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Engineering Justification Paper

Distribution Network Valve Remediation - Southern

Version: Final

Date: December 2019

Classification: Highly Confidential

2

1. Table of Contents

2 Introduction ........................................................................................................................................... 3

2.1 General Background ..................................................................................................................................... 3 2.2 Site Specific Background ............................................................................................................................... 3

3 Equipment Summary .............................................................................................................................. 3

4 Problem Statement ................................................................................................................................ 4

4.1 Narrative Real-Life Example of Problem ...................................................................................................... 5 4.2 Spend Boundaries ......................................................................................................................................... 7

5 Probability of Failure .............................................................................................................................. 7

5.1 Probability of Failure Data Assurance .......................................................................................................... 8

6 Consequence of Failure .......................................................................................................................... 8

7 Options Considered ................................................................................................................................ 9

7.1 Replace on Failure ...................................................................................................................................... 10 7.2 Repair on Failure ......................................................................................................................................... 10 7.3 Pre-Emptively Replace ................................................................................................................................ 11 7.4 Pre-emptively Repair .................................................................................................................................. 11 7.5 Do Nothing .................................................................................................................................................. 12 7.6 Options Technical Summary Table ............................................................................................................. 12 7.7 Options Cost Summary Table ..................................................................................................................... 13

8 ....... Business Case Outline and Discussion ............................................................................................ 13

8.1 Key Business Case Drivers Description ................................................................................................... 13 8.2 Business Case Summary ......................................................................................................................... 14

9 ....... Preferred Option Scope and Project Plan ....................................................................................... 15

9.1 Preferred option ..................................................................................................................................... 15 9.2 Asset Health Spend Profile ..................................................................................................................... 15 9.3 Investment Risk Discussion .................................................................................................................... 16

Appendix A - Acronyms ........................................................................................................................... 21

Appendix B - General Descriptions .......................................................................................................... 22

SGN Dint – 008 NetVal So – EJP Dec19

3 December 2019

2 Introduction

Network valves are an integral component within SGN’s distribution network and provide a controlled means of system management within the network.

Valve surveys undertaken throughout GD1 have identified that access to valves, and valve installations, is emerging as an issue for SGN. Analysis of 483 valve surveys indicated that 245 of these sites require some form of remediation work. To continue to provide a safe and reliable network and ensure access to our valves is maintained, it is important to have an efficient valve remediation programme in GD2.

2.1 General Background

Network valves are an integral component within SGN’s low, medium and intermediate pressure distribution networks, and provide a controlled means of system management within the network. Over time, for a number of reasons, valves can become inaccessible. Where the valve is required, remediation works are planned to return the valve site to the required standard ensuring accessibility is maintained.

2.2 Site Specific Background In GD2, SGN want to undertake a programme of valve remediation works across our Southern LDZ’s that ensures our network valves continue to remain accessible and operational, and thereby maintaining a safe and reliable network. Our network valves are categorised on a risk-based approach and our programme of remediation works and associated spend will continue to be focused at the higher priority of valves. This work will ensure our valves continue to be accessible and our networks can be operated safely, safeguarding our workforce, our customers and other stakeholders, and will us allow to conform to industry standards.

3 Equipment Summary

Network valves form an integral part of our distribution gas network and are located within the low, medium and intermediate pressure systems. Valves are installed to allow sectorisation of the system in the event of a gas supply emergency and local isolation in the event of a gas mains damage or other gas emergency / failure. Network valves also facilitate maintenance, repair, modification, testing and commissioning associated with other network activities, like mains replacement and repair, and can reduce and/or avoid operational costs in these areas.

Network valves are given a designation depending on their function. Our highest priority valves are those valves considered to be the most critical to the satisfactory operation of the gas supply system. They will usually have a significant influence on critical supply gas mains and allow for isolation of large sections of the supply system in the event of a major incident or gas supply emergency. Other valve designations include:

valves installed to allow the local isolation of the gas supply system in the event of third-party gas mains damage or other localised gas emergency/failure


4 December 2019

on either side of a strategic crossing point (i.e. where we need to cross a major river, road or railway) to allow isolation of the gas main in the event of a gas emergency on the inlet and outlet gas mains of our pressure reducing installations (PRI) to allow for the isolation of the PRI in the event of a gas emergency.

