DNOs have clearly reacted well to Ofgem’s new regulatory framework by submitting detailed plans and consulting stakeholders, however only one DNO appears ‘green across the board’.
Last week, Ofgem announced that of the six UK electricity distribution network operator (DNO) RIIO-ED1 business plans submitted earlier this year, only Western Power Distribution’s (WPD) plans were assessed to be of sufficient and consistent quality for conditional fast-tracking. If successfully fast-tracked in February 2014, WPD will be in the enviable position of being able to start preparing for the new price control early.
The remaining DNO’s plans have been returned by Ofgem who have challenged them to address specific concerns and to generally demonstrate better value for customers.
Ofgem’s assessment reports that, of the five core criteria used to assess the business plans, Efficient Expenditure was the area most often rated as requiring further work. Returned plans contained submitted totex expenditures that were not robust to the testing of efficiency costs and were found to be above Ofgem’s overall fast track efficiency assessment benchmark. The remaining DNOs now face the challenge, before re-submission in March 2014, of addressing Ofgem’s concerns, which although different for each DNO, include:
“We [Ofgem] expected the DNOs to demonstrate how they have considered “smart grids” solutions in their plans, as well as the roll-out of innovation trialled in the current price control, and the impacts of the roll-out of smart meters.”
In fact all the DNOs made reference to Smart Grid and Smart Metering related benefits, and there was some agreement on the likely consequential savings (for ED1) being in the range of £20m to £30m per DNO licence area. However, beyond the cost of acquiring smart meter data from the central body (Smart DCC Ltd.) the view of the costs involved in collecting and analysing smart metering data was less clear with DNO quoted annual smart metering costs ranging from approx. £0.25 to £2.25 per meter point per year.
Increased leveraging of smart metering, smart grid and innovative solutions will clearly play a key role in overcoming the challenge of improving efficiency costs and enhancing the customer experience provided by the DNOs, however the successful realisation of benefits offered by these innovations will be dependent on the effective and efficient use of ICT. For the DNOs to strike the right balance between the up front investment needed to facilitate smart grids and smart metering and the delayed returns (perhaps into ED2), detailed, well founded and innovative strategies, each complete with detailed accompanying business case, will be needed to convince Ofgem of the validity of the DNO business plans.
Those who were lucky enough to attend Marketforce’s Smart Metering Forum in London last week were treated to an up to the minute update on the GB Smart Metering Implementation Programme from high profile speakers including Baroness Verma (Parliamentary Under Secretary Of State, DECC) as well as many senior players from across the energy industry.
This was also the first time many in the audience had the chance to hear from the newly formed Smart Metering Central Delivery Body – the CDB will be the public face of the programme and who’s first deliverable will be a Consumer Engagement Plan due to be published in December this year.
Having played a key role in helping the programme define the commercial strategy for DCC and then leading the procurement of the underlying data and communications contracts to the point of achieving contract signature between the DCC and the data and communications service providers; Hudson & Yorke were pleased to hear Baroness Verma acknowledge the successful achievement of this major milestone.
Having played a key role in defining the commercial strategy for DCC back in 2010 and then helping DECC to navigate the resulting parallel licence award and procurement process, I was pleased to see the players involved and industry getting to grips with the reality of delivering against the resulting contracts.
Today the UK Government informed Parliament of the outcome of the complex parallel procurement and licensing process to establish the smart metering Data and Communications Company (DCC). This is a significant milestone and a key enabler to the roll-out of smart meters across Great Britain.
The DCC has been established as a new licensed entity in the GB energy market and is responsible for providing the data and communications systems that will link 53 million smart electricity and gas meters in homes and small businesses with the business systems of energy suppliers, network operators and energy service companies.
As part of a broader programme to set up the technical, commercial and regulatory structures upon which the rollout of smart meters is founded, PA Consulting and Hudson & Yorke worked with DECC to establish the DCC Licensee and to put in place the underlying data and communications services contracts.
Mark Brett, commercial and outsourcing expert at PA Consulting Group, commented: “This has been a thrilling project to work on because it will create a network on a national scale. We have worked hard to ensure good value and a firm commitment on the number of homes that can be connected. Together the contracts for communications and data services, and the DCC Licensee, will form a smart meter eco-system that sits at arm’s length from government.
This has been a complex procurement programme and PA and Hudson & Yorke are delighted to have played a key role in enabling the roll out of smart meters in Great Britain. We needed to make the contracts work together technically, align to a common timetable and to motivate the right behaviours from the service providers.”
Andrew Wilson, major programmes commercial expert at Hudson & Yorke, commented: “To have been involved in the development of the commercial strategy for such an important industry change programme and then to have had the opportunity to see that strategy through to fruition, working as part of a joint team comprising civil servants and other advisory firms, has been an extraordinary, challenging and fulfilling experience.”
With the DCC now in place (the licence having been granted to Smart DCC Ltd, a part of Capita PLC) and its services underpinned by £2.2bn worth of contracts with CGI IT UK Limited (formerly Logica), Arqiva Smart Metering Limited and Telefónica UK Limited, the focus moves on to detailed design, implementation and then meter rollout. PA Consulting and Hudson & Yorke hope that the foundations we have helped establish will stand the DCC and the GB energy industry as a whole in good stead as the challenge of delivering against their respective rollout obligations becomes real.
On 16 November 2012 Rahoul Bhansali wrote on the subject of Government.
The CBI have unveiled a report into Government procurement (www.cbi.org.uk/media-centre/press-releases/2012/11/government-procurement-still-a-painful-process-for-business/) concluding that it is still a painful process for business but the necessary reforms are heading in the right direction yet the pace is slow. This report comes on the back of news that Cabinet Office have paused the procurement of new ICT frameworks following the cancellation of the ADDSS framework and have commissioned David Shields (Government Procurement Services) to conduct a review into ICT frameworks. This report in conjunction with the eagerly awaited Department for Transport/Sam Laidlaw report into the West Coast Mainline procurement demonstrates that Government recognise that the reforms to public sector procurement must be followed through so as to ensure a smooth and efficient market system that generates mutual value for the taxpayer and private sector suppliers.
Government have accepted the need to build and develop commercial skillsets in line with the traditional focus on policy development, however, developing such skills will take time/investment and requires focus/long term planning. Whitehall faces a ‘perfect storm’ in that the reduction in the number of external consultants used to support major procurements/commercial programmes has left a gap in the availability of specialist skills yet it will take time to recruit, train and retain civil servants with the required internal skillsets. This ‘storm’ runs the risk of further impacting major programmes and causing reputational damage.
Government should consider how it can inject expertise to support and develop civil servants to develop specialist knowledge. Such expertise should support civil servants to procure and run major programmes but it should not do the job of civil servants. There is a key difference between the provision of subject matter expertise and generic programme delivery capability. Government has been burnt by over reliance on generic programme delivery skills and urgently needs to develop specialist knowledge.
On 14 November 2012 George Tilbrook wrote on the subject of Government.
On 14th November 2011 various financial organisations in the UK were required by the FSA to implement solutions for recording mobile communications. The remit for recording was all communications involving the ‘taking of client orders and/or dealing in financial instruments’. One year on, how is this affecting strategic technology decisions?
Read our Insight to find out more: Mobile call recording – one year on