This is a guest contribution from Engerati, Europe’s largest community of utilities and power sector professionals.
Creating Integrated Investment Planning, Management, and Governance Approaches Which are Fit for the Future
As regulators toughen up their scrutiny of utilities’ business plans and demand ever-increasing levels of operational efficiency, there is a pressing need for companies to switch away from labour intensive and disjointed approaches to investment planning, management and governance. National Gas Transmission recently took the leap and is already enjoying significant benefits.
Across Europe, regulated utilities are under increasing pressure to achieve efficiency in all operations and to justify how investment in their asset bases will benefit customers, both today and in the future.
In this environment, it is essential that asset planning and management approaches are optimised with smart data modelling and consistent understanding of relevant information across all teams, from investment planning and management, through portfolio management and investment governance.
Only through an integrated approach, will utilities be able to satisfy the demands of their regulators and offer customers the levels of reliability at least possible cost which they deserve.
It was in recognition of this, that the UK’s gas transmission owner, National Gas Transmission (NGT) set out to transform its approach to asset investment planning and management in 2018.
Its decision to tender for a new Asset Investment Management system to help it achieve greater efficiency and effectiveness was substantially driven by the prospect of a tough upcoming price control – RIIO2 – in which it knew its plans would be subject to intense scrutiny from the national economic regulator for gas and electricity markets, Ofgem.
The Regulatory Drive for Change
The RIIO2 framework set out by Ofgem, was in part a response to increasing levels of populist demand for reductions in network revenues, which were seen to have been excessive in the RIIO1 time period, and of a wider political debate around the cost of energy, including costs arising from investment in infrastructure.
As such, Ofgem’s requirements for business plans in RIIO2 pushed companies to offset asset investment requirements with significant increases in operational efficiency, and to ensure that all investments could be fully and quantifiably justified in the best interests of consumers.
For NGT, as the owner of a large and aging asset base, including over 7,500 kilometres of high-pressure gas pipe this posed a major challenge, Richard Phillips, network investment manager at NGT tells Engerati.
“The challenging regulatory environment is driving us to be more transparent with our asset management decisions and costs,” he explains. “We manage an aging asset base which means an increasing workload, so being able to explain this to Ofgem and our customers and stakeholders is essential. We manage large, expensive assets that often have a design life of over 40 years, so when we make a decision to invest in these assets we need to be really sure that this is the right decision.”
With this in mind it became clear that NGT’s legacy approach to investment planning and governance—based around multiple spreadsheets held by different teams—was no longer fit for purpose.
Following a tender process, in 2018 it therefore appointed fast-growing asset investment software specialist Copperleaf as a partner to help it create a new asset investment planning and management approach using the Copperleaf solution.
Adopting a New Approach
NGT and Copperleaf worked collaboratively to configure the solution to NGT’s needs and ensure it would live up to the rigours of RIIO2 and subsequent price controls.
Critically, NGT needed its new system to support an integrated view of asset data and a clear line of sight between investment management, portfolio planning and investment governance in order to confidently validate its business plan – which proposed investments of over £500m per annum to maintain a safe, reliable and resilient transmission system—as well as providing a platform for uncovering cost saving opportunities throughout the upcoming period.
The range and scale of data integration that meeting this need required, alongside the need to feed in specialist reporting and accommodate around 250 asset risk measures, including over 100 monetised risk measures, meant that the NGT project represented a unique challenge to the team from Copperleaf.
Yet despite the scale of the challenge, the new system went live on schedule earlier this year. And thanks to the use of an Agile implementation methodology—rather than the more traditional Waterfall approach—NGT has already been enjoying the benefits of its new investment planning and management capabilities.
Stefan Sadnicki. Managing Director EMEA at Copperleaf, says using the Agile framework was a positive experience for Copperleaf, and a great way to accelerate ROI for NGT. “The framework of iterations within increments enabled Copperleaf to release functionality early and allow NGT to replace systems as soon as possible,” he says. “This increased efficiency and enabled stakeholders to see the system in operation and input into its configuration.”
The first team to benefit from the initial release of Copperleaf was portfolio planning, which has now been using the solution since May 2019 to manage all of its investment in the current period. And since September 2019, investment governance also adopted the platform, making portfolio planning and governance part of a single integrated process.
Appreciating the Benefits of Transformation
Reflecting on the difference the new system has already made, portfolio panning manager Jowita Uler says it has helped NGT overcome problems including disjointed and misaligned data, and inconsistent processes across siloed teams which had been commonplace prior to the introduction of Copperleaf.
“Previously, a version of the investment was kept in investment governance view and another in the portfolio planning view – quite often they were misaligned…Now that we have Copperleaf, the work is driven by the system and this has brought about a fundamental change in the way we operate.
“We can now start planning and using optimisation. We can already run different scenarios and see the impact that different decisions have on our portfolio of work.”
Copperleaf provides greater visibility and transparency into investment plans as well as improved planning agility. It is a key enabler for National Gas’s 4% capital delivery efficiency ambition of £11m per year described in their latest RIIO-2 regulatory submission.
On a more strategic level, Philips adds that Copperleaf has created a foundation for NGT to take a long-term view on asset investment work and start matching this with the necessary resources and outages that are implied.
“This enables us to demonstrate the deliverability of our plans and that we have optimised our plans for efficient delivery,” he says.
Furthermore, Philips says the new approach has opened the door for a transformation in stakeholder engagement in the investment planning process – something Ofgem has pushed companies hard on in its RIIO2 methodology.
“Our new approach has enabled us to describe the benefits—such as safety, environmental, reliability and financial—that can be expected of our investments. This has meant that we are able to discuss our plans with customers and stakeholders in a way that we have never been able to before.”
He adds: “‘Bringing to life’ our investment plans by talking about the benefits that will be delivered has not only helped us identify the right investments but is helping us explain and justify the work that we need to undertake across our network to keep it safe and reliable.”
All of this new capability has given NGT confidence in its RIIO2 business plan—which will receive its final determination from the regulator in November this year—as well as providing a proven process for achieving cost saving efficiencies over the next five years.
Perhaps most importantly however, Philips says that the project has boosted a much wider ambition at NGT to be recognised as “a world class asset manager by 2030” and to take the RIIO3 price control process in its stride. With many industry experts suggesting the Ofgem’s approach to RIIO2 may well pave the way for other European utilities regulators, it’s likely that other network operators will look to follow in its footsteps.
To learn more about the Copperleaf implementation journey at NGT, including insights into data integration and system configuration challenges, watch our “Asset Investment Planning and Management at National Gas” webinar recording hosted by Engerati.