MANX ELECTRICITY AUTHORITY

Transcription

BOARD MEETING
27 FEBRUARY 2003
M Proffitt
I
CONFIDENTIAL
AGENDA
MEETING OF THE MANX ELECTRICITY AUTHORITY TO BE HELD ON THURSDAY 27
FEBRUARY 2003 AT 9.30AM IN THE BOARDROOM AT BALLACOTTIER
30 cm 20ce
1
2
TO CONFIRM the Minutes of the Meeting held on 19 December 2002 (copy
enclosed).
30 Sctr. 2003
TO CONSIDER matters arising from the Meeting held on 4-9-Beeembef--24302.
3
TO NOTE the Chief Executive's Monthly Report (Paper No MEA 03/05
enclosed).
4
TO REVIEW the Financial Statements as at 31 January 2003 (Paper No MEA
03/06 enclosed).
5
TO NOTE The Divisional Monthly Reports (Paper No MEA 03/07 enclosed).
6
TO NOTE the Report of the Capital Investment Manager (Paper No MEA
03/08 enclosed).
7
Any Other Business.
8
TO CONFIRM the date of next meeting as Thursday 27 March 2003.
MINUTES OF A MEETING OF THE MANX ELECTRICITY AUTHORITY HELD AT 9.30AM ON THURSDAY 30
JANUARY 2003, IN THE BOARDROOM, BALLACOTTIER, BRADDAN, ISLE OF MAN
Present:
Chairman
Deputy Chairman
Mr W J McCallion
Mr T D Mackay
Mr T Ferrer
Dr J C Taylor
Mr J C Fargher
In attendance:
Chief Executive
PA
Mr M J Proffitt
Mrs A J Cottier
01/03 Minutes
having been previously circulated to
The Minutes of the meeting held on the
Members, were taken as read, confirmed as a correct record and signed by the Chairman with the
following amendment:
Minute 90/02 (e) — Legislation
The final word on the paragraph should read "Treasury" and not "Trading".
02/03 Matters Arising
(a)
Minute 89/02 (a) - Oil Spill from Pulrose Power Station
IT WAS NOTED that the clean up had been completed with the exception of 3 boats that
were being dealt with by their respective owners with MEA covering costs. All fenders and
ropes had been replaced, new for soiled and insurance notified. Culverts were now clean
with a small section of riverbank remaining for clean up by DoLGE.
IT WAS FURTHER NOTED that a positive response had been received by the general public
on MEA's response and confirmed that the situation would not reoccur due to the elimination
of HFO as a generating fuel and the installation of a new oil receptor/separation system.
IT WAS CONFIRMED that the tank from which the oil spill occurred had a design
deficiency when installed by Hawker Siddley. Hawker Siddley had not submitted a claim of
innocence. £3.8 Million has been set aside by Zurich for this incident and they hope to
recover most of this.
IT WAS FURTHER CONFIRMED that the new design incorporated an alarm for oil seepage
to the receptor tank.
IT WAS AGREED that the Chief Executive would pursue the possibility of the alarm
triggering should oil be flowing and the engine not running.
(b)
Minute 89/02 (c) - Windfarm
IT WAS CONFIRMED that the MEA would continue to support the favoured site of "Snuff
the Wind".
IT WAS FURTHER NOTED that the DoLGE were favouring strongly toward the Meary
Veg coastal site, however, it was possible that problems could occur with height restrictions
due to the proximity of Ronaldsway Airport.
-1-
IT WAS NOTED that Government were responsible via the Chief Secretary's Office for
Renewable Energy Certificates (ROC's) and that this would be pursued when in planning
application phase.
IT WAS AGREED that Dr Richard Bujko, Energy Trading Manager should pursue the
market viability of trades of less than 1MW of ROC.
(c)
Minute 90/02f e) - Legislation
IT WAS NOTED that the procedure for taking a Bill through Tynwald required a first
reading as an announcement, second reading as reading with no debate and a third reading to
debate.
IT WAS CONFIRMED that the Bill covered all business areas including Telecoms, Retailing
and wholesaling Gas and Consultancy Services as well a$_Electricity Sales. In a diti n an
enlargement of the Board up to 6 in total. ,
orfri
IT WAS FURTHER CONFIRMED that the presentation to Members by the Chief Executive
would be supported by the Chairman and all Members were welcome to attend, if desired.
(d)
Minute 91/02 - Generation
IT WAS CONFIRMED that 85.6MW was this year's maximum demand to date a 12%
increase versus 5.6% load growth.
IT WAS NOTED that the Trading Team had made a first class effort and that all export
Triad's had been achieved.
IT WAS FURTHER NOTED that should the season's three triad's be achieved the MEA
would receive a bunce payment of £33,000.
IT WAS CONFIRMED that the term "spark spread" was the margin of profit converting gas
to electricity.
(e)
Minute 91/02 — Retail & Marketing
IT WAS CONFIRMED that the Castletown Showroom was looking much improved
following the exterior decoration and that no objections regarding changes had been received.
03/03 Chief Executive's Report
The contents of Paper No MEA 03/01 were noted.
(a)
CCGT & Gas Pipeline
IT WAS NOTED that the mobilisation after Christmas had been slow and consequently the
`first-fire' of GT6 had moved to 28 February. In addition civil works were not ready and
caution and safety dictated that the first-fire would continue to be stalled until the civils were
completed in the surrounding area.
IT WAS NOTED that there is an overrun of £1.3 Million on steelwork.
IT WAS NOTED that the delay would have a knock-on effect with some NEL Power
Engineers in relation to their completion incentive fee. Delays were recognised as not totally
the result of NEL Power and consequently abatement had been agreed with NEL by 2
months. First month overrun would see no abatement, second month would see 50%.
IT WAS NOTED that several problems had developed causing knock-on delays such as a
pane of glass still requiring fitting at the top level of the power station resulting in scaffolding
not being removed. On the gas pipeline, the Scottish H&S Executive had requested that
valves and joints at the PRS were scrutinised with x-radiation even though Sofregaz had
designed it to be scrutinised with gamma radiation. The pipework was exhumed in order for
x-radiation tests to commence and this delayed the project by 1 week at a cost of £30,000.
Both x-radiation and gamma tests were passed.
(b)
Manx Gas
IT WAS NOTED that no apparent arrangements were in place with Manx Gas regarding their
surance or lawyers.
IT WAS NOTED that the Gas Supply Contract would benefit MEA with the ability of having
gas to export also. If MEA service the Island load by Interconnector, Manx Gas would not be
penalised and this would also be the case if MEA sell gas to Dublin.
IT WAS NOTED that MEA would sell gas at an estimated £0.35p per therm to Manx Gas
who would be on-selling to Manx residents at an estimated £1.40p per therm.
IT WAS AGREED unanimously to proceed with the MPC Ltd structure as presented to the
Board by the Chief Executive. The Chief Executive confirmed that he would be presenting
suggestions for the Board of Directors at the next meeting.
IT WAS CONFIRMED that the Company would be incorporated in March so that it could
contract in April.
IT WAS CONFIRMED that a special arrangement had been put into place with BGE for
commissioning gas. The Chief Executive went on to outline the way in which the gas
pipeline would be filled with gas for operation.
(c)
JNC
IT WAS CONFIRMED that the Wages, Terms & Conditions had been waived until 2004
with the anticipation of moving into Performance Related Pay (PRP) next year as it is thought
too ambitious for the current year as staff are unready to change.
IT WAS NOTED that One to One Biannual Reviews would take place and run as if
Performance Management was in place so that staff could review how the scheme works.
IT WAS NOTED that in the interim an agreement of 7.2% increase had been reached which
is a holding agreement plus 2% lump sum on 1 April 2003 to review as if in PRP and then
another lump sum of 2% (ex gratia payment) with no increase on actual salary for the
following year prior to moving onto a percentage scheme.
IT WAS AGREED that the MEA's waging structure needed to be brought up to date and the
agreement reached would ensure an effective 'catch-up' exercise prior to implementing
performance management.
(d)
Manx Cable Company Limited
IT WAS NOTED that the Company would beafa Telecoms subsidiary by Easter 2003 with Dr
Jannie Retief as a Sales and Marketing DirectZr and as the company is set up additional staff
would be taken on from the MEA together with outside resources.
IT WAS CONFIRMED that a new Company would be incorporated in the name of "Skyward
Telecoms" and the company would 'stand alone' and buy 10 fibres from Manx Cable
Company Limited. Skyward would then work with Bankers regarding finance to progress the
business forward.
---
IT WAS NOTED that the Chief Executive would be making a presentation to Politicians
together with the Chairman on the potential of the changes in legislation that would enable
the MEA to work with telecoms. Board Members were invited to attend if so desired.
IT WAS NOTED that a Confidentiality Agreement was to be signed with a North American
Satellite Company who are giving satellito key customers in the World.
IT WAS NOTED that data could be beamed to a somewhere in Europe and that the Isle of
Man was a potential site due to its zero-rated tax. Following an earthlink fibre optics would
be needed to connect to Manchester and then on to anywhere in the World.
(e)
Oil Spill
IT WAS CONFIRMED that prosecution against the MEA in this regard was not possible, as
viris are not there to do so.
(f)
JP Morgan Chase
IT WAS CONFIRMED that Slaughter and May would be petitioning to overturn the MEA
amendment on 28 March 2003.
(g)
World Energy Congress
IT WAS CONFIRMED that the Chief Executive would be making a presentation to the
British Energy Association on 27 November 2003 on "Exporting Britain's Success" in
London and that this had opened the way for a further presentation in Sydney 2004.
IT WAS NOTED that 27 November was a Board Meeting date and that potentially Board
Members could attend the Presentation and hold the Board Meeting in London.
IT WAS NOTED that the Chairman and Chief Executive would be hosting an MEA table at
the Electricity Association Dinner on 5 March with invited guests and that Graham Ward,
Chief Executive of the British Energy Association would be introduced to the Chairman on
that evening.
(h)
Political
IT WAS NOTED that the Chief Executive's meeting with Mr Rimington MHK had resulted
in Mr Rimington advising that he would prefer MEA to go forward with Biomass rather than
a Wind Farm to educate people on renewable energy. The Chief Executive advised Mr
Rimington that MEA had been teaching energy conservation for 3 years using the Showroom
Service Desks.
IT WAS CONFIRMED that no further action would be taken in this regard.
(i)
_
Health & Safety
IT WAS CONFIRMED that Paul Blake had been appointed Chairman of the Health & Safety
Committee supported by representatives from each Division.
IT WAS NOTED from Mr Ferrer that Mr Blake was working well with staff and had a
number of people working with him around the Authority.
IT WAS FURTHER NOTED that Emergency Contingency plans had been brought into
operation and this was ongoing and that Meridian would be installed in order that documents
could be stored centrally in the Authority and recorded. All processes across the Authority
are being assessed to bring them all together centrally and documents were to be circulated
shortly.
IT WAS NOTED that on reference to the 'Smiths Report' we were ahead of our comparables.
04/03 Financial Statements for the Period ended 31 December 2003
IT WAS NOTED that the financial commentary was available and Mr Fargher advised that this was
to be extended next month.
IT WAS NOTED that reference to figures in all reports needed to be consistent throughout as
requested by Dr Taylor.
