Gas Distribution
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Gas Distribution - Performance against
our objectives - Financial
performance
Descriptions of our progress against our overall objectives in the areas of delivering our strategy, operating performance, talent, relationships, environment, financial performance and responsibility are set out under Performance against our objectives. We include below further information specific to Gas Distribution with respect to the progress we have made on delivering our strategy, our operating performance and our financial performance.
Delivering our strategy
Key areas of focus |
Our objectives is to utilise the scale and breadth of our enlarged Gas Distribution operations, together with the benefits of common support services, to drive improvements in our operating and financial performance. In particular, we aim to adopt best practices across Gas Distribution. |
Following the acquisition of KeySpan in August 2007, we have integrated our newly acquired gas networks in New York City, Long Island, Massachusetts and New Hampshire with those of our existing gas networks in upstate New York and Rhode Island and our four gas distribution networks in England to create a single Gas Distribution business operating in both the UK and the US.
A new management team for the enlarged business has been appointed, reporting to Mark Fairbairn, the Executive Director with responsibility for Gas Distribution. Activities such as customer billing, human resources, property services, accounting and financial transactions processing have been transferred into the shared services organisation, and we have started to implement common operating procedures across the business.
One of the key benefits of the KeySpan acquisition is the sharing of best practices. Six initiatives have already been identified to improve the performance of our gas distribution operations in both the UK and US. Standardising these technologies should drive operating and financial improvements. Ongoing programmes include the use of keyhole technology, compaction supervisor, and the implementation of active pressure control on low pressure gas mains.
A number of new approaches have already been implemented with tangible benefits. For example, advanced excavation techniques employing a coring machine and vacuum unit has allowed holes, on average one quarter the size of conventional excavations. This technique also improves the safety of the crew, limits traffic congestion, and reduces the volume of material disposed of to landfill. This technique was adopted from our US operations and is now being utilised in the UK on gas leakage repairs.
Our compaction supervisor equipment, a disposable monitoring pad placed at pipe depth levels, allows the measuring of backfill compaction during reinstatement. Over 50 units have been purchased and deployed within the US. This improves the efficiency of repairing roads and surfaces by reducing the need for reworking following work on underground gas pipes, thereby also reducing disruption to the public.
Currently, the pressures in gas mains in the US are changed seasonally to meet expected customer demand, while in the UK, an active control system is utilised, changing the pressure in the gas mains automatically as customer demand conditions require. This active control results in a reduction of average pressure in the mains, thereby reducing natural gas escapes that impact climate change. This approach is currently being deployed in test areas in the US.
Operating performance
Safety |
Our objective is to reduce employee lost time injuries to zero. |
Lost time injuries numbered 15 in the UK in 2007/08, compared with 21 in 2006/07, equivalent to a lost time injury frequency rate of 0.17 (2006/07: 0.16). In the US, lost time injuries numbered 18 (excluding KeySpan), compared with 30 in 2006/07, both of which include Rhode Island. The lost time injury frequency rate for 2007/08 in the US was 0.63 (no comparison for 2006/07 due to changes in reporting lines). In both the UK and US, we again exceeded our regulatory agreed targets on safety-related standards as follows:
| Gas escapes | Time | Target | Actual |
|---|---|---|---|
| UK – uncontrolled | One hour | 97% | 98% |
| UK – controlled | Two hours | 97% | 99% |
| Upstate New York | 30 minutes | 75% | 83% |
| 45 minutes | 90% | 96% | |
| 60 minutes | 95% | 99% | |
| Rhode Island | 30 minutes | 91% | 95% |
| 45 minutes | 93% | 97% |
We will report on KeySpan safety performance from 1 April 2008 onwards.
In the UK, we have decommissioned approximately 1,850 kilometres of iron gas mains in 2007/08, exceeding the target agreed with the UK Health & Safety Executive for the second consecutive year, which this year was 1,835 kilometres. We decommissioned 1,850 kilometres in 2006/07 and 1,724 kilometres in 2005/06.
Efficiency |
Our objective is to increase the efficiency of Gas Distribution operations. |
We have undertaken a number of internal process reviews to advance the alignment of our operations with the aspiration of removing duplication and waste.
Following the integration of KeySpan, we have consolidated office locations within the US to centralise many activities. An example of this is the closure of the Rhode Island gas control centre and consolidation into Waltham, near Boston.
