodology for, and reference to CVP items for which
requirements and beyond the functions typically we can provide an estimate of the magnitude of benefits.
undertaken by an energy network company as business An independent specialist consultancy has reviewed our
as usual. We welcome the CVP because it helps show the business plan for items which could be considered as
enhanced value our plan provides for consumers. It fits CVP and provided the values for those we can monetise.
These are summarised in the table below.
Table 10.10 our monetised consumer value propositions
CVP Monetised
Chapter CVP item
reference value
Resilience solution at Blackrod

By engaging closely with Cadent (the GDN connected at Blackrod) we found a cost-
14. Gas on
CVP1 effective solution to address the risk of supply interruptions. This work established £173m
and off
that solutions on the transmission system were significantly cheaper than solutions
on the Cadent network.
Security innovation application
In a counterfactual scenario, we would increase cyber resilience by employing a
third-party solution to upgrade the control systems. We are going beyond this
15. Cyber
scenario by implementing innovative solutions to ensure that better resilience can be
and external CVP2 £9.2m
achieved at lower cost. The rollout of the SCADA innovation therefore delivers
threats
significant cost savings to consumers. The SCADA upgrade was developed in RIIO-
1 and rolling it out in RIIO-2 involves continuing to go beyond the counterfactual
business as usual approach of using a third-party solution.
Business carbon footprint reduction – construction
16. We have gone beyond by engaging extensively with stakeholders on environmental
Environment issues, finding that stakeholders want us to set ambitious goals for reducing our
CVP3 £0.3m
and carbon footprint, and want us to engage more with our supply chain on
communities environmental matters, and responding to these messages by committing to reduce
carbon from many different sources across our business.
Natural environment improvements
16. We have been working towards measuring the natural capital and biodiversity value
Environment of our non-operational land and have set a target to improve this by 10 per cent over
CVP4 £1.75m
and RIIO-2. This will bring benefits to both the natural environment and to communities
communities that can use this land. Because these types of natural capital improvements are
relatively low-cost, the consumer benefits far outweigh the costs.
Community initiatives
16. We are going beyond minimum requirements by committing to spend on community
Environment initiatives. We are not requesting additional funding to cover this spending.
CVP5 £0.6m
and By committing this money to local community initiatives, particularly those that are
communities led by consumers, NGGT is ensuring that communities’ benefit, and that money is
allocated to areas valued by consumers.
Total monetised value £184.7m
We have engaged with Citizens Advice, Major Energy Users’ Council and the independent stakeholder user group on
our monetised CVPs. We provide more detail about our CVP in annex A10.05.
35
The changing energy landscape towards net zero
OUR COMMITMENTS
11. The changing We will be ready to start conversion to hydrogen by
2026
energy landscape We have undertaken some initial analysis on the

feasibility of transporting hydrogen, which demonstrates
our pipelines can transport hydrogen. We have identified
towards net zero further work required that will enable us to move from this
feasibility stage to determining the modification to
Solving the decarbonisation challenge is the biggest transition to hydrogen. The specific details can be found
problem of our time. We have a crucial role to play in in chapter 17.
enabling a clean energy system and minimising the
cost of this transition to consumers. To decarbonise We will facilitate the use of the green (renewable) gas
heat and power, we believe it will be a mix of We have developed a project looking at enabling
hydrogen, green (renewable) gas and renewable customer low cost connections (CLOCC) for less than
electricity generation. £1m in under 12 months. We are using this project to
connect a low carbon connection onto the NTS for the
We are working to ensure our network can support a first time. As green gas connections will increase to
hydrogen economy, maximise the use of green gases support the transition to net-zero, we will look to
and facilitate generation with carbon capture usage implement the findings of our CLOCC project, and
and storage (CCUS), and continue to provide security deliver the benefits to our customers and consumers
of supply resilience to back up renewable electricity and continue to evolve our connection process for
generation. We have developed a roadmap that details these new market entrants. More information can be
found in chapter 19.
our journey to net zero.
THE CHALLENGE We can provide resilience to renewable generation
Reaching the net-zero target is a challenge not only of We will enable the move to net-zero power generation,
scale but also of pace. The use of natural gas accounts ensuring a lower cost of resilience through the application
for 50% of the UK’s carbon emissions today, given its of CCUS alongside gas power generation. From the CCC
extensive use in electricity, heating and industry. We will report CCUS is necessary to enable net-zero emission by
require significant acceleration of the UK’s approach to 2050 (175MtCO2 by 2050) with natural gas CCGTs with
delivering infrastructure in electricity, transport, heat and CCUS providing a resilient back-up to renewable
industry: electricity. We will explore whole-system and cross
 Around 20,000 homes will have to be insulated each sector innovation to investigate the use of CCUS and
week between now and 2035, compared to 2,400 in how the network can be utilised/utilise alongside
2017. power generation, as well as industry and transport.
 15,000 homes will have to transfer to a low-carbon
heating system every week until 2050, compared to 220 We will reduce our business carbon footprint
today. We will achieve net-zero for our the National Grid Group
 20,000 internal combustion engine (ICE) vehicles will scope 1 and 2 emissions by 2050.We are committed to
have to be exchanged for alternative-fuelled ones each working with the communities we serve to help them
week from now to 2050, compared to 1,200 in 2018. meet, or exceed, their overall climate and carbon
ambitions, we will look to do so in an affordable way,
Natural gas remains a key enabler in the net-zero more details are in chapter 16.
transition, offering flexible and reliable solutions in periods
where fast response and high-demand arise. It is used for, How we will deliver the transition as a responsible
on average, 40% of electricity generation today, supporting business
the removal of coal and providing flexible back-up for Early next year, we will launch a responsible business
intermittent generation. 80% of homes today rely on charter articulating in more detail what responsibility
natural gas for heating as do many businesses, means for National Grid, our people, and our
commercial properties and public buildings, and it is also communities. We aim to ensure that the communities we
crucial for many large-scale industrial processes. To a operate in thrive, by being economically, socially and
smaller extent it is used for decarbonising commercial environmentally strong, please see chapter 16.
vehicles, especially heavy goods vehicles.
RIIO-2 common energy scenario
In the committee on climate change’s net zero report, We have used the Energy Network Association’s (ENA’s)
gas demand in 2050 will represent 68% of gas demand Common RIIO-2 Scenario to inform our business plan.
in 2018. We continue to work and innovate The purpose of the common scenario is to make sure the
collaboratively to ensure our networks adapt to deliver different network companies’ business plans are based
low-carbon and alternative fuels. on a consistent view of the future. In developing the
common scenario, the network companies drew heavily
36
The changing energy landscape towards net zero

on the Electricity System Operator’s (ESO’s) Future scenarios, the common scenario is incorporated within
Energy Scenarios (FES). The FES involves extensive our network capability analysis. To expand further:
engagement with stakeholders to develop a range of  Our analysis has been carried out against the backdrop
views of the future that can inform investment decisions. of our existing safety, commercial and legal obligations,
including our 1 in 20 licence obligation and
What the common energy scenario means for management of pressures. In conducting critical peak
our plan demand (gas 1 in 20) modelling, including the various
The ENA report highlights the key drivers that network heat drivers listed in the common scenario, we
companies anticipate will most affect their plans in the incorporated the full range produced by the four FES
future, with supporting evidence. Companies may diverge scenarios within which the 5,000 GWh driver value of
from the common energy scenario based on their expert the common scenario falls. The upper limit of our range
local knowledge and detailed interaction with their (5,092 GWh) provides a more prudent evaluation than
stakeholders, provided they explain this clearly. Our RIIO- the common scenario value, reflecting the importance of
2 plan is underpinned by our network capability, which we testing that our network can satisfy peak demand.
speak about in more detail in chapter 12. In determining  We acknowledge that the gas generation (transmission)
the capability needed longer term, we have used the full common scenario driver value (15,000 MW) falls 3,962
range of the FES, which the common scenario was built MW below the lowest point of the range produced by
on, so that the decisions we make now will be fit for the FES (18,962 MW). We are comfortable with this
purpose for a range of future pathways. Additionally, for deviation given the high relative importance of
the sensitive parts of our plan, we have put forward volumetric demand in predicting gas generation
uncertainty mechanisms (annex A3.02) to enable requirements. Our modelling is based upon gas volume
adjustment of our plan to be able to flex to meet the future transmitted throughout the network over time (area of
pathway that unfolds in achieving net zero emissions. the graph below), considering maximum and minimum
expected values at each network entry point to evaluate
In comparing the common scenario with the modelled the full range of requirements. Contrastingly, the critical
FES scenarios, all key gas drivers of the common peak demand modelling addresses peak demand at a
scenario (excluding gas generation (transmission), given point in time (peak demand annotations on graph
addressed below) fall within the range within the FES. below).
Given our analysis is based upon the range of the FES
Figure 11.01 Illustrative RIIO-2 anticipated daily gas demand
Common Scenario estimate FES Estimate
FES peak demand

ENA peak demand
Start of day End of day

Annual network capability updates to refine carbon, it does not go far enough to deliver against the
investment planning UK’s new legislative commitment to net-zero by 2050.
We will undertake an annual process to assess network
capability. This will use the latest forecast and customer We have built flexibility into our plan so that we can
information we have available. We will continue to review deliver the outputs that consumers need now and into the
our investments based on what is needed to deliver the future. This has included us proposing the use of
capability of our customers now and in the future. For uncertainty mechanisms for certain investments, which
example, should an opportunity present itself in which we allow us to ensure we deliver what is needed now and in
see an opportunity to make cost-effective changes to the the future. The details of these mechanisms can be found
national transmission system (e.g. remove a compressor in annex A3.02. As discussed in the section earlier, we
sooner than currently anticipated), we will explore the will look to use external and innovation funding to
potential to do so. Currently, we have identified a risk of investigate the transportation of hydrogen through the
failing to meet peak power demand should we elect to NTS. We stand ready to deliver the future decarbonised
remove assets that are not required in all future energy pathway that unfolds. More detail can be found in chapter
scenarios. The next chapter gives more detail on how we 17. Additionally, we are proposing a net-zero reopener
have developed our network capability processes and that could be triggered during RIIO-2 to ensure we can
how that has been used to underpin our RIIO-2 plan. deliver on our emissions targets as well as deliver the
solutions that are required for decarbonisation in a timely
Flexing to enable net-zero targets and cost effective way. More detail can be found in
We know the future will likely turn out differently to the chapters 16 and 17, in addition to annex A3.02.
common energy scenario. While the scenario is low
37
Our Journey to
HIGH CARBON
Net Zero Carbon
ONGOING COMMITMENTS
2020, we will make BEIS Heat Policy
the first low cost, roadmap published
Gas Transmission low carbon green gas

connections to our network
in summer 2020
2021 Forecast
What we need by 2021 to deliver
our net zero commitments
Electricity Demand
Installed Elec Capacity
Hydrogen
285TWh per year
108GW
<1TWh
43%
renewable
CCUS 0%
• An industry agreed approach to whole system solutions generation
Gas Demand 804TWh per year
• Funding to allow projects to be undertaken, Green gas production 0
including innovation and government funding
• Clear industry-specific milestones for UK net zero
• Agreement to proposed uncertainty mechanisms
38% 4.5%
27k
• An agile anticipatory investment process with clear
funding decision homes EPC low carbon
• An agreed approach to whole-life environmental charging band C or heating
impacts with an agreed carbon-pricing methodology points above (20,000 homes
1,900
• Key decisions needed on the approach to must switch per
heat decarbonisation week, vs 220
today)
• Clear policy for the distribution of decarbonisation costs gas or hydrogen We will
vehicles facilitate the
use of green
gas
Defined uncertainty mechanisms 2023, our science based target for
needed for future flexibility scope 1 & 2 emissions developed
2023, initial cross-sector hydrogen We will undertake network capability

trial to enable heat decarbonisation assessment annually, reflecting latest We will explore whole
forecast information, informing our system and cross sector
Collaborate with other gas networks investment plans innovation to investigate
on the decarbonisation of gas pathways the use of CCUS and how
with a view to whole system thinking Work with government and industry the network can be used
on the challenges and solutions for alongside power
2024, identified plans decarbonising heat generation
for new h2 market regimes
and market modification Keep our
60% consumer
promises of
2024, identified renewable
physical modifications generation transparency and
(74GW) affordability Consumer-first
needed for hydrogen and blending
approach through
Low disruptive times to
2025, large scale carbon make sure no-one
hydrogen trial heating - gets left behind
all new
Net zero construction builds Uptake
on major projects by 2026
54 ESO can
of hybrid
heating
We will be ready to start motorway
operate a systems
conversion to hydrogen by 2026 charging
net zero
stations
grid We will provide
2026, 100% alternative resilience to renewable
75-85% fuel fleet where there

is a market alternative
generation by
supporting CCUS
renewable, in 2019 with gas power
nuclear, CCUS generation
generation (98GW) 2026, 100% renewable sources on
metered electricity and 20% increase
in office energy efficiency
25% 100%
60k (~11million)
electric
homes EPC
band C or
2026, 75% of National Grid top 250 suppliers
with carbon reduction targets
We will proactively
charging above
vehicles monitor methane
points We will collaborate across industry and stakeholders to evidence and
enable the solutions for decarbonising heat, industry and transport emissions and
10% target investments
to reduce leaks
low carbon heating
All sales
= 2.8million homes
Iron mains replacement
41%
(90TWh) of
low carbon
(2035 latest) program complete by 2032 industrial energy
use swapped to
Many heating hydrogen
systems emerging
- hydrogen, heat
Net zero carbon
95%
pumps, hybrids
and biogas industrial cluster
2050 Forecast
HGVs move
54% renewable
generation
Electricity Demand
Installed Elec Capacity
400-600 TWh per year
233-227GW
Our commitments for a rail track Hydrogen 270TWh

to hydrogen CCUS 175 MtCO2 = 29.1%
electrified Gas Demand 204-585 TWh per year
NET ZERO CARBON
net zero gas system New ICE

cars
Green gas production 71 TWh to 128 TWh
KEY: banned
210k
Supporting green and blue Hydrogen
300k
All gas boilers
replaced
town
chargers 100%
Supporting green gas 800
cars & vans
gas or electric
hydrogen
Supporting the electricity network vehicles
hydrogen
fuelling
Our own GT footprint stations &
90,000 depot
Our commitments to decarbonising heat 2050, we will achieve chargers
Our consumer commitments net zero for our scope

1 & 2 emissions 3,500 90%
Our commitments for transport motorway rapid & homes low
ultra chargers carbon
Most HGVs
29.5million
to hydrogen
In addition to our own analysis, these figures have been extracted from the CCC report and net zero FES Scenarios homes
Network capability
12. Network capability

Overview 3. This is consistent with the anticipated reduction in gas
This part of the business plan describes how we will demand outlined in the range of FES scenarios.
deliver the network capability that efficiently meets our
stakeholders needs. We detail how we have engaged We have a proposal for an annual process that sets out
with stakeholders on this critical topic, to give us how we will deal with changing stakeholder needs during
confidence that we have understood and translated RIIO-2 and beyond.
stakeholder needs into our business plans and produced
metrics which can be meaningfully understood. Managing uncertainty
Given the uncertainty over GB’s energy future, and hence
It explains that, despite uncertainties over GB’s energy what capability will be required from gas transmission in
future, some decisions for our RIIO-2 plan must be taken the future, including to support the net zero ambition, we
now, whilst some can be deferred until there is greater need a business plan that delivers the right network and
certainty. We outline the approach we have undertaken to commercial tools to meet the needs of stakeholders and
ensure the business plan is consistent with how those consumers.
stakeholder needs may change over time.
It is important to balance the cost of investing in new
In this section, we explain how our asset base delivers assets (or maintaining current ones) against the cost of
network capability - which parts of our investment plans decommissioning and the disruption to customers if we
are impacted by our decisions on network capability. We don’t have the right assets, at the right time and with
outline the process by which our plan is built and tested to appropriate levels of reliability and availability. This leads
ensure the network capability we propose efficiently to lower bills for consumers and less disruption to both
meets our stakeholders needs. customers of the NTS and consumers.
We then focus on compressor fleet strategy and how this Our role in facilitating the effective functioning of the gas
aligns with stakeholder need for physical capability on the market has a positive impact on wholesale gas and
network. We summarise the proposals for each of these electricity costs7. The decisions we make today have
areas of the business plan. More detailed explanation and lasting impacts on cost, risk and the level of network
justification for investments on individual sites can be capability we offer to stakeholders.
found in our asset health proposals (chapter 14), our
We recognise the importance of getting the right trade-
cyber and physical threats proposals (chapter 15), our
offs across these, and have worked with our
proposals for redundant assets (chapter 16) and
stakeholders, including directly with consumers, to
compressors impacted by environmental legislation
understand their needs. The risk of disruption resulting
(chapter 16 and annex A16.05 - compressor emissions
from our business plan should be factored into the design
compliance statement).
of the constraint cost management incentive.
There are no significant changes to the proposed levels
For some assets, deferring decisions until there are
of network capability during RIIO-2 in our business plan,
higher levels of certainty (RIIO-3 and beyond) may be
i.e. the initial and target levels of network capability are
preferable, but there are several drivers that mean this is
the same.
not always possible; decisions must be taken now and
Stakeholders have told us that they value being able to actioned during RIIO-2. These drivers include:
flow gas without restriction or disruption. Our plan is  Environmental legislation which will restrict compressor
designed to meet our minimum compliance obligations operation from 2030; if we do not act, compressors
and reduce the risk of network constraints to an would have to be decommissioned or face restricted
acceptable level, balancing the impact of potential running hours. Given the number of affected
constraints with the costs to achieve this. Over the range compressors and limited ability to take outages on the
of FES scenarios, we believe that our plan creates a risk network, we need a plan that spans both the RIIO-2 and
of disruption to customers planned gas flows on average RIIO-3 periods, making decisions on whether to
of between 14 and 17 days per annum, which, despite the decommission, replace or maintain compressors (with
increased level of work on the network during RIIO-2, is limited running hours).
broadly similar to the equivalent RIIO-1 level of risk. The  Managing an ageing network with many assets at the
consequence of not replacing 20 compressor units end of their design life. We’ve observed more condition-
impacted by environmental legislation and proposing the related issues in RIIO-1 and will need to undertake
decommissioning a further 7 redundant compressor units more interventions during RIIO-2 to maintain the safety
will result in a reduction in network capability during RIIO- of the network for the public and our employees, as well
7
Supported by EY study which concluded that even with perfect significant impacts on GB consumers, adding up to £877m per annum to
foresight and not taking account of an unexpected short-term shock, gas and electricity costs by 2035.
failure to maintain the existing capability of the NTS could have
39
Network capability
as the reliability and availability expected by our annum by 2025, and by £252m-£877m per annum by
customers and consumers. 20359. Analysis undertaken in response to a question
 The need to address age-related obsolescence of some from the RIIO-2 Challenge Group supports the
of the critical operational technology systems used to outcomes of this analysis. The case study provided to
control our operational processes and equipment. the RIIO-2 Challenge Group explored the impact of a
 Increasing cyber threats, and government requirements trip at the Lockerley compressor station during high
in relation to these, requiring investment to protect our levels of demand. It showed that if the compressor
critical national infrastructure. could not be restarted quickly, the trip could result in low
gas pressures in the South West, creating a need to
Across all these drivers, we need to ensure our plan curtail gas flows to power generation in the South West
reflects the time, resources and network access (outages) and potentially other gas consumers. We would expect
needed to deliver safely and with minimal risk and that the costs associated with these constraints would
disruption to customers. We have therefore developed be passed onto gas and electricity consumers.
our plan over a ten-year period to accommodate network  Potential inability to respond to the most effective future
outages in RIIO-2 and RIIO-3, to ensure we can minimise energy pathway by closing options down early. This
costs and constraints. includes limiting options to repurpose pipelines for
transporting hydrogen or carbon dioxide as part of a
We’ve reviewed the current charging regime proposals carbon capture scheme.
(UNC Modification 678) that are with Ofgem for
determination and our view is that the outcomes of Efficient constraint management
Ofgem’s decision will not change any of the investment We use a mixture of assets, rules and commercial tools to
decisions we have made for our RIIO-2 plan. avoid and minimise the impacts of potential network
constraints. In the longer term, we are able to make
Impacts of excess and insufficient levels of trade-offs between investing in new assets, maintaining
network capability existing assets, decommissioning assets, using
Even against a backdrop of falling annual demand, we commercial contracts, and accepting constraint risk.
need to ensure that we continue to meet peak demand
(our 1 in 20 licence obligation). This may mean retention In the short term, we can change our asset plans
of specific assets, which whilst used infrequently, are (including moving maintenance outages, recalling assets
essential to ensuring consumer demand can be met already on outage, developing innovative operational
under extreme weather scenarios. strategies or manning sites 24/7), or manage any
constraints through commercial tools, locational energy
With a range of energy scenarios and potential trades or capacity buybacks. Changing asset plans and
supply/demand patterns, there is an inherent risk of utilisation of commercial tools incurs costs.
presenting a plan that delivers a sub-optimal level of
network capability. Summarised below are the key risks What our stakeholders have told us
associated with delivering excess or insufficient levels of Stakeholders have told us that they have limited tolerance
network capability. to disruption in taking gas on and off the network.
Domestic and non-domestic consumers value reliability
Excess capability and when surveyed would be happy to pay more for this.
 Stranded or under-utilised assets resulting in higher Major energy users stressed the importance of reliability
network costs for consumers (associated with building, and have pointed out that there are financial and
maintaining and operating assets). commercial consequences for them of supply
Insufficient capability interruptions. This is consistent with UKERC’s study of
 Inability to deliver the consumer priority of using energy domestic consumers, which finds that there is an
as and when it is wanted because of disruption to acceptance of additional costs among consumers for
customers’ ability to take gas on and off the network. “ensuring a reliable energy supply”10.
 Entry constraints would impact where and when our
customers are able to bring gas onto the network. This We believe there is benefit in keeping future options
would prevent customers flowing cheaper sources of open, i.e. spending small amounts of money now to avoid
gas onto the system, increasing wholesale gas market risk of significant costs for consumers in future. For the
prices. avoidance of doubt, where costs are significant we have
 Exit constraints could impact all types of exit users, undertaken an appropriate level of cost benefit analysis
including potential disruption in supplying gas to (CBA) and we have provided supporting engineering
domestic consumers. justification papers. These are referenced from the
 Independent analysis by EY8 suggests that constraints relevant parts of our business plan.
on the gas network under certain scenarios could
increase gas and electricity costs by £42m-£246m per In developing our plan, we have also been mindful of the
uncertainty over GB’s energy future. We have deferred
8 10
Please see annex A12.01. See pages 65 - 67 of the Frontier Economics Triangulation report
9
We will continue to develop our approach to CBAs to better consider (annex A10.04) for information on domestic and non-domestic customer
these types of 3rd party impacts. trade-offs between priorities and risk.
40
Network capability
some asset decisions beyond RIIO-2 and are proposing  Sections of pipelines that don’t fall into the above
UMs to ensure the framework has the flexibility to deal categories but contribute to network capability and
with uncertainties in the pathway to net zero. This will resilience (503km, 7%).
allow more time for energy policy to be clarified before we Figure 12.01. Pipeline categorisation as a proportion
define the most appropriate solutions with our of the total length of NTS pipelines
stakeholders.
How we deliver network capability

Physical network capability is delivered by our network
assets, put simply our pipelines and compressors.
Pipelines connect entry and exit points allowing gas to

flow from points of supply to points of demand. Gas
contained in the pipelines (linepack) delivers gas
pressures to meet safety obligations and customer
pressure requirements. The linepack contained in our
pipelines also facilitates the ability for customers to
change their planned gas flows onto or off the network at
short notice.
Our compressor fleet increases the physical capability of Pipelines in the first two categories (92% of the network
our network to move gas away from supply points and to by length) need to be retained and maintained during
points of demand. It also allows gas to be moved around RIIO-2. These pipelines either provide entry or exit
the network to increase or decrease pressures in certain capacity directly to a customer or provide an alternative
locations to meet customer need, including gas path (providing pipeline resilience and facilitating
accommodation of gas flow profiles, and to ensure safe maintenance activities).
operation of the network.
Where a pipeline was in place solely to provide a
Our other assets, such as valves, multi-junctions and connection to one or more customers and they have now
regulators, allow us to control flows and pressures to closed their facility and there are no other customers
meet customer requirements, operate safely and facilitate connected to a section of pipeline, we are proposing to
outages on the network. isolate these sections from the network11. The options for
these pipelines are:
Our proposed asset health investments are targeted to  remove them from the ground (high cost, intrusive for
ensure we have the right levels of availability and the environment and local communities).
reliability of the assets to meet customer requirements.  grout fill them and leave them in the ground (prevents
Our compressor programme ensures we have the right future reuse/repurposing, e.g. for hydrogen, carbon or
level of compressor capability and resilience (back up) to other products).
meet customer requirements and comply with legislation.  isolate from the network and nitrogen fill them (least
Our external threats plan ensures assets are suitably intrusive, relatively low cost and allows reuse at a future
protected and that we comply with legislative cyber date, e.g. for hydrogen, carbon dioxide or other
resilience requirements. products).
Pipeline considerations in our RIIO-2 plan Given the costs, impact and potential for re-use, we are
In developing our RIIO-2 plan, we have considered the proposing to isolate these pipelines from the network and
role of our pipelines in delivering network capability, and nitrogen fill them in RIIO-2.
whether there are opportunities to isolate or
decommission pipelines from our network. The NTS Sections of pipelines that provide network capability and
pipelines sections fall into the following categories: resilience are operational and with sufficient gas flows
along them, enabling in line inspection and maintenance
 Sections of pipelines containing an existing or planned of their integrity. To consider options other than retaining
connection to either an entry, exit or storage customer these pipelines during RIIO-2, there needs to be a clear
(5,212km, 68% of the network). demonstration that these pipelines are not required to
 Sections of pipelines that are duplicates of other deliver network capability or resilience. The alternative
pipelines but don’t themselves contain a direct option of isolating and nitrogen purging to keep the future
connection to a customer (1,801km, 24%). reuse option open, would include a cost to achieve and
 Sections of pipelines that we plan to isolate due to only save the cost of periodic inline inspection (pigging). It
closure of a connected customer’s facility (138km, 2%). would also reduce network resilience, increasing the risk
of disruption to customers. We therefore conclude that it
11
It is not possible to use the normal in line inspection tools on these
pipelines as there would be no gas flow along them. In order to reduce
safety risk we would not leave them containing pressurised natural gas.
41
Network capability
is the right economic decision to retain the pipelines in available and there are no asset outages or restrictions
this category during RIIO-2 but to continue to review the (referred to as an intact network).
ongoing requirement for them. We have tested this  Impact of the removal of selected assets from the
approach with stakeholders and they support it12. analysis. This sensitivity analysis can be used to test
scenarios of:
Pressure downrating of pipelines o asset decommissioning (compressors, pipelines, sites
We have considered the option of reducing the operating and individual assets)
pressure of NTS pipelines as capability requirements o reduction in provision of resilience (back-up)
reduce over time. We have ruled this option out for our compressor units
RIIO-2 plan as we do not believe this option is in the o asset unavailability due to planned maintenance (the
interests of consumers for the following reasons: access plan)
 the level of pressure reductions required to materially o unplanned asset unavailability caused by faults and
reduce inspection and maintenance requirements, and defects, or
hence costs, are not credible (e.g. reducing operation o any running hour restrictions from 2030, arising from
from 80% down to 30% of yield strength) our decisions around compressor emissions
 there would be additional cost impacts, such as compliance.
requiring compressors to be re-wheeled to operate at  All our analysis has been carried out consistent with the
different pressures existing safety, commercial, environmental and legal
 lower pressures would result in lower linepack, reducing obligations, including our 1 in 20 licence obligation and
our ability to accommodate within day changes and management of pressures. Our plan contains the
security of supply minimum investment required to meet these obligations.
 reducing pipeline capability may limit future decisions to  Using a zonal approach to our analysis.
decommission or repurpose pipelines (as each pipeline
becomes more critical to meeting customer needs). Figure 12.02 network capability zones, shown on a
pictorial representation of the NTS
Defining and articulating network capability
The capability of the network can be measured by its
ability to accommodate levels of gas flow onto and off the
network to meet the supply and demand needs of our
customers.
Given the highly integrated and interactive nature of the

gas network and the inter-dependencies between parts of
the network it is not possible to give a definitive, single
number for the capability of the network or any point
within it. The network capability at each entry and exit
point will change depending on the local and national
supply and demand balance and pattern, the starting
linepack position and asset availability, as well as
customer behaviour on flow profiling and within day
changes.
The methodologies we set out in this chapter give a good Process to assess the future network capability need
indication of the range of capability provided by the Figure 12.03 below shows how our business plan is
network; the measures we have developed are reliable underpinned by network capability.
and repeatable. They have formed the basis for the
external engagement. The methodologies themselves are
not included in this document but will be subject to a In developing our cost benefit analysis (CBA) tool, an
separate audit by Ofgem. independent review was completed by Pöyry. The
processes and tools have been further refined for the
Approach to defining network capability RIIO-2 business plan, in particular, updates to the model
We have used the following considerations in defining which calculates compressor running and associated fuel
network capability and to enable meaningful engagement
consumption and emissions.
with stakeholders:
 Exploration and articulation of the consumer (domestic
and non-domestic) view on the impact of disruption to
gas flows and the trade-off across cost and reliability.
 Quantifying the level of network capability that is
delivered by our assets, assuming they are fully
12
See annex A16.07 for further detail
42
Network capability
Figure 12.03 how network capability drives our business plan
Stage 1: The Future Energy Scenarios (FES) 2018 are look at the ranges of customer flows (from stage 1), and
the basis of our business plan. These give us different the level of capability line (from stage 2) and explore the
combinations of supplies and demands out to 2050 and factors that might affect that capability. For example, in
allow us to test our proposals against a range of potential summer (when levels of demand are low) we may need to
future requirements. In determining the capability needed take assets out of service to maintain them, potentially
longer term, we have used the full range of the future replace them, or undertake additional activities such as
energy scenarios, which the ENA common scenario was cyber work. This means the capability will either reduce or
built on, so that the decisions we make now will be fit for we will be able to deliver it less than 100% of the time.
purpose for all scenarios.
The asset health plan reflects what we need to do to
Stage 2: We use our internal modelling tools to model the maintain the level of risk on our network across RIIO-2
physical capability of the network13. Our network analysis and into RIIO-3, and this will have an impact on the
tool models the capabilities of our compressors, our reliability of our assets. The amount of work that we can
pipework and all our other supporting assets. This allows do will impact on the percentage of time that we can
us to establish the level of physical capability across deliver a level of network capability.
different zones of the network. Through this, we identify
where there is potentially too much or too little network To support the development of our plan, we have
capability to meet stakeholder requirements/customer developed some high-level compressor fleet strategy
flows. principles (summarised in figure 12.04). The application
of these principles and outcomes from our network
Stage 3: We consider factors affecting capability, as we capability work on a compressor site by site basis are
can’t deliver the physical capability 100% of the time. We shown later in this chapter.
13
Information on our investment planning processes can be found in the innovation/gas-ten-year-statement-gtys and the Transmission Planning
Gas Ten Year Statement https://www.nationalgridgas.com/insight-and- Code https://www.nationalgridgas.com/charging
43
Network capability
Figure 12.04 high level principles of our compressor fleet strategy
Fleet strategy principles
1. We will focus investment on the most important/critical compressors.

2. Where long-term future need for a site is unclear, we will seek to spend the minimal amount required in our
RIIO-2 plan, while retaining operability during RIIO-2 and keeping future energy options open.
3. We will optimise investment across the fleet. This may mean that we invest to increase
reliability/availability of a compressor to facilitate decommissioning of another compressor unit.
4. We will review our compressor plans on an annual basis during RIIO-2. The timing of any decommissioning
will be driven using the network capability processes and stakeholder feedback. We expect this to allow us
to make decisions to decommission additional units.
Applying our compressor fleet strategy principles, we decommission or reduce their running hours; what access
explore whether improving the reliability and availability of is needed to deliver our plan; where can we defer
certain compressors would allow us to decommission decisions to keep options open until the future becomes
others, developing the most efficient compressor fleet clearer. The decisions we are making in our business
going forward and the impact on physical capability. plan have a lasting impact on cost, risk and the level of
network capability we offer stakeholders. This robust
Stage 4: The key output of our network capability metrics process gives us confidence that our business plan
is understanding the customer impact. This includes proposals will deliver the network capability our
assessing the risk of disruption to customers’ gas flows stakeholders need now, while keeping options open for
on and off the network (constraint risk). From this we can the future.
calculate a constraint cost and compare this with the
proposed business plan investment costs. We iterate this,Articulating levels of network capability
both internally through our CBA process and externally We have recognised the importance of creating metrics
with our stakeholders, to test the assumptions on flows that our stakeholders fully understand and can relate to.
and appetite for disruption. At their highest level, these metrics show the flows that
the network can facilitate, at a range and pattern of
Stage 5: We develop our proposals: what asset health national supply and demand combinations over a range
work is required to maintain our assets, address any of years from 2020 to 2050. To illustrate, we have
obsolescence issues and deliver the required reliability created charts that show a comparison of physical
and availability; what assets can be decommissioned; capability of an intact network with potential stakeholder
what compressors are needed, and do we replace, flows.
Figure 12.05 how to read the entry network capability metrics
Notes:
 The different coloured dots are derived from FES and show how stakeholder capability requirements are changing with time. Each
dot on the chart is associated with one of a thousand alternative supply and demand patterns on each day in that year to reflect
possible outcomes within each of the FES scenarios.
 The orange capability line is based on an intact network (i.e. assumes all assets are available).
 Different sets of assets may move the orange capability line and/or may impact the amount of time this level of capability can be
delivered.
44
Network capability
Figure 12.06 how to read the exit network capability metrics
Notes:
 The capability “red dot” is based on an intact network (i.e. assumes all assets are available).
 In some of these diagrams the supply/demand dots are above the 1 in 20 capability (red dot). This is explained in annex A12.02.
Figure 12.05 and 12.06 shows the level of network segmented our stakeholders: core energy industry, non-
capability delivered with an intact network, practically industry infrastructure, research and development, not for
whilst this level of capability is available, it will not be profit/NGO, political and regulatory, and consumer
available 100% of the time. We have developed some communities. We selected a representative sample
additional supporting information that recognises this and taking into consideration size, influence and geography.
shows how often levels of capability could be expected to
be available. Further information can be found in the We ensured the questions and content of the
network capability report (annex A12.02). engagement was framed appropriately and non-leading,
engaging Frontier Economics review the material before it
Stakeholder engagement on network capability was used. We also worked with Frontier Economics to
Foundations for our engagement on network consider the most appropriate channels for engagement.
capability Through this we identified one-to-one meetings,
The network capability engagement has been guided by webinars, and trade association meetings to be the most
findings from the initial stage of our RIIO-2 engagement, appropriate channels to utilise.
our “Shaping the future of gas transmission”
programme14. This established the need to balance the What engagement did we carry out?
three consumer priorities of using energy as and when In late 2018 we held a workshop to ensure our
consumers want, an affordable bill, and facilitating stakeholders and Ofgem had a common understanding of
delivery of a sustainable energy system. It also capacity baselines. Capacity baselines were seen as the
established the stakeholder priority of taking gas on and measure of the capability of the NTS, but they do not fully
off the network where and when stakeholders want. represent the physical capability and so the aim of the
workshop was to ensure all parties understood what
Further to this, we have tested stakeholders’ appetite for capacity baselines are and are not.
disruption, which determined that there was very little
appetite for unplanned disruption on entry15 and no In early 2019, we began our focused network capability
tolerance for disruption on exit. Domestic consumers engagement with webinars and one-to-ones, as well as
would generally like at least as much reliability as they seeking challenge from the independent stakeholder user
have at present and would be happy to pay more for group. This was designed to inform and shape the
investments in this area. Non-domestic consumers (large definition of network capability and design metrics in a
and small consumers) would be happy to pay more in this way that is meaningful for stakeholders.
area for a reduction in the probability of a supply
interruption. Major energy users stressed the importance Since July, we have engaged our stakeholders to test the
of reliability and have pointed out that there are financial developed network capability metrics. We have also
and commercial consequences for them of supply carried out an extensive programme of engagement with
interruptions. consumers (domestic and non-domestic) to explore their
views on the trade-offs underpinning the network
Process followed to map out engagement for network capability need.
capability
We targeted our network capability engagement at a The output from our activities has been independently
subset of our 2,000 stakeholder organisations. We verified and triangulated by Frontier Economics to test our
14 15
https://www.nationalgridgas.com/document/123806/download Maximum 1-2 disruptions per year, maximum duration of 6 hours for
some parties, shorter for others.
45
Network capability
conclusions and requirements for our business plan, below, further detail on our engagement can be found in
based on a fair reflection of our stakeholders’ input. A the network capability stakeholder engagement log
summary of the engagement undertaken and the key (annex A12.05).
messages we took from these can be found in table 12.07
Table 12.07 stakeholder engagement on network capability
Stakeholder Customers: Gas Distribution, Networks, Shippers, Entry, Exit
segments Consumers: Domestic, Non-Domestic, Consumers, Representatives
engaged Stakeholders: Regulators, Industry/Trade Bodies, Energy Industry, Consultants/ Supply Chain
Objective Do our metrics give useful information on the current and future capability of the gas transmission network?
Are the levels of risks that consumers are exposed to suitable now and in the future?
How should we balance the interactions across the three consumer priorities now and into the future?
Channel/method Webinars, one-to-ones, Gas Operations Forum, consumer engagement programme and industry meetings
Key messages Overall acceptability of network capability proposals
A very high proportion of domestic consumers accept the business plan proposals in this area. Stakeholders,
including entry and exit customers, were also broadly supportive of the plans. Specific concerns were raised
around flexibility and zonal capacity and the need to consider net zero. Some asked for more information on the
bill implications of network capability.
Use of metrics
Stakeholders had mixed views on whether the level of information provided was sufficient.
Most felt the metrics were either useful or somewhat useful. Additional information requested included: impact on
flows/pressures during incidents; charts for all entry and exit zones; more detailed information around flows and
pressures in each zone, and potential longer-term impact; iterative feedback on the impact of asset
closure/reduction on all zones; more on the quantification of risk; the level of capability we are proposing to
retain. One stakeholder pointed out the analysis did not take account of the underlying value of the capacity to
users. We found that there is broad support from stakeholders for our proposal for an enduring annual process
for engaging on and producing network capability metrics.
Trade-offs and Trading of priorities and risk
stakeholder There is evidence that domestic and non-domestic consumers are prioritising reliability over affordability.
influence on the  Domestic consumers would generally like at least as much reliability as they have at present and would be
plan happy to pay more for investments in this area.
 Domestic and non-domestic consumers would be happy to pay more in this area for a 1/10,000 reduction in
the probability of a supply interruption.
 Major energy users stressed the importance of reliability and have pointed out that there are financial and
commercial consequences for them of supply interruptions but have not directly commented on current levels
and expected future levels of reliability.
 This is consistent with UKERC’s study of domestic consumers16, which finds that there is acceptance of
additional costs among consumers for ‘ensuring a reliable energy supply’.
There is some divergence on the trade-offs domestic consumers are making between reliability and affordability.
A significant proportion of domestic consumers prefer to maintain current supply risk levels, while a slightly larger
proportion prefers to pay more for a more secure supply. While it could be argued that we should go further to
reduce reliability risk, there is limited evidence suggesting that stakeholders are unhappy with current risk levels.
SUG and We have developed our messages on network capability since July, following the independent SUG feedback
Challenge Group that our messages weren’t clear, and how our plan had been built. In response we added a dedicated network
feedback capability chapter to our business plan. There was feedback that the network capability process was not clear so
we developed figure 12.03, we have also included how network capability relates to the charging review and the
work carried out by EY.
We have responded to the RIIO-2 Challenge Group feedback on a case study at Lockerley which is referenced in
this chapter and we have included downrating of pipelines as requested by the RIIO-2 Challenge Group.
Next steps for engagement Network capability delivered by our RIIO-2

Our network capability engagement for our RIIO-2 business plan
business plan has now concluded, and the results of the We believe our plan delivers the level of network
various engagement activities have been summarised capability that is required by current and future
within our network capability engagement log (annex stakeholders, providing the right outcomes for consumers
A12.05). Post the December 2019 submission, we intend given the range of uncertainty.
to launch a broad programme of engagement on our
RIIO-2 gas business plan with stakeholders. We have Over the range of FES scenarios, we believe that our
also worked up our proposals for network capability to be plan creates a risk of disruption to connected customers,
an enduring process which we will launch in the new planned gas flows on average of between 14 and 17
year. days per annum. For RIIO-1 on a like for like basis, the
equivalent level of risk was 12 to 19 days on average.
Our plan has therefore kept the level of risk of disruption
broadly similar despite the increase in work on the
16 http://www.ukerc.ac.uk/publications/paying-for-energy-transitions.html
46
Network capability
network during RIIO-2. Further detail on the level of Levels of network capability delivered by our
disruption and how this is reflected in our proposals for abusiness plan
constraint management incentive can be found in annex We use a sample of the network capability visualisation
A3.03. Our network capability work has informed our charts to explain how these have driven our fleet, and
business plan across our compressor strategy, asset compressor site, strategies. All of these metrics are
health, redundant assets, cyber and physical security. based on an intact network with all assets available.
Given the highly integrated and interactive nature of the
gas network and the inter-dependencies between zones
we have broken this story down into four parts which
cover the seven zones. A complete set of all the network
capability metrics for the seven zones is contained in
annex A12.02.
Figure 12.08 Scotland and the North - entry capability (St Fergus, Teeside, Barrow)
These charts show that with all assets available, the level Under all the scenarios, we see a long-term need for
of physical capability in Scotland and the North exceeds compressors at St Fergus, Aberdeen, Avonbridge and
the current level of stakeholder flows at high levels of Bishop Auckland17 to provide entry capacity at the St
demand and meets it at lower levels of demand. At times Fergus terminal, to move gas South down both the East
of lower demand (i.e. the lower end of the x-axis on the and West coasts, and to meet Scottish assured
charts), we would remove assets from operational service pressures. We therefore propose to maintain capabilities,
for maintenance and repair. This lowers the actual level of improve reliability and xxxxxxxxxxxxxxxxxxxxxxxx
network capability available from the intact network. xxxxxxxxxxxxxxxxxxxxxx18.
The charts also show that in all the FES scenarios,
capability requirements reduce over time. As a result, we The work required at these sites will require station
have adopted a strategy that will reduce the compressor outages during RIIO-2. To facilitate this work, whilst
capability in this part of the network over the longer term. meeting customer network capability requirements means
The key questions being the timing of decommissioning that we need to retain other compressor sites at
for compressors impacted by emissions legislation where Kirriemuir and Wooler to provide transmission capability
there isn’t a clear long-term need for their replacement down the West and East coasts respectively. We are
with new compressor units. therefore proposing to retain these sites during RIIO-2,
but to minimise the investment in them as much as
possible, with a further decision in RIIO-3 on whether to
17
Figure 12.16 shows the locations of compressors on the network.
18
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxx
47
Network capability
decommission or derogate them. We are proposing Carnforth, there are compressors which will become non-
decommissioning all the Moffat compressors during RIIO- compliant in 2030 and we are minimising our RIIO-2
2 as this capability is no longer required19. spend on these. A decision on whether to decommission
Compressors in the North West of England move gas or derogate these has been deferred to RIIO-3, in line
from St. Fergus South, with Carnforth and Nether Kellet with the 2030 compliance date and when there will be
also providing exit pressures to customers in the North increased certainty over the requirement for them. With a
West. Our compressors at Nether Kellet are emissions reduction in St. Fergus flows, we are proposing to
compliant and we are proposing to maintain these xxx decommission the Warrington compressor site in RIIO-2.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx At
Table 12.09 compressor summary – Scotland and the North entry capability
Operational driver for
compression (yes/no)
c
Transmission
Age xxxxxxxxxx RIIO-2 xxxxxxxxxx

Site Proposal
(yrs) xxxxxxxxxxxx Spende (£m) xxxxxxx
Profiling
Entry
Exit
xxxxxxxxxxxxx Maintain capability

St Fergusa 4-42 - Y - - xxxxxx £157.920 xxxxxxxxx
xxxxxxxxxx
xxxxxxxxxxxxx Maintain capability
Avonbridgeb 15 Y Y Y Y xxxx £52.0
xxxxx
xxxxxxxxxxxxx Emissions – Defer
xxxxx decision to
Kirriemuirb 5-42 N Y Y N xxxxxx £44.1 decommission or
derogate non-compliant
units to RIIO-3
19- xxxxxxxxxxxxx Maintain capability
Aberdeenb N Y Y Y xxxx £39.0
20 xxxxx
Bishop xxxxxxxxxxxxx Maintain capability
20 N Y Y Y xxxx £30.2
Aucklandb xxxxx
Nether xxxxxxxxxxxxx Maintain capability
15 Y N Y Y xxxxxx £21.5
Kelletb xxxxx
xxxxxxxxxxxxx Decommissioning site
Moffat 39 - - - - xxxx £11.1
in RIIO-2
xxxxxxxxxxxxx Emissions – Defer
decision to
19-
Carnforthb Y N Y Y xxxxxx £9.2 decommission or
30
units to RIIO-3
xxxxxxxxxx Decommissioning site
Warrington 35 - - - - xxxx £6.6
xxxxxx in RIIO-2
Wooler 20 N Y Y N xxxxxxxx £4.2 xxxxxxxxxxxxx Maintain capability
 Note a – Further justification contained in the St. Fergus EJP (annex A16.16) and CBA (annex A16.17).
 Note b – Further justification of the need for this compressor can be found in annex A12.04.
 Note c – Operational driver for compression definitions
o Exit – Required to meet pressure and/or exit capacity obligations (including those required for meeting our 1 in 20 licence obligation)
o Entry - Required to meet pressure and/or entry capacity obligations (including those required for meeting our 1 in 20 licence obligation)
o Transmission – Required for bulk transfer between different zones in the network
o Profiling – Facilitates the ability for customers to profile and change their planned gas flows within day.
 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxx
o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 Note e – Costs for asset health, cyber, physical security, emissions compliance and redundant assets.
o Costs include baseline TOTEX (including those subject to uncertainty mechanism) and uncertainty mechanisms not proposed under baseline
funding
o Costs reflect updates post RIIO-1 re-opener decisions
o Physical security costs are at a site level to protect all impacted assets (i.e. not specific to compressors).
19 20
Decision is subject to consultation with employees and trade unions. Excludes costs subject to a proposed uncertainty mechanism.
48
Network capability
Figure 12.10: South Wales – entry capability (Milford Haven)
These charts show that under all the FES scenarios, exit pressures in South Wales, when there are low LNG
there is a sustained need for capability that is close to, or imports at Milford Haven, and support pressures in the
above, the capability of an intact network. Even before North West during periods of high storage injections.
considering the reductions in capability arising from Whilst geographically further away, the compressors at
planned or unplanned maintenance, there is a risk of Alrewas support Milford Haven entry flows on the higher
entry constraints at Milford Haven under certain flow days. We are proposing to retain the one compliant
supply/demand scenarios. Given the constraint risk and unit at Alrewas xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
stakeholder feedback around the impacts of disruption, xxxxx. For the non-compliant units at Alrewas, we are
our strategy for this part of the network is to retain seeking to minimise spend with decision on derogation or
capability. decommissioning of these units deferred until RIIO-3.
Decisions on the long-term requirements for compression
At Churchover and Felindre, we are proposing to maintain at Alrewas may also be affected by the outcomes of the
all compliant compressor units, with the two old PARCA application at Milford Haven.
disconnected compressor units at Churchover being
decommissioned during RIIO-2. At Wormington, Pipeline decommissioning
emissions legislation impacts 2 compressors. We have On feeder 14 between Alrewas and Churchover, there is
considered the credible options to maintain the required a short (17km) connecting pipeline from Austrey to
capability, and concluded via CBA, that the optimal Shustoke, which previously supplied a gas distribution
solution is 2 new replacement units at Wormington. The 2 offtake. This offtake was isolated in 2018 and Cadent are
new units will allow us to maintain the capability to deliver proposing to decommission it during RIIO-2. As capability
higher levels of gas flows from Milford Haven, which are to Shustoke will no longer be required from the NTS, we
above the level of capability of the one electric drive are proposing to disconnect and nitrogen fill this pipeline
compressor at the site. They will also support delivery of during RIIO-2, whilst we explore alternative uses for it.
49
Network capability
Table 12.11 Compressor summary – South Wales entry capability
Transmission
xxxxxxx RIIO-2
Age xxxx xxxx
Site xxxxx Spend Proposal
(yrs) xxxxxxx
Profiling
xxxxxxx (£m)
Entry
Exit
xxxxxxxxx Emissions – Build two new

10- xxxxxxxxxxx units in RIIO-2 and
Wormingtonf Y Y Y Y xxxxx £99.8
30 decommission non-compliant
two in RIIO-3
xxxxx xxxxxxx Emissions – Decommission
Churchoverg 9-18 Y Y Y N xxxxx £19.7 xxxxxxxxx xxxxxxx 2 units which were
disconnected in RIIO-1
xxxxxxxxxxxxx Asset health investment due
xxxxx to age, condition and
obsolescence and full cyber
18-
Alrewasg Y Y Y N xxxxx £18.6 on the one compliant unit.
48
Emissions – Defer decision to
decommission or derogate
non-compliant units to RIIO-3
xxxxxxxxxxxxxxx Maintain capability
Felindreg 11 N Y N Y xxxx £14.1
xxxxx
 Note f – Further justification contained in the Wormington EJP (annex A16.10) and CBA (annex A16.11).
 Note g – Further justification of the need for this compressor can be found in annex A12.04.
South East (Bacton and Isle of Grain entry capability) Bacton entry capability with the same assets, and vice
For Bacton, the network capability delivered by a group of versa). To represent this, our network capability
assets is slightly more complex due to the interaction visualisations for Bacton show two levels of entry
between entry flows at Bacton and the Isle of Grain LNG capability, the higher purple line with low IOG flows and
terminal (IOG). High IOG entry flows meet demand in the the lower orange line with high IOG flows.
South East and displace flows from Bacton (i.e. lowering
Figure 12.12 South East - entry capability(Bacton with Isle of Grain sensitivity)
50
Network capability
These network capability charts show that there is a large available outage windows in this area of the network and
amount of uncertainty over requirements in this part of the on this critical site. We therefore need to progress the
network. This uncertainty changes with time, under the solution for the site to maintain the ability to meet the
different FES scenarios and differing IOG flow planned outage window. Recognising the scenario
assumptions. For example, in all of the FES scenarios, uncertainty, we are proposing that investment taking
with high IOG flows there is significant constraint risk, in place post FEED (Front End Engineering Design), is
the steady progression scenario and low IOG flows there subject to an uncertainty mechanism process that can
is no constraint risk (with all assets available). accommodate the latest information available at that time.
Diss and Chelmsford compressors are also key to moving
Environmental emissions legislation impacts two gas away from Bacton and towards the South East at
compressors at King’s Lynn and we need to decide on a higher demand levels and when IOG flows are low. As
long-term approach for these in our RIIO-2 plan. We are these compressors also support meeting South-West
proposing to start building two new compliant units in pressures and exit requirements these are covered in the
RIIO-2, commissioned in RIIO-3 allowing ‘South East and South West (exit capability)’ section
decommissioning of the two non-compliant units. The below.
timing of any such investment is heavily constrained by
Table 12.13 Compressor Summary – South East (Bacton and Isle of Grain entry capability)
Transmission
xxxxxxx xxxxxxx
Age
Site xxxxxx xxxxxx Main cost drivers Proposal
(yrs)
Profiling
xxxxxxxx xxxx
Entry
Exit
Emissions Emissions – Start building two

legislation, Cyber
new units in RIIO-2, (subject
King’s
h 16-48 Y Y Y Y xxxxxx xxxxx to an uncertainty
Lynn
mechanism). Decommission
non-compliant two in RIIO-3.
 Note h – further justification contained in the King’s Lynn EJP (annex A16.14) and CBA (annex 16.15)
Figure 12.14 South West and South East - exit capabilities
51
Network capability
These two sets of exit charts show that current capability South East exit capability
is required but that the customer requirement, in most Our compressors at Diss, Chelmsford and Cambridge are
cases, will reduce over time. The key uncertainty being essential for providing exit pressures and meeting our 1 in
the timeframe over which this reduction will occur. For 20 licence obligations in the South-East. At all of these
example, in the South East under the steady progression sites, we have back up compressors that will be non-
scenario, capability is required to be maintained until at compliant with emissions legislation by 2030. Given the
least 2050. Under the community renewables scenario, uncertainty over the timing of a reduction in network
capability requirements have already reduced by 2030. capability, we are proposing to retain these units during
RIIO-2, with minimal spend, deferring the decision on
South West exit capability their decommissioning or derogation until RIIO-3.
Aylesbury and Lockerley are vital to delivering exit
pressures and our 1 in 20 obligations in the South West. Under certain scenarios, high gas supplies at Bacton
In addition to supporting high demands in the South and/or Isle of Grain, can meet demand in the South East.
West, the gas powered compressors at Aylesbury provide Under other scenarios, with lower flows at these entry
back-up, in the event of issues with electrical supply or points, the compressors at Hatton, Peterborough,
other unplanned outage to the Lockerley site, which only Huntington and Wisbech are required to move gas into
has electrically driven compressors. Our plan therefore this part of the network.
proposes retaining these compressors. Upstream
supplies and pressures are required for these Pipeline disconnections
compressors to operate successfully; this is delivered by Due to the closure and planned decommissioning of the
compressors at Hatton, Peterborough, Huntington and Theddlethorpe entry terminal, we are proposing to
Wisbech. During RIIO-1, we have established the needs disconnect and nitrogen fill the two pipelines (combined
case for compression at Hatton, Peterborough and length of 70.8km) connecting Theddlethorpe to Hatton.
Huntington. Our business plan proposes a new These pipelines have the potential to be part of a future
compressor unit at Peterborough, delivered in RIIO-3, to hydrogen or carbon capture project at Theddlethorpe.
provide resilience (back-up) to the compressors at the
site.
We are proposing to retain Wisbech and a future non-

compliant unit at Huntington, with minimal spend, for
RIIO-2 to facilitate the outages required at Hatton,
Peterborough and Huntington. During RIIO-3, we will
determine whether to decommission or derogate Wisbech
and the non-compliant unit at Huntington.
52
Network capability
Table 12.15 compressor summary – South East and South West exit capability
Operational driver for xxxxxx RIIO-2
xxxx xxxx
compression (yes/no) xxxxxx Spend Proposal
xxxxxxx
xxxxxxxx (£m)
Transmission
Age
Site
(yrs)
Profiling
Entry
Exit
Xxxxxx Deliver RIIO-1 proposals

Hattoni 28-30 Y Y Y Y xxxxxx £86.321 xxxxxxxx
xxxxx
Xxxxxx Emissions – Defer decision
xxxxxxxx to decommission or
Dissj 40 Y Y Y Y xxxxxx £28.8
xxxxx derogate non-compliant
units to RIIO-3
Xxxxxx Maintain capability
Lockerleyj 19 Y N N N xxxx £27.5 xxxxxxxx
xxxxx
Xxxxxxxxxx Emissions –
xxxxxxxxxxx Decommission two units
which were replaced in
Peterboroughk 41-46 Y Y Y Y xxxxxx £15.0 RIIO-1. Begin building a
3rd new unit in RIIO-2
(subject to an uncertainty
mechanism)
Xxxxxxxxxx Emissions –
xxxxxxxxxxx Decommission two units
which were replaced in
Huntingdonk 14-30 Y N Y Y xxxxxx £14.6 RIIO-1 and defer decision
to decommission or
derogate third unit to RIIO-
3
xxxxxxxxxxxx Emissions – Defer decision
to decommission or
Wisbech 39 Y Y Y N xxxxxxxx £7.2
units to RIIO-3
to decommission or
Chelmsfordj 46-48 Y Y Y Y xxxxxxxx £6.6
units to RIIO-3
to decommission or
Cambridgej 16-45 Y Y Y Y xxxxxxxx £4.1
units to RIIO-3
Aylesbury 20 Y N Y Y xxxxxxxx £3.9 xxxxxxxxxxxx Maintain capability
 Note i – Further justification of the need for Hatton compressor can be found in our Hatton IED Needs Case submission – June 2019.
www.ofgem.gov.uk/system/files/docs/2019/08/hatton_needs_case_submission.pdf
 Note j – Further justification of the need for this compressor can be found in annex A12.04
 Note k – Further justification contained in the Peterborough and Huntington EJP (annex A16.12) and CBA (annex A16.13).
21 This includes costs for Hatton following the RIIO-2 re-opener decision.
53
Network capability
Figure 12.16 proposed compressor fleet at the end of RIIO-1, RIIO-2 and RIIO-322
Figure 12.17 summary of the key areas of our plan impacted by network capability
Compressors – To meet environmental legislation requirements by 2030 we are proposing:
chapter 16  2 new compressor units at Wormington in RIIO-2 and we will design the solution for 6 compressor
units at 3 sites (King’s Lynn, Peterborough and St Fergus) for delivery RIIO-3. We are proposing a
spread of PCDs for those activities where there is clear certainty of need, cost and scope and UMs
where uncertainty remains in order to protect consumers should the need change.
 To assess a further 20 non-compliant units as part of the ongoing process to determine the solution,
either limiting the annual running hour limits from 2030 or decommissioning. We will defer decisions
on decommissioning until we’re certain that this will not lead to additional costs to future consumers.
 To decommission a further 7 redundant compressor units at 4 sites during RIIO-2.
Asset health Our asset health programme, including on compressors not captured above, is designed to maintain
– chapter 14 overall levels of reliability and availability as experienced by stakeholders in RIIO-1.
Our non-compressor sites and pipelines primarily provide connectivity between entry and exit points.
Where there is a no continued requirement, these are covered in our redundant assets plan.
We propose that our programme of asset health will be subject to PCDs to monitor delivery and the
regulatory under/over delivery mechanisms.
Cyber and physical We are investing to protect our network from external threats, with investment focused on sites where
threats – chapter 15 there are higher levels of certainty over the long-term requirements to meet stakeholder needs. For
sites with less certainty over the longer-term future we are deferring work until RIIO-3 and/or focusing
investment on protecting access to the systems rather than undertaking a full replacement of the
operational technologies we use to control our operational processes and equipment.
We propose that our programmes of work to address external threats are subject to PCDs and UMs to
protect consumers.
Redundant assets Where assets are no longer required to deliver connectivity or capability, we are proposing a
– chapter 16 programme to address these in an environmentally sensitive manner. We are proposing a PCD
associated with the completion of this work.
Constraint Our proposals for a constraint management incentive have been informed by our analysis of network
management capability which allows us to assess where there is a risk that we can’t meet the needs of customers.
incentive – chapter 14
The key investments in these areas are underpinned by capability analysis and metrics. All of the costs associated
cost benefit analysis (CBA) and engineering justification with our compressor emissions, asset health, cyber and
papers (EJPs) linked to the chapters above. These physical threats are covered through EJPs.
include the key assumptions and the range of options
considered compared against a counterfactual option. Network capability – supporting annexes
They are based on the principles of only investing in the Ofgem has requested that, in reviewing network capability
interests of consumers and where it is cost efficient. They for our business plan, we produce three specific reports:
use the same data that has been used in our network
22
End of RIIO-3 position reflects our current best view on future RIIO-3 derogations or decommissioning decisions. Working with stakeholders, we
will continue to review the correct blend of decommissioning and derogations due to marginal cost benefit analysis outputs for some compressors
and the future uncertainty in gas flow patterns on the network.
54
Network capability
 an initial network capability report setting out the development of the annual process and expect to have
physical capability requirements of the NTS on 1 April further details on timings of the proposed process by end
2021, based on user needs. of March 2020. During RIIO-2 we will use the
 a network capability target report setting out user independent SUG to challenge our annual conclusions
requirements for network capability that we will deliver and review whether our proposals reflect the needs of
by the end of the RIIO-2. It sets out our longer term stakeholders. Our ongoing assessment will be used to
forecast of the levels of physical capability the NTS inform any reopeners during the RIIO-2 period.
must provide to service user needs efficiently.
 a baseline obligated capacities report setting out the Transmission Working Group 705R
results of our assessment of the appropriateness of the During our discussions with stakeholders on network
current levels of baseline obligated entry and exit capability and baselines, they have raised issues around
capacities including any proposals for revisions to accessing the existing capacity of the network and the
baseline capacities. impact of exit capacity baseline changes on capacity
substitution processes. These concerns are being taken
The requirements for the initial network capability report forwards under Transmission Working Group Mod. 705R
and the network capability target report are met through a (see chapter 17 for more information).
single annex (annex A12.02). This annex uses capability
charts for entry and exit, consistent with the ones Charging review
contained in this chapter, for all zones on the network to We will continue to monitor the outcomes of the charging
meet the requirements of the reports. The baseline review and any resulting change in shipper behaviour on
obligated capacities report is contained in annex A12.03. capacity booking and use of the network. These will
In this annex we are proposing reductions in the level of factor into our longer term thinking on network capability
obligated Entry Capacity at Theddlethorpe (from 610.7 to requirements and capacity baseline levels.
0 GWh/d) and at St Fergus (from 1670.7 to 1500 GWh/d).
Modelling capability innovation
Under our RIIO-2 plan, we are seeking baseline funding
Ongoing activities during RIIO-2
to further improve the capability of our processes, people
Table 12.18 network capability commitment and IT systems in relation to network capability. One
Commitment Output example is our ability to develop a robust approach to
Annual network capability assessment: Run Licence treatment of boundary capability between zones24.
an annual transparent stakeholder engagement Obligation
led process to update our network capability
metrics following the publication of FES and Network capability conclusions
reflect any refinements to our proposed We are aware of the importance of the decisions we are
investment decisions. proposing for our RIIO-2 plan for long-term energy needs
for our stakeholders and consumers. We have built our
We will continue to assess whether our business plan approach to network capability on existing business
meets the stakeholder requirements for levels of network processes, balancing the risks and uncertainties faced to
capability and represents value for money for consumers produce our RIIO- 2 plan. We have worked with
during RIIO-2. Changes may be because of: stakeholders to test our definition of network capability
 changing stakeholder needs, articulated through the and to test that our new metrics provide a meaningful way
annual FES publications and ongoing engagement with to show levels of network capability compared to a range
our stakeholders, and an assessment of these on our of potential future stakeholder requirements.
planned programmes of work
 reviews of any planned or ongoing works during RIIO-2 Our plans reduce levels of network capability, for example
 outcomes from any UMs or reopeners included in the by not replacing 20 compressors impacted by the medium
regulatory arrangements for RIIO-2, and/or combustion plant directive and decommissioning a further
 an unexpected issue with an asset, at which time it 7 redundant compressor units. Through the proposed
would be sensible to assess the impacts on our planned annual ongoing network capability assessments, we are
work and what the optimal response should be. creating the opportunity to further amend levels of
network capability as future stakeholder requirements
We propose to make our annual network capability become clearer. We have focused our RIIO-2
assessment a transparent annual process23, we will investments where we have a greater level of certainty
update the metrics in this document and others that may over long-term requirements for the sites. This approach
develop and share the outcome with stakeholders to is aligned with stakeholder and consumer interests.
continually gather feedback as to whether the level of
We are confident our proposals are the right ones to meet
network capability is meeting their needs now and will
stakeholders needs today and keep options open for the
continue to in the future. We have shared our proposal on
future. We will introduce a new annual process so we can
the annual process with stakeholders and, so far, have
update and refine our investments as changes emerge.
received a positive response. We will involve
stakeholders and the enduring independent SUG in the
23 24
Further information see annex A12.02. See annex A12.02 and the GSO section of chapter 14.
55
I want the gas system to be safe
13. I want the gas system to be safe

What is this stakeholder priority about?
This priority is about what we do to keep the public, our employees and other people who work on or around our assets
safe from the hazards inherent in our business. Failure to supply gas and major uncontrolled releases of gas from the
high-pressure network are both threats to life and property. This priority also covers the occupational safety and
wellbeing of our staff and contractors whilst we continue to develop the right safety culture within gas transmission.
What have stakeholders told us?