IT WAS NOTED that £25,000 water rates figure was not necessarily for cooling towers.
IT WAS NOTED that Revenues would be properly budgeted by being seasonalised and that the
predicted rate of growth fell due to possibly mild winter and slow economic growth. The estimated
load growth for next year was 10%.
IT WAS NOTED that it was unclear as to what items were included in 'Establishment Costs'.
05/03 Operational Monthly Report
Generation
Mr Ferrer advised that North Cornwell were now going for 10.4MW of wind power and that
Spalding Power Station was based in Lincolnshire.
The Chief Executive highlighted details of the lost time accident.
Dr Taylor congratulated those responsible for the table formatting.
Technical Services Division
IT WAS CONFIRMED that the Operation Philosophy Document was now ready.
IT WAS CONFIRMED that MEA would be receiving monies from Burlington Resources regarding
the crossing agreement on the interconnector.
Computer Services
IT WAS NOTED that in-house training may be required in the areas of IT in order to take strain off
IT call outs.
Corporate Services
IT WAS CONFIRMED that MEA would be working with the Income Tax Division, following a
change due legislation, in order to aid their collection of income taxes via our billing database of Isle
of Man residents.
IT WAS CONFIRMED that manual meter reading would continue for some time.
-5-
IT WAS CONFIRMED that unread meters had been highlighted as a problem within Corporate
Services and that this issue was now being addressed and the initiative was working very well
together with energy debt collection.
IT WAS NOTED that there was nothing to report under Administration and that the Chief Executive
pursue this.
IT WAS REQUESTED that the Director, Corporate Services advise the Board on what share of
appliance sales we have on the Isle of Man.
Retail
IT WAS NOTED that that internal cornices at Castletown Showroom also needed to be preserved
and that potentially MEA could put tenants above the Showroom.
IT WAS CONFIRMED that there was no property available to move and it was suggested the
Showroom remain in situ for the next 5 years.
Electricity Network Services
Switchgear
IT WAS NOTED that United Utilities had accepted the switchgear design.
Statistics
IT WAS CONFIRMED that the ESS form is a final safety sign-off form by MEA with Electrical
Contractors for work undertaken to enable a consumer to connect to the MEA network.
IT WAS NOTED that ComfyHeat sales were low, however, underfloor wet heating had been sold to
75 properties at the Majestic, which heats the entire property and is charged on a white meter rate.
IT WAS FURTHER NOTED that Dandara had committed their next project to the same heating
regime.
Internal Audit
Energy Settlement
IT WAS NOTED that John Cretney on Energy Settlement had undertaken commendable work.
Public Relations
MEA Charity Support
IT WAS CONFIRMED that MEA staff undertaking sponsored events do so at their own risk and
liability and MEA are not responsible.
CowParade
IT WAS CONFIRMED that MEA would be sponsoring a Cow for the Queen's Golden Jubilee Trust,
which is a charity formed for underprivileged children at a cost of £3,500.
06/03 Capital Investment Management
IT WAS NOTED that several complaints regarding noise outside of working hours at the Station had
been received and that the Chief Executive had sent apologies to complainants.
IT WAS NOTED that the infill at Pulrose Golf Course would incur a saving £2 Million due to inert
waste being disposed there. A 40,000 tonne capacity has been given to JC Kelly's plus their haulage
rates have been reduced.
IT WAS NOTED that the date of 9 Feb for Gas to the Pulrose valve had moved on a week.
IT WAS CONFIRMED that the original statement made that the power station would be
commissioned for April 2003 was still in force. No other programme dates had been released.
07/03 Any Other Business
IT WAS NOTED that the Steam Blow will occur at the end of March and the noise will be
considerable. Mr Ferrer advised that a steam blow could ordinarily be undertaken up until 8pm on
the day. It could happen 4 to 5 times a day for 2 days at 6 to 8 seconds per time. It would require
25MW of energy release to remove any debris. Missiles from the steam blow would not cause a
problem.
Mr Mackay thanked the MEA on behalf of the Rotary for its support at their recent Dinner.
An article in January 2003 Architectural Today Magazine on Pulrose Power Station was presented to
the meeting by the Chief Executive for the Boards interest.
IT WAS NOTED that the Baldwin Flooding situation is of an erosion type and the Water Authority
are modelling a breach of the damn as it is thought that Pulrose Bridge may be in jeopardy.
A verametric image was presented by the Chief Executive showing the T-off of the pipeline to the
Island.
The Chief Executive presented the Natural Gas composition report for the Boards interest.
08/03 Next Meeting
IT WAS AGREED that the next meeting should be held at 9.30am on Thursday 27 February 2003.
There being no further business the meeting concluded at 3.20pm.
Chairman
Date
MEA 03/05
CHIEF EXECUTIVE'S REPORT
MIKE PROFFITT
FEBRUARY 2003
1
3 P Morgan Chase
1.1
1.2
2
We have now been advised by the High Court that the dates to hear the case have
been settled at 6-9 October 2003.
This moves from the original June dates because of conflicts with both parties QC's.
Capital Projects
Further to the Capital Projects Director's Report.
2.1
Gas Pipeline
2.1.1 Nitrogen was brought to the Island via a hazardous cargo sailing on 19
rock. October 2003. ce,,c,
2.1.2 On 23 .Getryber 2003 the Nitrogen was packed into the subsea spur until
pressure ambient with SSIP2 was achieved.
2.1.3 At approximately 1200hrs the offshore isolation valve was successfully
opened and a flow of nitrogen through the pressure reduction station and into
the mains cross Island pipe was managed until natural gas flowed at the PRS,
approximately 2.5 hours later.
2.1.4 The Island main will be line-packed with natural gas prior to GT6 first fire.
2.2
Power Station
2.2.1 The biggest single issue effecting the critical path for first fire of GT6 is the
design of cooling and ventilation air through the GT package.
2.2.2 A study (CFD) undertaken to comply with Health & Safety rules showed a
cloud of air forming inside the casing.
2.2.3 In the event of a leakage of gas to the turbine, this cloud would become an
explosion hazard.
2.2.4 It is necessary therefore to engineer a solution, which passes the air through
the casing more efficiently.
2.2.5 This solution is in hand and new CFD modelling is being undertaken to
confirm suitability.
2.2.6 The steam-blow process is now understood to involve significantly more time
than previously reported. This will require notice to the public and a general
explanation of the process via the media.
3
Power Outage
The recent power outage, which occurred from 1440hrs to 1515hrs on Wednesday 19
3.1
February 2003, was the result of a human error. The individual has been relived of
his "authorised person" status pending retraining.
3.2
A full report will be given during the Board Meeting.
4
MCC Board Meeting
4.1
The meeting held on 31 January 2003 resolved that expenses incurred in the early
development of fibre optic commercial opportunities would be treated as preincorporation expenses of the new Telecoms entity and would be transferred at cost,
once the entity is formed and trading.
-1-
MEA 03/05
5
Gas and Electricity Bill
The new Bill giving the MEA additional vires received its first reading on 18
5.1
February 2003.
5.2
The DTUMEA' s CEO gave a presentation to Tynwald members on 14 February
2003.
The focus of MHK's was completely on gas and the relationship between MEA and
5.3
Manx Gas.
5.4
Further detail of this will be shared during the meeting.
5.5
It is expected that the Bill will pass towards the end of March.
6
UK DTI
6.1
It should be noted that the DTI's energy policy (published 24 February 2003 includes
the heavy promotion of renewable energy sources and in particular Wind Farms.
7
Treasury
7.1
We are now meeting the Treasury's CEO on a quarterly basis. The purpose is to
foster better communications between Treasury and MEA, and this purpose, it is felt,
is being achieved.
8
CEO Trip to USA
8.1
The Minister of DTI was invited to Tulsa, Oklahoma to visit a Telecommunications
company, interested in the IoM.
8.2
The DTI requested that in view of the impending legislation the CEO accompany the
Minister.
8.3
The Chairman sanctioned the trip, which occurred during the week commencing 17
February 2003.
A report of this trip will be given to the Board during the meeting.
8.4
2
MEA 03/06
ACCOUNTS COMMENTARY JANUARY 2003
PROFIT & LOSS
Income
Energy Sales
Energy sales are below plan by £820,000 however the Budget for 02/03 was not seasonalised.
Restating the plan on a seasonal basis would result in a year to date plan of £22,378,000 with a
variance of 4517,000 split between a positive price variance of £627,000 and a negative volume
variance of 41,144,000. The average unit-selling price is 7.41p against a plan of 7.2p per unit.
Actual sales volumes are below plan by 15.8 million units - Actual units 294,918,000 plan units
310,805,000.
Plan sales £'000's monthly
Plan sales £'000's cumulative
Actual Sales £'000 monthly
Actual Sales £'000 cumulative
APR
MAY
2,134
2,061
2,134
4,195
JUN
2,002
6,197
JUL
2,061
8,258
AUG
2,076
10,334
SEP
2,105
12,439
OCT
2,309
14,748
NOV
2,412
17,160
DEC
2,602
19,762
JAN
2,616
22,378
2,101
6,491
1,969
8,460
2,005
10,465
2,088
12,553
2,091
14,644
2,189
16,833
2,553
19,386
2,475
21,861
2,182
2,182
2,208
4,390
Plan sales units monthly
Plan sales units cumulative
29,639
29,639
28,624
58,263
27,812 28,624 28,827 29,233 32,075 33,496 36,135 36,338
86,075 114,699 143,526 172,759 204,835 238,331 274,466 310,805
Actual Sales units monthly
Actual Sales units cumulative
34,102
34,102
30,390
64,492
30,316 24,401 26,786 29,290 27,111 25,991 33,535 32,996
94,808 119,209 145,995 175,285 202,396 228,387 261,922 294,918
6.40
7.20
6.81
7.20
6.85
7.20
7.10
7.20
7.17
7.20
7.16
7.20
7.24
7.20
7.37
7.20
4273
£321
£48
-£253
£448
£195
-£335
£629
£294
-£123
£325
£202
-£47
£178
£131
-£68
£182
£114
£71
-£176
-£104
£389
-£716
-£327
Average Price in pence
Plan price in pence
VARIANCE
Price Variance
Volume Variance
Total £.000 variance
7.40
7.20
7.41
7.20
£528
£627
4903 -£1,144
4376
-£517
Other Income
Other income includes £100,000 billed to Sita Waste re the Incinerator Cable. A further £100,000 has
been invoiced but this has been treated as deferred income as we have not yet been charged for all the
associated costs on this job.
EXPENDITURE
Energy Purchase
Overall Energy purchases are over budget by £718,000 as a result of increase fuel prices and longer
than planned Cable outages.
The amount of £580,000 for Cable purchases in January includes
-
An accrual of £200,000 for system and imbalances charges due to Powergen covering April
to December 02.
-
Accrued income of £50,000 from Hydro Carbon Resources and £190,000 from Burlington
Resources in respect of cable crossings.