Our management procedure for mains valves up to and including 7bar operation (SGN/PM/V/1) sets out the key processes and responsibilities for SGN staff and contractors involved in, or responsible for installing or maintaining valves operating at pressures up to and including 7bar. Valves are routinely maintained, and valve maintenance frequency is based on a risk-based approach:

our most critical group of valves are maintained at an interval no greater than 5 years (known as M1 valves) valves at a PRI are maintained during routine PRI maintenance at a frequency determined by RCM (known as M2 valves) strategic crossing point valves are maintained during routine inspections of the pipeline crossing at a frequency determined by a risk-based approach (known as M3 valves) other mains valves used for local isolation in the event of a gas mains damage or other gas emergency are maintained prior to use.

In Southern we have 19,240 M1 to M4 network valves.

Figure 1: A typical network valve installation

4 Problem Statement Why are we doing this work and what happens if we do nothing? Valve surveys undertaken throughout GD1 have identified that access to valves, and valve installations, is emerging as an issue for SGN. Analysis of 483 valve surveys indicated that 245 of these sites require some form of remediation work. Valves need to be accessible and, in most cases, fitted with a marker post, pressure and rider points installed either side of the valve so the valve can be safely operated. Refer to figure 1 detailing a typical network valve installation. Valves are generally installed within the public highway or private land and are therefore subject to external factors outside of our control such as third-party excavation works, local authority works such as resurfacing, traffic, landscaping and landscape maintenance and other changes to the environment. These factors can lead to our valves becoming inaccessible and inoperable.


5 December 2019

Inaccessible or inoperable valves can be identified through routine maintenance, site surveys or other work activities detailed in section 3. When access issues are discovered, we need to carryout remediation works to ensure valves are accessible and operable to allow us to maintain a safe and reliable network. If we do nothing:

In the event of a gas leak or incident, inoperable or inaccessible valves can cause unnecessary risk to our workforce, our customers and members of the public by affecting our ability to stem and control the flow of gas in a timely manner. The valves would not be compliant with current industry standards. The industry standards include IGEM/TD/3 - Steel and PE Pipelines for Gas Distribution, IGEM/TD/4 - PE and Steel Gas Services and Service Pipework and IGEM/TD/13 - Pressure Regulating Installations. These standards set out the reasons for valves and their construction requirements. Industry documents state valves are required to facilitate the rapid control of any situation in any part of the network, minimise the potential loss of gas, improve the overall security of the network during system failure and facilitate remediation, repair, modification, testing and commissioning. SGN also has arrangements in place to manage a local gas supply emergency (LGSE). These arrangements are based on the requirements of distribution network’s management procedure for the preparation, testing and maintenance of gas distribution networks’ gas supply emergency arrangements (GDN/PM/E/3001) and details SGN’s response to a LGSE. A significant aspect of managing a LGSE is the effective isolation of the affected network and network valves play a fundamental part in this process.

Valves also form an integral part of our Safety Case, prepared by Southern Gas Networks plc, as licensed to convey gas in Great Britain (GB) and in accordance with the requirements prescribed in the Gas Safety (Management) Regulations 1996 (GS(M)R). Our safety case, which has been accepted by the HSE, contains the information required by schedule one of the regulations and describes valves as safety critical elements of the distribution network.

What is the outcome that we want to achieve? To prioritise our valves on a risk based approach and complete a 5 year programme of remediation on our highest priority valves ensuring all are accessible and operational.

How will we understand if the spend has been successful? The success of this programme will be measured through the completion of valve remediation works within the spend allowed and at the estimated unit rate of work per site.

4.1 Narrative Real-Life Example of Problem

The example below sets out a real-life example of the problem that the spend seeks to solve. Figure 2 details an SGN map

Figure 2: SGN map detailing two IP valves

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6 December 2019

Figure 3:

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7 December 2019

Figure 4:

4.2 Spend Boundaries

The spend associated with our proposal includes the costs to remediate each network valve within the programme of works and bring each valve up to the required standard. The works required at each site will range from the installation of a network valve marker post and plate (to identify the valve on site) to excavation, installation of new rider or pressure points (as shown in figure 1) and reinstatement.

The spend does not include the installation of new valves or the replacement of existing valves.