Stakeholders have consistently said that safety is a priority, they are aware of the risks to life and disruption to gas
supplies associated with our operations, and they appreciate the crucial role of the gas transmission system.
During RIIO-2 we will: maintain our first-class level of safety whilst continuing to pursue the highest level of safety
culture maturity. Our safety culture underpins how we undertake our work. We will comply with legislation through
routine and preventive safety activities to protect the public, our people and assets. We will investigate all near misses
and process safety incidents, embedding any learning in our business processes. Our RIIO-2 plan for safety continues
the best practices we implemented in RIIO-1 ensure the safety of our employees and the public.
We will spend £14.5m per year (3 per cent of our RIIO-2 plan) on the routine and preventive safety activities described
in this priority. This compares to £16.9m per year during RIIO-1. The spend is related to our teams who undertake
strategy and assurance roles across gas transmission and our central corporate team who provides support on our
corporate health and safety commitments. It also accounts for our costs associated with our network emergency
coordinator (NEC) commitments, our IT systems to track performance of our activities and our operational properties to
protect assets and provide appropriate welfare arrangements for employees.
This chapter is just part of our commitment to delivering a safe, reliable and resilient network. In ‘I want to take
gas on and off the network, where and when I want’ our asset health plan, projects, and how we operate the
network take into account the significant safety risk that we minimise every day to protect the public, our
people and assets.
Figure 13.01 RIIO-1 and RIIO-2 spend profile ‘I want the gas system to be safe’
RIIO costs
£25
£20
£15
£m
£10
£5
£0
Reporting year
56

1. What is this stakeholder priority about? and continually improve performance. The framework is
At National Grid, safety is paramount. We continue to aligned to HSE guidance and British Standards following
pursue the highest level of safety culture maturity. For the ‘Plan, Do, Check, Act’ approach. The SMS is
process safety, our ambition is to systematically identify organised as shown in figure 13.02.
and mitigate process safety risks through the embedding Figure 13.02 safety management system
and use of our process safety management system and
to drive continuous improvement by benchmarking our
performance and adopting good practices.
This priority is about our routine and non-routine activities

to protect the public, our employees, people who work on
or around our assets and the environment from the safety
risks associated with the network. Alongside our asset
and process-related safety, health and environment
(SHE) compliance activities, we have included our work
on occupational safety, wellbeing and health and driving
the right safety culture throughout our organisation.
Accidental damage to pipelines by third parties is the

number one cause of pipeline rupture in Europe. Asset
failures of the UK gas transmission system can result in
uncontrolled releases of high-pressure gas and could Safety considerations underpin everything we do in both
ultimately lead to a national energy supply emergency. In office and operational environments, but in this chapter
addition to any fatalities associated with the original asset and in table 13.03, we have highlight activities and teams
failure, the consumer impact of an outage of greater than where safety is their prime purpose.
30 days in temperatures below 5°C is predicted to lead to
Table 13.03 summary of safety activities
fatalities in one in ten UK households25. Activity What does this involve?
People – to Fulfilling the Network Emergency Co-
As a gas transporter, and in our role as NEC, we must deliver ordinator role including co-ordination of
comply with written ‘safety cases’ accepted by the Health assurance, cross-industry emergency exercises.
and Safety Executive (HSE). These set out how we compliance Setting standards and implementing
manage the safety of the gas network in line with the Gas and management systems for:
Safety (Management) Regulations, along with the specific emergency  process safety
additional requirements associated with the sites at preparedness  occupational safety, wellbeing and health
Bacton and St Fergus which fall under the upper tier  assurance including audit and
requirements of the Control of Major Accident Hazard benchmarking.
(COMAH) Regulations. Reviewing and updating safety cases.
Compliance with key legislation including the
Pressure Systems Safety Regulations and
Key safety legislation for our business is predominantly the Pipeline Safety Regulations, for example
based on ‘goal setting’ principles. This means we must through regular pipeline inline inspections
manage risks down to a level that is as low as reasonably and pressure systems testing. Explosive
practical (ALARP). We cannot stand still. The safety atmospheres management and lifecycle
standards expected of us are continually increasing as management of safety systems.
new technologies come on line and best practice evolves. Third party Regular aerial surveillance of all pipeline
At the same time, housing development and population interference routes to highlight any risks to integrity e.g.
growth is bringing increasing numbers of people into from farming or construction activity. Regular
line-walking of all pipeline routes to identify
close proximity to our pipelines and other potentially
issues not visible from the air e.g. depth of
hazardous facilities. cover and damaged pipeline marker posts.
Talking to land owners and local authorities
2. Our activities and current performance to raise awareness of the safety issues of
We have a mature safety management system (SMS), working near our assets. Providing a 24/7
organised to deliver our statutory and regulatory duties. emergency response to make safe and repair
We use it to ensure that we have taken all necessary any pipeline damage including using
steps (as far as is reasonably practical) to comply with all specialist equipment and strategic spares.
Operational Maintenance of operational land and
relevant safety legislation, primarily the Health and Safety
property buildings. Refurbishment and/or replacement
at Work Act and its associated regulations, codes of of operational buildings to provide safe and
practice and guidance. The SMS is a framework that accessible working conditions for all
allows us to consistently identify and control health and employees and protect our assets from
safety risks, reduce potential for accidents and incidents, damage.
25
http://www.hse.gov.uk/gas/supply/nobel-denton-report.pdf - June 2011
57

Track record and learning in RIIO-1 During the RIIO-1, period we have developed a proactive
Our safety performance is reported in our annual working relationship with the HSE. Over the last two
regulatory reporting packs26. We have met our key target years, there has been an increased focus from the HSE
of compliance with all relevant HSE legislation. National on testing our compliance to legislation and safety cases.
Grid is well regarded by our peers and supply chain for Previously, the HSE have identified potential control
our proactive management of safety. We actively and weaknesses requiring clarification or action. However,
openly share performance data, initiatives, ideas and last year no actions were issued, and this illustrates the
issues in relevant peer groups, industry forums and with improved maturity and value of the three lines of defence
our key supply chain partners to seek opportunities to assurance model in ensuring we meet our licence
continuously improve. Across our US and UK business conditions. Figure 13.04 shows the number of HSE
we also share best practice on safety measures, led by interactions over the last three years along with the
our Chief Engineer. This allows us to apply further insight number of actions raised. Also, during the RIIO-1 period
and best practice to our activities. we held an inspection for the NEC, which resulted in no
actions and seven recommendations.
Process safety Figure 13.04 number of HSE interactions and
We have a mature safety management system to associated actions
manage our safety risks, which we have strengthened 20 8
throughout RIIO-1. Our process safety management
Number of HSE
Number of Actions
strategy includes; identification of our major hazards, 15 6
Interactions
assessment of risks and application of the Eliminate, 10 4
Reduce, Isolated and Control (ERIC) principles to
manage and reduce the risk from our assets and 5 2
operations. We have an assurance processes 0 0
implementing three lines of defence27 model as per good 16/17 17/18 18/19
practice. Independent experts DNV GL benchmarked Year
our process safety management performance using its HSE Interactions (left axis) Actions (right axis)
International Sustainability Rating System. Our
performance was rated in the upper quartile within a
comparator group of more than 200 worldwide oil and gas Innovation
sites. This objective assessment has helped us to be As safety is a top priority, innovation to improve
clear on what it means to be ‘industry leading’. It has performance has always been important. Through RIIO-
given us a better picture of our strengths and weaknesses 1, we have undertaken several innovation projects
and sharpened our focus on areas where we can improve focused on specific safety improvements and we also
how we manage the inherent risks of our high-hazard seek continual improvement in our safety performance.
assets. Table 13.05 safety innovation projects
Project Description
HSE requirements Development of ‘above ground installation
The HSE is our safety regulator. To ensure we meet their (AGI) safe’ software package allows better
requirements, we have processes in place to stay aware quantitative risk assessments and more
Development
of all legislative and supporting guidance requirements, efficient designs. This led to a one-off
of AGI Safe
saving of £84k at Peterborough
ensure clear policies and procedures are implemented
Compressor Station and will be used in
and maintain a competent workforce to deliver these future applications in RIIO-2.
requirements and deliver risk based targeted assurance. Use of polyethylene (PE) instead of
We work closely with the HSE to ensure we are PE slab concrete slabs to protect pipelines. The
complying with key safety legislation and that risks to protection slabs are cheaper, safer and better for the
people from our activities are ALARP. Specifically, environment to install. To date £767k, has
through: been saved in total.
 our activities relating to COMAH, Gas Safety
(Management) Regulations, Pipeline Safety Keeping our employees safe whilst maintaining
Regulations and Pressure Systems Safety health and wellbeing
Regulations Our combined injury frequency rate over the RIIO-1
 supporting the HSE’s programme of targeted period up to 31 March 2019 was 0.07. This is good
inspections and investigations performance within the UK Energy Industry Safety
 raising awareness of current safety-related Leaders Group range of 0.04 to 0.25. However, we regret
issues/trends through planned liaison meetings. that, over the RIIO-1 period up to 31 March 2019, our
operations incurred one employee and 17 contractor lost-
26
https://www.nationalgridgas.com/about-us/business-planning-riio/how-were-performing
27
The first line of defence is provided by the first line supervisor during normal supervisory activities. The second line of assurance is conducted by a
team within the business who audit and assure a range of work activities in a targeted programme. The third and final level of assurance is provided
by our corporate audit function who conduct periodic audits as set out in their audit plan. Most issues will be identified and corrected or escalated by
the supervisor, with the second and third level assurance teams identifying more systematic and process issues.
58

time injuries (LTIs); such injuries occur against a approach, understanding and managing our key
backdrop of more than 25 million hours worked. wellbeing and health risks. We use internal and external
data to focus on specific areas, and our immediate risk
We work closely with our contractors to improve and profile is mental wellbeing, musculoskeletal injury
maintain safety. During the RIIO-1 period numerous prevention and occupational health risk exposure
improvements were implemented across gas mitigation. We have a UK Wellbeing Strategy through
transmission via several mechanisms. These included which we look to achieve the following:
contractor forums, joint working groups targeting specific  Create and embed a culture that enables everyone to
topics, close working with designers including supporting perform to the best of their abilities knowing they are
the development of new interactive design techniques, well cared for and can talk openly about their health
lessons learnt sessions, safety bulletins, monthly “Focus
and wellbeing.
On” briefings based on trend analysis, various workshops
and improvements in data management. The  Build a workforce where healthy, engaged and
improvements have been recognised through the supportive employees can succeed and thrive.
increase in reporting of safety near misses, the uptake of  We are recognised as an employer that leads in
dynamic “at the work face” risk assessments and employee wellbeing and this enables us to attract and
improved segregation of people and plant. retain the best talent.
Driving is one of the most hazardous activities we To help us meet our ambition as being recognised as a
undertake day to day. We have promoted awareness leading organisation within wellbeing and health, we are
among our employees through rollout of a hard hitting, members of groups and organisations, supporting the
police and emergency services backed, “Crash Course” government to create policy on wellbeing initiatives, or
road safety informational campaign. Since 1 April 2017, offering our support and services to help raise the profile
we have banned the use of mobile phones whilst driving and reduce the risk for smaller organisations. These
on business, including the use of hands-free equipment. groups include Business in the Community (BiTC), The
This stance, backed by our executive team and trades Inclusive Economy Partnership (IEP) and Thriving at
unions alike, is in recognition of overwhelming evidence Work.
from police and safety professionals of the distraction risk
posed by the use of mobile devices.
3. What have stakeholders told us?
We have asked our stakeholders on their views on safety
Our employees’ physical and mental health are
through various channels including workshop events and
paramount to us succeeding as a business. We know that
webinars. We have shared our business plan proposals
a holistic approach to health helps to keep our employees
directly with the HSE throughout the RIIO-2 business plan
healthier, and engaged, for longer. Our SHE Committee
process to understand their views. Most of our safety-
continues to focus our wellbeing efforts on encouraging
related activities are driven by compliance with legislation
behavioural change within our workforce, through
and application of established best practices. This limits
education and training. Our wellbeing programmes have
the amount of influence our customers or consumers can
raised awareness to employees of various risks
have on workload. The objective of our engagement
associated with modern living and the impact it can have
was to understand what level of safety performance
on their health. Campaigns have included: diabetes
awareness, circadian rhythms, body weight, cancer Table 13.06 stakeholder engagement
prevention, nutrition and mental health. Engagement topic: safety
Stakeholder All of our stakeholder segments.
segments
Around 12 per cent of our workforce are now trained in engaged
mental health first aid. These in-depth training sessions Objective What level of safety performance is expected
are designed to provide employees and leaders with the from us?
knowledge and confidence to notice and respond to Channel/ Safety and reliability were included in events,
mental health issues in the workplace. We offer many method webinars, bilaterals and consumer
levels of service to support with work and home life engagement.
concerns. Alongside the emotional support offered Key Safety is a top priority and stakeholders
through our Employee Assistance Program partners, we messages expect us to meet legislative compliance and
offer physiotherapy sessions, occupational therapy as keep the public safe. It will be important
well as our legal obligation towards occupational health. during RIIO-2 that we address the issues of
our ageing assets, ensuring they are safe
now and into the future. Process safety is
Our services support employees to return to work more becoming more of a focus and we should
quickly than dependence on the NHS, with occupational play our part. Safety and resilience were a
therapy that focuses on both the physical and top priority by domestic and non-domestic
psychological aspects of prolonged or chronic ill health. consumers during acceptability testing.
We know we aren’t obliged to do this, however, it shows
our employees the care and concern that we have for
them, and it mirrors that every aspect of who our
employees are is important to us. We take a risk-based
59

Trade-offs We will continue to keep safety as a top issues that relate to the safe operation and maintenance
and priority. Given safety investment is driven of onshore pipelines. We engage regularly with the other
stakeholder primarily by the need to comply with terminal operators at St Fergus and Bacton. These
influence legislation there are no trade-offs to be made. meetings cover topics from operations to safety, including
on the plan
any lessons learnt.
SUG and We have taken on board feedback from the
Challenge SUG, for example, ensuring this chapter 4. Our proposals for RIIO-2 and how they will
Group clearly articulates the activities we undertake
feedback related to the cost, we have clarified our
benefit consumers
ambition on first class safety performance In our proposals for RIIO-2, we will continue to pursue the
and included more on behavioural safety. highest level of safety culture maturity. We will protect the
public, our employees and the environment from the
We also participate in industry wide groups in the UK and safety risks of our transmission system and comply with
across Europe. In the UK, for example, we are part of the all legislation that applies. We are committed to continual
UK Onshore Pipeline Operators’ Association (UKOPA), process improvement. Our safety priority maps to
where we participate to share knowledge and promote Ofgem’s output category, ‘maintain a safe and resilient
best practice across the industry. UKOPA helps to network.’
develop a comprehensive and consistent view of strategic
Table 13.07 safety proposals
What our Commitment Output type Consumer benefit
stakeholders
have told us
Safety is a top People – We will carry out our safety strategy and Commitment “I want you to facilitate delivery of a
priority and assurance roles and our corporate health and safety sustainable energy system” –
stakeholders commitments. through managing down the
expect us to People – we will provide 24/7 standby cover, Commitment likelihood of low frequency, high
meet emergency planning and training. We will also impact incidents; we protect society
legislative undertake our activities associated with our NEC role. from potential disruption and
compliance damage to public health, business,
and keep the transport and the natural
public safe. environment that could be
associated with gas transmission
failure events.
Third Party Interference – we will minimise the risk of Commitment “I want to use energy as and when I
others causing damage to our pipeline network by want” – our commitment to safety-
carrying out regular surveys and consider new related inspections, maintenance
technological options to become more effective and and asset replacement avoids
efficient. disruption to continuity of gas supply.
We will maintain an emergency response and repair This also affects industry and
service for our pipework systems across Great Britain. electricity supply.
Operational properties – 22 sites during RIIO-2 to be Commitment
refurbished or replaced so they are in a state to protect
our people and assets from damage and weathering.
5. How will we deliver? management, rather than penalise the few remaining
The gas transmission SMS framework structure is based negative instances of injury or harm that still occur.
on the Plan, Do, Check, Act (PDCA) model, which is an
iterative process and drives continuous improvement. In our annual planning cycle, we refresh our view of key
This will be a key process that will help us maintain our risks, evaluate opportunities for further risk mitigation and
world-class level of safety whilst continuing to pursue our continuous improvement, and develop SHE plans to
goal of zero harm. We will continue to embed the benefits implement initiatives to improve. The success of SHE
of safety innovations into business as usual and look for management is wholly dependent on the engagement
further ways to improve. and conscious effort from all our employees, particularly
our field-based employees and contractors. Annually, we
Our processes are monitored by an agreed scorecard of run a safety culture survey to understand feedback from
leading and lagging indicators, consistent with good our employees.
practice, and assured by implementing the widely
recognised good practice of the ‘three lines of defence’ People – developing the skills and behaviours that
assurance model. Leaders are incentivised and targeted support safety
on a mix of targets (both leading and lagging). For We define and maintain safety and technical
example, our leaders have leading targets on delivering competencies (STCs) for our operational workforce and
effective and engaging safety leadership visits, delivering any person carrying out any activity that may have a
good quality investigations into incidents and events and direct impact on the safety of the gas transmission
closing the agreed action on time. These targets network.
incentivise the positive effort we put in to safety
60

Over the last year, we have been reviewing our  development and adoption of new tools and systems
competency management process and are in the process  the need for emergency planning co-ordination with
of implementing a new system, Cognisco. We are now other gas transmission operators across Europe.
able to provide a detailed, comprehensive view of Our planning assumes we maintain the same levels of
capability and competence across our operational 24/7 emergency standby across our business and it will
workforce. We have reviewed core competencies for require designated gas transmission staff to be trained
each role and discipline and mapped the workforce to and on call to respond to asset-related emergency
those competencies. The results give us both a clear view events. Please see annex A14.25, on how we will
of current effectiveness and a projected view of training develop our capabilities in RIIO-2 to continue to ensure
demand to maintain the appropriate levels of expertise emergency arrangements reflect the changing energy
and experience. landscape.
During RIIO-2, we will continue to use this management IT systems

information to manage training schedules more efficiently We will continue to invest in the technology health of core
and support a more flexible, agile workforce. systems that support us in maintaining our safety
standards. Our IT systems support our asset
Our future safety performance is underpinned by the management processes which ensure we maintain a safe
culture of our organisation and the behaviours of our and reliable network. We need to maintain and enhance
people. We’re aiming for a proactive safety culture where these systems through RIIO-2 to ensure we maintain our
we always do the right thing regarding safety. We have safety standards and further reduce risk.
various targeted campaigns to support staff and
managers to develop positive safety behaviour. We will Third party interference
monitor our progress along the safety culture maturity via Accidental damage to pipelines by third parties is the
annual surveys among our employees. number one cause of pipeline rupture in Europe. There
are well-established industry practices29 accepted by the
People – strategy, assurance and corporate health HSE to guard against accidental interference, and we
and safety must have in place the emergency response capability to
Our costs for strategy and assurance include a share of make safe and repair any suspected or actual damage.
the costs of the central SHE function, which works across Our RIIO-2 plan is based on continued application of
National Grid and provides efficiencies of scale by these good practices.
supporting our UK gas and electricity businesses. Also
included are the direct costs of our dedicated safety and We carry out regular visual checks on our entire 7,600 km
integrity assurance team, which provides: network. The current best practice and most efficient
 independent, risk-based second line assurance for method is via helicopter patrols, which we undertake
gas transmission, as part of the three lines of defence fortnightly. On average each patrol checks between 2000-
model to ensure continued safe and compliant 3000km, with around 4,500 sightings a year which are
operations reported and then followed up by our operations teams.
 insightful support and guidance to mitigate key safety, We also walk the pipeline on foot a minimum of once
environmental and business risks and to drive every four years to check depth of burial and look for
continual improvements in gas transmission. issues that would not be seen from the air. This is usually
undertaken between October and March each year to
People – emergency preparedness minimise crop damage to land owners. On the back of the
The costs include the direct time of individuals line walks there can be actions to be undertaken such as
responsible for emergency planning and independent replacing marker post, mitigating low depth of cover etc.
NEC responsibilities. They also include provision of
incident response training for our own staff and relevant We actively explore alternative methods and new
gas distribution network staff, updating the NEC safety technologies to see if there are advantages in
case and co-ordination of both internal and industry-wide performance, cost or efficiency. For example, we trialled
emergency exercises across gas market participants drones to see if they could offer any advantages over
including the Department for Business, Energy & line-walking or traditional aerial surveillance. The
Industrial Strategy (BEIS) and the HSE. Further technology is promising but there are limitations in
information about how we manage network gas supply relation to permitted use, privacy and data protection.
emergencies can be found here28.Drivers of our
emergency preparedness activity in RIIO-2 include: We are obliged to maintain an emergency response and
 the increased operational challenges posed by more repair service for our pipework systems across Great
diverse supply/demand patterns Britain. We share efficiency with other gas pipeline
 potential changes to the network gas supply operators by accessing the same centralised emergency
emergency framework associated with trends in materials and equipment (CEME) scheme operated by
decentralisation and decarbonisation our Pipelines Maintenance Centre. There is no other
national provider of this niche specialist capability.
28
https://www.nationalgridgas.com/safety-and-emergencies/network-gas-supply-emergencies-ngse
29
Institution of Gas Engineers and Managers IGEM/TD1 Standard for steel pipelines and associated installations for high pressure gas transmission
61

Operational properties Table 13.08 RIIO-2 innovation
It is imperative that we ensure our buildings are in a state Theme Commentary
to protect our people and assets from damage and We will be focusing on network
weathering whilst providing a safe and suitable Fit for the emergency simulation to support our
workspace for maintenance, storage and to support the future emergency preparedness role.
teams in running the NTS. Some of our buildings and
facilities are beyond their life and most were not built with ‘Smart’ real time network monitoring and
Ready for
the equal access that we now expect (e.g. female notifications supporting our third-party
decarbonisation
facilities or disabled access). We will undertake a range interference mitigations.
of refurbishments at 22 sites to bring admin and control Safety consequences of bio gases and
buildings of our operational sites up to a reasonable Decarbonised hydrogen blends in the network,
energy system including skills, capabilities and
standard, complying with health and safety, and
behaviours.
environmental legislation. Our proposals are based on a
risk-based approach based on the condition of individual
site buildings. Due to the current conditions of the 6. Risk and uncertainty
buildings, failure to refurbish or replace may lead to A fundamental part of our business-as-usual
damage and ultimately failure of the equipment that is responsibility to manage the safety of our operations. We
being protected. This could lead to disruption to gas carry reputational and financial risks of any failure events
supplies. In addition, without carrying out this work it or lapse in safety performance that could happen under
could lead to prosecution under the Health and Safety at our stewardship. Asset failures can also occur because of
Work Act or the Equality Act for failing to provide a safe unintentional and unconnected third-party activity close to
and accessible place to work. our assets and we take the actions documented in this
chapter to minimise this risk, Future safety incidents on
Innovation in RIIO-2 gas transmission systems in the UK or worldwide could
During RIIO-2, there will be a continued focus across our impact future work we need to do to maintain the safety of
US and UK businesses as we share best practice on our system. The consequences of failures can be
safety measures, led by our Chief Engineer. We will significant both to National Grid, to the public and to the
continue to collaborate and share best practice across the UK economy, especially if gas supplies are interrupted.
industry worldwide. Continuing to collaborate is vitally
important to ensure we learn lessons from global safety 7. Our proposed costs for RIIO-2
incidents. We anticipate our innovation culture developing We will spend £14.5m per year on the routine and
alongside our safety culture and see our BAU innovation preventive safety activities described in this chapter. This
activities having a particular emphasis on behavioural compares to £16.9m per year during RIIO-1. This is
safety. based on assumptions of compliance with the same
mature legislation, good practice for compliance
remaining in place, a similar workload, stable outsourced
costs and the embedding of RIIO-1 efficiencies.
Table 13.09 summary safety costs by activity
Activity spend 2022 2023 2024 2025 2026 Total Annual Annual
(£m in 18/19 prices) RIIO-2 RIIO-2 RIIO-1
People and IT Systems 3.0 3.4 3.9 5.2 3.1 18.6 3.7 6.3
Operational properties 4.2 4.7 3.9 4.6 3.6 21.0 4.2 3.6
Third party interference 5.8 6.1 5.5 6.0 5.8 29.2 5.8 5.8
Corporate SHE 0.6 0.6 0.6 0.6 0.6 3.1 0.6 4.4
Pension costs 0.1 0.1 0.1 0.1 0.1 0.5 0.1 -
Grand total 13.8 14.9 14.1 16.5 13.2 72.5 14.5 16.9
Table 13.10 summary of safety costs by RRP category
RRP category 2022 2023 2024 2025 2026 Total Annual Annual
Closely associated indirects (BPDT
1.9 1.9 1.9 1.9 1.9 9.4 1.9 2.2
2.02)
Direct costs (BPDT 2.02, 2.04) 8.8 9.1 8.6 10.9 8.8 46.1 9.2 10.1
Load-related (BPDT 3.01) 0.2 0.2 0.5 0.2 0.0 1.2 0.2 3.0
Non-operational capex (BPDT 3.07) 2.9 3.7 3.0 3.4 2.5 15.4 3.1 1.7
Controllable pension costs (BPDT
0.1 0.1 0.1 0.1 0.1 0.4 0.1 0.0
2.02)
Grand total 13.8 14.9 14.1 16.5 13.2 72.5 14.5 16.9
Please note we have provided costs to one decimal place and hence some columns may not equal to the totals. Pension
costs are based on proportion of total TOTEX.
62
I want to take gas on and off the transmission system where and when I want
14. I want to take gas on and off the

transmission system where and when I
want
A network and commercial framework that allows customers to take gas on and off the transmission system where and
when they want, has many benefits for our customers and consumers of gas. We make it possible for a diverse range
of supplies to come onto the network and this allows the cheapest sources of gas to reach the market, lowering energy
costs for consumers and improving security of supply. As a joint transmission owner (TO) and system operator (SO),
our activities under this priority include maintaining and operating our physical network, and the day-to-day processes
that support the market. We must avoid the serious consequences of a potential asset failure, such as an uncontrolled
release of gas, fire, explosion or failing to deliver gas to consumers. If parties connected to the transmission network
can’t operate efficiently because of restrictions on the gas transmission network, the increased costs will ultimately be
passed on to end consumers; or businesses could opt to close and relocate outside of Great Britain.
During RIIO-1, we have maintained reliability and facilitated the delivery of 99.99%30 of gas requirements in 2018/19,
allowing consumers to use gas as and when they want. Customers have been able to change the volumes, profiles
and locations of their gas flows, often at short notice. We have achieved this despite periods of cold weather, such as
the March 2018 ‘Beast from the East’ and periods of local flooding in 2013.

Stakeholders have told us they value being able to flow gas without restriction. For consumers of gas, a resilient and
reliable supply is essential, whether it’s for heating, electricity generation or for operation of industrial processes.
Consumers of large amounts of gas have told us that continuity of gas supplies is essential to avoid detrimental
impacts on their business processes, finances and global reputations. For some industrial consumers, loss of gas
supply would cause irreparable damage to facilities, potential closure and loss of employment. Stakeholder feedback
confirms that our customers want to be able to alter the location, volume and profile of their gas flows in response to
prevailing market conditions.
What will we deliver?

 £835.3m of investment in our asset health programme to provide a resilient network that maintains our current level
of reliability and availability, supported by an annual process to assess and define the capability of the network.
 Commit to remove £2.96m of monetised risk value over RIIO-2, delivering a long-term risk benefit of £296m.
 A redeveloped terminal at Bacton.
 Address subsidence at King’s Lynn compressor site.
 Increased network resilience at Blackrod and Tirley above ground installation (AGI). Blackrod provides a consumer
value proposition valued at £173m.
 A risk-based approach to environmental resilience, specifically to manage the threats associated with pipeline
watercourse crossings.
 Investment in systems and capabilities to optimise maintenance and operation of our network to meet customer
requirements.
Overall, to deliver on our proposals in this chapter, we plan to spend an average £279.8m each year with a total spend
during RIIO-2 of £1.4bn. This is an increase from our RIIO-1 annualised spend, which was on average £206.6m. The
change is mainly due to our increased asset health programme to maintain our current level of reliability and
availability. This chapter’s expenditure accounts for 51 per cent of the overall RIIO-2 expenditure.
30
One power station experienced flow restrictions for a three day period
63
Figure 14.01 RIIO-1 and RIIO-2 spend profile ‘I want to take gas on and off the transmission system where and
when I want’
RIIO costs
£400
£300
RIIO-2
£m
£200 Uncertainty
mechanism
£100 Baseline
£0
Reporting year
Table 14.02 summary of gas on and off costs by activity

(£m in 18/19 prices) Total Annual Annual
2022 2023 2024 2025 2026
RIIO-2 RIIO-2 RIIO-1
Asset health
119.9 138.6 131.1 133.4 140.8 663.9 132.8 86.6*
(general + GRAID)
Asset health
7.1 34.0 66.7 46.3 17.3 171.4 34.3 22.7
(Specific large projects) 31
Asset management 64.7 66.7 68.7 65.5 65.8 331.6 66.3 60.4
Network resilience 0.3 4.5 4.2 0.5 0.3 9.9 2.0 0.0
Environmental resilience 0.8 0.7 0.8 1.0 0.8 4.2 0.8 0.5
Gas System Operation 39.4 44.0 45.2 43.5 39.4 211.6 42.3 36.4
Pension costs 1.3 1.3 1.3 1.3 1.3 6.5 1.3 N/A
Total 233.6 289.9 318.1 291.6 265.8 1399.1 279.8 206.6
*Note this includes RIIO-1 gas quality and metering, and control systems which are included in chapter 15 for RIIO-2.
Table 14.03 summary of gas on and off costs by RRP category
RRP category Total Annual Annual
2022 2023 2024 2025 2026
Closely associated indirects(BPDT 2.02)
37.2 37.6 37.9 38.1 38.7 189.4 37.9 31.1
Direct costs(BPDT 2.02, 2.04) 47.0 47.4 47.5 46.9 46.3 235.1 47.0 41.7
Load related (BPDT 3.01) 0.3 4.5 4.2 0.5 0.3 9.9 2.0 0.0
Non load related (BPDT 3.01, 3.03) 123.9 169.5 194.8 176.6 155.0 819.8 164.0 109.2
Non-operational capex (BPDT 3.07) 11.4 13.0 14.7 12.5 12.8 64.3 12.9 10.8
SO capex (BDPT 3.08) 12.5 16.6 17.8 15.6 11.5 74.0 14.8 12.2
Total non-controllable costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.5
Controllable Pension costs (BDPT 2.02)1.3 1.3 1.3 1.3 1.3 6.5 1.3 N/A
Grand total 233.6 289.9 318.1 291.6 265.8 1399.1 279.8 206.6
We will now cover the five sub-topics of this chapter in detail:

 asset health, including specific large projects at Bacton and King’s Lynn
 asset management
 network resilience
 environmental resilience
 gas system operation.
31
RIIO-2 project costs for King’s Lynn subsidence, redevelopment of the Bacton terminal, and £1m for project closure of Feeder 9 project.
64
Asset health the international standard for asset management (ISO
1. What is this sub-topic about? 55000:2014) and is: “the coordinated capability to make
Our asset health plan sets out how we will manage, lifecycle cost, risk and performance decisions and thereby
maintain and invest in our existing asset infrastructure to create value for an organisation from its assets”.
deliver the resilient service stakeholders require. Our
asset health proposals are vital to maintain the Our key asset management obligations are:
necessary safety and reliability of our network and  To develop and maintain a safe and efficient,
demonstrate compliance with legislation. They will coordinated and economic system of gas transmission,
enable the gas transmission system to play an important which supports competition in the supply of gas.
future role in support of the energy transition. We have  To have regard for the effect of our activities on the
developed a series of asset management investment environment.
themes. They reflect strategic groupings of asset types These obligations ensure we take a holistic view of our
and investment drivers and set out how the business will asset health work to support the network capabilities
invest in asset health during the RIIO-2 period. This stakeholders want from us. This section expands on the
sub-topic also describes our asset management strategy, wide range of inputs including tools, methodologies and
track record in RIIO-1, RIIO-2 engagement, overall RIIO-2 data that underpin our asset management approach.
programme and then RIIO-2 proposal for each investment
theme. Our asset management maturity is underpinned by our
routine maintenance activities, which proactively identify
Network capability and fleet strategy asset health issues. The information we collect enables
Our asset health plan focuses on making the right us to prioritise investment decisions. We have set out our
investments at the right time. We are looking to ensure asset management approach in our strategic asset
reliability and affordability for customers, whilst retaining management plan (SAMP), describing our overall
optionality for the future. Our asset health plan is aligned management strategy for the network’s assets and how
with our approach to network capability and our our practices, policies and procedures together form an
compressor fleet strategy contained in chapter 12, integrated asset management system.
ensuring investment proposals are directly aligned to the
customer needs of our network today and in to the future. Track record and learning from RIIO-1
A significant proportion of the assets are reaching, or
Defined price control deliverable projects have reached, the end of their design life (30 years), see
We are proposing projects at Bacton and King’s Lynn with figure 14.04. Some systems face obsolescence and
separate ring-fenced funding, specific price control customers require an increasingly flexible network.
deliverables (PCDs) and uncertainty mechanisms. These Today, our network delivers three times as much
projects will deliver service risk benefits and will energy as the electricity network. The extensive use
contribute to an improvement in reliability for customers. and age of our critical infrastructure means our assets
The justification for these projects is covered under now require greater care, increased monitoring,
separate sections of this chapter. Further information on refurbishment and replacement to maintain a safe,
PCDs and uncertainty mechanisms can be found in reliable transmission system. As a result, we changed the
annexes A3.01 and A3.02. focus in our asset management approach in RIIO-1,
considering both the risk and consequence of any
Investment in cyber and control systems are considered proposed asset investment.
separately under the network and information systems Figure 14.04 NTS sites age profile, excluding
(NIS) directive and are covered in chapter 15. Investment pipelines
in our compressors to address environmental legislation
are covered in chapter 16.
2. Our activities and current performance

Our assets can have adverse impacts on our
stakeholders and the environment if they aren’t managed
correctly. For example, an asset failure could lead to
increased risk to life and property and/or cause significant
customer disruption. Many of our asset decisions are
complex. As we aim for world-class asset management,
we make our asset decisions within a framework that is
balanced, auditable, justifiable and designed to overcome
challenges through innovation. We have a defined set of
criteria to help us make our asset decisions and these
reflect the different expectations of our stakeholders. We
also have duties and obligations under the Gas Act and
through our Gas Transporter Licence. These factors all
draw together to underpin our asset management
decisions. Our definition of asset management aligns to
65
The RIIO-1 price control introduced the Network Output leak, but isolations for the work were challenging due to
Measure (NOM) methodology32 to assess whether we are the condition of valves in the area. In this instance, we
delivering our asset health outputs. We have focused were one isolation point away from disconnecting
strongly on delivering work that will manage the level of customers fed from a single fed offtake, disrupting
risk at the lowest cost. We are on target to deliver the supplies xxxxxxxxxxxxxx and potentially UK gas supplies.
absolute level of network risk agreed as part of the RIIO-1
price control and maintain the service risk level our To address the challenges identified in RIIO-1, three main
customers expect, but this has required significant strategies were developed:
additional investment in critical asset health work. 1. Procurement and contracting efficiencies – introduced
to allow a more innovative and flexible approach to
In our RIIO-1 business plan, we signalled the need for delivering future improvements and replacements of
increasing expenditure to address the condition of our needed assets to the NTS.
assets, forecasting £719m. Ofgem concluded that a lower 2. Data enhancement – being able to access and use
level of investment was needed with more efficient the asset and condition data more readily was
delivery and we were granted an allowance of £593m. recognised early on to better understand the needs of
We are forecasting to spend in excess of our RIIO-1 the NTS to meet required performance. Innovative
allowance on asset health by over £100m to maintain the technology and processes have allowed for
safety and reliability of our network. This includes continuous improvement in this area since the
investing over £40m at our Bacton terminal (no separate beginning of RIIO-1 through a comprehensive data
regulatory allowances in RIIO-1 were awarded). Our transformation programme and new system
responsibilities to shareholders mean that we can’t capabilities.
sustain the continued need to spend above our 3. Campaign approach – an initial three-year trial basis,
allowances to maintain the reliability and safety of the revolutionising the way projects are delivered. To
network beyond RIIO-1, and this will significantly impact increase delivery volumes and significantly improve
our ability to meet the expectations of our customers. efficiency and delivery which has proved successful.
There have been comprehensive improvements because
Identifying the need for the additional investment in the of the campaign approach, for example, our National
asset health work was driven by our change in focus Above Ground Installation Renovation Campaign (NARC)
during RIIO-1 to capture more granularity on our asset consisted of £150m of asset health works. During the first
defects and store these in central systems rather than at year of the campaign, £9m of financial efficiencies were
site locations. This has led to the recording of increased realised with £4m coming from utilising pipe-through
defects on the network as seen in figure 14.05. solutions instead of full site replacements and
Furthermore, for our below ground assets, it is difficult to coordinating multiple works under single pipeline
entirely understand the condition of our assets, until shutdowns. The rest was due to competitive tendering,
disruptive inspections take place. Where we have been contractor efficiencies and recompression efficiencies.
able to carry out inspections, however, we have learnt The success of this approach has led us to propose asset
that in many cases asset condition is worse than groupings in our RIIO-2 plan and to ensure our proposed
expected. delivery plan is effective and efficient.
Figure 14.05 annual volume of asset defects recorded
In response to the asset health challenges presented in
RIIO-1, there are two further key initiatives under way to
help prepare for RIIO-2:
1. Asset health prioritisation

We have carried out an exercise to list all known issues to
be included in the RIIO-2 work plan. This process of
prioritisation has allowed a risk-based-approach,
allocating the budget to areas where spend will have the
most impact. A series of strategic prioritisation objectives
The additional investment in RIIO-1 prioritised addressing and themes were developed to guide the process to
the most critical defects to maintain the safety and ensure that the key drivers of safety, network reliability
reliability of the network. The potential risks of not making and cost effectiveness were retained. The objectives
this additional investment are shown by our experience in were set to:
RIIO-1. For example, having isolated Feeder x in  support effective management of network risk, from a
response to a valve gas leak on a compressor tee system safety, reliability and environmental perspective
at xxxxxxxxxxx, there was an urgent need to bring the  demonstrate asset health performance to the regulator
pipeline back online following an increase in imports against the NOMs methodology
xxxxxxxxxxxxxx due to colder weather. We achieved this  establish a platform for an effective and efficient asset
successfully by developing a short-term mitigation for the health programme of works for RIIO-2.
32http://www.talkingnetworkstx.com/network-output-measures.aspx - NA
RMs previously known as NOM methodology.
66
2. Survey work for RIIO-2 projects improvement in reliability. We have consumer feedback
Preparatory work, including surveys, will be conducted in that they want to maintain reliability levels (or possibly
the final years of RIIO-1 to ensure we are ready to deliver slightly increase). Our proposal is to maintain risk across
on our business plan proposals for RIIO-2. our asset health work plan (excluding Bacton, funded
through UM arrangements and at this key site specifically;
Innovation in RIIO-1 reducing risk).
Following our innovation strategy, we have driven
efficiencies in the activities we have undertaken and Table 14.07 asset health stakeholder engagement
sought innovative ways to continually improve our Asset health
performance. This has included looking at how we deliver SH All segments engaged.
our asset health programmes of work as well as the segments
information we can gather. The below table highlights engaged
some of the projects we have undertaken and how these Objective What level of risk would stakeholders like to
are incorporated in our RIIO-2 proposals, which map to see?
the fit for the future innovation theme. Channel/ Geographically spread workshops,
method webinars, bilaterals, willingness to pay,
Table 14.06 RIIO-1 innovation acceptability testing.
Project Description Key Customers and stakeholders value the
GRAID We undertook a NIC funded project to provide messages reliability the gas transmission system
network a way of internally inspecting sections of our provides. Any change to this would have
innovation network during ‘live’ gas conditions. The Gas significant impacts to their
competition Robotic Agile Inspection Device (GRAID) was commerciality/ability to carry out their day-to-
(NIC) built to enable this. Following the successful day business.
completion of the project, a roll-out strategy
Domestic consumers and non-domestic
has been proposed through RIIO-2, providing
consumers also place a very high value in
inspection across a number of sites helping to
reliability. Consumers take for granted an
realise the benefits of preventing unnecessary
uninterrupted, safe gas supply. It is
excavations and early asset replacement. The
sacrosanct. It gives them peace of mind,
estimated cost savings across RIIO-2 and
allowing them to focus on other things.
RIIO-3 are £31.7m.
Composite This project looked at using composite plastic Across a range of stakeholder segments,
transition replacement for concrete pit wall transition there is no support for any increase in safety
piece pieces preventing a time consuming and risk – with consumers willing to pay more to
costly concrete excavation and reinstatement. prevent this. Many of our stakeholders have
A case study has been completed showing also called for improvements in reliability
that across the design life there is a saving of across our network, although our customers
over £200k per transition piece. During RIIO- who ultimately pay have a stronger
2, we will look to embed these savings where preference for keeping risk at current levels,
possible. in order to ensure stable bills.
Valve care We used a valve care toolbox to prevent an For more information on our engagement on
toolbox early replacement of a valve, leading to this subject, please see annex A10.03.
significant savings. The learning from this Trade-offs Overall, there was marginally more support
project can be used across our asset base and for increasing reliability, by 10% compared
and be used for similar assets of gas stakeholder to keeping risk the same as RIIO-1.
distribution companies. influence However, the frequency of response is
Business The aim of this innovation project was to on the plan similar across these two options, and the
information develop and trial an intelligent 3D modelling one with more responses recorded varies
modelling process to inform project design for according to which stakeholder group we
(BIM) large-scale construction projects. To date, BIM focus on. Stakeholders who pay the bills
has realised cost savings of £4.6m, having slightly preferred to keep risks the same.
been used on four projects. Our initial option was to improve reliability by
10%, but we have based our plans on
stakeholder feedback and triangulation
supported by external consultancy to
Our plan has been shaped by stakeholder feedback to maintain reliability as per RIIO-1. We
ensure we maintain reliability across the network, the traded off the higher supported option to the
right level of network capability and keep options open for one which was supported more by those who
future customers. Stakeholder engagement has been paid the bills, which at the time was 40%
central to the development of the justification of our asset cheaper than improve reliability by 10%.
health investments. We engaged stakeholders to Stakeholders have also challenged us to
understand their views on how to manage our asset ensure our asset health plans are built on
health challenge. We developed nine options to robust analysis, are efficient and affordable
understand those stakeholders wanted us to develop into for end consumers and drive innovation. We
have used improved decision support tools
costed options. Three of these options moved forward
and monetised risk modelling to assess the
with conclusions shown in the table 14.07. We received right level of investment in these assets.
strong feedback that stakeholders wanted risk levels
maintained, with a significant proportion wanting an
67
SUG and We have expanded the asset health section Network asset risk metric (NARM) methodology
Challenge of this chapter to step through the Our NARMs methodology, developed with Ofgem and
Group optioneering and justification of our lead with stakeholder reviews, uses monetised risk as a
feedback assets and expanded RIIO-1 performance common currency for safety, reliability and environmental
from feedback from the SUG. Since measures to enable better engagement with
October, we have also included more detail stakeholders. Monetised risk allows us to understand the
on non-lead assets, with additional PCDs.
level of network risk, at the start and end position of the
In response to our July draft plan, the
price control period with and without investment
Challenge Group asked us to provide
information on cost drivers, consideration of
intervention. Without intervention, the current asset risk
options, justification of costs, including the will increase by £3.22m through network ageing. For
proposed profiling of costs, and how RIIO-2 we are committing to remove £2.96m (92%) that
efficiency and innovation will be used to will be removed during RIIO-2 for the level of investment.
reduce costs. Our revised lead asset Although monetised risk increases by £260,000 over
sections in asset health address these RIIO-2, we are maintaining service risk in line with
points. customer and stakeholder expectations. The total long-
term benefit of this investment programme delivers
4. Our proposal for RIIO-2 and how it will £296m33.
benefit consumers
Broadly our asset health plan for RIIO-2 has been
Our asset health plan will invest £1,422.7m over a ten-
developed around three key principles:
year period and specifically £663.9m for the five years of
1. Ensuring we only deliver the network capability our
RIIO-2 to deliver the network availability and reliability,
stakeholders require, whilst maintaining optionality for
necessary to maintain the desired level of service
future customers.
required by our customers and stakeholders. We will
2. In response to RIIO-1 challenges, we have undertaken
achieve this through condition-related investments;
an asset health prioritisation exercise and planned
reducing risk through separately justified projects
surveys at the end of the current price control in
including Bacton site redevelopment, and compressor
preparation for RIIO-2. This work is a reactive
investments. This section sets out the key drivers,
approach to maintaining network reliability and safety
decision criteria and outputs which underpin our planned
based on known issues.
investment for RIIO-2.
3. Based on our learnings from RIIO-1 and the evidence
from our CBAs and NARM outputs, we have planned
preventive interventions in RIIO-2 to reduce long-term
risk and cost.
Table 14.08 asset health proposals

stakeholders
have told us
Reliable gas Ensure we efficiently manage the network to Licence Facilitating a diverse range of supplies onto the
supplies are be able to meet a 1 in 20 peak demand obligation network helps in delivering security of supply
essential for severe weather event. and keeping wholesale prices as low as
consumers of We propose a relative Network asset risk Price control possible.
gas. metrics (NARM) target to measure delivery deliverable,
of our asset health investments with a (£466m). See Providing high levels of reliability and resilience,
In particular, justified over and under delivery annex A3.01 protects against losses of gas supply for all
consumers of mechanism. for further consumers. It protects large consumers from
high Our RIIO-2 asset health plan delivers a information. any detrimental impacts on their business
quantities see monetised risk output of £2.96m (measured processes, finances, global reputations and
reliability of as a level of monetised risk as part of long-term viability in GB. If connected parties
gas supply as NARMs). can’t operate efficiently because of restrictions
a major We are proposing a separate PCD on asset Price control on the network, their increased costs will
priority. health spend that is not covered by NARMs deliverable, ultimately be passed on to end consumers.
in the following areas: (£87m) See
relifing of compressor cabs, site fences, site table 14.09 By maintaining the most efficient network and
roads and replacement/refurbishment of below and linking with new or existing commercial
pipe supports, pits, lighting systems and annex A3.01 framework and/or tools we can create additional
switchboards. for further value for stakeholders and consumers.
information.
76 per cent of our proposed RIIO-2 asset health appropriate to treat certain projects or activities separately
submission delivers NARMs outputs, we propose that it is from the NARM mechanism even if they contribute
33
Long-term risk benefits are being developed across the industry as
part of a separate Ofgem engagement and are subject to further
engagement and consultation before finalisation.
68
monetised risk benefits, as there is more refinement where we identified several projects for which conditions
needed to the NARMs methodology which we will develop around funding and delivery were not clearly identified up-
in RIIO-2. front.
The PCD captures specific outputs that are directly funded
For such projects and activities, we propose ring-fencing through the price control, ensuring the conditions attached
with separate funding and, and discount the monetised risk to the funding are clear up-front. The table below highlights
benefit they deliver from any NARM output delivery. our proposals for PCDs and are the output measures
By introducing PCDs, we are building on the lessons which apply to this part of our plan:
learned from the RIIO-1 Mid Period Review processes,
Table 14.09 asset health proposals for PCDs
Measure RIIO-2 proposed RIIO-2 spend for RIIO-2 spend for Percentage of
measure RIIO-2 delivery RIIO-3 delivery plan
NARMs Monetised risk £465,824,602 - 75.61%
No. of cabs re-lifed 26 compressors cabs £24,056,392 £5,609,315 4.82%
re-lifed
No. of pits refurbished 245 pits refurbished £19,465,136 £1,974,648 3.48%
No. of site fences re-lifed 76 site fences re-lifed £12,354,940 £6,278,853 3.02%
No. of pipe supports refurbished 922 pipe supports £12,550,880 £2,008,259 2.36%
refurbished
No. of site lighting system 12 site lighting systems £13,258,596 £213,896 2.19%
replaced/refurbished refurbished
No. of site roads re-lifed 75 site roads re-lifed £5,259,304 £2,541,997 1.27%
No. measure with RIIO-2 spend N/A £44,701,894 - 7.26%
The diagram below shows how our plan has been brought together.
Figure 14.10 approach to the inputs to building our asset health plan
Decision criteria and drivers work is not carried out. Or there is a risk of enforcement
Our asset health plan focuses on providing a resilient action if National Grid is unable to demonstrate
network by making the right investments at the right time compliance with the legislation, regardless of if ultimate
against the current and future network capability needs of risk is realised or not.
our stakeholders. Overall, we are looking to ensure
reliability and affordability for customers, whilst retaining Driver B: NARMs
optionality for the future. The asset contributes to monetised risk through the
NARM process and maintains reliability, but intervention
Our RIIO-2 asset health plan uses three common drivers is not directed through legislation or Safety Case
for investment across all themes. explicitly. Asset condition deteriorates with age and this
Driver A: NARMs, legislation and safety case can be accelerated by harsh environments and asset
Interventions that contribute to the NARM and are utilisation. Factors that provide evidence supporting the
required to ensure compliance with relevant legislation condition and deterioration observed in our asset base
and/or Safety Case, such as industry standards or include defect volumes reported, maintenance records
original equipment manufacturer (OEM) compressor (condition inspections) and increasing age profiles.
overhaul guidance to mitigate risk to individuals and Corrosion is a key condition driver; it is the second
environment. Work in this category is defined as requiring highest risk on the NTS (the highest being third-party
an approved deviation from the enforcement agency if the
69
damage) and is the single biggest life-limiting factor of the position and stakeholders has been determined. We have
NTS. also undertaken a full CBA for each of the options with
the benefits of each option based on our NARMs
Driver C: Maintain reliability on non–lead assets methodology.
The asset investment either supports the lead assets Figure 14.11 summary of chosen options for asset
covered through NARMs, is required to meet legislation health programme
or is driven by obsolescence. This covers a broad range
of assets but predominantly structural integrity and Survey
electrical assets. The reliability of these assets reduces 6.8%
with age and use, and failure of these assets (e.g. pipe Replacement
supports) can have a significant impact on the primary 21.8%
NTS assets (e.g. above ground pipework). For some
assets, access to spares and expertise to carry out
repairs becomes increasingly limited as equipment
becomes obsolete. This is particularly a problem with Intervention
electrical equipment, which has a much shorter asset Removal categories
support life than some of the mechanical assets. We 0.4%
manage relationships with OEMs so that we’re aware of
component lifecycles and we have advance warning of
Minor Major
imminent obsolescence Refurbishment
Refurbishment
21.2% 49.8%
An intervention can have multiple drivers. Each
intervention in our plan has been assigned a primary In choosing the preferred option to be carried forward into
driver from the above based on descending priority from our plan, we have considered the results of our CBA
A to C. The EJPs for each sub-theme provide a further amongst a range of other factors:
breakdown of the investment that can be attributed to  The outcomes delivered by each of the options and
each driver. The above categories map to the Ofgem whether these are supported by our stakeholders, i.e.
asset health plan structure with drivers A and B being maintain reliability and deliver the required level of
‘monetised risk NARMs related assets’ and driver C being network capability.
‘non–monetised risk assets.’  The need to achieve legislative compliance may not
necessarily be reflected through the quantified benefits
To optimise our actions and potential investments in delivered through a cost beneficial investment option,
asset health, we consider four key risk factors: safety, for example, the HSE will not tolerate a planned
reliability, environmental and societal risk, which are increase in safety risk.
built into the NARM methodology. Through these service  Where there are known asset defects, that need to be
risk metrics and legislative requirements, we manage managed through our plans.
risks on the network as efficiently as possible.  Our understanding of individual asset condition has
improved during RIIO-1 but there are still gaps in our
Optioneering knowledge. Our plan reflects the need for a likely
The next stage is to consider options. We have practical mix of intervention types once specific assets
considered a range of intervention and programme are surveyed and their true condition and risk are
options from the ‘do nothing’ position through to understood. For example, a plan cannot be based upon
reductions in risk. Across the themes, four main options 100% refurbishment as this may require a high number
were considered, which our themes expand on: of replacements should a proportion of the assets be
1. do minimum or do nothing, fix on fail determined as non-serviceable.
2. minor refurbishment and minimised replacement  The need for a deliverable programme of work, both in
3. risk based re-lifing of assets terms of planning outages, resource availability and
4. full re-life or replacement. contract efficiency. For example, through “bundling”
work it may be more cost-effective to undertake
The programme options have been developed specifically alternative interventions to achieve reductions in
for each investment area and contain a mix of different contract costs, minimise outage risks or avoid an early
individual intervention options and varying intervention repeat intervention in future RIIO periods.
volumes. These programme options have been  The overall level of investment required and whether
generated by our subject matter experts to explore the this is affordable for our stakeholders.
credible solutions for different levels of investment. Our For a minority of the sub-themes we have limited
experts have developed these credible options based on alternative programme options. The proposed
their knowledge of known asset health issues and asset programmes for these sub-themes include a minimum
defect data, combined with an understanding of the level of intervention to meet legal compliance or maintain
impact the investment has on our outcomes. reliability at the lowest whole life cost.
Once our preferred programme options have been
Each programme option has been fully costed and the selected, based on the detailed CBA, the workload is
impacts on our performance, legal compliance, risk
70
grouped based on the common drivers A to C as Figure 14.13 RIIO-2 asset health monetised risk
described above.
Programme level options we have discounted

Our CBAs and NARMs both use the same monetised
service risk benefits. The changes in service risk delivered
by our final plan and alternative options are set out in table
14.12. Service risk represents changes in level of service
received (e.g. increased risk of an outage), and changes in
monetised risk values are calculated through NARMs. Row
one, ‘do nothing’, is RIIO-2 end state risk levels in
comparison to the end of RIIO-1 period with no investment.
Row two; shows the risk levels if we maintained the same
level of spend in RIIO-2, comparatively, from the RIIO-1
period. The third row shows the levels of risk if the
5. How will we deliver?
interventions proposed for asset health investment were
realised at the end of the RIIO-2 period. Deliverability and portfolio planning
Table 14.12 shows broadly risk maintained in RIIO-2, with Asset health work is considered alongside all other
a 21% improvement on societal risk specifically. At requirements to access the network and our resources to
Ofgem’s request, we have included cyber control systems deliver our plan. We've set out our delivery plan in
which overall contributes to a 2-3 per cent reduction across chapter 21, which provides further detail on how we have
the service risk categories, however we are excluding from developed a comprehensive outage and delivery plan.
the NARMs output, and propose a specific PCD outlined in
chapter 15. As such, RIIO-2 will deliver slightly less risk Efficiency and innovation
reduction and we will achieve stable risk over a 10-year We continually compare ourselves against other
period. asset-intensive organisations, including those outside the
utility sector to identify areas of improvement. We have
Table 14.12 changes in service risk delivered increased our investment in innovation, both to drive
inclusive of control systems
Fatalities Transport Outage Volume
increased unit cost efficiency and to improve confidence
& injuries disruption risk of gas in our maintenance techniques when it comes to
risk risk (% risk emitted assessing the condition of our assets.
(% risk (% risk increase) (% risk
increase) increase) increase)
Overall, £42.96m of forecast savings from innovation
Do
10% 231% 849% 212% projects in RIIO-1 are anticipated in RIIO-2, with further
nothing
projects still in development. In table 14.06 detailed
Spend earlier in this section, we described the projects from
same as 8% 5% 365% 38% RIIO-1 and the benefits they are delivering. During RIIO-
RIIO-1
2, we will also look to invest more in innovation to realise
RIIO-2
plan -1% -21% 1% -1% more benefits. The table below describes some of the
areas we will look to innovate in and how this aligns with
Figure 14.13 shows our monetised risk position at the start our overall RIIO-2 innovation strategy.
of the RIIO-2 period (£6.24m), and at the end, with and Table 14.14 asset health RIIO-2 innovation projects
without intervention. Over the RIIO-2 period, our Theme Projects
monetised risk remains broadly the same, with a small We will build upon project GRAID and
increase of £260,000. However, as shown in the service look at further enhanced methods of
risk table 14.12, the interventions we are proposing for the Fit for the asset inspection, including looking at
period, the service risk impacts to our stakeholders future how robotics could help with
remains broadly stable. The proposed interventions in managing the asset health of our
network.
RIIO-2 will remove £2.96m of monetised risk in the period.
We will look at how our assets can be
In determining our plan, we have listened to our used to transport hydrogen and how
stakeholders and are looking to maintain our resilience and Ready for
technologies such as artificial
risks levels over a 10-year period. decarbonisation
intelligence can be used in managing
our assets.
The focus of this project will be on
how we assess the impacts of
Decarbonised hydrogen on our network and how we
energy system would monitor the health of our assets
and the processes we would need to
change.
71
6. Risks and uncertainty Whilst undertaking our proposed asset health works, we
The most significant risk we need to manage is an are likely to find additional issues only found when
unexpected asset failure or need to isolate due to an completing intrusive work. Some of these new issues will
unacceptable safety risk that affects our ability to meet be best dealt with while we’re working on site, but we’ll be
the requirements of stakeholders. This could be as a able to defer others until a later date. We need the ability
result of climate change (e.g. a landslip caused by to trade off risk across our asset categories, so we can
significant rainfall, requiring an urgent pipeline diversion) deliver the best outcome for consumers.
or the discovery of an asset type fault (e.g. a particular
valve or pipeline section) that is used across the network. These smaller materiality unexpected occurrences that
These could result in unexpected and unforecastable require a mitigation activity during the RIIO-2 period
costs requiring a mitigation activity that can’t be deferred would be managed by trading off risk across asset types,
and could cost millions of pounds to manage and rectify as permitted under the NARMs methodology.
in addition to the potential consumer disruption.
7. Our proposed costs for RIIO-2
Given the large potential risks described above, we are To deliver our NARM monetised risk target and defined
proposing that the RIIO-1 mechanisms for justified over PCDs, our annualised planned investment in asset health
and under delivery of NARMs outputs are retained for increases in RIIO-2 compared to RIIO-1 and is expected
RIIO-2, which is consistent with Ofgem’s Sector Specific to further increase in RIIO-3.
Methodology Decision in May 2019.
Table 14.15 asset health cost summary
Total Annual Annual
(£ in 18/19 prices) 2022 2023 2024 2025 2026
RIIO-2 RIIO-2 RIIO-1 *
Cab Infrastructure 7.0 8.9 6.0 4.2 5.2 31.3 6.3 2.6
Compressor Train 50.0 29.3 7.3 9.1 17.9 113.7 22.7 9.8
Plant and
9.5
equipment 17.8 33.1 38.8 38.6 28.2 156.4 31.3
Valves 6.4 13.9 14.6 13.9 14.4 63.1 12.6 19.2
Pipelines 20.1 26.9 32.0 30.8 33.7 143.5 28.7 16.2
Structural
13.0
Integrity 7.0 9.6 19.5 22.0 21.4 79.5 15.9
Electrical 1.1 6.0 6.8 5.9 8.6 28.5 5.7 2.8
St Fergus
4.0 0.0 0.0 0.0 0.0 4.0 0.8 0.0
(subsidence)
OPEX 3.1 3.1 3.1 3.1 3.1 15.5 3.1 N/A
GRAID 3.4 3.4 3.0 4.8 3.8 18.3 3.7 1.0
Stopples 0.0 4.5 0.0 1.0 4.5 10.0 2.0 N/A
Total 119.9 138.6 131.1 133.4 140.8 663.9 132.8 74.1
Please note we have provided costs to one decimal place and hence some columns may not equal to the totals.
*Annualised RIIO-1 costs taken from RRP data tables (table 4.2), RIIO-1 gas quality & metering, and control systems not included
in this table. RIIO-2 numbers included in chapter 15.
Figure 14.16 asset health theme costs by driver
Unit costs and benchmarking Our asset health work involves a wide range of activities,
We use native competition to obtain value from our from repeatable standard jobs, with low levels of
supply chain 100 per cent of our capital expenditure differentiating factors, through to those that are more
above £100k during RIIO-1 was subject to native bespoke, and therefore, more difficult to apply standard
competition. costing. We have, however, employed an approach that
considers historical outturn information as the strongest
72
indicator of future unit costs, with over 70% of our plan Figure 14.17 asset health cost waterfall (£m/yr)
using unit costs calculated in this way. Only where this
level of information is not available have we turned to
either supplier quotations (which underpins 15% of our £160
£140
plan), or other estimation techniques (upon which the £120
remaining 15% of our plan is built). £100
£80
The availability of representative cost information for the £60
more bespoke gas transmission activities is challenging, £40
£20
given the low number of directly relevant external £0
reference points available to us and the limited levels of
RIIO-1 actual Upward Downward RIIO-2 forecast
certain types of historical asset interventions. annual (FY14- cost drivers cost drivers
Improvements driven by our transformation programme FY19)
have enriched our available data and will capture cost
data moving forward. Our methodology therefore uses the
best available information for each unit cost, including (in The cost information is annualised to provide a
comparative cost per year. The total RIIO-2 forecast
preferential order): includes the efficiencies described above. This is the
 historical outturn cost information, where we can match same for all sub-themes and waterfalls that follow.
like-for-like units against delivered programmes; Further detail on the specific upward and downward
 supplier quoted costs, matching like for like units drivers for each investment theme is presented in the
against a tendered but not delivered programme of EJPs.
work;
 extrapolation to similar types of work or Each of the seven asset health themes is covered
sub-components of work; and separately with a breakdown of the asset types, options
 review of industry wide benchmarking or internal cost considered and the upward and downward drivers for
data. costs here:
We have incorporated increasing efficiencies in the Lead assets

forecast cost to deliver the required asset health Cab infrastructure
programme, driven by known innovation (that was not There are 54 compressor cabs containing gas generator
available at the time historical works were completed) and powered compressor trains and 7 containing electric
changes to policy we are already making in the pursuit of powered compressors across the NTS (excluding St.
greater levels of whole life cost efficiency. We have Fergus). Cabs infrastructure is made up of a weather-tight
continued attempts to benchmark our costs externally, cab enclosure, an air intake for the compressor train, a
through the Gas Transmission Benchmarking Initiative ventilation system to cool the compressor train within
(GTBI), Arcadis and comparisons to our US business; the enclosure, an exhaust system to remove combustion
however, due to the complexity of data architecture, gases and attenuate noise, and a fire suppression
commercial sensitivities and challenges in achieving true system to deal with emergencies within the enclosure.
like for like comparisons, we, and the externally appointed
third-parties have not achieved a comprehensive way to These assets were installed at the same time as the
benchmark our unit costs. Please refer to the unit cost compressor fleet and as such are towards the end of their
annex A20.17 for further detail on our unit cost design lives. There is evidence of increasing defects and
methodology and confidence. failures on these assets leading to compressor unit trips
and the associated unavailability of compressor units for
Efficiency the duration of any investigation and repair. When any
We have set a challenging 4 per cent cost efficiency on significant work is undertaken on the fire suppression
our direct capital investment plan that we will set out to systems they are required to be re-certified to PM84
deliver in RIIO-2. This sets out to leverage benefits from HSE/ISO21789 standard. This will involve additional work
our transformation programme and our campaign to bring all the existing assets to this standard as it was
approach. not in place when they were installed. Significant manual
handling issues also exist on these assets.
Cost waterfall
We present a summary of the total upward and downward Impacts of no investment
change in annualised cost between RIIO-1 and RIIO-2 Cab infrastructure is essential in enabling the optimal and
based on changes to volume and unit costs. The efficient operation of the gas turbine generators whilst
downward drivers are attributable to unit cost reduction maximising their life and minimising expensive overhaul
and efficiencies and the upward driver is exclusively costs. They are an essential element of our legal
related to increase in volume of work. compliance with PM84 HSE/ISO21789 Control of Risk
around gas turbine enclosures. They are also
instrumental in maintaining our compliance with
environmental legislation and permits regarding noise and
exhaust emissions. Without a functioning and compliant
73
cab, a compressor cannot be operated. An inability to cab infrastructure is essential to ensuring this availability
operate critical compressor equipment would have is not compromised.
considerable impacts on the ability to balance supply and
demand on the NTS to meet the needs of our customers. In defining our proposed intervention approach, we have
considered a range of programme options and compared
Proposal development these against a baseline option that assumes a reactive
Our proposed investment is fully integrated with our intervention stance. In deciding on the proposed
compressor fleet strategy and provides for replacement or intervention strategy, we have considered the ability to
full re-lifing of those cab infrastructures whose meet the desired engineering and stakeholder outcomes
compressors are required in the longer term as set out in and the resulting cost-benefit.
our network capability chapter 12. Fire suppression
systems must be upgraded to meet current standards. The three options considered for both sub-themes of cab
Those compressors that will be decommissioned or infrastructure against a baseline option that is purely
subject to lower running hours will receive investment reactive were; a maintain risk option, a refurbishment only
corresponding to their shorter remaining life. It is vital for option to manage short term risk in compressor cabs and
the supply of gas to our customers that our compressors ensures legal compliance in fire suppression, and a full
remain available and resilient to the demands and re-life option to significantly reduce risk on the assets,
changes on the NTS and investment in our compressor with the preferred option being to maintain risk.
Table 14.18 cab infrastructure option summary
RIIO-2 Plan Percentage Options
Sub-theme Option summary/considerations
(£) of theme considered
A range of options have been assessed and our chosen option is
Cab
£24,327,297 77.7% 3 the least non-cost beneficial option that maintains risk whilst
infrastructure
maintaining compliance with standards.
Fire A range of options have been assessed and our chosen option is
suppression £6,963,797 22.3% 3 the least non-cost beneficial option that maintains risk whilst
systems maintaining compliance with standards.
Compressor cab asset health investment proposal Figure 14.20 compressor cab asset health theme
summary outputs
 The total RIIO-2 proposed expenditure for this theme is
£31.3m.
 Two thirds of the compressor cab interventions are
driven directly by legislation and ISO standard
requirements (PM84 HSE/ISO21789 and Pressure
System Safety Regulations 2000 (PSSR)). The
remaining third relates to air intake and exhaust
interventions and is justified separately.
 Compressor cab investments are not included in our
NARMs model. Price control deliverables will be agreed
on the significant areas of this proposal to assure the
outputs are delivered.
 The volume of cab infrastructure work when compared Figure 14.21 compressor cab asset health theme
to RIIO-1 is increasing, the majority of this plan is built intervention types
on known defect issues gathered through inspection
work carried out in RIIO-1.
Table 14.19 cab infrastructure volume and cost Major

refurbishment
39% Minor
51% refurbishment
Replacement
10%
74
Comparing our RIIO-2 proposal to our RIIO-1 Figure 14.23 gas generator
programme
The annualised RIIO-2 spend has increased when
compared to RIIO-1 from £1.4m to £5.8m for the
compressor cab asset health theme.
Figure 14.22 compressor cab cost waterfall (£m/yr)
£7
Due to the pattern of gas flows required by our customers
£6
and consumers becoming increasingly variable across the
£5 network. The patterns of gas movement across the
£4 network have changed, with increased, and much more
£3 complex demand on the compression fleet. This has
£2 increased the stresses on the compressor machinery due
£1 to greater frequency of start/stop cycles and more volatile
£0 running hour periods.
annual (FY14-FY19)cost drivers cost drivers Changes in usage and especially start/stops on the
compressors has resulted in the need to increase the
Upward drivers
number of overhauls. These interventions ensure that
Asset health prioritisation during RIIO-1 focused spend on
compression assets remain supported by the
high criticality assets resulting in lower overall investment
manufacturer and continue to operate at an acceptable
in compressor cabs compared to forecasts at the start of
level of availability. The frequency of overhauls and
RIIO-1. In part, this has been driven by a significantly
general maintenance on the compressors can be further
lower compressor utilisation, (25% reduction in running
increased by the poor performance of the associated
hours from that forecast at the start of RIIO-1) but also a
assets. The overhaul of a compressor train can typically
recognition that emissions legislation and lowering
take 13 to 26 weeks. There is evidence of increased
demand forecasts both made the future of our
defects and failures on the compressor train leading to
compression fleet requirements uncertain. There are a
compressor unit trips and the associated unavailability of
significant number of compressor cab defects that require
the compressor unit for the duration of any investigation
resolution in the near term. Furthermore, there is a need
and repair. There is also a decreasing start reliability
to bring many of our fire suppression systems up to
meaning gas generators fail to achieve stable running on
standard and this investment is a priority for RIIO-2.
demand.
Downward drivers
Impacts of no investment
All efficiencies in this area are driven through our
Compression balances the flow of gas and linepack levels
business transformation programme. Better asset data,
across the network, ensuring that all terminals and
enhanced planning tools and a sharp focus on unit costs
offtakes are maintained at the right pressure. This
all enable lower overall cost to delivery through enhanced,
requirement is routinely tested and analysed by the
longer term delivery contracting. In preparing our
system Operator and the network capability required by
compressor cab asset health plans, we have ensured
our customers underpins the need for these assets. The
consistency with network capability and our compressor
loss of compression in sections of the NTS has significant
fleet strategy. This has resulted in lower overall costs by
impact on customers flowing gas on and off the network.
avoiding spend at cabs planned for decommissioning and
This has knock-on effects for the operation of gas
driving down interventions and costs at cabs with low use
production facilities, power generation, and domestic and
units in RIIO-2 and RIIO-3.
industrial consumers. These impacts are currently
managed by ensuring that there is redundancy in the
Compressor train compressor fleet, allowing loss of a compressor to be
There are 54 gas generator powered compressor trains compensated for by another machine. However, this
and 7 electrically powered compressor trains across the requires maintaining a fleet of ageing machines at a
NTS (excluding St Fergus). Compressor trains are made constant state of readiness.
up of a centrifugal compressor that pressurises the gas
in the NTS. This may be powered by an electric drive or Proposal development
a power turbine. The latter is driven by a gas generator In defining our proposed intervention approach, we have
which, in turn, requires a starter motor to commence focussed our effort on developing a least whole-life cost
operation. Under certain circumstances the pipework option with a minimum level of intervention in line with
containing gas around the compressor is depressurised OEM guidance and expected machine running
through a vent system. requirements. Significant expert challenge and review has
underpinned the levels of intervention and the proposed
phasing ensures we meet the desired engineering and
stakeholder outcomes whilst smoothing out this workload
and aligning outages across our fleet.
75
Much of the cost associated with gas generators is In all cases, the least cost option (do minimum) has been
derived from duty profiles (run hours and number of proposed to maintain compliance with OEM guidelines
start/stops) that have been agreed with other EU-based and associated internal policy to maintain our fleet at
gas generator operators. These are described in best expected levels of reliability and therefore stable risk. A
practice integrity management policies based on OEM maintain risk option compliant with OEM guidelines and
guidelines which we always aim to adhere to as a safety associated internal policy was the selected option for
requirement for operating these machines. compressors.
Table 14.24 compressor train options summary

Percentage Options
Sub-theme RIIO-2 plan (£) Option summary/considerations
of theme considered
Least whole life cost option to maintain compressor
Gas generator capability in line with OEM/safety guidelines to overhaul at
£89,392,120 78.6% 1
power train preset running hour quantity with additional budget for
breakdown in line with historic costs.
Least whole life cost option proposed to resolve known
Compressor £7,075,528 6.2% 1 defects and running hour interventions in line with
manufacturers’ guidelines and internal policy.
Least whole life cost blend of intervention types to meet the
Electrical
minimum requirements to maintain risk and therefore
variable speed £15,793,266 13.9% 1
operating reliability. Proposal is built on known defects and
drives
largely driven by OEM guidelines.
Least whole life cost option proposed to resolve known
Vent systems £1,424,709 1.3% 1
defects through lowest cost refurbishment approach.
Compressor train asset health investment proposal Figure 14.26 compressor train asset health theme
summary outputs
£113.7m.
 99% of this asset health work is condition driven and
delivers NARMs outputs. Only the work associated with
vents falls outside of NARMs measures.
 71% of this work is driven by OEM guidance to overhaul
gas generators and compressors at predetermined
trigger points (e.g. running hours, no. of starts).
 £16.3m of the compressor train costs relate to the
compressor breakdown budget and fleet management
(engine swap-out and strategic spares) and this
represents an annual run rate based on historic
performance.
Figure 14.27 compressor train asset health theme
 A significant proportion of our compressor theme is built intervention types
on known defects.
Table 14.25 compressor train volume and cost

12% Major
refurbishment
19% Minor
refurbishment
69% Replacement
Comparing our RIIO-2 proposal to our RIIO-1

programme
compared to RIIO-1 from £7.7m to £20.9m for the
compressor train asset health theme.
76
Figure 14.28 compressor train cost waterfall (£m/yr) requirements; and slamshut valves that close to protect
plant and equipment from over pressurisation.
Figure 14.29 preheaters & heat exchangers
£25
£20
£15
£10
£5
£0
annual (FY14-FY19)cost drivers cost drivers
Upward drivers The plant and equipment assets were installed at the
A significant proportion of compressor unit gas generators same time as the sites were built and, by the start of the
are now at or beyond the guideline running hours and in RIIO-2 period, 70% of these sites will have been
need of major overhaul work by the OEM. Virtually all the commissioned for over 40 years and as such have
compressor asset health plans for RIIO-2 are driven from reached or exceeded their original design lives.
known defects. Pipework is subject to the Pipeline Safety Regulations
(PSR) and therefore needs to be designed, constructed
A significant increase in compressor overhaul work has and operated so that the risks are as low as is reasonably
been undertaken during RIIO-1 already, with further practicable. They are subject to a regular inspection
increases in the final two years of RIIO-1 to ensure we regime with the associated resolution actions and repairs.
can continue to operate a resilient network. Total RIIO-1 Whilst the equipment is varied in nature and purpose,
forecast spend in this area is now forecast to be almost except for cladding and cathodic protection, they operate
double that which was forecast at the start of RIIO-1. at full NTS gas pressure and as such are subject to
PSSR. These regulations drive a regular regime of
Our RIIO-2 plans also include much more work on our inspections (6-year and 12-year) and a managed
electric drive compressor assets when compared to resolution of any issues that are identified.
RIIO-1. These assets were commissioned in the run up to
RIIO-1 and are now requiring overhaul and upgrades to The HSE have recognised that managing the integrity of
assure continued reliability and availability. ageing plant and equipment, is a key issue for the
industry. In particular, degradation due to corrosion,
Downward drivers erosion and fatigue. Our external inspection and
In preparing our compressor train asset health plans, we subsequent remediation of defects or ‘features’ to industry
have ensured consistency with network capability and our standards, supplemented by internal policy and
compressor fleet strategy. This has resulted in lower procedure, is accepted by the HSE as an appropriate way
overall costs by avoiding spend at units planned for of operating safe plant and equipment, to comply with
decommissioning and driving down interventions and legislation.
costs at low use units in RIIO-2 and beyond.
Most of the cost efficiencies in this area are driven Lack of investment will result in an unsustainable situation
through our business change programme. Better asset where the volume of corrosion defects will grow to a level
data, enhanced planning tools and a sharp focus on unit where the performance on the NTS cannot be maintained
costs all enable longer term overhaul programmes with and any level of remediation would not keep pace with
which to engage OEMs on. In turn, we have overlaid degradation. This would place the NTS in a state where
efficiency forecasts onto our fleet overhaul programme on only significant asset replacement would counter the
the basis that we can achieve lower overall cost to corrosion issues at significant cost to customers and
delivery through enhanced, longer term delivery consumers.
contracting.
Proposal development
Plant and equipment In defining our proposed intervention approach, we have
The plant and equipment assets comprise equipment on focused our effort on developing a least whole-life cost
all of our compressor stations and 504 above-ground option that enables an optimised ongoing, rolling
installations (AGIs). It includes pipework which is coated programme of work. Significant expert challenge and
as a primary means of corrosion prevention and protected review has underpinned the levels of intervention and the
by cathodic protection (CP) as a secondary means proposed phasing ensures we meet the desired
where it is underground; pipe cladding to mitigate noise engineering and stakeholder outcomes whilst smoothing
and thermally insulate the pipework; filters, scrubbers out the workload. A range of options has been considered
and strainers to remove particulates and liquids from the for each sub-theme of the plant and equipment
gas flow; preheaters to prevent condensate after interventions as set out in table 14.30.
pressure reduction points that meet customer
77
For the pipework sub theme, four options were considered For the remaining two plant and equipment sub themes,
against a baseline option that is purely reactive; a reactive three options were considered against a baseline option
compliance option to maintain compliance with PSSR and that is purely reactive, they were: a PSSR, legal
other legal obligations, a minimal proactive compliance compliance and safety impact option that only includes
option which maintains compliance through minimal investment to maintain necessary compliance; a direct
proactive investment and reactive investment in corrosion customer impact option that includes investment to
defects, a proactive option to undertake proactive painting support assets that will impact directly connected
and corrosion management, and an increased proactive customers; and a direct customer and NTS option, which
option which would add cladding replacement to the includes investment to mitigate risks of failure on the NTS;
previous option, with the preferred option being a with the preferred option being the direct customer and
proactive option to maintain risk levels. NTS option.
Table 14.30 plant and equipment options summary
Sub-theme RIIO-2 plan Percentage Options Option summary/considerations
Above ground Range of options identified to balance cost/risk detailed
pipework, within this EJP for this significant area of work. The
£130,776,585 83.6% 4
cladding and CP selected option is the least cost option to meet outputs and
systems legislative requirements.
Range of options identified to balance cost/risk detailed
Filters, scrubbers within this EJP for this significant area of work. The
£17,157,246 11.0% 3
and preheaters selected option is cost beneficial and the least cost option
to meet outputs and legislative requirements.
Pressure Range of options identified to balance cost/risk detailed
reduction, flow within this EJP for this significant area of work. The
£8,506,360 5.4% 3
control and selected option is cost beneficial and the least cost option
slamshut systems to meet outputs and legislative requirements.
Plant & equipment asset health investment proposal Figure 14.32 plant and equipment asset health theme
summary outputs
 99% of the plant and equipment proposals deliver
NARMs outputs, with 74% of the proposal driven by
legislation/safety case requirements.
 Two of the three sub-themes are cost beneficial (filters,
scrubbers & preheaters and the “pressure reduction,
flow control and slamshut systems” sub-theme).
 All elements of the “above ground pipework, cladding
and CP systems” sub-theme is driven by safety
legislation except for the patch, partial and full site
painting element (£24.5m). This work delivers NARMS
outputs and avoids significant future corrosion defect
remediation costs.
Table 14.31 plant and equipment volume and cost