- 1-
MEA 03/06
The operation of the Cable has been affected by the following:
April 02
May/June 02
November 02
January 03
Circuit Breaker problem
Reburial Work
Cable crossing Centrica / Hydro Carbon Resources
Cable Crossing Burlington
Based on the first in first out policy for fuel consumption the following shows the movement in the
average price per litre of fuel consumed:
Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02
Oct-02 Nov-02 Dec-02 Jan-03
FUEL
Cost of Fuel consumption
£'000
820
1,121
662
108
119
163
328.8
471
449
553
Litres Consumed
LTS
3,978
7,016
4,470
740
675
870
1,820
2,794
2,067
2,889
Average actual cost per Lt
consumed
0.2062
0.1599
0.1481
0.1459
0.1763
0.1874
0.1807
0.1686
0.2172
0.1914
Plan cost per Lt consumed
0.1800
0.1800
0.1800
0.1800
0.1800
0.1800
0.1800
0.i 800
0.1800
0.1800
Other Expenditure
Staff Costs of £617,000 for January includes £27,000 relating to a December adjustment on resources
cost re Capital work. The January charge was posted in December.
Included in the charge of £381,000 for Repairs & Maintenance are the following amounts:
£28,000 re work at King Edward Road Onchan
£45,000 on the 33kv Fault at Ramsey
£65,000 re the Incinerator site
BALANCE SHEET
Fixed Assets
The Fixed Asset total of £240,887,000 includes the following expended amounts
£36,177,000
Gas Pipeline
Power Station £73,285,000
Fixed Deposits
£30 million is on deposit with local banks. At the last renewal the average rate placed at was 3.85%
(the effective rate on the bond is 5.45%).
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MEA 03/07
OPERATIONAL MONTHLY REPORT — JANUARY 2003
GENERATION/PROCUREMENT
I
GENERATION and ENERGY TRADING — ALAN CUBBON/FtICHARD BUJKO/
Diesel Plant
All plant available. Minor services carried out at off-peak periods. Plant has been called to run to
meet
i)
ii)
Triad warnings when importation of energy is displaced with own generation of energy to
avoid potential high costs of a triad point
Pipe laying activities by Burlington. When within a declared safety zone the cable import is
reduced for security of supply reasons. Increased costs of generation are met by Burlington
as part of the crossing contract.
The Division is undergoing much structural change as staff are seconded to the CCGT
Commissioning Team. A CCGT integration plan is in place and the staff structure for the future
operations and maintenance of the overall portfolio of plant is defined. The transition between the
two states is underway. The retirements, recruitment and skill gap training needs, together with the
development of a continuous training program with the Electricity Training Association (ETA) for
the future is ongoing. The MEA will become an Approved Training Centre with the ETA, and NVQ
qualifications and standards developed for all staff. In the immediate short term, a full CCGT training
package is available that is specific to Pulrose plant. As such it is not accredited with National
Standards, but is designed with that in mind.
The new structure identified the need for a more senior shift manager to oversee the operations of
plant, and energy operations. To date there are three internal promotions to this new post, with upto
three more to be appointed.
Training of Control Room operators is almost complete as preparations for the move into the new
control room are carried out.
Cable Operations
The cable imports have dominated the energy procurement as usual, except where operational or
commercial reasons have required a reduction as outlined above. A transformer tap changer fault has
resulted in only one Isle of Man end transformer available for some days. Operational policy is to
maintain full cable import during routine maintenance and also after any fault is identified and risk to
security of supply assessed.
Hydro Plant
The plant is fully available. An improved control system is to be fitted to the plant to automate the
output to the level of water in the reservoirs. This will enable us to maximise the output from this
plant whilst still meeting the water reserve criteria of the Water Authority
Staff
We regret to have to report the death of Mr John Craine, Shift Charge Engineer after a short illness.
John was one of our most experienced staff, having joined the Electricity Board at Peel in 1962. He
was 55.
1
MEA 03/07
OPERATIONAL MONTHLY REPORT - JANUARY 2003
Trading across the Interconnector - January 2003
Contractual
• Existing electricity Import supply contract with Powergen terminates at the end of March 03.
Revised Contract currently being negotiated to extend terms of supply on a monthly basis until
CCGT fully commissioned.
• New gas supply Contract being finalised with Powergen to provide both "commissioning" and
"firm" gas until the end of September 03.
• Shipping agreement finalised with Bord Gais Energy Services to transport gas from UK NBP to
BGE exit point at Glen Mooar.
• MEA have signed onto the Moffat Agency Agreement as an Irish Shipper.
Operational Performance (Tablel)
• This month's report reflects a reduction in Imported power via the Interconnector as a result of
work undertaken by Burlington Resources (Installation of a Gas Pipeline over the MEA
Interconnector), during this work the Interconnector has been floated to maintain security of
supply to the Island. The additional MEA costs will be re-charged to Burlington Resources and
are currently estimated at £195,000 for January, the work is due to be completed by the 25 Feb
03.
• The total Electricity procured in January - as measured by the sum of Cable imports at Bispham
and gross generation output - increased by 6.1 % to 39,058 MWh (36,796 MWh Jan 02).
• The total units Generated by on-Island Plant increased by 22.1 % to 12,305 MWh (1,076 MWh
Jan 02)
• The Electricity imported via the Interconnector increased by 0.1 % to 26,753 MWh (26,720
MWh Jan 02).
• The Interconnector was utilised to provide 68.5 % of the Island Demand (72.6 % Jan 02).
• The Interconnector load factor has fallen to 73.6 % (8 1 .5 % Jan 02).
• Powergen made 22 "Float" and 27 "Triad" calls in January. The total number of option calls to
the end of January is now 178 out of a maximum of 260.
• During the month two provisional Triad periods were set (8 Jan 03 and 30 Jan 03) on both dates
the MEA exported to the UK over the Triad period.
Annual Forecasts (Table 2)
• The predicted total procurement demand to year ending March 03 is 402 GWh, an increase of
17.4 GWh or an Annual growth rate of 4.5 %. This increase assumes that the CCGT Station will
be mainly commissioned during the next financial.
• The predicted Island load to year ending March 03 (excluding all Generation standing load) is
380.1 GWh, an increase of 19.1 GWh or an Annual growth rate of 5.6 %.
Market Prices (Table 3)
• The current UKPX (RPD) average price has fallen by 4.5 % to £18.74 /MWh (£19.62 Jan 02).
• The SAP Natural Gas price assuming a thermal efficiency of 48% for CCGT plant indicates that
the average electrical conversion price has fallen by 9.4 % to £15.44 /MWh (£17.05 Jan 02).
• The January Spark Spread increased by 28.2 % to £3.29 /MWh (£2.57 Jan 02)
• The average SBP price fell by 20.1 % to £31.88 /MWh (£39.91 Jan 02) and the average SSP price
fell by 3.6 % to £12.78 /MWh (£13.26 Jan 03).
• The average cost of Gas Oil has risen by 35.1 % to £0.19 per litre (£0.14 Jan 02); and is expected
to continue rising as war in Iraq becomes more imminent.
• NGC's transportation cost (BSUoS) has risen by 0.3 % to £0.49 /MWh (£0.49 Jan 02).
2
MEA 03/07
Financial Performance (Table 4)
•
•
The total cost of the Imported Power for January is estimated at £506,153, the marginal cost of
Import has fallen by 25.2 % to £18.93 /MWh (£25.32 Jan 02).
The total cost for Diesel Generation is estimated at £553,161 and the Marginal cost of Generation
has risen by 27.0 % to £46.94 /MWh (06.1 Jan 02).
The combined marginal cost of Procurement for January is estimated at £1,059,314, the marginal cost
of Procurement has fallen by 3.4 % to £27.12 /MWh (£28.08 Jan 02).
January 2002
TABLE 1
Variance
January 2003
Operational Performance
Units
(MWh)
36,796
2,055
34,741
34
34,707
26,720
9,883
193
10,076
0.235
40.2%
85.2
78.99
75.74
25.86
Total Units Procured
Generation Standing Load
USO to ENS
Export @ Bispham
USO to On-Shore 10M Load
Import (4, Bispham
Diesel Generation
Hydro Generation
Total On-Shore Generation
Fuel - Litres per units Gen 1/1cwh
Thermal Efficiency %
Max Demnd - MEA Gen MW
Max Demnd - Island Load M
Max Demnd - Island Load M
Min. Demnd - Island Load M
Interconnector - Availability
Load Factor
Units
(MWh)
39,058
2,103
36,955
120
36,835
26,753
11,785
520
12,305
0.240
39.0%
91.03
88.78
85.95
26.28
5.6%
94.4%
0.1%
94.3%
72.6%
26.9%
0.5%
27.4%
_ 100.0%
81.5%
Annual Totals
2001/02
Units
(MWh)
101,947
0
1,956
103,903
280,708
384,611
21,465
361,531
1,615
359,916
TABLE 2
Annual Forecast
Diesel Generation
CCGT
Hydro Generation
Import kBispham
-Total Units Procured
Generation Standing Load
USO to ENS
Export @ Bispham
USO to On-shore 10M Load
TABLE 3
% of Total
'
% of Total
5.4%
94.6%
0.3%
94.3%
68.5%
30.2%
1.3%
31.5%
100.0%
73.6%
% Change
6.1%
2.3%
6.4%
254.7%
6.1%
0.1%
19.2%
169.5%
22.1%
2.1%
-3.0%
6.9%
12.4%
13.5%
1.6%
0.0%
-9.7%
Predicted Annual Totals 2002/03
Annual Totals
2002/03
to end of
Jan 2003
113,807
0
2,906
116,713
217,449
334,162
18,785
315,377
352
315,025
Units
(MWh)
126,257
Unit Growth
(MWh)
24,310
0
2,044
26,355
-8,959
17,396
-77
19,088
-1,113
20,201
0
4,000
130,257
271,749
402,007
21,388
380,619
502
380,118
Jan 2002
Jan 2003
Variance
Price
£/MWh
19.62
17.05
Price
£/MWh
18.74
15.44
% Change
2.57
39.91
13.26
0.14
0.49
Yr. 2001/02
% Growth
23.8%
104.5%
25.4%
-3.2%
4.5%
-0.4%
5.3%
-68.9%
5.6%
YTD
2002/03
Variance
Price
£/MWh
15.23
10.93
% Change
-4.5%
-9.4%
Price
£/MWh
17.21
13.65
3.29
31.88
12.78
0.19
28.2%
-20.1%
3.56
35.87
4.30
28.24
21.0%
-21.3%
-3.6%
9.18
35.1%
0.16
10.07
0. I 8
9.6%
7.5%
0.49
0.3%
0.57
0.64
12.1%
Market Prices
UKPX (RPD) AVERAGE
SAP Nat Gas
AVERAGE
(Electrical)
Spark Spread (Gas to Elec.)