5 Probability of Failure

Failure for this proposal relates to our valves being inaccessible or inoperable and therefore not being available when needed to facilitate the rapid control of any situation in any part of the network (or minimise the potential loss of gas and improve the overall security of the network during system failure). The probability of failure for this proposal does not relate to the failure of the valve itself. The valve is required to be operated in the event of a mains failure or other gas supply emergency.

This project is not specific to a NARM’s output and is therefore a PCD. This has been listed within the NARM’s BPDT as a category B project, non-NARM’s asset.

Valve surveys undertaken throughout GD1 have identified that access to valves, and valve installations, is emerging as an issue for SGN. Analysis of 483 valve surveys indicated that 245 of these sites require some form of remediation work. This includes a range of remediation works from replacing or installing a valve marker post and plate, clearing an overgrown site to excavation of the valve and ensuring the site is remediated to industry standards/SGN policy.

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8 December 2019

5.1 Probability of Failure Data Assurance

The failure data is derived through ongoing routine maintenance, site surveys or other work during where we seek to confirm the status of the valve site and understand the accessibility of the valve asset. Typical outcomes include:

The valve site conforms to SGN and industry standard and no further work is required The valve cannot be located, or the site does not conform to SGN or industry standard and cannot therefore be relied upon to use - the valve could therefore form part of a valve remediation programme.

Analysis of 483 valve surveys indicated that 245 of these sites require some form of remediation work. This provides us with a high level of assurance of the probability of failure.

6 Consequence of Failure

The consequences of failure of the equipment i.e. valves are inaccessible or inoperable will depend on specific site circumstances. In general, the consequences can be described as follows:

Loss of Supply to Customers Valves are located within the low, medium and intermediate pressure systems. Valves installed within the higher-pressure tiers are very likely to have a greater consequence of failure when not available.

Valves are installed to allow sectorisation of the system in the event of a gas supply emergency. Where valves are not available, sectorisation can be ineffective or lead to more customers losing their supply than necessary. Due to the varying nature of the gas network sectorisation, it is not possible to provide a single figure for the number of customers involved by an ineffective isolation of the network through inaccessible or inoperable valves. Many networks will contain critical supply customers such as hospitals and other medical facilities, prisons and important industry.

Safety Impact of Failure Valves are installed to allow for local isolation in the event of a gas mains damage or other gas emergency / failure. Where valves are not available, rapid isolation is not possible leading to an increase in lost gas and environmental impact, our workforce and member of the public are at increased risk and operational costs are increased if alternative isolation methods are required e.g. flow stopping techniques.

Financial Impact Valves also facilitate maintenance, repair, modification, testing and commissioning associated with other network activities like mains replacement and repair. Where valves are not available, the opportunity to reduce and/or avoid operational costs in these areas is not possible.

Environmental Impact Where valves are not available, works associated with gas emergency / failure can be extended, leading to societal impacts associated with the road and rail network, local commerce and increased leakage into the environment.


9 December 2019

7 Options Considered

We are proposing a business plan that minimises capital investment to levels required to maintain our licence conditions and core safety obligations. Throughout GD1 our approach to asset investment was determined according to the 4R’s strategy, designed and used to identify the most appropriate action. This strategy is based on the interventions shown in figure 5. Applying this rationale to our integrity works helps us ensure that we are achieving value for money for our customers.

Figure 5: 4 R Diagram

The following options have been considered within this investment proposal:

Replace on Failure Replacement of the valve asset does not form part of this investment proposal therefore replace on failure is not an applicable option. This option would represent a disproportionate spend and would not be required.

Repair on Failure Remediate valves under a programme of works developed when valves are found to be inaccessible or inoperable and therefore require remediation to ensure valves remain accessible when required.

Pre-emptively Replace Replacement of the valve asset does not form part of this investment proposal therefore pre-emptively replace is not an applicable option. This option would represent a disproportionate spend and would not be required.

Pre-emptively Repair Remediate valves under a planned programme of works developed on a preventative basis.

Do Nothing Do not have a programme of works in place to maintain access and remediate network valves in GD2.


10 December 2019

7.1 Replace on Failure The technical detail of the option i.e. capacity, system rating, availability etc. Network valves are part of the control mechanisms for local isolation in the event of a gas mains damage or other gas emergency / failure. To replace on failure would introduce significant risk both to the public and to our workforce and increase lost gas omissions into the environment in the event of a PRE.