Figure 14.33 plant and equipment asset health theme
intervention types
Major
22% refurbishment
Minor
10% refurbishment
67% Replacement
78
Comparing our RIIO-2 proposal to our RIIO-1 generating an estimated saving of £31.7m (5+5-year
programme period).
compared to RIIO-1 from £7.0m to £28.8m for the plant Valves
and equipment asset health theme. The valve asset base includes over 30,000 isolation and
Figure 14.34 plant and equipment cost waterfall control valves in the range of ½” to 48” in diameter. 66%
(£m/yr) of these are less than 4” diameter. The valves asset is
made-up of locally actuated valves (LAV) which enable
sites, pipelines or pipework sections to be isolated,
£45
£40 remote isolation valves (RIV) which enable a site or
£35 pipeline to be isolated remotely in the event of an
£30 emergency or planned operation, process valves (PV)
£25 which allow isolation of a site or section of site pipework
£20 as part of normal site operations, and non-return valves
£15
(NRV) which ensure process gas flows in the desired
£10
£5 direction whilst preventing reverse flow and segregating
£0 pressure between systems.
annual (FY14-FY19)cost drivers cost drivers Figure 14.35 above ground remote valve configuration
Upward drivers
There are several differences in our approach to
managing our plant and equipment assets in RIIO-2 when
compared to RIIO-1. It is of note that our forecast total
spend for RIIO-1 in this area is double that which was
originally anticipated and we no longer classify above
ground pipework and coating asset health work as opex.
Throughout RIIO-1, we have sought to significantly

increase our understanding of the condition and
deterioration rates of our assets. A new corrosion
management process was put in place implementing Valves are an essential part of a functioning NTS,
more detailed assessments of corrosion defects on our controlling the flow of gas and isolating it to allow safe
intervention for operational or integrity reasons. These
AGIs. This is data that was not available ahead of RIIO-1
installations tend to be at above ground installations,
and now shows widespread corrosion issues that require terminals and off-takes. However, a high proportion of the
resolution during RIIO-2 to ensure significant end of life valves are buried. The distributed and hidden nature of
asset risks do not materialise in the medium term. the asset makes it time consuming and expensive to
inspect and test the valves.
Better information is now available on the condition and
effectiveness of our cathodic protection assets at our Over 68% of the valves, of 4” diameter and above, are
AGIs. This information has shown many ineffective over 40 years old with original design lives of around 30
systems and widespread condition issues. These CP years. This would increase to over 81% by 2031 without
systems are the primary protection systems for our AGIs; intervention. The number of defects associated with
failure to bring these systems back to a good working valves is predicted to rise significantly as the relevant
order will result in significant risks to these assets and in deterioration mechanisms are time and use dependent.
turn significantly higher costs in later years to replace AGI Proactive intervention is required to avoid unmanageable
assets wholesale. levels of defects, together with the associated adverse
impacts on the safety, operation and availability of the
Downward drivers NTS and any potential legislative non-compliance.
Project GRAID provides a novel robotic technique for
inspecting sections of pipeline which were previously Impacts of no investment
difficult to inspect using a pipeline inspection gauge (PIG),  Safe isolations will become increasingly complex, time
primarily associated with AGIs. Investment is required to consuming and expensive due to internal leakage
use this technique on AGIs, costs will vary depending on across isolation valves.
complexity of pipework unique to sites. Currently, it is  Isolations will require increasing lengths of the NTS to
estimated to be used on xx sites (5+5-year period), with be vented with an increased environmental impact.
associated rollout costs of £28.45m. xxxxxxxxxxxxxxxxxxx  The continual passing of gas from vent and sealant lines
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx and stem extensions to atmosphere will increase safety
xxxxxxxxxxxxxxxxxxxxx hazards as well as environmental impacts.
 Increased outage time due to valve failures related to
Further benefits of GRAID include the ability to validate obsolete assets and the unavailability of spares.
the extended life of assets; it is estimated that one major
project could be avoided in RIIO-2 at a cost of £10.9m,
79
 Increased risk of impacting supplies, as a growing considered six programme options and compared these
number of outages on the NTS are required to resolve against a baseline option that assumes a reactive
valve defects. intervention stance. In deciding on the proposed
intervention strategy, we have considered the ability to
The increasing age of the asset and the related defect meet the desired engineering and stakeholder outcomes
count means that these consequences become more and the resulting cost-benefit. All options considered are
likely and drive an increasing risk profile over the period. cost beneficial over the 45-year period. The proposed
option is to maintain risk which pays back in 36 years and
Proposal development is significantly cost beneficial after 45 years.
The development of the final valve proposals for RIIO-2
have focused on ensuring the right blend of interventions The six options considered were: a maintain risk option;
(refurbish, replace, etc.) whilst balancing cost and risk. four variations to do a level of minimal investment on
Learning from RIIO-1 has heavily influenced our approach select sub-groups of valve assets; and an increased
and our plans aim to maintain a steady rate of investment proactive investment option; with the preferred option
to ensure deliverability and consistency to maintain risk. In being to maintain risk.
defining our proposed intervention approach, we have
Table 14.36 valves volume and cost
Percentage Options
of theme considered
A wide range of options assessed to balance cost/risk are
detailed within this EJP for this significant area of work.
Valves £63,145,760 100% 6
The preferred option represents the lowest whole-life cost
to maintain the current levels of risk on our valve assets.
Valves asset health investment proposal summary Figure 14.39 valves asset health theme intervention
The total RIIO-2 proposed expenditure for this theme is types
£63.1m.
 100% of the valve asset health proposals deliver 2%
NARMs outputs and 22% of this is driven by Major
legislation/safety case. refurbishment
 The valve asset health theme in its entirety is cost Minor
beneficial and pays back within the period defined by refurbishment
48% 48%
Ofgem. Replacement
 Valve asset health costs are reducing from RIIO-1.
 Volume data confidence is high across the whole theme
Removal
as these proposals and the associated work packages
reflect the RIIO-1 programmes of work and is largely 2%
based on known defects.
Table 14.37 valves volume and cost
programme
The annualised RIIO-2 spend has decreased when
compared to RIIO-1 from £16.1m to £11.6m for valves.
Figure 14.38 valves asset health theme outputs Figure 14.40 valves cost waterfall (£m/yr)
£18
£16
£14
£12
£10
£8
£6
£4
£2
£0
Upward drivers
Knowledge of the condition of our valve assets entering
RIIO-1 was well understood. These assets come under
primary containment as well as safety systems to isolate
our pipelines in emergency situations. Therefore, effort
80
and expenditure were focused on these assets during Pressure System Safety Regulations 2000 (PSSR) and
RIIO-1. We continue to assess and invest in our valve Pipeline Safety Regulations 1996 (PSR). We have an
assets on an ongoing basis and, whilst volumes of obligation to complete the necessary maintenance
interventions are largely similar in RIIO-2, lessons learned activities, under these regulations, to manage the process
and best practice from RIIO-1 ensures a lower overall cost safety risks that are associated with operating
per unit whilst we maintain a smoother delivery profile. high-pressure natural gas pipelines.
Downward drivers For some of the pipeline network, alternative gas paths
Several specific innovations have been developed during are available. However, there are many sections where
RIIO-1 and these continue to be benefitted from through redundancy is not present, and these pipelines represent
our RIIO-2 valve campaigns. We have reviewed our valve a single point of failure. Also, a high proportion of our
technical standards with a focus on efficiency within our pipeline network is buried, and the remote and hidden
transformation programme which will lower costs for all nature of the asset makes it time consuming and
future valve replacement. We have also recently launched expensive to inspect and maintain. The key technical
the Refurb and Re-life team within our Pipelines challenges for the pipeline are:
Maintenance Centre (PMC) department. This team will  Corrosion as the primary degradation mechanism
enable the lowest cost interventions on valves and a managed through robust inspection and mitigation
range of other assets through expert knowledge, detailed strategies, carrying out PIG runs (i.e. in-line
surveys and a strong incentive to minimise costs to inspections), maintaining coating protection and
extend asset life that can be gained though in-house cathodic protection.
experts.  Third-party interference which can damage the pipeline,
addressed by having appropriate depth of cover,
Pipelines watercourse crossings and protection sleeves, where
Figure 14.41 pipelines connect to our assets appropriate, and pro-active and reactive maintenance
regimes.
 PIG traps deteriorate with age and use. They require
on-going care to maintain their condition and must be
available to enable regulatory safety compliance to
deliver our in-line inspection requirements.
Although most of our pipelines are over 40 years old, it is

external corrosion defects and damage that limits the life
of the asset. Coatings are generally degrading which puts
Pipeline assets comprise ~7,600km of mostly buried more emphasis on the performance of cathodic protection
pipeline which is coated as a primary means of corrosion systems to limit defect growth. However, these systems
prevention and protected by cathodic protection as a need increasing maintenance and upgrading to meet a
secondary means. Protection sleeves guard the pipeline growing performance demand.
at locations of high risk such as road crossings. PIG traps
allow in-line inspection (ILI) of below ground pipeline Proposal development
without requiring an outage. In addition, the monitoring of The pipelines asset health programme is split across five
the depth of cover of the buried pipeline both on dry land sub-themes, each of which considered a number of
and at watercourse crossings is included in the EJP. options. The four options considered for the pipelines, CP
and coating sub-theme were: a baseline option of ‘do
Pipelines are the primary asset within the NTS that minimum’; a maintain risk option; an option to not
enables transportation of gas, and maintaining their remediate the CP systems; and an option to investigate
integrity is critical to the safe and reliable operation of the and remediate all close interval protection system (CIPs)
NTS. The design, construction, operation and defects found; with the preferred option being to maintain
maintenance of our pipelines are subject to both the risk.
Table 14.42 pipelines options summary
Percentage Options
of theme considered
Pipeline, coating Range of options identified to balance cost/risk detailed
£131,440,882 91.6% 4
and CP within the EJP for this significant area of work.
Least whole-life cost option deployed to mitigate high risk
issues using grout where ILI defect aligns to nitrogen
Impact sleeves £4,642,360 3.2% 1
sleeve. This represents the ‘do minimum’ option to maintain
compliance.
Least whole-life cost option to meet PSSR ILI requirements
to convert failed PIG traps where possible to portable traps,
Pig traps £4,267,913 3.0% 1 repairing/replacing failed PIG traps where conversion is not
possible. This represents the ‘do minimum’ option to
maintain compliance.
81
Least whole-life cost solution to meet TD/1 standards
Watercourse chosen to mitigate risk through intervention on high
£2,100,046 1.5% 1
crossings risk/defect issues only. This represents the ‘do minimum’
option to maintain compliance.
Least whole-life cost option deployed to mitigate risk on an
Depth of cover £1,081,724 0.8% 1
ongoing basis (do minimum) in line with legislation.
Impacts of no investment Figure 14.45 pipelines asset health theme intervention

Lack of investment would result in an unsustainable types
situation where the volume of corrosion defects will grow
to a level where the performance on the NTS cannot be
maintained and any level of remediation would not keep 20% Major
pace with degradation. This would place the NTS in a refurbishment
state where only significant asset replacement would Minor
2% 33%
counter the corrosion issues at significant cost to refurbishment
customers and consumers.
Replacement
RIIO-2 pipelines asset health investment proposal
summary Survey
44%
£143.5m.
 94% of the pipeline asset health proposals deliver Comparing our RIIO-2 proposal to our RIIO-1
NARMs outputs. programme
 All the pipeline asset health intervention sub-themes The annualised RIIO-2 spend has increased when
have been subject to a CBA and all sub-themes are cost compared to RIIO-1 from £16.2m to £26.4m for pipelines
beneficial. asset health theme.
 Volume confidence is high due to significant historic
Figure 14.46 pipelines cost waterfall (£m/yr)
data and the repeatability of this work.
The RIIO-2 asset health pipelines theme and intervention £35

costs and volumes by output are provided below. £30
Table 14.43 pipelines volume and cost £25
£20
£15
£10
£5
£0
Upward drivers
The RIIO-1 pipeline strategy focussed on in-line
inspection defect investigation and remediation as a
Figure 14.44 pipelines asset health theme outputs
priority. Our RIIO-2 strategy brings greater volumes of the
CIPs defects (an area we are spending over forecasts in
RIIO-1) into the plans, increasing the overall cost of the
pipelines theme to dig and remediate potential end of life
pipeline coating issues. These issues degrade our
cathodic protection system effectiveness and failure to act
in the nearer term will result in significant pipeline failure
risk and/or whole-life cost issues. Note that the annualised
allowance for RIIO-1 is comparable to what we are
requesting for RIIO-2, for all activities except CIPs.
Downward drivers
Several innovations have been developed in pipelines
during RIIO-1, (epoxy sleeves, seam weld identification,
etc.) which will be rolled into RIIO-2. In addition, we found
a better way to deal with river crossing asset health risks
in RIIO-1 reducing costs significantly from the original
RIIO-1 forecast and these lower cost interventions
82
continue to feature in our RIIO-2 plan. These have all integrity assets is to be expected, with an increasing need
been built into our proposed unit cost for RIIO-2. for assessment and re-lifing. Many assets are reinforced
concrete and are subject to age-based deterioration, signs
We continue to bundle work around feeder outages which of which are often visible, in the form of cracks and
is a primary driver to keep pipeline work costs low, as well delamination. Not investing at this stage can lead to
as minimising impacts to our customers. The further severe deterioration where spalling occurs, at
enhancements through our transformation programme which point the safety and structural integrity of the asset
related to enhanced planning processes and systems and is prejudiced, and the cost of repair dramatically
the integration of all elements of our asset risk and increases. This principle applies to assets constructed of
planning data enables ongoing improvements in this area. other materials such as roads, security fencing and
access platforms. External factors such as weather and
Structural integrity ground movement impact the integrity of the structural
The structural integrity theme consists primarily of pipe assets and can consequentially affect critical operational
supports and pits that ensure pipework is accessible equipment. Failure of assets associated with site access
and imposed stresses are limited, ducting that provides a can impede critical maintenance which in turn can affect
safe routing for pipework and cabling, security and the operational reliability of the primary NTS assets.
fencing to protect assets from breaches by external
parties, access allowing movement around sites, It should also be noted that good access routes, ladders
buildings in a range of sizes and roles, tanks and bunds and platforms are essential for safe working on sites, and
providing liquid containment and sewerage treatment access roads are often used by members of the public.
and drainage to stop pollution leaving the site and
flooding occurring. Within the structures remit are also containment and
Figure 14.47 pipe supports treatment facilities for required liquid consumables and for
dealing with waste water. Failure to manage deterioration
of these assets would undermine our ability to meet the
requirements of fire response plans and environmental
discharge permits as well as continued operation.
Proposal development
In defining our proposed intervention approach, we have
focused our effort on developing a least whole-life cost
option that enables an optimised ongoing, rolling
programme of work. Significant expert challenge and
The structural assets have been grouped as follows: review has underpinned the levels of intervention and the
proposed phasing ensures we meet the desired
 supports, pits and ducting protecting the primary assets
engineering and stakeholder outcomes whilst smoothing
 security, fencing, buildings and access ensuring the
out the workload. The five options considered across the
primary assets are secure
three sub-themes for structural integrity against a baseline
 tanks, bunds, sewage treatment and drainage protecting
option that is purely reactive were: a fix on fail option
the environment.
which included investment for health and safety
As such, the continued provision of a basic required level
legislation; a primary proactive re-life option which
of performance is necessary, with the most critical
considers assets with a direct potential impact on the
elements such as buildings, concrete foundations and
safety of staff and members of the public; a minimal
pipe supports being essential. In some cases, these
proactive re-life option which focuses on the worst
support compliance with the Pressure Systems Safety
performing or condition assets; a risk based re-life option
Regulations (PSSR) and the Pipeline Safety Regulations
which considers the asset’s condition, criticality and age;
(PSR) as well as some environmental obligations.
and an increased proactive re-life option with all assets
considered for replacement at an earlier condition grade;
with the preferred option being the risk based re-life
As many of the NTS sites are now older than their original
option.
design lives, an increase in failure of the structural
Table 14.48 structural integrity options summary
RIIO-2 plan Percentage Options
Sub-theme Option summary/considerations
Range of options identified to balance cost/risk detailed
Pipe supports/pits
£39,287,182 49.4% 5 within this EJP. Chosen option takes a risk based re-life
and ducting
approach to maintain stable risk.
Security and Range of options identified to balance cost/risk detailed
fencing, access and £33,685,071 42.4% 5 within this EJP. Chosen option takes a risk based re-life
buildings approach to maintain stable risk.
83
Range of options identified to balance cost/risk whilst
Treatment and
maintaining environmental compliance detailed within this
drainage, tanks and £6,564,960 8.3% 5
EJP. Chosen option takes a risk based re-life approach to
bunds
maintain stable risk.
Table 14.49 structural integrity volume and cost Comparing our RIIO-2 proposal to our RIIO-1
programme
The annualised RIIO-2 spend has increased compared to
RIIO-1 from £14.3m to £14.6m for the structural integrity
asset health theme.
Figure 14.52 structural integrity cost waterfall (£m/yr)
£18
£16
£14
Structural integrity asset health investment proposal £12
summary £10
 The total RIIO-2 proposed expenditure for this theme is £8
£6
£79.5m.
£4
 Our entire structural integrity programme is based £2
on known defects. £0
 Spend levels are broadly consistent with that of RIIO-1. RIIO-1 actual Upward Downward RIIO-2 forecast
 None of the structural integrity investments are included annual (FY14-FY19)cost drivers cost drivers
in our NARMs model. We propose price control Upward drivers
deliverables to assure the outputs are delivered. There are minor upward cost drivers related to increased
 Spend is forecast to increase in RIIO-3 as we have volumes of work compared with RIIO-1. Our RIIO-2 plan
taken the view that we will manage the risk through is based on known defects – there are significant known
operational means and risk mitigation practices can be end of life issues across the network that require
deployed where appropriate. resolution.
Figure 14.50 structural integrity asset health theme
outputs Downward drivers
We continue to bundle structural integrity work with AGI
renovation work. Our NARC programme has a proven
track record of delivering this work on time and budget.
Enhancements to our unit costing and long-term planning
processes and systems through our transformation
program will support the potential for longer term
contracting for this type of work generating consistency in
delivery and ongoing delivery contract performance
improvements.
Electrical
The electrical infrastructure provides power to enable the
safe operation of sites across the NTS. Most assets within
Figure 14.51 structural integrity asset health theme the gas transmission system rely on an electrical supply to
intervention types fulfil their function or are protected by equipment that
3% requires an electrical supply. Key components of this
Major asset include standby power supplies that ensure
refurbishment critical services are powered should an electrical outage
11% happen, HV switchgear and transformers which supply
Minor high voltage machines such as compressor electric
46% refurbishment drives, LV switchboards and distribution that provide
Replacement power to equipment across the sites, standby
generators that provide the only means of site power
39% Survey should a longer term electrical outage occur, site lighting
to illuminate the site and support safe work activities and
site electrical systems that provide general power
across the site.
84
Figure 14.53 standby generator  There are increased outage times when failures do
occur due to obsolete assets and unavailability of
spares.
Without investment in the electrical infrastructure, an
increasing number of elements may need to be isolated to
maintain compliance with the Electricity at Work
Regulations (EAWR) and Dangerous Substances and
Explosive Atmospheres Regulations (DSEAR). These
Electrical supply is taken from the local electrical isolations will lead to increasing impact on the ability to
distribution network but is supported as necessary by operate the NTS, network capability and ultimately the
standby power supplies and generators. HV machines are availability of gas for our customers. Age and
the exception where the back-up function of that machine obsolescence are significant factors that increase the risk
would be covered by other gas generators. of these assets failing. Many of the electrical assets are at
Many elements of the electrical infrastructure are beyond or beyond their intended design life. Failure to continue to
their design life and the ageing infrastructure is invest in these assets can ultimately lead to significant
deteriorating with the number of defects associated with it impacts in operating and controlling key NTS sites.
rising. The impacts of the increasing defects on the
electrical infrastructure are: Proposal development
 The failures of standby power supplies and standby A proactive intervention programme is proposed to avoid
generators have prevented compressor units starting, unmanageable levels of defects, together with the
reducing the resilience of the NTS. This could have associated adverse impacts on the safety, operation and
potential impacts on the availability of gas or increase availability of the NTS and any potential legislative
potential for buy backs. non-compliance. It should also be noted that robust
 Several of the ageing standby generators have safety electrical infrastructure facilitates the intervention
issues associated with their age, type and the location programmes during RIIO-2. The four options considered
within the site. for both sub-themes of electrical against a baseline option
that is purely reactive were: a fix on fail option with age-
 Site lighting is becoming a safety risk across all sites
driven replacement of batteries; a minimal proactive re-life
with many cable failures, corroding floodlight columns
option; a risk based re-life option that considers
and specific task lighting that is inappropriate for the
performance, criticality, condition and age of assets; and
work being undertaken.
an increased proactive re-life option which significantly
improves risk, with the preferred option being risk-based
re-life of assets.
Table 14.54 electrical options summary
Percentage Options
of theme considered
Site A balanced blend of refurbishment and replacement
electrical £23,238,811 81.6% Various intervention options has been proposed to mitigate risk on
systems an ongoing basis to maintain stable risk.
Standby Range of options identified to balance cost/risk detailed
power £5,237,397 18.4% 4 within this EJP. Chosen option takes a risk based re-life
supplies approach to maintain stable risk.
Electrical asset health investment proposal summary Table 14.55 electrical volume and costs
£28.5m.
 All the electrical asset health intervention sub-themes
have been subject to a CBA and all sub-themes are
cost beneficial, paying back within the period defined by
Ofgem.
 None of the electrical asset health investments are
included in our NARMs model. We propose price control
deliverables to assure the outputs are delivered.
 A significant proportion of the proposed electrical
interventions are replacement interventions due to the
nature of these assets and the interventions required to
remove obsolescence and failure risk.
85
Figure 14.56 electrical asset health theme outputs resource reduces the overall cost to deliver and
minimises the impact of electrical outages on our sites.
Additional efficiencies in this area are driven through our
transformation programme. Better asset data, enhanced
planning tools and a sharp focus on unit costs all enable
lower overall cost of delivery through enhanced, longer
term delivery contracting.
Figure 14.57 electrical asset health theme

intervention types
3%
8%
Major
refurbishment
Minor
refurbishment
Replacement
89%

programme
compared to RIIO-1 from £2.3m to £5.2m for the electrical
asset health theme.
Figure 14.58 electrical cost waterfall (£m/yr)
£6
£5
£4
£3
£2
£1
£0
Upward drivers
Significant end-of-life issues are driving up volumes of
electrical interventions in RIIO-2. We have faced
significant obsolescence issues on electrical systems for
some time and this has been managed in part through
grey spares in RIIO-1. Without additional investment in
new systems, this approach is unsustainable into RIIO-2
and beyond.
Downward drivers
Our delivery strategy ensures lower delivery costs by
bundling site electrical system upgrades with control
system work. This alignment of outages and contractor
86
Bacton collaborative relationship with Oil and Gas
Authority (OGA) and local councils
1. What is this sub-topic about?
Key Stakeholders have long-term strategies for
Bacton terminal is a key site for the network. It delivers messages southern North Sea gas and interconnectors
supplies from the southern North Sea, through that go beyond 2040; so our investment at
interconnector pipelines from the Netherlands and Bacton needs to consider the long term.
Belgium. Bacton is also a key demand on the network, “Investment is required for the long-term
connecting the GB gas market to the European gas reliability and safe operation of the terminal,
market and delivering exports to Europe, as well as to the therefore something fit for purpose is
Great Yarmouth power station and to a gas distribution preferable” – xxxxx, entry customer
network offtake. Over the last two years, we have seen There is consensus that any disruption to
service at Bacton needs to be carefully
days where the terminal delivered 39% of GB gas
planned and minimised; for some parties, it is
supplies and days where it met 30% of GB gas demand. possible to agree and align an outage for up
to two weeks each year, but more than this
Bacton is the only terminal on the network that switches has significant financial impact.
from being net supply to net demand. It is one of two top The stability and absolute level of gas
tier control of major accidents and hazards (COMAH) pressure at Bacton are important for
sites on the network. The terminal also allows pressure maximising recovery of southern North Sea
and flow control of the various pipelines connected to it, gas, reducing offshore compression
which delivers safe pressures and security of supply for requirements, facilitating interconnector flows
(import and export) and for Great Yarmouth
customers and consumers in the South East (including
power station connected to the site.
London). The terminal was commissioned in 1968 to
Key trade- There is consensus that a re-developed
meet stakeholder needs envisaged at that time. Many of offs and terminal will deliver the most efficient
the assets have been operational since then and they are how solution. We asked, “do you support our
over design life (30 years). It is acceptable to extend life engagement decision to progress with a new terminal?”
(dependent on asset condition) but we are now seeing an has Responses 67% – yes, 33% – unsure.
increased rate of deterioration and greater intervention influenced “Excellent opportunity to get ready for future
will be needed in future. Many asset health issues will our plan flow scenarios” – xxxxxxxxxxxxxxxx
need attention during RIIO-2. customer.
“The best option and future-proof” – xxxxxxx,
entry customer.
2. Our activities and current performance “New terminal will ensure capacity and
The high importance of Bacton to the security of supply in efficiency to support longer-term plans for
the South East, and our obligations to parties connected customers. Not clear to me though if some
to the site, both limit the ability to take outages. During tweaks to existing would also do the same at
RIIO-1, completion of the asset health works at Bacton lower cost” – xxxxx entry customer.
would have been delivered more efficiently through Some customers would like us to expand our
extended terminal or sub-terminal outages but, given the services to include blending and pressure
criticality of the site, we scheduled work around services whilst others disagree. Given the
level of interest in blending, this is an area
sub-terminal outages and completed it in a less efficient,
we are exploring and will consider further in
piecemeal fashion. During RIIO-2, we will need to align our final design options.
disruptive works around customer outages. Other parties
connected to our Bacton terminal are experiencing similar 4. Our proposals for RIIO-2 and how they will
issues with their own assets and needing to investment in
benefit consumers
them; for example, Shell invested £350m in its Bacton
We propose to redevelop the terminal at Bacton, Norfolk,
rejuvenation project.
as the most efficient way of meeting future customer
requirements34, which is advocated by stakeholders35.
Doing so will create a site with appropriate capabilities to
Table 14.59 Bacton stakeholder summary meet the needs of customers and it avoids the need for a
Bacton more expensive and disruptive asset health programme.
Stakeholder Consultant/supply chain, customer – entry, Our ongoing work on network capability will not affect the
segments customer – exit (ten individuals from four
need to address the issues at Bacton. Longer term, this
engaged organisations), customer – shipper, energy
network operator, GDN, industry/trade body, redevelopment will also reduce the hydrocarbon inventory
other energy industry, other non-energy and improve site safety.
industry, regulator/government,
university/think tank. During front end engineering design (FEED), we will
Objective To understand how we should approach the evaluate options and cost to make our Bacton terminal a
asset health issues at the Bacton terminal. net zero emissions site, in line with the government
Channel/ Targeted one-to-ones, workshop, webinars. ambition. We will work with onsite stakeholders,
method We are welcomed as regular attendees at considering aspects such as how can we reduce venting
Southern North Sea CEO forum and have a through design, what sustainable modes of transport and
34 35
FES indicates Bacton will still play a significant role beyond 2040. Bacton EJP includes copies of letters of support for our proposal.
87
energy can we implement, can we use waste heat from Cost benefit analysis has confirmed that the redeveloped
compression on site. terminal is a cheaper option than adopting a long-term
asset health programme. Such an asset health
In developing our proposal, we have considered a range programme would take many years to complete due to
of options including: ‘do nothing’; continuing with an asset limited opportunity to take the required outages without
health approach; continuing with an asset health option significant customer disruption. The payback period for a
but with reduced terminal capabilities; and brownfield new terminal is 12 years from 2021 (2033). There is still
redevelopment of the terminal. The options considered, some uncertainty over the final design of the redeveloped
and their relative costs, can be found in the Bacton EJP site, including the requirement for pressure or blending
annex A14.02 and CBA annex A14.03. We have services and the potential charging implications of these.
discounted the ‘do nothing’ option for the site because of
the rising number of defects experienced on the site The complexity of the site (five feeders, UKCS, import
during RIIO-1 and our obligations to manage the major and interconnector import/export) means a simplified site
hazard risks of this upper tier COMAH site. design like those at Easington or Milford Haven is not
feasible. The increased risks of not meeting network
We have considered whether an asset health pressures and of damage to our customer’s plant and
programme, including a reduction in terminal capability, equipment due to liquid entrainment or dust are
could be adopted, either to avoid the terminal considered too high. Many stakeholders raised strong
redevelopment or to allow a decision on the long-term concerns about a simplified site operation36.
future strategy for the site to be deferred until RIIO-3. We
discounted this because the site has several issues that As there remains a level of uncertainty over final site
must be addressed during RIIO-2 and RIIO-3, including: design and hence costs. We are proposing a ring-fenced
 obsolescence of the fire and gas system, the distributed PCD and requesting baseline funding subject to an
control system and the gas quality system uncertainty mechanism to protect consumers’ interests.
 issues with corrosion and non-sealing valves, and This will facilitate further exploration of stakeholder needs
 increased costs associated with operating and from the site and any potential charging implications of
maintaining redundant assets. providing these. These outcomes can then be fed into the
final site requirements, design and costs through the
uncertainty mechanism.
Table 14.60 our proposals
stakeholders
have told us
Stakeholders see We will redevelop the Bacton Price control deliverable Lower network costs compared to the
a long-term need terminal to meet the future to reach FEED for the alternative option of an extended and
for the Bacton customer need and allow for Bacton terminal (£4.7m). intrusive asset health programme.
terminal. potential future changes (e.g. See annex A3.01. Access to gas supplies, providing security
connection of storage or of supply and helping keep wholesale gas
There is compression if required and the prices as low as possible.
consensus that a facilitation of decarbonisation). Redeveloping the terminal would also
re-developed Once the redeveloped terminal reduce the amount of gas at the Bacton
terminal will is operational, the existing site, moving from a top tier COMAH site to
deliver the most terminal will be a lower tier COMAH site, reducing ongoing
efficient solution decommissioned. compliance costs for consumers.
to our asset Uncertainty mechanism to be Uncertainty mechanism Adoption of an uncertainty mechanism
health challenges. used to adjust the requested (£139.6m) Trigger: Year around the costs of redeveloping the
baseline funding for the terminal 1 (end of FEED). See terminal gives consumers cost protection
redevelopment, once the final annex A3.02. from this uncertainty.
terminal design is confirmed and UM to be used to set a
there is a more accurate view of second PCD for delivery
the costs. of the final design.
5. How will we deliver? terminal can be designed to meet customers’ future

Redeveloping the terminal offline allows efficient needs efficiently, including the efficient recovery of gas
construction. We will reduce construction risk by building reserves and operation of interconnectors.
a modularised solution offline and offsite, avoiding the
need for extended periods of outage. This option also We will continue to engage stakeholders on their
reduces the requirement for site personnel to work close requirements from the Bacton terminal to support the
to live gas assets during construction. Connection of the development of the final site requirements and design.
redeveloped terminal to existing site assets would require We will also continue to use our close strategic and
short outages (two weeks at most) but these could be operational relationships to ensure open discussions are
staggered and aligned with customers’ own outages. The undertaken to plan works that might cause disruption.
36
More information in annex A14.02 Bacton EJP.
88
Innovation We have engaged specialist external consultancy support
In designing and delivering this project, we will look to use from Petrofac. They have confirmed the feasibility of the
innovation from RIIO-1, business information modelling, option to redevelop the Bacton terminal but there are
which uses intelligent 3D modelling process for design of risks, including extensive construction and commissioning
construction projects. We will also look to future proof the difficulties. We will use an uncertainty mechanism to
design as much as possible, looking at how the site could protect consumers’ interests as stakeholder requirements
be used in a net zero world, including applying a net zero are clarified, and final design and costs are refined.
construction approach. Further information can be found in annex A3.02.
Competition 7. Our proposed costs for RIIO-2

This project meets the Ofgem criteria for competition from Construction of the redeveloped terminal will give rise to
a cost materiality point. We are proposing to unflag this higher costs during RIIO-2 compared to the alternative of
for early competition. For late competition, we are maintaining the existing terminal, but it delivers
currently proposing to unflag for new. We are exploring considerable savings in the long-term. During the RIIO-2
the separable category with Ofgem and will continue to period, minimal asset health works will still be required on
do this. We detail more on our approach to competition the existing terminal to ensure it remains operational
can be found in chapter 20. whilst the new terminal is constructed; they will cost
significantly less than those we’d need to undertake if we
opted to retain the existing terminal for a longer period.
The EJP for Bacton includes costs that are not included in
table 14.61. The opex costs form part of the asset
management costs in this chapter and the costs of
decommissioning the existing Bacton terminal are
6. Risk and uncertainty captured in chapter 16.
Table 14.61 costs at Bacton for construction of the redeveloped terminal and asset health on the existing
terminal
(£m in 18/19 prices) Total Annual Annual RIIO-1
2022 2023 2024 2025 2026
RIIO-2 RIIO-2
Bacton – FEED 4.7 0.0 0.0 0.0 0.0 4.7 0.9 0.0
Bacton – UM 0.0 29.2 43.3 44.7 17.3 134.6 26.9 0.0
Bacton37 – asset health on 0.5 2.7 2.3 2.6 0.9 9.0 1.8 ------38
existing terminal
Bacton – total 5.2 31.9 45.6 47.4 18.2 148.3 29.7 0.0
Table 14.62 level of cost evidence for redevelopment of the Bacton Terminal
Cost realised from Cost forecast based on External NARM or
RIIO-1 actuals competitive process benchmark volume-driven PCD
Not currently – part of FEED Not currently – part of FEED Yes (partially)39 No
King’s Lynn subsidence
8. Next steps 1. What is this sub-topic about?
 We will continue to engage stakeholders on their King’s Lynn is an important site providing compression
requirements from the Bacton site and the charging and connecting three pipelines xxxxxxxxxxxxxxxxxxx. The
implications of these. combination of compressors and pipelines is important in
 We will work with Ofgem on the detail of the proposed meeting customers’ entry and exit capacity at the Bacton
uncertainty mechanism and the approach to competition terminal. This part of our asset health plan proposes
for this project. rebuilding part of the King’s Lynn compressor site. The
investment is needed because of ground movement
(subsidence) that has put unacceptable stress on valves
and associated pipework at the site. ‘Do nothing’ is not an
acceptable option. Without intervention, there are safety
risks (uncontrolled release of gas at the site), and wider
risks to meeting customer requirements at Bacton (both
for entry and exit) and security of supply.

Recently, the bi-directional area at King’s Lynn
compressor has been suffering from a large amount of
37
Note: these costs are included in our asset health spend and not our Bacton project costs.
38
The RIIO-1 asset health cost relating to Bacton are contained within the RIIO-1 annualised average asset health cost in table 14.02.
39
Costs developed with the help of Petrofac, who have developed a preliminary design, construction strategy and timeline to prove deliverability during
RIIO-2.
89
ground movement. During RIIO-1, we’ve carried out work and repair the existing assets; however, investigations
to find out the extent of this. Excavations have found that have found no supporting rock in the current location so
the ground is of poor quality and is not supporting the there is no guarantee that this option would stop the
pipework. We also found that drainage was poor, and subsidence and costs are unpredictable. In addition, as
water wasn’t being removed in a timely manner. During the pipework has already suffered irreversible damage it
the excavation works we found concrete attached to would still have to be replaced.
some of the small pipework placing extra stress on it; this
has since been removed. Throughout 2017 and 2018, 3. What have stakeholders told us?
Premtech carried out stress surveys on the pipework and As this is an issue with an existing site, we have not
found that some of it had a stress level over three times specifically engaged stakeholders about it. However,
the acceptable limit. One of the most concerning parts of maintaining the capability of the site is necessary to
the report shows that the subsidence and pipe movement provide the entry and exit capabilities that stakeholders
between 2017 and 2018 continued to worsen and this is have told us they need at the Bacton terminal.
likely to continue if we don’t intervene. We have
considered whether it is possible to underpin the ground
Table 14.63 King’s Lynn stakeholder summary
stakeholders
have told us
They see a We will build a new bi-directional Price control deliverable to Removes the risk of constraining
long-term need for area within the boundary of the reach FEED (£1m). See annex import or export flows at Bacton
capability at the existing King’s Lynn site. This will A3.01.) and any limitations on operation of
Bacton site remove any reliance on existing the network. This provides the GB
(King’s Lynn site pipework, which is under stress due gas market with access to gas
supports delivery to ground subsidence. supplies, improves security of
of this) and we Reopener to be used to adjust the UM to set a second PCD for supply and helps keep wholesale
should meet all funding allowances once the final delivery of the final design. gas prices (ultimately prices to
our safety design is confirmed and there is a (£30.2m) Trigger: Year 1 (end consumers) as low as possible.
obligations. more accurate view of costs. of FEED). See annex A3.02.
4. Our proposals for RIIO-2 and how they will Risk and uncertainty
benefit consumers Although Premtech has worked with us on the issues with
In developing our proposal, we have considered a range the King’s Lynn site, we have more work to do to finalise
of options including: do nothing; rebuilding the site; the design, work programme and costs. Because of the
underpinning; site decommissioning; and redevelopment cost uncertainty this creates, we are proposing baseline
of the site with uni-directional capability. The options funding subject to an uncertainty mechanism to protect
considered, and their relative costs, can be found in the consumers, please see annex A3.02 for further detail.
King’s Lynn EJP annex A14.04 and CBA annex A14.05.
5. How will we deliver? Our proposed costs have been informed by the work we
This project will be delivered using native competition have undertaken with Premtech. Please note we have
during RIIO-2. We will also look to apply RIIO-1 provided costs to one decimal place and hence some
innovation using BIM, an intelligent 3D modelling columns may not equal to the totals. Pension costs are
process for design of construction projects. We will also based on proportion of total TOTEX.
look at applying a net zero construction approach.
Table 14.64 cost for addressing King’s Lynn subsidence

(£m in 18/19 prices) 2022 2023 2024 2025 2026 Total RIIO-2 Annual RIIO-2 Annual RIIO-1
King’s Lynn- FEED 1.0 0.0 0.0 0.0 0.0 1.0 0.2 0.0
King’s Lynn- UM 0.5 4.7 23.4 1.6 0.0 30.2 6.0 0.0
King’s Lynn- total 1.6 4.7 23.4 1.6 0.0 31.2 6.2 0.0
Table 14.65 level of cost evidence for addressing King’s Lynn subsidence
Cost realised from RIIO1 Cost forecast based on NARM or volume-driven
External benchmark
actuals competitive process PCD
Not currently – part of FEED Not currently – part of FEED Yes (partially)40 No
7. Next steps  During RIIO-2, we will undertake further work to finalise
 We will work with Ofgem on the detail of the proposed the design, plan the work programme and update the
UM for this project. costs (to feed into the uncertainty mechanism).
40
Costs contained in this chapter were developed with the help of Premtech
90
Asset management capability. This provides the most cost-efficient delivery of
1. What is this sub-topic about? new talent into the organisation.
To provide a safe and reliable network that is protected
from third party threats, we must invest in the right levels Some of our core roles have a scarce talent pool and are
of resource, supported by the right processes, systems, recognised on the shortage occupation list in the UK;
tools and equipment. These investments can be where required, we make use of the General Work Visa
summarised and grouped as: (Tier 2) to support recruitment activity in these areas. We
 People – the costs associated with the supplement this with support from agency partners,
employees/contractors to develop our asset particularly when looking for niche skills such as cyber or
management strategies, deliver maintenance activities, legal experts. In addition, we are continually looking to
carry out reactive maintenance/repairs, respond to grow our own talent in core science, technology,
call-outs41 and operate the St Fergus and Bacton engineering and maths (STEM) areas through our annual
terminals. This also includes the operational training apprenticeship and graduate programmes. Finally, in
required to equip people with the capabilities and some areas it is prudent to supplement our permanent
competences they need for these activities. workforce with contingent labour to maintain flexibility in
 IT systems – the costs associated with running and delivering peaks of work such as for major capital
improving the IT systems we use to support the projects; to deliver this we use dedicated managed
management of network assets. service providers.
 Asset support costs – the costs associated with
Early in RIIO-1, we undertook a major restructuring
running and maintaining our network assets. This
programme42 and in 2018/19 we again reviewed our
includes having the right tools, equipment, consumables
organisation and costs to create:
and strategic spares to maintain the network as well as
commercial vehicles for the operational field force, and  an outcome-led organisation, including both customer
paying utility bills for our operational sites. and service outcomes
 specialisation and focus to drive efficiency
Our RIIO-2 plan contains an increase in work from RIIO-1  simplified team interfaces that clarify responsibilities
and it calls for additional project support headcount within  clear accountabilities, especially between commercial,
our central and operational teams. To deliver this strategic, engineering and delivery activities.
efficiently and safely, we plan to build on our RIIO-1 asset The opex efficiencies in our operating model will start to
management tools and techniques to enhance our be realised ahead of the RIIO-2 period.
capabilities during RIIO-2.
This recent restructure followed asset management best
2. Our activities and current performance practice and has created three functions: asset owner,
People asset manager43 and asset steward. These functions
Our ability to deliver the service our customers expect work together to set and deliver our business objectives
depends on the availability of suitably skilled people. as shown in figure 14.66 below.
During the last ten years, there has been high demand for
critical engineering skill sets and a consequent reduction Our asset owner teams are accountable for setting the
in suitable candidates from traditional routes across the strategic direction of the transmission owner and
utilities and oil and gas industries. This shortage is managing overall business performance against our
particularly acute in the North Sea area, impacting customers’ and shareholder expectations. They provide
Scotland and the East of England. With up to four-year independent, risk-based, second-line assurance as part
training requirements for many of our staff, we have had of the three lines of defence, to ensure continued, safe
to respond by investing in skills development and and compliant operations. We manage the risks
education to grow the workforce of the future as well as associated with our operations through a ‘3 lines of
recruitment, training and retention to give the business defence’ model. The first line of defence is provided by
continuity of skills. the first line supervisor during normal supervisory
activities. The second line of assurance is conducted by a
Our resourcing business model to deliver this has flexed team within the business who audit and assure a range of
over time, moving to a combination of pro-active, ‘grow work activities in a targeted programme. The third and
your own’ approaches, supplemented by experienced final level of assurance is provided by our corporate audit
external hires with contractor support where cost function who conduct periodic audits as set out in their
effective. Primarily, we seek to hire talented and audit plan. Most issues will be identified and corrected or
experienced people across all our core business areas escalated by the supervisor, with the second and third
using our in-house recruitment team and direct sourcing level assurance teams identifying more systematic and
process issues.
41 43
Including to compressor trips/breakdowns, site alarms, aerial sightings For the purposes of our data tables, the asset owner and asset
of third-party interference, third party requests (emergency, minor work manager resources are combined together since they tend to be more
requests and planned works) and contractual obligations in Network Exit centrally based roles, whereas asset steward resources tend to be more
Agreements. geographically based.
42
The total efficiencies resulting from these programmes can be found
in chapter 20.
91
Our asset manager teams provide a centre of engineering installations (AGIs) and high-pressure pipelines. Our
expertise to create and implement asset management asset steward team also includes our specialist Pipeline
strategies and plans that deliver the level of service, risk Maintenance Centre (PMC) depots, providing support
appetite and performance targets set by the strategy and across the gas industry. PMC is the emergency
performance team, while remaining compliant with safety responder to gas pipeline emergencies across Britain's
and legislative requirements. distribution and transmission networks. They also deliver
emergency and reliability response on a 24/7/365 basis
Our asset steward teams perform maintenance, repair across the network, both for our own assets and for those
and operation activities for the network and for external operated by external customers. The opex costs of
customers. The teams are geographically spread, and running PMC are not included in the business plan.
they operate and maintain two upper tier control of major These costs are funded through asset projects,
accident hazards (COMAH) terminal sites. They also emergency response and income for services to other
maintain the compressor stations, above ground networks and customers.
Figure 14.66 asset management roles
IT systems framework and our cost profile reflects the cyclical nature
Managing the network requires numerous IT systems that to deliver this.
enable customers to connect, report events and request
information to ensure safety. We use other IT systems to We are increasing the number of commercial vehicles
analyse vast amounts of data and prioritise, plan and from 175 (2018/19) to 243 by the end of RIIO-1, as we
schedule work, carrying it out in an effective and safe move 68 employees from company cars to commercial
way. vehicles. Transferring these employees from to
commercial vehicles will reduce costs. We estimate this
Understanding the condition of our IT assets is key to will save ~£0.5m during RIIO-1 and embed an enduring
ensuring they are secure and reliable and that we are saving into our RIIO-2 opex costs
managing interventions on them in the most cost-efficient
way. During RIIO-1 we have developed multiple, targeted Asset support costs (utility bills)
condition-monitoring techniques that capture data about Utility costs for our operational sites include electricity,
our assets as well as a data and analytics platform to water and gas with electricity accounting for ~99% of the
make sense of this data. total (this is expected to continue over the RIIO-2 period).
Asset support costs We use electricity for ancillary equipment associated with
Costs to support the running of the assets can be broadly compressors, pipelines cathodic protection systems that
categorised into three main areas: have above ground installation (AGI) site security and
 commercial vehicles monitoring systems. Of our electricity consumption, 82%
 utility bills relates to ancillary equipment associated with
 equipment, consumables and spares. compressors.
Asset support costs (commercial vehicles) Asset support costs (equipment, consumables and
Our commercial vehicle fleet attends remote sites and spares)
provides emergency response, with around three million This part of our business plan captures costs of the tools,
miles per year driven. We will manage these vehicles in equipment, consumables and strategic spares required to
line with our existing replacement and maintenance maintain a reliable network. It also includes our
non-operational capital costs (e.g. vehicles) for PMC.
92
3. What have stakeholders told us? levels of resource, supported by the right processes,
Customers have told us about the value of having systems, tools and equipment to deliver the unrestricted
unrestricted access to the network, and the impacts on access they want. As these aren’t topics where there have
them of any disruption to their ability to use the network. been specific options to explore with external
Our asset management activities ensure we have the right stakeholders we have not engaged with stakeholders
about them.
4. Our proposals for RIIO-2 and how they will benefit consumers
Commitment Output type Consumer benefit
Our asset management activities will continue to be led by good asset Commitment Efficient management of
management principles and we will continue our external accreditation to costs, lowering consumer
ISO55001. bills.
We will ensure we have the right level of human resource, trained with the right
capabilities, supported by the tools, vehicles, spares and IT systems, to
efficiently deliver customers’ requirements.
Contribute towards the joint gas networks emergency response and Licence Ensure gas is available as
enquiry service. Obligation and when consumers
want.
5. How will we deliver? Innovation

We will continue to source fleet procurement, Table 14.68 RIIO-2 asset management innovation
maintenance and fuel card contracts as a competitively Theme Projects
tendered procurement process. Through benchmarking We will look to investigate how we can
exercises, we know this aligns with other utility companies enhance our IT system to gather better
and industry best practice. We will develop robust controls Fit for the and more data to feed into how we
to ensure that our commercial vehicles are managed future approach our asset management
through their whole lifecycle as effectively and efficiently activities and what systems we may
as possible throughout the RIIO-2 period. require to deliver these.
We will investigate how the use of
artificial intelligence, machine learning
For equipment, consumables and spares, we will continue Ready for
and augmented reality can help our
to buy these efficiently in line with strategy and supply decarbonisation
workforce undertake their activities in a
chain principles as in RIIO-1. We will use competitive more agile, safer and efficient way.
tendering wherever possible, leverage suppliers during Understand how the pipeline safety
contract extensions, use multi-year contracts to limit rate Decarbonised case needs to change for hydrogen
rises and seek reductions in demand from the operational energy system transportation and how this affects our
business. We will continue to participate in European asset management activities.
benchmarking activities and other industry groups to
ensure adoption of best practice and cost efficiency. 6. Risk and uncertainty
A key risk is the availability of the appropriately skilled and
trained resources in the right geographic areas to deliver
our business plan. This can be impacted by factors such
as actual retirement profiles and the wider North Sea gas
market. This market affects the availability and cost of
securing resources and specialist contractors.
There is also uncertainty over future decarbonisation
strategies, which may impact on our assets and
consequentially our asset management costs.
Table 14.69 asset management costs
(£m in 18/19 2022 2023 2024 2025 2026 Total RIIO-2 Annual RIIO-2 Annual RIIO-1
prices)
People 37.3 37.1 37.6 36.9 36.6 185.3 37.1 31.6
IT systems 9.0 11.3 12.0 10.8 11.1 54.2 10.8 7.9
Asset support 18.5 18.3 19.1 17.9 18.2 92.0 18.4 20.9
costs
Total 64.7 66.7 68.7 65.5 65.8 331.6 66.3 60.4
Notes: Further explanation of our IT costs can be found in the IT annex 20.03.
The breakdown of annualised asset support costs for RIIO-2 is: equipment, consumables and spares £12.4m (68%), utility bills
£3.1m (17%) and commercial vehicles £2.9m (15%).
93
People (cost drivers) Several drivers will increase our projects (2 FTEs). The FTE then grows incrementally to
headcount in RIIO-2 so that we can deliver our levels of enable delivery of the asset health plan.
service and investment plans.
IT (cost drivers)
Workforce attrition, including retirement: to secure a In the RIIO-2 period, multiple core systems that manage
sustainable, resilient workforce, allowing for skills our assets, work and field force will be reaching their end
retention and knowledge transfer, we have included of life. This is an opportunity to reassess our systems so
additional resources, particularly in the asset steward that we continue to maintain our safety and reliability
teams for RIIO-2. They will ensure we can manage performance while extracting best value for money from
attrition and allow for apprentices, graduates and our systems. Our overall RIIO-2 IT strategy can be found
engineering trainees to cover the retirement profile. We’ve in annex A20.03.
included an overlap, so they can develop capabilities,
competencies and authorisations on the job rather than Asset support costs (cost drivers)
filling vacant roles after they finish their studies. These Equipment, consumables and spares – the drivers
have been shown as a recruitment peak of an additional behind these costs focus on asset resilience, legislative
26 in year one of RIIO-2 to prepare for the forecast compliance and national spares stock requirements, and
retirement profile as well as covering for normal attrition, they are based on the expected workload on the network
which is higher in the asset steward population (9%) than over the RIIO-2 period. Our RIIO-2 costs are lower than
it is in the wider business (average 2%). These people will RIIO-1 due to procurement process efficiencies and a
be required across the country for a range of disciplines to RIIO-2 5% Opex procurement efficiency commitment.
allow knowledge transfer from retiring team members, so This is partly offset by a small increase in RIIO-2 costs,
our teams can continue to deliver maintenance, operate relating to increased project workload.
the network and respond as required.
Figure 14.70 forecast asset steward44 resources Utility bills – there is a direct link between electricity
required against forecast attrition from current consumption and compressor running and standby hours,
headcount so our RIIO-2 forecast costs take into consideration past
and forecast RIIO-1 consumption. Actual costs will be
driven by the requirements to run compressors to meet
customers’ supply and demand patterns, therefore
fluctuations in costs are expected.
Commercial vehicles – we will require an additional eight

vehicles for the new cyber technicians.
Table 14.71 level of cost evidence

Cost
Cost NARM or
forecast
realised External volume
based on
from RIIO-1 benchmark driven-PCD
competitive
Supporting increased project work: because we plan to actuals
process
increase our asset health work, we will need more people Yes
for project support and enabling activities. Most of the cost Yes
(resources,
will be directly attributable to projects and so be part of (Vehicles Yes
asset No
project cost, but there is a small element that will be opex and utility (resources)
support
bills)
(e.g. operational training, and other non-capitalisable costs)
activities). We will also need a few people to support
development of IT projects (e.g. asset health methodology
refresh).
Our RIIO-2 resource proposal assumes asset health

funding is aligned to the submission investment values,
ensuring reliability of the network is maintained; as such,
we don’t need additional resources to respond to
increasing rates of failure.
The resourcing requirements of our asset owner and

asset management teams in the first year of RIIO-2 are
based on the organisational efficiencies being delivered
through the 2018/19 restructure. Plus, an additional six full
time equivalent (FTE) for graduates (4 FTEs) and IT
44
Data excludes PMC resources
94
Network resilience passes underneath feeder xx and it doesn’t have the
1. What is this sub-topic about? capacity to deal with the required flow of water during
We plan new investments at two locations to increase the flooding events. During heavy rainfall in December 2015,
resilience of the network and protect consumers from the limited capacity of the overflow resulted in water
disruptions to supply that arise from planned or unplanned overtopping the dam. Several homes downstream were
maintenance activities. flooded but the dam was undamaged. The risk for us is
that during a similar future event the top of the dam could
We are proposing to increase the resilience of gas wash out, with potential damage to (or loss of) feeder xx
supplies to xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx area, and the subsequent loss of capability to supply to the
by building a short new pipeline and above ground Blackrod offtake and potentially xxxx consumers.
installation (AGI). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Tirley AGI
At the Tirley AGI site, we need to install additional During RIIO-1, due to the inability to isolate individual
isolation valves to allow filter maintenance to be filters for maintenance, we have delayed filter
undertaken without creating restrictions on gas flows in maintenance at Tirley to avoid causing constraints on the
South Wales, including to the important Milford Haven network. Safety policy means the filters can only be
entry terminal. These valves are necessary because of a maintained by isolating the whole site from the network.
2017 revision to company standards for safe isolation of This results in a flow restriction in South Wales, including
assets and adoption of a company minimum standard for reducing entry capacity at the important Milford Haven
isolations. liquefied natural gas (LNG) terminal to ~20mcm/d (against
a contractual capacity of ~86mcm/d). The restriction
2. Our activities and current performance would also impact gas flows into South Wales to meet
demand, should Milford Haven not be exporting LNG to
In developing our RIIO-2 plan, we initially identified 62
areas where increased resilience might be beneficial for the network.
consumers. These included offtakes that rely on a single
Continuing to delay maintenance will result in
pipeline and areas of the network that are difficult to
non-compliance with policy, require emergency
maintain, test or inspect without risking disruption to entry
maintenance and/or result in entry constraints if filters
or exit customers.
become blocked. For these reasons, we decided that ‘do
We refined this list based on the significance of the issue, nothing’ wasn’t an option for RIIO-2.
levels of existing mitigations (including use of
maintenance days where the impact was on a single
We did not want to raise unnecessary concerns about
industrial or power station consumer), views of impacted
security of supply, so we have chosen not to engage with
stakeholders and cost-effectiveness of the potential
wider stakeholders about Blackrod. For Tirley, as these
solutions.
are issues with existing site design and the ability to
undertake routine maintenance safely and in accordance
Gas distribution network (GDN) offtakes that are
with policy, we have not sought external stakeholder input
connected to single transmission pipelines were
on our proposals.
highlighted as a key area, as there is an increased risk of
disruption to consumers when planned or unplanned Table 14.72 stakeholder engagement summary
maintenance impacts these offtakes. Network resilience
Stakeholder GDNs – Cadent and SGN.
segments
Blackrod
engaged
During RIIO-1, we experienced issues along feeder xx Objective Understand the most effective and
(which supplies Blackrod) and these have been cost-efficient way to improve the resilience of
addressed without disruption to end consumers. However, specific areas of the network
under different circumstances they would have resulted in Channel/ Bilaterals
end consumer disruption. Cadent (the GDN connected at method
Blackrod) is only able to swap offtake flows away from Key Blackrod: working with Cadent, we have
Blackrod up to 85% of peak winter demand levels. Such messages explored the issue of being unable to isolate
flow swaps are also reliant on Cadent having an intact the pipeline without risking disruption to
network (i.e. not having assets out for maintenance). domestic consumers, trying to find the best
whole system solution. Solutions on the
Cadent network were more expensive than
In 2013, safe inspection of corrosion at various sites was those available on our network and Cadent is
only possible with Cadent undertaking flow swaps on its supportive of our proposed transmission
own network. If the pipeline had required isolation, solution to this issue.
demand had been higher, or if Cadent had been Working with SGN we explored and
undertaking maintenance on its own network, then those discounted investment in another location to
flow swaps may not have been possible. increase resilience on that part of the
transmission network.
An additional risk for this section of feeder xx has been
identified at Heapey Dam. The overflow for the dam
95
stakeholders have
told us
xxxxxx supports our Deliver a new ~1km, 900mm pipeline and a new Commitment Blackrod provides a consumer value
proposal for AGI . xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx proposition valued at £173m (for more
transmission xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx information on CVP1 please see
investment to xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx annex A10.05).
increase resilience of xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
supplies to the xxxxxxxxxx Increased ability to
Blackrod offtake undertake planned and unplanned
maintenance without disruption to gas
supplies/operational pressures to
customers in the North West.
N/A for Tirley Install new isolation valves that will allow Commitment Reduced risk of planned or unplanned
individual filters at the Tirley site to be isolated disruption associated with filter
and maintained. maintenance at Tirley.
Increased security of supply and market
access to diverse gas supply sources,
resulting in lower costs for all
consumers.
Further explanation of our proposal for a pipeline at

Blackrod can be found in the EJP, annex A14.06 and 6. Risk and uncertainty
CBA, annex A14.07. For the pipeline connecting to the Blackrod offtake, the
proposed pipeline route would be subject to obtaining
5. How will we deliver? planning permission and negotiation with land owners.
Native competition will be used for delivery of the projects The proposed pipeline is significantly shorter, and
at Tirley and Blackrod. We will look at how we can use our cheaper, than other pipeline connection options contained
BIM innovation from RIIO-1 in delivering these projects. in Blackrod EJP and CBA (annexes A14.06 and A14.07).

Table 14.74 network resilience costs
(£m in 18/19 Total Annual Annual
2022 2023 2024 2025 2026
prices) RIIO-2 RIIO-2 RIIO-1
xxxxxxxx xxx xxx xxx xxx xxx xxx xxx xxx
xxxxxx xxx xxx xxx xxx xxx xxx xxx xxx
Network 0.3 4.5 4.2 0.5 0.3 9.9 2.0 0.0
resilience total
Notes:
 Costs for installation of Tirley valves have been based on the average of historic projects costs and unit costs for valves.
 Costs for Blackrod have been based on similar historic projects.
Table 14.75 level of cost evidence for network resilience

Cost realised from RIIO-1 Cost forecast based on competitive NARM or volume-driven
External benchmark
actuals process PCD
Yes Yes – RIIO-1 tenders No No
8. Next steps
For Blackrod, we will continue to test the design and cost of our proposed solution. Following agreement that the
project is going ahead, we will further investigate land planning and access.
96
Environmental resilience There were flooding events in 2013 and, at Goxhill above
1. What is this sub-topic about? ground installation (AGI), these caused significant
Climate change is increasing the risks to our operations, damage to electrical, communication and security assets
for example, from increased risk of flooding or changes to with a remediation cost of ~£3m.
riverbeds that contain pipelines. For RIIO-2, we will
continue to survey our assets in accordance with industry At the Gravesend Thames South AGI, the site was
standards to support the delivery of a reliable and safe designed to accommodate flood water and no significant
network. damage occurred during flooding in 2013, although minor
site clean-up costs were incurred.
2. Our activities and current performance Figure 14.76 flooding at the Gravesend Thames South
above ground installation in 2013
Pipeline watercourse crossing surveys
During RIIO-1, we have experienced issues where
pipelines cross watercourses. On feeder 9, rapid and
unpredictable estuary movements have reduced the
depth of cover on the pipeline under the Humber river and
we are working on replacing this crossing. There have
also been sand movements at Duddon Sands in Cumbria
and there is a risk of the pipeline becoming exposed.
We’ve responded by increasing monitoring to check for
exposure or free-spanning of the pipeline. Working with a
specialist marine consultancy, we have developed a
contingency remediation plan covering the materials,
resource, methodology and costs to reinstate cover over
the pipeline.
During RIIO-1, we put the work for surveying the river We have considered (and discounted) proactive
crossings out for re-tender. As part of the exercise, we installation of flood defences at our AGI sites as the
evaluated the performance of the incumbent supplier pipeline and AGI assets are themselves largely
against the required specification and policy for the unaffected by the presence of raised water levels45.
survey, which identified some areas for improvement. The Proactive investment therefore does not represent value
process ensured that the new service provider was fully for money for consumers. We are, however, proposing to
meeting all the necessary requirements and ultimately our repeat a survey across the network to assess the risk of
obligations under the Pipeline Safety Regulations. This buoyant lift on pipelines in the event of flooding and
outcome increased costs during RIIO-1. specific local ground conditions. The last survey in 2012
identified 501 pipeline sections that were classified as
For RIIO-2, we will continue with the watercourse susceptible to lift, of which 71 were in the highest risk
crossing surveys based on frequency and information on category. Completion of the survey would support our
asset condition, or their immediate environment. We’ll compliance with Pipeline Safety Regulations and identify
also re-tender the work periodically to ensure costs sections with reduced depth of cover, and hence
remain efficient. increased risk from third party damage.
Flooding risk 3. What have stakeholders told us?