Within the UK we have improved the efficiency of our mains replacement activities by tackling larger projects through taking a zonal approach. We have also used technology, such as vacuum excavation, transferred from the US, to allow jobs to be completed more efficiently.
Reliability |
Our objective is to meet regulatory targets and to have zero loss of supply incidents. |
In the UK, actual gas consumption was 315 TWh compared with 303 TWh in 2006/07 and 347 TWh in 2005/06. This was equivalent to underlying levels of gas demand, excluding the effects of weather, of 329 TWh in 2007/08 compared with 331 TWh in 2006/07 and 347 TWh in 2005/06.
In the US, gas consumption in upstate New York was 40 TWh (136 million decatherms) for 2007/08 and 11 TWh (38 million decatherms) in Rhode Island. This was slightly above the previous year due to colder temperatures and increased usage among customers with dual fuel capability. Gas consumption in the KeySpan service territory was 89 TWh (304 million decatherms) for 2007/08.
Over the year, we have achieved all our standards of service set by Ofgem that relate to our gas transportation services in the UK. In the US there was a significant improvement in reliability, in particular in the area of gas escapes. Workable gas escape backlogs have been reduced by more than 20% over the past year and all our operations are in regulatory compliance.
Customer service |
In addition to meeting customer service objectives service agreed with our regulators, our objective is to be within the upper quartile of customer satisfaction in the territories we operate in. |
In the UK, we have achieved all our connections standards of service over the year, along with all other standards of service set by Ofgem that relate to our gas transportation services.
During 2007/08, we made around 45,000 new connections to our UK networks (2006/07: 40,000, 2005/06: 50,000). The proportion of planned service interruptions in 2007/08 was 99.175% (2006/07: 98.92%, 2005/06: 93%) compared with a target of 95%, while the proportion of customer complaints responded to within five working days was 96.1% (2006/07: 94.7%, 2005/06: 94.7%) compared with a target of 90%.
Our gas operations in the US met all customer service standards over the past year. We installed around 14,000 new services and added 911 kilometres of new gas main connections to the network.
Capital investment |
Our aim is to deliver around £4 billion of capital investment by 2012 in line with our price control allowance. |
During 2007/08 we successfully delivered £702 million of capital investment and plan to invest a further £4 billion by 2012.
UK capital investment
Gross investment including reinforcement, extension and replacement of the UK gas distribution network was £514 million in 2007/08 compared with £490 million in 2006/07 and £444 million in 2005/06. Of these amounts £353 million in 2007/08 related to the replacement expenditure (2006/07: £333 million, 2005/06: £295 million) and £161 million of other capital investment including new connections, new pipelines and minor capital expenditure (2006/07: £157 million, 2005/06: £149 million). Expenditure on software applications included within the above amounts was £18 million (2006/07: £12 million, 2005/06: £1 million).
Replacement expenditure has increased by 20% since 2005/06 reflecting the substantial increase in planned work load under the long-term mains replacement programme agreed with the Health & Safety Executive.
During the third year of our alliance partnerships for Gas Distribution, we have replaced approximately 1,850 kilometres of iron gas mains with an increasing proportion of our workload comprising complex replacement of large diameter mains. Performance under the mains replacement incentive scheme has been held broadly neutral in 2007/08. The increase in other capital expenditure in 2007/08 compared with 2006/07 and in 2006/07 compared with 2005/06 was because of a higher level of investment in the reinforcement of high pressure pipelines, such projects being dependent on forecasts of future demand, as well as higher expenditure on new connections and the replacement of commercial vehicles. The level of investment in high pressure pipelines and reinforcement mains continued during 2007/08 together with higher information technology expenditure to replace obsolete equipment in system control, operational and support activities.
US capital investment
Capital expenditure in the replacement, reinforcement and extension of our US gas distribution networks was £188 million in 2007/08, £36 million in 2006/07, and £25 million in 2005/06.
Capital expenditures related to our Gas Distribution US segment are primarily for the renewal, replacement, and expansion of the distribution system.
After excluding the effect of exchange movements of £2 million in 2007/08 compared with 2006/07, capital expenditures increased by £154 million. The primary reason for the increase was the inclusion of £144 million representing seven months of capital expenditure on the operations acquired with KeySpan.
After excluding the effect of exchange movements of £2 million in 2006/07 compared with 2005/06, capital expenditures increased by £13 million due to increased spending of £6 million in Rhode Island.