The basis for the cost estimate/unit cost Not applicable.

The perceived benefits of the option There are no perceived benefits of this option.

Delivery timescales Not applicable.

Key assumptions made The option would be non-compliant with industry standards/SGN policy and our safety case arrangements and is not considered a viable option.

Any other items that differentiate the option from the others considered Not applicable.

7.2 Repair on Failure The technical detail of the option i.e. capacity, system rating, availability etc. Network valves are part of the control mechanisms for local isolation in the event of a gas mains damage or other gas emergency / failure. To repair on failure would introduce significant risk both to the public and to our workforce and increase lost gas omissions into the environment in the event of a PRE.




Key assumptions made The option would be non-compliant with industry standards/SGN policy and our safety case arrangements and is not considered a viable option.



11 December 2019

7.3 Pre-Emptively Replace The technical detail of the option i.e. capacity, system rating, availability etc. Replacement of the valve asset does not form part of this investment proposal therefore replace on failure is not an applicable option. This option would represent a disproportionate spend and would not be required.




Key assumptions made Sufficient resources exist to replace the valves when required.


7.4 Pre-emptively Repair The technical detail of the option i.e. capacity, system rating, availability etc. Remediate 1020 IP/MP/LP network valves under a programme of works developed when valves are found to be inaccessible or inoperable thereby ensuring valves are available when required. It is proposed to invest £3.17m within the distribution gas network to undertake a programme of network valve remediation works across Southern network.

The basis for the cost estimate/unit cost The estimate has been based on an average unit rate to complete the works at each. As the work at each site can vary, specific costs for each site are not known.

The spend associated with our proposal includes the costs to remediate each network valve within the programme of works and bring each valve up to the required standard. The works required at each site will range from the installation of a network valve marker post and plate (to identify the valve onsite) to excavation, installation of new rider or pressure points (as shown in figure 1) and reinstatement. The costs do not include the installation of new valves or the replacement of existing valves and replacement of the valve asset does not form part of this investment proposal.

The costs have been estimated using several different work scenarios and site requirements. As such, work and therefore costs can vary significantly from site to site. For example, IP remediation work and associated costs are likely to be higher than MP and LP remediation works. Also, the installation and associated costs for of a valve marker post / plate is significantly less than excavation work and installation of pressure / rider points. Because of these variations an average unit rate per remediation has been provided.

Costs associated with the option are made up of direct and/or contract labour costs, materials (generally low when compared to other costs), use or hire of plant and equipment, traffic management costs and reinstatement costs (usually based on contract tender rates). As each site is unique, an average unit rate has been estimated based on several likely work scenarios. The unit rate has been derived from valve remediation work completed or estimated in GD1.


12 December 2019

The perceived benefits of the option A programme of work will provide customer, safety, financial and societal benefits. These include effective network isolation, reduced lost gas omissions into the environment by rapid isolation, reduced disruption to road and rail networks, and reduce risk of safety to our workforce. The option also allows us to comply with industry standards/SGN policy and our safety case arrangements.

Delivery timescales It is anticipated that the work will be undertaken throughout GD2.

Key assumptions made Sufficient resources exist to remediate the valves when required.

Any other items that differentiate the option from the others considered This option sets out to deliver an efficient programme of works where investment is required.

7.5 Do Nothing The technical detail of the option i.e. capacity, system rating, availability etc. Do not have a programme of works in place to maintain access to and remediate network valves in GD2.




Key assumptions made The key assumption made for this option includes; access to our network valve population will continue to deteriorate; valves will not be accessible and operable when required; operational costs could increase; the risk to our workforce and customers would increase; and we do not continue to comply with industry standards/SGN policy and our safety case arrangements.

Any other items that differentiate the option from the others considered This option is different in that there are no capital investment costs.

7.6 Options Technical Summary Table Table 1: Options Technical Summary

Option First Year of Spend

Final Year of Spend

Volume of Interventions

Equipment / Investment Design Life

(Years)

Total Cost (£m)

Do Nothing 2022 2022 1020 N/A 1.19

Pre-Emptive Repair 2022 2026 1020 30 3.17


13 December 2019

7.7 Options Cost Summary Table

Table 2: Cost Summary Option Cost Breakdown Project Spend (£m)

Pre-Emptively Repair (recommended)

3.17

Do nothing (discounted)

1.19

8 Business Case Outline and Discussion

Network valves are a key component of the gas distribution network and need to be accessible and available when required. Valves are subjected to outside environmental factors which are outside of our control which can lead to our valves becoming inaccessible and inoperable. The consequence of our valves being inaccessible and inoperable is described in section 6 of this paper and evidence from site surveys demonstrates that this is becoming an emerging and increasing problem for us.