During RIIO-1, a number of environmental events have We have talked to stakeholders about environmental risks
had a negative impact or had the potential to negatively at various events and meetings, including with
affect the safe and reliable operation of our assets. environmental regulators and consumer groups46.
Table 14.77 stakeholder engagement summary
Environmental resilience
Stakeholder Consumer interest groups, consultant/supply chain, customer-entry, customer-exit, customer-shipper, energy
segments network operator, environmental interest group, GDNs , industry/trade body, other energy industry, other
engaged non-energy industry, regulator/government , university/think tank, domestic consumers, non-domestic
consumers.
Objective To understand stakeholders’ views about the network’s resilience to the impacts of climate change.
Channel/method Geographically spread workshops, webinars, bilaterals.
Key messages We asked, “Should we be proactive or reactive in managing these impacts?”
 Proactive: mitigate against flooding by investing in flood defences etc. – 42%
 Risk-based: mitigate high-risk sites and manage remaining as appropriate – 53%
 Reactive: insure against these impacts and manage the clean-up – 5%
We captured a variety of comments including:
“If you're in a flood zone, make sure your sites can cope with the floods.” xxxxxxxxxxxxxxx regulator
“The decision to manage impacts should be based on risk analysis.” xxxxxxxxxxxxxxxxxx supply chain
45 46
Providing appropriate electrical equipment is on raised platforms. See our environment engagement log in annex A16.06.
97
“National Grid need to have good risk management, so that they can maintain assets to deliver a reliable
network for the customers.” xxxxxxxxxxxxxxxxxxxxxxxx network company
“In the circumstance that there is a large risk of harm you would have to take a proactive approach.
Therefore, top risks should be prioritised such as erosion of pipelines under rivers, but everything else would
fall into the reactive bracket.” xxxxxxxxxxxxx supply chain
stakeholders
have told us
To adopt a In response to feedback we are taking a risk-based approach to Commitment Minimising risk of
proactive or managing the threats associated with pipeline watercourse unplanned disruption
risk-based crossings. of supply to gas
approach to the We will undertake condition-based monitoring surveys of pipeline customers and
management of watercourse crossings to identify whether the pipeline is at risk of consumers.
environmental additional loading, impact from reduced depth of cover, exposure
risks. or free-spanning. The drivers for this work are compliance with Minimising risks of
the Pipelines Safety Regulations 1996 and meeting the minimum unplanned disruption
requirements in the industry standard IGEM/TD/1. to gas entry
We will continue to maintain watercourse navigation markers Commitment customers, ensuring
in accordance with our obligations under the Merchant Shipping consumers have
Act 1995. security of supply and
We will undertake work to assess the risk of buoyant lift on our Commitment access to the
pipelines in the event of flooding, building on our 2012 survey cheapest sources of
work. gas.
5. How will we deliver? Given the potential risks, we are proposing that the
We will continue to use competitive tenders (native mechanisms for justified over and under delivery of
competition) for the contracts associated with managing NARMs outputs are retained for RIIO-2, which is
environmental risks. Should we identify the need to install consistent with Ofgem’s Sector Specific Methodology
flood defences during RIIO-2, we will look to work with Decision in May 2019.
local communities to explore the best solution, rather than
just for our site(s) in isolation. 7. Our proposed costs for RIIO-2
River crossing surveys represent approximately 80 per
6. Risk and uncertainty cent of the costs in this part of our business plan. We
We are adopting a risk-based approach. If any specific have based the RIIO-2 costs for these activities on
risks are identified during RIIO-2, we would consider tendered contract rates from our procurement events and
whether these must be mitigated during RIIO-2 or could on the known volumes of activity (e.g. based on survey
wait until RIIO-3. If RIIO-2 mitigation is required, our frequencies driven by the industry standard, which would
approach to managing this situation would be to consider be consistent with those undertaken in RIIO-1). For the
risk trading across asset types, as permitted under the remaining ~20% of the costs, our forecast expenditure
asset health methodology. has been based on RIIO-1 costs.
Table 14.79 environmental resilience spend

(£m in 18/19 prices) 2022 2023 2024 2025 2026 Total Annual RIIO-2 Annual RIIO-1
RIIO-2
Environmental
0.8 0.7 0.8 1.0 0.8 4.2 0.8 0.5
resilience
Table 14.80 level of cost evidence for environmental resilience
Cost realised from RIIO-1 Cost forecast based on External NARM or volume-driven
actuals competitive process benchmark PCD
Yes Yes – RIIO-1 tenders No No
98
Gas system operation  maintain gas quality within strict limits to protect our
1. What is this sub-topic about? customers and consumers (safety)
As the combined gas transmission system operator, we  enable access to allow asset development and
work hard to balance the system for Great Britain and maintenance to be undertaken across the NTS.
enable our directly connected customers’ need to move
gas on and off the network when and where they want. As transmission system operator, we want to continue to
This sub-topic focuses on the core system operator meet our obligations, customer requirements and deliver
activities we undertake to minimise any restrictions, value for consumers. We work across multiple time
disruptions or constraints in the ability for customers to put horizons to ensure we maintain the right level of network
gas on and take off the network. This means we need the capability for Great Britain’s energy needs. The
ability to: timescales of the activities included in this section range
 accommodate and balance our customers’ flows on and from ten years ahead for long-term network planning
off the network through to the real-time operation of our network. Figure
 maintain pressures below maximum design limits of the 14.81 below provides a high-level illustration of these
system (safety) and above the minimum requirements of activities across the time horizons. For more detailed
our customers (contractual) explanations on our system operator processes, please
refer to the Gas Ten Year Statement (GTYS)47.
Figure 14.81 system operation processes
Supply & Demand Planning Operating Control
Forecasting
Long-to-medium Prepare NTS Validate customer

term supply & 1-10 Years Ahead Access Plan Deliver NTS requirements
demand Risk Assessment (Maintenance/ Access Plan against business
forecasting Construction) rules
Operational Strategy
Take constraints
Short-term supply 1 Month- 1 Week Execute
Define Operational management /
& demand Ahead Risk Operational
Strategy residual balancing
forecasting Assessment Strategy
actions
Real Time Data

Emergency Review
On-the-Day Risk Provision and
Planning and Improve all areas Operational
Assessment Monitoring
Management Performance
(Telemetry)
Review Situational Awareness
The main activities captured in this chapter are: facilitate the right network access, capacity products and
 Responding to long-term customer requirements by balancing services for our customers.
comparing the capability of the network with those  Compliance with our obligations relating to the balancing
requirements, identifying gaps and carrying out and capacity processes, including under the NGGT
engagement and CBAs on the options to meet licence and Uniform Network Code (UNC), for example
customers’ needs. These options include asset around quantities of capacity to be released, processes
investments and/or contractual solutions. We use to be followed and provision of methodology statements
supply/demand data based on FES to carry out network  Meeting varying customer needs in our day-to-day.
analysis that identifies risk and supports efficient operation of the network. Continuing to provide the
decision-making. critical continuity of real-time operation through the
 Delivery of safe network access48 for maintenance, asset people, processes, systems and infrastructure
health or connection activities and to allow external associated with the Gas National Control Centre.
parties49 to carry out their own maintenance. We analyse  Meeting our legal and regulatory obligations, as set out
the risks to optimise access and coordinate in our licence, safety case and the UNC.
maintenance activities with customers to minimise
disruption to consumers. We publish seasonal It is worth noting that taking gas on and off the network
maintenance plans and operate a permit-based process has become increasingly complex throughout RIIO-1 and
as part of the Safe Control of Operation framework. will continue to change in RIIO-2. Whilst the physical
 Implementing commercial/regulatory change around growth of the network has largely plateaued, the
capacity/energy balancing processes; ensuring these pressures of a rapidly changing energy landscape need to
processes are in place to reflect the regime and to be considered against a backdrop of ageing pipelines and
47 49
https://www.nationalgridgas.com/insight-and-innovation/gas-ten-year- For example, GDNs, power stations, storage sites and large industrial
statement-gtys customers.
48
Taking assets out of service to allow work to be undertaken.
99
compressor assets and new, more stringent predictability of behaviour of flows on and off the NTS
environmental legislation affecting a large proportion of that has previously been relied upon for planning
the compressor fleet. These changes have a substantial purposes. The real-time operational challenge this then
impact on the operation of the NTS. A few examples have presents is that essential maintenance of the NTS
been provided below: assets, and therefore network capability, traditionally
 Customer needs – We are seeing a significant shift in scheduled in the summer to align with reduced customer
our customers’ needs and behaviour which is set to demand, has an increased risk of being misaligned with
continue changing rapidly. These changes are driven by new flow requirements, reducing the effectiveness of
the evolving energy landscape, customers’ changing operational and linepack management strategies.
physical operational requirements and the underlying  Short term ‘volatility’ – Inter (one gas day to the next)
market fundamentals. The flexibility our customers and intra (within day) flows, customer and market
demand from the system continues to increase and our behaviours have become more volatile. These sudden,
challenge is to accommodate this whilst maintaining a unpredicted and unexpected changes can result in
largely unconstrained network. Our customers’ needs mismatches in flow on and off the system which then
relate to the quantity, location, timing and profile of gas can also exacerbate flow profiling/imbalance across the
entering and leaving the network and can present day and therefore linepack changes in the system.
challenges to real-time operation of the system. In order Examples of what the changes in behaviour by
to try and accommodate these changes in requirements connected customers can be related to include plant
(e.g. increasing interest from non-traditional gas preferences e.g. avoidance of TRIAD periods,
customers, speed of customer connections process and increasing supply trips caused by offshore failures,
investment planning security linked with advanced changing weather patterns and fast cycle storage.
capacity reservations)50, we need to enhance our ability
to predict and model these behaviours across the 2. Our activities and current performance
network time horizons to ensure appropriate levels of Before the start of the RIIO-1 period, we discussed and
assets and tools can be put together with an effective predicted the decline in UKCS gas supplies; a transition
operational strategy, which determines whether flows on away from traditional north to south system flows, of
the day can be met and enable us to manage the reducing aggregate demand, diverse connected supplies,
network risk safely. uncertainty and variability of supply and demand patterns,
 Longer term ‘uncertainty’ – The potential range and within day volatility of connected load and the interactions
uncertainty in future energy pathways hinders our ability between wind and combined coal and gas turbine (CCGT)
to theoretically predict and model a future level of generation sources. We also highlighted the impact of
connected load and behaviour on the system and our changing compression requirements and environmental
subsequent ability to manage this behaviour under real- investment drivers. All of these significant changes have
time conditions and considerations. The real-time come to fruition throughout RIIO-1. Over the RIIO-1
operational risk that this presents is a mismatch period so far, we have largely met our customer needs in
between the level of assets and tools available, and managing a largely constraint-free system, despite a
those required to manage the prevailing conditions that number of significant challenges associated with the
materialise on a gas day many years subsequent to the changing energy landscape and network requirements.
original planning time horizon (this may also include
uncertainty of commercial and market frameworks as RIIO-1 systems
well as the physical NTS behaviours). We need to be The RIIO-1 period has seen an unprecedented change in
able to predict and model these future uncertainties to the core systems required for real-time operation of the
inform our long-term investment decision to allow us to system. We refreshed and/or replaced the suite of
maintain a safe and reliable network with enough systems and infrastructure that allow us to monitor and
capability to meet GB’s energy requirements. control the NTS. This investment in RIIO-1 enables us to
 Medium to short term ‘variability’ – This is continue to meet our operational and safety requirements
predominantly a result of the transition of GB to a net and structures our IT infrastructure in such a way we can
importer of gas, the associated surplus and diversity of upgrade modular components as the network evolves
supplies against a backdrop of reducing aggregate now and in RIIO-2. One key component of this was the
demand and the level, types and behaviour of the ageing control and market facilitation system – Integrated
connected load. This results in a significantly greater Gas Management System (iGMS), which was no longer fit
number of supply and demand permutations that occur for purpose and beyond its original design life. A new Gas
on any given day with complex market drivers. With the Control Suite (GCS) and associated infrastructure has
move away from UKCS gas, supplies are now linked to now largely been delivered with the physical control and
global markets and trends through LNG and other market operations successfully moved over onto the new
imports, as well as fluctuations associated with new system in 2016. The system was scoped and designed to
renewable energy sources such as wind and solar. meet the current RIIO-1 requirements and configurable to
Market and physical operations are now much more meet future requirements relating to further cyber
complex and intertwined, resulting in a lack of protection, data provision and data analytics. For
50
https://www.nationalgridgas.com/insight-and-innovation/gas-ten-year-
statement-gtys
100
example, we have delivered and integrated SIMONE and manage the risk associated with facilitating
online into the GCS suite to allow forward simulation of increased network access, and to identify and develop
the NTS. These are all designated critical national appropriate commercial options
infrastructure (CNI) systems. We’ve invested for the future  greater market intelligence capability both from external
in a system we can maintain and evolve in an evergreen sources and further analytical interrogation of internal
approach. Therefore, whilst the cost to implement the performance data
system was higher than we envisaged at the outset of  increased monitoring, intelligence and optimisation of
RIIO-1 this has been offset against reduced costs in real-time plant performance
maintaining it since implementation. Overall expenditure  a risk management system capable of making informed
on GCS in RIIO-1, has been roughly in line with planning, and proactive and reactive strategy decisions.
allowances. Our manual processes today will not cope with the vast
amount of data and information that needs to be
RIIO-1 processes processed in real-time and therefore we require greater
During RIIO-1, we have focused on efficient delivery of automation and control and market facilitation systems
our system operator activities including a company-wide enhancements to support this capability build.
efficiency programmes51 that has informed our RIIO-2
proposals. We have matured some of our basic modelling RIIO-1 people
capabilities by automating a number of our manual Our people are crucial for us to be able to adapt to
models and improved our data accuracy which has industry change, to unlock the value of the proposed
resulted in improved accuracy of our forecasts and some systems and process enhancements as well as being able
small efficiencies gains. For further information on how we to deliver value to our customers and consumers. We
have improved how we model the NTS in RIIO-2 and our outline our proposed system operator capability
gas planning and operational standards, please refer to requirements and associated investment in further detail
A20.03 (IT annex). in annex A14.25 of which a critical proportion is set out in
this chapter. These capabilities are required in order to
In RIIO-2, we anticipate a much more challenging successfully deliver our business plan commitments.
environment in optimising asset investment decisions and
market solutions to meet the agreed level of network 3. What have stakeholders told us?
capability. This will drive the need to substantially improve We talk regularly with stakeholders at events such as our
our ability to analyse the network against multiple Operational Forum meetings, both to discuss operational
supply/demand scenarios and network configurations. In issues and to develop deeper understanding of customer
order to play our role in the changing energy landscape, needs. Through our wider RIIO-2 engagement,
we will require a step change in our analytics and stakeholders have told us they require unconstrained
modelling capabilities. We will also require a more access to a safe and efficient network. Please refer to
dynamic operational strategy to extract maximum value annex A14.01 for a detailed log of the gas on and off the
and flexibility from the physical system. In RIIO-2, this NTS engagement log. We have also been engaging with
means we will need to: our stakeholders on our RIIO-2 incentive proposals,
 enhance our energy forecasting requirements across all please see annex A3.03 which summarises the existing
time horizons and new incentives we are proposing as part of our RIIO-
 enhance real-time and forward simulation and 2 business plan and will be subject to further consultation.
evaluation of multiple scenarios; our ability to forecast
stakeholders
have told us
They have Efficient operation of the system – we will Commitment Efficient and safe
told us they continue to drive efficiency, understand and meet operation of the network
value being customer needs using the assets and commercial and associated
able to flow tools available to us. commercial processes.
gas without Maintaining IT systems – continue to invest in our Commitment
restriction core IT systems52 to ensure they stay secure and up
to date while delivering the level of performance
required by the stakeholders we share data with. We
must also maintain the non-CNI systems that support
day-to-day processes for capacity management,
balancing and information provision.
51
Further information on these can be found in chapter 20. with our directly connected operators and shippers. Elements of these
52
We use a suite of IT systems known as the Gas Control Suite to monitor systems are designated CNI and so they are subject to specific
and control the gas transmission network and to receive and share data regulations governing their resilience and levels of security.
101
Building new capabilities – we want to exploit Commitment Efficient operation of the
technologies to develop new capabilities that can network and associated
drive greater value for consumers from the networks commercial processes
and markets, we plan to53: ensures consumers have
• develop enhanced analytical and modelling tools to the gas supplies they
improve our insight to manage risks effectively need at the lowest
• take advantage of automation where it is possible price.
cost-effective to do so.
Get the right Please see annex A3.03 for further information on our incentive proposals.
incentive
framework to Residual balancing ODI Current proposed Efficiency of residual
deliver Retain scheme to drive minimisation of energy costs cap £1.6m / collar £2.8m balancing activity,
maximum to operate the network. Our proposals are tougher to pa minimising impacts on the
benefit to achieve against, recognising the impact of a Target (LPM): 5.6 mcm/d market, customers and
consumers changing energy landscape and we propose (shoulder months) and ultimately cost to end
amending the. linepack component of the scheme to 2.8mcm/d (non-shoulder consumers.
drive the right behaviour during seasonal transitions months) Incentive integral to our
between winter and summer. Target (PPM): 1.5% SAP role as residual balancer.
Maintenance (use of days and changes schemes) ODI Current proposed Alignment of maintenance
Retain existing schemes and expand to cover the cap £1.2m / collar £1.5m plans with customers to
wider range of maintenance activities supported by pa minimise potential
stakeholder feedback. Our schemes will be tougher Targets: Use of days – 11, disruption to them and
to achieve against, recognising that the volume of Changes 7.25% wider markets. Ultimately
planned maintenance is likely to be higher in RIIO-2. reducing costs for end
Proposed expansion to include non-remote valve consumers.
operation (RVO) maintenance.
Entry and exit capacity constraint management ODI Efficient activities to avoid
Retain scheme. Remove a level of risk which and manage constraints
represents “BAU” from cost target. (i.e. provide the
Remove revenue from scheme where we scale back unconstrained access
interruptible/off-peak capacity. required by customers).
This reduces overall costs
and risks for consumers.
Incentive integral to
capacity regime (e.g.
incentive efficiently
managed risk associated
with overselling capacity).
We outline our proposed system operator capability management scheme parameters will need to be refined
requirements and associated investment in further detail based on any changes, including those made to our
in annex A14.25. proposed investment programme or the wider commercial
regime (e.g. baselines, capacity regime etc.). We are
5. Risk and uncertainty continuing to engage stakeholder on the package of
Our proposals for the constraint management incentive incentives for RIIO-2. Based on their feedback, this may
are based on our business plan proposals, informed by change our proposals following submission of this
our work on network capability. Final constraint business plan.

Table 14.83 gas system operation costs
(£m in 18/19 prices) Total
2022 2023 2024 2025 2026
Annual RIIO-2 Annual RIIO-1
RIIO-2
IS and Xoserve 26.6 30.8 31.9 30.1 26.3 145.7 29.1 25.5
GSO 12.8 13.2 13.3 13.3 13.1 65.8 13.2 11.0
Total 39.4 44.0 45.2 43.5 39.4 211.6 42.3 36.4
Further explanation of our IT costs can be found in the IT annex A20.03
Table 14.84 level of cost evidence
Cost realised from RIIO1 Cost forecast based on NARM or volume-driven
External benchmark
actuals competitive process PCD
Yes No Yes for IS No
7. Next steps
Following submission, we will be consulting on our proposed package of incentives. This may lead to subsequent
change in our final incentive proposals. Further detailed information can be found in annex A3.03.
53
Further detail on our proposed project investments during RIIO-2, and the justification of these can be found in the IT investment annex A20.03.
102
I want you to protect the transmission system from cyber and external threats
15. I want you to protect the transmission

system from cyber and external threats
UK infrastructure is subject to many security threats and they are increasing in sophistication and persistence. These
threats include terrorism, criminality and vulnerability in information technology (IT) and operational technology (OT)
systems. Our network is part of Great Britain’s Critical National Infrastructure (CNI) and appropriate protection from
threats is therefore essential to underpin the safety, security and reliability of the nation’s energy supply. The UK
government sets the requirements for the appropriate levels of physical and cyber resilience that are to be achieved in
the national interest.

Stakeholders say that the way we manage security threats should be a priority. Since the publication of our July draft
plan, they have challenged the significant increase in our proposed spending, particularly in relation to cyber resilience.
Stakeholders seek assurance that we have considered alternative options including ways to avoid or reduce
expenditure.

 Through a confidential Price Control Deliverable, our Cyber Resilience Plan (Operational Technology) will deliver a
risk-based, strategic, long-term programme to replace key OT used for the safety and control of critical systems. We
will replace compressor station control systems at high criticality sites. In tandem, we will strategically deploy a RIIO-1
innovation by enhancing our Supervisory Control and Data Acquisition (SCADA) system, in a nationwide programme
to bring significant immediate cyber resilience benefits pending OT asset replacement (or decommissioning) e.g. at
lower criticality sites.
 RIIO-2 costs for the following OT assets are included in this part of our plan (not in asset health): compressor station
unit control and protection systems, fire and gas detection, anti-surge, boundary control, network control and
instrumentation, metering, and, gas analysers.
 Our Business IT Security Plan will implement a suite of initiatives to improve cyber resilience across our enterprise IT
environment and implement new capabilities in line with NIS guidelines.
 Our physical security plan includes delivery of new enhanced physical security upgrade programme (PSUP) solutions
at sites identified by government and commencement of PSUP asset replacement across the portfolio.
 We will keep our programme under review and utilise uncertainty mechanisms to flex our delivery if circumstances
change e.g. change in level of threat or criticality of sites.
This is an area of significantly increasing expenditure, driven both by the growing level of threat and by new legislation
steering the action that we must take to protect the network. Our plan proposes £118m per year (21.5% of our RIIO-2
total costs) is included within our baseline allowed revenue for known scope with agreed price control deliverables. We
propose that uncertainty mechanisms allow adjustment to our scope and costs during RIIO-2 in response to changing
circumstances.
What efficiencies have we included in our plan?

 Our physical security capex plan includes 15% cost reductions so far achieved in RIIO-1. In addition, we have
pledged a cost reduction of £7.5m compared to our estimated capex costs at the time of our 2018 reopener
submission.
 Our operational technology capex plan incorporates a series of initiatives to mitigate cost increases. These include:
proportionate resilience enhancements based on site-based risk and criticality; the ‘campaign’ bundled contracting
approach learning from RIIO-1; roll-out of the National Innovation Allowance (NIA) (SCADA) innovation initiative into
RIIO-2 business as usual (BAU). We have quantified the latter as providing a consumer value proposition (CVP)
consumer benefit of £9.2m.
103
Figure 15.01 RIIO-1 and RIIO-2 spend profile ‘I want you to protect the transmission system from cyber and
external threats’
RIIO Costs
£200
£150
RIIO-2
£m
£100 Uncertainty
mechanism
£50 Baseline
£0
Reporting year
Note: In addition to the expenditure portrayed in the graph we are spending approximately £131m in the RIIO-1 period on asset
health interventions on operational technology assets. This is not shown here to avoid double counting with chapter 14.
1. What is this stakeholder priority about? Evolving threat

This priority is about protecting our network from threats The network was designed with sound engineering and
that could otherwise disrupt continuity of GB energy safety considerations at the forefront, rather than with a
supply, with serious consequences for society. We rely on mindset of protection from malicious threats. As threats
industrial control systems to control and protect processes emerged, we mitigated them through a programme of
ranging from valves to compressor machinery. Loss or physical security upgrades at our sites.
compromise of these systems could pose a serious safety
risk – for example, failure to contain gas could result in fire Cyber security threat is the risk to computer systems from
or explosion with a knock-on impact on adjacent assets theft or damage to their hardware, software or electronic
and facilities. data, as well as from disruption or misdirection of the
services they provide. The danger to energy systems is
Our key activities and costs covered in this chapter increasing due to the rapid digitisation of energy assets
include: and the convergence of information technology (IT)
 strategic capability to monitor, detect, respond to (and systems (used for data-centric computing) with
recover from) malicious threats operational technology (OT) systems (used to control
 enhancing cyber security resilience industrial processes and equipment).
 delivery of the Physical Security Upgrade Programme
(PSUP) The cyber threat landscape is evolving rapidly, and
 policing at gas facilities as required by the Counter- security experts think that, for every major cyber-attack in
Terrorism Act 2008 the public domain, four more major attacks are not
 response to actual or new threats that emerge during reported. The energy sector has experienced a significant
RIIO-2. increase in the volume of reported attacks since the
Iranian Natanz nuclear facility was attacked by ‘Stuxnet’
We have included our asset replacement justification and malware in 2010. Since then, Ukrainian energy
costs for operational technology and enhanced physical companies have experienced attacks in 2015, 2016 and
security in this chapter rather than in chapter 14. We have 2017.
done this because protection from threats is the primary
cost driver and we expect specific RIIO-2 outputs (PCDs)
to be attached to this work, separate to the network asset
risk metrics (NARMs) asset health outputs.
104
Figure 15.02 the evolving threat landscape
Security services process The requirements for a coordinated response across

Elements of our network are classified as critical national network companies have been established through the
infrastructure (CNI). This means loss or compromise Security of Network and Information Systems (NIS)
would have a major detrimental impact on the availability, Regulations 201856. The NIS Regulations aim to minimise
delivery or integrity of essential services, leading to the risk of cyber-attack and the resulting impact on UK
severe economic or social consequences or to loss of life. CNI, the economy and consumers. This is in keeping with
the NIS Directive57 aiming to co-ordinate and raise overall
The UK government, in conjunction with the Centre for the levels of cyber security across the European Union (EU).
Protection of National Infrastructure (CPNI) and the
National Cyber Security Centre (NCSC), set requirements The NIS Regulations apply to a defined list of operators of
for the appropriate levels of physical and cyber resilience essential services (OES), each with a relevant ‘competent
to be achieved in the national interest. We work closely authority’ (CA) supporting and monitoring compliance. We
with these agencies to identify the most efficient way to are a designated OES, and within the energy sector, the
meet these requirements, which call for significant CA role is jointly held by the Department for Business,
operating and capital expenditure. Energy and Industrial Strategy (BEIS) and Ofgem.
Some of our assets are co-located with those of other Mitigating physical threats – the Physical Security
energy companies and it is important that we work closely Upgrade Programme
and share best practice with these and other operators of The Secretary of State initiated the Physical Security
essential services to achieve joined-up protection across Upgrade Programme (PSUP) and it is now governed by
the energy industry. When considering the impact of any BEIS. It is a national programme to enhance physical
loss of gas transmission supply, the consequential impact security at CNI sites. Requirements arising from this
on both the gas and electricity markets must be programme have been a key driver of our activity both
considered; gas is our largest primary fuel source for before and during the current regulatory period. This will
electricity generation, typically accounting for around 40% continue through RIIO-2. We follow standards and
of electricity production. guidelines for good practices endorsed by BEIS and
CPNI58.
Mitigating cyber threats – the NIS Regulations, 2018
Heightened awareness of cyber threats is underlined in 2. Our activities and current performance
the UK Government’s National Cyber Security Strategy54 Track record: Cyber resilience
and evidenced by the launch in October 2016 of the We have adopted new management systems
NCSC55. The NCSC provides a single point of contact for underpinned by a security standard in keeping with NIST59
expertise and guidance in the prevention of, and response good practices. The approach focuses on five key
to, cyber security incidents. principles: identify, protect, detect, respond and recover.
54 57
https://www.gov.uk/government/publications/national-cyber-security- https://eur-lex.europa.eu/eli/dir/2016/1148/oj
58
strategy-2016-to-2021 https://www.cpni.gov.uk/protecting-my-asset
55 59
https://www.ncsc.gov.uk/ https://www.nist.gov/cyberframework
56
http://www.legislation.gov.uk/uksi/2018/506/pdfs/uksi_20180506_en.pd
f
105
We have focussed on building the capability of our Track record: Physical security
people. We are consciously competing to bring cyber We are installing enhanced PSUP measures at xx gas
talent in-house. All our personnel who work with sites in compliance with BEIS requirements. The total
operational technology undertake mandatory cyber number of sites with enhanced protection is increasing
security training. from xx at the start, to xx at the end of RIIO-1.
Working with the security services and external
specialists, we have carried out cyber risk assessments We have proactively challenged and reviewed PSUP
and gap analysis, using best practices including NIST, requirements using BEIS and CPNI principles and our
IEC6244360, HSE OG8661 and NIS Regulations. We have assessment of system risk and criticality. Where
completed our NIS self-assessment and improvement appropriate this has led to certain sites being added or
plans acting upon feedback from the NIS Competent dropped by BEIS. The sites dropped have avoided
Authority. £23.8m expenditure on behalf of consumers.
We are currently delivering targeted risk mitigation We have instigated changes in our contracting and
projects during RIIO-1. These have been supported by delivery approach reducing capital cost by 15%
Ofgem through the enhanced security reopener62 process: compared to what we could achieve at the start of the
RIIO-1 period. We currently forecast completing our in-
 New data centres (a joint project with NGGT and flight RIIO-1 work in line with Ofgem's 2015 reopener
NGESO). The establishment of new high resilience determination of efficient costs.
centres to host the data that underpins our CNI services
We comply with the Counter-Terrorism Act 2008,
such as the operation of the GNCC.
sections 85 to 90, which governs the arrangements for
 Cyber security programmes 1 & 2 (joint with NGGT, policing at gas facilities. The security requirements and
NGESO and NGET). A suite of interrelated and associated costs are set by the government and are
foundational cyber resilience projects. These create the outside our control. Because of this, our policing costs are
building blocks for enhanced capabilities such as the recovered via a cost pass-through uncertainty
formation of our 24/7 cyber security operations centre, mechanism.
monitoring national and worldwide threat and event
intelligence.
 Gas specific cyber investments (NGGT only).
Includes projects to improve Intrusion Detection Stakeholder Key stakeholders: NIS Competent Authority,
segments Ofgem, BEIS, HSE.
Systems and to define a strategic asset replacement
engaged Wider stakeholders: Customers, GDNs,
approach to the impending challenge of how best to consumers.
replace our ageing industrial control systems. This Objectives To inform our priorities for RIIO-2, understand
strategy is to be deployed as part of our cyber resilience government requirements including from new
NIS regulations, inform our risk assessment
plan in the RIIO-2 period. and develop our RIIO-2 scope of work.
Channel / Confidential bilateral meetings with NIS
We are delivering two key security innovation projects: method Competent Authority, Ofgem, BEIS, HSE.
Opensource SCADA (scheme NGGT0114) and Secure Wider stakeholders: Shaping the Future
AGI Intrusion Detection System (scheme NGGT0138). events and consumer research.
These projects63 are piloting new lower cost methods to Key Cyber and physical threats should be high
raise cyber resilience of our Supervisory Control and Data messages priority.
Acquisition (SCADA) systems. “Agree 100% with the critical need to protect
the transmission system against cyber and
We have maximised the useful lives of our ageing external threats…” – xxxxxxxxxx, customer
operational technology assets in the RIIO-1 period, (entry)
“Cyber security is very important to us” – xx,
harvesting grey spares to extend service from equipment
customer (entry)
which is obsolete and for which original equipment “Outputs need to include cyber security and
manufacturer support is no longer available. Where we this needs to be funded” – xxxxxxxxxx,
have replaced OT assets, our "campaign" approach of supply chain
bundling work has brought 30% cost efficiencies. The SUG and The SUG have provided helpful feedback on
unit costs behind our RIIO-2 plan include this cost Challenge calling out efficiencies and providing further
efficiency. Group detail on options considered which we have
feedback included in this chapter. We have also listed
the assets related to cyber to allay the
concerns of double counting between asset
health.
60 62
https://www.isa.org/intech/201810standards/ https://www.ofgem.gov.uk/publications-and-updates/informal-
61
http://www.hse.gov.uk/foi/internalops/og/og-0086.pdf consultation-riio-1-price-control-reopeners-may-2018
63
106
In autumn 2018, the independent stakeholder user group In its 2018/19 business plan64, the HSE reflects an
looked at how we are developing the physical and cyber increased focus on the emerging risks of cyber security
security elements of our business plan. The group noted and it has recently updated its operational guidance65 on
that the measures we take are mandated by government cyber security for industrial automation and control
and the security services. To protect national security, the systems. This is specifically relevant to us because we
government restricts what we can say publicly about our operate these systems for major hazard risk reduction and
current level of resilience and the specific measures we continuity of gas supplies, and our planned RIIO-2 cyber
will take in the future to reduce vulnerability. For these resilience activities are in line with latest HSE guidance:
reasons, it is not appropriate for us to engage the group or “Operators subject to both health and safety and NIS
wider stakeholders on the detail of our plan and the legislation should carry out risk assessment(s) that cover
substance of it can’t be influenced by customer or both major accident and loss of essential services
consumer preferences. Our approach is therefore to build consequences and then use the highest risk to determine
the confidential detail of our plan with government the countermeasures to be applied.”
agencies, while providing transparency about the process
that we follow. In its role as economic regulator, Ofgem 4. Our proposals for RIIO-2 and how they will
protects consumers by scrutinising our costs to ensure benefit consumers
that only efficiently incurred costs are allowed. We have set out further details of the business plan
proposals for each area in the supporting annexes
The key stakeholders whose requirements have shaped A15.01-A15.10. Annex A15.13 sets out our stakeholder
our plan for dealing with external threats are the engagement summary. In keeping with Ofgem business
government (BEIS), its security specialists (CPNI and plan guidance, our cyber resilience proposals are set out
NCSC), Ofgem (in its role as Competent Authority for the in two sections: (i) a business IT security plan focused
NIS Regulations) and the Health and Safety Executive primarily on cyber security for business systems, and (ii) a
(HSE). We collaborate on best practices across the cyber resilience plan focused primarily on production
National Grid group where we own gas and electricity systems operational technology. Separate EJPs are
transmission and distribution networks across the north provided for our physical security proposals. Collectively,
eastern United States. Working closely with our US these annexes explain in greater depth the drivers for the
colleagues helps us to gain more powerful insights in our activity, the options considered (including ‘do nothing’),
24/7 analysis and management of global security and the analysis of costs and benefits. We have used
information and event data. Where our assets are co- further templates to set out our proposed outputs in the
located with other parties, such as gas distribution form of price control deliverables and, where appropriate,
networks, we work with them to ensure an efficient, our proposals for the design of uncertainty mechanisms
joined-up approach.

stakeholders
have told us
Comply with obligations as an operator of Commitment We improve the safety and resilience of the
essential services (OES) pursuant to the network to ride through and recover from
NIS regulations 2018. malicious events that threaten to disrupt
Implement a prioritised programme of Confidential PCD continuity of GB energy supplies.
replacement and security hardening of our (£417.4m)
operational technology (e.g. industrial Our plan delivers security enhancements
Protect the control systems, telemetry, metering, gas We propose ex- that the government has identified as being
system from analysers and boundary control) for our ante funding plus in the national interest. This reduces the
increasing compressor, terminal and above ground totex incentive risk of actual events that could have severe
cyber threats in installation sites, including; mechanism for societal consequences for GB consumers.
line with  Replace xx station control systems well-defined scope
government across xx sites, making interventions on (rather than use it Applying a security innovation is a
and HSE xx remote operable valves. or lose It) consumer value proposition valued at
requirements  Deploy RIIO-1 innovation learning to regulatory £9.2m (for more information on CVP2
enhance our SCADA system, as a faster treatment. please see annex A10.05).
and lower cost cyber resilience mitigation Proportionate deployment of the enhanced
in tandem with the prioritised asset SCADA solution leverages maximum future
replacements. consumer benefit from a project already
64 65
http://www.hse.gov.uk/aboutus/strategiesandplans/businessplans/plan http://www.hse.gov.uk/foi/internalops/og/og-0086.pdf
1819.pdf
107
Our business IT security plan will: Confidential PCD funded in RIIO-1 by a Network Innovation
 implement a suite of initiatives to improve (£43.3m). Allowance.
cyber resilience across our enterprise IT We propose ex-
environment and implement new ante funding plus
capabilities in line with NIS guidelines. totex incentive
 deliver 5 cyber resilience projects specific mechanism for
to the CNI services operated by the SO, well-defined
including enhanced vulnerability scope.
management to enable better prevention
and detection of cyber-attacks.
Use a risk- We will use site specific risk-based Commitment This approach ensures we do not ‘gold
based criticality and security levels to determine a plate’ our solutions. For example, we avoid
approach to proportionate response. investing in measures that are excessively
enhance cyber We will optimise our programme having costly or complex compared to the level of
resilience regard to wider considerations of network risk reduction obtained, or where there is a
capability, compressor fleet strategy, and high chance of regret (e.g. if the site in
possible future decommissioning of question might be decommissioned within
units/sites e.g. in response to emissions the next ten years).
legislation.
We will always consider least functionality
options such as removal of remote control
functionality.
Adjust We will actively monitor potential changes Uncertainty Including uncertainty mechanisms involving
priorities, scope in (i) intelligence on threats, (ii) site mechanism the security agencies to monitor and adjust
and work criticality security levels. Cyber resilience. our delivery during RIIO-2 will ensure our
delivery inside We will discuss such changes with the Trigger: Proposing effort and expenditure continues to be
RIIO-2 period in relevant competent authorities and, where 2 reopener directed at maximising consumer benefit
light of appropriate, seek changes to our windows (start of even when circumstances change.
changing threat programme and price control allowances RIIO-2 and mid
landscape through two uncertainty mechanisms. period). The use of reopeners avoids the possibility
Physical security of windfall gains/losses associated with us
Trigger: Proposing being over/under-funded for the appropriate
2 reopener level of work.
windows (at mid
period and end of
RIIO-2).
Deliver physical We will deliver new physical security Confidential PCD Consumers are assured that relevant sites
security upgrade solutions xxxxxxxxxxxx (£131.9m) are secured to the level deemed
upgrades at Begin a prioritised programme of appropriate by government. Monitoring and
sites required replacement of first-generation security audit processes ensure compliance.
by BEIS assets including replacing 34-year-old
fence sections at x important sites.
Maintain PSUP solutions in line with BEIS
guidance and CPNI high level security
principles
Facilitate Comply with our legislative requirements Uncertainty Consumers benefit from the enhanced
policing at gas (the Counter-Terrorism Act 2008). mechanism security deemed appropriate by
sites Pass-through cost government. Consumers pay no more or
less than the actual cost incurred.
5. How will we deliver? fits with the economic optimal average asset life of 15
To manage our cyber and physical security programmes, years.
we will regularly monitor potential interactions with
network developments. For example, if assets become The programme of work will be subject to competitive
more or less important as we review network capability or procurement events to ensure we achieve value for
as customer activity changes (for example, money. With upfront funding for a longer-term, larger
disconnections) we will re-prioritise our work. portfolio of work, this will provide confidence to the supply
chain and in turn drive efficient delivery. We plan to grow
Through our portfolio planning process, we have our in-house cyber delivery capability by recruiting twelve
confirmed that the proposed cyber resilience operational more people so that we achieve the right balance
technology scope is deliverable as part of our longer-term between internal expertise and outsourcing.
programme that will continue through RIIO-3. The
necessity to balance system access outages with Innovation in RIIO-2
maintaining secure supplies limits how many sites we can Our business plan proposes strategic nationwide
work on simultaneously. Our delivery programme is part deployment of an enhancement to our SCADA system
of an enduring, sustainable asset replacement cycle that into business as usual during the RIIO-2 period to bring
108
significant immediate cyber resilience benefits while funding should be included in our RIIO-2 price control
avoiding or deferring more costly full asset replacement allowance for the full scope of this planned work. We
decisions. We will continue to focus on applying should be strongly incentivised to deliver this work
innovation to drive efficiency in delivery of our work. We efficiently in the interests of consumers.
will also seek to improve how we can deliver and
implement mitigations against cyber and physical threats, We are working with the NIS Competent Authority to
ensuring we investigate the potential of new technology confirm our RIIO-2 scope informed by our NIS self-
such as artificial intelligence and machine learning for assessment and NIS improvement plans.
example. Within their Sector Specific Methodology Decision
(SSMD), Ofgem stated that there would be two reopeners
Table 15.05 RIIO-2 innovation for works included within the cyber resilience plan and
one reopener for works included within the business IT
Theme Commentary
security plan. Whilst the threats we face on our IT
Modernising our systems to prevent systems is more advanced, it is the more traditional route
Fit for the
cyber threats, ensuring they are of attack that provide a gateway to our OT network. The
future
secure now and into the future. threats we face, no matter how advanced, still constantly
Utilising AI and ML improves threat evolve and provide new challenges in how we best
Ready for detection and prevention. protect our network. For this reason, we propose that two
decarbonisation Smart ‘self-monitoring’ networks that reopeners (start and mid-period) are allowed for both our
provide notifications of threats. cyber resilience plan and business IT security plan.
Modernise our systems for a future
Decarbonised
decarbonised energy network, It should be noted that there are important interactions
energy system
protecting it from cyber threats.
across the whole of our business plan. For example,
elements of our asset resilience and cyber resilience
6. Risk and uncertainty programmes of work will also bring important safety and
The threat landscape has changed significantly during reliability benefits. The scope of work we have included in
RIIO-1, particularly in relation to cyber security. Our close this chapter is consistent with the categories of work in
work with the security agencies has helped us to have a the RIIO-1 enhanced security costs and/or it goes far
good understanding of the work we need to deliver in beyond previous business as usual activity. We expect
RIIO-2 to meet current government requirements. We these areas of work to have their own RIIO-2 outputs,
consider this known work to be ‘no regret’. It constitutes monitoring and reporting regimes.
around 80% of the scope in this part of our RIIO-2 plan.
We propose that in relation to the known work, where the
outputs and costs are sufficiently clear, base revenue

Our proposed total expenditure to meet this stakeholder priority is summarised in the tables below. The tables give
references to the annexes which contain further details of options considered and engineering cost justification.
References are also provided to the relevant tabs in the business plan data template (BPDT) where detailed historic
and forecast cost information can be found. Subtotals for baseline and uncertainty mechanism (UM) costs are given.
Table 15.06 cyber resilience plan (operational technology) costs
Activity spend Total Total
Total Annual Annual
(£m in 18/19 prices) 2022 2023 2024 2025 2026 RIIO-2 RIIO-2
Annex ref & BPDT ref baseline UM
TO Cyber Security OT
(capex & opex)
44.1 95.3 101.8 106.0 102.3 449.5 89.9 0.0 411.4 38.1
Annex A15.07 BPDT
3.06(a)
People & resources
(opex)*
1.2 1.2 1.2 1.2 1.2 5.9 1.2 1.7 5.9 0.0
Annex A20.15 BPDT
2.02
Total
(totex controllable 45.3 96.5 103.0 107.2 103.5 455.4 91.1 1.7 417.4 38.1
costs)
Instead of ‘Use It or Lose It’ treatment described in the performance incentive on us will drive benefits for
SSMD, we propose ex-ante funding plus totex incentive consumers. The uncertain costs we have given are for
mechanism for the baseline element of our cyber indication only. We would use the RIIO-2 reopener
resilience plan. This is because our scope is well defined, windows to bring forward final proposals for the relevant
with clear, ring-fenced, outputs that can be recorded in scope and costs as and when those details are firmed up.
confidential price control deliverables, and where a strong
109
Our transmission owner OT baseline scope includes: In arriving at our proposed cyber resilience plan, we have
 £215m totex for our prioritised programme of considered and costed a wide range of options including:
replacement of control and safety systems at our  Scenarios explored in optioneering: do nothing, upgrade
highest used compressor stations and terminals with existing assets, partial system enhancement, repair or
partial cyber upgrades to the remaining compressor refurbish, full system replacement, acceleration/deferral
stations. Our plan is extensively built up from a unit cost of plan.
times volume approach, with rates based upon  Network resilience and safety: we have considered the
evidence from outturn cost of previous/in-flight projects network resilience impact and safety consequences
which have been competitively tendered. This posed by both equipment failure and cyber-attack.
programme will continue into RIIO-3 and beyond.  Risk-based security levels: we have compared the cost
 £141m totex for a combination of refurbishment and of a common resilience target at all sites versus
replacement of our Gas Quality, Telemetry and different levels of cyber hardening proportionate to the
Metering (GQMT) assets located at our Above Ground risk and criticality of the individual sites in question.
Installations. There is no double counting of costs with  Future of gas and compressor fleet strategy: We have
the rest of our asset health plan. considered the prioritisation and scope of work at
 £55m totex for specific projects to implement enhanced individual sites to mitigate the risk of stranded
cyber resilience capability at the IT/OT interface. One of investment at sites for which the long-term future need
these projects is widescale deployment of our RIIO-1 may be uncertain. We ensure our proposed spend is
innovation to our SCADA system, as a quicker measure focussed on sites most needed to meet the network
to mitigate cyber risks pending replacement of capability required by gas customers. We have ensured
underlying OT assets. We have provided an indication this plan ‘fits’ with our compressor strategy and that it is
of future costs for our less-well defined IT/OT projects deliverable with regard to network outage constraints.
under the banner “costs relating to proposed uncertainty  Least functionality options: we have considered
mechanisms”. We would use the RIIO-2 reopener situations where remote operability functionality is
windows to bring forward final proposals for the relevant necessary versus where alternative manual operating
scope and costs as and when those details are firmed philosophy may be possible thereby avoiding the need
up. for cyber hardening of these assets.
 £6m opex including for an additional 12 personnel to  We have compared our approach with our business in
implement new cyber processes; updating antivirus the US and with other energy network operators of
software, performing software sweeps, first and second essential services in Europe (members of the European
line fault response, incident handling, training and Network for Cyber Security66). This provided insight and
emergency preparedness exercises. independent assurance that we are implementing best
practices.
Table 15.07 business IT security plan costs
Activity spend Total Total
Total Annual Annual
(£m in 18/19 prices) 2022 2023 2024 2025 2026 RIIO-2 RIIO-2
Annex ref & BPDT ref baseline UM
TO Cyber Security IT (capex
& opex) 4.8 5.4 4.8 5.3 5.8 26.1 5.2 1.4 19.5 6.7
Annex A15.02 BPDT 3.06(b)
SO Cyber Security IT (capex
& opex) 9.5 5.2 4.8 4.9 5.0 29.3 5.9 7.7 23.8 5.5
Annex A15.02 BPDT 3.09(b)
Total
14.3 10.6 9.6 10.2 10.8 55.5 11.1 9.1 43.3 12.2
(totex controllable costs)
In line with the regulatory treatment described in Ofgem’s economy of scale of sharing common costs with other
SSMD, we propose ex-ante funding plus Totex Incentive National Grid entities including NGET and NGESO.
Mechanism for the baseline element of our NGGT  The initiatives are arranged into 11 categories and
Business IT Security Plan. The uncertain costs we have mapped to bring specific improvements in our cyber
given are for indication only. We would use the RIIO-2 posture as monitored through the Cyber Assessment
reopener windows to bring forward final proposals for the Framework. Confidential PCDs record the agreed
relevant scope and costs as and when those details are outputs and their targeted improvements in CAF score.
firmed up.  Gas System Operator (GSO) share of 5 cyber resilience
Key features of our NGGT Business IT Security Plan projects that are specific to the CNI services operated
include: by the GSO and Electricity System Operator (ESO)
 The allocation to Gas Transmission and Gas System entities.
Operation of corporate security function costs for a suite  In other respects, the GSO CNI systems are already
of initiatives to enhance the cyber resilience of National hardened and segregated from business systems, so
Grid’s Enterprise IT environment. We benefit from the the RIIO-2 expenditure for the ongoing maintenance,
66
https://encs.eu/
110
development or replacement of these systems is  Compared to our July draft plan we have removed data
embedded elsewhere in our plan as business as usual centre capex because this project is scheduled to be
activity and reported according to existing BPDT completed in RIIO-1. We have checked that there is no
conventions. ‘double counting’ between this chapter and costs
 As well as project specific capex and opex, an allocated elsewhere in our plan.
share of the indirect costs of resources in the National
Grid security shared function is included here. The
activities covered include 24/7 cyber security
monitoring, training and recruitment.
Table 15.08 physical security costs
Activity spend (£m in 18/19 prices) Total Annual Annual
2022 2023 2024 2025 2026
Annex reference & BPDT reference RIIO-2 RIIO-2 RIIO-1
Major Projects (baseline capex)
15.4 29.4 3.7 0.0 0.0 48.5 9.7 20.8
Annex A15.09 BPDT 3.05
Asset Health (baseline capex)
0.6 12.1 15.4 14.3 6.9 49.2 9.8 0.0
Maintenance (baseline opex)
6.2 6.2 7.0 7.3 7.3 34.1 6.8 4.5
Total (totex controllable costs) 22.3 47.7 26.1 21.6 14.2 131.9 26.4 25.3
Policing (pass through)
16.0 16.0 16.3 16.7 17.1 82.2 16.4 13.3
BPDT 2.02
In line with the regulatory treatment described in Ofgem’s sections at xxx important sites. The programme will
SSMD, we propose ex-ante funding plus Totex Incentive extend into RIIO-3. Most assets being replaced have
Mechanism for the baseline element of our physical useful lives of 7 to 15 years. We have separated this
security plan. Key features of our physical security plan PSUP asset replacement spend from the generality of
include: our asset health costs so that all PSUP capex costs are
 Major projects spend is for delivery of new PSUP ring-fenced with their own Price Control Deliverable.
solutions at xx sites during the first three years of RIIO-  Maintenance spend includes 24/7 alarm monitoring,
2. This is a reduction in volume compared to the RIIO-1 routine maintenance and fault repairs. Costs are
period in which we are delivering new PSUP solutions increasing because the number of sites being managed
at xx sites. Our cost estimates are informed by outturn is more than doubling between RIIO-1 and RIIO-2.
costs of the xx sites delivered or to be completed during Efficiencies are obtained through the economy of scale
RIIO-1. This data inherently reflects the outcome of of sharing an alarm receiving centre with Electricity
native competition. Furthermore, we have embedded an Transmission and Cadent. We are pursuing further
efficiency ambition so that the allowance we are efficiency by in-sourcing first and second line support for
requesting for RIIO-2 is £7.5m lower than our equivalent fault resolution.
estimate at the time of the May 2018 reopener.  Policing costs are dictated by the Counter Terrorism Act
 Asset health spend commences at the start of RIIO-2 as and treated as a cost pass-through. Our RIIO-2 figures
we begin a nationwide programme of planned have been updated since July 2019 to reflect a new
replacement of first-generation security assets, estimate received from the Ministry of Defence.
including replacing 34-year-old perimeter security
Table 15.09 cost assessment criteria
Cost forecast based on NARM or volume-
Cost realised from RIIO-1 actuals External benchmark
competitive process driven PCD
Yes – RIIO-1 actual costs for physical Yes – most RIIO-2 scope Yes – physical security costs
security and OT have been used to arrive at will be subject to native in line with Ofgem 2018 Yes - defined PCDs
RIIO-2 forecasts competition reopener benchmark
111
Table 15.10 summary of protect the transmission system from cyber and external threats costs by activity
Activity Total Total
Total Annual Annual
spend (£m in 2022 2023 2024 2025 2026 RIIO-2 RIIO-2
18/19 prices) baseline UM
Cyber
resilience plan 45.3 96.5 103.0 107.2 103.5 455.4 91.1 1.7 417.4 38.1
(OT) (note 1)
Business IT
14.3 10.6 9.6 10.2 10.8 55.5 11.1 9.1 43.3 12.2
security plan
Physical
22.3 47.7 26.1 21.6 14.2 131.9 26.4 25.3 131.9 0.0
security
Sub-total –
controllable 81.8 154.7 138.7 139.1 128.5 642.8 128.6 36.1 592.5 50.3
costs
Policing – non-
16.0 16.0 16.3 16.7 17.1 82.2 16.4 13.3 0.0 82.2
controllable
Total spend 97.8 170.7 155.0 155.8 145.7 725.0 145.0 49.4 592.5 132.5
Note 1: The RIIO-1 to RIIO-2 OT expenditure trend seen in this table is not a like-for-like comparison. This is because the RIIO-1 figure does not
include some £16m p.a. of mostly asset health investment on our OT assets, which is reported separately in chapter 14 and must not be double
counted. We have provided further insight regarding the like-for-like movements through the OT cost drivers and efficiencies waterfall that follows .
Figure 15.11 RIIO-1 to RIIO-2 Comparison: cyber resilience plan – OT cost drivers and efficiencies waterfall
Step Explanation of cost drivers and efficiencies

RIIO-1
Forecast average annual spend over the 8 year RIIO-1 period for gas operational technology assets.
annualised
Upward Replace all control systems inside RIIO-T2, to achieve Security Level 3 at all sites, and to continue full remote
drivers operation functionality. In addition to very high costs, this is not deliverable due to network access constraints.
Efficiency 1
Phase the workload into a stable predictable programme with forward visibility to the supply chain. Avoiding
peaks and troughs allows efficient planning of resources and avoids less preferred/more expensive contractors.
Efficiency 2 Deploy "campaign" approach learning from RIIO-1. i.e. bundling work drives efficiency from supply chain
compared to standalone tenders. This reduces unit cost by 24-36% compared to actual costs incurred on non-
bundled RIIO-T1 projects.
Efficiency 3 Apply proportionate security levels (SL1 to SL3) depending on the risk and criticality of sites, in line with CNI
ratings for physical security at sites. Lower risk sites do not warrant same level of investment resulting in cost
savings.
Efficiency 4 Review which sites are essential to meet customer requirements for network capability e.g. having regard to
forecast compressor running hours. Prioritise highest criticality sites for full control system replacement inside
RIIO-2. Defer work at remaining sites into RIIO-3 period enabling a subsequent retest of need (in light of site
utilisation) in mid-2020's before commitment to spend. Deploy SCADA innovation on lower criticality sites as a
lower cost intervention, accepting this doesn’t mitigate asset health & obsolescence risks.
Efficiency 5 Delivery of ITOT capability in a controlled and logical manner, spanning RIIO-2 and RIIO-3. Post portfolio wide
review of GQMT, security ratings and asset obsolescence, defer into RIIO-3.
RIIO-2
RIIO-2 period proposed average annual spend (across 5 years).
annualised
112
I want you to care for the environment and communities
16. I want you to care for the environment

and communities
We care about the environment and the communities we serve. As a responsible business, we are committed to
delivering environmental and community benefit, prioritising the issues that matter most to stakeholders.
A key strand in our vision for the future of the energy sector is concerned with limiting the dramatic impacts that climate
change could have on our environment and way of life. We believe this is vital if we are to operate as a socially
responsible business and play our part in helping Great Britain to meet the challenges of decarbonisation. These
challenges have been laid out by stakeholders as they voice their concerns about climate change, culminating in the
UK government setting out legally binding targets to achieve ‘net zero’ carbon emissions by 2050. We will step up to
meet this challenge by embedding sustainability in our business strategy and using it to guide the way we work. We are
driving more efficient performance and future-proofing our organisation as the environmental and social landscapes
change. We want to protect the environment by providing options to reach net zero carbon by 2050 at lowest impact on
society.

Stakeholders have said that we have an important role to play in protecting the environment and moving towards
decarbonisation, particularly around emissions and air quality. Their feedback has confirmed that they would like us to
demonstrate the value and cost of going beyond legal requirements, considering the value of our actions to current and
future generations.

We will shift our focus from environmental protection to environmental enhancement.
 We will improve air quality and reduce emissions from our operational plant by replacing two compressors with more
efficient ones in RIIO-2. We'll start work on the solutions for three other sites that need to be resolved by 2030, driven
by environmental legislation deadlines.
 We will increase our focus on reducing all methane emissions. We’ll monitor leaks on the network and work on ways
to reduce them.
 We’ll reduce the carbon footprint by replacing 100 per cent of our operational vehicle fleet with alternative fuel
vehicles where there is a market alternative in 2019 (30 per cent of vehicle fleet, 80 vehicles, 45 charging points),
installing solar panels on our compressor sites, ensuring the energy we use in our office buildings is from sustainable
sources and reducing carbon in construction projects.
 Address eighty assets, asset groups or sites. We’ll make sure both new construction and demolition projects include
initiatives to protect and promote biodiversity.
 We will continue our support for the communities we work in and commit 0.3 per cent of the value of major projects
spend to support community initiatives.
 We’ll develop our work on delivering benefits to wider society through supporting communities, education initiatives,
promoting small and medium-sized enterprises, supporting local employment through the supply chain and
implementing human rights strategies.
There are various commitments in this chapter which deliver consumer value propositions.
The total RIIO-2 spend for this priority is £275m. This amounts to an average annual spend of £55m (compared to
£43m per year in RIIO-1). This is 10 per cent of the value of our full business plan. Nearly three-quarters of this relates
to our compressor emissions compliance programme. The spend profile across price controls is shown in figure 16.01
below. Note that the spend profile is not linear as most of the spend relates to large capital investment on compressors.
The spend profile increases in 2022 due to work beginning on our compressor fleet at the start of RIIO-2. Compared to
our draft business plan costs, we have moved some of our compressor related spend out of baseline. £172m of the
total RIIO-2 cost relating to compressor spend is now subject to an uncertainty mechanism. Table 16.02 shows the
RIIO-2 spend for this chapter by activity.
113

Figure 16.01 RIIO-1 and RIIO-2 spend profile ‘I want you to care for the environment and communities’
RIIO costs
£125
£100
£75 RIIO-2
£m
Uncertainty
£50 mechanism
£25 Baseline
£0
Reporting year
Table 16.02 summary of environment and community costs by activity

Compressors –
22.7 27.9 51.0 24.3 30.8 156.7 31.3 33.9
emissions legislation
Redundant assets 4.2 24.6 21.4 15.0 17.5 82.6 16.5 2.7
Quarry and loss 4.3 4.4 4.4 3.0 3.0 19.1 3.8 5.3
Our climate commitment 6.7 2.3 1.6 1.7 1.7 14.1 2.8 1.6
Other & pension costs 1.0 0.3 0.3 0.3 0.3 2.3 0.5 -0.9
Total spend (£m) 39.0 59.5 78.6 44.3 53.4 274.8 55.0 42.6
Table 16.03 summary of environment and community costs by RRP category

Closely associated
indirects (BPDT 1.8 1.1 1.1 1.1 1.1 6.2 1.2 1.5
2.02)
Cost subject to
uncertainty 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.1
mechanism
Direct costs (BDPT
4.5 4.5 4.5 3.1 3.1 19.7 3.9 0.7
2.02, 2.04)
Non-load related
31.6 52.7 72.5 39.4 48.4 244.6 48.9 37.2
(BPDT 3.01)
Non-operational
0.9 0.9 0.1 0.4 0.5 2.7 0.5 0.0
capex (BPDT 3.07)
Controllable
pension costs 0.3 0.3 0.3 0.3 0.3 1.6 0.3 0.0
(BPDT 2.02)
Total spend (£m) 39.0 59.5 78.6 44.3 53.4 274.8 55.0 42.6
114

Chapter overview  Quarry and loss
Our Environmental Action Plan  Supporting the communities we work in.
National Grid’s strategy is to move from environmental
protection to environmental enhancement. At a gas Our commitments around caring for the environment and
transmission level, we have produced an Environmental communities are aligned to global and government
Action Plan (EAP) (annex A16.01), which sets out how ambitions as well as to stakeholder, societal and end
we plan to take forward our business-specific actions consumer impacts. We have signed the United Nations
relating to the environment. This covers both legislative Global Compact, which has a strategy to drive business
and non-legislative drivers. We recognise that much of awareness and actions to achieve the UN Sustainable
this work provides wide benefits for society, and Development Goals (SDGs) by 2030.The goals promote
stakeholders have told us that they support going beyond prosperity while protecting the planet. More information
legislative requirements in some cases to deliver on how these SDGs link to our business areas can be
additional environmental benefit. found on our website67, and the relevant SDGs are shown
under each section of this chapter and in figure 16.04.
Some of the commitments made in the EAP are included Our approach in RIIO-2 will continue to be consistent with
within this chapter, although this is not exhaustive and the the UK Government’s Clean Growth Strategy68, 25-year
EAP can be found in full in annex A16.01. We are environment plan69 and commitments on climate change.
proposing that each commitment in the plan is measured We are also mindful of potential future changes to
appropriately. Some of these commitments will be emissions legislation (for example, new air quality
measured through our regulatory reporting pack, and we legislation) and, where possible, we test our proposals to
propose that others are measured as part of a scorecard ensure solutions are future-proofed.
incentive, described later in this chapter.
Figure 16.04 relevant UN Sustainable Development
We will develop a science-based target by 2023 Goals for this chapter
As laid out in Ofgem’s business planning guidance, we
intend to develop a science-based target. Science based
targets are industry best practice and are carbon
reduction targets. However, developing the target is no
easy task, and is particularly challenging for the gas
industry where routes to decarbonisation are unclear.
This is recognised by the Science Based Targets Institute
who are looking to produce a tool to aid the gas industry
in 2020. Developing the target for gas transmission will
require levels of detail that haven’t been captured and
reported on in the past, making it challenging to establish
a baseline for future targets to be set against. We have
already begun a series of mini projects to better
understand the challenge ahead and ensure the data we
need is available (impacts of options and costings) to Sustainability and leadership for change
make the right decisions to deliver value for customers, Our group environmental sustainability strategy focuses
society and the environment. However, this will take on managing the direct environmental impact of our
some months and dedicated resourcing. We propose to operations, and we report on our impacts. As part of our
develop this target for gas transmission by 2023. As set reporting, we have recently been recognised as the
out in chapter 17, we are proposing a ‘net zero’ leading utility company in the FTSE 100 for sustainability
uncertainty mechanism to provide a route to funding for reporting, following our ranking of 8th in the overall
activities which deliver against the government’s 2050 assessment70.
targets, which could be used should additional activities
be identified that would be required as part of the project For RIIO-2, our EAP sets out where our commitments
identifying our science-based target. within it are influenced by our group strategy and targets.
In addition, early next year, we will launch a responsible
The rest of this chapter focuses on specific parts of our business charter articulating in more detail what
EAP: responsibility means for National Grid, our people, and
our communities. We aim to ensure that the communities
 Sustainability and leadership for change
we operate in thrive, by being economically, socially and
 Air quality – compressor emissions
environmentally strong.
 Climate change – our climate commitment
 Responsible asset use and caring for the natural
environment
67 70
https://www.nationalgrid.com/group/responsibility-and- https://info.eco-act.com/sustainability-reporting-performance-ftse-100-
sustainability/our-progress/defining-our-priorities 2019
68
https://www.gov.uk/government/publications/clean-growth-strategy
69
https://www.gov.uk/government/publications/25-year-environment-
plan
115

Our focus on environmental sustainability is underpinned We use compressors to move gas around the network to
by an Environmental Management System (EMS) that is meet stakeholder needs to take gas on and off the
certified to ISO14001:201571, covering all our operational transmission system as and when they want. We
and non-operational businesses in the UK. The EMS currently have 71 operational units73 on 24 compressor
gives us a clear, systematic process to manage sites across the network. These compressors maintain
environmental risks and to realise opportunities to the pressure of the gas in the network and move it around
enhance the environment. This can be found in annex the country to areas of demand. There’s more information
A16.02 and our business management standard can be about the need for compressors in chapter 12 ‘network
found in annex A16.03. capability’ and chapter 14 ‘I want to take gas on and off
the transmission system where and when I want’.
We also have a stakeholder, community and amenity
policy72, which we apply to all our work in the local Deteriorating air quality because of Nitrous Oxide (NOx)
community. Under this policy, we aim to enhance the emissions is linked to increased health risks such as
local environment, mitigate our works or (where this is not asthma and other lung conditions. To combat this,
possible) provide other benefits that deliver lasting value legislation has been introduced through the clean air
to the people and communities affected. programme74 to encourage a reduction in NOx emissions.
The legislation affects 2875 of our gas turbine-driven
We have undertaken benchmarking exercises across compressor units as well as a small number of water bath
environmental and supply chain sustainability activities. heaters, boilers and standby gas generators, which are
These can be found in annexes A16.04 and A16.19 also used in the operation of the gas transmission
respectively. system.
We will have senior leadership accountability which The key pieces of legislation that affect our compressors
reflects our corporate focus on the environment. Our are:
leadership bonus plans incentivise the delivery of  The Industrial Emissions Directive (IED) 2010,
financial, strategic and operational measures. Measures which combines the Large Combustion Plant Directive
are subject to change to ensure we drive the right focus (LCP) 2001 and the Integrated Pollution Prevention
on our short-term and annual priorities. For further and Control Directive (IPPC) 2008. The IED has
information, please see chapter 18. driven much of the RIIO-1 compressor work.
 The Medium Combustion Plant Directive (MCPD)
Air quality - compressor emissions compliance 2015, applies specific limits on emissions to air from
combustion plant from 2030 and is the major driver
behind our RIIO-2 emissions investment programme.
This part of the chapter summarises which decisions we

have taken for our compressor fleet that will become non-
compliant with MCPD legislation in 2030. More detail can
be found in our Compressor Emissions Compliance
Strategy (CECS), in annex A16.05.
This sub-topic is about delivering consumer value through 2. Our activities and current performance
cleaner air in the local environment. Consumers are Track record
increasingly concerned about their local air quality as At the outset of the RIIO-1 period, the requirements for
society understands more about the causes and our compressor fleet to achieve IED compliance were still
implications of poor air quality. We describe how we play uncertain. But now we’ve reached greater understanding
our part in improving air quality while continuing to deliver of what’s needed and the costs of doing it. We have
reliable energy supplies to consumers. completed Aylesbury and Wisbech in RIIO-1 under LCP
emissions legislation. In delivering our first IED-compliant
Our activities in operating and maintaining the network unit at Aylesbury, using an innovative catalyst solution,
can have a negative impact on the environment. The we saved around £68m against our allowance for entire
most significant of the environmental impacts comes from new units. Our investment in RIIO-1 led to a reduction in
emissions to air, from burning gas in gas-fired the amount of NOx emitted for each hour of compressor
compressors to keep the gas flowing through the system, running.
and from methane emissions when compressors vent.
Carbon emissions from compressors are covered in the
next topic ‘climate change: our climate commitment’.
71 73
ISO 14001 is the international standard that specifies requirements for These 71 operational units do not include new units at Peterborough
an effective environmental management system (EMS). and Huntingdon that are currently not commissioned.
72 74
https://www.nationalgridgas.com/document/81026/download http://ec.europa.eu/environment/air/index_en.htm
75
Including King’s Lynn A which was recently disconnected.
116

Table 16.05 NOx emitted for each hour of compressor benefit analysis (CBA) for each option considering a
running (Kg/hr) comprehensive set of regulatory, commercial and asset
options. Given the scale of work required to make all our
25
compressor sites compliant with legislative requirements,
NOx emitted (kg/hr)
20 we targeted business improvements and learnings from

best practice to ensure our programme is delivered in the
15 most efficient way. We have also learnt lessons from
delivering compressors, such as the complexity of
10 ensuring there are enough operational units available to
allow sites to undergo outages at points in the delivery
5 process.
0 Table 16.06 RIIO-1 innovation projects
Example Description
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Project
Development of an innovative oxidation
In total we spent £279.7m on compressor emissions Aylesbury catalyst solution as an alternative to a new
compliance in RIIO-1. We also achieved derogations for catalyst unit, saving £68m against the cost of new
several units. This allowed us to deliver the network unit.
capability customers needed at a cost that is best for Investigation into selective catalytic
consumers, while meeting legislative requirements. As a Selective reduction systems to assess whether
result of a successful derogation request during RIIO-1, Catalytic emissions abatement fitted to our
we’ve been able to schedule capital works across RIIO-2 Reduction compressor could bring them in line with
and RIIO-3 while making sure outages can be scheduled Environment emissions standards. Currently not a
and Technical proven cost-effective option for our non-
in a way that ensures minimal disruption and cost to
Study compliant MCPD units because of their age
customers. Currently, work is in progress to complete the and asset characteristics.
installation of four new compressor units at Huntingdon Predictive Testing a prototype PEMs system against
and Peterborough to ensure compliance with IED Emissions the requirements of the industrial
emissions legislation. Monitoring emissions directive.
(PEMS)
Learning and innovation in RIIO-1 Captivate Proof of concept project of carbon
RIIO-1 has given us experience of managing changes on mineralisation for emission capture.
live compressor sites, and our cost confidence has
improved as a result. We have also been investigating 3. What have stakeholders told us?
whether innovative techniques such as abatement We engaged extensively with stakeholders on emissions
(making an existing unit compliant through additional compliance across the RIIO-1 period, both for the May
works) might be an option in RIIO-2. However, abatement 2015 reopener and for the May 2018 IED reopener.
seems unlikely to achieve the necessary reduction in NOx However, the reopener timing and decision (Ofgem’s
emissions. It may also not be an available or cost- decision was published in September 2018) affected our
effective option for our non-compliant MCPD units stakeholder engagement on MCPD as part of the RIIO-2
because of their age and asset characteristics. We will business plan. We did not feel it would be appropriate or
continue to look at how innovation may be applied during productive to start a fresh round of engagement while the
RIIO-2. reopener consultation was ongoing. We have continued
to engage on specific elements relating to compressor
Following the 2015 reopener, we undertook further emissions compliance and broader environmental
stakeholder engagement, fully assessed requirements of engagement. Further detail is provided in the
the legislation and challenged ourselves on our cost
engagement log annex A16.06.
performance. We completed a comprehensive cost
Table 16.07 CECS stakeholder feedback

Compressor emissions compliance strategy
SH segments Environmental agencies (EA, SEPA).
engaged
Objective Understand what is required with regards to ensuring compliance.
Channel/method Trilaterals, bilaterals.
Key messages It is important to make our compliance strategies clear.
Table 16.08 air quality stakeholder feedback
Air quality
Stakeholder Consumer interest group, consultant/supply chain, customers energy network operator, environmental
segments interest groups, gas distribution networks, industry/trade bodies, other energy industry,
engaged regulator/government, university/think tank, domestic consumers, non-domestic consumers, major
energy users.
117

Objective Understand stakeholders’ views on how we manage NOx emissions resulting from operating the
compressor fleet and becoming compliant with legislation, and to understand consumers’ views on
local air quality impacts.
Channel/ method Workshops, bilaterals, webinars, acceptability testing, consumer listening.
Key messages Stakeholders value our work on reducing emissions to improve local air quality and believe we should
get on with it as soon as possible. Managing and reducing emissions is very important. Customers
want us to assess the impacts of any projects against environment, society and operational
parameters. Local air quality is important to consumers due to the health concerns associated with it,
and National Grid has a responsibility in improving local air quality. National Grid should use existing
solutions such as the conversion of existing compressors to electric drive or other solutions that offset
emissions.
Trade-offs and Majority of domestic consumers agree with proposed investments and bill impact. Significant
stakeholder proportion (around 25%) agree with proposals, but not with bill impact. There is some support from
influence on the domestic consumers for doing more for air quality than currently proposed, but specific actions not
plan specified.
SUG and We have simplified the compressor information provided following feedback to make the information
Challenge Group clearer and improve our deliverability.
feedback
Table 16.09 future-proof stakeholder feedback

Future-proof compressor build
Stakeholder Independent stakeholder user group, consumer interest groups, major energy users, other non-energy
segments industry, regulator or government, university/think tank, industry/trade body, gas distribution network,
engaged consultant/supply chain, customers (entry, exit, shippers).
Objective Understand the challenges to our compressor proposals and stakeholders’ views on future proofing
our assets.
Channel/ method Stakeholder group, webinars, bilaterals, conferences.
Key messages Stakeholders challenged us to ensure that we were giving due consideration to the UK Government’s
target to achieve net zero emissions by 2050, including whether we should consider any compressor
unit replacement to be electric drive or hydrogen.
Trade-offs and Stakeholders believe we should consider future uses of the network when undertaking asset health
stakeholder works. Major energy users stressed the importance of keeping options open, in relation to
influence on the compressors.
plan
SUG and We have taken on board feedback relating to reflecting uncertainties with regards to our investments.
challenge group We are utilising an increased number of uncertainty mechanisms relating to our compressor
feedback investments to reflect this.
4. Our proposals for RIIO-2 and how they will the CBAs and relevant engineering justification papers as
benefit consumers appendices.
Proposals in this section are driven by a need to meet
Where there is a long-term need for compressors to run
customer network capability requirements and to ensure
over and above legislative limits, we will need to invest in
compliance with MCPD legislation. To develop our
our compressor fleet to ensure compliance. Several of
proposals on which compliance solution is appropriate,
our compressors will have to be replaced, which takes
we have carried out CBAs for the compressors affected
around six years to complete and there is only limited
by emissions legislation. It has informed our
availability of network outages to accommodate the work.
understanding of the most cost-effective way of meeting
This means we can’t wait until RIIO-3 to make a start and
our obligations and the needs of our customers while
we need a programme that allows us to provide
delivering the best value to consumers. We have tested a
continuous use of the network from 2021 to 2030. Work is
wide range of options and stress tested our solutions are
required during RIIO-2 to achieve the compliance date.
robust against a range of scenarios. Our CECS sets out
our consideration of the final options alongside outputs of
Table 16.10 output summary air quality – compressor emissions compliance
stakeholders
have told us
Domestic Wormington: To meet customer network Price control deliverable Compressors are vital to
consumers capability needs, we will ensure compressor xxxxxxxx - annex A3.01) moving gas around the
consider air emissions compliance at Wormington through system, enabling
quality to be delivery of two new units capable of supporting consumers to use gas as
important. flows of 80 mscm/d that are broadly equivalent and when they want.
rated power to existing capability.
118

Stakeholders King’s Lynn and Peterborough: PCD for FEED at King’s Lynn These proposals support
value our work To meet customer network capability needs, we xxxxxxx and at Peterborough an affordable energy bill
on reducing propose to deliver two new MCPD compliant xxxxxxx See annex A3.01. through prioritising and
emissions to compressor units at King’s Lynn and one unit at innovating to ensure
improve local Peterborough. PCDs to reach front end UM (King’s Lynn xxxx and compressor compliance
air quality and engineering design (FEED) in RIIO-2. Peterborough xxxxx). See annex is met in a cost-effective
believe we New PCDs to be set at the point of FEED to A3.02. Trigger: Year 2 (end of way.
should get on deliver compressor emissions compliance (to be FEED) for King’s Lynn, Year 4
with it as soon completed in RIIO-3). Post-FEED costs not in (end of FEED) for Peterborough Our proposals also
as possible. baseline and triggered by UM. facilitate delivery of a
St Fergus (whole site): PCD for FEED xxxxxxxx. See sustainable energy
To meet customer network capability needs, we annex A3.01. system through
propose to deliver three new emissions improving air quality via
compliant units at St Fergus. We will reach Uncertainty mechanism (£118m) our compressor
FEED in RIIO-2. Trigger: Year 2 (end of FEED) emissions compliance
New PCD to be defined at the point of FEED to programme, ensuring the
ensure sufficient compliant capability to deliver most polluting
at St Fergus compressor station (to be compressor trains are
completed in RIIO-3). Three units anticipated at decommissioned and
this stage; post FEED costs not in baseline and replaced where
triggered by UM. necessary with cleaner
Decide on decommissioning or derogation for Commitment machinery.
RIIO-3 for other affected MCPD units at (legislative driver) Utilising a reopener
Cambridge, Diss, Chelmsford, Huntingdon, mechanism for
Alrewas, Kirriemuir, St Fergus, Wisbech. compressor emissions
costs where there is
uncertainty around
solutions and costs
ensures the most cost-
effective solution is taken
forward.
Enable reduction in our NOx emissions from the Commitment Facilitate delivery of a
business in RIIO-2 by maintaining and operating (legislative driver). sustainable energy
our best available technique (BAT) equipment as Measure: Reduction in NOx system through
the lead units for compression. emissions per hour of gas improving air quality.
turbine running, dependent on
supply and demand patterns.
Compressor proposals detail
Our compressor fleet strategy is set out in chapter 12, network capability. As laid out in our fleet strategy principles, we
will focus investment on the most important/critical compressors to meet the network capability needs of customers. In
terms of decision-making from MCPD units, we have carried out CBAs for compressors affected by emissions
legislation to ensure our proposals are robust. We have also undertaken analysis relating to different network
capabilities with different compression levels to test some of our proposals.
As set out in the CECS, there are four ways in which compliance can be met:
Table 16.11 MCPD compliance options
Decommission Close and decommission units if changing gas flow patterns render them no longer required.
and reduce
network capability
Derogate Existing medium combustion plant operating for no more than 500 hours on a rolling five-year average
after 1st January 2030 does not need to comply with the new emission limit values (ELVs).
Make compliant Two high-level options for achieving compliance:
1. Install abatement technology to achieve the specified ELVs with asset health work as required on the
machinery train76.
2. Install a new, emissions-compliant compressor machinery train. Build options to make compliant would
be required to go through a full BAT77 process.
Commercial Options such as turn-up or turn-down contract for constraint management. Could mitigate the need for
options asset-based solutions although typically suited to short-term scenarios, meeting a peak demand and
supply pattern linked to a single-entry point; they aren’t a complete alternative option to investment in the
compressor fleet. It is also important to note that commercial solutions to meet emissions requirements
may have corresponding physical requirements in other parts of the network.
76
This doesn’t come out as a preferred option due to the age of our non-MCPD compliant assets.
77
We are bound through legislation to undertake a process with relevant environmental bodies which defines the BAT in relation to new build
compressors. BAT is the primary selection mechanism for all new and substantially modified compressor trains and will continue to be so during
RIIO-2 and RIIO-3.
119