SBP
AVERAGE
SSP
AVERAGE
Gas Oil (Revd) AVERAGE
(PP1)
BSUoS
AVERAGE
Unit Growth
(MWh)
2,262
48
2,214
86
2,128
32
1,902
327
2,229
0.005
-1.2%
5.9
9.8
10.2
0.4
3
-11.5%
-20.0%
MEA 03/07
Jan 2002
TABLE 4
Financial Performance
Diesel Generation
Hydro Generation
Contract Import - Peak
Contract Import - Off Peak
Total Import (Estm Feb 03)
System Charges (Estm Feb 03)
Contract Associated Charges
(Estimated Feb 03)
Total Procurement Cost
Combined Marginal cost of
Procurement
Units
(MWh)
9,883
193
19,468
7
19,475
26,720
616
Tariff
(f/MWh)
36.10
0.00
35.40
28.24
14.74
33.72
0.49
10.82
26,720
36,796
25.32
28.08
10,076
Jan 2003
Cost
(£)
356,727
0
356,727
549,856
106,902
656,758
13,168
6,660
520
12,305
19,573
7
19,581
19,581
986
Tariff
(f./MWh)
46.94
0.00
44.95
19.69
13.97
19.69
0.60
4.72
19,581
39,058
20.53
24.45
Units
(MWh)
11,785,
Growth
Cost
(£)
30.0%
553,161
0
0.0%
553,161
27.0%
385,400
-30.3%
100
-5.2%
385,500
-41.6%
11,748 21.7%
-56.3%
4,656
•
676,586
1,033,313
401,904
955,065
-18.9%
-12.9%
,
Glossary
➢ UKPX (RPD) -UKPX Reference Price Index of Electricity as published by UK Power Exchange
(expressed in £ per MWh)
➢ SBP - Imbalance Market System Buy Price as published by Elexon (£ per MWh)
➢ SSP - Imbalance Market System Sell Price as published by Elexon (f per MWh)
➢ SAP - System Average Price of Natural Gas as published by Transco (£ per MWh as an
Electrical Output assuming a MEA CCGT station thermal efficiency of 48%)
➢ BSUoS - Balancing System Use of System cost - NGC Transportation Cost - as published by
Elexon ( £ per MWh)
UNITS SENT OUT
2002
2003
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Total
Actual (Month)
29.7 29.9 27.7 28.7 28.9 29.0 33.0 34.4 36.7
36.8
315.0
Budget (Based on Monthly
Weighted Average )
29.2 28.2 27.4 28,2 28.4 28.8 31.6 33.0 35.6
35.8
32.3
33.9
372.3
3M
0.0
0.0
0.0
0.0
0.0
..
29.2 57.4 84.8 113.0 141.4 170.2 201.8 234.8 270.4 306.1 338.4 372.3
-
% Difference
Actual
(Cumulative)
Budget (Based on Monthly
1.7
6.1
1.4
1.9
1.8
0.8
4.5
4.0
3.3
29.7 59.6 87.4 116.1 145.1 174.1 207.1 241.4 278.1 315.0
Weighted Average )
% Difference
1.7
3.9
3.0
2.8
2.6
2.3
2.6
2.8
2.9
2.9
0.0
0.0
➢ The monthly budget figure is a weighted average of the annual 2002/03 budget figure of 372.3
million units sent out to the Island.
➢ This represents a 3% increase on 2001/02
➢ The monthly weighting is a 5 year average monthly weighting of total units sent out.
4
MEA 03/07
WEEKLY MAXIMUM DEMAND
1 Apra to 31 March 1999 to 2003
-1999/00 -2000/01 -2001/02 -2002/03
90
40
Apr
1.11111!1111
May
1i1111111111111111111M1111F14
Jul
Jun
Aug
Sep
Oct
Nov
Jan
Dec
Feb
Mar
Units to Onshore Island Load (12 Month Moving Total )
8
0
1-A
5
0
0
MEA 03/07
OPERATIONAL MONTHLY REPORT
—
JANUARY 2003
TECHNICAL SERVICES/CAPITAL PROJECTS
—
ASHTON LEWIS
TECHNICAL SERVICES — ADRIAN DOBBINS
In the reporting period, Technical Services have provided input and resource for the following
issues:Whole Island Network/Generation Operational Philosophy
Further work has continued with MEA's System Consultants, PB Power in order to produce an
Operation Philosophy document for MEA's portfolio of transmission, distribution and generation
plant. The document will give guidance on how this plant should be configured during; the
commissioning of the new CCGT station, its initial 'run in' period, and its long term future. A
development from this document has been the creation of a training package for Generation
Division's operatives, which takes the philosophies defined and aims to ensure that the system is
operated as required.
—
Interconnector Maintenance
Following last year's fault on the tapchanger of transformer 2TX3 at Lord Street, planned
maintenance of both Interconnector transformers has been brought forward by ENS at Technical
Services' request in order to ensure that full availability of the Interconnector can be assured during
the commissioning period of the CCGT. Guidance on some of the precautions, which needed to be
taken during this work, was given to ENS.
Health & Safety Policy
As part of the overall need case to create a Safety Management System for the new Power Station,
Technical Services through Paul Blake, have been working at a number of levels to help create a coordinated and cohesive Health & Safety Structure across the whole of the MEA. Some of the work
areas involved are as follows:•
Following final ratification, MEA's Vision Statement and H&S Policy documents were formally
approved and issued onto the Intranet for inclusion in all future documentation.
•
Assistance given to Generation on their Health and Safety Policy and its relation to the above
documents.
•
Initial discussion with Fire Brigade and Emergency Joint services, followed up by further
discussion with Senior Fire Officer for input to Major Accident Prevention Plan and Major
Accident Contingency Plan.
•
Development of MEA overall Emergency Contingency Plan involving not only Generation, but
ENS, Ballacottier HQ, Heywood House, Cable Trading, and IT.
•
Guidance given on the development of Emergency Plans and Procedures for the CCGT plant.
•
Support to the measures required to achieve compliance with Operation Standard PM 84 which,
defines how a Gas Turbine contained within an enclosure should be operated and managed.
•
Conducted Safety Council Meetings, where the latest recommendation is to publish the new
Vision Statement and policy documents in Powertalk.
-6-
MEA 03/07
Commissioning and Start Up of the CCGT Station
The Commissioning Team continues to produce a suite of procedures, which will facilitate the
commissioning, operation and maintenance of the new station for its first year of operation.
The Commissioning Team holds a weekly meeting which co-ordinates all aspects of the
commissioning activity also addresses major interface issues. This meeting is attended by key
members of the Construction and Commissioning Teams, as well as representatives from; Energy
Trading, Generation, ENS and PB Power.
COMPUTER SERVICES
—
GARY CORKHILL
Staffing
The part-time IT operations assistant whose duties included the production of the daily Electricity
Invoices has resigned to undertake full time employment. This post has been reviewed and by altering
the existing working procedures and introducing new technology, it has been possible to reduce the
time-spent undertaking these duties and the work is now be absorbed using existing staff.
MEA Intranet
The existing MEA Intranet has been operation for over 12 months. A project has been initiated to
review its current usage, format and contents with a view to making it more useful, easier to use and
more informative to staff.
Navision
The module to allow scanned ENS Service Record Cards and Jointers cards to be recorded within
Navision has now been implemented. The system allows this information to be readily accessible to
all staff and remove the reliance on old manual records. The introduction of this program has
highlighted other possible areas within MEA where it would be of benefit. We are currently
investigating its use within Corporate Services whereby copies of supply application forms, direct
debit mandates and customer correspondence may be scanned and held against customer records.
The existing DOS based wayleaves system, which is being incorporated within the Navision systems,
has now gone live. This is allowing much more integration, thus simplify the payment process and
making more detailed wayleave information available to other MEA users.
Communications
A project has been initiated that will upgrade the communication links between Ballacottier and the
out of town Retail Showr-ooms. The links between the showrooms and Ballacottier are currently
serviced by Manx Telecom rented kilostream circuits, which are now not adequate for the purpose. It
is intended to rent high-speed local exchange circuits between the showrooms and the nearest MEA
fibre connection. This will allow high-speed connections back to Ballacottier and also reduce the
existing rental costs currently being paid to Manx Telecom.
MEA 03/07
Service Requests open as at 31 December 2003
Number of Service Requests opened during January
(See below for breakdown of requests)
Number of Service Requests closed during
Open Service requests as at 31 January 2003
176
457
409
224
I
i
it
t
0
Summary of calls during last 12 months
Dec 2001
Jan 2002
Feb 2002
Mar 2002
Apr 2002
May 2002
Jun 2002
Jul 2002
Aug 2002
Sep 2002
Oct 2002
Nov 2002
Dec 2002
Jan 2003
Calls open at
start of month
144
154
188
164
199
165
199
184
228
226
229
199
161
176
Calls opened
during month
206
498
487
557
511
491
373
474
427
512
417
355
319
457
Calls closed
during month
196
464
511
522
545
457
388
430
429
509
447
393
304
409
8
Calls open at
end of month
154
188
164
199
165
199
184
228
226
229
199
161
176
224
MEA 03/07
CORPORATE SERVICES
FINANCE — CLODAGH MAHER
Over the past few months the workload of the payments section has increased significantly. This is
principally clue to the volume of supplier payments made on behalf of PGT Limited and MEA
payments re the Pipeline. The work of the section is dealt with on a priority basis; lower priority
work has suffered to some extent. We are currently reviewing how best to resolve this matter and
deal with high volumes of transactions on an ongoing basis.
There has also been an increase in demand for payment to suppliers by cheque. As payment by
BACS is less time consuming and more cost effective (Bank charges 35pence per cheque as opposed
to 3.9 pence per BACS, on top of Administration costs, we are issuing requests to all suppliers
currently receiving cheques to accept BACS payment.
An analysis was undertaken of all year to date expenditure for Manx Cable Company. A lot of
Navision Ledger entries were re coded to enable full and complete actual to budget reporting to be
extracted from Navision on a regular basis.
CUSTOMER SERVICES
—
LINDY LEWIS
Mail Room Services
The trial is ongoing and no major problems have been identified.
Hand Held Meter Reading Terminals
The project is proceeding to programme. The development is near completion and all the Meter
Readers have carried out trials in the field. Feedback from Meter Readers is encouraging. Formal
training and parallel testing is scheduled for end of March.
Staff Training
Three staff are shortly to start NVQ Customer Services Courses in conjunction with the Isle of Man
College. This is the start of a rolling programme that will result in the course being undertaken by all
Customer Service Finance Staff.
Educational Visit
Following approaches from Willaston and Laxey Schools, in conjunction with Human Resources,
visits to the schools have been undertaken where demonstrations have been given about the safe use
of electricity. These have been received very well at the schools.
-
MEA 03/07
NON ENERGY DEBTS (ENS & RETAIL)
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£0
APRIL
MAY
JUNE
JULY AUGUST SEPT
OCT
NOV
DEC
JAN
MOVER 90 DAYS £286,291 £284,834 £285,868 £292,929 £203,858 £211,526 £182,556 £224,543 £223,937 £216,834
00-90 DAYS
£637,448 £724,173 £4,038,1 £906,787 £553,082 £739,008 £518,773 £223,781 £167,918 £268,909
CUSTOMER SERVICES
1600
1400
1200
1000
800
600
400
200
0
O OCCUPIERS
■ CHANGE OF TENANCY
OUTSTANDING
MEA 03/07
HUMAN RESOURCES - TONY HONOUR
Yearto
0
277
294
Out turn takes into account projected
retirements and forthcoming fixed term
appointments.
2.11
2.20
2.30
Two staff on sick leave in excess of one month.
1
2
2
Generation.
Joint Negotiating Council
At the meeting of the JNC held on the 22 January 2003 the following increase in salaries was
proposed with effect from 1 April 2003 until 31 March 2004.
1.
7.2% increase in base salaries consolidated
2.
A facilitation payment of 2% of salaries to enable discussions to continue on Performance
Management with the intention to ballot staff on the possible introduction of a scheme in 12
months time.