We have considered several options described in 7 and table 1. Our optimum solution for GD2 is a to undertake a programme of works that ensures our network valves continue to remain accessible and operable which will allow us to continue to provide and operate a safe, reliable and efficient network for our customers and other stakeholders. In addition to this, the proposals allow us to be compliant with current industry standards which state valves are required to facilitate the rapid control of any situation in any part of the network, minimise the potential loss of gas, improve the overall security of the network during system failure and facilitate remediation, repair, modification, testing and commissioning. Furthermore, valves also form an integral part of our accepted Safety Case. Regulation 5 of the GSMR sets out some key requirements for duty holders and regulation 5 (1) details the requirements to conform with an accepted safety case in that the procedures and arrangements described in the safety case and any revision thereof are followed.

We have a large population of network valve assets and the investment option seeks to remediate 5% of our network valves which is reasonable, and proportional to the risks and business drivers associated with this project.

We have not set out investment options to install new valves or the replacement of existing valves.

8.1 Key Business Case Drivers Description

The following options have been considered within this investment proposal:

Replace on failure (not applicable) - replacement of the valve asset does not form part of this investment proposal.

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14 December 2019

Repair on failure (discounted) - remediate valves when the valve is required to be operated. This option will allow us to continue to provide and operate a safe, reliable and efficient network which our customers expect us to do. Pre-emptively replace (not applicable) - replacement of the valve asset does not form part of this investment proposal. Pre-emptively repair (recommended) - remediate valves under a planned programme of works developed on a preventative basis. Do nothing (discounted) – do not continue to have a proactive programme of works in place to maintain access and remediate network valves in GD2. This option has been discounted as it does not allow us to continue to provide and operate a safe, reliable and efficient network which our customers expect us to do. Other discounted reasons include; placing our workforce, our customers, and member of the public at higher risk during a gas emergency / failure; would not allow SGN to conform to industry standards; does not allow us to minimise the consequences of failure describe in section 6.

Table 3: Summary of Key Value Drivers Option

No. Desc. of Option Key Value Driver

1 Pre-emptive Repair (recommended)

Potential to reduce investment/reduce risk to customers and workforce/opportunity to reduce operational costs/reduce environmental and societal impact

2 Do Nothing (discounted) Access to our network valve population will continue to deteriorate.

Table 4: Summary of CBA Results NPVs based on Payback Periods (absolute, £m)

Option No.

Desc. of Option Preferred Option (Y/N)

Total Forecast Expenditure

Total NPV

2030 2035 2040 2050

Baseline Do Nothing / Do minimum N -1.19 -6.46 -1.65 -2.51 -3.29 -4.61

1 Option 1 Absolute NPV Y -3.17 -2.96 -2.28 -2.53 -2.69 -2.88

1 Option 1 NPV relative to Baseline Y -3.17 -2.96 -0.63 -0.02 0.60 1.73

This project is not specific to a NARM’s output and is therefore a PCD. This has been listed within the NARM’s BPDT as a category B project, non-NARM’s asset.

8.2 Business Case Summary

The summary table below provides headline business case metrics to enable a high-level comparison of the options.

This project is driven by the necessity to operate and maintain an efficient network which valves form an integral part.

Table 5: Business Case Matrix


15 December 2019

Pre-Emptive Repair

GD2 Capex (£m) 3.17

Number of Interventions 1020

Carbon Savings ktCO2e (GD2) 0

Carbon Savings ktCO2e /yr 0

Carbon Emission Savings (35yr PV, £m) 0

Other Environmental Savings (35yr PV, £m) 0

Safety Benefits (35yr PV, £m) 0

Other Benefits (35yr PV, £m) 0.75

Direct Costs (35yr PV, £m) 1.57

NPV (35yr PV, £m) 2.32

High Carbon Scenario

Carbon Emission Savings (35yr PV, £m) 0

High Carbon NPV (35yr PV, £m) 2.32

9 Preferred Option Scope and Project Plan 9.1 Preferred option

Pre-emptive Repair - it is proposed to invest £3.17m within the distribution gas network to undertake a programme of network valve remediation works across Southern network. We are proposing to remediate 1020 network valves (5% of overall asset volume) throughout GD2.