These high-level options were broken down into more Analysis
detail for consideration for inclusion in the CBAs. These The clear financially beneficial option from the CBA is to
high-level options can be summarised as: install two new gas-driven compressor units (of similar
 500 hours derogation for affected units rated power to the existing Avon units – approximately
(counterfactual). 15MW each) and decommission the existing Avon units.
 Disconnect and decommission Avons prior to 2030 This comes out as the most cost-effective option in the
 Control system restricted performance. CBA and is consistent with the preliminary BAT
 Emissions abatement (SCR) on Avons. assessment. This preferred option has a consumer
 Two new 15MW gas turbine compressors. saving of £455m compared to the counterfactual (2
Decommission Avon once new unit is operational (not derogated units) in a central scenario. Without these new
considered for Wormington and Peterborough where units, there would be a risk that entry and exit capacities
parallel running is required for more than 500 hours). and/or 1 in 20 obligations would not be met if the existing
 One new 15MW gas turbine compressor. electric drive unit is unavailable.
Decommission Avon once new unit is operational.
 Two new 15MW electric drive compressors. There is currently a PARCA process being undertaken
Decommission Avon once units are operational. relating to Milford Haven. We won’t know the outcome of
this process until mid-2020 so are unable to factor this
 One new 30MW electric drive compressor.
into our proposals. However, if this is taken forward it is
Decommission Avon once new unit is operational
likely to strengthen the justification for compression at
(note both these electric drive options discounted for
Wormington further and may require us to consider
these 4 sites considered. Wormington and
additional compression at other sites and pipelines to
Peterborough already have electric drive on site and
allow for a higher flow to be accommodated.
King’s Lynn and Huntingdon do not have sufficient
running hours to warrant a VSD).
Proposed option
 Commercial contracts to manage constraints and to
Deliver two new units at Wormington with a capability of
ensure compliance with 1 in 20 obligations (not
40 mscm/d each. This will provide additional compression
considered for sites without a 1 in 20 requirement).
to run alongside the electric drive and also provide
The needs case options for sites for which we are
resilience in the case this is on outage. We propose this
requesting funding are summarised below and can be
work is started at the beginning of RIIO-2 to ensure
found in more detail in the relevant EJPs and include the
compliance work can be undertaken and delivered
above option analysis.
alongside the rest of the emissions compliance work by
2030. Should the PARCA process identify further
Wormington investment on Wormington compressors impacting this
EJP and CBA annexes A16.10 and A16.11. work, we propose that the price control deliverable should
Wormington is a bi-directional compressor site used to be adjusted accordingly.
resolve supply-demand imbalances in South Wales. It is
used to move gas out of South Wales when supplies from
King’s Lynn
Milford Haven are high, and to move gas into South
EJP and CBA annexes A16.14 and A16.15.
Wales when supplies from Milford Haven are low.
King’s Lynn is a bi-directional compressor site that
Forecast running hours under different Future Energy
performs a critical role on the NTS, used to resolve
Scenarios (FES) range from 1,300-2,200 hours per
supply-demand imbalances in the South East. This is a
annum in 2020, and 1,700-12,000 hours per annum in
unique area on the network, including the bi-directional
2045. Compression at Wormington is required to meet
interconnectors (IUK and BBL) at Bacton and the
flows of up to 80 mscm/d. The electric drive is capable of
liquefied natural gas (LNG) importation facility at Isle of
flows up to 50 mscm/d and will remain the lead unit, but
Grain. This means the South East has the potential to be
additional compression is required to support very high
in a net supply or demand position at any time of year,
flows from Milford Haven and for periods when the
depending on the flows from these entry terminals which
electric drive is unavailable, which could be of long
are market driven and difficult to predict.
duration.
Figure 16.12 Wormington units on site Under our FES scenarios, running time in 2020 is
Current units on site forecast at around 900 hours. Future running hours are
dependent on the rate of UK Continental Shelf (UKCS)
decline and levels of exports at Bacton. However, FES
scenarios differ greatly. By 2035, forecast flow ranges
under the FES scenarios range from ~150-6,500 hours
per year and 300-4,200 hours per year in 2045.
Proposed units on site by 2030
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Figure 16.13 King’s Lynn units on site cannot meet our 1 in 20 licence obligations for demand in
Current units on site the south of the country without Peterborough and
Huntingdon. Both sites operate with two units running in
parallel. We are already investing in new units to meet
these needs in the long term; however, with a need for
two units, it is important to have resilience. In 2020, we
Proposed units on site by 2030 forecast over 4,800 running hours for Peterborough. This
is expected to decline as national demand falls, reaching
~1,200 hours in 2045. In 2020, we forecast over 2,000
running hours for Huntingdon. We expect this to decline
in the future as gas demand in the south declines,
reaching ~1,200 hours in 2045.
Analysis
Peterborough compressor station is at the centre of the
The outcomes of the CBAs are sensitive to the supply
NTS. It is considered to be the most important
and demand assumptions in each scenario, leading to
compressor station on the NTS by the teams who operate
different lead options across the scenarios. In the
the network. As well as its primary purpose of ensuring
consumer evolution and two degrees FES scenarios,
sufficient gas is moved into the south of the network to
increased utilisation of King’s Lynn operating in parallel
provide our customers with the flow rates and levels of
mode (two units running together) to support high levels
pressure that they require; it is also key in maximising
of exports through the interconnector mean that a single
entry capability at a number of the larger supply points
derogated unit would provide insufficient levels of
across the country and ensuring the effective north to
resilience to the lead units at this critical site, and the
south transfer of gas. Peterborough sits in the centre of a
investment in two new units is the most cost-effective
train of compressors across the country, from north
solution with the highest net present value (NPV). In the
Lincolnshire to the southern extremities. Without the
steady progression and community renewables
station, we cannot move sufficient gas from the north to
scenarios, where supply and demand are relatively
meet our customer needs when southern demands
balanced and flows through the interconnector are
exceed a certain level. A reduction in the flow through
relatively low, the counterfactual (derogate unit B) has the
Peterborough has a knock-on impact to the level of flow
highest NPV.
through all compressors upstream and downstream of
Peterborough (Bishop Auckland, Hatton, Huntingdon and
Timing of any such investment is also constrained by Lockerley) which are also used to support southern
available outage windows on this critical site. We need to demand. There are no other credible options to re-route
make sure that we deliver the right solution on site, so we
this gas on the NTS. On this basis, two new compressor
can continue to meet customer needs if these scenarios
units are currently being built to replace two of the
occur. However, there is some uncertainty around
existing 40+ year old units. There is a requirement to run
whether we need two new units or should just derogate.
these two units in parallel; they will not be available 100%
of the time and a level of resilience is needed.
Proposed option
We want to make sure that the right solution is Figure 16.14 Peterborough and Huntingdon units on
progressed to ensure maximum benefits for consumers. site
Proceeding to FEED with delivery of one or two new units Current units on site
ensures this option can be delivered in time should this
be required. Progressing with the counterfactual would
incur a significant delay if future flows require the
capability of new units. The delay would result in
significant constraint costs and customer impact. In
addition, we would have spent significant asset health to
refurbish a unit which would no longer be required.
Proceeding to FEED allows significant flexibility if, at a

later stage, it becomes clear the investment is not
required as it could be converted to another option such
as one or two units. Costs post-FEED have not been
included in our baseline request. These costs will be
subject to an associated uncertainty mechanism reopener
to cover costs past FEED as set out in annex A3.02.
Peterborough and Huntingdon

EJP and CBA annexes A16.12 and A16.13.
We are considering Peterborough and Huntingdon in a
cluster as there are close links between these sites. We
121

Proposed units on site by 2030 deliver its benefits. This also allows significant flexibility if,
at a later stage, it becomes clear the investment is not
required as it could be converted to another option such
as two units, or asset health work. Costs post-FEED have
not been included in our baseline request. These costs
will be subject to an associated uncertainty mechanism
reopener to cover costs past FEED as set out in annex
A3.02.
St Fergus
St Fergus is one of the most strategically important sites
for the NTS, as well as for the wider energy system of the
Analysis UK. Our St Fergus gas terminal handles between 25%
The option that has the highest NPV relative to the and 50% of the UK’s gas supplies, dependent on supply
counterfactual (derogate all non-compliant units) is an and demand patterns. The site has been in continuous
option which proposes derogating one unit at each site operation for over 40 years and is now moving beyond
and decommissioning the other two. However, we believe the design life of the critical original assets. The site is
that this would not lead to the best outcome for one of two upper tier COMAH sites on our network (the
consumers because: other being Bacton terminal) and as such is a major
 Peterborough is critical to supporting 1 in 20 demand in accident hazard site, subject to regular HSE and SEPA
the South West for a sustained period beyond 2030. inspections and significant health, safety and
 Our forecasts of run hours indicate a sustained environmental legislation. It has the highest emissions of
requirement for around 500 hours of resilience any site on our network.
operation at Peterborough.
 Due to the central location of Peterborough and The terminal receives gas from three sub-terminals
Huntingdon, the operational risk and consequential (currently owned by Ancala, Shell and North Sea
impact on customers and consumers of not having a Midstream Partners/Gassco). Uniquely on the NTS,
fully available resilient unit at Peterborough is not National Grid provides 24/7/365 compression services for
adequately represented in the standard CBA. gas received from the NSMP terminal under the terms of
 Our forecast of run hours at Peterborough and the Network Entry Agreement (NEA). This is a legacy
Huntingdon is sensitive to changes in forecasts of arrangement dating from when British Gas was privatised
demand in the South East and South West. and cannot be changed unilaterally by National Grid.
 Our proposals to decommission or derogate all non-
compliant compressors in the South East, particularly Figure 16.15 St Fergus site diagram
Cambridge, will increase reliance on Peterborough and
Huntingdon.
The highest NPV options are combinations of derogated

units. Solely derogating units on sites would significantly
reduce optionality and flexibility if we were to need to run
the derogated units for significantly more than 500 hours
in a single year. For example, due to a cold winter or a
long outage on one of the new units, this would severely
restrict use of the derogated units. The next highest
options which don’t include combinations of derogating
units with the highest relative NPVs are the option with
one new unit at Peterborough and one derogated unit at
Huntingdon and the option with one new unit at
Huntingdon and one derogated unit at Peterborough.
There are nine units across three current compressor
Proposed option plants at St Fergus. The bulk of the compression is
We are proposing to progress the option with one new provided by two electric variable speed drive (VSD)
15MW unit at Peterborough and one derogated unit at compressor units which were commissioned in 2015. The
Huntingdon in preference to the highest NPV option (one remaining seven are gas powered compressors from the
derogated unit at each site) for the reasons given above. original site (commissioned in 1978) on plants 1 and 2
and are not compliant with emissions legislation in force
We want to make sure that the right solution is from 2030. These compressors currently provide: the low
progressed to ensure maximum benefits for consumers. flow capability, back-up to the VSDs, bulk flow and high
We believe that proceeding through the FEED phase of capability when used with the VSD compressors.
the project will allow us to fully assess options and the Compression continues to be required to maintain service
value investments will bring to consumers. Proceeding to to the customer; therefore, a solution to address the
FEED ensures this option can be delivered in time to
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environmental non-compliance on these gas units is  A reduction in capability of the site of between 30 and
required. 60mcm/d from the original site design by RIIO-4.
 Compliance with MCPD and LCPD emissions
The analysis was carried out on all four scenarios in FES legislation.
2018 and there is a compression requirement at St
 Consumers not being exposed to cost uncertainties in
Fergus to 2040 and beyond. The expected flow range for
NSMP is large, between 10 mscm/d and 68 mscm/d final solution as a result of the detailed design and
across the four different FES scenarios. Overall, the build allowances being subject to an UM in RIIO-2.
predicted flows show a slight decline over the next 10 In our RIIO-2 proposals, baseline funding has been
years, with older gas field decline being largely offset by requested for FEED and essential asset health costs
an increase in flows as new West of Shetland fields only. An uncertainty mechanism is to be applied to all
connect. non-essential asset health costs post-FEED for the St.
Fergus proposals. Please see annex A3.02 for more
Analysis information on uncertainty mechanisms. More information
We used the 2018 FES in our analysis, with the steady on asset health work can be found in chapter 14.
progression scenario as our central case for the CBA with
sensitivities being run against the other three scenarios. Derogated and decommissioned units
Maximum flows at the NSMP sub terminal do vary We have not proposed build options for every unit
depending on the FES scenarios. Despite this, the CBA affected by MCPD legislation. We are mindful that the
outcomes were not sensitive to changes in the FES energy landscape is changing and there may not be a
scenario. need for the current levels of compression going
forwards. For these units, we will need to decide on
The most cost-effective and lowest risk option is to whether to decommission or derogate.
redevelop the plant 2 area of the St Fergus Terminal with
new compression. There are three potential compressor Our initial proposals can be found in our CECS (annex
options, that will continue to be assessed through the A16.05). Our initial proposals are not to replace 20 of the
FEED study. These are 28 units impacted by MCPD legislation that will become
 redeveloped plant 2 with two new units and one non-compliant with emissions legislation in 2030.
derogated Avon
 redeveloped plant 2 with three new units However, our proposals for RIIO-3 are only initial thinking
 redeveloped plant 2 with three new units (one large). at this stage and further work is required to refine which
units will be decommissioned and which will be derogated
Proposed option at the end of RIIO-3. Minimal spend is proposed on these
For the RIIO-2 data tables, we have currently selected as units in RIIO-2 to ensure we meet current capability
our proposed option redeveloping plant 2 with three new requirements and retain optionality for the future – please
~15MW gas turbine compressors. The cost of our see the fleet strategy table in chapter 12 for more
proposed option in RIIO-2 and RIIO-3 is £244.1m for information.
asset health, plant 2 redevelopment and
decommissioning of plant 1 thereafter. Timings of decommissioning will be informed by network
capability assessment methodology as it could be
This is split into the following funding requests for RIIO-2 impacted by the need to maintain resilience on the
and RIIO-3: network whilst compliance works are being undertaken.
 xxxxx baseline funding for FEED work at the As we engage on the broader business plan, we will test
beginning of RIIO-2. the suitability of this plan to achieve the costs and
operability that our stakeholders are looking for.
 Funding for the remaining scope of plant 2
redevelopment and all plant 1 asset health is not Whether these units are decommissioned or derogated,
requested at this time and will be subject to a UM in we currently propose to leave them in place during RIIO-2
year 3 of the RIIO-2 price control. We anticipate that ahead of a decision in RIIO-3. In addition to meeting
this spend to equate to a further £174.3m over RIIO-2 customer need, keeping these units operational during
and RIIO-3. More information on our proposed UM RIIO-2 supports us as we replace the other compressor
can be found in annex A3.02. units and undertake asset health work.
A further £64.6m has been requested within our asset 5. How will we deliver?
health investment proposals as no regrets asset health Efficient delivery
work and does not involve investments on either plant 1 Projects will be delivered through our standardised
or 2. Decommissioning of plant 1 is expected to follow in processes, which are set out within our CECS. We are
RIIO-4. incentivised to deliver capital projects efficiently through
Delivery of our proposals will result in: our totex incentive mechanism. Our approach to
 The St Fergus terminal having sufficient capability to contracting and procurement is laid out in chapter 20.
meet current and future gas supply forecasts.
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Competition move gas around the network means that it is currently
We have identified that the Wormington compressor not feasible or cost-effective to move to a fully electrified
proposal will meet the cost materiality for early compressor fleet. Similarly, we have set a principle that,
competition. Our current view is that we would unflag for where a primary unit on site is electric, we would use a
early competition. For further details see chapter 20. gas compressor as a back-up for resilience purposes,
enabling the gas system to run independently from the
Planning for delivery to 2030 electricity system.
We are requesting funding to deliver two new compressor
units at Wormington in RIIO-2. However, even for the However, recognising the need to move towards net zero
other proposed new units to be delivered in RIIO-3 some to meet environmental targets, we will continue to
costs will be incurred during RIIO-2. consider the wider benefits of electric drives as part of the
We believe the option that delivers the best outcomes for FEED phase of our projects.
consumers is requesting ex-ante funding in RIIO-2 to
cover the preparatory works for projects due to be started Innovation
in RIIO-2 but delivered in RIIO-3 (King’s Lynn, Hydrogen compatible gas turbines
Peterborough, St. Fergus). This option minimises the risk We are working across the industry to identify and
of not meeting compliance deadlines if work can’t be develop innovations that would support the range of
started until certainty around RIIO-3 is agreed. potential decarbonised futures. Gas turbine suppliers are
continually developing their product lines; one example is
These preparatory works up to the point of FEED include that of developing existing combustion technology within
the assessment of best available techniques (BAT78) their machinery that is compatible with fuel gas containing
assessment with environmental regulators, which is high hydrogen content; there are already commercial
required before starting mobilisation. Further information offerings available to National Grid with the capability of
on BAT can also be found in the CECS. running on a fuel mix that contains in excess of 50%
hydrogen.
Net zero
The UK government recently committed the UK to a new The challenge to us at present is how to get the hydrogen
binding target of net zero carbon emissions by 2050. We to the fuel system as we currently use pipeline gas to
expect an asset life of around 25 years for new provide this function (which at present contains 0%
compressor investments (and we are currently replacing hydrogen) therefore a system such as this would require
assets with a life of over 40 years). This means that the an external source of hydrogen to ‘dose’ the fuel gas
compressors we are delivering in RIIO-2 and 3 are likely system.
to remain in use to 2050, so it is important that we
consider how they will interact with a net zero world. Investing in this technology future-proofs our network by
ensuring that we will need to do nothing to adapt our
As set out in our changing energy landscape chapter, equipment as hydrogen becomes more widely used. Our
there are ways in which this decarbonisation challenge emissions will reduce by default as the proportion of
may be met in the coming years. The different routes that natural gas in our systems reduces over time.
decarbonisation might take could impact our compressor
fleet in a number of ways, from needing to capture carbon Innovation also has a role to play in reducing carbon
emissions to adapting compressors to hydrogen blends. emissions from compressors through the development of
carbon capture usage and storage. We have recently
Electric compressors begun our captivate project to prove the concept of
Stakeholders challenged us about whether replacement carbon mineralisation from boiler house emissions at our
compressors should be electrified to reduce our primary Stallingborough site, building a fully containerised
carbon emissions, particularly in the light of net zero emissions capture demonstrator. As well as our existing
ambitions. We need to consider the trade-offs between projects, we will continue to explore how innovation may
costs to consumers, network resilience and the impact to help us move towards a lower carbon compressor fleet.
the environment in our decisions. From a cost Below highlights some of the potential innovation we will
perspective, our analysis of the construction and look to do during RIIO-2:
operation of electric units means investment is only cost-
Table 16.16 air quality innovation themes
effective when the compressors run for more than 5,000 Theme Commentary
hours per year. This is not the level of operation expected
Digital twin to improve compressor
from units that will become non-compliant in 2030.
build programmes.
Fit for the
future Tools to improve network modelling
From a resilience perspective, the UK Black Start strategy and future compression strategy and
(how the electricity system would be re-energised after a requirements.
complete or partial shutdown) depends on gas supplies
being available to power stations. Therefore, the need to
78
We are bound through legislation to undertake a process with relevant substantially modified compressor trains and will continue to be so
environmental bodies which defines the BAT in relation to new build during RIIO-2 and RIIO-3.
compressors. BAT is the primary selection mechanism for all new and
124

New materials and construction available emissions reduction technology and/or incur
techniques can offer environmental additional costs from the supply chain to hold prices for a
Ready for savings and these should be trialled number of years. So, our business planning process will
decarbonisation and developed throughout RIIO-2 involve a preliminary BAT assessment using currently
whilst embedding those that have been
available information.
successful in RIIO-1.
We should be able to facilitate the early
There is a known uncertainty around the EU Emissions
adopters of hydrogen within the
Decarbonised transport and industrial areas. This can Trading Scheme (EU-ETS) relating to Brexit. These costs
energy system start to provide environmental benefits are factored into the CBA for compressor investments.
by reducing their carbon emissions and However, it is unlikely that resultant scheme changes
future proof compressor investments. would be significant enough to change a proposed build
solution.
6. Risks and uncertainty
Cost uncertainty Solution uncertainty
We recognise the uncertainty in the changing energy We want to make sure that the right solutions are
landscape and we want to ensure that consumers are progressed to ensure maximum benefits for consumers.
protected from the risk of asset stranding, or from For some investments, there is uncertainty around the
potentially overpaying where there is cost uncertainty. best solution for delivering against a need. In these
Therefore, we propose to use uncertainty mechanisms to cases, we are proposing proceeding to FEED, but having
protect consumers and our business from these risks. post-FEED costs subject to an uncertainty mechanism.
This ensures that critical investment preparations are not
Legislative uncertainty delayed whilst at the same time allowing flexibility if, at a
If tighter emissions legislation is introduced (for example, later stage, it becomes clear that another option is more
new air quality legislation), it would affect our older, non- appropriate such as a different number of units or asset
electric compression fleet before the new gas units we health work instead of new build.
propose to install in RIIO-2 and RIIO-3. Compressor
equipment manufacturers are continuing to invest in new Our proposed uncertainty mechanism reopeners are set
technology and innovate to reduce emissions from out in annex A3.02 which will allow us to confirm levels of
compression. We will include all commercially available baseline funding following a reopener.
technologies in our tender and BAT process. Using this
approach minimises the risk of new compressors being 7. Our proposed totex costs for RIIO-2
impacted if legislation is tightened further. We are currently proposing to request full funding for
Wormington in RIIO-2. Our proposed costs of £157m
A full BAT process requires the outcome from tender include expected costs at Hatton (depending on reopener
events to establish the most cost-effective way of decision). At King’s Lynn, Peterborough and St Fergus
reducing emissions. Tender events cost time and money costs are only included up until the point of FEED. Costs
including for our supply chain and, if they are conducted following this point would be confirmed through a
too early, they could lead to us not considering the best reopener process.
Table 16.17 cost assessment criteria compressors
Cost realised from RIIO1 Cost forecast based on competitive
External benchmark NARM or volume driven PCD
actuals process
Yes Yes No Yes (PCD)
Table 16.18 compressor emissions compliance costs

2022 2023 2024 2025 2026 Total Annual Annual
Hatton xxxx xxxx xxxx xxx xxx xxxx xxxx -
Wormington xxx xxx xxxx xxxx xxxx xxxx xxxx -
FEED costs at King’s
Lynn, Peterborough, St xxx xx xxx xxx xxx -
Fergus xxx xxx
Decommissioning xx xxx xxx xxx xxx xxx xxx -
Compressors –
emissions legislation
(£m) 22.7 27.9 51.0 24.3 30.8 156.7 31.3 33.9
125

Climate change: our climate commitment Emissions of greenhouse gases (GHGs) such as carbon
dioxide and methane are harmful to the environment. As
a gas transmission business, our normal business
activities contribute to GHG emissions. There are ways
we can reduce them, ranging from taking actions targeted
at particular types of GHG emissions such as methane, to
embedding the principles of carbon reduction in our
everyday business practices. We are mapping our
1. What is this sub-topic about? physical risks and opportunities from climate change and
This sub-topic is about delivering consumer value by will be working to reduce these, in line with the
reducing our impact on climate change. The Committee recommendations from the Task Force on Climate-related
on Climate Change (CCC) predicts that, without Financial Disclosure (TCFD). We will also propose
intervention, global temperatures could rise by as much incentives to drive performance and innovation area.
as 7°C over the next century, exposing Britain to
increased inland and coastal flooding, water scarcity and This part of the chapter will cover:
heatwaves. The scale and impact of these events on our  targeted activities relating to direct and indirect
population will be dramatic; if we don’t respond urgently emissions
we will fall far short of our responsibility to future  reducing emissions associated with our business e.g.
generations to protect society and the environment from offices and fleet vehicles
irreparable damage.  reducing shrinkage on the network by reducing
methane emissions.
We fully support the UK Government’s ambitions to
achieve net zero carbon emissions by 2050. We believe 2. Our activities and current performance
that, as an industry, we have the greatest responsibility to Track record
address our climate challenge urgently. More Emissions of GHGs from our assets
fundamentally, we believe business has a responsibility to
Emissions that are produced from the network are shown
lead the transition and secure the investment and shift in
in figure 16.19 below.
consumer attitudes needed to deliver it.
Figure 16.19 emissions from the national transmission network
Note: Calculated methane emissions from compressors relate to 2018
NOx: Nitrogen oxide (NOx) emissions are addressed the last five years to cover our carbon dioxide emissions
through relevant emissions legislation in the previous part because, in those years, we have had to use
of this chapter ‘air quality – compressor emissions compressors more frequently due to changes in supply
compliance’. and demand patterns. We also report on carbon dioxide
emissions via our business carbon footprint (BCF)
Carbon dioxide: CO2 emissions from our gas-fired reporting79.
compressor units are subject to the EU Emissions
Trading Scheme (EU-ETS). This is a market-based cap Methane: Methane, which has 25 times80 the global
and trade programme that applies a carbon price to warming potential of carbon dioxide, is emitted through
emissions. We have bought additional credits in three of our activities.
79 80
https://www.nationalgrid.com/group/responsibility-and- IPCC figure https://www.ipcc.ch/report/ar5/syr/
sustainability/our-progress/our-performance/performance-environmental
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We are currently incentivised to reduce methane from Supply chain
compressor venting activities through our GHG incentive. We engage with 250 of our most carbon-intensive global
This is a challenging downside-only incentive that suppliers annually with a target of 80% response rate to
converts methane emissions into carbon dioxide complete the Carbon Disclosure Programme (CDP)
equivalent and uses a non-traded carbon price. Our supply chain submission. We achieved an 92% response
performance in RIIO-1 demonstrates the level of rate in 2019 and have received an ‘A’ for our supplier
challenge. During RIIO-1 there was some performance engagement rating. We work collaboratively across
improvement in the initial years of this incentive being set. industry to share best practice in this space and we are
However, there have been some years where, due to members of initiatives such as the Supply Chain
changes in supply and demand patterns and the needs of Sustainability School, United Nations Global Compact
our customers, venting on compressors has had to be and Achilles UVDB, among others.
carried out more frequently. This has led to higher than
anticipated emissions in relation to this incentive in some Innovation
years and we incurred penalties. Further information on During RIIO-1, our focus has been developing a better
how this incentive has been set and how we have understanding of leaks from assets and equipment on the
delivered against it in RIIO-1 can be found in annex network.
A3.03. Table 16.20 RIIO-1 innovation
Example Description
Shrinkage represents a financial and environmental cost project
to consumers both in terms of cost for all elements and in Greenhouse A project to monitor and control fugitive
terms of methane lost to atmosphere as a result of gas emissions from above ground NTS
ownership, maintenance and operation of the network. investigation installations. Further developments required
During RIIO-1, we were incentivised to reduce the cost of mechanism which led to MoRFE.
shrinkage to align our interests with those of the end Monitoring Detection and measurement of fugitive
of real-time emissions using a network of connected
consumer. We performed well in reducing these costs
fugitive sensors strategically located around an
during the price control period by adopting emissions above ground installation. This project could
trading/operational strategies. For example, without these (MoRFE) lead to the removal of an expensive regular
actions, costs would have been increased in the range of survey programme and by locating and
£3-16m in 2017/18 compared to target. Therefore, both resolving issues on site would result in a
National Grid and end consumers have benefited by reduction of emissions.
actions we have taken to perform against this incentive. Mini grouted The mini-grouted tee allows safe repair
Please see annex A3.03 for further information on this tee works with gas live in the pipeline, avoiding
incentive and RIIO-1 performance against it. the need for recompression and venting of
gas, and the associated carbon emissions.
1,500 tonnes of CO2 saved at King’s Lynn.
Whole life carbon
Our policy is to implement carbon pricing in our
investment decision-making processes. This means that 3. What have stakeholders told us?
we don’t only consider the capital cost of new assets but We have received a great deal of feedback from
the carbon cost of them as well. We’ll roll this out in the stakeholders about our climate commitments, particularly
gas transmission business during the 2019/20 financial in relation to emissions and air quality. Detailed
year and it will be in place by the beginning of RIIO-2. We stakeholder views are set out in our environment
have also worked in RIIO-1 to reduce our capital carbon engagement log (annex A16.06).
from construction.
Table 16.21 emissions stakeholder feedback

Emissions
Stakeholder Consumer interest group, consultant/supply chain, customers (entry, exit, shippers), energy network operator,
segments environmental interest groups, gas distribution networks, industry/trade bodies, other energy industry,
engaged regulator/government, university/think tank, domestic consumers, non-domestic consumers, major energy users.
Objective Understand stakeholders’ views on how we manage the greenhouse gas emissions resulting from our
operations.
Channel/ Workshops, webinars, bilaterals, consumer listening, interactive slider tool, acceptability testing, surveys.
method
Key Customers would like to see emissions measured to allow more informed decisions. Reducing our carbon
messages footprint should always be a consideration when carrying out operations. Stakeholders would like us to offset all
construction activity. We should be applying a single cost of carbon in our decision-making processes.
Stakeholders want us to set ambitious goals when it comes to reducing our carbon footprint, they support us
generating own-use electricity on site from renewables. Stakeholders would like us to work with our supply chain
on environmental matters. Stakeholders are keen to know our plans on net zero targets and would like to see a
discussion of this in the business plan.
In relation to managing vented compressor emissions, stakeholders expressed the importance of getting the right
framework for an emissions incentive to deliver maximum benefit to consumers.
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Trade-offs There is willingness to pay for improvements but a greater level of granularity on metrics is needed.
and
stakeholder
influence
on the plan
SUG and We have received a considerable amount of feedback on our EAP (annex A16.01) which has been substantially
Challenge updated to reflect this feedback, particularly around specificity of commitments.
Group
feedback
We aim to reduce the GHG emissions our business produces. We will do this on a carbon dioxide equivalence basis.
because methane is about 25 times more damaging to the environment than carbon dioxide. Our full suite of
environmental commitments can be found in our Environmental Action Plan in annex A16.01.
Table 16.22 output summary ‘our climate commitment’
What our stakeholders Commitment Output type Consumer benefit
have told us
Reducing our carbon Produce an annual environmental report Licence These commitments
footprint should always be a (including BCF reporting). obligation support a sustainable
consideration when carrying Continue to participate in the EU-ETS as EAP NGGT lower carbon future by
out operations, but without required and use this as an opportunity to commitment focusing on reducing
large impacts on provide focus on our CO2 emissions across the (legislative greenhouse gas
stakeholders’ business. driver) emissions such as
Customers would like to see Reduce methane emissions (CO2e) from leaks EAP NGGT methane, carbon dioxide
fugitive emissions measured on the network during RIIO-2 – establish a commitment and others to reduce our
to allow more informed baseline for methane emissions leaks on the impact on climate change,
decisions network through improved monitoring and use with clear benefits for
that information to understand how to begin to society.
reduce these where possible.
We should be applying a Continue to use a single consistent carbon price EAP NGGT Decarbonising our fleet
single cost of carbon in our in our investment decisions for each tonne of commitment will deliver consumer
decision-making processes benefit through reduced
controllable carbon dioxide equivalent (CO2e)
local air pollution from
emitted.
particulates.
Current non-operational Replace 100% of our operational vehicle fleet EAP NGGT
emissions should be with alternative fuel vehicles where there is a commitment
addressed market alternative today (in 2019). Currently, this
Carbon neutral
results in 30% of our operational fleet that will be
construction provides a
delivered through purchasing 80 vehicles and
consumer value
install charging points at 45 sites with aim to
proposition valued at
reduce carbon emissions from operational
£0.3m (for more
transport by 22% on RIIO-1 averages to end of
information on CVP3
RIIO-2. Measure: tCO2e, % vehicles replaced. please see annex
Reduce carbon emissions for our business EAP NGGT A10.05).
transport by 10% on RIIO-1 averages to end of commitment
RIIO-2 – Reduce vehicle use by promoting rail Methane emissions
and virtual meetings, promote EVs on company reductions could
car scheme and install electric car charging provide a consumer
points at compressor sites. Measure: tCO2e. value of £2.2m (for more
We will focus on an efficiency-first approach to EAP NGGT information on CVP6
decrease the carbon emissions from our office commitment please see annex
energy use by 20% from a 2019/20 baseline to A10.05).
2026. Measure: tCO2e.
We will purchase 100% of electricity for our EAP NGGT
offices from renewable sources. commitment
We should consider Install renewable generation on our operational EAP NGGT
generating own-use sites for our own use during RIIO-2, starting with commitment
electricity from on-site compressor sites. Measure: # sites with
renewables renewable generation.
We should carbon-offset all Achieve carbon neutral construction for major EAP NGGT
construction activity projects by 2025/26 by further implementing commitment
PAS20260 and PAS2080, supported by an
offsetting policy and based on current business
assumptions that 26,000tCO2e can be offset
with up to £310k. Measure: PAS 2060/80
compliance, construction tCO2e in 2026.
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What our stakeholders Commitment Output type Consumer benefit
have told us
Work with supply chain to 75% of National Grid's top 250 suppliers (by EAP NG UK
reduce emissions category/spend) will have carbon reduction commitment
targets. Measure: % suppliers with carbon
reduction targets.
Stakeholders are keen to We are proposing a reopener relating to net zero Uncertainty
know NGGT’s plans on net to ensure we are able to respond quickly to work mechanism
zero targets and would like towards net zero goals. (annex A3.02).
to see a discussion of this in
the business plan. They Trigger: End of
have asked NGGT to provide year 2,
a much clearer explanation 1% baseline
of how our plan fits (or not) revenue
with the delivery of net zero, threshold.
following recent legislation
Get the right incentive Please see annex A3.03 for further information on our incentive proposals.
framework to deliver Shrinkage incentive ODI The incentive means that
maximum benefit to Retain shrinkage incentive scheme with access proposed cap: we manage shrinkage to
consumers to seasonal markets to drive further consumer £5m / collar: minimise consumer cost
savings for RIIO-2. This incentive aligns our £5m pa. exposure by procuring
interests with that of consumers to minimise the shrinkage energy at below
cost of shrinkage. average market price.
EAP incentive We are proposing a potential ODI Improving the
new ODI to incentivise additional performance proposed cap: environment (air quality,
above and beyond our baseline commitments in £2.5m/ carbon emissions, local
measurable areas in our environmental action collar: £2.5m community and the
plan. pa. environment) is very
GHG incentive Retain GHG incentive scheme ODI important for domestic
proposing caps and collars to further drive proposed cap: consumers. This incentive
performance. £1.5m/ collar: will help drive progress in
£1.5m pa this area over and above
Target: 2,897 our baseline.
metric tonnes.
5. How will we deliver? also install electric vehicle charging infrastructure on

operational sites by 2026. This equates to 80 vehicles
Emissions from our assets
and charging points at 45 sites. This proposal is
We will measure and reduce methane leaks on our
supported by an EJP in annex A16.18. Detail for how we
network:
will deliver on each of our EAP commitments can be
 Following on from our MoRFE, RIIO-1 innovation project
found in the EAP annex A16.01.
we are proposing to install real-time methane monitoring
equipment at the highest risk areas of the network
(compressor stations). This will give us accurate Innovation
emissions readings at these locations, improving Table 16.23 climate change innovation for RIIO-2
intelligence for maintenance and asset health Theme Commentary
programmes and providing the basis for more accurate Fit for the Efficient leak detection on sites and
emissions reporting. future pipelines.
 Using innovative recompression equipment at points in Intelligent leak detection on sites and
maintenance works that require pressure reduction Ready for pipelines.
through gas venting. This will prevent more methane decarbonisation Design and construction to minimise our
from escaping to the atmosphere, which will be even business carbon footprint.
more important in RIIO-2 due to anticipated higher Impact assessment of emissions and
venting. leakage rates from a hydrogen
Decarbonised
compatible network.
energy system
Other emissions associated with our business Use of Carbon Capture and Storage to
We have an ambition to reduce our carbon emissions reduce our business carbon footprint
from our operational fleet. Many of our sites are remote
and away from centres of population and a proportion of 6. Risks and uncertainty
our fleet are 4x4 vehicles and other vehicles for which Methane emissions
there are no or limited low carbon commercially available We propose to use recompression equipment to help us
vehicles. We will seek to replace 30% of our commercial reduce methane emissions during asset works. However,
vehicle fleet with low carbon-fuelled vehicles by 2026, there will be a residual amount that cannot be
which is 100% of the vehicle fleet for which low carbon recompressed, and it would therefore need to be vented.
alternatives are currently commercially available. We will Black box flaring is a technology we haven’t used before
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and it could further reduce methane emissions. We would improve performance and delivery to meet stakeholder
have to install vents which enable combustion of the needs and those of end consumers.
vented gas to produce CO2 instead of methane, with EU-ETS
reduced environmental impact. We need to do more work In terms of other uncertainties, there is a known
to understand if this would deliver consumer benefit and uncertainty around the EU Emissions Trading Scheme;
we will seek to explore the costs and application of the due to Brexit, the UK government is consulting on the
technology in the run-up to RIIO-2. We will also future of the scheme. The outcome may increase costs
continuously look for innovative techniques to further for us as a business in meeting our climate change
commitments, but this is currently unknown.
7. Our proposed totex costs for RIIO-2

Table 16.24 climate commitment costs
(£m 18/19 prices) RIIO-2 RIIO-2 RIIO-1
Methane monitoring 4.7 0.2 0.2 0.1 0.0 5.3 1.1 0.0
Methane
recompression 0.1 0.1 0.1 0.1 0.1 0.4 0.1 0.0
equipment
Fleet emissions
reductions 0.8 0.8 0.1 0.3 0.4 2.5 0.5 0.0
Renewables on site 0.1 0.1 0.1 0.1 0.1 0.4 0.1 0.1
Support staff 1.1 1.1 1.1 1.1 1.1 5.5 1.1 1.5
Total spend 6.7 2.3 1.6 1.7 1.7 14.1 2.8 1.6
We are requesting £14.1m across the RIIO-2 period to materials where possible and being responsible
reduce the impact we have on climate change. The custodians. We will look to enhance the environment on
largest expenditure in this chapter relates to methane and around our sites in the interests of consumers.
monitoring and recompression, and the proposed
expenditure for RIIO-2 would be approximately £5.3m. Our network is getting older and we are faced with a
The spend is higher in year one, relating to the purchase challenge about how we should manage redundant
of equipment. This will deliver long-term value for assets in a way that is in line with our environmental and
consumers by allowing us to identify leaks and make sustainability goals, whilst delivering value for consumers.
repairs earlier, reducing venting quantities. Assets become redundant for a number of reasons. The
needs of stakeholders or individual customers may have
Of the remaining spend identified, £0.4m relates to changed, legislation changes may mean that assets can
deployment of renewable generation on our operational no longer be used, or investment in new assets may
sites. It also includes continuing support staff for delivery mean that life-expired assets are no longer required. We
of our environmental commitments. We are also are anticipating more work in this area, caused by the
requesting £2.5m to support the roll-out of low carbon fuel changing uses of the network and our ageing asset base.
vehicles to our operational fleet. This is supported by the
justification paper in annex A16.18. We have identified 80 sites, asset groups or single
assets that are already redundant or will become so
Responsible asset use and caring for the natural during RIIO-2. This includes 138km of our 7,660km
environment pipeline network and three out of 240 block valves. We
will continue to monitor operational assets both as part of
our normal annual planning processes and when
customers tell us of a change in system use, so more
assets may become redundant before and during RIIO-2.
Our approach to addressing redundant assets should be
driven by our social, economic, health and safety and
environmental responsibilities. We are also mindful that
1. What is this sub-topic about? there may be increasing mandates set by government in
The UK government’s 25 Year Environment Plan, the future.
published in January 2018, sets out a comprehensive
As well as addressing our redundant assets, in this
long-term approach to protecting and enhancing the
section we will also describe our commitments around
environment. The vision at the heart of the plan is that the
land and resource use and improving biodiversity as well
current generation will be the first to leave the
as how we are embedding sustainability into the supply
environment in a better state than they found it. As an
chain.
asset-based business, the impact of our assets on the
environment is incredibly important. This impact can be
minimised through responsible procurement and
construction processes, reusing and recycling assets and
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2. Our activities and current performance benefits provided by these natural assets, both to
Track record National Grid and our neighbours and communities. A
Redundant assets natural capital valuation is an assessment that looks at
We have spent more than our allowances in RIIO-1 the services we get from the natural environment. We
(£13.15m compared to £12.41m) as we have seen more cost these services, and this gives us the natural capital
customer disconnections than anticipated. Unless value. It is a way of monetising the services to effectively
specified in customer connection agreements, the costs incorporate them into decision-making.
of decommissioning fall to us. We also had unanticipated
expenditure on rationalisation of Paull above ground During RIIO-1, we also supported a Construction Industry
installation (AGI) which was not in our original business Research and Information Association (CIRIA) working
plan. However, this was partly offset by deferring the group to develop industry guidance ‘Net Gain Best
removal of Feeder 1 as this decommissioned pipeline Practice Principles’ for how to approach net gain in
was too close to our Feeder 9 Humber river crossing to biodiversity and have been working to embed it as a
be able to carry out work safely. requirement on our major construction projects.
Table 16.25 responsible asset use and caring for the
Land and resource use natural environment innovation in RIIO-1
Over RIIO-1, we have worked to improve our non- Projects Description
operational land. To do this we have developed Natural An innovative tool to recognise and account for
sustainability action plans for five sites. We are reusing capital the value of benefits provided by natural assets,
and recycling materials. From a group perspective, in the to National Grid, our neighbours and
last year, we reduced waste (in tonnage) from our offices communities. Tool embedded into business as
by 20% and eliminated eight types of single-use plastic usual.
from our main head office site. We already divert 100% of Valve care This project includes assessment of options for
our office waste from our main sites away from landfill. toolbox 1 optimising the use of redundant valves, included
and 2 further research and development opportunities.
Supply chain Project ongoing.
In line with our approach on responsible asset use and Resource Development of a toolkit, to support decisions to
caring for the natural environment, we have a supplier and asset deliver circular economy opportunities, including
code of conduct which sets out how we expect our reuse making surplus assets and materials visible,
suppliers to operate. toolkit defining processes and making it easier to reuse.
Embedded, use ongoing in particular with our
Innovation external contractor base.
National Grid also has a strong history of supporting local 3. What have stakeholders told us?
communities. One way we do this is by managing our We have asked specific questions on redundant assets
non-operational land in innovative ways. In 2015, we as part of our stakeholder engagement, and you can find
developed an innovative in-house natural capital our engagement log in annex 16.07.
evaluation tool to recognise and account for the value of
Table 16.26 redundant assets stakeholder feedback

Redundant assets
Stakeholder Consumer interest group, consultant/supply chain, customers energy network operator, environmental interest
segments groups, GDNs, industry/trade bodies, other energy industry, regulator/government, university/think tank,
engaged domestic consumers, non-domestic consumers, major energy users.
Objective Understand stakeholders’ views on how we should manage the impacts of removing redundant assets from the
transmission system and whether current or future consumers should pay for the demolition of redundant assets.
Channel/ Workshops, webinars, bilaterals, consumer listening, interactive slider tool, acceptability testing, surveys,
Method deliberative engagement.
Key Doing nothing is not acceptable to stakeholders. We should consider different approaches for pipelines and
messages compressors.
All options should be considered to repurpose equipment before removal.
Trade-offs Stakeholders were asked if current or future consumers should pay for demolition of assets that are no longer
and required for operational use. 87% said that NGGT should prioritise projects on a risk basis and maintain the
stakeholder remaining assets until the point of removal. Costs should be shared between current and future consumers; 10%
influence on said NGGT should deliver this all in RIIO-2 even if it means costs for current consumers are increased and only
the plan 3% believed that NGGT should defer all works and pass costs on to future consumers.
Table 16.27 Land and resource use stakeholder feedback

Land and resource use
segments groups, gas distribution networks, industry/trade bodies, other energy industry, regulator/government,
engaged university /think tank, domestic consumers, non-domestic consumers, major energy users.
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Objective Environmental stewardship – understand stakeholders’ views on environmental stewardship and our role within
it.
Channel/ Workshops, webinars, bilaterals, consumer listening, interactive slider tool, acceptability testing, willingness to
method pay.
Key messages We should do more in this space but should be careful of the role we take, making sure we complement and
don’t duplicate what is already available. Stakeholders would like NGGT to return land to a good state when
they have used it. These projects are seen as highly valuable to the community and should be done in
cooperation with local communities. Stakeholders’ views are mixed on whether the funding should come from
consumers or us.
Table 16.28 responsible procurement stakeholder feedback
Responsible procurement
Stakeholder Procurement experts, consumer interest group
segments
engaged
Objective To understand views of procurement experts on the ambition of our goals
Channel/method Webinar, playback consultation feedback
Key messages Consumer interest groups would like us to consider supply chain practices and their impact on the
environment and communities.
Trade-offs and Of the 65% of webinar attendees that responded to the question, 83% were satisfied that our commitment to
stakeholder carbon reduction in the supply chain was ambitious enough in terms of our proposed percentage of suppliers
influence on the with carbon reduction targets.
plan Of the 68% of webinar attendees that responded to the question, 100% felt that the scope of our procurement
commitments in this space was correct.
Table 16.29 output summary ‘responsible asset use and caring for the natural environment

stakeholders
have told us
Demolish assets Address redundant assets across 80 assets, asset Price control This supports an affordable
on a risk-based groups or sites. deliverable energy bill through protecting
approach, (£82.6m). See future consumers from the
prioritising assets annex A3.01. costs of disposing of assets
that have the they may not have benefited
largest impact on Act as custodians of our redundant sites by ensuring we EAP NGGT from. Supports a sustainable
stakeholders. reinstate them to a net gain in environmental value. commitment lower carbon future through
We should responsible demolition
consider how to including asset repurposing,
repurpose our releasing materials back into
assets and use the value chain to reduce the
our land to need to mine raw materials.
maximise Improving biodiversity on non-
environmental operational land and
benefit. reconstructing the
environment when we have
demolished a site, to bring
positive benefits to nature and
communities.
Stakeholders 10% increase in environmental value on all non- EAP NGGT Our work in these areas
would like NGGT operational land by the end of the RIIO-2 period. commitment delivers on the consumer
to return land to a The GT estate is currently 1,093hectares and priority “I want you to facilitate
good state when environmental value is measured in Biodiversity units and delivery of a sustainable
they have used it. £ natural capital. Measure: £ natural capital biodiversity energy system” to minimise
(# units) our impact on the
Deliver 10% Net Gain in environmental value (including EAP NGGT environment and bring
Stakeholders biodiversity) on all planned construction projects commitment positive benefits to nature and
would like NGGT (including those delivered by third parties). communities.
to consider supply Measure: # projects and % net gain
chain practices We will lead in transparency on capital carbon and EAP NG UK Enhancing the value of our
and their impacts natural capital using data and tools to collaborate and commitment natural assets on our non-
on the drive environmental progress. We aspire to have a operational land by 10%
environment and consistent industry approach to capital carbon and provides a consumer value
communities. natural capital by 2026. proposition valued at
We will reduce the waste we create at our offices (waste EAP NG UK £1.75m (for more
tonnage) by 20% from a 2019/20 baseline. commitment information on CVP4 please
Measure: waste in tonnes. see annex A10.05).
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We will recycle 60% of our office waste EAP NG UK
Measure: % of waste recycled out of total. commitment
We will reduce the waste intensity of our construction EAP NGGT
projects year on year from a 2019/20 baseline. commitment
Measure: Baseline tbc, likely tonnes waste/£100,000
On construction projects, we will achieve zero waste to EAP NGGT
landfill and we will increase the recycling or reuse commitment
materials by 2026.
Measure: % of waste recycled out of total.
We will work with contractors to measure the proportion EAP NGGT
of recycled materials used on construction projects and commitment
will set a target during the RIIO-2 period to increase from
this baseline. Measure: to be set during RIIO-2.
Extend the life of equipment where appropriate by EAP NGGT
refurbishment. commitment
Pilot and implement circular economy principles for raw EAP NGGT
materials and goods procured and existing assets. commitment
Reduce water use in our offices by 20% by the end of EAP NG UK
RIIO-2 compared to 2019/20 baselines. Measure: % commitment
reduction in water used.
We would like to We will implement the ISO20400 sustainable sourcing EAP NG UK
hear more about process. Measure: alignment to ISO20400, (verification) Commitment
sustainable # category strategies considering sustainability
procurement
Redundant assets proposal detail a smaller number of consumers who haven’t benefited
We have considered what we should do with the from the assets.
redundant assets we have identified. This is a larger
number of redundant assets identified than in RIIO-1 as Based on the environmental impact of our redundant
we have been through an extensive business exercise to assets, our opinion is that addressing these now rather
ensure our understanding of the redundant asset base is than later is the correct approach to take. We plan to
as accurate as possible. To address these assets our develop a programme to prioritise action on assets that
broad options are: pose greatest environmental and safety risks and to
 do nothing, but we would still incur maintenance spend comply with our contractual obligations.
 disconnection from energy supplies and leaving the
asset or site in place, with expenditure to ensure the site 5. How will we deliver?
environment remains safe Redundant assets
 decommissioning i.e. disconnecting the asset or site This will enhance biodiversity; it controls the risk of
from energy supplies and removing part or all of it, re- ground and water contamination and promotes
purposing the materials or sending them for recycling. environmental net gain.
For redundant assets, we propose a price control Innovation

deliverable (PCD), and this can be found in annex A3.01. Table 16.30 responsible asset use and caring for the
In summary, it will address work across the 80 assets, natural environment innovation themes
asset groups and sites we’ve identified so far as well as Theme Commentary
any others we identify during RIIO-2. Within this PCD, we Innovative alternatives for redundant
propose to build in flexibility so that we can respond to Fit for the
assets. Decommissioning with robotics.
newly identified changes by removing the highest risk Future
Innovation from our supply chain.
(commercial, safety or environmental) assets first. The
Innovative community engagement
EJP for this proposed PCD can be found in annex Ready for
through augmented reality on major
A16.08. decarbonisation
construction projects.
Innovative alternatives for redundant
We feel that deferring these actions would not be in line
assets related to hydrogen and CCUS
with the direction of travel from government or Decarbonised
Innovation for the transformation of
stakeholder feedback. Future costs and requirements for energy system
Theddlethorpe terminal for hydrogen
decommissioning are uncertain as legal requirements production or CCUS.
around them are subject to change. Therefore, there is a
The Theddlethorpe site is a potential location for the
potential that the impact of delaying this work could result
export of CO2 for carbon sequestration in the North Sea
in increased costs through more stringent specifications
as part of a Carbon Capture Usage and Storage (CCUS)
for the management of waste from decommissioned
scheme, or it may be a location to produce hydrogen. Our
assets, and for the remediation of land or higher costs of
current business plan includes the provision to undertake
disposal. Any increased costs would be passed on to
a feasibility study in RIIO-2 to consider these future
future consumers who have not had the benefit of using
activities for the site. Please see chapter 17.
those assets and, if delayed for many years, could fall on
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Supply chain 7. Our proposed totex costs for RIIO-2
How we plan to deliver against our supply chain For our work on responsible asset use and caring for the
commitments is set out in the responsible procurement natural environment, we anticipate a spend of £82.6m
action plan Annex A16.20. across the RIIO-2 period as per table 16.32 below. We
anticipate this level of spend (which is higher than
6. Risk and uncertainty previous price control periods) to continue into RIIO-3.
During RIIO-1, more assets became redundant than we’d We will commit to funding costs for other elements of this
anticipated so we have completed an exercise to chapter such as sustainable procurement and biodiversity
understand how many redundant assets we should investments from within the wider business and so we are
expect over RIIO-2. However, the final number will be not requesting specific funding for these activities during
influenced by customer behaviour. Where possible, we RIIO-2.
will recover costs from customers but, as many of our
older contracts don’t allow this, we would propose to
defer additional work identified in RIIO-2 into RIIO-3.
Table 16.31 cost assessment criteria redundant assets
Cost realised from Cost forecast based on NARM or volume-
External benchmark
RIIO1 actuals competitive process driven PCD
Some costs are based on costs included as part of
Yes, where available. No Bespoke PCD
competitively tendered feasibility exercise
Table 16.32 redundant assets costs
(£m 18/19 prices) 2022 2023 2024 2025 2026 Total Annual Annual
Redundant assets
4.2 24.6 21.4 15.0 17.5 82.6 16.5 2.7
spend
Quarry and loss Funding for this suite of activities during RIIO-1 was
1. What is this topic about? provided via a quarry and loss reopener rather than
We have contractual relationships with owners of the land through ex-ante funding. Ofgem observed during the
that our pipelines pass through. As part of these contracts RIIO-1 reopener that some of our costs in this space were
we are liable for the impact of our pipelines and this predictable and therefore should be part of funding in the
includes a responsibility to compensate and make good future.
where the presence of a pipeline affects drainage or crop Table 16.33 quarry and loss RIIO-1 innovation
production. Some contracts require us to divert our Projects Description
pipeline if the land is needed for other purposes such as New Use of X,Y,Z coordinate geographic data from
quarrying or development. techniques in-line inspection (ILI) operations and
for the analysing the results against ground level data
measurement from light detection and radar (LIDAR)
of pipeline surveys to calculate depth of cover. It is
We are committed to honouring these long-standing
depth of anticipated that this will become part of
contracts. However, we have well-established processes
cover as part standard operating procedures resulting in a
to validate the claim and challenge the amount of any
of easement more accurate reporting mechanism for
compensation when landowners apply for it. In each
process shallow pipelines.
case, we adopt a solution that delivers value for
consumers. For example, we might make annual 3. What have stakeholders told us?
payments, make full and final settlements, or carry out The majority of domestic and non-domestic consumers
investigation and repairs (e.g. for drainage issues). find the current proposal on compensating landowners
During RIIO-1 we made several full and final settlements acceptable. There is mixed appetite for further action in
(106 at the time of our reopener submission) and these this area. We understand that a key stakeholder priority is
reduce some elements of our RIIO-2 liabilities. Examples for us to be efficient and affordable, and this principle
of how we manage such claims can be found in the RIIO- feeds into driving down costs wherever possible.
1 reopener submission in this area81.
Table 16.34 ‘quarry and loss’ stakeholder feedback

What our stakeholders have told us Commitment Output type Consumer benefit
The majority of domestic and non- Manage contractual obligations Commitment and Delivering contractual
domestic consumers find the current relating to quarry and loss uncertainty obligations at lowest
proposal on compensating landowners efficiently. Costs relating to loss of mechanism Trigger: possible cost helps
acceptable. development and sterilised minerals Year 2, 1% baseline keep consumer bills
We must be efficient and affordable. to be subject to a reopener. trigger threshold lower.
81
https://www.ofgem.gov.uk/system/files/docs/2018/05/nggt_quarry_and
_loss_reopener_submission_08may2018_public_version_2.pdf
134

4. Our proposals for RIIO-2 and how they will Innovation
benefit consumers Table 16.35 quarry and loss innovation themes
We will continue to work with landowners to meet our Theme Commentary
legal and contractual obligations relating to the presence Innovative options for pipeline
of our pipeline network and continue to ensure we are Fit for the monitoring including innovation from our
doing these in a way that minimises costs to the end Future supply chain which could be part of
consumer. This will cover issues such as loss of crops, easement process.
impacts on drainage, loss of development or restrictions
on extracting minerals. 6. Risks and uncertainty
We are requesting funding for £19.1m for costs relating to
5. How will we deliver? compliance with our contractual requirements. We
We will deliver the best possible value for consumers propose to retain an uncertainty mechanism in relation to
while ensuring our legal obligations relating to quarry and loss of development and costs relating to loss of mining of
loss are met. As in RIIO-1, we will negotiate outcomes sterilised minerals in case these breach the base revenue
that keep costs low in the long term, such as the use of funding requested. This avoids us being subject to a
full and final settlements, although these will reduce in windfall gain or loss because of circumstances that we
number because of our success in RIIO-1. can’t control or predict. This uncertainty mechanism
proposal is outlined in more detail in annex A3.02.

The below costs have been split out to align with the
BDPT’s 2.02 direct- planned inspection and maintenance
and 2.06 quarry and loss.
Table 16.36 ‘quarry and loss’ costs
Activity spend Total Annual RIIO-2 Annual RIIO-1
2022 2023 2024 2025 2026
(£m 18/19 prices) RIIO-2
Quarry and loss (2.06) 3.9 3.9 4.0 2.5 2.5 16.8 3.4
Planned inspection and
maintenance (2.02) 0.5 0.5 0.5 0.5 0.5 2.3 0.4
Total 4.3 4.4 4.4 3.0 3.0 19.1 3.8 5.3
Supporting the communities we work in  Partnering with designated charities each year including
Macmillan Cancer Support, the Alzheimer’s Society and
City Year UK, raising £2.24m for partnered charities in
RIIO-1 to date.
 Encouraging and supporting 5,000 employee
volunteering hours and providing £1.13m to their
1. What is this sub-topic about? chosen charities in matched giving.
We have an impact on many communities when we carry  Awarding £1.2m in grants for communities located near
out works ranging from routine maintenance to major to (or impacted by) our business activities.
projects. The expectation from external stakeholders,  Spending more than 2,500 hours with young people to
shareholders and communities affected by our work is inspire them about science, technology, engineering
that we should ‘give something back’. Our purpose, vision and maths (STEM) subjects.
and values articulate our desire to exceed the  Implementing human rights and supply chain due
expectations of communities. Our work, through our diligence strategies (including meeting modern slavery
employee volunteering and fundraising programmes, and conflict minerals commitments). We are now 12th
supports charities and community organisations. We also best in the FTSE 100 Modern Slavery rating index.
give grants to community groups, so they can deliver a  Supporting the government’s Inclusive Economy
range of social, economic and environmental benefits. Partnership to protect and improve mental health and
equip people to get back to work.
2. Our activities and current performance  Being a member of the Living Wage Foundation and
Track record promoting commitment to the real living wage, both in
Highlights of our activities during RIIO-1 include: our organisation and in the wider supply chain.
 Investing £106m (so far) supporting 42,000 vulnerable  Delivering the Energy & Utility Procurement Skills
households across England, Scotland and Wales Accord commitments, which promote skills development
through the Warm Homes Fund. and work towards bridging the skills gap in the energy
 Launching a pilot programme called 'Grid for Good', sector; we received a recognition of our contribution.
which is a social mobility project to connect those in  Committing to align with the government’s own targets
need to support services and networks. by awarding 33% of annual spend to small and medium-
sized enterprises (SMEs) by 2020.
135

 Promoting local employment by using the CompeteFOR Table 16.37 supporting communities RIIO-1
tool for major projects with packages of work advertised innovation
to the local supply chain. Projects Description
 Managing our environmental education centres with 35- Development of a tool and process informed
40k visitors on average per year. through market engagement to evaluate options for
Noise
 Providing grants for community projects that are noise abatement, ensuring the Best Available
mitigation
focused on delivering local social, economic or tool
Technique (BAT) solution for a given project is
environmental benefits, where communities are affected identified. Projected savings of £150k per site over
by our work. a 10- year period.
 Managing EmployAbility, an employee-led supported Assessment of alternative insulation materials in
internship programme for young people aged 17-25 valve pits to reduce noise pollution in neighbouring
Valve pits
years with special educational needs. In 2018/19, we communities. Projected savings of £550k over a
insulation
provided 13 placements at three of our office locations. 10-year period due to a reduction in noise pollution
We have achieved great results so far with 68% of our investigations and frequency of replacement.
supported interns going into paid employment.
 We have signed the Social Mobility Pledge.

Table 16.38 supporting local communities stakeholder feedback
Supporting local communities
segments groups, gas distribution networks, industry/trade bodies, other energy industry, regulator/government,
engaged university/think tank, domestic consumers, non-domestic consumers.
Objective To understand views on our role in supporting local communities.
Channel/ Workshops, webinars, bilaterals, consumer listening, interactive slider tool, acceptability testing, willingness to pay.
method
Key Customers value the work we do in this area and think we should make it more visible.
messages We should continue to look for opportunities to support local communities within the realm of our business.
Activities should promote social sustainability in both the short and long term, these programmes also need to be
well advertised to everyone in the community.
Trade-offs Supporting the local community is of importance to stakeholders. However, views are not consistent across all
and stakeholder groups and evidence collected. Domestic consumers tended to support it, while other stakeholders
stakeholder offer less support. Ideas supported by domestic consumers on ways NGGT can help the public resulted in
influence suggestions similar to those currently employed/proposed by NGGT in the business plan. The majority of domestic
on the plan consumers believe that costs for NGGT’s charity and community work should be shared between NGGT and
customers. However, a small proportion of consumers also believe that costs should be borne entirely by NGGT.
This is aligned with UKERC evidence, which found that the majority of customers felt that social and environmental
goals should be funded by Government or energy companies82.
Domestic consumers are willing to pay a small additional amount to help fuel poverty. While most consumers and
stakeholders agree that this is an important issue, many feel acting to help fuel poverty is not the responsibility of
NGGT. This view is particularly strong among non-domestic consumers and major energy users.
Table 16.39 responsible procurement stakeholder feedback

Responsible procurement
Stakeholder Procurement experts
segments
engaged
Objective To understand views of procurement experts on the ambition of our goals.
Channel/method Webinar
Key messages Of those that responded to the question:
97% were satisfied or very satisfied that our living wage commitments are ambitious enough,
100% felt that the scope of our procurement commitments in this space was correct.
82
http://www.ukerc.ac.uk/publications/paying-for-energy-transitions.html
136

4. Our proposals for RIIO-2 and how we will deliver consumer value
Table 16.40 output summary supporting communities
stakeholders have
told us
Customers value the We are developing national and local skills NG group We are dedicated to working with
work we do in this development partnerships and initiatives, with a commitment young people, who are the future of
area and think it focus on the lower income communities we serve. our business, and our country. The
should make it more We aim, across the UK regulated businesses, to Engineering UK 2018 report showed
visible. give access to 6,000 young people from these that engineering companies will
communities over the next five years, tracking their need 203,000 more people with
We should continue progress from first interaction right through to Level 3+ engineering skills every
to look for potential employment in National Grid, our partners, year to 2024.
opportunities to our suppliers, or adjacent companies and industries.
support local We will assign 0.3% of all major project funding to EAP NGGT Assigning 0.3% of major project
communities within community-led community improvement in locations commitment funding to community
the realm of our where we have a presence, without requesting improvements provides a
business. additional funds consumer value proposition
Continue to fund the community-led grant scheme EAP NG UK valued at £0.6m (for more
Activities should of up to £20k near to a construction project and commitment information on CVP5 please see
promote social £10k near our operations annex A10.05).
sustainability in both Educate the public about environmental issues EAP NGGT
the short and long through outreach linked to major compressor commitment
term, these emissions projects and through our education
programmes also centres.
need to be well Require all our suppliers, Tier 1 and beyond, pay NG UK Responsible procurement activities
advertised to the real living wage to their UK workers and will commitment create positive effects down the
everyone in the verify this at Tier 1 in relevant categories. Measure: supply chain with positive impacts
community. # of suppliers signed up to Skills Accord (or on communities.
equivalent), % technical headcount under training
plans
Deliver impact in supply chain at scale by engaging NG UK
with the supply chain through relevant forums. commitment
Measure: # actions driven through engagement
# suppliers actively engaged through SCSS
scorecard
Promote skills development in the supply chain by NG UK
requesting that a minimum of 5% of the supply commitment
chain technical headcount is upskilled annually.
Measure: # of suppliers signed up to Skills Accord
(or equivalent)
% technical headcount under training plans
Use influence in sector to identify and address NG UK
potential humans rights risks in the supply chain. commitment
Measure: # action plans in place with suppliers
Promote equal opportunities in the supply chain. NG UK
Measure: # events supported to identify and commitment
support new suppliers, # of projects using
CompeteFor (a tool used to advertise opportunities
in the supply chain)
5. How will we deliver? Table 16.41 supporting communities innovation

We will reduce and simplify our RIIO-1 period initiatives to themes
make sure we prioritise the activities that offer the most Theme Commentary
value for society. We will focus our societal impact work Innovative alternatives to minimise
on mitigating the effects (to vulnerable consumers in Fit for the future
community disruption.
particular) associated with the major infrastructure Ready for Innovative community engagement at
changes that are likely to be carried out as part of the decarbonisation our environmental education centres.
transition to a low carbon energy system.
6. Our proposed totex costs for RIIO-2
How we plan to deliver against our supply chain We have not requested specific allowances for spend in
commitments is set out in the responsible procurement this area for RIIO-2. This was similar to RIIO-1 where we
action plan Annex A16.20. didn’t set RIIO-1 targets to cover citizenship activities but
many of our programmes have featured in the annual
customer and stakeholder submissions to Ofgem.
137
I want you to facilitate the whole energy system of the future - innovating to meet the challenges ahead
17. I want you to facilitate the whole

energy system of the future – innovating
to meet the challenges ahead
This priority is about how we help the UK achieve net zero target by enabling decarbonisation of heat, transport and
industry at the lowest cost to consumers. We will do this by collaborating to deliver whole energy systems of the future
and utilising innovation. Our definition of the whole energy system includes the interactions and solutions between gas,
electricity, transmission and distribution, and it takes account of the impacts of the heat and transport sectors.

