National Grid transforms revenue protection and regulatory compliance ... Automating sophisticated business analytics to eliminate error and provide near-real-time insight

1. Case Study
IBM Global Business Services Energy & Utilities
In regulated market sectors such as utilities, how do you meet and
exceed your targets if executive reports arrive too late to impact
your corporate actions? And when the framework with the regulator
changes, how do you plan for unknown requirements and still come out
ahead?
For the electricity transmission side of its business, National Grid
designed an automated reporting solution that delivers overnight
updates on business performance. With help from IBM Global Business
Services, the solution was ready for use just four months after the
regulator published the definitive set of business rules.
The solution generates a daily dashboard that analyses and crystallizes
key information from a wide range of financial, asset and related
data sources. For these business rules, managers are able to see, in
near-real-time, exactly how the company is performing against a new
part of its regulatory contract, with full visibility of key trigger points.
This helps to highlight opportunities to re-open funding conversations
with the sector regulator, and gives the ability to see how automatic
mechanisms impact revenue allowances.
Highlighting the challenges of uncertainty
National Grid is one of the world’s largest shareholder-owned utilities
focused on transmission and distribution activities in electricity and
gas in both the United Kingdom and the United States. The company
invests more than £2bn in the UK and nearly $2bn in the US in its
networks, supporting tens of thousands of overhead and underground
electricity lines, gas pipes and storage facilities.
The Office of Gas and Electricity Markets (Ofgem) regulates the sector
in the UK. Periodically, Ofgem conducts regulatory reviews, which
culminate in new arrangements under a framework known as Revenue,
Innovation, Incentives and Outputs (RIIO). These arrangements
regulate the utility companies’ operations in many areas, such as
detailed capital expenditure plans.
A new part of these arrangements is a regulatory construct called
‘Uncertainty Mechanisms’ that is designed to provide an agreed
method to account for the unknown future. For example, where
there is fluctuation in terms of MW of generation connected, an
Uncertainty Mechanism takes account of any under- or over-shoot in
the calculations.
National Grid transforms
revenue protection and
regulatory compliance
Automating sophisticated business analytics to
eliminate error and provide near-real-time insight
Overview
The need
Following the introduction of a new
regulatory construct called Uncertainty
Mechanisms, National Grid required new,
timely insight and reporting processes,
designed to protect revenue.
The solution
Created, piloted and implemented
an automated reporting solution with
assistance from IBM® Global Business
Services®, providing near-real-time
business dashboards, and ensuring
regulatory compliance.
The benefit
National Grid is able to identify
opportunities to engage with the
regulator, Ofgem, and to understand how
the outputs it delivers impact National
Grid’s revenue allowances, and protect
revenues.

2. Case Study
IBM Global Business Services Energy & Utilities
Steve Pollard, Information Management Team Manager at National
Grid, explains, “Uncertainty Mechanisms are an entirely new feature
of the regulatory environment. Because the Uncertainty Mechanisms
change the operation and calculations inside the RIIO framework that
governs revenue allowances, they are mission-critical for National
Grid, and it was essential to understand them correctly.”
Solving the challenges of regulation
In a hugely complex business with a detailed and comprehensive
regulatory regime, it is essential to understand exactly how the
company is performing. Revenue depends on meeting the regulator’s
innovation requirements and incentive funding may be on offer – or if
targets are missed, fines may be imposed.
The arrival of a new regulatory regime, spanning eight years from April
2013, prompted National Grid to ensure that it had reporting solutions
available to monitor the new elements governing its RIIO performance.
There were no existing systems and processes in place to handle these
new regulatory requirements, which in many cases were simply too
complex to process within the time available. Without timely and
accurate information, the company might not have been aware of the
financial implication of the relevant Uncertainty Mechanism.
Steve Pollard adds, “For the 2013-2021 period, Ofgem confirmed the
regulations in mid-December 2012, and they came into effect from 1
April 2013. For National Grid this opened a four-month window to
digest and understand the mission-critical Uncertainty Mechanisms,
build the automated solution, and commission it into production. We
wrote an investment paper describing the business case for building
such a solution; given the time available, could we do it?”
Automating, streamlining and accelerating
reporting
Because the regulatory review periods are known well in advance,
National Grid was able to start work in the summer of 2012 – with
the disadvantage that the precise regulatory regime and Uncertainty
Mechanisms would not be finalised until December that year.
Steve Pollard explains, “The company engaged IBM Global Business
Services to review what was possible, prototype the system design
and processes, identify the necessary data sources, and plan for
implementation. National Grid selected IBM for its expertise in the
sector, knowledge of the regulatory environment, and its ability to
understand the analytically complex Uncertainty Mechanisms. Creating
the solution was essentially a business challenge, enabled by advanced
algorithms running in business analytics software.”
IBM worked closely with National Grid, fully embedded with the
company’s business teams, and prototyped the solution based on
Ofgem’s draft regulations. The design incorporated the ability to
adjust the model when the regulations and the critical Uncertainty
Mechanisms were confirmed, and only at that point would software
code be finalised and deployed. The implementation was scheduled for
the four months between Ofgem’s decision and the April start date.
Solution components
Services
• IBM Global Business Services®
“IBM Global Business
Services demonstrated
its ability to provide a
business-focused solution
within very tight
timescales and with
shifting criteria. The
IBM team integrated
data from multiple
sources, proved that the
solution answered the
business case, and enables
National Grid to meet its
regulatory and business
objectives.”
— Steve Pollard, Information Management
Team Manager, National Grid

3. Case Study
IBM Global Business Services Energy & Utilities
Confirming by prototype that the solution is
possible
The new solution, based on SAP BusinessObjects software, extracts
data from a wide range of sources, including Oracle applications and
databases, and Ellipse, an asset management solution. The prototyping
stage enabled IBM to test and validate data, and create the appropriate
extract, transform and load routines that would allow the process to run
automatically once in production.
Additionally, the prototype tested the operation of the draft
Uncertainty Mechanisms, by processing genuine data and examining
the results. National Grid was able to see the solution in action,
confirm the results, and establish the potential for regulatory
compliance and revenue protection.
Steve Pollard remarks, “IBM Global Business Services demonstrated
its ability to provide a business-focused solution within very tight
timescales and with shifting criteria. The IBM team integrated data
from multiple sources, proved that the solution answered the business
case, and enables National Grid to meet its regulatory and business
objectives.”
Delivering on the promises of technology
The solution was commissioned into production at the start of the
April 2013 regulatory period The solution enables daily visibility
of the impacts of the Uncertainty Mechanisms on baseline revenue
allowances, and enhanced business control and monitoring of
committed and planned expenditure.
Most importantly, National Grid now has near-real-time reporting of
how it is performing against this part of its regulatory contract in order
to give the company the best opportunity to outperform it.
Additionally, the detailed, timely reporting enables future visibility
of whether agreed trigger points have been reached for applicable
Uncertainty Mechanisms, which allows National Grid management to
identify opportunities to engage with the regulator to re-open funding
negotiations where appropriate.
For more information
To learn more about IBM services and solutions, contact your
IBM sales representative or IBM Business Partner, or visit us at:
ibm.com/gbs
“IBM’s ability to read,
process and understand
the complex uncertainty
mechanisms, working
closely with National
Grid’s central regulatory
team and then apply that
understanding to the tool
has been crucial to the
success of the project.”
— Steve Pollard, Information Management
Team Manager, National Grid

4. GBC03112-GBEN-00
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