9.2 Asset Health Spend Profile

For this programme of works, it is anticipated that the £3.17m will be invested across the period of GD2 on a prorate basis. An estimated breakdown of spend across the GD2 period for the recommended option is shown in the table below.

Table 6: Spend Profile Asset Health Spend Profile (£m)

2021/22 2022/23 2023/24 2024/25 2025/26 Post GD2

Preferred Option 0.63 0.63 0.63 0.63 0.63 0

Pre-GD2 spend - This is an area of growing concern and evidence from valve site surveys undertaken within the later part of GD1 have identified access to valves and valve installations remaining compliant with industry standards is becoming an emerging issue for us. Post GD2 spend - this is an indicative cost to illustrate an ongoing programme of network valve remediation works post GD2.


16 December 2019

9.3 Investment Risk Discussion

The table below identifies risks that have the potential to impact this project, detailed within the cost benefit analysis template are the full mitigation and controls for these events.

Table 7: Investment Risk Risk Description Impact Likelihood Mitigation /

Controls Comments

External Regulatory

Health and Safety at Work act 1974

Risk of injury/fatality, HSE

fines, OPEX expenditure

>20% & <=40%

SGN Policies and Procedures

Engage with Local

Management and SGN SHE Staff prior to

starts of works SCO procedures and perimetry SGN SHE Staff

prior to starts of works.

All works undertaken

must comply with SCO

procedures and perimetry

Pipeline Safety Regulations 1996



<=20% SGN/MSL/1 Procedures

Pressure Systems Safety Regulations 2000



<=20%

SGN/PM/PS/3 Procedure

Pressure Equipment Safety Regulations 1999



<=20%

New Roads and Street Works Act 1991



>40% & <=60%

NURSWA Procedures

Confined Spaces Regulations 1997



<=20% SGN/SCO/1,4 and 5 Procedures

Construction (Design & Management) Regulations 2017



>40% & <=60%

SGN/PM/SHE/03 Procedures

Lifting Operations & Lifting Equipment Regulations 1998



<=20%

SCO/1 Permit to work Procedure Provision & Use of Work Equipment Regulations 1998



<=20%

Manual Handling Operations Regulations 1992



>20% & <=40%

Environment Act 1995 Environmental cost >20% & <=40%

SGN/PM/SHE/03 Procedures

Environment Protection Act 1990 Environmental cost >20% & <=40%

Noise at Work Regulations 1989 Risk of injury, HSE


>20% & <=40%

Dangerous Substances & Explosive Atmospheres Regulations 2002



>40% & <=60%

IGEM/SR/25 Procedure

HSG47 Avoiding danger from underground services



>40% & <=60%

safe cable and Plant location

Weather


17 December 2019

Flooding Environmental cost, OPEX Expenditure

>20% & <=40%

SEPA & EA Flood Plain Data

Increased OPEX implications

Ice & Snow Environmental cost, OPEX Expenditure

>20% & <=40%

Increased site inspection during

this period

Suppliers

Existing Suppliers and obsolescence CAPEX Expenditure >60% & <=80%

Monitor through CM/4 results

Pipework & Fittings: - Steel CAPEX Expenditure <=20% Noted out with SGN control

Engage with and monitor

market Stakeholders Pipework & Fittings: - PE CAPEX Expenditure <=20%

Market Place

New Equipment Suppliers - Governors, Housing, pipework, Fittings etc. CAPEX Expenditure <=20% With SGN

Procurement Engage with and monitor

market Stakeholders

External Contracts CAPEX Expenditure <=20% Noted out with

SGN control BREXIT CAPEX Expenditure >60% & <=80%

Customers

Land Owners

Compensation and reconnection costs, Additional CAPEX

costs linked to land purchase

>20% & <=40% SGN Policies and

Procedures

Contact SGN's Wayleave

Department

SGN Legal: - Land purchase, Wayleaves etc. Additional OPEX costs

>40% & <=60%

House Holders that are/could be affected by works Compensation and reconnection costs <=20%