The three recognised Unions i.e.: AMICUS, PROSPECT and TGWU have agreed to recommend
acceptance of this proposal to the staff
Ballot papers were issued to staff on 14 February 2003 and are to be returned by 28 February 2003.
Safety Presentation
James Kneen and myself gave a Safety Presentation to year 6 pupils at Laxey Primary School. The
material used is supplied by the Electricity Association's Education Service and is designed to
promote electrical safety in accordance with key skill stages in education. The presentation was well
received and the pupils have been invited to enter a safety poster painting competition. Prizes will be
awarded.
Business Mentoring
I have been assisting the Head Teacher at Laxey School with business mentoring, which has included
performance management, counselling skills and staff organisation. This will be an ongoing
arrangement with meetings held once a month until further notice.
In-house Training
Sally Lockett has been providing various in-house training courses, which have included Telephone
Techniques, Customer Care Programme and One to One Performance Review Training. Following
the NVQ Assessor Training attended by a number of staff, Sally will be commencing verification of
staff currently undertaking an NVQ Qualification.
MEA 03/07
Young Enterprise Judging
Maree Bashforth was selected to judge Young Enterprise Company Mid Year Presentations. Five
secondary schools were involved and a total of 21 Companies gave presentations during the week 3
February 2003. This was an excellent opportunity for Maree to use her HR experience and provide
constructive feedback to the students. The final judging ceremony will take place on 21 March 2003
and Maree's assistance will once again be required.
Staff Movement
Retirement of ENS Assistant — Ros Tregellis
Appointment of ENS Administration Assistant — Kim Harvey
Appointment of Generation Apprentice — Mark Ellison
Appointment of Network Administrator — Rodney Kaye
Appointment of Gas Systems Maintenance Manager — Brian Gibson
Appointment of C&I Technician — David Ward
WAYLEAVES GEORGE TOMLINSON
-
Easements, Wayleaves, Leases and Conveyances
The following agreements have been put in place during the month in securing substation sites and
cable routes for the MEA distribution system.
Easements
Wayleaves
Leases
Conveyance
5
0
0
0
ADMINISTRATION — MARGARET GRAHAM
Cash Collection Contract
Our cash collection contract is due for renewal. Securicor, Speed Courier and the TOM Post Office
have been invited to submit tenders. The closing date for tenders is Friday, 28 February 2003. All
parties have been given the same criteria and advised it is not necessarily the lowest tender that will
be successful as reliability of service is a key factor.
The new contract will be effective from 1 April 2003 for a three year period.
Insurance - Oil Spill
Paul Dewar has audited the file in relation to claims submitted as a result of the Oil Spill. Internal
Audit were happy with the way in which the claims had been processed.
MEA 03/07
RETAIL AND MARKETING - JAMES WILLIAMS
Retail Sales and Repairs — Jan 2002 v Jan 2003
Location
Douglas
Castletown
Peel
Port Erin
Ramsey
Workshop
Total:
Jan 2002 (£)
172,289.70
16,458.47
16,424.08
33,245.31
57,036.95
8,290.74
303,745.25
Jan 2003 (£)
+4,810.51 +3%
177,100.21
16,247.04
-211.43 -1%
20,783.75
_, +4,359.67 +26%
36,264.72
+3,019.41 +9%
-2,095.83 -4%
54,941.12
13,072.56
+4,781.82 +58%
+14,664.15 +5%
318,409.40
Retail Sales and Repairs - Dec 2002 v Jan 2003
Location
Douglas
Castletown
Peel
Port Erin
Ramsey
Workshop
Total:
>
>
Dec 2002
183,895.53
12,987.01
19,999.36
35,710.11
66,441.31
9,830.45
328,863.77
177,100.21
16,247.04
20,783.75
36,264.72
54,941.12
13,072.56
318,409.40
Jan 2003(i)
-6.795.32 -4%
+3,260.03 +25%
+784.39 +4%
+554.61 +2%
-11,500.19 17%
+3,242.11 +33%
-10,454.37 -3%
Overall profit margins for January 2003 maintained a level of 25-30%, as reported in December
2002, following the introduction of certain promotions. Promotional support was received from
two major suppliers
As shown an increase of 5% was achieved on the same month last year. Strong promotions and
an increase in advertising within the local press played a major part in this performance.
Over-all Gross Receipts
➢ For all showrooms, takings inclusive of energy payments, daywork receipts and appliance sales
are as follows:
Location
Douglas
Castletown
Peel
Port Erin
Ramsey
Total:
Jan 2002 (£)
405,934.87
39,364.26
67,286.34
83,413.43
146,480.72
742,479.62
Jan 2003 f£)
+15,005.44 +4%
420,940.31
+5,841.72 +15%
45,205.98
-3,533.67 -5%
63,752.67
-1,429.76 -2%
81,983.14
+23,050.17 +16%
169,530.89
+38,933.37 +5%
781,412.99
Retail Projects
>
Following on from last months comments regarding the new scrap refrigeration charge and the
Government depot located at Union Mills; it is now pleasing to report that the centre is now
operational and twice weekly collections of scrap refrigeration are being taken from Ballacottier
to the new centre for shipping. This has now dramatically improved the situation at the
Ballacottier stores site. Negative reaction to the new charge from our customers has been
- 13 -
MEA 03/07
negligible, with members of staff at the 'point of sale' ensuring the new charge is explained in
detail.
A After a detailed look at our current fragmented delivery contracts and the current performance of
the present delivery contractor Diamond Express, a decision was taken to improve the current
situation and look to re-tender for the contract.
Retail Management issued 93 day notice of termination letters to both Diamond Express and
Andy Lewis on Monday 10 February, resulting in the current contracts terminating on Sunday 4
May 2003. An advertisement has been placed in the 'The Courier' and 'The Examiner' for a two
week period commencing Tuesday 18 February 2003. Before commencing with the re-tender
process, Retail Management compiled a detailed countdown planner so that all tasks were
measured and monitored to ensure a successful outcome. Advice was sought from Internal Audit
to ensure correct procedures were being followed.
Currently the timetable is up-to-date and is monitored on a daily basis.
➢ A decision was taken in late January to re-visit the MEA Showrooms pricing structure, making it
easier and clearer for both staff and customers to work with. Pricing in all MEA Showrooms is
now displayed in whole pounds.
➢ It is disappointing to report that the proposed document detailing options for development of our
Castletown site has been delayed and does not accompany this months report as suggested in last
months submission. Due to unacceptable delays on the part of the estate agent and also the
architect, it has now become necessary to call on the services of a more appropriate estate agent,
Chris Blackburn of Castletown, with a view of contacting the architect Savage and Chadwick of
Douglas. Retail Management will now progress this project and report progress to the board in
next month's report.
➢ With the loss in sales of the Manx Telecom phones in Ramsey showroom, the General Manager —
Retail has now approached the owner of 'Swift Communications' in Douglas to assess the
possibility of telecom sales in all showrooms. It is proposed that 'Swift' will supply the telecom
equipment at cost price to MEA Showrooms, enabling MEA Showrooms to apply an appropriate
profit margin to the products. A proposal pack is currently being put together for Retail
Management. Progress on this issue will be included in next month's report.
3=. Again, with the 'pull-out' of Manx Telecom from their agreement for MEA Showrooms to retail
telecom equipment on their behalf, the possibility of MEA Showrooms becoming an agent for the
Manx Pronto `Go' mobile phone top-up vouchers has been considered. It is hoped that the
introduction of the Go' vouchers will increase the customer count in our showrooms creating
extra passing trade, especially with the recent outsourcing of Key Meters to local Co-op stores
reducing the number of people using our showrooms. The vouchers are planned to be available
from the start of March. Point of Sale will be appropriately positioned to announce that MEA
Showrooms have started to sell 'GO' vouchers.
);- The first retail stock take took place as planned in all showrooms in January 2003. Due to the
large number of products being counted, especially bags, belts, batteries etc. work remains
ongoing with the showroom managers to investigate discrepancies in each showroom. Issues
— were raised with the reporting codes on all small items such as vacuum cleaner bags and batteries
with a certain amount of confusion occurring. This issue is currently being addressed with the
realignment of all order and sales codes to ensure that only one code is used to record stock onto
Navision. A further stock take will be scheduled for each showroom for a full re-count of these
- 14 -
MEA 03/07
goods. The results of this and the previous stock take will then be reported in the March board
report.
➢ With the introduction of a brand new range of built-in appliances by the Electrolux group and
also by Hotpoint, new built-in stands for retail sales have become available to retailers. These
stands are far superior to those currently in our Douglas and Ramsey showrooms and Retail
Management have taken the decision to update these accordingly. The built-in market currently
returns a 45% profit margin and it is hoped that with the re-launch of the built-in areas of these
two showrooms, our turnover from this important area of our business will increase substantially.
Marketing & Advertising
➢ Retail Management are now building plans on a seasonal promotional campaign for MEA
Showrooms. The plans begin by finishing the winter season with some very strong offers, as
detailed below, with strong support from major suppliers agreed. The campaigns will run for a
maximum of three months and discussions are currently taking place with suppliers to secure
some major deals in a hope to promote renewed interest in MEA Showrooms, by both our regular
customers and those who perhaps have not shopped with us before.
➢ Building on the new promotion schedule, Retail Management are to introduce a fresher, clearer,
more tasteful approach to marketing retail with the introduction of newly designed retail adverts.
It is planned they will promote an invigorating, fresh, modern image of MEA Showrooms in a
hope of attracting customers of all ages to come into our showrooms. Examples of this new style
can be seen in the advert below and also in the Delivery Tender advert.
➢ Current Winter Season promotions running until the end of March are as follows:
Mon 10 February 2003 — Saturday 29 March 2003
* WIGIG Offer - AEG LAVAMAT 1600spin Washer (L86741)
Was £630 Now £399
* Special Offer - AEG FAVORIT Electronic Dishwasher (F60820) Was £436 Now £399
* Special Offer - HOTPOINT Aquarius 1000spin Washer (WMA40) Was £320 Now £299
Was £400 Now £350
* Special Offer - HOTPOINT 70/30split Fridge Freezer (RFA80)
* Special Offer - HOTPOINT Fridge Freezer with Microban (REM 60) Was £400 Now £350
* Special Offer - Zanussi Aqua ZQ 1200spin Washer Dryer (W1242w) Was £418 Now £378
°A Discount
% Discount
% Discount
10% Discount on ALL Microwaves
10% Discount on ALL Dyson Vacuum Cleaners
17.5% Off ALL Built-in appliances
All models
All Models
All manufacturers
(WIGIG = When its gone its gone)
➢ Staff Discount applies to all products as follows:
- Major Appliances (inc. Vacuum Cleaners and Microwaves) Non Promotion25% Discount
10% Discount
- Major Appliances (inc. Vacuum Cleaners and Microwaves) Promotion
10% Discount
- Small Appliances
MEA 03/07
ELECTRICITY NETWORK SERVICES OVERVIEW — JOHN BEVAN
Submarine Cable
A post fault repair inspection of the tap changer on 2TX3 at Lord Street indicated a definite fault.