Stakeholders have said that they want us to take a leading role in driving and enabling the energy transition. We will
lead on delivering the future energy system and, collaborating with others. They also want us to be innovative about
how we meet the challenges involved, in particular the ones around decarbonising heat. We have had feedback from
stakeholders that we were not clear enough on our role. We have clarified and tested with stakeholders through a
webinar what we will lead versus collaborate on.
During RIIO-2 we will:

 continue to lead the development of the gas markets framework by collaborating with others to enable the pathway
to net zero
 lead the development of options for decarbonisation of the gas transmission system to facilitate the decarbonisation
of heat, industry and transport, including collaborating with others on an agreed hydrogen workplan
 collaborate across the industry to lead innovation and deliver the solutions for whole energy and net zero
 invest in skilled people and IT systems so we can lead regulatory change, anticipate future regulatory
developments and how these might affect stakeholders and our network.
To deliver our proposals for this priority, we plan to spend an average £23.2m annually with a total RIIO-2 spend of
£115.9m. We are proposing that £30.9m of this will come from an innovation incentive allowance and is part of our
non-controllable pass-through costs. Our RIIO-1 annualised spend was on average £18.8m each year. This increase in
RIIO-2 is mainly due to a forecast increase in capex costs relating to our balancing and capacity system. This priority’s
expenditure accounts for 3% of the overall RIIO-2 expenditure.
Figure 17.01 RIIO-1 and RIIO-2 spend profile ‘I want you to facilitate the whole energy system of the future –
innovating to meet the challenges ahead’
RIIO Costs
£30
£25
£20
£m
£15
£10
£5
£0
Reporting year
138
What is this stakeholder priority about? In RIIO-2, our proposals aim to deliver on decarbonisation
This priority is about how we, as gas transmission, will and digitisation to support transition to a sustainable
enable the gas industry to deliver net zero environmental energy system, and ensure that all consumers enjoy
targets in a way that delivers benefits to consumers. It reliable, affordable energy. We recognise that the pace of
sets out our ambitions in achieving GB’s 2050 net zero change and deployment of potential solutions may
goal. We look at how the industry can decarbonise heat, exceed the scale of existing funding mechanisms in the
our role in this and how we can drive the decarbonisation RIIO-2 timeframe. So, we will work with Ofgem and other
of the whole energy system. stakeholders to address this. Our proposals will deliver on
Stakeholders told us they want us to lead the whole Ofgem’s output category of ‘delivering a sustainable
energy system of the future, driving the decarbonisation network’. To facilitate the energy transition we will deliver
agenda forward. Stakeholders recognise that we must this through three priority areas:
play an important role in this uncertain energy future.  Markets: continuing our increased engagement
They also expect us to look for innovative ways to meet across the industry to lead and deliver market and
the challenges ahead in the energy transition, especially regulatory change.
in decarbonising heat.  Decarbonisation of the gas transmission system:
developing options to enable decarbonisation of heat
We know that, as well as focusing on energy transition options using whole systems approaches.
innovation projects, we also need to ensure that  Innovation: driving innovation to help meet the
innovation is embedded as business as usual (BAU), challenges of the future while ensuring consumer bills
wherever possible so that solutions are delivered remain affordable.
efficiently for stakeholders and consumers benefit.  Systems: enabling and supporting market and
Stakeholders also said we are well placed to have a ‘say regulatory change, through developing the right
and influence’ energy transition policy. systems to deliver a digital future.
Our proposed costs for RIIO-2

Table 17.02 summary whole energy system of the future – innovating to meet the challenges ahead costs by
activity
Xoserve costs83 5.5 5.5 13.5 11.5 3.0 38.9 7.8 4.5
IT applications 1.9 2.5 2.6 2.3 1.7 11.0 2.2 1.8
Gas system operator
5.9 6.3 6.5 6.7 6.7 32.0 6.4 6.4
activities
Decarbonisation
0.5 0.5 0.6 0.6 0.6 2.8 0.6 0.5
activities
Pension costs 0.1 0.1 0.1 0.1 0.1 0.4 0.1 0.0
Sub-total – controllable 13.8 14.8 23.2 21.1 12.0 85.0 17.0 13.5
costs
Innovation (NIA)84 6.2 6.2 6.2 6.2 6.2 30.9 6.2 5.3
Total spend 20.0 21.0 29.4 27.3 18.2 115.9 23.2 18.8
Table 17.03 summary of whole energy system of the future – innovating to meet the challenges ahead costs by
RRP category
Closely associated 0.5 0.5 0.6 0.6 0.6 2.8 0.6 0.5
indirects (BPDT 2.02)
Direct costs (BPDT 2.02) 5.9 6.3 6.5 6.7 6.7 32.0 6.4 6.4
SO capex total (BPDT 7.3 7.9 16.1 13.8 4.7 49.9 10.0 6.4
3.08)
Items outside of totex 6.2 6.2 6.2 6.2 6.2 30.9 6.2 5.0
including non-
controllable costs
(BPDT 2.02)
Controllable pension 0.1 0.1 0.1 0.1 0.1 0.4 0.1 0.0
costs (BPDT 2.02)
Total non-controllable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6
costs
Grand total 20.0 21.0 29.4 27.3 18.2 115.9 23.2 18.8
83
This is the capex element only.
84
This cost is only the cost that we forecast to be spent through Ofgem’s network innovation allowance (NIA).
139
Markets Channel/method Workshops, webinars, 1-2-1 meetings,
1. What is this sub-topic about? industry forums, surveys.
This subtopic is about how we are continuing our Key messages There will be a significant amount of
industry change as we move through the
increased engagement across the industry to lead and RIIO-2 period. We should continue to
deliver market and regulatory change. lead the facilitation of industry change
within the gas sector.
2. Our activities and current performance Trade-offs and We have engaged extensively with
Track record stakeholder stakeholders to inform the development
During RIIO-1, we’ve been developing and delivering influence on the of the GMaP. This has led to the
regulatory and market change, focused on GB market plan formation of an independent steering
group of stakeholders that will drive the
compliance with EU legislation driven by the commitment
outputs of the GMaP.
to deliver the Third Energy Package. The work we’ve
done ensured changes benefited GB plc and are
completed in the least disruptive and most efficient way
4. Our proposals for RIIO-2
possible. As the GB transmission owner and system In RIIO-2, our regulatory change strategy continues to
operator, we were responsible for delivering this change move from managing change to driving it. Stakeholders
on behalf of wider GB industry. have said they recognise there will be a significant
amount of industry change as we move into and through
We have also shared the delivery of efficient and effective the RIIO-2 period. Stakeholders want us to continue to
code governance, including adopting any future changes play a key role in improving the efficiency of the market
driven by Ofgem. To do this, we have taken a leading role through supporting customer modifications, improved
in European Network of Transmission System Operators modification governance and focusing on the changing
for Gas (ENTSOG) work groups and we speak regularly need of the gas networks and markets over RIIO-2.
at other industry events.
The RIIO-2 period will see increased focus on
decarbonisation of the energy sectors, in which natural
We have raised 61 Uniform Network Code (UNC)
gas has traditionally met the energy demand, either
modifications. We have also supported customers by
through EU or UK policy drivers and/or changing industry
providing legal text and/or developing the solutions to
trends. However, the direction and speed of change
their modifications for another 57 UNC modifications.
affecting gas markets and, importantly, efficient operation
Some of the deliverables that we have supported are:
for end consumers, are all uncertain and this lack of
 gas charging review certainty requires us to be flexible.
 development and implementation of EU codes
including constraint management principles, capacity Decarbonisation drivers have had an impact on the role of
allocation methodologies, balancing and gas and this will continue over the RIIO-2 period. The key
interoperability question for now is how to maintain consumer value from
 security of supply significant code review. the gas markets as energy markets transition to low
carbon. Additionally, we need to start looking at what
Learning for RIIO-2 industry and market changes may occur in moving to a
During the latter parts of RIIO-1, we have led the Future decarbonised world.
of Gas programme85, exploring where the medium-to
long-term focus should be for the gas industry. It As a result of stakeholder feedback received during
concluded that gas has a critical role in the transition to a engagement on capacity baselines and general access
low carbon economy and set out several commitments arrangements, We have raised modification 0705R –
and policy recommendations. This led to the creation of NTS Capacity Access Review, which has the following
the Gas Markets Plan (GMaP) which we explain further in purpose:
our proposals for RIIO-286.
 to review the principles and establish long-term
strategy for the NTS capacity access regime,
 ensuring the regime is appropriate for commercial
behaviours experienced today, simplified and
Table 17.04 industry change stakeholder engagement
Engagement Industry change adaptable whilst being consistent with relevant
topic obligations,
Stakeholder Shippers, customers, supply chain  to make recommendations for change and
segments
engaged
addressing short-term problems in accordance with
Objective To understand the level of industry the long-term ambition.87
change stakeholders expected and the
role they want us to take.
85 87
https://futureofgas.uk/ https://gasgov-mst-files.s3.eu-west-1.amazonaws.com/s3fs-
86
https://futureofgas.uk/news/the-future-of-gas-2/ public/ggf/book/2019-10/Request%200705R%20v2.0.pdf
140
Table 17.05 market transformation proposals
stakeholders
have told us
Lead the We will continue to lead the formation of GMaP framework, Commitment “I want you to
facilitation of including a steering group to prioritise a programme of works. facilitate delivery of
industry change Work with the industry to better understand the detail and impacts of Commitment a sustainable
within the gas the prioritised work programme and develop plans for potential energy system” –
sector implementation. supporting and
We will continue to comply with our obligation to provide code Commitment delivering market
administration for the gas market subject to the outcome of the changes and
Energy Code Review. solutions will
We will continue to lead a review of gas transmission access Commitment continue to deliver
arrangements in Transmission Workgroup 705R, and will develop the future energy
appropriate modifications as required by that review group. system.
5. How will we deliver? net zero roadmap (in chapter 11), including what the
To ensure we can lead the development of the GMaP options are for hydrogen transportation in the NTS.
framework, deliver the regulatory and market changes
and provide code administration for the gas market, we 2. Our activities and current performance
need to invest in our capability. We have put resource Track record
into our business plan to undertake this. It is reflected in During RIIO-1 and in preparation for RIIO-2, we have
cost line ’gas system operator activities’. engaged more in discussions about decarbonisation of
the gas industry, what the future of the energy system
The Gas Markets Plan (GMaP) is a programme for the may be and what challenges we should expect around
industry to collaboratively develop and agree a roadmap meeting these potential changes.
of market change activities. The programme aims to:
We speak regularly with the gas distribution and
 be as inclusive as possible
electricity transmission networks and meet with
 improve transparency and visibility of potential market regulators, collaborating to deliver benefits to customers
change and consumers. Below, we’ve listed some of the topics
 create a stakeholder-led process for prioritising that we have worked on, and they are described in more
market change activities. detail in our whole energy system engagement log annex
This will ensure market frameworks continue to provide A17.01.
the consumer with the greatest possible value  Future of Gas (FOG)89
throughout the energy transformation. A ‘Future of Gas’
 Gas Future Operability Planning (GFOP)90
forum will take place twice a year, bringing the industry
 Energy Networks Association (ENA) Gas Futures
together to share knowledge and input into the two to
Group (GFG)
ten-year change plan.
 Hydrogen Programme Development Group (HPDG)
A Future of Gas steering group has been formed,
including a variety of stakeholders. The group will agree At round-table events, we’ve talked with industry partners,
which projects should be progressed over the coming promoting how we can work together to enable whole
year, monitor and steer ongoing GMaP projects and set energy system outcomes for consumers and exploring
the strategic direction. More information is available on ideas about decarbonising heat, transport and industry.
our website88. Senior representatives from Ofgem, BEIS, networks,
innovators and other energy industry experts joined us for
Through the Joint Office of Gas Transporters, we will these events. Through the ENA working groups, we’ve
continue to comply with our obligation (with the also contributed to various initiatives from innovation
distribution networks) to provide code administration for projects to the Future Gas Pathways.
the gas market.
One of the key areas that stakeholders have said we
should focus on is the decarbonisation of heat. Through
Decarbonisation the ENA, and alongside the GDNs, a piece of work from
1. What is this sub-topic about? consultancy firm Navigant was commissioned, looking at
This focus area is about actively working with the industry the potential pathways for enabling a net zero gas
to decarbonise and enable whole system solutions network. The results of which were published recently at
through cross-sector collaboration. We highlight our an ENA launch event91.
commitments in investigating the options for
decarbonisation and how this contributes to delivering our
88 91
http://futureofgas.uk/news/the-future-of-gas-2/ http://www.energynetworks.org/gas/futures/gas-decarbonisation-
89
http://futureofgas.uk/news/the-future-of-gas-2/ pathways/pathways-to-net zero-report.htm l
90
https://www.nationalgridgas.com/insight-and-innovation/gas-future-
operability-planning-gfop
141
Innovation in RIIO-1 Following changes to external drivers, we undertook a
Through the ENA Gas Innovation Governance group review and decided that it was not in consumers’ interests
we’ve been able to get involved in more collaborative to proceed now. We will review the need for this and
projects with GDNs and third parties, and to share other similar works each year. We will also ensure these
learning between each other. We are involved in several processes are embedded into our future ways of working.
innovation projects looking at the transportation of We have also engaged with NGN on our whole system
hydrogen as a means to ‘greener gas’ – it’s a cleaner fuel works and more details on this can be found in a joint
that can help to decarbonise heat. The table below annex A17.06
summarises some of the projects we have undertaken
during RIIO-1. These projects have helped inform our Additionally, through forums such as the Gas
workplan on hydrogen for RIIO-2. Transmission Benchmarking Initiative (GTBI), we will
Table 17.06 innovation in RIIO-1 increase our understanding of how other European TSOs
Example Description are tackling decarbonisation. We will bring ideas over
The project assessed the feasibility of a from our colleagues in our US business where possible.
hydrogen transmission system using the
existing assets. The work was a desk based 3. What have stakeholders told us?
Feasibility of approach undertaken by the health and We have clarified what we will lead, collaborate and
hydrogen safety laboratory (HSL). The results have facilitate on. We tested our proposals on a webinar with
ready NTS indicated that re-purposing of the NTS to
(HyNTS)92 transport hydrogen is technically feasible,
~30 stakeholders, ranging from GDNs to industry trade
from a materials perspective, pending the bodies and regulators, on 2 September 2019. Below is a
outcome of the further work. This has fed into summary of results:
our workplan for RIIO-2.  Do you agree with our view of what we are leading,
A physical trial of hydrogen in an offline test collaborating/facilitating on? Yes – 65%; Somewhat
loop using representative grade steel pipeline –24%; No – 1%.
Flow Loop to the NTS. Learning from this project will  Do our proposals meet your needs? Yes – 50%;
help in the evidence case for transporting Somewhat–50%.
hydrogen in the network.
A joint project with SGN looking at a
Aberdeen feasibility study into 2% hydrogen blending at Table 17.07 decarbonisation stakeholder engagement
Vision93: St Fergus and H2 pipeline and hub at Engagement Decarbonisation
Aberdeen. This work will continue into RIIO-2. topic
A joint project with SGN and Cadent Stakeholder Networks, customers, think-tanks and
undertaking a feasibility study to explore the segments industry bodies, regulators, major
Isle of Grain’s potential to act as a catalyst for engaged energy users, consumers.
Project hydrogen production and storage, to supply Objective Understand what our stakeholders
Cavendish94: hydrogen to London and the South East of expect us to undertake during RIIO-2 to
England. Early results from this are positive enable the energy transition.
and the next stages of trials will be
undertaken in RIIO-2. Channel/method Workshops (including one hosted jointly
with the GDNs), webinars and online
consultation with major energy users
Learning for RIIO-2 and consumer research.
Throughout RIIO-1, we have shown we consider whole Key messages 1.Support the need for networks and
system approaches when assessing options. One industry to work more collaboratively
example of this in RIIO-1 is with SGN, on options to across sectors, develop regulatory
continue to meet our Scotland 1 in 20 winter demand framework mechanisms and influence
obligations. As described in more detail in our gas ten government policy as part of the cost-
effective transition to a low carbon
year statement95 (GTYS), we have taken these steps to
energy future.
arrive at the best option to meet our obligation: 2. Stakeholders would be interested in
 SGN assessed the impact and confirmed options on its us playing a stronger role in driving the
network debate over the future of the UK system.
 we explored options on our network and combined They recognise that networks are in a
these with SGN’s options unique position to drive the
 we completed cost benefit analysis (CBA) for all options decarbonisation agenda forward. This
led us to organise round-table
 we identified preferred options and agreed the timing of discussions with industry, networks,
investment. regulators and policy makers on
discussing the challenges and next
This whole system approach highlighted that the best steps to facilitate the energy transition.
option is for works on our network, because this will
provide the most benefit to customers and consumers.
92 95
https://www.smarternetworks.org/project/nia_nggt0139 https://www.nationalgridgas.com/insight-and-innovation/gas-ten-year-
93
http://www.smarternetworks.org/project/nia_sgn0134 statement-gtys
94
http://www.smarternetworks.org/project/nia_nggt0143
142
3. Decarbonisation of heat is an area of 4. Our proposals for RIIO-2
particular challenge and we should Stakeholders have said they expect us to take a leading
support it.96 role in driving and delivering the future energy system.
Trade-offs and We have worked with stakeholders to
Stakeholders also expect us to continue to work more
stakeholder understand and test what we should be
influence on the leading, collaborating on during RIIO-2.
collaboratively with industry and regulators to develop
plan We have provided more information on regulatory framework mechanisms and to influence
the specifics which stakeholders have government policy as part of the cost-effective transition
requested. to a net zero future.97 The Committee on Climate Change
SUG and We have been challenged to be clear on (CCC) and the government, in turn, have said that GB plc
Challenge our role in decarbonisation, in particular should commit to achieving net zero by 2050. We have
Group feedback with what we are leading on, which we already explained in chapter 11 our view of the potential
have continually improved in all pathway to net zero and what this means for our plan.
iterations of our plan. Our proposals reflect what we are planning to do to
For more information on our engagement see annex enable the decarbonisation of heat.
A17.01.
Table 17.08 whole energy system collaboration proposals

What our stakeholders Our commitment Output type Consumer benefit
have told us
Take a leading role in driving We will lead on developing what Commitment “I want an affordable energy bill” –
and delivering the future the options are for gas whole system collaboration offers
energy system, including transmission in relation to the networks the potential to respond to
how we can meet net zero decarbonisation of heat. changing needs, reduce consumer
targets. We are proposing a reopener Uncertainty mechanism costs and deliver a sustainable
relating to net zero to ensure we Trigger: End of year 2, network.
are able to respond quickly to 1% baseline revenue
work towards net zero goals. threshold “I want you to facilitate delivery of a
More information to be sustainable energy system”–
found in annex A3.02. working with other networks,
Continue to work more We will collaborate with GDNs, Commitment regulators and third parties to
collaboratively with industry BEIS and others on an agreed determine the future pathways for
and regulators to develop hydrogen workplan. the energy industry, including
regulatory framework. decarbonising heat while keeping
Continue to work more We will build on the work done Commitment disruption to a minimum for
collaboratively with industry through the ENA whole system consumers.
and regulators to develop a working group, working across
regulatory framework. sectors to develop the options Taking a leading role in
and solutions required to decarbonisation of heat for gas
achieve net zero. Collaborate transmission could provide a
with ESO to support BEIS in consumer value proposition of
developing the Clean Heat £2.2m (for more information on
strategy from a whole system CVP7 please see annex A10.05).
operability perspective.
Achieving net zero will require extensive collaboration the widespread conversion to hydrogen and is a viable
across the whole system to identify, scale and deploy the pathway to decarbonisation of heat.
right solutions for consumers for electricity, transport,
heat and industry. We will lead the following workstreams as part of the
HPDG:
Through the Hydrogen Programme Development Group  Developing market services for system operation and
(HPDG), we are developing a forward workplan for developing the future system operator – this will identify
hydrogen projects with the ambition of agreeing this in the the modifications of existing and creation of new market
early 2020. This forum includes members from BEIS (who regimes and the timelines to achieve this for the system
Chair the group), Cadent, Wales & West Utilities, operation of a hydrogen network by April 2024.
Northern Gas Networks, Ofgem, Energy Networks  Using the NTS for hydrogen transportation – this will
Association (ENA), National Grid, the Institution of Gas identify any physical modifications needed, including
Engineers and Managers (IGEM), Health and Safety NTS operational practices, blending and de-blending
Executive (HSE) and Heating and Hotwater Industry options for a hydrogen transmission through the NTS by
Council (HHIC). The main aim of the workplan is to April 2024. Including a hydrogen trial from 2025.
provide evidence that the gas network is able to support
96 97
“While half of electricity generation is fuelled by gas, there is a “We support National Grid Gas’s proposal to have a greater
huge interaction. The choice between gas and electric heating for the coordination and facilitation role in the industry and across sectors”
future will be interesting.” ENA workshop xxxxxxxxxxxxxxxxx consumer body
143
Through our work, we will be ready to start conversion to to hydrogen from both an asset and a regulatory and
hydrogen by 2026. Our initial work has shown this is market side. Below is a draft timeline of our works. As the
technically feasible and we will be identifying the pace of work on decarbonising industry increases, we will
modifications and market changes required and look to adapt our plans and timescales accordingly. We
undertaking trials during RIIO-2. will also support other workstreams that are being led by
Our projects don’t just focus on the asset elements but the GDN’s and other stakeholders. The outputs of these
also on the market elements, as we see it is important projects will help with meeting the deliverables of BEIS
that all stakeholders understand the scale of the transition heat strategy roadmap that is due to be published in
summer 2020.
Figure 17.09 draft timeline of our hydrogen workplan for RIIO-2
As well as playing our role on hydrogen, we believe we internal processes to reflect this as well as developing
should also collaborate on other potential solutions, further processes through ENA working groups.
especially for heat but also for industry, transport and We will collaborate to find and enable the best whole
electricity. Examples could include (but aren’t limited to) systems solutions working across all sectors and vectors.
other heat pathways, biogas and industrial cluster For example, whole system costs will be reduced at
decarbonisation. Cadent’s Blackrod site to improve security of supply for
xxxxxxxxxxx consumers and this improvement has been
We are committed to ensuring whole system solutions are achieved through collaboration, with Cadent, at the
considered where possible and we understand that all Blackrod DN offtake. We will deliver this solution in RIIO-
networks are in a position where we should be working 2 and it is covered in more detail in chapter 14.
together to drive options forward. We will build on the
work done through the ENA whole system working group. We have also been working with industry stakeholders
The workgroup is exploring three main workstreams: including BEIS and the Committee for Climate Change to
 Collaboration between network companies across develop a strategy for clean heat. We have worked with
gas/electricity and transmission/distribution. BEIS to understand their approach and identify which
 Principles for a whole energy system CBA areas should be explored in greater depth. We have
methodology for investment across energy vectors. identified the areas where we can add most value
 Opportunities to embed the principles of the Energy collaborating with the ESO, which will primarily focus
Data Taskforce. We will continue to collaborate with on how the decarbonisation of heat impacts on whole
partners and stakeholders as the industry drives system operability issues.
ahead with the Energy Data Taskforce’s
recommendations on digitalisation and data 5. How will we deliver?
transparency. To deliver our work on decarbonisation, we need to
ensure we have the right capability to undertake this
We will ensure that there is a clear process in place for work. Our work on delivering our hydrogen projects will
ensuring whole system solutions are considered in our require funding to be available. We envisage that BEIS
investment decisions. This will include updating our would provide a source of funding. Additionally, we feel
144
some of the projects, such as feasibility studies, could be of collaborators, working with a wider range of third-
delivered through the Network Innovation Allowance parties with expertise in many technical fields. We have
(NIA), while some of the larger projects could use the new also worked more closely with the other gas and
strategic energy transition fund that Ofgem has proposed. electricity networks to co-ordinate innovation portfolios for
We would also seek to look at alternative external funding maximum benefit to consumers. We have provided value
to progress some of these projects. of £4 for every £1 we invested in implemented
innovation99. We have run innovation calls and attended
Net zero UM events to talk to third parties and help them understand
We believe in a regulatory framework that enables and the opportunities for innovation and how they could get
incentivises networks to collaborate and work together involved. Figure 17.10 summarises our activities, spend,
and make changes easily when policy decisions are and the benefits during RIIO-1 so far. Project CLoCC
made98. These plans may have to be adapted as there is (Customer Low Cost Connections) is an example of how
still uncertainty about how to decarbonise the energy we have innovated to respond to stakeholder needs.
landscape. We are proposing a reopener uncertainty Stakeholders told us that our costs and timescales can be
mechanism for net zero to ensure we can respond quickly a blocker to connecting to our network, particularly for
to work towards net zero goals. We propose a materiality smaller, non-traditional gas producers and consumers. In
threshold of 1% with a trigger in year 2 of the price response, we initiated this National Innovation
control. The reopener would be applicable across multiple Competition (NIC) project collaborating with three small
areas, from emissions reduction to large-scale projects on and medium-sized enterprises (SMEs). The project
hydrogen. For example, this mechanism could be used concluded in 2018, having met its goals of enabling SMEs
for the next steps of Project Cavendish, where there to connect for less than £1m and in less than 12 months
could be a potential for a new NTS hydrogen pipeline to from initial enquiry to ‘gas on’. Read more in chapter 19.
be built from Isle of Grain to Shorne, linking in with SGN
proposal of a new hydrogen distribution pipeline from In RIIO-1, our annual NIA was 0.7 per cent base revenue,
Shorne to Dartford. For further details on our UM resulting in an allowance ranging from £4.3m to £5.5m
proposal, please see annex A3.02. per annum. The allowance is reset at the start of each
financial year, which means unused allowance in a given
Whole system UM year does not roll over to the following year. Our strategy
We will look to work with Ofgem and stakeholders to has been focused on identifying innovation ideas that
develop the whole system re-opener ‘coordinated could develop into projects that deliver value to our
adjustment mechanism’. This will be used to support the customer and satisfy a business need. Our utilisation of
reallocation of project revenues to networks best placed the allowance has not been 100 per cent, however
to deliver these whole system projects. innovation spend year-on-year has increased
demonstrating how our capabilities have developed.
Innovation Figure 17.10 RIIO-1 innovation summary
Innovation is integral to our business. Innovation has
continued to develop and embed into our organisation
across RIIO-1, and we intend this to continue during
RIIO-2. In this sub-topic, we highlight our strategy for and
bring together how innovation is embedded across our
whole business plan. Innovation has been incorporated
in each chapter, highlighting RIIO-1 innovation and what
we are doing in RIIO-2. Our board have signed on to our
RIIO-2 innovation strategy through an innovation charter
which commits the board to:
 the ambition and approach of our RIIO-2 business plan
 responsibility for setting a baseline and a five year
measurable target for increasing the innovative culture
of the organisation
 an annual deep dive of progress against target, forward
innovation workplan, tracking of innovation benefits,
and embedding lessons learned.

Track record Embedding a culture of innovation
During RIIO-1, we set out with an ambition to embed At the core of our culture we seek to do the right thing
innovation into what we do. We’ve expanded our network and find a better way, and this is where innovation is
98 99
“It is therefore vital that the business plan is flexible enough to be able https://www.nationalgridgas.com/insight-and-innovation/transmission-
to accommodate these developments in a customer-friendly manner – innovation/delivering-value-innovation
both for those obtaining grid connections and for users of the gas “
xxxxxxxxxx industry body
145
key. Innovation can unlock the potential and allow us to
maximise the opportunities in everything we do. Benefits measurement framework
Embedding a cultural change such as innovation does not The gas and electricity networks have agreed to detail a
have a defined period. The efforts we have made over common way forward for benefits reporting. We will use
RIIO-1 to date have clearly begun to embed innovation the benefits measurement framework developed by
into our core culture but there is still some way to go. We Baringa as a starting point and develop it further to
have implemented clearer processes and lines of ensure it meets the needs of stakeholders. We’re also
accountability to empower our teams and develop a considering how to summarise UK-wide benefits from
diverse portfolio of projects with third-parties of all sizes innovation. For more details of this framework, please see
and in many geographical locations. We have also page 19 of annex A17.03.
recently held a joint event with the GDNs, independently
facilitated by ‘Workplace Innovation’, on how we innovate. 3. What have stakeholders told us?
This specifically looked at four themes; emotional
Table 17.11 innovation stakeholder engagement
intelligence, making change happen, engaging to Engagement Innovation
innovate and disrupting the future. The outputs of these topic
sessions will be used to shape how we innovate in the Stakeholder Supply chain, shippers, academics,
future. segments customers, industry trade bodies, networks,
engaged think-tanks and consumers.
Learning for RIIO-2 Objective Understand what and how we should be
Due to the nature of innovation, projects have not always innovating during RIIO-2.
been successful. But when they aren’t, we take learning Channel/ Conferences, seminars, workshops, 1-2-1
from it and update our processes and organisational method meetings and consumer research.
structures to make sure we can innovate more Key Networks should be looking to provide
successfully in future. There is opportunity for a more messages information to policy-makers through
innovation projects or horizon-scanning,
coordinated and focused effort on innovation across our
decarbonisation of heat is an area of
organisation. In RIIO-2, we will collaborate internally with: challenge that we should be supporting.
 National Grid Electricity Transmission – focusing on Trade-offs We have worked with stakeholders on ‘how’
innovating to overcome the challenges and exploit the and we innovate and this information is feeding
opportunities for the whole energy system. stakeholder into our RIIO-2 strategy and our innovation
 National Grid US – sharing knowledge and influence on culture.
experiences and focusing on best practice across the the plan
organisation, whilst exploiting opportunities to SUG and The NGG board has signed up to an
collaborate with US utilities. Challenge innovation charter which address how
Group throughout our organisation we are
 National Grid Partners (NGP) – disrupting our ways of feedback approaching innovation, following direct SUG
working seeking the most cutting edge and feedback.
challenging innovations that have the potential for More detailed information is available in annex A17.03.
game-changing impact across our organisation.

Table 17.12 innovation transformation proposals
What our stakeholders have told Commitment Output type Consumer benefit
us
Networks should do more to embed We will invest in BAU innovation, driving Commitment “I want an affordable
innovation business as usual culture. continuous improvement across all our energy bill” – delivering
activities innovative solutions to
Networks should provide information We will collaborate and partner with third Commitment deliver the energy
to policy-makers through innovation parties on wider energy transition innovation transition, will minimise
projects or horizon-scanning. projects that will help determine the energy consumer bills
Decarbonisation of heat is a priority. transition options to a net zero future.
The criteria for an innovation project to be funded via either BAU or allowance funding is outlined below:
 BAU Totex funding: higher technology readiness level (TRL), lower risk, benefit within RIIO-2 and greater
certainty of success.
 Allowance funding (NIA): lower TRL, high risk, benefit beyond RIIO-2, less certainty of success,
collaborative large-scale projects and decarbonised energy system.
146
Figure 17.13 our innovation ambition
147
Figure 17.14 our innovation themes
148
5. How will we deliver? provider (CDSP). They deliver a full suite of vital services
In our approach for RIIO-2, we are expecting that more to gas suppliers, shippers and transporters.
innovation will be undertaken as business as usual
(BAU). We are not asking for any additional innovation Our services must reflect emerging market rules and
stimulus funds for this area, as this will be funded entirely requirements. Our ability to update our systems and
through our baseline totex allowance. Benefits will be services to adapt to the changing energy landscape is
derived through the totex incentive mechanism which critical in delivering what stakeholders need from us. How
shares benefits with consumers. We are committing that we deliver these changes is particularly important for
we will provide a value of £4 for every £1 we invest in stakeholders, as any changes can affect their connected
implemented innovation during the RIIO-2 period. systems and processes. The lifespan of our systems are
However, there will still be a requirement for an dependent upon vendors’ support policies. The average
innovation incentive allowance (NIA) to deliver the higher lifespan is five to seven years, at which point we need
risk energy transition projects; for example, innovation for to plan to refresh or replace the system. This means a
the transition to a net zero future. We are proposing that decision before each price control period has to be made
we would require £30.9m of NIA funding for the RIIO-2 on whether the system needs replacing or replatforming.
period. We believe that rules that are applied to it We build our plans (RIIO-1 and RIIO-2) on this basis and
currently should apply for RIIO-2. i.e. we propose that because RIIO-1 lasted eight years, we included two
10% of this is funded by us. investments in that period due to the lifespan of the
system.
The role of the RIIO-2 independent stakeholder user
group has been crucial to the development of our Learning for RIIO-2
business plans and has added significant value, in In our RIIO-1 business plan we said we’d re-platform
particular to the development of this strategy. As we Gemini at the beginning of the period, replace in the
progress into RIIO-2, we are committed to securing an middle and refresh at the end. Instead, we carried out the
independent panel to challenge our innovation ambition, re-platform forecast at the beginning of RIIO-1 and then a
performance and strategy. Discussions around the role of more substantial re-platform at the end of RIIO-1 without
the independent stakeholder user group are ongoing. replacing the system in the middle.
Once the role and outcome are confirmed we will seek to
engage with this group or establish an offshoot panel with We chose this option because:
key representatives.  The volume of regulatory change that would drive the
need to replace Gemini did not materialise. In RIIO-1
Systems our strategy was to manage the change process to
1. What is this sub-topic about? ensure implementation was at minimum cost (and
This subtopic is about how we are developing the required minimum system change). The fact that we
systems our customers need to flow gas, and about how didn’t have to replace the system demonstrates that
we unlock consumer value through enhancing our IT we were effective at executing this strategy.
systems.  A re-platform for the Gemini system was enough to
maintain support of the system and there were no
2. Our activities and current performance other technical reasons to replace and was endorsed
Balancing capacity services and systems - track by stakeholders at the Gas Operational Forum.100
record  Re-platform rather than replacement has the extra
Shippers are required to book space (known as ‘capacity’) benefit that our options for replacement are kept open
on the network so they can flow gas. We also need them for longer, ensuring the solution is as future-proof as
to tell us when and where they are going to flow the gas, possible.
so we can balance the network safely. The balancing and  Our stakeholders and Ofgem expect us to explore the
capacity processes and services we provide are our main most cost-effective approach. We have again applied
interface with shippers, and they are at the core of how this approach to our proposal for RIIO-2.
the gas industry operates. They support the efficient
functioning of the gas market by allowing market Additionally, one of the fundamental principles of the RIIO
participants to balance their portfolio daily and manage regime is the totex incentive mechanism (TIM). It
their capacity bookings up to 17 years ahead, making incentivises us to ensure we make the right decisions in
informed commercial decisions as well as enabling the the best interests of consumers. Through this mechanism,
efficient physical operation of the network. during RIIO-1 we have shared the outperformance we
achieved with our consumers.
Gemini is the main system we use to communicate
commercial information to/from shippers. Gemini is a
system owned by us but managed and operated on our
behalf by Xoserve, the gas industry’s central data service
100
https://www.nationalgridgas.com/sites/gas/files/documents/Gas%20O
ps%20Forum%20full%20pack%20%20-%20Febuary%20%202018.pdf
149
Table 17.15 balancing capacity services and systems We have talked in detail about the current capacity and
engagement balancing services and system as well as about users’
Engagement Balancing capacity services and requirements for their provision in the future. We’ve asked
topic systems stakeholders how useful the current capacity and
Stakeholder Shippers, customers, supply chain. balancing services are and what their functional and non-
segments functional requirements are for a future capacity and
engaged balancing system.
Objective We have talked in detail about the current
capacity and balancing services and We targeted specific groups of stakeholders based on
system as well as about users’
their level of interest/impact and influence on this topic,
requirements for their provision in the
future. We asked how useful the current and we reached them through several channels including
capacity and balancing services are and a specific workshop, webinars, one-to-one meetings,
also what their functional and non- attending industry forums and surveys.
functional requirements are for a future
capacity and balancing system. More recently, we shared our updated proposals for
Channel/method Workshops, webinars, 1-2-1 meetings, Gemini at the operational gas forum. Out of the 20
industry forums, surveys. attendees, 10 completed the survey, out of this 6 stated
Key messages Do the basics well, make it easier for their preferred option was the ‘enhanced solution’ and 2
stakeholders through greater automation said their preferred option was ‘re-write with commercial
and increased reporting functionality
off-the-shelf products’. Two other attendees highlighted
whilst minimising the impact of change.
Trade-offs and We have worked with stakeholders to
‘re-write with bespoke application’ as their preference.
stakeholder understand their requirements to help us For more details about this, please see the engagement
influence on the determine if what was most economical log in annex A17.02.
plan for consumers, is either replacement or
re-platforming.
SUG and Challenge on what could be required
challenge group during RIIO-3. We have stated in both the
feedback next section and in annex A17.04 the
potential future options for RIIO-3.

Table 17.16 system transformation proposals
What our stakeholders have told us Commitment Output type Consumer benefit
In relation to Gemini: do the basics We will invest in our Gemini system as Commitment “I want to use energy as
well, make our lives easier through it needs to be refreshed due to lifespan and when I want” –
greater automation and increased ensuring it continues to function and investing in the digital
reporting functionality, and minimise the also deliver the enhancements our systems so the gas market
impact of change. stakeholders want. and industry is able to
continue providing energy
Through RIIO-2 we need to ensure they Our IT systems play a central role in Commitment to consumers.
can facilitate the industry change that how the gas market operates. We will
stakeholders require, which will be at invest in IT systems that support our
heart of the energy transition delivery of market change.
The current Gemini system will become unsupported in Because cost isn’t the only deciding factor, we’ve
2025. Coupled with this is the need to have a system developed a series of metrics to assess the quantifiable
which is agile in response to industry change and can and non-quantifiable benefits of each option, and these
also respond to feedback received from stakeholders are described in detail in the justification paper annex
throughout this RIIO-2 business planning process. To A17.04. Briefly, these metrics are:
maintain supportability and deliver on stakeholders’  implementation costs
requirements, we have considered five options for  service & performance risk
investment in RIIO-2. These options build in terms of the  change delivery ease/cost
level of intervention, and therefore costs. The options  user experience/interface
considered are:  customer impact
1. sustain (invest in system to maintain current  subsequent operating costs.
capability and functionality) (£13.6m)
2. hosting modernity (cloud-based hosting) (£19.6m) Following assessment against these metrics, the preferred
3. enhanced solution (invest to improve capability and option is the ‘enhanced solution’– option 3, which is
functionality to meet stakeholder needs) (£24m) £24m over the RIIO-2 period with a completion date of
4. re-write the application using commercial off-the- 2025. Although this is not the least cost option, it is
shelf products (£25m) believed this solution will give the greatest benefits to
5. re-write with bespoke application. (£37m). consumers as it will improve quality of service by
150
delivering the enhancements that industry have identified, Additionally, we need to ensure our IT systems which
making shippers’ businesses more efficient which will support commercial and market processes facilitate the
ultimately lower consumer bills. The additional gas regulatory change to enable the decarbonisation
enhancements from delivering this option meet the pathways. As we have stated before we expect a
requirements of a better user experience, system significant amount of industry change that we will be
optimisation and making the application easier to change. expected to deliver and enable for our stakeholders. We
expect to have to do additional regulatory driven Gemini
This option would: system enhancements (~£14.9m). The balancing and
 enable easier and faster delivery of change to the capacity processes and services which the Gemini system
application and reduce the run of the business costs supports are at the centre of the GB gas market. Additional
associated with the system there are some regulatory and market driven non-Gemini
 improve the user interface changes that we anticipate will impact some of our other IT
 provide better and more flexible access to the systems (~£11.0m). These include changes to support
underlying data information provision and operational processes which are
 introduce process automation to reduce setup times for supported by MIPI and GCS respectively. This investment
auctions and other processes. covers delivery of changes to the system to reflect industry
For further details, see our EJP annex A17.04 and our change to these areas and more detail can be found in the
CBA annex A17.05. IT investment annex A20.03.
Native competition
Table 17.17 cost certainty Currently, the Gemini enhancement work will be
Cost undertaken through Xoserve. This is because it is the only
Cost forecast NARM or
realised company in the CDSP role. However, as we approach the
based on External Volume
from
RIIO-1
competitive Benchmark driven more detailed scoping of works101 we will try to ensure they
process PCD are the most efficient company to deliver our requirements.
actuals
Yes- Additionally, Xoserve’s costs already face a high degree of
sustain scrutiny through their annual business planning process
No No No and, ultimately, by the Xoserve Board.
element of
options 3),
5. How will we deliver?
The forecast costs for each option have been derived by The Gemini work will be delivered through an upfront
using historical project costs, this has included re- allowance. This will allow us to explore other options for
platforming costs incurred within RIIO-1, application their provision, ensuring that these services are efficient,
change costs (e.g. GB Charging Reforms) and previous fit for the future, and will benefit the industry and end
enhancements delivered. These costs have then been consumers.
scaled up or down depending on the level of intervention
required for the delivery of each option and efficiencies 6. Risks and uncertainty
applied where appropriate. Market estimates have also There are risks around the assumptions, primarily
been used to forecast costs of the Oracle upgrade and associated with the cost of implementing change. There
cloud migration. These costs have been validated with is the added possibility that customers may seek to
WIPRO, a leading global information technology, recharge costs to us to adapt their systems and
consulting and outsourcing company. processes if we are driving levels of change that are
beyond what they may have costed into their contracts.
The Gemini system requires a technical refresh every 5 We have detailed our risks and associated mitigations in
years to ensure that vendor support is maintained our EJP annex A17.04.
regardless of whether this is following a previous sustain
or system replacement. Therefore, even if either of the 2
replacement options were carried out in RIIO-2, the
system would require a further sustain in RIIO-3 (circa
2030). As outlined in the justification paper and
highlighted in the heat map, the “enhanced solution”
option provides the benefits of a supported system whilst
meeting stakeholders needs in the most cost efficient
way. At this stage, there are no signals (e.g. stakeholder
requirements, industry change) that require a replacement
system to deliver additional capability in RIIO-2. More
information on this is included in annex A17.04.
101
This has not been done before the December business plan
submission.
151
I want all the information I need to run my business, and to understand what you do and why
18. I want all the information I need to run

my business, and to understand what you
do and why
Transparency and information are fundamental to stakeholders’ ability to operate their businesses efficiently and
effectively. Our data and insights provide value for consumers by ensuring that the gas market runs smoothly. It also
promotes competition in the wholesale market, allowing participants to plan, prepare and operate effectively. We
recognise that our stakeholders need us to provide good quality information and data to inform their business
decisions.

They have told us they want more accurate information, faster access to it and a better way to ask us for new kinds of
information.
During RIIO-2, we will:

 champion open data sharing across the energy industry, working with network companies to build a whole system
view
 commit to establishing a transparent governance structure, agreed with the industry, to admit and publish new data
items with greater speed and flexibility than ever before
 invest in our people and IT systems, taking advantage of technology to develop new capabilities allowing us to
share information in better ways
 be more transparent than ever about our performance by updating our business plan with stakeholders, retaining
the independent stakeholder user group and ensuring our leadership team’s remuneration is clearly aligned with
delivering outputs for stakeholders.
The total RIIO-2 spend for this area is £39.5m. This is £7.9m annually (compared to £8.1m annually in RIIO-1) and
around 1% of our total business plan. The decrease is caused by a reduction in our Xoserve costs relating to the
balancing and capacity system which is partly offset by an increase in investment in IT systems.
Figure 18.01 RIIO-1 and RIIO-2 spend profile ‘I want all the information I need…’
RIIO costs
£12
£10
£8
£m
£6
£4
£2
£0
Reporting year
152
1. What is this stakeholder priority about? our information provides transparency about what we do
This priority is about ensuring we provide the right kinds and why, in terms of our investment decisions,
of information to the wider industry to meet its needs. It’s operational decisions and performance. The following
also about how we communicate with all our stakeholders table lists the specific information that allows us to
and provide transparency about our decision-making. provide transparency in these areas.
Clear information enables stakeholders to operate their Table 18.03 our information
businesses efficiently and effectively. The information we Activity Obligated information Discretionary
share allows market participants to make informed information
decisions. This might be about the investments they Long term Gas Ten Year Statement Gas Future
make, how they trade in the market or how they run their (>10 years) (GTYS) Operability
plant and equipment. Our data and insights provide value Future Energy Scenarios Planning
for consumers by ensuring that the gas market runs (GFOP)
Medium term Summer/Winter Outlook Collaboration
smoothly. Our information also promotes competition in
(one Winter Consultation platform
the wholesale market. Being transparent about decisions year/within Maintenance plans
enables stakeholders to understand how we might act year) Maintenance notices
when similar events occur in future and how they can Capacity auctions
optimise their own operations. In short, information is Charging tariffs
crucial to the efficient operation of the gas industry, which Operational forums
ultimately affects consumer bills. Liaison meetings
Distribution network forums
2. Our activities and current performance Short term (a REMIT information
Our key activities associated with the information few days MIPI information
ahead/on-the- PDWS information
provision priority are summarised in figure 18.02 below. day)
Much of the activity undertaken to operate the network is Post-event Incentives reporting Collaboration
published as information for the industry. (after the day) MIPI information site (day in
Winter Review document brief)
We provide information that covers a broad range of Charging and billing
areas and timescales. We publish documents such as the
System Management Principles Statement and related Track record in RIIO-1
procurement guidelines to set upfront expectations of how During RIIO-1, we have focused our efforts on being
we will operate the system. Long-term insights show how more proactive about the information we provide because
the network could evolve in future and how we plan for we recognise that it has an important part to play in
that. They also provide transparency about the enabling society’s transition to a low-carbon future and
investment decisions we are making. We provide guides the shift to a ‘whole energy system’ approach.
and support for activities such as the connection and Stakeholders can see this in the changes made to the
capacity reservation process. We do this so that GTYS during RIIO-1 because it now shows our decision-
stakeholders know what to expect from us as they go making processes. It captures the thinking behind the
through these processes. choices we make as we move towards a low-carbon
Figure 18.02 our information timelines energy future.
During RIIO-1, we began producing the Gas Future

Operability Planning (GFOP) document, this describes
how a low-carbon energy future may impact gas network
operability. Operability is a growing consideration for us
and we wanted to start a conversation about it so that the
market can work with us to meet these possible
Our medium-term information informs the energy industry challenges. Through 2018 we undertook a significant
and allows it to prepare, offering a view on how they piece of work to engage with industry on ways to improve
could use the system and the cost of doing so. The our operational data provision and we are putting new
charging statements we publish set out how we calculate streams of information in place where demand from
charges, as well as the charges themselves. They help stakeholders is clear. One example is the week-ahead
the energy industry to make informed commercial and pressure forecast launched in August 2018102. We have
operational decisions to ensure the overall effectiveness spent all our allowances to deliver these improvements.
and efficiency of the market and its operation.
We are supporting initiatives like the energy data
Short-term ‘on-day’ and ‘after-the-day’ information taskforce. It brings together industry and the public sector
supports efficiency in the capacity and energy markets. It to reduce costs and promote competition, innovation and
does this by providing fair and timely access to new business models. It will review the data landscape,
operational and market information. Our intention is that
102 https://www.nationalgridgas.com/data-and-operations/transmission-operational-data - tab-4
153
identify gaps and make recommendations for how data provide an explicit link to consumer value. More than
can be used more effectively in the energy system. ever before, customers are sharing why they need the
data they ask for, which will become more important as
Innovation in RIIO-1 we progress through RIIO-2. This insight has been
During RIIO-1, we launched the Gas Operational Data used to inform our RIIO-2 proposals.
Community103 to create effective communications
channels with our stakeholders. Taking inspiration from 3. What have stakeholders told us?
outside the energy industry, we are utilising discussion Stakeholders value the information we provide, they see
boards and a voting system to inform any improvements the data we supply as crucial in managing their
to information provision we make. To date, more than commercial processes. More information is available in
250 customers have registered on the innovative and our engagement log in annex A18.01.
agile collaboration platform. The insights we’ve gathered

Information provision
Stakeholders Connected customers (terminal operators, storage operators, power stations), traders, shippers,
consumers industry groups, academics.
Objective Understand views from a wide variety of stakeholders in relation to transparency, our current reporting and
new requirements.
Channel Gas operational data community, liaison meetings, operational forums, customer and stakeholder
satisfactions scores and comments, RIIO-2 stakeholder regional events, stakeholder 1-2-1s, and webinars.
Key messages Provide information and data at a greater frequency – preferably as near real-time as possible.
The ability to pull data from our systems, less interest in having data pushed.
Use of application programming interfaces (APIs) to manipulate raw data.
More consistency and accuracy of data. More pressure and gas quality data and more in-depth analysis
and transparency around balancing actions.
Trade-offs and From our RIIO-1 BAU engagement, we have continued to engage and improve our information offering
stakeholder based on the key feedback to ensure accuracy and meeting the new information requirements of our
influence on the plan stakeholders.
SUG and Challenge We have taken on board SUG feedback in how we ensure we deliver on information commitments in
Group feedback section 4 through reporting and via the stakeholder prioritisation process. The CG reiterated the need to
ensure that pay and reward is aligned to our business plan outcomes, which we have specified.
What our Commitment Output Type Consumer benefit
stakeholders
have told us
Provide more Quality of demand forecast incentive schemes (day ahead ODI Current Our information and
consistency and 2-5 day schemes). Retain incentives schemes to drive proposed cap: insights provide
and accuracy forecast accuracy. Make incentive tougher to achieve against £8.0m / collar £2.5m value for consumers
of data. by reducing the performance gradient, recognising that per year by ensuring that the
demand forecasting is becoming increasingly challenging. Target: D-1: ~8.5 gas market runs
mcm/d , D-2 to D-5: smoothly.
13.7 mcm/d
Implement system changes to detect and resolve data Commitment It also promotes
inaccuracies and ensure timeliness of our data delivery. competition in the
Revolutionise data publication mechanisms to significantly wholesale market –
increase the availability and resilience of our systems. allowing participants
Provide more Investing in our people and IT systems, taking advantage of Commitment to plan, prepare and
information, technology to develop new capabilities allowing us to share operate effectively.
faster access information in better ways, see more in annex A14.25.
to it and an Commit to establishing a transparent governance structure, Better
easy way to agreed with the industry, to include and publish new data items understanding of
ask for new with greater speed and flexibility than ever before. role we play, giving
kinds of Provide system flexibility to enable changes to our data a clearer link
information. publication mechanisms are quicker and at a lower cost. between consumer
bill and our
Transparency Be more transparent than ever by continuing to provide Commitment
contribution to it and
is key. regulatory reporting, continuing to update our business plan
the service we
with stakeholders (see chapter 10), retaining the independent
provide.
stakeholder user group and ensuring our leadership team’s
remuneration is clearly aligned with delivering outputs for
stakeholders.
103
https://datacommunity.nationalgridgas.com/
154
We recognise that we should be held to account to deliver We will continue with our enhanced stakeholder
on our commitments. We will achieve this in two ways; engagement programme indefinitely outside of the price
firstly, through establishing a transparent governance control preparation process, keeping up conversations
structure, agreed with the industry. Secondly, the specific about our long-term plans even when there is no
IT projects that support this priority will be reported on regulatory need to do so. This should improve the outputs
through the RIIO-2 regulatory reporting. we deliver for all stakeholders and reduce the costs of
delivery as resources become more focused on what
Our aim is to have a customer-focused, data-centric people tell us they want.
approach, not just meeting our obligations on data
provision but also enabling transparency that promotes Our proposal to retain the independent stakeholder
efficiencies in the wholesale market. We have made user group (SUG)
significant strides to achieving this during RIIO-1 and will An enduring role for the SUG in RIIO-2 will add significant
continue our efforts through RIIO-2. value to National Grid, our customers and consumers. An
Customers say the information we provide is important effective SUG will therefore be an important, integrated
and there’s an ever-growing list of improvements they part of our broader stakeholder engagement programme;
would like to see, focusing both on the data itself and on increasing confidence across RIIO-2, improving
how they can access it: transparency of our performance and challenging our
 We will be transparent in what we do, enabling decision-making. The challenge and scrutiny provided by
competition and fostering innovation by sharing our data the SUG ensures a more systematic and strategic
openly wherever possible. We will put an emphasis on approach to stakeholder engagement and that
collaborating and sharing data with network companies stakeholder feedback is actioned in the most effective
to build a whole system view. way, with the findings used to directly inform business
 We will move towards providing open, automated, and decisions. As well as making our activities more effective
machine-readable data wherever possible. Our data will and cost efficient, the group will help generate systematic
be presumed open, with access only ever being insight (‘data’) which will be an early indicator of changes,
restricted to mitigate security, privacy, legal or which will enable us to be more dynamic in response.
consumer impact risks. This is particularly pertinent to the energy transition and
 We will champion open data-sharing and governance will be valuable in areas such as innovation and
across the energy industry. Data access improves decarbonisation. Read more on the enduring role of the
market efficiency and creates the conditions for SUG and our enduring engagement in chapter 10.
innovation across industry, leading to lower consumer
bills and more benefits to society. Ensuring our people are aligned and committed to
delivering the right outcomes
Transparency of our performance We believe that our people play a vital role in delivering
Regulatory reporting the commitments set out in our business plan. Our annual
To make our performance transparent we publish annual bonus plans incentivise the delivery of both financial,
information on our outputs and spend against our strategic and operational measures (such as customer,
allowances. This information can be complicated, but we network delivery, environment, safety and people
will make it easy to understand what we have delivered measures) and the demonstration of our leadership
for consumers and how our financial returns clearly link to qualities and living our values; measures are subject to
what we delivered. A key element of providing change to ensure we reflect the right focus on our
transparency on our performance is having targets for the priorities. This ensures a clear line of sight between
service levels we will provide. In our annual RIIO-1 individual performance and contribution and delivery of
performance report, we explain each year how well we our business strategy and key objectives, which overall
have performed against our outputs. We will continue to will provide value for our customers and investors. The
do this throughout RIIO-2. We are exploring how we tailor current annual bonus scheme comprises of two elements;
our reporting to meet our stakeholders’ needs and clearly the first is has five components, bonus will be based
and simply set out what stakeholders want to know. We on reducing costs (12%), RIIO-1 network output
will continue to engage with them on how to improve our measures (12%), safety (12%), customer satisfaction
annual performance report and adapt it to their changing (12%) and employee enablement (12%). The second
needs. element relates to personal objectives (40%) that are
aligned to priorities of the year; for example, this year we
Updating our business plan with stakeholders are focusing on delivering our customer experience
Stakeholders told us that the opportunity to help shape transformation, our operational and
updates to our annual business plan is something they financial commitments. We will continue with this
expect. They want this to be a genuine two-way framework into RIIO-2 as this allows us to focus on what
engagement process, although they would also find it is important to our stakeholders and will drive the greatest
useful to have regular updates from us about what we’re benefit for consumers. Similarly, our long-term incentive
doing and how we’re performing. Adopting a more plans also include key performance measures taking
externally-focused approach will increase transparency account of our financial, strategic and operational
and ensure we deliver what is important for all priorities. To reinforce the long-term nature of this
stakeholders. incentives, awards are made in shares after a three-year
155
period. Both our short-term and long-term incentive plans and systems than we can absorb through more efficient
are subject to clawback. processes. External uncertainty also exists about the
potential impact on our systems and processes of
5. How will we deliver? changes that become necessary because of uniform
Our IT systems underpin the information we provide and network code evolution. We propose that allowances for
how we share it with stakeholders. During RIIO-2, we will these activities be fixed upfront. On an annual basis,
invest to maintain our systems to ensure they’re reliable utilising the community collaboration platform to engage
and enhance our capabilities to provide more information with stakeholders, we will prioritise the developments that
and different ways to access and use it. To meet these we will pursue over the coming year. Through this
needs, we plan to invest in the following capabilities: approach we will be transparent about the benefits of
 digital experience channel and engagement developments and limits of our capacity to implement
 insights and innovation. changes in our information provision.
We will continue to support the gas operational data
community and maintain an industry engagement 7. Our proposed costs for RIIO-2
platform to understand what customers want, and to The calculation and invoicing of customers’ energy
ensure we have open conversations about how to balancing, capacity and commodity charges are delivered
prioritise their needs. We will continue to collaborate with by Xoserve either directly or through automated
stakeholders as the industry drives ahead with the Energy processes via the Gemini system. These costs are
Data Task Force’s recommendations of digitalisation and funded 100% in full by us. Capital investments in new
data transparency. We expect to deliver more for our systems are included in chapter 17. Our direct operational
customers during RIIO-2 with broadly the same number costs remain consistent with RIIO-1. The demands of
of people. change will be largely offset by our continued focus on
efficiency. There are several capital investments in our IT
Innovation in RIIO-2 system that we expect to make during RIIO-2. Through
As we move towards a more decarbonised and digitised RIIO-1, we undertook a significant upgrade to our core
environment, it will be important to develop our tools and network control systems. To support resilience whilst
capabilities to deliver the information our customers want. these upgrades were made, investment in related
Table 18.06 RIIO-2 innovation systems was kept at a minimum. There is therefore
Theme Commentary technical debt in our information provision systems that
needs to be addressed through the investments required
Update our systems to collect and
Fit for the during RIIO-2. These investments can be split into asset
provide data to provide efficiencies and
future health-type upgrades to maintain our existing capabilities
improvements.
Ready for Use applications that can provide real and those that will support us in continuing to meet the
decarbonisation benefit to the us and others. needs of our customers and the wider industry, please
Improve existing forecasting tools to see IT annex A20.03.
Decarbonised
enable whole system demand Table 18.07 cost certainty
energy system
forecasting. Cost realised Cost forecast External NARM or
from RIIO-1 based on benchmark volume
6. Risk and uncertainty actuals competitive driven
Developing our information services together with process PCD
customers poses a risk. As customer expectations Yes, opex costs No Yes, IT No
benchmarked
continue to grow, we may need to invest more in people
Table 18.08 summary of information costs by activity

Activity spend Total Annual Annual
2022 2023 2024 2025 2026
Systems 1.8 2.4 2.5 2.2 1.6 10.5 2.1 1.7
People and services 2.0 2.1 2.1 2.0 2.0 10.2 2.0 1.9
Xoserve costs 3.8 3.8 3.8 3.7 3.7 18.8 3.8 4.4
Pension costs 0.1 0.1 0.1 0.1 0.1 0.5 0.1 0.0
Grand Total 7.6 8.2 8.3 8.0 7.4 39.5 7.9 8.1
Table 18.09 summary of information costs by RRP category
RRP category (£m in Total Annual Annual
2022 2023 2024 2025 2026
18/19 prices) RIIO-2 RIIO-2 RIIO-1
Direct costs (BPDT
5.8 5.8 5.8 5.7 5.7 28.7 5.7 5.0
2.02)
SO capex (BPDT 3.08) 1.8 2.4 2.5 2.2 1.6 10.5 2.1 1.7
Controllable pension
0.1 0.1 0.1 0.1 0.1 0.5 0.1 0
costs (BPDT 2.02)
Grand total 7.6 8.2 8.3 8.0 7.4 39.5 7.9 8.1
156
I want to connect to the transmission system
19 – I want to connect to the transmission

system
This priority is about what we do to connect, modify or disconnect new and existing sources of gas supply and demand
as our customers’ requirements change. Our connections service is essential to the effective working of the competitive
wholesale energy market. It is an enabler for decarbonisation of the gas and electricity systems and it can support the
connection of new low-carbon biomethane sources.

Stakeholders have told us they want it to be quicker and cheaper to connect and for us to be more transparent in our
processes. They want our connections service to enable decarbonisation, decentralisation and future energy systems
transition.
During RIIO-2 we will:

 be proactive in marketing of connections, actively looking for new low carbon connection customers
 continue to support the liquidity of the energy market by providing an efficient process for connection and capacity
applications and making process and policy improvements
 make best use of the existing network and put a simpler process in place to substitute unused capacity
 deliver more capacity where underpinned by customer commitment and informed by robust options analysis.
Figure 19.01 RIIO-1 and RIIO-2 spend profile ‘I want to connect to the transmission system’
RIIO costs
£8
£6
£m
£4
£2
£0
Reporting year
We will spend £3m per year (0.5 per cent of our RIIO-2 plan) of base revenue to run connections and capacity
processes, including customer service improvements, through enhanced digital tools. We will be investing in the
automation of parts of the connections process to boost efficiency, so more resources can be used to add value to
customer interactions.
We have received a planning and advanced reservation of capacity agreement (PARCA) application in South Wales at
the Milford Haven aggregated system entry point. If this scheme proceeds, we expect physical reinforcement of the
network will be necessary. Funding for this would be outside our base revenue and covered by an uncertainty
mechanism.
157

1. What is this stakeholder priority about? Figure 19.02 connection applications in RIIO-1
Our network connects supplies from nine gas importation
Connections
facilities to nearly 100 offtakes for distribution networks,
power stations and interconnectors, as well as eight 20
Number of connection
storage sites. Four of the importation terminals provided
15
over 80% of total GB gas supply in 2017/18.
applications
10
As well as the physical connections, we manage the
5
processes customers use to reserve capacity which
enable them to flow gas onto or off the network. If there is 0
not enough existing network capability, load-related 2014-15 2015-16 2016-17 2017-18
reinforcement of the network may be necessary to
provide additional capacity. Sometimes we also divert Carried Over Received
parts of our network to make way for other national and
local infrastructure developments, for example road, rail Figure 19.03 capacity applications in RIIO-1
and housing developments. The costs are met by the Capacity
relevant developers. We also provide support to our
stakeholders by administering the processes to bring new 20
Number of capacity
industry participants into the market, so they can trade 15
applications
and/or bring gas into or out of GB.
10
2. Our activities and current performance 5
Track record
0
Our connections performance is a current RIIO-1 output
2014-15 2015-16 2016-17 2017-18
measure monitored by Ofgem. We publish quarterly
reports about our connections performance on our Carried Over Received
website104. We have seen an increase in connection and
capacity application workload. This is driven by: Customer satisfaction
 interest from new entrants with smaller flow rates, such We are incentivised to improve our customer and
as biogas and compressed natural gas connections stakeholder satisfaction (CSAT & SSAT). We have
 customers modifying terms to maximise value from increased our CSAT score from 7.1 at the start of RIIO-1
existing sites or assets to 7.8 in 2018/19.
 customers seeking to align gas connection and capacity Figure 19.04 CSAT and SSAT scores
reservations with electricity capacity market timelines
8.5
 increased activity around disconnections and
decommissioning. 8
In response we have issued all customer offers on
time105. We have listened to what customers want and 7.5
innovated through our customer low cost connections
(CLoCC) project to make it easier for new types of 7
customer to connect to our network. 6.5
2014 2015 2016 2017 2018 2019
Connections and capacity processes
Our connection obligations are set out in the Uniform CSAT score SSAT score
Network Code (UNC). It is the number and type of
connection and capacity applications we receive that We believe improvement in our scores is attributable to
drives our volume of work, rather than the volume of changes we have made during RIIO-1 to become more
connected supply or demand. The level of connection customer-focused. We are listening more intently than
activity is inherently uncertain and dependent on ever before to our customers’ needs (see customer
changing customer and energy market requirements. journey and customer satisfaction sections below).
The costs of our connections, diversions and capacity Customer journeys

reservation work are paid by the relevant customers on a We interact with customers through the complete lifecycle
cost pass-through (no-profit) basis. If firm customer of their projects from initial enquiry, application,
commitments trigger deeper network reinforcement, our commissioning, operation and disconnection to
costs for the work would be met by a separate revenue decommissioning. Our customer journey work has been
driver106 mechanism agreed with Ofgem. focused on transforming the experience customers have
through their lifecycle with us. Our ambition is to meet
and exceed our customers’ expectations, so we have
104 106
https://www.nationalgridgas.com/connections/applying-connection Special Conditions 5F/5G of the gas transporter licence by which
105
One connection offer delivered two days outside specified timescale NGGT allowed revenue may be adjusted for provision of incremental
with consent of the customer in question entry/exit capacity.
158

engaged with them to understand their pain points,  A new online gas connection application portal to
thoughts and views on the service we provide. We provide improved and standardised information.
regularly ask our customers for informal feedback and It allows potential customers to identify candidate
undertake formal customer satisfaction surveys. This connection points through a map-based interface and to
feedback has also helped shape the proposals for the be provided with capacity availability and immediate cost
RIIO-2 period. estimates. There is 24/7 access to check and track
application progress. We currently have 66 companies
Our focus on improving the customer experience has registered, and 103 cost estimates have been completed
delivered (amongst other things): by these potential customers exploring connection
 implementation of a customer transformation options. Historically, we have received approximately 10
programme focussed on key principles generated pre-connection requests over a 12-month period,
through customer feedback therefore this increase in connection interest is notable. In
 formation of a monthly experience governance body addition, feedback on the delivery of the new online
chaired by our Chief Operating Officer to challenge connections platform from SSAT scores has been
decisions that affect our customers and net promoter overwhelmingly positive, with one customer (a biogas
score (NPS)107 programme to drive cultural changes company) providing a satisfaction score of 10.
at all levels of our organisation
 the development of a customer relationship  New pre-approved and pre-appraised standard
management system that, moving forward, will enable design connections. Suitability of over 200 AGI sites for
a consistent experience, drive efficiency and support accommodating standardised connections have been
our goal of delivering a personalised customer pre-screened and implemented in the software platform.
experience.
 Improved commercial terms, implemented through
Facilitating energy markets and decarbonisation code modifications where necessary. Upfront application
Our connections service provides essential ‘liquidity’ for fees are reduced from £109k to £13k for simple
the competitive wholesale gas market to work effectively, connections and we have created a quicker route through
allowing market participants to bring the cheapest capacity reservation for pre-screened, green light
sources of gas supply into the GB market through connection locations.
different entry points. Most of our exit direct connections
to date have been for gas-fuelled power stations and Optimising use of the existing system
these help the electricity market to operate competitively. As we moved into the RIIO-1 period, there was significant
Our connections service is a key enabler for uncertainty about the supply and demand mix covering
decarbonisation, decentralisation and future energy storage, liquefied natural gas (LNG) imports and potential
systems transition. For example, we have facilitated the new combined cycle gas turbine (CCGT) power stations.
almost complete switch from coal to gas as the fuel of Given the uncertainty about load-related investment, the
choice for flexible electricity generation; the carbon regulatory framework included uncertainty mechanisms to
intensity of electricity generated from gas is roughly half adjust our base revenue when circumstances changed.
that of electricity from coal108. Our RIIO-1 base revenue did include the Avonmouth
pipeline output (designed to help manage the
Innovation through Project Customer Low Cost consequences of the Avonmouth LNG storage facility
Connections (CLoCC) closure). Through working collaboratively with key
Stakeholders told us that our costs and timescales can be stakeholders, we determined this was not required and
a blocker to connecting to our network, particularly for we returned the relevant allowance of £215m (2017/18
smaller, non-traditional gas producers and consumers. In prices) to consumers.
response, we initiated project CLoCC109 a gas Network
Innovation Competition (NIC) project undertaken When we assess applications, we decide on the most
alongside three small and medium-sized enterprises efficient way to meet our customers’ needs. Where we
(SMEs). CLoCC fundamentally challenged every aspect can, we meet customer capacity requirements by
of our connection process, aiming to provide new substituting capacity from one point on the system to
connection options suitable for the needs of our changing another, and this ensures we make best use of the
customer base. The project met its goals, delivering a existing system. It avoids the cost and time that could be
suite of changes. These pave the way for small and involved in deeper system reinforcement to provide more
medium connections at a cost of less than £1m and in capacity. During the RIIO-1 period (up to 2018), we
less than 12 months from initial enquiry to ‘gas on’. managed all changing customer requirements without
We’ve made key improvements in the following three needing investment in incremental capacity. We have
areas: accommodated the equivalent of several large power
stations through substitution.
107 108
NPS is an index ranging from -100 to +100 that measures the https://www.parliament.uk/documents/post/postpn_383-carbon-
willingness of customers to recommend a company’s products or footprint-electricity-generation.pdf
109
services to others. http://projectclocc.com/
159

Figure 19.05 cumulative use of substitution to meet
Case study – Fordoun, our first compressed
entry and exit requirements during RIIO-1
natural gas (CNG) connection
140 We have been working on a new connection with Air
120 Liquide and CNG Services in Scotland which will be
the first of its kind for the NTS (and for any other 75
100 bar transmission grid in EU). This is a CNG mother
80 station which will use gas from the NTS to fill trailers
GWh/d
to deliver CNG to the whisky industry. This is

60
Europe’s largest such “virtual” pipeline, transporting
40 gas to off-grid distilleries to support the transition
20 from oil (used for raising steam in the boilers) to
cleaner natural gas with a 30% reduction in CO2
0 emissions. This is an exciting development as it is
2014 2015 2016 2017 2018 2019 2020 2021 using the new concept of self build. Under this
Effective from date approach, the customer has been responsible for the
design and build of the whole project including the
New incremental capacity NTS connection assets. In addition, following risk
Substitution will not always provide a solution to meeting assessment, we were able to agree that there was no
customer capacity requirements, there are areas of the requirement for a remotely operable valve to be
network where physical system reinforcement would be installed which helped to reduce the capital costs.
required. On 15 March 2019, we published a notice, in This project has been able to accommodate a
accordance with the uniform network code (UNC), that a number of firsts in our approach to the connection,
planning and advanced reservation of capacity reducing costs to the customer wherever possible.
agreement (PARCA) application in South Wales had Once the project has been fully completed, we will
progressed to Phase 2. Network entry capacity has been review the project with those involved to understand
reserved for 163GWh/d of funded incremental obligated technical and commercial benefits to customers and
entry capacity at the Milford Haven aggregated system consider how this concept can be taken forward.
entry point. The indicative registration date is 1 January
2026. If this scheme proceeds, we expect physical Case study – our first bio-methane
reinforcement of the network in south Wales will be connection
necessary. Funding for this would be outside our base We have been working with Biocow, a leading
revenue and covered by an uncertainty mechanism. operator of anaerobic digestion plants and CNG
Services to develop a connection for biomethane to
The Gas Act, Licence, UNC and subsequent enter the NTS, the first of its kind. This included
methodologies define National Grid’s obligations, allowing a more flexible oxygen specification using a
activities and processes in determining the release of new risk assessment. We are working towards the
incremental capacity. They are subject to review and completion and commissioning of the project in early
amendment through established industry governance 2020. When injection of the biogas begins, it will be
processes and seek to achieve the right balance between the first time a biomethane product enters the high-
user commitment and socialisation of costs across pressure NTS. This underlines our support for the
industry participants. The PARCA process is designed to UK’s Clean Growth Strategy and is an example of
enable customers and National Grid to progress projects how the gas network can be used on the journey to
simultaneously and it contains a number of measures that decarbonise transport, heat and power generation.
mitigate against the possibility of wasted expenditure. We will be working collaboratively with Biocow and
CNG Services to learn from the project and further
Diversions review our policies and procedures in light of this new
We work with various third-party building projects (like connection.
road, rail and housing developments) that are close to our
gas network infrastructure. Where necessary, we divert
our pipelines so that their projects can go ahead without 3. What have stakeholders told us?
compromising the safety of the gas transmission system. The primary stakeholders for this topic are our customers
We co-ordinate our work with third party developers and – people and entities who pay us for the products and
other affected utilities to minimise the costs and services we provide. This includes gas distribution
operational impact of these diversions. So far in the RIIO- networks, shippers and directly connected customers
1 period we have diverted pipelines at a cost of £23m but including gas storage sites and gas-fuelled power
this doesn’t impose a net cost on transmission system stations. We have established relationships with them
customers because it is funded by the relevant third-party through various forums spanning operational matters,
developer on a cost pass-through basis. code changes, connection applications and management
of the various industry commercial agreements involved.
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Table 19.06 stakeholder engagement
Connections
Stakeholder Customers, including entry, exit, shippers and gas distribution networks.
segments engaged
Objective Understand views on current connections service and how this might change in the future.
Channel/method Customer journey engagement, workshops, acceptability testing, webinars and value of the network
study.
Key messages Stakeholders would like greater visibility of capacity for new connections, embed project CLoCC, and
continue to improve customer service and remove blockers for smaller and unconventional parties.
Trade-offs and We tested the acceptability of our proposals. This resulted in the majority of domestic consumers
stakeholder supporting the current plans and related costs (76%), however, 16% of respondents only support the
influence on the proposed actions but not the related costs.
plan
SUG and Challenge The Challenge Group have stated that our work is incomplete in this area based on feedback from some
Group feedback customers who still feel the process for bespoke connections is unacceptably long. We wanted to
acknowledge this feedback from our customers and hope the work we have done to improve standard
connections and the overall connections process shows our commitment to continuous improvement. We
will continue to improve these processes through customer journeys and develop further enhancements
to our connection process. See our proposals below.
Table 19.07 proposals
stakeholders
have told us
Continue to Continue to improve our customer ODI - Current We support affordable energy bills by:
improve satisfaction in RIIO-2 measured by the proposed - providing a better service to new and
customer continued financial incentive. cap 0.5% existing customers, promoting a faster
service, facilitate We will do this through customer journey revenues/ route to market e.g. web portal
decarbonisation work and customer relationship management collar 0.5% - lower connection costs open up new
and the energy systems as we have done throughout RIIO-1 revenues locations where offtake connections were
system and embedding Project CLoCC. Target: 7.8/10 not previously seen as economically viable
transition and We will actively promote NTS connection - keeping costs down helps GB retain a
provide greater opportunities to new classes of customer buoyant energy-intensive industry sector,
visibility of including those developing low carbon in turn supporting employment for UK plc.
capacity for new solutions. We will improve our customer self- Our plan supports a sustainable lower carbon
connections. service capability and provide customers future because we make it easier for lower
with unified, timely and continuous access to carbon biogas to enter our system.
relevant information by continuing to invest in Embedding Project CLoCC could provide
the gas connections applications portal. a consumer value proposition (CVP) of
£33m. For more information on CVP8
please see annex A10.05.
Facilitate the Support the energy market liquidity by Licence Our connections service plays a vital part to
market and meeting timescales for connection and obligation ensure the cheapest sources of gas are
remove blockers capacity offers. available for GB consumers. We are part of a
global gas market. The effectiveness of our
Ofgem has decided to retain our existing processes has an impact upon the
RIIO-1 licence obligation relating to attractiveness of GB as a destination for the
connections – specifically to comply with the economic supply and consumption of gas.
connections process requirements of the We ensure diverse domestic and
UNC. international sources of gas can access our
network efficiently. Diversity contributes
positively to security of supply for consumers.
Optimise use of existing system by Commitment Our plan supports an affordable energy bill
substituting capacity where possible rather because where possible we provide capacity
than building new capacity. without building new assets. This keeps costs
down and avoids uncertainty about the
enduring value of new assets in future.
Deliver more capacity when underpinned by Uncertainty The UM approach avoids anticipatory
customer commitment, informed by robust mechanism - investment (which could give rise to stranded
options analysis and use of incremental Trigger: assets) while enabling a timely response to
capacity reopener. Case-by-case development of new capacity. The UM
basis, 1% approach and associated UNC rules seek to
baseline achieve the right balance between individual
revenue user commitment and socialisation of costs
threshold. across the generality of gas consumers.
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Facilitate We will only seek recovery of pipeline Uncertainty This situation can arise due to the terms of
pipeline diversion costs via transmission charges to mechanism - legacy deeds between National Grid and land
diversions / land the extent that they cannot be reasonably Trigger: owners. We respect the legal rights of owners
developments in recovered from parties requesting the Annual upon whose land our assets are situated,
the vicinity of diversion. iteration while protecting the commercial interests of
our assets More information on UMs is provided in annex reopener gas consumers.
A3.02 and for non-customer funded process, 1%
diversions in annex A19.01. baseline
revenue
threshold.
Customer satisfaction survey (CSAT) Our second key enabler for improved delivery is the
We propose to retain the customer satisfaction incentive implementation of our Customer Relationship
(which is wider than connections), using feedback Management (CRM) system. This system will underpin
gathered through the voice of the customer during the how we manage our customer connection process across
second half of RIIO-1 CSAT process. We shared this at its entire lifecycle. CRM is the most efficient and effective
two webinars and an operational forum. The results are way to manage customer data, our processes for
shown below: interacting with customers and our identification of
Favourable for this being a financial incentive: opportunities or issues. Following deployment in 2018
 webinar 1 100% overall we’ve begun to digitise parts of that journey but, to ensure
 webinar 2 80% customers, 89% all stakeholders. we can offer an end to end simple, tailored and flexible
Favourable for our proposed approach: service to customers, we will need to invest to bring more
 webinar 1 100% overall aspects of our customer interactions into the CRM
 webinar 2 80% customers, 88% all stakeholders. system’s remit.
For more information please see annex A3.03.
RIIO-2 competition
5. How will we deliver? We have considered Ofgem’s business planning
As the energy market decentralises, we have seen a guidance request to identify projects with a value over
surge in connection requests from smaller customers, £50m that are potentially suitable for early competition.
We identify the network reinforcement project to increase
many of whom are new to the sector with less knowledge
entry capacity at Milford Haven as a candidate that meets
of the gas system and the industry’s ways of working.
this threshold value. However, we “unflag” this project on
These new entrants expect easy to use digital tools to
help them connect to the network and existing customers the grounds that we do not think it is suitable for
are also coming to expect easy and instant access to contestability. This is because alternative, non-asset,
solutions have already been thoroughly considered and
information that helps them run their businesses.
ruled out in our assessment of the PARCA application.
We are uniquely qualified to perform this assessment due
IT systems
to our privileged access to information in our joint role as
The changes we are implementing because of Project
CLoCC are spearheading how we are being more TO and SO in GB. For late competition we have flagged it
responsive to all customer needs. Our new gas as it is over £100m. As the project is in early phases it is
too early to know if this would be suitable for late
connection application portal is now live and this will
competition. As the process progresses, we will work with
benefit all customers regardless of size and type.
Ofgem to determine if the project should be considered
Throughout RIIO-2, we will continue to invest in the
for late competition. For further detail see chapter 20.
portal, related internal systems and other aspects of our
website to improve our customer self-service capability
and provide customers with unified, timely and continuous Native competition
To discover the most efficient costs for large projects,
access to relevant information. We will invest in the IT
such as the Milford Haven capacity increase, we will
capability of digital experience, channels and
apply best practice competitive procurement processes.
engagement. New functionality110 introduced by these
tools makes us more efficient, cutting down paperwork, The specific timing and conduct of tender events will be
reducing administration and saving time. For example: determined on a case by case basis considering where
development consent order land use planning approval is
 automatic generation of key files and standard contracts
required.
with customer data
 three types of customer journey; standard connection
Customer choice “self-connect” competition
design, bespoke and PARCA
Some customers have told us they would like the
 email notification to customers and NGGT employees opportunity to deliver their own local connection works,
about changes in application status rather than relying upon us to connect them to our
 customers can self-serve downloading/uploading offers system. We are currently supporting a ‘self-connect’ trial
and acceptances and this will provide valuable learning about the changes
 ability to raise and track invoices. in process, roles, responsibilities and commercial
110
http://projectclocc.com/uncategorised/2257/
162

arrangements that would be necessary to offer a self- is increased interest from customers who want to
connect option more widely. As part of this work, we will connect. This confirms that the time and cost savings
consider if it is appropriate to charge a profit margin on we’ve identified for the application process make
work that we deliver. This should support an overall cost connection to the network a viable option for new kinds of
reduction for our customers. customer. Considering the inherent uncertainty around
future work requirements, we’re proposing that only
Innovation business as usual costs in our control are included in our
Table 19.08 innovation in RIIO-2 base revenue. Expenditure for project specific connection
Theme Projects or capacity schemes will only be incurred if customer
Fit for the Digital platform enhancements to activity triggers a requirement for the work, and it will
future improve our customer self-service either be customer-funded on a case-by-case basis or
capability (business as usual innovation). handled by regulatory uncertainty mechanisms (see
Digital twin technology for customer annex A3.02). This is in consumers’ interests because it
connections. means that, wherever possible, we will only incur costs
Taking a whole energy approach to based upon firm customer commitments.
connections through online tool
enhancements.
Ready for Use artificial intelligence, machine 7. Our proposed costs for RIIO-2
decarbonisation learning to improve our customers’ Our estimated costs for RIIO-2 reflect a balance between
connection experience. the increase in workload we are seeing, our increased
Decarbonised Develop commercial and asset related spending on IT, and the efficiency benefits we expect to
energy system requirements for future hydrogen achieve from working smarter, for example, using the
customer connections. Impact customer portal. We have assumed that we can flex
assessment of hydrogen blending for
existing connection assets.
resources across internal teams to meet peaks and
troughs in workload, with zero net cost for customer-
funded work. The following tables show our system
operator activities base revenue to cover operating costs
6. Risk and uncertainty for the customer account management, connections
Our future workload is uncertain because so much of our contract and network analysis teams who manage our
activity is driven by the number and complexity of the portfolio of commercial agreements with customers.
connection and capacity applications that we receive from Customer service (IT) is for investment for more
customers. We assess workload by tracking the enquiries responsive customer service including: website,
that we have received and monitoring market trends connections portal and customer relationship
including outputs from the Future Energy Scenarios management system.
process. Through Project CLoCC, we already know there
Table 19.09 summary of connections costs by activity

System operator activities 0.9 0.9 0.9 0.9 0.9 4.5 0.9 1.2
Customer service (IT) 1.1 1.5 1.7 1.4 1.3 7.0 1.4 1.3
Pension costs 0.2 0.2 0.2 0.2 0.2 1.0 0.1 0.0
Total spend 2.2 2.6 2.8 2.5 2.4 12.5 2.5 2.6
Note to table 19.09: Diversions and local connection works are not included, as these costs are borne by customers on a cost pass-
through basis.
Table 19.10 summary of connection costs by RRP category
Direct costs (BPDT 2.02) 1.0 1.0 1.0 1.0 0.9 4.8 1.0 1.1
Non-operational capex (BPDT
0.7 1.1 1.2 1.0 1.0 5.0 1.0 1.0
3.07)
SO capex (BPDT 3.08) 0.3 0.4 0.5 0.4 0.3 2.0 0.4 0.3
Controllable pension costs
0.2 0.2 0.2 0.2 0.2 0.8 0.2 0.0
(BPDT 2.02)
Grand total 2.2 2.6 2.8 2.5 2.4 12.5 2.5 2.6
Notes to table 19.10: Direct cost includes the team to carry out connection activities. Non-operational capex includes customer
service improvements (IT).
163
Our plan is efficient and affordable, providing value for money
20. Our plan is efficient and affordable,

providing value for money
One of our key priorities is keeping energy affordable. We strive to keep our impact on domestic and non-domestic
consumer bills low and we work with our customers to keep energy affordable. We have a strong cost-focused culture,
but we also are fully aware of the requirement to balance this with the service we deliver. The current RIIO framework
gives us a strong incentive to deliver our outcomes as efficiently as possible whilst protecting long-term consumer
outcomes. We’ve shown how we continually balance this challenge during RIIO-1 by overspending allowances set by
Ofgem by over £300m, as we believe this is the right thing to do to maintain a safe and reliable network today and into
the future.
What have our stakeholders told us?