Make use of the "Tailored

Project Delivery Guidance

Document" Industrial/Commercial Property effected by works Compensation and

reconnection costs <=20%

External Stakeholder Groups

UK Gov policy on fossil fuels Additional engagement OPEX

>20% & <=40%

Noted out with SGN control

Engage with Stakeholders

Local Authorities general Additional engagement OPEX <=20%

Planning Applications Additional engagement OPEX

>20% & <=40%

SSSI Additional engagement OPEX

>20% & <=40%

Emergence Services: - Fire/Police Additional engagement OPEX <=20%

Bus/Train Operators Additional engagement OPEX <=20%

Local Resident Association Additional engagement OPEX <=20%

Local Schools, Hospitals etc Additional engagement OPEX <=20%

Other Utilities: - Electricity, Water etc. Additional engagement OPEX

>20% & <=40%

Environmental

Scottish Environment Protection Agency - SEPA Environmental cost, OPEX Expenditure <=20%


Liaise with relevant

Authority prior to

commencement of works long lead time for approval may be required.

Environment Agency - England Environmental cost, OPEX Expenditure <=20%

Canal / River Trusts OPEX Expenditure <=20%

Vandalism OPEX Expenditure <=20% Competent

management and staff who

Criminal Damage OPEX Expenditure <=20%

Terrorism OPEX Expenditure <=20%


18 December 2019

Likelihood of Vehicle Impact Environmental cost, OPEX Expenditure <=20% monitor the

associated risks

Internal Work culture

Ability to recruit, reward and retain staff OPEX Expenditure >20% & <=40%


Has OPEX implications

Processes & Systems within the organization

Existing records CAPEX Expenditure >20% & <=40%


System interfaces for work allocation, control and records

CAPEX Expenditure, OPEX Expenditure

>20% & <=40%

Understanding of existing

record systems required

Management information CAPEX Expenditure, OPEX Expenditure <=20%

Resources

Direct Labour CAPEX Expenditure <=20%


Use of competent

management and staff

Contractor Labour CAPEX Expenditure >20% & <=40%

Contracted design and approval services CAPEX Expenditure <=20%

Prioritization

In line with CM4 CAPEX Expenditure >20% & <=40%


Use of competent


Project Dependencies

Condition CAPEX Expenditure >20% & <=40% Monitor through

CM/4 results

Data provided requires to be

review and actioned at

regular intervals Non-Compliance CAPEX Expenditure >20% &

<=40%

Technology

Datalogger's CAPEX Expenditure <=20%


Using Equipment and

Systems that must be

compatible with SGN IT Systems

Profiling CAPEX Expenditure <=20%

Cyber security CAPEX Expenditure <=20% Competent

management and staff who manage the

associated risks. Work allocation, records and time management CAPEX Expenditure <=20%

New technology

Innovation and Implementation CAPEX Expenditure, OPEX Expenditure <=20%

Use of competent management and

staff


market Stakeholders

Interfaces between systems

IT Line CAPEX Expenditure <=20% SGN Policies and

Procedures

Equipment and Systems must be compatible

with SGN IT Systems

Mobile Phone System CAPEX Expenditure <=20% Batteries

required to be replaced

Performance and reliability

RCM Frequency OPEX Expenditure <=20% Use of competent management and

staff

Use of competent



19 December 2019

Project Management

Planning

Load Growth CAPEX Expenditure <=20% Use of competent management and

staff


market Stakeholders

Estimating

SGN Costing System TOTEX Expenditure <=20% with SGN Procurement

Use of competent management and staff

Communication

IT Line CAPEX Expenditure <=20% Noted out with

SGN control


market Stakeholders

Mobile Phone System CAPEX Expenditure <=20%

Sensitivity Analysis We have outlined in the earlier sections of this paper, and in the risk register, the uncertainties that we may experience during GD2. To illustrate the effect of this on the CBA we have conducted a sensitivity analysis on the preferred option, which is illustrated in the table below.

The sensitivity analysis has been conducted in the form of a “High” and “Low” position, which is compared to the “Mid” position that is used for the submission. The “Low” and “High” cases use a +/- 5% swing on each variable to build an illustration. The variables adjusted are as follows:

• Capital Cost • Maintenance and Repair cost • Methane content (Fixed Time Series Data) • Societal Benefits (Loss of Supply/ HSE Fines/ Building Damage) • Fatal/ Non-Fatal injuries • Leakage (CH4)

5% is used as a variance as we do not expect, nor have we seen, any large scale unexpected movements in price or workload associated with maintaining and/or replacing these assets.