This fault has been traced to an incorrectly located transfer link within the transformer tank and
Hawker Siddeley Power Engineering (HSPE) have agreed to undertake the repairs. This will involve
draining the transformer of its oil (25,000 litres) to gain access to the link,
HSPE have also agreed to carry out a full suite of tests prior to re-energising the transformer. During
this repair period the cable is operating on full contractual capacity through 2TX4.
ELECTRICITY NETWORK SERVICES - MATT PATRICK
GENERAL
Staffing
John Higgins has taken up the post of Operations Support Manager.
New start Kim Harvey joined the Customer Service section to fill the vacancy created by the
retirement of a member of staff on long term sickness.
The Resources section have implemented a re-organisation plan to increase their efficiency and
effectiveness in delivering capital and revenue works. Staff have been consulted and are being kept
fully informed of developments. Discussions are continuing with encouragement being given to
suggest improvements.
PLANNING
Applications
We are witnessing a slight drop in the number of enquiries. However the running total for new load
connection from 1 April is 3.5MW.
Jurby
A preliminary meeting was held with DoLGE to discuss their proposals for this area. It is intended to
continue the dialogue by meeting on a six monthly basis or as developments dictate.
OPERATIONS SUPPORT
General
Very few faults were experienced and the number of CMLs lost per connected is 44.01minutes. This
figure is well above the Government key performance indicator of 30 minutes as stated in the
Government Plan 2003-2006.
Interconnector
The BRL gas pipeline works are underway and the three mattresses have been laid at the crossing
point of the 90kV cable. Bad weather, poor visibility on the seabed and strong currents have
hampered progress and as a result the excess generation costs to MEA are running at a high level.
BRL have been advised that the costs to date are in the region of E194,000.
MEA 03/07
Lord Street 90kV Substation
Preparatory works are being carried out prior to checking and maintaining the transformers. This was
initiated to monitor the condition of the tapchangers, following the fault on 2Tx3 in November 2002,
with other remedial work being undertaken at the same time.
OPERATIONS & MAINTENANCE
Transport
Vehicle replacement continues with deliveries to Appliance Repairs and Electricity Network
Services. The position in the transport fleet is that 30 vehicles have been replaced since 1 April 2002.
An electrician was involved in a vehicle accident during the month. No injuries were sustained and
the investigation report is being followed up.
Safety
A "Smoking at Work" policy has been fully implemented in ENS. The position is that smoking will
only be permitted at designated outdoor locations.
Damage by the third parties to cables continue apace with 5 hits being recorded this month. In
conjunction with HSE, construction industry and instrument suppliers, ENS are participating in an
initiative to reduce the number of cable strikes. In April contractors are being invited to attend a
presentation to highlight the correct methods of working where buried services may be located. ENS
staff will be in attendance and will also address the audience.
Comfy Heat
A working group has been set up with the Retail Division to determine a strategy and implementation
plan to promote the use of this type of heating.
RESOURCES
Douglas North Substation
The load has been increased by transferring the Olmpia 11 kV feeder onto the new substation. The
maximum demand for January was 13MW.
Puirose Power Station
Work associated with the new CGGT continues to be supported by ENS staff.
MEA 03/07
STATISTICS
Monthly Summary
PLANNING
Target No Capital projects
Actual No Capital projects completed
Target Capital expenditure (£)
Actual Capital expenditure (£)
Target Revenue expenditure (£)
Actual Revenue expenditure (£)
No of outage requests - GIS
No of Final Records received
No of Final Records completed
QPERATIONS & MAINTENANCE
Target km of 0/H line Patrolled (Km)
Actual km of 0/H line Patrolled (Km)
Target No Primary S/S maintained
Actual No Primary S/S maintained
Target No Secondary S/S maintained
Actual No Secondary S/S maintained
No defects on HV networks
No defects removed from HV networks
Target No. U/G faults
Actual No. U/G faults
Target No 0/H faults
Actual No 0/H faults
OPERATIONS SUPPORT
COMFY HEAT SALES
Target (kW)
Actual ( kW)
CUSTOMER STANDARDS
New Supply Quotes (Target 22 days) Pass
New Supply Quotes (Target 22 days) Fail
No customer complaints
No customer complaints resolved
No. voltage complaints
No voltage complaints-resolved
No of ESS issued
No of Legal Searches issued
No Customer Minutes Lost/No Customers
DOCUMENTATION
Target procedures
Actual procedures produced
ENVIRONMENT
No Reportable Environmental Incidents.
No Environmental near miss
No Investigations
No reports
SAFETY
No accidents
No near misses
No investigations
No Road Traffic Accidents
No First Aid injuries
LTI > 3 Days
LTI < 3 Days
No reports
No RIDDOR reports
Jan 2003
Year
to Date
6
6
£670,000
£89,689
£300,000
£489,091
1
0
0
100
89
£6,700,00
£2,782,231
£3,000,000
£3,688,399
23
22
0
14
10
0
0
10
1
6
0
N/A
4
N/A
3
140
186.1
0
0
100
26
3
2
N/A
40
N/A
50
42
13
420
240
42
26
2
4
3
3
81
98
0.61
353
284
27
12
13
13
1121
969
44.01
0
0
9
9
0
0
0
0
1
0
0
0
0
1
2
3
1
8
1
0
0
0
1
0
4
0
0
0
6
4
-18-
Previous Years
Total
•
MEA 03/07
STORES
Stock value (£)
Stock turnover (£)
TRANSPORT
No Operational Vehicles
No Pool Vehicles
No of Vehicles Days Lost
No of New Vehicles (not yet operational)
No of Vehicles Disposed
STAFF
Actual No Staff
Forecast No Staff
No of Staff Meetings
No of One to One Reviews
Target Overtime (£)
Actual Overtime (£)
Units of Work
No Work Days Absence
RESOURCES
Target No Capital projects
Actual No Capital projects completed
£1,255,947
£86,230
N/A
£985,638.09
75
4
N/A
N/A
4
0
30
26
99
100
10
0
£20,045
£40,468.49
11
74.1
N/A
N/A
66
104
£141,704
£279,726.45
45
641.2
N/A
N/A
7
44
INTERNAL AUDIT — PAUL DEWAR
Audit Assignments Completed
Capital Network Expenditure
The final report has been issued to the Director of Electricity Network Services.
We found job records to contain accounting errors that affect the accuracy and completeness of
management information contained with the General Ledger, and capital scheme expenditure is not
being monitored to ensure spending is within the approved budget.
The Electricity Network Services Manager has established a small project team to address the issues
raised.
A follow-up audit is scheduled for July 2003.
Energy Settlement and Reconciliation
The final report has been issued to the Director of Generation and Procurement.
Adequate controls were found over the reconciliation and validation of energy data and settlement
charges. We have identified areas where developments can be made in improving the collection of
exit point data and the prior notification of system shutdowns. The Energy Trading Manager is
pursuing these.
MEA 03/07
Retail Stock Monitoring
The final report has been issued to the Director of Corporate Services.
We found an absence of a planned and co-ordinated stock checking and monitoring programme, and a
lack of discrepancy reporting across all retail shops and stores. The General Manager-Retail is
making improvements by drawing up documented stock checking, reconciliation and reporting
procedures, and is implementing a programme of quarterly stock takes with effect from 1 April 2003.
Pulrose Oil Spill Insurance Claim
The final report has been issued to the Chief Executive.
We identified approximately £12,500 of clean-up costs that had been excluded from the interim
submissions due to errors in coding costs. The Accounting Manager is making the appropriate
adjustments so that these are included in the final claim.
Audit Assignments in Progress
Creditor Payments
Audit fieldwork is complete and a draft report is to be issued to the Accounting Manager before the
month end.
Network Services Purchasing and Contracts
Audit fieldwork is ongoing and the draft report is scheduled for issue to the Electricity Network
Services Manager later this month.
Generation Purchasing and Contracts
Audit fieldwork is ongoing and the draft report is scheduled for issue to the Generation Manager later
this month.
Network Services Stock Inventory
Preparatory work has continued on gathering background information, drafting the terms of reference
and compiling the audit programme. We are to arrange an opening meeting shortly so that this
assignment can start at the end of the February 2003.
Other Matters
Annual Operating Plan
Work has commenced in compiling the annual operating plan for 2003/2004. The schedule of
auditable activities has been updated to take account of organisational changes, the results of audits
performed during the year and the revision of the audit risk index. Meetings have been held with the
four Directors and the Chief Executive to identify areas of concern. The aim is to have the final
version of the plan approved jointly by the Chief Executive and the Chairman of the Audit
Committee at the April 2003 Audit Committee meeting.
MEA 03/07
PUBLIC RELATIONS EXTERNAL/INTERNAL - ALISON COTTIER
Chief Minister Tour of Power Station
All arrangements are in place for the Chief Minister to tour the power station together with the DTI
and Treasury Ministers on 28 February 2003.
Power Station/Gas Pipeline Gala Dinner
Friday 5 September is the confirmed date for the Power Station/Gas Pipeline Gala Dinner at the
Mount Murray. We are now working with the Agency on availability of after dinner speakers. In
addition, we intend to block book a number of rooms at the Hotel for those attending from outside the
Island. Entertainment will be in the form of a 'Glen Millar' style band and the room will be dressed
more with lighting than props. I will keep the Board updated as things progress.
Staff Party
The Staff Party, which was postponed from Christmas, is now to take place in a marquee at Noble's
Park on 22 March 2003. It was hoped originally to hold the event on 1 March 2003, however, liquor
and music licence requirements have forced us to once again move the date to 22 March.
Environment 2003
Isle of Man Newspapers will be placing a supplement in all three papers on "Environment 2003".
They have approached the MEA to place a section in the supplement on the new Greener MEA with
its CCGT plant, natural gas, hydro plant and wind energy plans. Mr Proffitt has conducted an
interview in advance of the publication and we will be placing 2 adverts alongside that, one from the
Showrooms on its 'Energy Save-it!' campaign and one this office promoting the MEA generally. It is
estimated that it will be published in the Examiner on 25 March, Courier on 27 March and Manx
Independent on 28 March.
Staff Lunch Forum
The first of our quarterly staff lunch forums with the Chief Executive has been scheduled for 21
March 2003. It is intended to hold an open forum for all staff, without Managers, with the Chief
Executive on a quarterly basis until eventually all staff will have been in a forum with the CEO. The
forums will have approximately 4 persons from each Division taking part and will take place in the
Board Room with a sandwich lunch provided.
Design an Ad
The MEA will once again be supporting the Children of the Island aged from 5 to 16 with the Design
an Ad campaign, which is championed by IoM Newspapers. The brief we have given children is to
design a poster that highlights what they think of our power station and what they think it means to
them. The entries are to be judged in April and presentations made in June 2003.
Power Station Painting
The Chief Executive and I met with Peter Hearsey, who is a local painter responsible for a number of
successful exhibits and currently working on the painting of old buildings for Manx National
Heritage in order to keep a historical record. It is proposed to approach Mr Hearsey again following
the completion of the station so that he may proceed with his commission.
Island Visitor Magazine
We have placing an article in the Island Visitor Magazine, which is the annual publication produced
for the IoM Steam Packet on all its vessels. A copy is attached for your information.
- 21 -
MEA 03/07
OPERATIONAL MONTHLY REPORT
—
JANUARY 2003
Media Review
Articles published in IoM Newspapers/Online beginning 22 January to 20 February 2003, as follows
(copy articles attached):
1.
