Gas distribution networks plan to spend £10.7bn over RIIO2

Gas distribution networks plan to spend almost £10.7 billion over the course of the RIIO2 price controls, according to the final drafts of their business plans submitted to Ofgem last month.

Cadent is proposing a small decrease in its average yearly budget, but the other GDNs have all requested increases.

Cadent

Cadent – by far the largest of the gas distribution networks, with responsibility for four of the eight license areas across Great Britain – has asked for a baseline total expenditure (totex) allowance of £5,137 million.

This consists of £1,991 million of operational expenditure (opex), £2,392 million of mains replacement expenditure (repex) and other capital expenditure (capex) of £754 million. Its annual budget would fall by £6 million to £1,027 million.

Annual opex would drop by £50 million to £398 million. Cadent said it would save £71 million per year as a result of its cost efficiency programme and £14 million per year due to a reduction in the volume of network repairs. These savings would be offset somewhat by a £19 million increase in spending on non-routine maintenance.

By contrast, annual repex would increase by £46 million to £478 million, with a new drive to replace high-risk steel mains adding £38 million to yearly costs.

Following the competition of the larger, simpler projects on its to-do list, the cost of its iron mains replacement programme would rise by £23 million per year as work shifts towards smaller and more complex projects, as well as those with larger diameter pipes. And a trend towards open cut work, where the entire route has to be excavated would raise annual costs by £17 million.

In order to minimise the risk of its investment being stranded, Cadent plans to scale down its non-mandatory replacement work, thus saving £32 million per year, and it said improvements in efficiency would strip another £16 million from annual costs.

Annual capex would dip by £2 million to £151 million.

Wales and West Utilities

Wales and West Utilities (WWU) has proposed a total budget of £1,182 million, comprising £484.5 million of opex, £442 million of repex and £255.5 million of capex. Annual expenditure would swell by £11.8 million to £236.4 million

Despite efficiency savings of £1.5 million per year, annual opex would grow by £4.9 million to £96.9 million.

Annual repex would rise by £8.4 million to £88.4 million, driven by some of the same trends discussed by Cadent. A shift towards smaller, more diversified projects undertaken using open cut excavation would raise the cost of its iron mains replacement programme by £4.4 million per year, and work to replace steel and ductile iron mains would increase annual costs by £2.8 million.

The expansion of work in Devon and Cornwall, where aggregate and waste removal costs are higher, would also add £1.7 million the yearly costs, although improvements in efficiency would bring £1.3 million of savings.

Capex would fall by £1.5 million to £51.1 million per year.

SGN

SGN has requested a totex allowance of £3,090 million, with £1,030 million allocated to opex, £1,315 million to repex and £715 million to capex. The annual budget would increase by £54 million to £618 million

Annual opex would climb by £8 million to £206 million as a result of increased IT and apprenticeship costs, the expected loss of legacy meter work contracts and the introduction of new outputs. These impacts would be counteracted by efficiency gains and a reduction in repairs resulting from asset replacements.

There would be a £12 million increase in annual repex to £263 million and annual capex would rise by £27 million to £143 million.

Northern Gas Networks

As reported by Utility Week previously, Northern Gas Networks (NGN) has proposed a totex allowance of £1,249.5 million. Of this, £445.3 million would be allocated to opex, £530 million to repex and £274 million to capex. Yearly spending would increase by £11.6 million to £249.9 million.

Annual capex would fall by £2.2 million to £54.8 million, partly due to its decision extend the lives of some assets rather than replace them. However, along with the completion of its gas holder demolition programme, this would contribute to a £4.2 million rise in annual opex to £89 million. Annual repex would grow by £9.5 million to £106 million.

Transmission owners have also revealed plans to spend £13.7 billion across gas and electricity. Ofgem will give its preliminary response to the submission over the summer before making a final decision by the end of 2020. The first tranche of RIIO2 price controls will begin the following April.

The price control for electricity distribution begin two years later in 2023, meaning the distribution network operators have yet to start developing their business plans. Ofgem confirmed the framework for the price control in December.