It can be seen from the table 8 that the overall sensitivity to change in variable is negligible. The output from the sensitivity analysis has not substantially affected the returns and therefore this project remains the preferred option.

Table 8: Sensitivity Results

Low Mid High

GD2 Capex (£m) 3.01 3.17 3.33 Number of Interventions 1020 1020 1020 Carbon Savings ktCO2e (GD2) 0 0 0 Carbon Savings ktCO2e /yr 0 0 0 Carbon Emission Savings (35yr PV, £m) 0 0 0 Other Environmental Savings (35yr PV, £m) 0 0 0 Safety Benefits (35yr PV, £m) 0 0 0 Other Benefits (35yr PV, £m) 0.71 0.75 0.78 Direct Costs (35yr PV, £m) 1.50 1.57 1.65 NPV (35yr PV, £m) 2.20 2.32 2.44

*Project payback has not been carried out as part of this analysis due to the effect of the Spackman approach. For a traditional cash-flow project payback period please see scenario 4 of the Capitalisation Sensitivity table.


20 December 2019

Capitalisation Sensitivity Analysis Consumers fund our Totex in two ways – opex is charged immediately though bills (fast money – no capitalisation) and capex / repex is funded by bills over 45 years (slow money – 100% capitalisation). The amount deferred over 45 years represents the capitalisation rate. Traditionally in ‘project’ CBA’s the cashflows are shown as they are incurred (with the investment up front which essentially is a zero capitalisation rate). Therefore, we have developed scenarios that reflect both ways of looking at the investment – from a consumer and a ‘project’. The scenarios are summarised as follows:

• Scenario 1 - we have used the blended average of 65%, used in previous iterations of this analysis.

• Scenario 2 - we have represented the Capex and Opex blend for the two networks, as per guidance (which we must comply with but have some concerns over).

• Scenario 3 – addresses our concerns on capitalisation rates whereby Repex and Capex spend is deferred (slow money with 100% capitalisation rates) and Opex is paid for upfront (zero capitalisation rate).

• Scenario 4 - this reflects the payback period in ‘project’ / cash-flow terms and provides a project payback (as opposed to customer bill payback)

In all of our scenarios we have also taken a view of the NPV, at the 35 Year point, to demonstrate the effect of Capitalisation Rate on this value.

Table 9: Sensitivity Results

Scenario 1 2 SO 3 4 Capex (%) 65 38 100 0 Opex (%) 65 38 0 0 Repex (%) 100 100 100 0 Output

NPV (20yr PV, £m) 0.47 0.72 1.71

NPV (35yr PV, £m) 2.04 2.32 2.80

NPV (45yr PV, £m) 2.94 3.15 3.45

Payback (Years) 15 14 0 13


21 December 2019

Appendix A - Acronyms

Acronym Description

HSE Health and Safety Executive PRI Pressure reducing installation RCM Reliability Centred Maintenance IP Intermediate pressure (between 2bar and 7bar pressure) MP Medium pressure (between 75mbar and 2bar pressure) LP Low pressure (up to 75mbar pressure) LGSE Local Gas Supply Emergency GD1 Current price control period for gas distribution

networks GD2 Next price control period for gas distribution networks GSMR Gas Safety Management Regulations PCD Price Control Deliverable


22 December 2019

Appendix B - General Descriptions

• Flow stopping operation - operation that is carried out on a gas main to prevent the flow of gas. Requires excavation and specialist equipment

• Pressure point - forms part of a network valve installation and provides an access point for a pressure test gauge to be fitted so gas pressure can be monitored

• Rider point - forms part of a network valve installation and provides an access point for a bypass to be fitted over a closed valve. This allow gas to flow within the network

• Valve marker post and plate - forms part of a network valve installation and provides a visual identifier onsite as to the location of a buried valve. The marker plate provides information about the specific valve

• Valve box cover - a access box that is fitted over a buried valve or pressure/rider point to provide continued access to the installation.

engineering justification paper distribution network valve ... · igem/td/3 - steel and pe...

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