NEUTRAL
04/02/03
IoM Examiner
"Chapter closes on the oil spill clean-up"
Article promoted by Emergency Response Unit.
2.
POSITIVE
04/02/03
IoM Examiner
"Magnificent Seven out to boost the TT races"
Article promoted by the Department of Tourism & Leisure.
3.
POSITIVE
10/02/03
Isle of Man Examiner
"TT 'think-tank"
Article promoted by Department of Tourism & Leisure.
The following statistics indicate our appearances in IoM Newspapers ("Media") and ("PR") indicates
appearances in media instigated by this office.
Year
Positive
Neutral
Negative
TOTAL
1998
Med PR
13
9
6
2
19
5
38
16
54
1999
Med
PR
28
21
2
9
20
5
57
28
85
2000
Med PR
22
50
9
3
0
4
35
53
88
2001
Med PR
22
43
14
10
3
5
39
58
97
2002
Med PR
14
28
2
18
0
8
40
30
70
2003
Med PR
4
1
1
0
0
1
5
5
MEA 03/08
Capital Investment Management - Ashton Lewis
PULROSE POWER STATION CCGT
Status
Construction progress remains difficult because of congestion in the turbine hall and the number of
conflicting activities. PGT forecast the first fire of GT 6 for mid-March. However the safety review
of the gas turbine installation (PM 84) has identified the need for modifications within the turbine
enclosure. The nature of these are to be determined with the vendor and the time scale has yet to be
defined. This matter is being very actively pursued by PGT and MEA CEO with the involved parties.
Engineering & Procurement
Following the design close-out meeting held between PGT, NEL Power and PB Power at Stokesley
during the week of 13 January 2003 design close-out plans have been established and are being
monitored on a weekly basis. A further HAZOP action close-out meeting was held at Stokesley 11
and 12 February 2003.
The initial results of the gas turbine ventilation enclosure computer modelling (CFD) shows that the
necessary dilution ventilation is not achieved satisfactorily. Meetings are being held between the
vendor GE and PGT to establish remedial measures. Liaison with the Health and Safety Inspectorate
has confirmed first fire of the gas turbine will not be permitted without satisfactory demonstration of
effective dilution ventilation.
In total 216 orders for sub-contract equipment have been placed by PGT out of a total planned value
of 260. The planned number has increased by 40 since the last report. (This now include's spare part
orders).
The PGT Quality Surveillance team are making the final visits to manufacturer's works to review the
quality of the remaining equipment in manufacture. The major item being addressed is the
Distributed Control System at Ivensys (Foxboro').
On-site Construction
Construction continues to be behind programme, principally due to general congestion of work in the
confined site area caused for the various reasons previously reported.
The turbine hall building envelope is planned to be externally complete by the latter half of April to
enable satisfactory sound properties to be achieved to permit steam to be applied to the steam turbine
without excessive disturbance to local residents (steam blows).
Pipework and electrical equipment installation continues. Cable pulling has continued in the
electrical rooms and commenced in the turbine building. Gas turbine 6 inlet and ventilation ducting
has been completed. Crane support steelwork around the Steam Turbine is being erected. Work for
installation of the new drainage system continues. On the south site erection of the second phase
cooling radiators is in progress.
The partial closure of Pulrose Road, to allow more the electrical and pipework connections between
the North and South sites to be made, continues. Work is about to transfer to the north side of the
road, the southern half having been completed.
There are currently 429 PGT staff and sub-contractors on the CCGT and `D' station sites an increase
of over 56 in this reporting period. 1455 site safety inductions have been performed.
-1-
MEA 03/08
The CCGT project has now achieved over 508,000 man hours with a total of four lost time accidents.
This is very significantly below the frequency rate for the UK Construction Industry. Unfortunately
the fourth lost time accident occurred during this reporting period when a painter fell into an
excavation whilst trying to use a closed access way causing a back injury.
Start-up & Operations
The Start-Up and Operations activities continue. The Team is developing commissioning
documentation, reviewing construction prior to hand over; and operating phase one cooling towers. A
weekly meeting is held involving representatives from Gas Pipeline, Trading, AD' station, Electrical
Networks and Safety Representatives to co-ordinate activities required to support putting the plant
into service.
During the reporting period the first 415v switchboards were handed over from Construction for
energisation, principally to support GT6 ventilation system testing. The OTSGs were handed over for
hydro test which is performed under the leadership of the Start Up and Operations Team.
Evaluation
The PGT Project Management Team continue to review the options that could lead to an
improvement of the completion date. However, the programming tools being used by PGT which
predict the activity dates have never yet been tested in the field. Therefore, it is reasonable to conclude
that dates stated by PGT are the best that are likely to be achieved. The matter of proper ventilation of
the gas turbine enclosure will be solved in conjunction with the vendor and other interested parties
although there may be a slight delay to the PGT target first fire milestone.
ISLE OF MAN GAS PIPELINE
The control of the gas pipeline was formally passed to the MEA Gas Systems Division on 10
February. All operational procedures now apply.
The Douglas Golf Course re-instatement is progressing and the site has been handed to the contractor.
The site is available to all MEA departments for the deposit of inert fill. It is intended that the inert
waste generated from the Power Station site during reinstatement of the various facilities will be used
as infill.
The remaining site works, Greeba Road, General reinstatement, Douglas Golf Course and Ellerslie
drainage/low pressure pipe works are to be taken over and managed by the MEA Gas Division. This
will release PB Power from day to day management of the project.
Marine Pipeline & PRS
The temporary PRS construction work is complete. The low pressure site connection has been made
and the High Pressure tie in weld between the sub sea and land section at the emergency shut down
valve is to be completed on 19 February.
Problems were experienced on site during the hydro test run at 225 bar. A by-pass valve used in the
commissioning process was found to be leaking from its stem shaft and the whole test process had to
be re-run. Extreme difficulties were experienced due to the variations in temperature over night and a
large amount of work had to be undertaken to insulate the pipework.
The main commissioning process to load gas into the pipeline as far as Pulrose PRS has commenced
and the sub sea tee is scheduled for opening on Sunday 23 February. By Wednesday 26 February
following the various pressurisation and venting exercises gas will be at the inlet to the Pulrose PRS.
The main PRS works are ongoing, however some difficulties have been experienced and it is now
likely that the works will not now be completed before the end of April. This will have no effect on
the Power Station programme.
-2-
Gas Pipe line System Scheme
ISc heme Total
BUDG ET
3, 175, 000 1£
£1, 100,000 I
£500, 000I
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PB Power Serv ices Project Management & Eng ineering
I Mete ring andPressure Sta tions ( MEA 14341)
I Control System & F ibre Optic Cable
I Lega lAdm inistra tion
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ISub Tota l
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VARIANCE
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£350, 000I
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I
SEE NOTEA1
VARIANCE
,
I
——
Routin•the
New research has found that many boards are ignorant of legislative and regulatory
risks. Should internal auditors be worried, asks Neil Hodge?
hile compliance monitoring
still accounts for a large
part of the workload of
most internal audit functions, it
appears that a large number of UK
organisations are failing to fully
appreciate regulatory risk.
W
A survey by the London School of
Economics (LSE) for international
law firm Dibb Lupton Alsop (DLA)
has discovered that despite an
increasingly aggressive regulatory
environment, UK company directors
have little idea of the risks and
liabilities they face. The survey
found that companies are
unprepared to deal with a regulatory
crisis and fail to monitor and
influence new regulations.
"Over two-thirds of
companies do not feel
they are 'very effective' in
monitoring regulations"
While 96% of respondents believe
regulatory risks are growing, almost
a third (30%) of boards are unaware
of, or do not know about, the
activities in their companies which
could lead to a prosecution. Most
startling is that less than one in five
(18%) are "very confident" in their
risk management processes.
Almost a quarter of respondents
(24%) said that they have no crisis
management plans and where they
exist the majority are inadequate.
"Companies must do more to
understand and manage regulatory
risk. Regulatory investigations,
whatever their outcome, can
seriously damage brand equity and
personal reputations. Share prices
can fail sharply. Interventions can
:
Internal Auditing & BQs+ress Risk
also
unsettle
relations
with
investors, clients and employees,"
says Neil Gerrard, head of DLA's
regulatory group.
TOUGHENING UP
The report says that within the past
couple of years, regulators have
been increasingly aggressive and
now have greater power and
resources. Over the last two years,
the Office of Fair Trading has been
carrying out an average of four raids
a month. There are serious
consequences for those found guilty
of regulatory breach: unlimited fines,
public censure, revocation of
licences, disqualification as a
director and even imprisonment are
just some of the sanctions available
to regulators. And enforcement
action makes a difference. Almost
three quarters (71 %) of respondents
who had been penalised believe
punitive sanctions have impacted
"very strongly" on their approach to
regulatory risk management.
Board members can often be
personally liable for an
organisation's failure to comply with
a regulatory framework, yet only
36% of respondents believe that
their boards discuss regulatory risks
in detail. Furthermore, the biggest
inhibitor to effective risk
management is a lack of leadership
at board level, says the survey. It
also says that non-executive
directors 'are particularly at risk as
they face many of the same
penalties, but have less opportunity
to know what is going on.
they are enacted. Over two-thirds
(68%) of companies do not feel they
are "very effective" in monitoring
regulations. Nine out of ten, said the
survey, are not "very effective" in
influencing prospective regulations.
"Companies must recognise this
shift to punitive regulation. It's not
going away. The recent US crises
have only convinced government
and regulators to do more. Directors
must respond at each stage from
the inception of new regulations,
through compliance, to crisis
management or face the music,"
says Gerard.
The areas where the increase in
regulation was most acutely felt
included health and safety and the
environment (both with 92% noting
an increase), closely followed by
competition (84%), financial
services (84%) and data protection
(80%).
There were two areas where the
growth in exposure was seen as less
dramatic. In company law only 52%
of respondents thought that
regulatory risks have increased. In
the case of bribery and corruption,
56% reported an increase - a low
figure that the survey's authors feel
may be explained by a failure to
appreciate the implications of new
legislation, such as the
government's Anti-Terrorism Act
2002 and the Proceeds of Crime Act
that is due to come into force within
the next few months (see pages 2628 for more details).
GROWING CONCERN
The survey also found that UK
companies fail to monitor and
influence new regulations before
Almost all respondents (96%)
accepted that regulatory risks will
continue to grow over the coming
years and gave a number of
reasons: increased media scrutiny;
greater consumer awareness;
legislation from Europe; the
Government's desire to hold
companies to account; the longterm effects of recent corporate
disasters; the emergence of a
general blame culture in the UK; and
recent and dramatic increases in
public expectations.
of
Nearly
three-quarters
respondents said that punitive
sanctions had very strongly affected
their approach to regulatory risks.
Almost half (48%) of respondents
had direct experience of their
company or employees being
sanctioned, and 71% believed such
sanctions had impacted very
strongly on their management of
regulatory risks. However, that still
leaves around a third of respondents
whose behaviour was not
significantly changed by a punitive
sanction. The survey says that
regulators, including the ESA, have
recognised this and have stated that
enforcement action will be more
focused in order to change
behaviour and stimulate
organisational learning.