Our stakeholders said we must help to keep energy affordable for domestic and non-domestic consumers. We work hard
to keep our impact on bills low, recognising that natural gas is the current low-cost solution as a heat source for vulnerable
consumers and fuel for many non-domestic consumers. The services we provide currently contributes ~£9 to the average
annual domestic energy bill. 82 per cent of non-domestic consumers and 88 per cent of domestic consumers find on
average our RIIO-2 plan acceptable.
Being more efficient to deliver value for money

To deliver our proposals as cost-efficiently as possible we have challenged ourselves to drive efficiencies across all the
activities of this business plan.
 We will continue to extract value from the supply chain using native competition, having used it for 82 per cent of all
external expenditure during RIIO-1.
 For our business support costs, we have reduced our plan by £2m per year in response to benchmarking analysis
and can demonstrate that our costs align with upper quartile efficiency levels.
 For our asset health plan, we have used outturn costs from works delivered in RIIO-1 and built-in forecast efficiencies
from delivered innovations into our RIIO-2 baseline.
Our plan includes the following efficiency commitments;

 Sustaining all operational cost efficiencies from our stretching UK efficiency programme, undertaken during the
latter years of RIIO-1. This saves £30m per year over the full RIIO-2 compared to our forecast cost before we
began the programme period.
 Delivering a further £6m per year of operational cost efficiencies on our activities today by the end of RIIO-
2, which is driven through an ambitious 1.1 per cent per year productivity growth target that is almost three times
the current UK trend.
The resulting underlying operating costs will be 11 per cent lower by the end of RIIO-2 than they are today.
 Delivering £11m per year (4 per cent) efficiency forecast on our baseline direct capital investments. This is
additional to the benefits of previous engineering and asset management innovations that are built into the forecast
costs of our business plan. To achieve the 4 per cent efficiency on our baseline direct capital investments we will
continue to innovate, benchmark, market test and use native competition throughout RIIO-2.
Overall the above deliver a £47m per year reduction in our RIIO-2 costs, which is an 8 per cent efficiency. Beyond
our own efficiency, we will work with Ofgem to identify where competition could be introduced to specific new, large and
separable investment projects.
This chapter demonstrates the value for money of the entire business plan. It also discusses costs not mapped separately
to other stakeholder priorities, including business support costs and non-controllable costs. We include a narrative on IT
costs, to provide a holistic overview of our IT strategy (with specific activities detailed within each stakeholder priority).
164

1. What is this stakeholder priority about? We have sought opportunities to extract value from
We develop, maintain, and operate an economic and the supply chain through greater competition in
efficient network. The essential role that we play enables contracting to achieve lower tender prices and greater
diverse sources of gas to enter the GB wholesale market innovation in both procurement and delivery. We have
and allows market participants to optimise their used native competition for 82 per cent of all external
commercial operations, enabling competition in the expenditure during RIIO-1. We have developed our own
supply of gas and keeping energy costs to consumers as capability in contract and project management excellence
low as possible. so that we are well-positioned to realise the contracting
efficiencies in the delivery phase of our projects.
We know that undertaking our activities has a wider
impact on consumer bills than the cost of our activities We have proactively influenced legislation regarding
alone. By facilitating the effective functioning of the gas the emissions of our compressor fleet. Within the Medium
market, we have a positive impact on the wholesale Combustion Plant (MCP) Directive, the time derogation
energy cost in a way that benefits consumers. This for gas-driven compressors was originally 2025. This
impact was supported by a recent study by professional would have resulted in significant overlap with
services firm EY111. This concluded that, even with perfect investments associated with the earlier large combustion
foresight and without taking account of unexpected short- plant derogation of 2023. Through direct liaison with UK
term shock, failure to maintain the existing capability of government, using our network of industry contacts within
the national transmission system (NTS) could have the EU and MARCOGAZ (the Technical Association of
significant impacts on GB consumers, adding up to the European Natural Gas Industry), we were able to
£877m per year to gas and electricity costs by 2035. lobby EU stakeholders. These actions resulted in
successful influencing of the directive. Crucially, we
In a time of rising energy bills, it is vital that we play our secured a longer derogation for gas compressors that are
part in keeping our costs down for all consumers, required to ensure the safety and security of a national
especially those who are in fuel poverty. In this priority, gas transmission system. These have been given a
we cover how we will continue to focus on carrying further five years, until 2030, to comply with the
out our activities as efficiently as possible for the requirements.
benefit of end consumers.
We have delivered a service that our stakeholders value.
2. Our activities and current performance Maintaining reliability and playing our part in allowing
We have a strong track record of delivering more for consumers to use gas as and when they want. This has
consumers not been easy given some of the challenges we have
In RIIO1 we have undertaken transformation faced, including the trend for our customers to use
programmes to improve capability and drive efficiency the network in different, more flexible ways and the
in our activities, for example, through investing in our data periods of extreme weather conditions we have
and our data analysis capabilities to assist with building a experienced. We have delivered timely customer
modern asset management capability. connections, flexing the network to avoid the need for
deeper reinforcement, and we have exceeded our targets
We have undertaken major restructuring for customer and stakeholder satisfaction, although we
programmes, both early in the period (which optimised acknowledge we have more to do in this area.
our organisation to respond to the challenges of the
RIIO1 period), and more recently to drive further Outputs and costs are linked to ensure accountability
efficiencies in our operating model. for outcomes
Over the last decade, we have seen more uncertainties
We have balanced the challenge of keeping costs low affecting our activities. During RIIO-1 uncertainty has
with protecting long-term consumer outcomes. We have been driven by emerging legislative requirements and a
overspent allowances set by Ofgem by over £300m better understanding of the condition of our assets.
(on asset health, opex and non-operational capex), as we Uncertainty mechanisms (UMs) have been in place to
believe this is the right thing to do to maintain a safe and adjust our allowed revenue during the period to
reliable network today and into the future. reflect uncertainty of requirements, solutions and
associated costs. This manages the risk to consumers
We have sought innovation opportunities to deliver the by ensuring we spend money when the right level of
greatest value for consumers and applied them across our certainty and cost justification is reached. An example
business activities – we do this throughout our activities was the Avonmouth pipeline output, designed to help
but, specifically for network innovation allowance manage the consequences of the Avonmouth liquefied
expenditure to date, we have delivered £4 in value for natural gas (LNG) storage facility closure. Working
every £1 we invested in implemented innovation. collaboratively with key stakeholders, we found this was
not necessary and we returned the relevant revenue
allowance to consumers.
111
Please see annex A12.01.
165

Decisions we make now will affect the outputs and the investing in innovation projects to create future benefits
costs of the network for many years and we have had to for consumers and supporting consumers in fuel poverty.
balance current and future consumer requirements in our
plan. These decisions cover the spending we are The nature of the willingness to pay methodology means
proposing in RIIO-2, the recovery of historic costs and the that some topics are not appropriate for this type of
financial framework used to calculate our revenue. research. For example, anything safety-related tends to
generate an inflated willingness to pay value, which can
The returns delivered by many networks in the RIIO-1 also impact results for other topics. It is also not
period have been heavily scrutinised over the last few appropriate for topics where there is already an
years. Our returns have not been to the same level established value, such as carbon pricing.
because we have needed to spend above allowances to
maintain an appropriate level of risk on the network. We Willingness to pay is useful in providing information on a
do, however, recognise that there are economic reasons range of consumer values for changes in service levels.
why the base return due to shareholders (called the ‘cost Overall our findings concluded that non-domestic and
of equity’) should be lower in the RIIO-2 period. domestic consumers expressed a statistically significant
willingness to pay for the range of services considered.
We contribute 1.6 per cent to the average household
energy bill We have not used these findings to set the size of our
In RIIO-1, our costs contribute around £9 (1.6 per cent) of plan, their magnitude is greater than our proposed costs
the average annual household bill of £569. and they are a sole data point. Instead, we have used
them as an indication of where we may or may not
3. What have stakeholders told us? have consumer support and, for topics where there are
Our stakeholders have said we must help to keep options, as an indication of priorities. They have also
energy affordable for domestic and non-domestic been triangulated with the output of other research and
consumers. Our stakeholders expect us to manage stakeholder engagement. A full report on our willingness
costs and risk in the interest of our direct customers and to pay research can be found in annex A20.01.
wider consumers. We invest to make sure our network
provides the service that our stakeholders need and We have tested the acceptability of our plan
expect. Stakeholders see us as the experts managing the Following our July 2019 draft submission, we carried out
gas transmission system. Our stakeholders are also clear nationally representative quantitative research with the
that we must do this economically and efficiently. specific aim of testing the acceptability of what we’re
More broadly, stakeholders want us to build both proposing. Working with NGET, we appointed Eftec and
transparency and trust. ICS to deliver this joint study.
Consumers care about keeping their energy bill The study presented consumers with our business plan to
affordable. They see energy networks as dependable. confirm if it delivered what consumers need from the gas
This reflects well on how we have managed risk on transmission system at a cost acceptable to them. The
consumers’ behalf in the past and we must continue to do study included domestic and non-domestic consumers,
so in the future. featuring both qualitative and quantitative research
techniques.
We worked with consumers to ensure our plan
delivers what they need, at a price they are willing to Results demonstrated a high level of acceptability for
pay the business plan:
We spoke to organisations with previous consumer  82 per cent of business consumers and 88 per cent of
experience to help build our approach and we asked the domestic consumers find that the average impact of our
independent stakeholder user group and Citizens Advice RIIO-2 plan is “acceptable” (note that the average
to challenge our proposals at appropriate points in the annual consumer bill we presented was £9.54 by 2026,
process. our final RIIO-2 plan presents a final bill impact of £8.85
per year).
We tested consumer willingness to pay  When consumers were asked “what is the maximum
Working with the other transmission networks112 we acceptable change in your transmission bill by 2026?”
appointed consultancy firms Explain and NERA to deliver the average response was payment of a further £11 for
a joint study into willingness to pay (WTP). The research domestic consumers and a 7 per cent increase for non-
took place in early 2019 and has been incorporated within domestic consumers.
our plan. We covered the topics of risk of supply  For those who did not find our plan acceptable, reasons
interruptions, improving the environment around mainly related to financial considerations including
transmission sites, supporting local communities, objections to paying a higher bill and energy companies
making too much profit.
112
National Grid Electricity Transmission, Scottish Hydro Electric
Transmission, Scottish Power Transmission
166

 Acceptability was largely driven by perceived The output of this research was triangulated with the
affordability of the transmission bill, as well as the need output of other research and stakeholder engagement to
to maintain high levels of reliability for business inform the business plan.
consumers. This high level of acceptability is subject to
limits to changes to the overall energy bill.
Table 20.01 stakeholder engagement
Stakeholders Consumers, consumer groups, network companies, regulators, academics, industry trade bodies, supply
chain, shippers, customer entry, customer exit, interest groups, other non-energy.
Objective Understand views on how we provide and demonstrate the value for money of the services we provide.
Channel RIIO-2 stakeholder regional events, stakeholder 1-2-1s, webinars, consumer listening, willingness to pay
study, acceptability study.
Key messages Keeping energy bills affordable is an important priority for domestic and non-domestic consumers and we
have a part to play. Our stakeholders expect us to manage costs and risk in the interest of our direct
customers and wider consumers. We should be as efficient and affordable as possible, explain our
performance and what causes changes in cost.
Trade-offs and Independent triangulation of our engagement found the fact that consumers (domestic, and small and large
stakeholder non-domestic consumers) are willing to pay more across a range of service areas, suggests that our
influence on the proposals are affordable. It is clear on the one hand that consumers and stakeholders are very concerned
plan about affordability, and on the other hand that they are generally happy with our performance in this area.
The overall conclusion is that consumers and stakeholders are accepting of our proposals in this area.
SUG and challenge Following the independent SUG feedback, we have provided more information on the impact of our plan on
group feedback non-domestic consumers and customers; ensured benchmarking is weaved into the plan and included more
on competition; challenged ourselves to articulate more clearly our efficiency story, including appropriate
RIIO-1 to RIIO-2 comparison; included a more detailed explanation of how we will account for real price
effects.

The total cost of delivering the key stakeholder priorities in this plan is £553m per year, excluding real price effects,
pass-through costs and non-baseline funded uncertainty mechanisms. This includes our forecast business support
costs which are described in this chapter, with a forecast cost of £75m per year in RIIO-2, compared to £73m per year
in RIIO-1.
Figure 20.02 our costs
Comparison of RIIO-2
Stakeholder priority Annual RIIO-1 Annual RIIO-2
vs RIIO-1
I want the gas transmission system to be safe £17m £14m -£3m
I want to take gas on and off the transmission system where
£207m £280m +£73m
and when I want
I want you to protect the transmission system from cyber
£36m £118m +£82m
and external threats
I want you to care for the environment and communities £43m £55m +£12m
I want you to facilitate the whole energy system of the future £13m £17m +£4m
I want all the information I need to run my business £8m £8m £0m
I want to connect to the transmission system £4m £3m -£1m
I want you to be efficient and affordable
Business support £73m £75m +£2m
Additional capital efficiency commitment -£11m
Operational cost and productivity efficiency commitment -£6m
£553m £154m
Grand total £399m (Capex £355m,
Opex £198m)
Non-controllable £201, £192m -£9m
RPEs £4m £26m +£22m
5. Being more efficient to deliver value for have taken to give confidence we are providing value for
money money across our capital and operating expenditures.
To deliver our proposals as cost effectively as possible,
we have challenged ourselves to make sure our costs
are as low as they can be, by embedding the benefits
of past innovations, benchmarking analysis and
making stretching efficiency improvement
commitments. In this section, we describe the steps we
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Cost assessment  review of industry wide benchmarking or internal cost
We use a range of tools and techniques to assess costs data.
and give confidence in the efficiency.
Our asset health work involves a wide range of activities,
Capex
from repeatable, standard jobs with low levels of
 Utilising outturn costs from RIIO-1
differentiating factors, through to those that are more
 Detailed unit costs process bespoke, which are therefore, more difficult to apply
 Native competition standard costing. We have, however, employed an
 Benchmarking and best practice approach that considers historical outturn information as
 Robust capital investment process the strongest indicator of future unit costs, with over 81
per cent of our plan using unit costs calculated in this
Opex way. Only where this level of information is not available
 Market tested have we turned to either supplier quotations (which
underpins 15 per cent of our plan), or other estimation
 Cost benchmarking (pay, business support & techniques (upon which the remaining 3 per cent of our
IT) plan is built). Further detail on this approach can be found
 Industry benchmarking (e.g. European in annex A20.17
studies)
Our operational technology cyber unit cost build has gone
Capital expenditure through an identical process. We have used internal UK
Capital expenditure covers all expenditure on our assets, benchmarks from some 36 projects undertaken in the
whether building new ones, replacing or extending the RIIO-1 period to inform our unit costs. This data
lives of old ones. As such the associated activities are inherently reflects the outcome of native competition,
detailed across all the stakeholder priorities in our RIIO-2 where suppliers have been selected through competitive
plan. tender events for the relevant projects in question. Our
most advanced cyber project has been used to inform the
Our capital costs are efficient as we enter RIIO-2 additional costs to achieve cyber security levels in
We use benchmarking evidence, when available, to accordance with ISA 62443 and, in the case of control
demonstrate the efficiency of our costs. We use systems, to meet latest HSE expectations with regard to
native competition to extract value from our supply human factors (human-machine-interface, displays,
chain, with 82 per cent of all external expenditure during ergonomics and streamlining of alarm and trip
RIIO-1 going through a competitive process. For asset management). This up-to-date information is
health, 100 per cent of our capital expenditure over £100k representative of the RIIO-2 work required at other sites,
was subject to competitive tendering. We also drive so the knowledge has been transferred with confidence
innovation across all of our activities to seek the that it is a highly applicable benchmark.
most efficient and effective long-term solution for
consumers. We have a native competition plan
We utilise competitive processes (which follows best
We internally benchmark, drawing on analysis of practice outlined in the sector specific methodology
work completed with the RIIO-1 period decision) for all procurements and projects, except
Our approach considers historical outturn where the potential benefits of doing so are
information as the strongest indicator of future unit outweighed by the costs.
costs.
 We comply with the European Utilities Contracts
Regulations 2016 (UCR) which require the use of
Driven by our commitment to achieve deliverable and
competitive processes for the purchase of goods and
efficient RIIO-2 investment costs, we have
services above a financial threshold (currently ~£363k
comprehensively developed, explored and tested our
for Goods and Services and ~£4.55m for Works).
proposed unit costs with significant focus on our asset
 A competitive process is followed for purchases over
health and cyber cost base.
£20k, with any exceptions to be authorised through
appropriate delegations of authority. For all purchases
We have developed a comprehensive methodology for
greater than £100k, we follow a more defined sourcing
achieving unit cost confidence, where more than one
and tendering process. This is lower than the legal
activity can support the production of final proposed unit
threshold set by the UCR; we choose to do this because
cost, therefore utilising the best information available (in
we believe we can drive more value.
preferential order):
 historical outturn cost information, where we can match
Our competitive process is robust, transparent and
like for like units against delivered programmes;
provides equal treatment of potential bidders and
 supplier quoted costs, matching like for like units
against a tendered but not delivered programme of protects information appropriately.
work;  We treat all bidders fairly and with the appropriate level
 extrapolation to similar types of work or subcomponents of transparency. Bidders trust us not to reveal
of work; and
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confidential information to the market before they make can help them be more efficient, which in turn leads to
their best submission and share innovations. lower costs and better outcomes for customers and
 We ensure confidential information is handled consumers.
appropriately.
 We offer fair payment terms, adopting construction We undertake benchmarking and best practice
supply chain payment charter standards and ensuring sharing activities across a wide range of our
these principles are cascaded through all levels of the business activities
supply chain. We do this to identify best practices and find further
 We drive performance in our contracts by ensuring they business improvements. We invest time and effort to
contain appropriate measures (Key Performance understand how other businesses perform and how we
Indicators) to incentivise suppliers. We measure can adopt approaches that will allow us to drive benefits
supplier performance on a quarterly basis and the for consumers. We participate in various industry
outcomes affect future workload allocation. associations which allows us access to joint research,
innovation projects, benchmarking studies and direct
The complexity of the competitive process used is relationships with other similar organisations. We also
proportionate to the value and time-sensitivity of the engage external benchmarking consultancies to bolster
understanding of our cost base.
project or system need in question
 Our strategic sourcing process enables us to identify the We are in a unique position of being the only gas
optimum way to contract our work considering the transmission business in Great Britain. This means for
value, risk and urgency of the work. asset management costs we need to take a different
 We have set up frameworks to speed up the benchmarking approach than other network companies,
commercial process, reduce tendering costs, drive such as gas distribution networks, where they can look
optimal designs, leverage volume and introduce across the four separate network owners. Our approach
innovation. Our framework agreements allow enough covers:
flexibility to ensure that suppliers can introduce  how we build our asset health costs, which allows
innovation and optimise designs whilst we remain able comparisons from previous schemes
to leverage our volume through the workload allocation  benchmarking across European transmission system
processes. operators for specific spend areas
 For complex, high-value, bespoke or unusual projects  implementing a strategic sourcing approach and using
where we believe we can drive additional value, we various contracting and procurement strategies
retain the option to spot tender and can allow a longer  wider benchmarking initiatives and bespoke activities to
period for tender receipt than the legal minimum. identify comparators, such as the project management
review of our Feeder 9 project and appointing an
Information is provided equally to all parties, and any external challenge group to review our future asset
conflicts of interest are managed management project to learn from best practice.
 We will continue to provide early visibility of the work
plan through quarterly webinars and issuing project European Transmission System Operator (TSO)
briefs to enable our supply chain partners to plan more benchmarking study
effectively. We have already shared our RIIO-2 plan We have participated in an international TSO
through our ongoing six-monthly senior engagement benchmarking study commissioned by the Council of
forums with our key framework suppliers. European Energy Regulators (CEER) of which Ofgem is
 We have appropriate checks in place to identify and a member. The study commenced in February 2018 and
manage any conflicts of interest. the final report was recently published by CEER.
Participants, which comprised of 29 gas TSOs from 16
We are agnostic to technology and bidder type European countries.
 We continue to drive competition into our supply chain
The study examined total costs incurred to deliver high-
by introducing new suppliers. We are open to innovative
level outputs associated with transmission provision,
solutions and remain technology agnostic (where
maintenance and planning (excluding system operation
practicable).
activities). Although the study examined data for the
 Our frameworks are expanding to include installation- period 2012-2017, only results for 2017 have been
only contractors, to increase technology agnosticism by published so far. Consistent with the previous gas TSO
decreasing our reliance on primary equipment benchmark of this type, we feature as an efficient peer
manufacturers. across the range of models.
Competition is structured to generate outcomes in The CEER study seeks to identify the efficiency of the
the interests of current and future consumers overall company approach in terms of the choices made
 We constantly work to increase efficiency, mitigate risks about the mix of activities. To compare TSOs on such a
and optimise whole-life costs. basis meaningfully requires many adjustments to
 We leverage value by being a better client, regularly eliminate uncontrollable factors and so is challenging.
seeking feedback from our supply chain as to how we Currently, participating TSOs are still seeking to
169

understand which results show real differences in with the delegated authority provided by our board to the
performance. Gas Transmission Investment Committee. The purpose of
the governance process is to assure that investments
Gas transmission benchmarking initiative (GTBI) deliver the best value, fit for purpose solutions to
We are a founding member of the Gas Transmission identified problems or opportunities, which meet the
Benchmarking Initiative; a voluntary group of 11 Pan- needs of ourselves, customers and stakeholders. It
European Transmission System Owners who have manages and defines the project lifecycle from inception
worked for over a decade, sharing best practice to help through to closure for all gas transmission investments in
drive efficient network operation and asset management. the regulated business. It includes six stages with ‘gated’
The group is facilitated by a benchmarking consultant, progress to ensure minimum requirements are met for
Juran, who also act to ensure confidentiality and each phase (as set out in figure 20.03), formalises the
anonymity where required by Competition Law. delegation of authority for gate keepers and sets out
mandatory questions to be completed before onwards
Noting the GTBI’s purpose is to share best engineering progression.
practice, we asked this group to participate in a cost
benchmarking study, requesting cost and volume It defines the requirements of an investment needs case,
information for equipment groups that represent 42 per which will include cost benefit analysis (CBA) as required.
cent of our forecast ten-year asset health plan. The needs case is confirmed at every stage before
project delivery. We have increasing cost certainty as we
Early indications from Juran are that it is difficult to draw move through the stage gates. We appoint a front-end
concrete conclusions about the unit costs observed. This engineering design (FEED) contractor at stage 4.3 and a
is caused by limitations on the granularity of data main works contractor at stage 4.4 in figure 20.03. It also
acquired and the lack of full clarity on each company’s sets out the option evaluation and selection process to
costing and accounting systems. To date the most ensure all reasonable options are considered. These can
relevant output from the study to note is that, of the include ‘do nothing’ and commercial options in addition to
entities considered, our network in general comprises the build options. Our investment process is interlinked with
oldest infrastructure. From this we may extrapolate that our Governance Code which provides the means for
you would expect the most significant asset health financial approval and commits the investment to time,
interventions required on our network compared to the scope and cost parameters.
other entities in the study.
There are three possible drivers and routes of entry into
Our robust capital investment process locks in the investment process; network capability and
efficiency legislation, asset health and customer driven (change in
All capital investments follow our governance process. need or load-related).
This assures that we manage capital investment in line
Figure 20.03 our investment process
Our capital costs will stay efficient relate to the day-to-day running of our business and
For RIIO-2 we will deliver a further £11m per year (4 occur year after year, it is particularly important that
per cent) efficiency forecast on our baseline direct we can demonstrate these costs are efficient.
capital investments. This is additional to the benefits of
previous engineering and asset management innovations We have challenged ourselves in RIIO1 to embed
that are built into the forecast costs of our business plan. opex efficiencies to ensure we are efficient as we
To achieve the 4 per cent efficiency on our baseline direct enter the RIIO-2 period.
capital investments we will continue to innovate, use In RIIO-1 we spent around £1,77m per year on our
native competition to extract as much value as possible operating costs. Just under half of this is direct costs on
from the supply chain, market test and benchmark activities that directly impact our assets, such as
(internally and externally). In addition, we are seeking to maintenance activities and asset inspections. The other
leverage benefits from our transformation programmes half is indirect costs on activities such as those related
and our asset health campaign approach. to planning network changes, IT support costs for our
asset management systems, the running of the Gas
5.2 Operating Expenditure National Control Centre and associated applications, and
Our operating costs are the costs we incur on an ongoing support functions such as HR and finance.
basis to maintain and operate our business. As such they
contribute to almost all the stakeholder priorities in our
RIIO-2 plan, with only business support costs not already
included elsewhere in this plan. Collectively, our
operating costs make up 31 per cent of our total
expenditure for the RIIO-2 period and, because they
170

Figure 20.04 how our operating costs are made up resulting re-shaped organisation and cost base make us
fit for delivery in the RIIO-2 period. By moving to our new
operating model in advance of the start of the next price
control we can be transparent with our stakeholders
about our future operating cost base.
We consciously overspent our opex allowances in

RIIO-1 as this was the right thing to do to deliver the
service our stakeholders and consumers need.
We will deliver a further £6m per year of operational

cost efficiencies on our activities by the end of RIIO-2
The mix of our operating cost base has changed over
This is driven through an ambitious 1.1 per cent per annum
time as the result of business decisions and the need to
productivity growth target, which is almost three times the
respond to external challenges.
current UK trend, representing a stretching target on top of
As we entered the RIIO-1 period, we were facing growing
costs that are already at the efficient frontier at the start of
maintenance requirements from an ageing asset base as
RIIO-2.
well as a shortage of adequately trained workers. The
level of opex allowances received for the RIIO-1 period
Collectively these efficiencies and our future productivity
did not fund these upward pressures and consequently
mean our underlying costs will be £20m lower (11 per
gave us a dual challenge of delivering the increasing
cent) by the end of RIIO-2 compared with today.
workload whilst reducing our costs.
Figure 20.05 underlying opex costs reduce by £20m
To meet this challenge, early in the RIIO-1 period we by the end of RIIO-2
reset our operating model to restructure our business
to realign accountabilities, introducing performance
excellence (lean) capabilities and optimising our
support functions for additional workload. This
allowed us to mitigate some of the upward pressures in
workload and reduce our workforce by over 100 roles.
From a direct opex perspective, as we started to deliver

our asset health programme in RIIO-1, we found that we
needed to get a greater understanding of our asset
condition and make more interventions than anticipated.
We invested in asset and asset-condition data
management systems, as well as the resources and
capability to analyse and assess the data we collected. We will manage key cost drivers in our plan
This enabled more informed decision-making around We expect the opex pressures we have experienced in
asset interventions, reducing capex costs. the RIIO-1 period to continue into RIIO-2, and they will, in
From an indirect opex perspective, IT costs increased part, offset the underlying savings we forecast. The three
because of the IT systems we invested in to support our core upward cost drivers relate to:
asset condition data and as we developed our capability 1. IT run costs: The costs of supporting our IT
in identifying and managing the increasing cyber threat to systems has grown through RIIO-1 as we have made
our operations. We also needed to increase the scope of investments in asset data management systems and built
our financial control activities to respond to increasing our capability to respond to an escalating cyber risk.
compliance requirements and focus. The benchmarks Average spend for the early part of RIIO-1 was £21m per
that set our allowances did not take these increased annum, however our IT costs are forecast to reach £29m
activities into account and we were not able to contain by the end of RIIO-1 as we expand our cyber resilience
these costs within our allowances. activities and support investments to make our
More recently, building on the experiences and transactional business support functions more cost
capabilities we developed in the first half of RIIO-1, we efficient. Independent benchmarking experts Gartner
have reshaped our business in readiness for the have confirmed that our IT operating costs are efficient as
changing needs of our customers over the next five we enter RIIO-2.
years. We have undertaken an ambitious, bottom-up IT operating costs show further growth in the first few
review of our business which enables us to bring in years of RIIO-2 as we make further investments to
new skills and capabilities and reduce costs. We have support key business processes and modernise shared IT
identified a suite of coordinated initiatives which will infrastructure and hosting capabilities. However, as the
deliver savings of £30m against our projected costs for impact of our 1.1 per cent per annum future productivity
RIIO-1 by March 2021. This will flow into all years of improvements builds up, costs start to fall again. Overall,
RIIO-2 delivering a total consumer benefit of £30m per this results in IT costs that are £8m per year higher, on
year over the next price control period and bringing our average, than in RIIO-1. We give more detail on the
costs in line with external efficiency benchmarks. The drivers for this transformation in our IT annex A20.03 and
171

set out the options we have considered around these Figure 20.06 through application of efficiencies our
investments. core costs will decrease in RIIO-2 by £5m per year
2. Workforce renewal: Our strategic workforce compared to RIIO-1 average*
planning process has identified that over 20 per cent of
this workforce are due to retire in the period 2020-2030
and we need to act now to recruit and train a new
workforce and pre-empt the loss of experienced
personnel. The additional headcount and training costs
will result in an average £3m per year increase in opex
over RIIO-2. Our sustainable workforce strategy annex
A21.02 provides more detail on these challenges and
how we are responding.
3. Compliance and insurance: We have overspent
allowances in meeting regulatory and financial
compliance activities through RIIO-1 with the additional
requirements and scrutiny that followed the move to a
more outputs and incentive based regulatory regime and
increased focus on controls from external auditors. These *RIIO-1 average based on 2013/14-2018/19 actual costs (as
pressures will build into RIIO-2 with more complex requested by the RIIO-2 Challenge Group). RIIO-2 average
mechanisms being introduced which will reduce the excludes pension admin costs for comparability (previously
potential for windfall gain or loss but add £4m opex per treated as non-totex)
year. In addition, insurance market premiums are
increasing due to external pressures, adding £1m per Our operating costs have been tested for efficiency
year to our opex. We provide more detail on these costs In testing the efficiency of our operating costs, we used a
in our opex annex A20.15. variety of approaches, depending on how the cost was
incurred. When we procure goods and services from third
Collectively these upward drivers will increase opex by parties, we follow rigorous European and UK
£16m per year (relative to RIIO-1 actual expenditure) procurement directives (as required by Official Journal of
meaning that, overall, core operating costs prior to the European Union (OJEU) notices), ensuring that we
enhanced resilience activities will be £5m lower. robustly test the market for prices. This enables us to give
external assurance on our procured costs. Where our
Maintaining protection from external threats In costs relate to our own people and processes, we have
addition to our core operating activities, we are being looked to external and internal benchmarking evidence to
asked to do more to respond to the emerging threat provide this assurance.
around deliberate cyber and physical interference with
our operational assets. We have invested in cyber All of our cost base is either market tested, benchmarked
resilience during RIIO-1 but there is more to do as we for cost or subject to broader industry benchmarking.
enter RIIO-2. Government bodies are guiding Many of these evidence areas overlap with each other but
developments in our approach to cyber and this will in summary:
necessitate both new investment and ongoing operating  51 per cent of our cost base is regularly market tested
costs. We have included opex of £20m per year in our  55 per cent has been recently independently cost
baseline plan for our cyber and physical security benchmarked
activities. For external threats, whether physical or cyber,  60 per cent has been subject to recent, broader
uncertainty mechanisms allow us to adjust our plans industry benchmarking.
should we be asked by the external competent authorities
to do more to ensure we can deliver a highly reliable and 51 per cent of our opex cost base is regularly market
resilient service. tested, with around 45 per cent of our direct opex spent
on externally procured goods and services (such as
specialist plant hire and river crossing surveys to support
our direct opex activities). We also use third party
providers to support most of our IT activities, across
closely associated indirect and business support
categories. Considering contract extension periods,
around 75 per cent of our IT operating costs are
contracted for the RIIO-2 period, giving us a high degree
of certainty over these areas of our cost base.
Our direct costs are efficient

We have structured our direct field-based workforce
in line with an ISO55000 compliant asset
management-based organisational structure. The
workforce is responsible for the operation of our Bacton
172

and St Fergus terminals, and for maintenance, third party as it costs less than each business having its own
response and project support activities across our NTS. functions.
We have built our workforce considering geographies,
minimum safety requirements, and shift patterns in We make sure that each National Grid business pays a
conjunction with our HR policies and discussions with fair share of the costs of these functions, using the unified
trade unions. Structuring our field force in this way builds cost allocation model (UCAM) approach agreed with
a level of resilience into our direct opex costs, as we can Ofgem. Cost allocations are reviewed annually to make
flex utilisation of resource depending on need. For sure these are fair, robust and have not been affected by
example, trends in customer behaviour mean that, for changes to business activities. These allocations are
certain sections of our network, there will be insufficient submitted to Ofgem every year as part of the regulatory
gas flows to support in line inspections (ILI) and instead reporting pack (RRP) process, which includes a
we will need to switch to on line inspections (OLI) which description of any allocation methodologies that have
require increased resource to support. We can contain changed, and why.
these trends within our existing direct opex costs through
increased utilisation of the existing resource needed to Our allocation of business support costs for the RIIO-2
safely cover our national geography. period is £75m per year (compared to £73m per year in
RIIO-1). Of this £55m per year is for operating costs.
Our employees’ pay is in line with other companies in
our sector We regularly use benchmarking exercises to test the
We test our pay deals against our peer group and value that our business support functions deliver
regularly benchmark our employee remuneration to In preparation for our business plan submission, we
ensure it remains in line with the market. Our annual commissioned studies to test the efficiency of our
pay awards are benchmarked against those of network HR, finance, audit and regulation, procurement,
companies and other competitors in the skills market. We property management, CEO & group management
ensure that any deal we put in place with our trade unions and business support IT costs. We did not include
or annual pay rise for managers is in line with our peers, health and safety costs or insurance costs, as the varying
so we do not fall out of step with the market but, equally, levels of risk between businesses means comparisons
we do not become a higher than market payer. are limited in these areas.
From a broader pay benchmark perspective, we We invited The Hackett Group, a global business
undertake periodic assessment of our overall pay levels benchmarking organisation, to perform a high-level
with the latest review completed in 2018 by Korn Ferry (a benchmarking assessment for our combined business
people and organisational consultancy). We adopt a support costs for electricity transmission, gas
single pay framework across our UK regulated transmission and electricity system operator businesses
businesses which means that all our employee (both against comparable sized non-regulated businesses. For
direct and support function) costs have been recently our IT costs, we also engaged Gartner (an industry-
benchmarked. In summary, total cash remuneration was recognised specialist in IT benchmarking) to perform a
in line with median pay for a comparator of 130 entities in more detailed analysis of our operational and non-
the utilities, oil and gas and chemical sectors. operational IT costs, comparing costs for each key activity
(e.g. application support, networks, storage, end-user
Our business support costs are efficient computing) with those of other companies in their
Our business support functions provide services such as database, adjusting for workload (i.e. number of
IT, property management, HR and finance to all the applications, number of services, number of users). We
National Grid businesses. They help with the delivery of did this because simplistic comparisons of total IT costs
our core activities, for example by procuring materials, between companies do not account for factors such as
helping us to find and retain our people, and managing IT the number and level of availability of business
systems. Our support functions also perform key applications supported.
business activities such as financial control, health and
safety and legal compliance. Our business support costs Because of this analysis, we have reduced the costs of
include associated IT infrastructure costs. Our IT our business support functions by £2m per year to align
functions also invest in shared IT infrastructure and with the upper quartile benchmark. In all other areas, the
hosting investments. These costs are covered in section benchmarking analyses showed that our costs were in
9 of this chapter. line with upper quartile world class efficient level after
accounting for the activities we undertake (such as
We operate a shared services model for these functions, regulatory activities, and our obligations as operators of
where a single function provides services across the critical national infrastructure sites), or in line with peers
National Grid group of businesses. This shared services (the recommended level for effective operation of IT) for
model means each National Grid business benefits from IT function costs. These studies and their findings are
economies of scale and use of expertise in each area, as presented in more detail in our opex annex A20.15.
well as taking a proportion of the costs for each function.
This creates efficiencies for each National Grid business,
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Our insurance costs are 23 per cent lower than Within the RIIO-2 framework a further form of competition
commercial market premiums designed to ensure the lowest cost solution for
We insure our businesses through our captive insurance consumers is that of competition for investments.
company, wherever it is efficient to do so. Under this Competition could be introduced to specific new, large
arrangement, insurance is provided by a licenced and separable investment projects. We support
insurance company owned by the group, set up competition where in consumers’ interests and will
specifically to underwrite insurable risks of our business facilitate the introduction into gas transmission by working
operations. We periodically use external consultants to with Ofgem. We have gone through our plan and
review the premiums considered achievable in the identified works that may meet the early and late
commercial market for our risks, to compare these competition criteria from a cost perspective. We have
against the premiums charged and forecast by the reviewed these projects to come up with an initial view of
captive. We last did this in 2019, using Aon Global Risk whether they should be unflagged and the reasons
Consulting and RKH Specialty, who estimated the behind this. With competition being new for gas
commercial market premiums would be over 23 per cent transmission, we will continue to work with Ofgem to work
more than our proposed premiums for RIIO-2. This through these examples and explore further how it could
equates to around £6m of savings to consumers for be implemented. The below table summarises the
the RIIO-2 period. projects that meet the materiality of competition (a value
of £50m):
6. Competition for investments
Figure 20.07 summary of projects that meet early/late competition
Early competition Late competition
Cost
Suitable for Cost criteria
Projects criteria Unflag New Separable Unflag
contestability (>£100m)
(>£50m)
Ongoing Ongoing
Yes
Bacton Yes No Yes No discussion discussion
£139m
required required
Wormington
No
(2 x new Yes No Yes N/A N/A N/A
xxxxxx
units)
Milford Haven Ongoing
Not known Yes
capacity Yes No Yes Not known yet discussion as
yet xxxxx
increase part of RIIO-1
Bacton: solutions have already been thoroughly considered and
We identify the investment in redeveloping the Bacton ruled out in our options analysis and we therefore deem it
terminal meets this threshold. However, we “unflag” this uncontestable. Details of our options considered can be
project on grounds that we do not think it is suitable for found in annex A16.10. The project does not trigger the
contestability. This is because alternative, non-asset, threshold for late competition as it is below £100m.
solutions have already been thoroughly considered and
ruled out in our options analysis. Details of our options Milford Haven:
considered can be found in annex A14.02. We identify the potential network reinforcement project to
increase entry capacity at Milford Haven as a candidate
For late competition, we have flagged it as meeting the that meets this threshold value. However, we “unflag” this
criteria of being over £100m. We unflag it as new, as the project on grounds that we do not think it is suitable for
project is a redevelopment of the site and not a brand- contestability. This is because alternative, non-asset,
new site. For separable, there are elements that could be solutions have already been thoroughly considered and
deemed to be separable. However, there are parts of the ruled out in our assessment of the PARCA application.
project that are very interlinked with existing assets and it For late competition, we have flagged it as meeting the
would be hard to indicate that this would meet the criteria of being over £100m.
separable criteria. In addition, the works to be carried out Currently there is not a clearly defined framework for
are within the existing top tier Control of Major Accident early or late competition and as a result, any changes
Hazards (COMAH) site, and the site will continue to be would need to ensure there is no impact on the delivery to
fully operational during the works. It therefore needs to be the customer. We will continue to work with Ofgem as
carefully considered when determining if the project part of our RIIO-1 discussions as the PARCA process
should be put out for late competition. We will work with progresses, to see if competition is suitable and will
Ofgem to discuss this further to understand by putting out deliver benefits to consumers.
to late competition would deliver benefits to consumers.
7. Justification of our information technology
Wormington:
investment
We identify the investment in two new compressor units
at Wormington meet this threshold. However, we “unflag” Information technology (IT) is at the heart of our business.
this project on grounds that we do not think it is suitable It underpins the safe and reliable operation of our
for contestability. This is because alternative, non-asset, transmission business. IT expenditure cuts across both
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capex and opex activities, with activities reflected across business services, work and asset management and
all our stakeholder priorities. We include here a summary customer facing IT systems outlined in our business
of the full programme if IT activities covered across our plan are key to enabling the digitalisation of our data
RIIO-2 plan, along with our digitisation strategy. Our IT assets where this drives value for stakeholders.
applications and the IT infrastructure that supports those  Maximising the value of data – our work to build a
systems are fundamental to the running of our operations comprehensive data library with common standards,
and keeping our IT systems maintained and updated structures and interfaces will be incorporated within our
is critical to ensuring that we continue to deliver systems at the point where they are upgraded/replaced
efficiently and reliably. In RIIO-2 we will invest more in in RIIO-2. This will be a key foundation to move to a
our IT systems, both to maintain existing functionality and ‘presumed open’ principle, where data is discoverable,
ensure our business is fit for the challenges of meeting a searchable and understandable.
net zero future.  Visibility of data - our data library, together with our
investment in enterprise content management, digital
Our digitalisation strategy experience and external portals will facilitate a greater
The future energy system will be more dynamic than ever level of sharing of our metadata with energy system
before. To prepare for these challenges, we want to users where it is safe and appropriate to do so.
transform our business through digitalisation to ensure we  Coordination of asset registration – during RIIO-2 we
continue to offer the best service to our customers and will be investing in our Customer Relationship
stakeholders. Over the next 3-5 years, we expect to see Management (CRM) platform and replacing our core
significant change brought about by the impact of artificial work and asset management and asset registration
intelligence (AI) on businesses. Data-driven technologies system (Ellipse). This will afford us the opportunity to
will play a central role in the day-to-day operation of our consolidate our systems and data and provide the
business, while practical applications like augmented and capability to integrate with a future single asset
virtual reality and the internet of things will impact how we registration portal.
interact with the world around us. Our stakeholders will  Visibility of infrastructure and assets - our geospatial
come to expect their interactions and digital experiences information system (GIS), asset investment planning
with us to be as seamless, rich and easy as their (AIP) investments, together with our proposals for the
interactions with other commercial organisations. As part use of digital engineering and digital twins present an
of our digitalisation strategy we will consider the opportunity to contribute towards the development of
recommendations of the Energy Data Taskforce (EDTF) a unified system map of the energy system.
report on ‘A Strategy for a Modern Digitalised Energy See annex A20.23 for more detail of our digitialisation
System’ and use technology and data to deliver value to strategy.
our stakeholders by:
 Reducing whole system costs through the ability to Our information technology is fully in line with
collaborate with a common data platform. industry practice as we enter RIIO-2
 Reducing costs through improved real-time asset At the start of RIIO-1, we responded to the challenge from
information allowing more informed risk-based Ofgem to reassess our IT asset health policies by
decisions. extending the technical lives of our IT infrastructure
 Using advanced analytics and intelligence in business assets, accepting higher levels of risk while maintaining
support systems to provide information to allow lower levels of availability. However, as we continued through
cost decisions to be taken. RIIO-1 our employees fed back that IT was becoming a
significant blocker to their effectiveness at work. What’s
Our data management capability is a key enabler for more, over the same period, the escalating threat of
our RIIO-2 digital ambitions cyber-attack on our IT systems meant that we had to look
Extensive work in RIIO-1 has taken place to improve, again at how we manage our infrastructure so that we
understand and document our business-critical data. In could proactively monitor and manage cyber threats. We
RIIO-1 we undertook a transformation programme responded by revising our IT asset health policies, which
through which we spent significant time documenting, have been reviewed by independent IT experts, Gartner,
understanding, rationalising and updating the data we who confirmed that they are in line with industry practice.
already have, how it’s used, what state it’s in and what
good looks like. This is part of a continuous improvement We have recently implemented a series of investments in
plan to bring core data sets together so we can better new systems to support our HR, purchasing and financial
manage the end to end data flows, minimise duplication transactional processes, in response to analysis that
and maximise efficiency. showed that we had more manual process steps than
‘world class’ functions. These investments will support
Everything we are doing now to enhance our data better controls and lower costs of function as we start the
management capability is laying the foundations for RIIO-2 period.
delivery of our RIIO-2 IT strategy and aligns with the
EDTF. Our alignment to EDTF recommendations is
summarised below:
 Digitalisation of the energy system - is at the heart of
our ambitions. Our investment in IT infrastructure,
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We have developed an IT strategy that underpins our infrastructure in on-premise data centres, externally
stakeholder requirements and responds to the energy hosted data centres and hybrid cloud environments with
market, political and environmental trends the associated operations management tools, practices
Our RIIO-2 plan will: and processes (covering areas such as IT service
 Sustain our core IT systems: we will maintain the management; IT asset management; IT helpdesk).
technology health of our core IT systems that manage  The networks used to securely and efficiently connect
our asset health, data, work, and operation of the our business users to internally and externally hosted
network. Many of these systems will be reach end of life systems, data and tools required to meet their
during the RIIO-2 period, and in line with our IT asset objectives. The networks provide wide area network
health policy (see annex A20.03), we will invest to (WAN), local area network (LAN), wireless (Wi-Fi) and
ensure we maintain our safety and reliability voice services.
performance for our stakeholders whilst extracting the  Modern workplace: user facing devices, communication
most value for money from our systems. and collaboration services.
 Support market and regulatory change, unlocking
consumer and customer value through, developing Included within the indirect category are other enabling
ensuring our IT systems to support the delivering the capabilities, such as tools for:
future energy system and transition to a low-carbon  IT planning and delivery which includes investment
future. planning, demand management, resource management,
 Delivering new capability in areas such as data financial tracking and benefits management
management, analytics, artificial intelligence (AI) and  Solution design and build tools
machine learning (ML) to deliver our stakeholders’  Application performance monitoring and management
needs.
 Software licensing and asset management to optimise
In RIIO-2 our IT investments total £55m per year. These provisioning and de-provisioning of services to end
investments cut across our other stakeholder priorities, users.
and fall into direct and indirect investments. Please see
annex A20.03.
Our IT investments are in line with external
benchmarks
Direct IT investments
We have submitted our IT investment plans, direct and
Our direct IT investments account for £36m per year
indirect, for independent review by Gartner – a
RIIO-2. The key drivers for RIIO-2 relate to us maintaining
recognised IT benchmarking organisation. This output of
and refreshing our systems and enhancing our
this work is that the mix of investment areas, the
capabilities in order to ensure we continue to meet the
individual project costs and our project rate cards were all
needs of our stakeholders.
in line with their expectations, formed from their
knowledge of IT investments made by other utility
Our IT direct investments are categorised in the key IT
companies (See annex A20.19 for more information).
technical capabilities summarised below.
 digital experience channels and engagement
8. Risk and uncertainty
 insights and innovation
 network operation and control There is some risk around the level of external costs that
 commercial and markets we face which is outside of our control. We are proposing
to pass through non-controllable costs, which cover costs
 network planning and investment
such as licence fees and business rates.
 network asset management
 training and development We will be subject to above inflation impacts on our
 infrastructure. plan
Real price effects (RPEs) occur where input prices are
Indirect IT investments anticipated to move differently to the inflation measure by
Our indirect IT investments account for £19m per year in which our allowances adjust annually. This is because the
RIIO-2. Ensuring our IT infrastructure is fit for purpose mix of goods and services in the inflation calculation is
and provides an efficient, scalable and reliable service is different from the goods and services we purchase. The
the key driver of indirect investment. main areas where this applies are labour costs and the
materials we use in our capital works. Independent
All business applications are dependent on common forecasts and long-term trends highlight that both of these
capabilities such as computing infrastructure which our costs are forecast to grow at a quicker rate than inflation
central IT teams manage as shared capabilities to over the RIIO-2 period. We will therefore be exposed to
leverage economies of scale. These make up our indirect above-inflation RPEs in our plan. Whilst both are
investments which are within the following categories: anticipated to grow, the level of control we have differs,
 Business Services: the common HR, Finance, as does the potential volatility in the annual price
Procurement and other business services used across movements. Our staff costs track the directional trend of
National Grid Group. the relevant indices but do not fluctuate with short-term
 Data centres that host data and provide power to run all changes due to our long-term pay deals and longer-term
IT applications. This includes the management of approach to workforce resilience. The underlying indices
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are also less volatile than those related to commodities. Defining clearly our output commitments
Following the RIIO principle of aligning risk to the party An important part of providing value for money is
best placed to manage it, we are therefore proposing a spelling out exactly what our stakeholders will receive
fixed allowance for labour RPEs based on independent for the money. We are making clear output commitments
forecasts of 0.3 per cent above RPI (1.3 per cent above for as many of our costs as we can.
CPIH). More detail can be found in annex A22.02 RPEs
and ongoing efficiency. The benefit of defining outputs to consumers is that they
are transparent. We can be held to account to deliver
In comparison, we have limited ability to control how them. We talk more about how we will ensure
capex material prices impact our cost base. Changes in transparency of our performance in chapter 18. If we do
input prices will be factored into all goods we purchase, not deliver an output, we expect to see consequences
and the related indices aligned to these costs are through our regulatory contract. By focusing on outputs,
inherently more volatile than labour with, for example, 20 we can look for more cost-effective and innovative ways
per cent annual cost swings in the last ten years. to achieve them. When we do that, we give consumers
Although these impacts can be partially mitigated through what they want at a lower cost and share any savings
contracting strategy, we cannot control the risk and with them.
underlying cost trend. We are therefore proposing an
index approach for capex materials, which will ensure our Protecting consumers against uncertainty
customers pay no more or no less than the relevant Uncertainty mechanisms are designed to allocate risk to
indices for these costs. We set out our proposals for whoever is best placed to manage it. We have protected
RPEs, and how they interact with our baseline plan, in consumers by proposing uncertainty mechanisms for less
annex A22.02 RPEs and ongoing efficiency. certain costs to ensure if customer or consumers’ needs
change so do our allowances.
Figure 20.08 our proposal to manage the risks of real
price effects in the RIIO-2 period We have two types of uncertainty mechanisms to deal
Plant, materials with the types of uncertainty we are managing. Where
Labour
& equipment the uncertainty relates to the likely cost of doing the work,
Volatility
High, particularly Lower in the long but not the need for the work, we have included an
on materials term estimate of the cost in our baseline. We propose the cost
Network’s Limited ability, would be set in RIIO-2 once we have finalised the
More controllable
ability to more akin to pass- detailed design and have tender-backed prices. Where
through salaries
mitigate through
there is uncertainty around the need for the work and the
Risk of Lower due to
High due to cost we have not included these in the baseline but have
variance to duration of pay
volatility provided estimates for transparency purposes. We
forecast deals
Proposed Ex-ante allowance propose the RIIO-2 framework would only provide
Indexation allowances for this work if the output is needed in RIIO-2.
treatment with deadband
Forecast This is described in more detail in annex A3.02.
Capex £61m Capex £54m
impact on
RIIO-2 period Opex £2m Opex £31m 9. Our proposed costs for RIIO-2
This chapter demonstrates the efficiency and value for
money of the entire business plan. The costs shown here
are those which are not mapped separately to other
stakeholder priorities, including business support costs
and non-controllable costs.
Table 20.09 summary of efficient and affordable costs by activity
Total controllable costs 82.1 75.9 74.5 74.2 72.9 379.5 75.9 72.6
Total non-controllable 187.6 187.6 162.9 154.0 153.8 846.0 169.2
182.6
costs
Total spend 269.7 263.6 237.4 228.2 226.7 1225.5 245.1 255.2
Capex efficiency
-8.7 -13.3 -12.5 -11.0 -11.0 -56.5 -11.3
commitment
Productivity efficiency
-2.0 -4.1 -6.1 -8.2 -10.3 -30.7 -6.1
commitment
Please note we have provided costs to one decimal place and hence some columns may not equal to the totals
177
Our plan is deliverable
21. Our plan is deliverable

Key messages We are forecasting significant levels of retirement and
Our plan is ambitious. The checks we have made as increased non-retirement attrition over the RIIO-2 period,
part of our business planning processes give us and the following ten years. At the same time, entrants to
confidence that it is also deliverable. There are four key science, technology, engineering and maths (STEM)
areas that we assess our plans against: people (including careers, from which we would expect to replace our
future workforce resilience), system access, delivery workforce, are becoming increasingly scarce. In
model, and supply chain. response, and to ensure that the people we bring in
represent the diversity of the communities we serve. You
Our people are key to delivering our ambitious plans. can read our full sustainable workforce strategy in annex
We have long-term plans to make sure we have a A21.02.
resilient, diverse, technically skilled and highly engaged
workforce that is fit for the future. Our workforce is resilient and we plan for the future
We already have in place many things to help ensure the
We have developed our portfolio planning delivery resilience of our workforce. During RIIO-1, we have seen
model and will continue to use our campaign approach, employee engagement levels in line with high-performing
developed during RIIO-1, to drive successful and efficient companies and have greater diversity in our critical
delivery of work. workforce relative to the UK engineering sector.
System access becomes more constrained in RIIO-2 and Strategic workforce planning requires the establishment
beyond with an increasing asset investment plan. We of a framework through which both demand and supply of
have developed our access plan over a 10-year period resources can be described effectively. From a known
to demonstrate deliverability of our work plans across starting point (today), we forecast over time to provide a
both RIIO-2 and RIIO-3. view of how our supply measures up to our projected
demand. The results allow us to develop strategies to
We have a robust supply chain with access to a wide deal with the gaps. These strategies include options such
market to buy the goods and services we need, and we as recruitment of experienced hires, recruitment of
use proven approaches and strategies to deliver apprentices, deployment of contingent labour, internal
efficiently and on time, at lowest cost to consumers. training programmes or partnership with other
companies.
As we always do, we will keep the deliverability of our
plan under review. Our planning cycle is a continuous Workforce capability
process and our plan will continue to be refreshed in the We invest in our people because of the strong resulting
lead up to and throughout RIIO-2. This will make sure it is business benefits, such as improved employee
flexible to reflect stakeholder engagement and the performance, improved morale and satisfaction,
uncertainty in the energy landscape. increased productivity and reduced employee turnover. In
2018/19, UK employees received an average of 5.3 days
1. Our people are key to delivering our plans training. The opportunity to learn and develop is a key
Our most important assets are our people. Workforce strength in the eyes of our employees as we typically
resilience is about having a workforce with the right score 5% above the high performing norm in our
number of people with the right skills, the right, healthy employee engagement survey. Our UK Academy, based
mindset and work-life balance, and diversity that reflects in Eakring, Nottinghamshire delivers operational training
the society we serve. to our new and existing workforce. Ofsted have rated our
academy ‘Outstanding’ for the past three inspections and
We invest heavily in the development of our people to we are the first UK provider of apprenticeships to achieve
ensure that we have a technically skilled, inclusive this milestone. Through our membership of Energy &
and highly engaged workforce, who are engaged in Utility Skills (EU Skills) and the associated National Skills
what we need to achieve, can thrive and feel enabled Academy for Power (NSAP), we collaborate with other
to deliver to the best of their abilities. The aim of networks and suppliers to raise the profile of the utilities
which is to provide our business with the resilience it sector as a key employer of talent in the UK and share
needs to deliver for consumers now and in the future. best practice around training the skills needed in our
Our employee engagement has been at or near high industry.
performing norm levels in the RIIO-1 period. On key
diversity metrics, we do better than the wider UK All our employees are encouraged to have an annual
engineering sector. We know from our employee and development plan with focus on current role, future
industry stakeholders that we do well in engaging and career aspirations and key business capabilities that are
motivating our people and are leading the industry deemed critical to business performance now and in the
with our skills training and our safety record. future. In addition, strong effective leadership is integral
to both individual and company success. We have a
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carefully defined set of customer-centric leadership their wellbeing. The survey tracks different dimensions of
qualities that we expect from our leaders, aligned to the engagement (the intent to perform) and enablement (the
purpose, vision and values of our business. ability to perform) and helps us to compare with high
performing companies and identify opportunities for
Over the last two years, our operational areas within gas improvement, as well as measuring whether we are
transmission have implemented a series of changes to improving over time. Our survey results show that our
provide insight into and foresight of the capabilities and workforce engagement is consistently close to or above
competencies required to run and maintain the the high performing norm benchmark for other external
transmission network. The safety implications of organisations. It is from these results that targeted
inadequacy or failure are considerable, and both systems actions are driven out as initiatives; locally or at an
and processes have been introduced to improve our enterprise level, to tackle any negative trends. We
ability to understand the current and future capability provide resources that allow action plans to be built and
requirements and ensure that enhanced controls and implemented - listening and then acting. In our last
development plans are in place to sustain our survey, we scored particularly favourably on company
effectiveness. The introduction of a competence values, aligning to company goals and ‘proud to work
management system has provided a platform to review here’. However, we score more negatively on
and enhance capabilities and safety and technical enablement (the barriers people face within their role,
competencies (STCs) and build in mechanisms to sometimes because of IT, tools or support issues),
support a more flexible, agile workforce. Each role or line managing change (where we need to improve
of activity now has a “passport” which outlines the core communication), decision making (a concern that
requirements for that role or activity. The outputs will decisions not being taken at the right level) and care and
drive training plans and ensure timely maintenance of concern (the emotional connection between senior
STCs, along with group clarity of site and asset leadership and our people). It is from these types of
knowledge and relevant authorisations. The improved results that targeted actions are driven out as initiatives.
understanding of capability requirements across our
operational teams, alongside improved operational and Our short-term bonus plans incentivise the delivery of
strategic workforce planning, allows us to identify and financial, strategic and customer output measures and
manage gaps and risks more effectively. the demonstration of our leadership qualities and living
In most parts of our business, the current capability our values; measures are subject to change to ensure we
profile is forecast to continue over the next ten years; our reflect the right focus on our priorities. There is a clear
recent organisational review was conducted on that line of sight between individual performance and delivery
basis. There are, however, areas which will continue to of our business strategy. On an annual basis, every
evolve. The most obvious relates to cyber threats and department within our business has a mandate to deliver
how best to mitigate against them. a set of targets which are focused on what the business
must deliver and how they deliver. These targets will be
Workforce culture and engagement updated to ensure we deliver the outputs and
Culture is key to driving our plans forward because it commitments outlined in this plan. These are monitored
promotes openness and debate, is part of doing good on a quarterly basis to ensure we are on track to deliver
business and something we want to embed within our both in the short and longer term.
business. We have started this journey by embracing our
values of ‘do the right thing; and ‘finding a better way’. We are a socially responsible employer
‘Do the right thing’ pulls together our foundational values National Grid believes that we, and the wider energy
of keeping each other and the public safe; complying with industry, should be more representative of, and reflect, all
all the relevant rules, regulation, and policies, respecting aspects of diversity in the communities we serve. In
our colleagues, customers and communities and saying 2018, we were ranked among the top 50 employers for
what we think and challenging constructively. ‘Find a social mobility by the Social Mobility Foundation.113.
better way’ challenges us to focus on performance and
continuous improvement. Our board are passionate During RIIO-1, we have significantly increased our black,
about this, we want to ensure our people are all driving in Asian and minority ethnic (BAME) diversity to 13.9%
the same direction. We are assessing ourselves regularly across our employees. We have done this by running
against a scorecard to enable focused interventions to internal initiatives including reverse mentoring, employee
help us bridge any gaps. resource groups and a development programme for
diverse leaders. For the second year running, we made
We listen to our people Business in the Community’s (BITC’s) Best UK
The annual employee engagement survey (conducted by Employers for Race Top 70 list114 and were also a finalist
a third-party) provides great insight into the areas we in BITC’s Race Equality Awards.
need to change and improve to help our people deliver to
the best of their ability and have an enhanced sense of
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mobility/
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https://race.bitc.org.uk/awards-benchmarking/best-employers-race-
2018-0
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Our female representation is 20.1% of the total 2. Developing a portfolio planning delivery
workforce, though this edges higher (29.8%) in model
management roles. We have also secured a place in The
We have developed our investment plan over a ten-year
Times Top 50 Employers for Women115. We have
period with work aligned to network outages in RIIO-2
increased the population of female employees by running
and RIIO-3. We have shown that the network outages
several initiatives including female-focused training
required by this plan can be achieved while minimising
programmes (Spring Board and Spring Forward), our UK
constraints and costs for our customers.
women’s network, Women in National Grid (WiNG), and
ensuring that our roles attract female staff by targeting
To evaluate and determine that our plan is deliverable we
organisations such as the Women’s Engineering Society.
have conducted a comprehensive portfolio planning
In line with other UK employers of over 250 people, from
deliverability assessment based on the following
2017 we reported our gender pay gap. Our latest data
principles:
shows that our mean pay gap is 5.6%.
 Balanced workload in RIIO-2 that maintains service risk
level.
Table 21.01 diversity commitment  Priority outages (to deliver the emissions programme,
Commitment Output
cyber programme, ILI runs and ILI digs) form the basis
We seek to increase the overall proportion of Commitment
National Grid’s workforce from diverse of our RIIO-2 and RIIO-3 outage plan.
backgrounds, in order to mirror the  Assets will be taken out of service as few times as
communities we serve. We will set annual possible; other work on the same assets will be bundled
Group targets to increase the number of hires with the priority outages.
from diverse backgrounds at a greater  We will minimise the impact on directly connected
proportion than colleagues we have within customers.
the overall National Grid workforce today
 Where it is more efficient to avoid disconnecting
(24% female & 18% ethnic minority). We will
set internal targets to increase the number of
customers by spending totex on physical solutions, this
colleagues who are from a diverse funding is sought in the plan.
background at a greater proportion than we  Outages causing potential constraints (restricting, but
have today within the National Grid not disconnecting) customer flows have been identified.
workforce. We are committed to building an Potential orders of magnitude of constraint costs have
inclusive company where everybody can been estimated to inform a decision on the level of risk
achieve their potential. imposed by the access plan for each year in RIIO-2.
Workforce wellbeing
As an outcome of the deliverability review, several
The wellbeing of our people is important to us,
network risks require an alternative solution to avoid the
particularly as we operate in more uncertain times. Our
risk of disruption to customer supply. For example, this
immediate risk profile is mental wellbeing,
could be due to customers on single network spurs.
musculoskeletal injury prevention and occupational
While it is possible in some cases to negotiate
health risk exposure mitigation. We provide all our
commercial solutions, costs per day are expected to be
employees with access to a 24-hour employee
significant and far exceed that of an alternative asset
assistance programme, offering emotional and practical
solution such as a stopple and bypass arrangement to
support for work-related or personal issues. And we work
ensure continuous supply. Such physical solution provide
with various government bodies on wellbeing, helping us
additional benefit by ensuring flexibility for both planned
to better understand what we can do to support the
and unplanned maintenance requirements beyond the
wellbeing of our own people, as well as supporting
RIIO-2 period.
smaller organisations with their own efforts. We are
aiming to:
In RIIO-2, this amounts to 20 stopples with a cost of
1. Create and embed a culture that enables everyone to
xxxxx each, with further requirements to be clarified in
perform to the best of their abilities knowing they are
RIIO-3. These costs are included in our plan in chapter
cared for and can talk openly about their health and
14.
wellbeing.
2. Build a workforce where healthy, engaged and
How we deliver work
supportive employees can succeed and thrive.
Efficient and effective delivery of our capital plan is
3. Be recognised as an employer that leads in employee
dependent on skilled and experienced National Grid
wellbeing, which will enable us to attract and retain the
resources across a range of disciplines. Our Operations
best talent.
team maintains equipment which is key to facilitating
access to the network. This team also provides local site
knowledge and controls safe access to each asset locally
through permit systems, in conjunction with the system
operator.
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women-list/
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Our Pipelines Maintenance Centre (PMC) has a large 3. We have developed our access over a 10-
portfolio of specialist skills and experience on emergency year period
and planned solutions in the field of pipeline repair,
The increase in work on the network during RIIO-2
replacement, maintenance and intervention. PMC
means we have thought differently about how we
expertise helps identify and deliver the most efficient
manage our maintenance and construction activities,
asset interventions.
while ensuring we deliver the service our customers need
throughout the year. It is important that the RIIO-2
Our Capital Delivery team develops, directs and controls
incentive arrangements on maintenance, capacity
projects, managing the relationship with our main works
constraints and customer satisfaction support minimising
contractors. This team provides specialist project delivery
the impact our work could have on our customers.
and contract management expertise.
We will use, wherever possible, the campaign approach
Our Capital Delivery and Pipelines Maintenance Centre
we developed during RIIO-1 that, alongside our
delivery units give us the flexibility to manage and deliver
procurement strategy, which makes extensive use of
projects from simple valve replacements to large new
native competition, will drive successful and efficient
compressor projects.
delivery of work.
During RIIO-1, we have developed our campaign
Our campaign approach is applied to maximise efficiency
approach, for example, with the National AGI Renovation
savings and reduce risk associated with working on
Campaign and are piloting an agile Repair and Re-life
difficult to access or buried assets. Work is delivered by a
Project with flexibility to identify and intervene with an
joint delivery team including our engineers, our local
element of local autonomy over work prioritisation.
operations teams and the delivery unit. This enables
work plans to be monitored and optimised to reflect the
The campaign approach is particularly effective when
most recent information.
applied at a feeder level or a whole site in the case of
plant and equipment. It allows the preparatory inspection,
In RIIO-2, we will continue to rollout innovation projects
investigation, risk assessment, planning and procurement
such as GRAID, shallow dig, composite pipe supports
activities to be completed as far as possible before the
and 3D Modelling (BIM). These will be critical to the
outage. This allows the maximum amount of intervention
successful and efficient delivery of our programmes of
and risk reduction to be bundled into a single ‘campaign’
work.
across the length of the feeder.
System access
Where there are individual or groups of assets that do not
System access is the first step in scheduling work. We
‘fit’ into the planned ‘campaign’ approach, we will ensure
take the priority works that are linked to specific delivery
that these risks are remediated as efficiently as possible
dates or require significant outages and phase other work
through individual or small groups of targeted
around these to minimise outages and customer
interventions. Finally, where asset interventions do not
disruption.
require outages then the campaign approach will still be
applied to maximise the opportunity for delivery of the
same type of work across many locations. This enables Table 21.02 system access commitment
efficient procurement through significant volumes of Commitment Output
common works. We have sought to minimise the disruption Commitment
of our investment plan on our customers by
planning work effectively, and using
Measurement commercial tools and physical options
To assure delivery, we align our performance
measurement with our delivery partners, monitoring and We have developed our access plan over a 10-year
incentivising performance in both design and delivery period to demonstrate deliverability of our work plans for
phases. Our performance measures are developed to RIIO-2 and RIIO-3.
manage a variety of factors. This includes continuous
improvement of safety and environmental impacts, with Our current assessments demonstrate that we can gain
the application of industry standard earned value metrics enough system access to deliver our work plan, while
embedded in our existing project controls processes. minimising constraints and costs for our customers. Our
planning cycle is a continuous process so our plan will
Through our procurement processes, we are seeking a continue to be refreshed in the lead up to and throughout
collaborative relationship with our supply chain, creating RIIO-2 to reflect any future change and manage risks.
opportunities to share risk and reward for innovation and
efficient delivery. We will measure this with productivity
Access to the NTS the potential to significantly impact on
targets whilst ensuring our high levels of safety and
our customers’ ability transfer gas on and off the network,
environmental performance are met. We will also look to
especially at the numerous offtakes located on single
our suppliers to encourage local economic growth and
feed sections of pipework. We also must ensure that we
promote equality, diversity and inclusion in their own
maintain capability at supply points even at periods of low
workforces.
demand. When coupled with unpredictable and price
181

sensitive gas supplies into the UK this can result in working to become recognised as ‘best in class’ in
assets being required at short notice. infrastructure project delivery and contract
management.
Work requiring network outages involves asset isolation,  Digital strategy – a digital strategy and framework that
venting of high pressure gas, undertaking the work and maximises the use and benefit of new technology.
then recommissioning the asset. Our systematic
approach maximises the work undertaken in any outage, Our in-house capability for contract management will
ensuring we reduce the total required number of outage ensure our contracts perform to a high standard and that
windows and associated customer impact. This also the value we expect is realised.
provides efficiency during delivery through minimised
project overheads, reducing overall spend and network In line with ongoing pre-process planning activities, the
disruption over our ten-year plan. This has been current view of our procurement strategy for RIIO-2 is as
facilitated by ensuring each outage is supported by follows:
available and reliable assets elsewhere on the network.  Emissions compliance (compressors) – Retain the
Where physical solutions have proved to be inappropriate use of the Original Equipment Manufacturer (OEM)
or too costly we have ensured that we have reflected the Framework established in RIIO-1 and implement an
level of risk in our constraint management incentive Engineering, Procurement and Construction (EPC)
proposal. Please see annex A21.01 on deliverability. Framework, awarding multiple sites wherever possible.
 Asset health – Increased use of our Pipelines
4. We are confident in our supply chain Maintenance Centre (PMC) for initial asset condition
assessment and repair. Opportunity to commit to a
Access to a wide market of goods and services is vital in portfolio of works using a more collaborative
ensuring we can deliver on time and within our forecast commercial model with the supply chain to drive value
expenditure. We are confident that we have robust engineering, planning optimisation and innovation
processes, strategies and contracts in place that through outperformance of unit costs via an appropriate
demonstrate we are ready and able to deliver. incentivisation model.
 Cyber (control and protection) – Expected
We know that leveraging market forces and using native opportunity to commit to a portfolio of works using a
competition will help us get the best deal for consumers more collaborative commercial model with the supply
from our supply chain. To ensure we maximise this chain to drive value engineering, planning optimisation
potential, we have identified that the following principles and innovation.
are key to our contract and delivery models:  Pipelines – Use of framework with competitive
 Collaboration – more collaboration with our supply tendering for specific projects.
chain to drive greater value and innovation.  Physical security – Use of framework with competitive
 Capable owner – provide greater transparency of tendering for specific projects.
upcoming work, working closely with the supply chain to
deliver value over the whole asset life.
 Long-term supplier relationships – selecting and
retaining capable, flexible suppliers who deliver what
they promise.
 Simplify tendering – a streamlined tendering process
to reduce tendering timescales and costs to the supply
chain.
 Early supplier involvement – two-stage contracts for
large projects to increase innovation, simplify the
tendering process and reduce whole life costs.
 NEC4 – adopting the New Engineering Contract
(NEC4) forms with minimal amendments, to ensure a
collaborative approach to contracting, with appropriate
allocation of project risk.
 Construction supply chain payment charter
(CSCPC) – adopting CSCPC standards and ensuring
these principles are cascaded through all levels of the
supply chain.
 Trusted tier 2 support – enabling our supply chain to
use our frameworks to purchase equipment and
services from experienced suppliers.
 Value from equipment – procuring fit for purpose plant
and equipment from global suppliers to enable delivery
of our works more economically.
 High performing delivery teams – developing our
teams’ capabilities to ensure effective collaboration,
182
We can finance our plan
22. We can finance our plan

Introduction To optimise the efficiency of raising debt finance, the
We have worked with our stakeholders to build a business company funds around 40% of its share of totex from
plan that reflects their expectations and delivers the equity investors and 60% from debt investors. This is
services they want. This involves infrastructure investment consistent with management’s view of the optimal capital
which will be funded through a combination of debt and structure to minimise the weighted average cost of capital.
equity. In line with business plan guidance, we provide It is also consistent with Ofgem’s RIIO-2 working
detailed analysis and evidence around the financial assumptions.
package in finance annex A22.01. In this chapter, we focus Funding sources include:
on: • reinvestment of profits attributable to equity investors;
• our sustainable approach to financing; • reinvestment of scrip dividends; last year just under 40%
• the strong regulatory principles which guide our of National Grid plc’s shareholders elected to reinvest
approach; dividends totalling around £600m;
• setting out our definition of financeability to assess the • issuance of new equity in NG plc, e.g. our £3.2bn rights
proposed financial package. issue in May 2010; and
• raising financing efficiently from debt investors.
1. Our sustainable approach to financing
We have a demonstrable and consistent track record Both debt and equity investors provide funding in
in efficiently financing our activities anticipation of earning a return that is commensurate with
National Grid Gas Transmission (NGGT) forms part of the the risk they are taking.
National Grid plc group, a publicly owned FTSE100 utility Risk arises due to the uncertainty as to whether the future
company. The company is owned by our equity investors, cash flows generated by the company will fully refund the
a diverse range of largely long-term investors which investment and return expected by investors. Whilst our
reflects the broader UK market, including pension funds regulatory agreements reduce this risk, its five-year
and individual retail investors, some of whom have held timeframe is much shorter than the current holding period
shareholdings for over 20 years. of many of our investors and regulatory asset life of 45
Management operate the business on behalf of our equity years. Therefore, investors’ assessment of the
investors in line with the NGGT licence and supported by attractiveness of investing in UK regulated energy
the regulatory model, investing in assets which will provide networks will include a judgement about the long-term
benefits to energy consumers over many years. quality and stability of the UK regulatory regime and the
certainty of recovery of the RAV which represents money
We have a long track record of funding investment in due to investors. If investors perceive the risk is too high
regulated energy infrastructure. Our scale and the strength compared to the return, they will move their money
of our balance sheet enables us to access a diverse range elsewhere, making raising new equity and debt more costly
of financial markets, ensuring that investment can be and increasing costs to consumers.
funded on behalf of consumers, even in periods of macro-
economic distress. We add value for consumers by accessing efficient
sources of debt financing to fund large scale
Being part of a listed group requires a very high level of investment over the long term
transparency of ownership, governance and financial Our business plan assumes that NGGT expects to issue
disclosures. We continue to adopt best practice in our ~£2bn of long-term debt over the next price control period,
disclosures, for example, we have included additional both to fund capital expenditure and to refinance maturing
transparency on our economic performance throughout debt.
RIIO-1 in our statutory accounts and we are a member of
the Accounting for Sustainability network which aims to Our scale enables access to the debt capital markets
integrate financial and environmental decision making. which tend to provide the most efficient source of debt
financing. The vast majority of our debt is raised in this way
NGGT financing strategy is cost efficient for and we work hard to ensure debt is issued as efficiently as
consumers possible in line with the incentives under RIIO-1. For
Based on our business plan submission, around 25% of example, we can issue debt in any one of multiple
our annual totex will be funded by customers via in-year currencies, using derivatives to manage the ultimate
revenues and 75% is funded by the company, to be liability into sterling, ensuring we have access to the best
recovered from future customers. This transfers risk from value funding available. We have also used a variety of
customers to the company, spreading the cost of the long- debt products to find new and innovative ways to issue
term investments we make over multiple generations, fairly debt including retail price index (RPI) retail bonds.
matching the cost with those that use the network over
time.
183

Figure 22.01 £3.5bn of debt (pre-derivatives) at 31 The purpose of targeting a Baa1/BBB+ credit rating for the
March 2019, by currency notional company is both to enable access to an efficient
cost of debt and ensure that we are appropriately resilient
to future financial shocks, which is important given our role
as owners and operators of critical national infrastructure.
For example, at a Baa2/BBB rating (one notch below our
target rating), a change in RPI to CPI wedge to 50bps
would reduce our interest cover nearly to sub investment
grade, severely restricting the ability of the notional
company to efficiently raise further debt funding. An
illustration of the resilience a strong credit rating brings is
that during the 2008 global financial crisis, the company
was able to maintain debt market access. Following the
We are a well-known issuer with a clear and distinctive Lehmann Brothers collapse in September 2008, NGGT
debt investor proposition, reflecting our world-class safety increased the size of an existing bond just ten weeks later.
and reliability performance as well as our strong credit
rating and financial ratios. Efficient debt funding is A Baa1/BBB+ credit rating is also consistent with
incentivised by the regulatory framework and the resulting recognised regulatory practice: Ofwat targets Baa1,
lower interest rates feed into future revenue allowances for Ofgem have previously targeted Baa1. It is consistent
all networks. with the cost of debt allowance (which is an average of A
and BBB corporate bonds) and consistent with the vast
We seek to minimise the total interest rate charges to majority of our peers, with currently only one utility entity
NGGT, whilst managing liquidity risk and maintaining a in the UK rated BBB or lower. Reducing credit ratings for
balanced maturity profile of debt issued that appropriately the energy network would also add additional risk at a
manages refinancing risk. time when networks are being asked to invest to meet the
A strong credit rating minimises our borrowing costs governments Net Zero targets when much of the industry
and ensures financial resilience to enable investment is on negative outlook.
to deliver net zero The lowest cost of investment comes from an equity
From a debt funding perspective, we aim to retain an A3/A- proposition that appropriately reflects the risks of
credit rating for NGGT (for the actual company) as this investing in transmission
ensures access to a wide range of debt instruments and To create a framework that attracts low cost funding to
capital markets at an efficient interest rate. This rating is deliver consumer investments it is important to
supported through targeting a Baa1/BBB+ credit rating for understand how equity investors will assess the
the notional company. attractiveness of the sector, these will include analysis of:
We currently support the higher actual company rating • the risk reward balance considering a lower risk-free rate
through working hard across the capital markets to raise but higher political and regulatory risks when compared
debt at lower interest rates than the regulatory benchmark with RIIO-1;
and through delivering stakeholder outputs at lower totex • the relative attractiveness of the risk reward balance
levels to allowances. These outcomes are incentivised by compared to similar regimes in other jurisdictions (e.g.
the regulatory framework because the resulting lower USA, EU and Australia);
interest rates and totex levels feed into future revenue • the ability of the company to maintain an efficient capital
allowances. With interest rates predicted to increase and structure over the long term, without the use of short-term
lower incentivisation in the RIIO-2 framework, we financing levers; and
recognise there is greater risk around achieving A3/A- • the ability for the company to maintain its financeability in
under this approach in the future, but we are maintaining a range of macroeconomic and operational scenarios
our target of Baa1/BBB+ for the notional company.
Figure 22.02 impact of misaligning of the risk-reward balance

Case Study: PR99 regulatory agreement
PR99 was a review of water companies’ price limits for the period 2000/01 to 2004/05. Ofwat imposed a significant
reduction in allowed rate of return compared to the previous price control.
PR99 is remembered for precipitating a ‘flight from equity’. There was a sense that the price control put off
investment that would have benefited customers and the owner of one company in financial distress was forced to
sell up at a discount to the regulated capital value.
The House of Commons Public Accounts Committee, Pipes and Wires, stated in 2002:
“The market valuation of companies in the water industry has fallen below that estimated by Ofwat, suggesting that
it might in 1999 have set the cost of capital too low.”
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We generate value for our investors through a combination investor proposition and the importance of differentiating
of dividend yield and asset growth. However, equity the level of dividend yield at 5% within our plans, compared
investors do not place equal prominence on each element to that of the FTSE100.
of the equity offering. In our latest equity shareholder
We therefore target a 5% dividend yield, consistent with
survey, all respondents stated that our National Grid plc
historic precedent.
dividend policy “to grow the ordinary dividend per share at
least in line with the rate of RPI inflation each year for the 2. Regulatory principles
foreseeable future” was an important part of their An appropriately balanced financial framework is key to
investment decision. This demonstrates the fact that the current and future consumers being fairly charged for the
level of dividend pay-out is closely monitored by our networks they use and the services they receive. This is
shareholders and the wider investment community to because we pay for investment as we incur it but we
assess its sustainability and relative attractiveness within recover the cost of that investment for as long as it provides
our peer group and relative to the wider equity market. To a consumer benefit, which is currently over many decades.
help achieve this plc level dividend policy we have an This timing creates a cash flow gap which we bridge
NGGT dividend policy to maintain gearing at 60%, through debt and equity investment.
transferring any additional cash up to plc level. This
maintains the efficient financing position for the operating Figure 22.03 the building blocks model of regulation
company.
Allowed
The measures that are commonly used to assess the Capex Opex
Revenue
appropriateness of the dividend pay-out are the dividend =
yield and dividend cover.
Over the last decade, listed utilities in the UK have Fast Money
averaged a 5.3% dividend yield with the FTSE above 4%. +
Changes to the regulatory model that increase cash
Depreciation
generation at the expense of asset growth, such as the
move from RPI to CPIH inflation, lead to investors RAV
+
expecting a higher dividend yield in the next regulatory Return
review.
+
The prominence of the dividend policy in regulated utilities
is explained by the long asset lives relative to other UK Incentives
listed peers, as well as the regulatory price controls that +
set their revenues. A consistent dividend policy, both in
Tax
terms of yield and cover, therefore, provides confidence to
investors of the regulatory commitment to allow equity
investors to recover their initial investment and earn a The RIIO framework is based on the ‘building blocks’
stable return over the long term. model of regulation. In this model, allowed revenue should
be sufficient to recover the efficient costs the network
Any significant change in the level of yield would cause incurs in providing its services. Those costs being:
equity investors to question the place of National Grid as a
yield stock within their portfolio and reallocate capital • fast money: the operating expenses associated with the
elsewhere in the FTSE or to regulated utilities in other day to day running of the business
jurisdictions and may lead to a ‘flight from equity’ such as • depreciation: the annual expense that is based on
that experienced after the PR99 regulatory agreement in spreading the cost of investment over its economic life
the water sector. • return on RAV: the cost of financing investment, i.e.
paying a fair return to debt and equity investors.
Investors will also be aware of the wider political
environment in the UK, for example since the vote to leave As part of the regulatory framework we are allowed to
the European Union in June 2016 there have been net recover the efficient costs of paying interest and dividends
outflows from UK equities of around 10%, this move from to investors. In this context, efficient means we need to
UK equities has been reflected within the regulated energy balance lower consumer bills now with a funding platform
sector with a reduction in share prices of National Grid which will help us to keep financing costs sustainably low
(9%), Centrica (65%), and SSE (17%) over the same by maintaining credit ratings and equity investor returns.
period. Without this return, we would not be able to fund
investments over a long time period and current
Shareholders also earn a return through asset growth. For
consumers would bear all the cost of investments
example, we expect to deliver asset growth of 3% per
undertaken even though they would not receive all the
annum on average during RIIO-2 based on the baseline
benefit. An out of balance risk and return mix would not
plan. The value that investors place on asset growth is
keep financing costs sustainably low, creating a much
dependent on the future dividend capacity attributable to
bigger consumer bill increase in the future when the
the asset growth. Our asset growth can also be compared
balance is returned.
to the higher asset growth of the FTSE100 of 8%, further
underlining the prominence of the dividend within our
185

A balance between current and future consumer bills is achieved by using a regulatory framework which:
Table 22.04 required attributes of the regulatory framework
Balances risk and reward: by ensuring risks best managed by network are not passed on to consumers
A key attribute of the regulatory framework must be a transparent and fair balance of risk and reward between
consumers and networks. Removing risks for networks can reduce the cost of capital, and therefore short-term
consumer bills. However, the risks removed will still exist only now they will sit with consumers. This creates little
1 incentive or financial capacity for the networks to control costs because of the limited opportunity to be retained from
any reductions. This will ultimately drive higher and more variable long-term consumer bills.
Demonstrates regulatory commitment and a stable regime: to keep financing costs low for consumers
Our costs of borrowing will depend on how our credit rating is assessed. If our credit rating deteriorates, then
borrowing costs will go up. Furthermore, it is reasonable for equity investors to expect returns which are broadly
stable over time so that returns which were considered appropriate at the time of investment would still be considered
2 appropriate now and in the future. Unpredictability increases risk perception placing upward pressure on the cost of
capital. Only by maintaining a consistent approach will the financial framework allow network companies to attract
the required investment and keep bills as low as possible for consumers.
Takes a long-term sustainable approach: to ensure investment is recovered fairly from both current and future
consumers
Financeability is not just a consideration of short-term liquidity ratios but considers the long-term sustainability of the
3 company’s financial position which is important in safeguarding future investment. We consider trends across
several price controls. This helps us to avoid short-term fixes to address immediate cashflow issues that might create
financeability problems in the future.
Provides strong incentives: so the networks demonstrably strive to deliver benefits for consumers
An effective incentive framework ensures delivery of services at the price and levels consumers are willing to pay
by aligning their interests with those of investors. Networks are encouraged to seek out lower costs, through the
4 potential to share benefits, whilst still being held to account for delivering the outcomes they have committed to with
clear consequences of non-delivery. Outcomes should be measured and monitored against targets set at the start
of the price control providing the transparency which is important for maintaining consumer confidence.
3. Financeability
3.1 Approach to the financeability assessment
The majority of our investment is added to the RAV with the regulatory framework allowing recovery through depreciation
and a return on investment. The cost to consumers is spread over the life of the asset and requires us to finance
investment from debt or equity investors. Ofgem have a duty to have regard to our financeability by allowing us to recover
revenues that are sufficient to pay interest and dividends to our finance providers. We also have a financeability duty by
ensuring that we can maintain an investment grade credit rating.
It is in consumers’ interests that we fulfil our financing duties efficiently, so the return and interest costs funded by
consumers are as low as reasonably possible. Maintaining a strong credit rating and providing confidence to investors
that their investment is secure minimises financing costs. We also need to retain sufficient financial capacity and flexibility
to continue operations and investment programmes in the event of economic downturn and outturn of downside risk. At
its very basic level, the financeability assessment is a review of the projected levels of a package of financial ratios, which
test this financial capacity against target levels. Our network is financeable if we can meet the expectations of both our
debt and equity investors. Within this context, we have adopted the following approach to assess financeability:
Table 22.05 our approach to assessing financeability
Assess financeability for a notionally efficient company with a capital structure

Focus first on the consistent with that used to determine the weighted average cost of capital. This
1 notional company ensures companies and their shareholders bear the risk of their capital structure and
financing, not customers.
Target a strong Use a target rating of Baa1/BBB+ to ensure financial resilience and consistency with the
2 credit rating index used to set cost of debt allowances.
Consider a range of Follow methodologies and focus on key metrics used by credit ratings agencies to aid
financial ratios for transparency and consistency. For equity metrics, we target a dividend policy consistent
3 debt and equity with investor expectations and review trends for dividends and earnings profiles. Table
investors 22.05 summarises the ratios targeted.
Consider trends across several price controls to assess the long-term sustainability of
Assess resilience
the financial package, stress test financial resilience through the application of a range
4 within and beyond
of sensitivities and alternative scenarios. This helps us to avoid short-term fixes which
the RIIO-2 period
would increase overall costs.
186

Table 22.06 target thresholds for key financial ratios
Ratio Threshold Rationale
Adjusted interest cover ratio (AICR)
Based on Moody’s methodology
measures how many times a company can cover its interest 1.5
payments using available cash
AICR – mid-point of Moody’s range
Net debt/RAV
60% Gearing – notional gearing assumption
ensures we maintain an efficient financing structure
FFO/Net debt
Based on S&P’s methodology
measures the ability of a company to pay off its debt using 10%
Mid-point of 9-11% range
available cash
Dividend yield
Consistent with RIIO-1 and supports a dividend
enables investors to measure how much they could earn in 5%
in real terms in line with other UK utilities.
dividends by investing in stock
We use the scorecard methodology adopted by Moody’s Recently, both Moody’s and Fitch assessed that the water
(Moody’s Grid) and core metrics applied by Moody’s and sector has become riskier and therefore increased the ratio
Standard and Poor’s (S&P) as our primary tools to assess headroom required for AICR by 10bps. We have assumed
financeability from a debt investor’s perspective. that the thresholds applied to energy networks do not
change from where they are today with this risk partially
We have applied the Moody’s approach in line with how
reflected in our targeting the mid-point of the thresholds
Moody’s themselves apply the methodology for the overall
ranges for key ratios.
Grid rating. This involves putting an additional focus on the
core metrics: AICR and net debt/RAV. For the context of this chapter, we concentrate on key
financial ratios in line with the rating agency methodologies
We have also focussed on FFO/net debt as the core ratio
and include a wider range of metrics, including those set
used by S&P in their rating assessment. Engagement with
out by Ofgem’s guidance, in finance annex A22.01.
S&P, review of their rating methodology and consideration
of peers’ ratings leads to the interpretation of 9%-11% Given energy transition and the uncertainty inherent in
BBB+ threshold range. proposed investment for the RIIO-2 period, the network
needs to be financeable at different funded levels of totex
Our assessment considers credit metrics as being
and we stress test the financial package using Ofgem’s
achieved when the mid-point of the relevant thresholds is
proposed scenarios. The impact of downside risk is
met. This is for two reasons.
assessed through:
Firstly, it is in line with credit rating agencies practice,
• interest rate scenario based on -1% compared to forward
where it is expected that metrics will have a buffer above
implied rates as per the base case in each year
the threshold for the relevant rating to apply. If we were to
achieve only minimum thresholds throughout the period, • inflation rate scenario based on +1% in each year
the potential for downside risks would result in a network • RPI – CPI divergence scenario based on -0.5%
with weak financial resilience, increasing the likelihood of movement from assumed wedge
downgrade or being placed on negative watch. This should • 10% totex overspend
not be the case for a “notionally efficient” company which • proportion of index linked debt issued -5% lower than
we are modelling. assumed in the base case.
Secondly, Moody’s has the majority of UK water 3.2. Financeability assessment of Ofgem’s working
companies on negative outlook, reflecting concerns over assumptions
Ofwat’s PR19 determinations. Given the rise in the We test the financeability of the notional company in the
perception of regulatory intervention through items such as first instance for our baseline totex plan using the following
the performance wedge it is credible that this could be assumptions set by Ofgem.
applied to energy networks.
Table 22.07 Ofgem’s working assumptions including incentives performance

Parameter Ofgem assumptions
Allowed equity return 4.3% post-application of the 0.5% outperformance wedge
Incentives performance 0.5% equivalent = £14m p.a.
Dividend yield 3%
Gearing 60%, set at beginning of RIIO-2 and maintained throughout the period
Allowed debt funding Full indexation, 11-15 year trombone
Debt profile 25% inflation linked debt throughout the period with RPI debt switched to CPIH
Inflation indexation Immediate transition to CPIH, CPIH assumed to be 2% per annum
Depreciation 45 years, straight line
Capitalisation rate Natural rate
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Our baseline plan totex totals £2.9bn across the five-year assessment. Once this is done the cashflows fall
price control, when real price effects are included. further below Baa1 thresholds and close to Baa3;
• Financial resilience of the network to absorb downside
Before setting out the detailed financeability assessment, risk is severely limited. There is risk of sector
it is worth outlining why our conclusions from this work downgrade at these levels, as the network’s cost of
are that we do not believe our plan is financeable on a borrowing will increase above that assumed for a
notional basis using Ofgem’s working assumptions and a notionally efficient company;
higher equity return is required to keep consumer costs • CPIH transition is being used as a way of supporting
lower over the longer term: short-term financeability and a reduction in allowed
• Key debt metrics, particularly FFO/net debt, fall short equity returns. This is a short-term fix which will
of those required for a Baa1 investment grade, require compensating adjustments to the price control
reducing the financial capacity to carry the risk of in future periods;
capex uncertainty and bringing a more risk averse • Economic and totex sensitivities show cashflows
approach to investment and innovation; reducing to sub investment grade e.g. if the CPI to RPI
• Dividend yield and allowed equity return will not attract wedge was 0.5% rather than 1% and totex was
required investment, particularly to the levels required overspent by 10%
to deliver net zero targets; These points are explained in more detail through the
• Ofgem’s framework sets out that we must assume following sections. We also show the results of analysis
incentive performance of c£14m per annum in the using our proposed assumptions.
credit metrics. This revenue would be disregarded by
rating agencies so should not be included in the
Table 22.08 key metrics based on Ofgem’s working assumptions including incentive performance
T1 Final Consumer implications
Quantitative Metrics T2
Proposals
Dividend Yield 5.00% 2.96% 2.99% 3.03% 3.04% 3.03% This package leads to higher
consumer bills by risking
Dividend Cover 2.11 1.80 1.27 1.24 1.31 1.32 equity investment which will
Indicated rating from ultimately increase overall
financing costs
Moody's Grid A3 Ba a 1 Ba a 1 Ba a 1 Ba a 1 Ba a 1
Core Metrics Limiting investment funds
now will risk our ability to
AICR 2.08 1.63 1.48 1.47 1.47 1.48
support energy transition
Net Debt / RAV 63% 59.4% 59.9% 60.3% 60.5% 60.4%
S&P : FFO / net debt 11.48% 8.46% 7.76% 7.62% 7.63% 7.70%
A rating Target investment grade Below target investment grade
FFO/net debt is consistently and significantly below The deterioration into RIIO-2 is significant and can be
the target rating from the first year of the RIIO-2 period attributed to the drop in the cost of equity and re-setting the
The FFO/net debt ratio measures the ability of a company gearing levels to align to 60% at the start of the price
to pay off its debt from net operating income. The lower the control. The ratios then become stable, but there is no
ratio, the more likely it is that additional funding is required recovery above the BBB+ minimum threshold in RIIO-2 or
to finance operations or that investment programmes are RIIO-3.
put at risk.
Covering debt expenses at these levels would result in an
Figure 22.09 FFO/net debt ratio under Ofgem’s investment review where we only spend if we have funding
proposed financial package security. This will impact our ability to respond to the
challenges of energy transition and deliver stakeholder-led
outcomes efficiently, increasing costs in the longer term.
Dividend yield and allowed equity return will not

attract required investment
Ofgem’s working assumption is a 3% yield but this does
not align with our investor expectation of stable dividend
growth, and is less than the 4% average of the FTSE100
and 5% of our utility peers.
It is not appropriate to resolve debt financeability
constraints, caused by a base return which is set too low,
through assuming lower dividends. Given that energy
networks hold greater risk than water companies, investors
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could see this as an opportunity to invest in an alternative Assumed incentives performance is not credible
sector where they can earn higher dividends for lower risk.
An assumed 0.5% incentive performance adds c£14m per
The implication is that Ofgem’s package does not balance
year to revenues. The incentives package has not been
risk and reward appropriately or adequately reflect the
finalised but Ofgem’s push for upper quartile performance
risks inherent in running a transmission network.
targets with a downside skew on penalties means this is
We are competing for funds globally which, when unlikely to be a credible assumption.
combined with the significant level of investment required
The notional company should be financeable without the
in UK infrastructure, means returns must be sufficiently
need to rely on assumed outperformance, which is in line
attractive to equity investors. A sustainable and predictably
with how credit rating agencies will undertake their
growing dividend is key to the investor offering. Ultimately,
assessment. Moody’s have referred to the scope of
if it is not high enough, many investors will cease to hold
outperformance being limited by low-powered incentives in
the stock as they see dividends placed at risk through
transmission and likely challenging cost allowances,
lower revenues and structures which have little headroom
meaning they will not include any outperformance in their
to absorb any financial shocks. This impacts our ability to
modelling until a track record has been established.
attract and retain equity investment, which has implications
for raising further financing efficiently. New equity In line with this approach, the table 22.10 shows the results
investment will be more expensive to raise and if equity is of our financeability assessment, excluding the
replaced with higher levels of debt, the risk to debt outperformance wedge.
investors will increase borrowing costs.
Table 22.10 key metrics based on Ofgem’s working assumptions excluding incentive performance
Proposals
Dividend Yield 5.00% 2.97% 3.02% 3.07% 3.10% 3.11% As credit quality
deteriorates the costs of
Dividend Cover 2.11 1.64 1.10 1.06 1.13 1.13 borrowing increase to
Indicated rating from reflect increased risk of
lending
Moody's Grid A3 Ba a 1 Ba a 2 Ba a 2 Ba a 2 Ba a 2
Core Metrics Financial resilience of the
network to downside cost
AICR 2.08 1.53 1.38 1.37 1.36 1.36
shocks is limited
Net Debt / RAV 63% 59.6% 60.3% 60.9% 61.3% 61.4%
S&P : FFO / net debt 11.48% 8.10% 7.36% 7.19% 7.17% 7.20%
Limited financial resilience of the network providing only one notch of headroom to achieve an
investment grade credit rating. The notional company has
We have already shown that FFO/net debt is significantly
significantly less headroom to absorb downside risks with
below target threshold even before considering downside
limited financial resilience for the network, particularly
risks; a position which deteriorates further when excluding
when considered in the context of our proposed levels of
incentives performance.
investment and the substantial uncertainties related to the
Without the outperformance wedge, Moody’s Grid rating political and economic environment.
falls to Baa2 throughout the majority of the RIIO-2 period,
Figure 22.11 sensitivity analysis to assess implications for AICR using Ofgem’s working assumptions
Including incentives performance Excluding incentives performance
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The financial package is particularly sensitive to the company. Excluding incentives performance sees AICR
movement in the macroeconomic environment, where only fall below sub-investment grade.
a 0.5% change in the inflation wedge would mean that Whilst this combination is modelled based on scenarios set
AICR deteriorates significantly. Whilst at these levels the out by Ofgem, we have tested their credibility by assessing
network may still be considered investment grade, the further scenarios based on the principal risks identified by
AICR shortfall against the threshold is likely our own risk management processes. Through this we
to increase the risk of a credit downgrade. Core metrics have a clear understanding of the events that could impact
can dominate Moody’s committee decisions, particularly the delivery of the plan with our analysis supporting a
when outcomes are below Grid outcomes. When change in inflation wedge with a 10% totex overspend as
combined with a 10% totex overspend, as shown in figure a severe but plausible scenario. The details of the
22.12, we see credit ratings depressed even further, additional scenarios we have considered in addition to
indicating a significant increase in the risk of lending to the Ofgem’s are set out in annex A22.01.
Figure 22.12 combined totex and macro-economic sensitivity analysis to assess implications for FFO/net debt
and AICR using Ofgem’s working assumptions
11.0%
1.6
Target threshold
10.0% Target threshold
1.5
Minimum BBB+ threshold Minimum Baa1 threshold

9.0% 1.4
FFO / NET DEBT
8.0% 1.3
AICR
7.0% 1.2
6.0% 1.1
Investment Grade
Investment Grade
5.0% 1.0
Sub Investment Grade Sub Investment Grade
4.0% 0.9
FY22 FY23 FY24 FY25 FY26 FY22 FY23 FY24 FY25 FY26
If the company is not considered to be financially resilient, Figure 22.13 AICR using Ofgem’s working
it will cost more to raise debt to fund our investment assumptions for 100% CPIH transition and RPI
programme. As credit quality deteriorates, a narrowing counterfactual
pool of debt investors combined with increasing costs will
ultimately drive higher bills for consumers. Consistent
financial ratios are used by equity investors as a proxy for
dividend affordability, so any additional risk faced by the
shareholder is also likely to place upward pressure on the
cost of equity. Both of these impacts will lead to higher bills,
illustrating why limiting the financial resilience of the
network is not in consumers’ long-term interests.
CPIH transition is being used to alleviate short term

financeability concerns
The transition to CPIH should not be used as a lever to
address financeability issues that may be caused by
setting returns at a level which is too low. We would
therefore expect financeability assessments on both a RPI
and CPI basis to be able to test value neutrality. Figure 22.13 illustrates the impact of changing to CPIH on
AICR and shows undoubtedly how key financial ratios are
being supported by the one-off cash acceleration created
by switching to CPIH indexation. If RPI indexation were
retained, AICR falls to sub-investment grade, meaning that
the network is no longer generating sufficient revenue to
meet its interest costs.
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Short term cash flow increases, whilst supporting metrics safeguarding future investment and providing confidence
in RIIO-2 and RIIO-3, will create financeability issues in the that transition is neutral to investors.
longer term as ensuring NPV neutrality of the indexation
transition results in negative cashflow impacts in 3.3 Application of financeability levers
subsequent price controls. This is likely to be exacerbated As we have shown, the notional company is not
by other long-term implications, particularly when future financeable using Ofgem’s working assumptions; the
funding will reflect CPIH but a significant proportion of company has limited financial headroom and limited
costs are likely to remain nominal or RPI linked creating a resilience to cost shocks highlighted by weak financial
mismatch between revenue and costs. ratios.
As a result, using CPIH transition to support Ofgem’s Ofgem have set out four potential levers (the first four
proposed package will have a detrimental impact on the actions set out in table 22.14) to address these issues to
long-term sustainability of the network, which is key to which we add balancing the risk reward offering through
use of the appropriate allowed return:
Table 22.14 potential financeability levers

Adjust Percentage of totex to be added to the RAV is set to balance costs paid by existing and future consumers,
capitalisation considering the proportion of capex costs expected during the price control period.
rates
Use as financeability lever: The simplest to understand and arguably most economic lever to use. However,
use should be limited to marginal changes otherwise the impact of bringing cash forward is unlikely to be
sustainable in the long term and will create intergenerational mismatches in consumer bills.
Set to balance costs paid by existing and future consumers, taking into account expected economic life of assets
Accelerate and uncertainty in their future use.
regulatory
depreciation Use as financeability lever: Any adjustment to address short term financeability concerns will reduce the
transparency of how cost recovery is set to match the benefits consumers receive.
Demonstrates the financial risk of the company as it measures the level of net debt in the context of the total
value of the RAV.
Reduce Use as financeability lever: Lower gearing levels can enable companies to maintain credit metrics under a
notional wide range of market conditions, but only if set to reflect the cashflow risks from the overall business plan
gearing submission, For RIIO-1 gearing levels are set at 62.5% so we have already recognised a reduction consistent
with a change in our capex levels. Any further reduction should be supported by our current business plan or
framework; as any change, purely to enable cashflows to support short-term credit metrics, risks inconsistency
with the underlying risk profile of the business and how the weighted average cost of capital has been calculated.
Dividend yield should be set to align with equity investor expectations.
Reduce Use as financeability lever: The notional company should be financeable based on an appropriately calibrated
dividend yield package and should not therefore require dividends to be cut.
There must be a transparent and fair balance of risk and reward between consumers and networks.
Risk reward
balance Use as financeability lever: Allowed return needs to be set at a level high enough to not require the use of
short-term levers which bring cash forward but also erode future value.
For the reasons set out in section 1, dividend yield is not a Figure 22.15 impact of capitalisation rate changes
valid lever, leaving depreciation profiles, capitalisation
rates and notional gearing as potential levers to address
the limitations of Ofgem’s financial package. We also
consider the allowed return and what is an appropriate
level to reflect the risks of a transmission network and
ensure a balanced risk and reward package. FFO/net debt,
as calculated by S&P, is typically our most constrained
metric and therefore we focus on how the levers could be
used to achieve financeability based on this ratio.
Adjustment of capitalisation rates
We first consider adjusting the capitalisation rate. Using
this single element would require fixing the rate to 56%
versus a natural rate of 73% to ensure credit metrics
achieve target investment grade in the RIIO-2 period.
We are targeting a level equivalent to the middle of the
rating range, consistent with the rating agency approach,
which requires the equivalent of bringing c£100m of cash
forward each year. The arrow on the graph in figure 22.15
indicates the gap to threshold which has been created by
Ofgem’s proposed package. However, as the trends show,
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simply bringing cash forward to address financeability Depreciation of the RAV should be based on an
issues in RIIO-2 is not sustainable because it can only assessment of the appropriate balance of costs to be paid
defer those underlying issues into the next price control by existing and future consumers, taking into account the
period. The solid grey line in RIIO-3 shows the gap to expected technical and economic life of assets. Ofgem’s
threshold which is created by reverting to the natural current working assumption is 45 years but we note that
capitalisation rate which then requires further cash the investment profile in the gas transmission network has
acceleration to address. changed over the previous price control, according to
customer requirements and network usage. Prior to RIIO,
The materiality of the cash levels required to correct spend mainly related to pipework installation but within
financial concerns with the overall package, is contrary to RIIO-1 the significant proportion of investment is to
Ofgem’s primary obligation of ensuring fair charges for maintain the existing network and ensure it continues to be
existing and future consumers for the networks they use compliant with changing environmental legislation. We
and the services they receive. expect this trend to continue into RIIO-2, with an initial
review showing the types of assets we will invest in have a
We have assessed what the capitalisation rate would need significantly lower technical life, averaging around 25
to be without including the cash equivalent of the years. It would therefore be consistent to apply a similar
performance wedge, as we do not consider it appropriate reduction in asset life to the RAV additions within the RIIO-
to assume outperformance in our financeability 2 period.
assessment. However, if the wedge were to be applied the
In addition, the FES18 demand scenarios indicate a
capitalisation rate required to meet target thresholds would
decline in the gas consumer numbers over the next 30
still be significant at 58%.
years, which means the risk that the RAV is unrecovered
is now considerably higher than it was at the start of RIIO-
Figure 22.16 payment profile of a single year’s 1. This can be addressed through the acceleration of cash
investment under alternative capitalisation rates through the regulatory depreciation profile. Our view is that
a reduction in the 45-year asset life to match consumer
benefit to charge is required as is a weighting of the
depreciation profile towards earlier years through adoption
of a sum of digits approach to manage the stranding risk.
The sum of digits depreciation profile was adopted by the
gas distribution networks in RIIO-1 for the whole RAV so
adoption by gas transmission for RIIO-2 additions would
result in a more consistent approach across the gas sector,
implying alignment of underlying assumptions about the
future role of the gas network.
Through our engagement activity, domestic consumers
Figure 22.16 shows the profile of cash recovery for an have a strong preference for the cost of asset
investment made in the first year of RIIO-2. Where the decommissioning and new gas equipment to be borne by
natural capitalisation rate is used, ~30% of the investment current consumers. In contrast, non-domestic consumers
cost will have been recovered from consumers after five and customers expressed concerns about a potential shift
years, whereas this is accelerated to ~45% when the of greater costs to current consumers and customers. On
capitalisation rate is adjusted to address financeability the basis of intergenerational fairness, we have listened to
concerns. This means that for a single year of investment, the views of domestic consumers and proceeded with our
future consumers will not be charged £100m for a service proposals.
they will receive.
Figure 22.17 FFO/net debt sensitivity analysis of
Acceleration of depreciation
regulatory deprecation rate profiles
The same issues arise when considering the acceleration
of regulatory depreciation. Making companies financeable Ofgem Base Case exc
through levers which bring cash forward and erode future incentives
value cannot be sustained in the long term and should not 14%
25 year change
be considered as a substitute for setting equity returns to 13% 25 year + SoD

reflect the correct risk reward balance, particularly as credit Avera ge va lue
12%
rating agencies make changes to capitalisation rate and i n pri ce control
FFO / Net Debt
depreciation profile on the basis that the adjustments are 11%

Target threshold
NPV neutral. 10%
Minimum
MinimumBaa1
Baa1 threshold
threshold
Whilst we have not proposed changes to depreciation to 9%
address financeability concerns, there is a requirement to 8%
align assumptions with the principles used to set regulatory 7%

depreciation and balance current and future usage with FY14 FY16 FY18 FY20 FY22 FY24 FY26
cost for the consumer.
192

Whilst the driver for these changes is not to fix The graphs show that, even with a significant reduction in
financeability concerns, applying a change to asset life and notional gearing, allowed returns need to increase to
depreciation profile goes some way to achieving the target ensure metrics align with our target rating based on
rating by the end of the RIIO-2 period but is still below continued reliance on an implausible performance
threshold for the majority of the period. Addressing the adjustment.
remaining gap requires a c10% change to capitalisation
rates from the natural rate which remains unsustainable in At 60%, gearing remains consistent with the market.
the longer term. Whilst levels have been set lower, this has only been
considered appropriate for companies undergoing
Reduction in notional gearing significant RAV growth, a position not aligned with our
We have also considered the impact of reducing the baseline plan. As the risk profile of the network has also
notional gearing level to 50% as a lever to achieve not decreased there seems to be limited justification in
acceptable debt metrics under Ofgem’s proposed adjusting notional gearing simply to address financeability
package. Firstly, we have assumed a view keeping equity concerns.
return at 4.3% but changing gearing. A change to the
notional gearing changes the reference point for equity Figure 22.19 FFO / net debt at 60% and 50% notional
injections and the absolute level of debt. and therefore, gearing with allowed returns increasing
impacts the weighted average cost of capital (WACC) used
in revenue calculations. This would imply setting an equity
return without reference to the change in notional gearing,
increasing the WACC.
The alternative is to reflect the lower gearing levels in the

equity return. This would reduce the headline equity return
figure which would mean that the allowed WACC has little
movement but financeability ratios would still show
improvement given the reduction in net debt.
Figure 22.18 FFO/net debt at 60% and 50% notional

gearing keeping allowed returns aligned
Using gearing as a lever to support a return which has

been set too low further deteriorates the investor
proposition by transferring additional risk to equity and
reducing asset growth.
Dividend policy
The focus so far has been on achieving credit metric target
thresholds in RIIO-2 but we have highlighted throughout
that the equity investor proposition is not in line with the
feedback from our shareholders or other regulated entities.
When we adjust to a 5% dividend yield consistent with
market expectations, Ofgem’s proposed financial package
falls below the target rating for all key financial ratios apart
from net debt/RAV.
Table 22.20 key metrics based on Ofgem’s working assumptions with a 5% dividend yield and excluding
incentive performance
Proposals
Dividend Yield 5.00% 5.06% 5.25% 5.46% 5.64% 5.79% Dividend policy is not
sustainable, putting upward
Dividend Cover 2.11 0.97 0.63 0.60 0.62 0.61 pressure on cost of equity
Indicated rating from
No financial resilience to
Moody's Grid A3 Baa1 Baa2 Baa2 Baa2 Baa2 absorb the impact of cost
Core Metrics shocks
AICR 2.08 1.52 1.35 1.32 1.30 1.28
Inability to facilitate
Net Debt / RAV 63% 60.5% 61.9% 63.4% 64.5% 65.5% changing consumer
S&P : FFO / net debt 11.48% 7.96% 7.09% 6.79% 6.64% 6.54% requirements
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The 5% dividend yield cannot be supported with Ofgem’s S&P also close to a BBB- rating. Using downward changes
proposed package. Dividend cover falls below 1 indicating to the equity investor proposition to address short term
that the dividend required by investors cannot be concerns for debt metrics is not a substitute for setting
sustained, which is also shown through gearing levels base returns at a high enough level with an appropriately
which by the end of the period are above threshold at calibrated package.
65.5% suggesting equity issuance may be required. Neither the reduction of the equity investor offering nor the
There is a deterioration in the debt investor proposition as use of short-term cash acceleration levers are aligned with
Moody’s rating grid falls to Baa2 during the period, with our regulatory principles:
Figure 22.21 assessment of Ofgem’s proposed financial package against regulatory principles
Is the regulatory principle Reasoning
met?
Balances risk and reward Return is insufficient to reflect the risks inherent in running a transmission network and is not
aligned with either investor expectations or market comparators.
Demonstrates regulatory Ofgem’s assumptions are inconsistent with past regulatory precedent, particularly in relation to
commitment and a stable setting allowed equity returns. Increasing perceptions of regulatory risk impacts investor
regime confidence leading to increased cost of capital, and therefore bills, in the long term.
Takes a long term Short term fixes are required to make Ofgem’s package debt financeable, these can address
sustainable approach immediate cashflow problems but only by deferring underlying issues into the next price control
and creating an unfair balance of charges between current and future consumers.
Provides strong incentives There is no financial capacity to compensate networks for assuming more risk for developing
new, innovative ways of working which drive lower consumer bills in the long term.
Investors continually trade off risk and return when they offer an equity investor package which can attract and
evaluate investment opportunities and they need to be retain investment to keep financing costs efficient and as
rewarded for the risk they take for investing in National low as possible.
Grid. This requires an allowed equity return which is
comparable and allows the company to maintain It also provides the capacity to compensate networks for
financeability. assuming more risk, enabling delivery of the stretching
outcomes stakeholders are telling us are important to
In finance annex A22.01, we set out in detail our principles- them.
based approach to determining our financial package. The
package we propose can maintain both credit ratings and
Table 22.22 our proposed financial package

Parameter Our proposed assumption
Allowed equity return 6.5%
Incentives performance -
Dividend yield 5%
Gearing 60%, set at beginning of RIIO-2 and maintained throughout the period
Allowed debt funding Full indexation, 15 year index plus 68 basis points additional borrowing costs
Debt profile 25% inflation linked debt throughout the period with RPI debt switched to CPIH
Inflation indexation Immediate transition to CPIH, CPIH assumed to be 2% per annum
Depreciation 25 years, sum of digits
Capitalisation rate Natural rate
Table 22.23 key metrics based on National Grid’s proposed financial package Consumer implications
T1 Final
Proposals Dividend policy is
Dividend Yield 5.00% 4.95% 5.01% 5.07% 5.07% 5.03% sustainable, and in line with
investor expectations
Dividend Cover 2.11 1.40 1.19 1.32 1.52 1.66
Indicated rating from Network is able to borrow
more cheaply and can
Moody's Grid A3 Ba a 1 Ba a 1 Ba a 1 Ba a 1 Ba a 1 absorb the impact of cost
Core Metrics shocks
AICR 2.08 1.69 1.58 1.59 1.62 1.67 Network can operate
Net Debt / RAV 63% 59.6% 60.1% 60.5% 60.5% 60.2% flexibly to facilitate changing
consumer requirements
S&P : FFO / net debt 11.48% 9.50% 9.16% 9.53% 10.11% 10.74%
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We have tested our package against a range of As figure 22.24 shows, we are able to maintain
macroeconomic and operational scenarios to ensure the financeability and remain resilient, a position which is key
notional company has sufficient headroom to absorb in safeguarding our future investment ensuring we have
downside risks This is more constrained in the earlier the capacity to facilitate change to a low carbon economy
years of the price control but is above the minimum and deliver the energy networks of the future.
threshold and shows positive trends.
Figure 22.24 sensitivity analysis to assess implications for FFO/net debt and AICR using National Grid’s
proposed financial package
3.4 Financeability assessment of the actual company access to a wide range of debt instruments and capital
Our assessment so far has focussed on the financeability markets at an efficient interest rate which is key to
of the notional company but we also need to assess supporting our debt financing strategy.
financeability of the actual company. The onus for ensuring
With this package the equity investor proposition is also
the financeability of the actual companies lies with
misaligned with both our peer group and shareholder
networks, but this can only be assured on a sustainable
feedback. Adjusting to a 5% dividend yield, we see metrics
basis if supported by a package which delivers a
deteriorating further with trends showing a gradual
financeable notional company.
increase in gearing levels. By the end of the period we are
For the actual company, notional gearing is adjusted to above threshold (66.9%), suggesting equity issuance will
actual gearing and actual debt and tax costs are included be required to ensure alignment with an efficient capital
with other financial parameters remaining at notional structure.
values. We also include any cashflows which will be
Of the potential actions to address these issues, the use of
recovered/incurred during RIIO-2 but are related to the
capitalisation and depreciation rates are not applicable as
RIIO-1 price control period. We align our assessment with
they are seen as cash acceleration tools by rating agencies
credit ratings agencies methodology.
and so will not impact their rating of the actual company.
Considering Ofgem’s package, including 0.5% of incentive
Also proposed by Ofgem are equity injections to reduce
performance, we see a deterioration in the results of our
gearing levels. It is unlikely that we would be able to attract
financeability assessment when assessed on an actual
additional investment when higher returns can be earned
basis. We work hard to ensure debt is issued as efficiently
in comparable sectors (e.g. water, tobacco). In reality, it is
as possible to minimise total interest rate
likely that returns would need to be higher to compensate
charges, yet we are still underperforming compared to cost
investors for increasing their exposure to a sector which
of debt allowances which are set based on the 11-15-year
may be perceived as being riskier because of the political
tracker. This is because the duration of the tracker is
and regulatory uncertainty.
inconsistent with the average tenor of the debt we raise,
which is c20 years. A further lever proposed by Ofgem is the refinancing of
expensive debt. From a commercial perspective, our
As already outlined for the notional company, assuming
strategy for the actual company already includes review of
incentives performance at this level is neither a credible
our debt portfolio and making commercial decisions to
assumption nor is it in line with how credit rating agencies
optimise our financial position. In addition, this lever only
will view the network in practice. Taking out any assumed
impacts the financing position of the actual company. The
incentive outperformance shows FFO/net debt falls
interest costs for the notional company are not impacted
significantly below the A- credit rating we aim to support for
as they are based on the cost of debt tracker inputs.
the actual company. We target A- because this ensures
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The only sustainable way to support both debt and equity and to directly compare RIIO-2 charges with those under
financeability is to set an appropriately calibrated package. the previous price control.
The package we propose ensures financeability for both
the notional and actual company and allows us to continue 4.1 Customer and non-domestic consumer bills
efficiently financing our activities whilst supporting We have built this plan with the help of our customers and
sustainably lower consumer bills in the long term. have incorporated their views in our submission.
4. Bill impacts When we have talked to our customers and non-domestic

The application of the RIIO-2 regulatory framework to our consumers about how we can help them understand their
business plan determines the revenues we are allowed to bill impacts for RIIO-2, they have told us that we should
recover through the price control period. Our revenues, for give them visibility of our revenue trends, including
both Transmission Owner (TO) and System Operator potential charge implications. This will allow them to
(SO), are collected through National Grid’s Transportation calculate their own specific bill impacts based on their
Charges, paid by all users of the NTS across Great Britain. individual circumstances.
The NTS charges are paid by the customers of the SO; Customers can take advantage of different charging
being shippers who put gas on and take gas off the system products with varying prices. The impact of our plan on
and distribution networks. These customers pass the customer charges will vary based on their access and use
charges through to end consumers via suppliers. We of the NTS. We therefore use simplifying assumptions to
consider the impact of our plan both on our customers and calculate the impact of our RIIO-2 business plan on
the end consumer. customers. Specifically, as shippers pay both capacity and
commodity charges, an aggregation of these into two
The process for calculating the charges is complex and charge categories, entry and exit, is appropriate and
subject to the particular charging methodology in force at provides a view of the average impact on charges across
the time. When calculating the bill impacts we make the the price control. Our forecast revenue ranges for our draft
simplifying assumption that the charging methodology will business plan submission, after deduction of directly
not change from its current form. This allows us to quantify collected revenues are:
the specific bill impacts associated with our business plan
Table 22.25 forecast revenue charged through entry and exit customer charges
£m (2018/19 price base) 2021/22 2022/23 2023/24 2024/25 2025/26 RIIO-2 average RIIO-1 average
National Grid framework 935 935 999 990 978 967 919
Ofgem framework 904 914 958 917 887 916 919
A key driver for change in the revenue presented in the October draft business plan to the final plan results from an
additional £22m cost associated with the cost of managing constraints in accordance with the constraint management
incentive (detailed in chapter 14).
Assuming that supply and demand remain at forecast 2020-2021 levels across RIIO-2, results in the following forecast
impact of our plan on customer charges:
Table 22.26 forecast percentage changes in entry and exit charges

(2018-19 price base) Change from RIIO-1 average to RIIO-2 average Change over RIIO-2 (2021-2022 to 2025-2026)
Average entry charges -9% to +1% -1% to +4%
Average exit charges -9% to +1% -1% to +4%
In addition, we provide mechanisms to help customers 4.2 Consumer bills

assess their bill impacts via NTS Charging Methodology We calculate our consumer bill impact using a simple top-
Forums and published tools and pricing information. down approach that follows the methodology described by
Ofgem. The consumer bill is expressed as National Grid’s
NTS network charges passed on to households by
suppliers. We use the following four-step process to
calculate the consumer bill impact:
Figure 22.27 methodology for calculating gas bill impacts
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Our approach is based on the charging methodology and However, by adopting Ofgem’s proposed framework, we
inputs from 2019-20, so our forward-looking estimates, recognise that there are additional risks for consumers:
such as demand assumptions, do not include potential
future changes to these variables. • The equity investor offering is reduced and is not in line
with that of our peers, which risks a rise in the cost to
Using this methodology, on average across RIIO-1, invest in the network or limits our ability to make the
National Grid’s direct charges to end consumers account required investment.
for around two per cent of the average household gas bill, • The short-term fix of amending the capitalisation rate to
which is around £9.05 a year. bring additional revenues into the RIIO-2 period from
future periods moves away from the principle of matching
All values are quoted in the equivalent of 2018-19 prices. consumer charges to asset use.
This gives transparency to the impacts expected from our
business plan by removing the effects of inflation on bills. Our proposed financial package mitigates these risks and
ensures that charges are set to reflect consumers’ use of
Applying Ofgem’s proposed financial package, with the the gas network. Under our proposed package, the
capitalisation rate adjustment to ensure that the company average RIIO-2 consumer bill is £8.85, an average
remains able to achieve credit metrics at Baa1 grade for reduction in the annual bill of 20p compared with the
the RIIO-2 period (section 3.3), results in an average RIIO- current price control. The drivers which result in the change
2 consumer bill of £8.35, an average reduction in the in the average consumer bill from RIIO-1 to RIIO-2 for our
annual bill of 70p compared with the current price control. proposed framework can be categorised as follows:
Figure 22.28 forecast upper range of consumer bill based on National Grid’s proposed financial framework
10.50
10.00 0.15
0.40 0.05 0.70
9.50
£ 0.25
9.00 0.85 0.75
9.05 0.15
8.50 8.85
8.00
• Previous controls: +£0.25 • Financial package: -£0.85

The level of RAV additions in the RIIO-1 and legacy This category covers changes to financial parameters:
adjustments will flow through to the RIIO-2 bill but arise as allowed equity return, cost of debt allowances and gearing.
a result of true-ups required for the previous price control. Under both our and Ofgem’s proposed financial package,
the cost of capital decreases mainly due to lower allowed
• Framework changes: +£0.60 equity return when compared with RIIO-1.
The transition to a CPIH indexed price control accelerates Cessation of accelerated revenue which formed part of the
cashflow. RIIO-1 framework also contributes to the reduced return.
We are also proposing a change in the regulatory asset
lives and depreciation profile (section 3.3 and finance • Totex plan: +£0.70
annex A22.01) which increases the consumer bill in RIIO- Our totex plan is driven by what our stakeholders require
2. from the transmission network and the investment needed
to deliver a safe, reliable network which will be key to
realising the UK’s clean growth ambition. We have tested
197

and communicated elements of the plan with stakeholders,
for example, through the Willingness to Pay exercise.
• Demand projections: -£0.75

We use the medium Typical Domestic Consumption
Values as published by Ofgem. We have continued the
2019-20 charging methodology and demand assumptions
through the remainder of the current price control and into
subsequent periods.
• Other adjustments: -£0.15

A further reduction is attributable to forecast changes in
pass-through and incentive income.
We have engaged with stakeholders on our

communications on the consumer bill. In November 2018,
we commissioned a study that explored awareness of the
energy industry among the public, including their
understanding of what makes up the energy bill. Based on
the results and feedback we have engaged with
stakeholders to explain our portion of the consumer bill and
how it is calculated. This information is available at
https://www.nationalgridgas.com/about-us/breaking-down-
your-bill. We have also explained how the bill
impacts reflect value for the network they use and the
services they receive now, while being fair to both current
and future generations. This engagement will continue
throughout and contribute to development of our plan.
198
Thank you for reading our business plan. Further supporting material is listed below.
Chapter Title Type Chapter Title Type

Cross Cutting Annexes (not chapter specific) NGGT_A16.05_Compressor Emissions Compliance Annex
NGGT_A3.01_Price Control Deliverables Annex Strategy (CECS)
NGGT_A3.02_Uncertainty Mechanisms Annex NGGT_A16.06_Environment Engagement Report EL
NGGT_A3.03_Output Delivery Incentives Annex NGGT_A16.07_Demolition Engagement Report EL
NGGT_A3.04_Output, UM and CVP Snapshot Annex NGGT_A16.08_Redundant Assets Annex
NGGT_A7.0_Assurance Report Annex NGGT_A16.09_Quarry and Loss supporting information Annex
NGGT_A7.02_Irregular Submission Assurance Report Annex NGGT_A16.10_Wormington Compressor EJP EJP
NGGT_A8.01_Ofgem Business Plan guidance mapping Annex NGGT_A16.11_Wormington Compressor CBA CBA
Chapter 10 - Giving stakeholders and consumers a stronger voice NGGT_A16.12_Peterborough & Huntingdon Compressor EJP
NGGT_A10.01_Independent Stakeholder User Group set-up Annex EJP
report NGGT_A16.13_Peterborough & Huntingdon Compressor CBA
NGGT_A10.02_Gas RIIO-2 stakeholder engagement Annex CBA
strategy NGGT_A16.14_King’s Lynn Compressor EJP EJP
NGGT_A10.03_Stakeholder engagement report Annex NGGT_A16.15_King’s Lynn Compressor CBA CBA
NGGT_A10.04_Frontier Triangulation Report Annex NGGT_A16.16_St Fergus Investment Programme EJP
NGGT_A10.05_Consumer Value Proposition Annex NGGT_A16.17_St Fergus CBA CBA
NGGT_A10.06_Frontier Economics CVP Report Annex NGGT_A16.18_Low carbon vehicle fleet justification paper EJP
NGGT_A10.07_Frontier Economics CVP quantification Annex NGGT_A16.19_Supply chain sustainability benchmarking Annex
Chapter 12 - Network Capability NGGT_A16.20_Responsible procurement action plan Annex
NGGT_A12.01_EY report Annex Chapter 17 – whole energy system
NGGT_A12.02_Network Capability Report Annex NGGT_A17.01_Whole Energy System engagement report El
NGGT_A12.03_Baseline Obligated Capacities Report Annex NGGT_A17.02_Future Balancing & Capacity engagement EL
NGGT_A12.04_Compressor supporting information Annex report
NGGT_A12.05_Network Capability Engagement Report EL NGGT_A17.03_GT Innovation RIIO-2 Strategy Annex
Chapter 14 – Gas on and off NGGT_A17.04_Gemini Justification Paper EJP
NGGT_A14.01_Gas On & Off engagement report EL NGGT_A17.05_Gemini CBA CBA
NGGT_A14.02_Bacton Terminal Redevelopment EJP EJP NGGT_A17.06_NTS and NGN capacity interactions Annex
NGGT_A14.03_Bacton Terminal Redevelopment CBA CBA Chapter 18 – information
NGGT_A14.04_King’s Lynn Subsidence EJP EJP NGGT_A18.01_Information Provision engagement report EL
NGGT_A14.05_King’s Lynn AGI CBA CBA Chapter 19 – connect
NGGT_A14.06_Blackrod EJP EJP NGGT_A19.01_Non-Customer Funded Diversions Annex
NGGT_A14.07_Blackrod CBA CBA Chapter 20 - I want you to be efficient and affordable
NGGT_A14.08_Cab Infrastructure EJP EJP NGGT_A20.01_Willingness to pay report Annex
NGGT_A14.09_Cab Infrastructure CBA CBA NGGT_A20.02_Acceptability testing report Annex
NGGT_A14.10_Compressor Train EJP EJP NGGT_A20.03_IT annex Annex
NGGT_A14.11_Compressor Train CBA CBA NGGT_A20.04_National Grid Gas- Ellipse justification paper EJP
NGGT_A14.12_Plant & Equipment EJP EJP NGGT_A20.05_National Grid Gas- Ellipse CBA CBA
NGGT_A14.13_Plant & Equipment CBA CBA NGGT_A20.06_National Grid Gas-Infrastructure Hosting EJP
NGGT_A14.14_Valves EJP EJP services justification paper
NGGT_A14.15_Valves CBA CBA NGGT_A20.07_National Grid Gas-Infrastructure Hosting CBA
NGGT_A14.16_Pipelines EJP EJP services CBA
NGGT_A14.17_Pipelines CBA CBA NGGT_A20.08_Business Support external benchmarking Annex
NGGT_A14.18_Structural Integrity EJP EJP NGGT_A20.09_National Grid Gas-Business Services EJP
NGGT_A14.19_Structural Integrity CBA CBA justification paper
NGGT_A14.20_Electircal EJP EJP NGGT_A20.10_National Grid Gas- Business Services CBA CBA
NGGT_A14.21_Electrical CBA CBA NGGT_A20.11_National Grid Gas- Enterprise Network EJP
NGGT_A14.22_NOT USED Refresh justification paper
NGGT_A14.23_NOT USED NGGT_A20.12_National Grid Gas- Enterprise Network CBA
NGGT_A14.24_Asset Health Engagement Report EL Refresh CBA
NGGT_A14.25_GSO Summary Annex Annex NGGT_A20.13_National Grid Gas- End User compute EJP
justification paper
Chapter 15 – protect from threats
NGGT_A20.14_National Grid Gas- End User compute CBA CBA
NGGT_A15.01_National Grid Cyber Security Strategy Annex
NGGT_A20.15_Opex Annex Annex
NGGT_A15.02 NGGT Business IT Security Plan Annex
NGGT_A20.16_Native Competition plan Annex
NGGT_A15.03_Gas Transmission NIS self-assessment Annex
NGGT_A15.04_Gas System Operator NIS self-assessment Annex NGGT_A20.17_Unit cost process & assessment Annex
NGGT_A20.18__NOT USED
NGGT_A15.05_Gas Transmission NIS improvement plan Annex
NGGT_A20.19_IT benchmarking (Gartner) Annex
NGGT_A15.06_Gas System Operator NIS improvement Annex
plan NGGT_A20.20_IT Operations & Tooling justification paper EJP
NGGT_A15.07_NGGT Cyber Resilience Plan Annex NGGT_A20.21_IT Operations & Tooling CBA CBA
NGGT_A15.08_Enhanced Physical site security asset health EJP NGGT_A20.22_IT Strategy Annex
EJP NGGT_A20.23_Digitalisation Strategy Annex
NGGT_A15.09_Enhanced Physical site security major EJP Chapter 21 - Our plan is deliverable
project EJP NGGT_A21.01_Deliverability Annex
NGGT_A15.10_Enhanced Physical site security Annex NGGT_A21.02_Sustainable workforce strategy Annex
maintenance annex Chapter 22 - Our plan is financeable
NGGT_A15.11_NGGT Business IT security plan enterprise CBA NGGT_A22.01_Finance Annex Annex
IT CBA NGGT_A22.01-A2_ S&P Ratings Services Corporate Annex
NGGT_A15.12_NGGT Cyber resilience plan CBA CBA Methodology
NGGT_A15.13_Engagement log external threats EL NGGT_A22.01-A2_S&P Global Ratings key Credit metrics Annex
NGGT_A15.14_NGGT Business IT security plan SO CNI CBA for Regulated Utilities
services CBA NGGT_A22.01-A4_NG financial package Annex
Chapter 16 – environment and communities NGGT_A22.01-A4_Ofgem package excluding incentives Annex
NGGT_A16.01_Environmental Action Plan Annex NGGT_A22.01-A4_Ofgem package including incentives Annex
NGGT_A16.02_Environmental Management System Annex NGGT_A22.01-A4_Ofgem package with 5% dividend yield Annex
NGGT_A16.03_Environment Business Management System Annex excluding incentives
NGGT_A16.04_Environmental Benchmarking Annex NGGT_A22.01-A5_Actual company metrics Annex
NGGT_A22.02_RPE and ongoing efficiencies annex Annex
199
Shaping the electricity transmission system of the future February 2019 | National Grid
National Grid plc

National Grid House,
Warwick Technology Park,
Gallows Hill, Warwick.
CV34 6DA United Kingdom
Registered in England and Wales
No. 4031152
www.nationalgrid.com
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Delivering

the future gas

Who we are and what we do

Our network includes pipes and compressor

Our gas transmission network

Our gas transmission network

A message from our Chair

How to navigate our plan

Part 1 / Executive summary We have linked the stakeholder priorities to Ofgem’s

All figures are in 18/19 price base.

2. We have given stakeholders

our stakeholders and consumers.

ever listening exercise to the whole energy

engaged with more than 800

3. Delivering stakeholder priorities

We have excluded costs associated with other

We have only included more certain costs in the

Figure 3.01 our proposed spend by stakeholder priority

51% Safety: £14m per year

Maintain a safe and resilient network

Deliver an environmentally sustainable network

Meet the needs of consumers and network users

4. The cost of our business plan

4. The cost of our business plan

4. The cost of our business plan

5. Our impact on energy bills

Year £m RIIO-2 RIIO-1

Domestic bills Acceptability was largely driven by perceived

If we apply Ofgem’s financial framework, the bill

5. Our impact on energy bills

7. Assuring our final business plan

Our National Grid Gas Transmission Board members

8. Mapping our business plan to Ofgem

Ofgem business plan

Ofgem business plan

11 Chapter 11 – the changing energy landscape (3.1–3.5).

How our plan aligns with

Track record in RIIO-1

9. Track record in RIIO-1

4https://www.nationalgridgas.com/about-us/business-planning-riio/how- https://www.nationalgridgas.com/sites/gas/files/documents/National Grid

Track record in RIIO-1

Customer connections outputs

Track record in RIIO-1

Track record in RIIO-1

TO non-operational capex However, our response to the asset health challenge in

Track record in RIIO-1

The main area of variance to allowance is Xoserve costs

Giving stakeholders a stronger voice – how we have built a stakeholder-led plan

10. Giving stakeholders a stronger voice –

We championed enhanced engagement and we are

Giving stakeholders a stronger voice – how we have built a stakeholder-led plan

However, for some parts of our plan, stakeholders have

Giving stakeholders a stronger voice – how we have built a stakeholder-led plan

6 https://www.nationalgridgas.com/sites/gas/files/documents/RIIO T2 Listen Report.pdf

Giving stakeholders a stronger voice – how we have built a stakeholder-led plan

A voice for consumers

Giving stakeholders a stronger voice – how we have built a stakeholder-led plan

Other consumer research and engagement

Considering the needs of future consumers

practice process of enhanced stakeholder engagement,

Figure 3.01 our proposed spend by stakeholder priority