Around two-thirds of respondents
were aware of punitive sanctions
having been imposed on their
competitors. Here, 57% said that
such an event in another
organisation had altered their
perceptions of their own risks "very
strongly".
BOARD TROUBLE
Perhaps one of the survey's most
disturbing finding is that boards are
not as aware as they should be of
regulatory risks. Less than half of the
respondents (44%) considered their
board of directors to be very aware
of activities that may result in
breaches of regulation that could
punitive
lead to serious
consequences. Only 40% believed
regulatory risks were definitely a
board issue. This means that 60%
felt it might be reasonable to
delegate the management of such a
business-critical matter :d some
lower level within the company. One
company secretary said: "Most
directors are probably unaware of
the range of their quasi-criminal
liabilities and are inadequately
covered. This especially at:cries to
non-executive directors. They don't
have the day-to-day experience but
face the same risks."
In fact, the survey finds that nonexecutive directors are partcularly
vulnerable, if their organise: ens do
not take regulatory risk as seriously
as they should. With just oi.er onethird (36%) of respondents stating
that in their organisation these
regulatory risks were not discussed
in detail at board level, the survey's
authors say that It is unlikely that
non-executive directors are in any
position to make a Groper
assessment of their persona risks.
n,e/nal
lbsk
Non-executive directors face many
of the same liabilities as their
executive colleagues but with less
opportunity to know what is going
on. For example, the former
directors of troubled insurer
Equitable Life now face the prospect
of being sued for £3bn. The new
Equitable chairman Vanni Treves is
clear: "If they didn't understand
what was at issue, they should have
asked...Non-execs should either
make the effort to understand the
business or they should not accept
the job."
"Only 36% of
respondents believe that
their boards discuss
regulatory risks in detail"
Company directors' liabilities have
grown so great that candidates for
boardroom posts are seeking
assurances about internal control
systems and compliance
procedures before accepting
positions, according to Alex Nourry,
partner with the EU and competition
litigation division of lawyers Clifford
Chance. He says that the passage
of the UK's Enterprise Act in
November threatens directors of
companies involved in
anticompetitive behaviour with a
possible five years in prison and
disqualification for 15 years. Nourry
also says that the Enterprise Act has
"implications for companies trying
to attract new directors as it is going
to make directors think twice. They'll
want assurances that a company is
in compliance and has an effective
compliance policy."
The potential sanctions in the
Enterprise Act, which are due to
come into force early this year, are
inspired by antitrust legislation in the
US and go beyond laws found
elsewhere in Europe. The Act seeks
to encourage whistle-blowers by
offering leniency to directors who
inform on activities such as pricefixing, market sharing or bid rigging.
The Act also accords far-reaching
powers to the investigatory and
prosecuting authorities such as the
Office of Fair Trading and Serious
Fraud Office. These bodies will have
the power to plant bugs and secret
cameras in pursuit of cartel activity.
0
a
Internal Auditing & Business Risk
Non-compliant companies can
expect intrusive investigations.
TAKE ACTION
The Hempel Report on corporate
governance published in 1998
advised company chairmen to
review the information received by
board members. In the context of
the newly aggressive regulatory
environment, the survey says that
"boards should at least take action
to inform themselves about the
nature of the regulatory risks they
are facing and to assure themselves
that these are being adequately
managed".
Risk management, to be effective,
has to start at the top, yet threefifths (60%) of respondents in the
DLA survey stated that the biggest
inhibitor of effective risk
management was a lack of
leadership at board level. The next
most serious inhibitors to good risk
management were corporate culture
(52%) and lack of resources
devoted to risk management (46%).
"These findings follow a logical
sequence: if a company's leaders
are disinterested, corporate culture
will reflect that, and therefore senior
managers are unlikely to provide
adequate resources to deal with the
issue," says the report. This
apparent problem of lack of
leadership and inappropriate
corporate culture conflict with the
principal finding of the LSE research
that company managers see
regulatory risk as an important issue
for companies.
Nine out of ten respondents cited
fear of damage to corporate
reputation as one of their top four
drivers of action on regulatory risk
management. The next nearest
driver was fear of corporate criminal
liability and penalties, which only
scored 56%, followed by fear of
worsened relations with regulators
(40%). Again, there is a mismatch
between 'these concerns and the
poor investment in the development
of crisis management
arrangements.
However, the survey reveals that
those companies driven to manage
regulatory risks by positive forces
tend to see risk management as an
integral part of high quality business
conduct. The attitude expressed by
one CEO suggests that risk
management in dynamic companies
is driven by the desire to establish a
positive, responsible company that
is proud of what it does and leads
global best practice. For some,
then, risk management is not driven
by negative factors, but by the
ambition to succeed, and to see the
better management of risk as
another area where they can beat
their competitors. Where a
company's business is
concentrated in a single, highly
regulated industry, a significant
driver of regulatory risk
management is often the quality of
relations with the regulator. As one
director said: "It could ruin our
business big time if regulators were
upset with our offending or failing to
meet our obligations."
HIA VIEW
Several heads of internal audit feel
that regulatory risk and legal
compliance is more relevant to the
legal department and say that legal
risk is not really that high up on their
risk registers. Take the Data
Protection Act as an example.
Although there is as yet little case
law relevant to the Act, the risk to
both companies and individuals is
very real. Many of the offences
under the Act are 'either-way'
offences, which means that they can
be tried in the magistrates' or crown
court in England and Wales, or in the
Sheriff's or High Court in Scotland. A
person found guilty of contravening
the terms of the Act can be
sentenced on summary conviction
of £5,000 or given an unlimited fine
on conviction of indictment.
There
are
also
important
considerations for company
directors that internal audit could
bring to their attention. Under the
Data Protection Act, if a company or
other corporation commits a
criminal offence under the Act, any
director, manager, secretary or
similar officer is personally guilty if
the offence was either committed
with their consent or connivance or
through neglect. The Act also gives
individuals the right to claim
that necessary controls
unlimited compensation for any data
protection breach.
and
procedures are implemented," says
another. Some heads of internal
One head of internal audit, who
preferred not to be named, says
"while data protection obviously
throws up risks to the organisation,
is it really the remit of internal audit
rather than the legal department to
try and minimise its impact and
make the board aware? Is internal
audit better qualified than the legal
department to deal with legal risks?"
audit take regulatory risk very
seriously, even if any fine associated
with non-compliance Is relatively
Other heads of internal audit have
similar views. "Until the Information
Commissioner sets an example and
fines an organisation for
mishandling personal data, then we
will regard data protection like any
other risk and choose how carefully
we can afford to comply with it,"
says one. "I think that internal audit
should be aware of legislation like
the Data Protection Act in terms of
compliance risk, but that really it is a
job for the legal and human
resources departments to ensure
small. One head of infernal audit
says: "While a £5,000 fine is not
going to hurt the business, the
reputational damage from not
holding customer personal data
adequately could be huge."
"Is internal audit better
qualified than the legal
department to deal with
legal risks?"
There are several new pieces of
legislation that internal.auditors and
organisations may also benefit from
being aware of. The Disability
Discrimination Act (DDA) for
example, is one as the final
provisions of the Act become law on
1 January 2004. The law's terms
could potentially cover up to 12
million people in the UK - roughly
one-fifth of the population because the definition of disability is
so wide. The DDA defines disability
as "a past or present physical or
mental impairment that has a
substantial and long term adverse
effect on a person's ability to carry
out normal day-to-day activities".
According to one head of internal
audit, "this definition of disability is
so wide that it could reasonably
include people with shortsightedness, asthma, hay fever and
even their physical appearance".
Given the increasingly aggressive
regulatory framework that UK
organisations are having to operate
in, it is worrying if boards are either
unaware of the potential risks
associated with non-compliance or
are simply ignoring them. Perhaps
boards believe that since the UK has
adopted a "principles-based
approach" as opposed to "following
rules", laws are not worth the paper
they are written on. ■
UCE Business School
internal/External Audit Courses-
Block Release, Distance Learning & Full Time
MIIA, QiCA, MSc in AUDIT MANAGEMENT & CONSULTANCY
• UCE MSc accredited by the IIA-UK and IIA-Inc, USA:
- UCE students passing Postgraduate Certificate awarded PIIA on passing the HA conversion paper only.
- UCE Postgraduate students gain automatic exemption from PIIA exams and are prepared for MIIA.
• MSc covers Audit (internal and external audit), Management & Management Consultancy
• PIIA, MIIA & QiCA taken concurrently with MSc at no extra cost
• Accommodation option for part time costs approx £190 per week - full board, en-suite, 4 star hotel
• Students with advanced standing - exemption given from MSc subjects to those with professional qualifications or experience.
DISTANCE LEARNING
PIIA/QiCA/M5c Year i - Awarded: Postgraduate Certificate after
1 year. Fee f2,250*
BLOCK RELEASE
PliA/CliCA/M5c Year 1, 6 block weeks - Awarded: Postgraduate
Certificate after 1 year. Fee f2,250*
MIIA/QiCA/MSc Year 2 - Awarded: Postgraduate Diploma after 2nd
year. Fee £2,250*
MIIA/QiCA/MSc Year 2, 6 block weeks - Awarded: Postgraduate
Diploma after 2nd year. Fee £2,250•
MSc Year 3 - Awarded: MSc Degree. Fee £2,250
MSc Year 3, 2 block weeks - Awarded: MSc Degress. Fee £2,250
*Fee includes distance learning unit, handouts, tutor support, fully paid residential
revision week in a quality hotel.
'Fee includes handouts, tutor support, fully paid one residential week in a quality UK
or overseas hotel at student's/sponsors option.
For further information and application form contact:
Professor Abbas Syed, Director of Audit Courses & Research
Sr Director Centre for International Audit, or Angela Reynolds, Course Administrator.
Tel 0121 331 6404/6292 Fax: 0121 331 6366
E-mail: [email protected] or [email protected]
University of Central England Business School, Perry Barr, Birmingham B42 2SU
University of Central England
UCE
Birmingham
www.uce.ac.uk
Infernal Auditing
& Business
Risk
The Institute of Internal Auditors — United Kingdom and Ireland
AUDIT STRATEGY AND RISK BASED PLANNING
What is risk?
Large corporations tend to have a relatively low level of confidence in their risk
management systems. The reasons are obvious: there have been several highly
publicised business failures; organisational restructuring has brought about down-sizing,
flatter structures and the re-engineering of many processes; there has been an increase
in personal empowerment and with it a reduction in bureaucratic procedures; and finally,
in an ever increasing competitive market place, people are inclined to cut corners in
order to gain business and meet targets.
Risk is the probability that something bad will happen. It is the threat of an occurrence
either through action or inaction which could affect the organisation's ability to achieve
its objectives. At worst, it could result in business failure. if management is to tackle
risks, it needs to know what they are. The following is a typical model:
Strategic Risks
r
Competitors
Political unrest
Regulatory
Shareholder relations
Financial markets
Profitability
Ability to raise capital
Catastrophic loss
Process Risks
Information Risks
Operations
Customer Satisfaction
Production
Efficiency
Quality
Capacity
Sources of supply
Pricing
Business Interruption
Product Failure
Health & Safety and
Environment
Loss of market share
Finance & Integrity
Currency rates and trading
Liquidity
Credit
Money Transfers
Delegations
Business Fraud
Illegal Acts
Reputations
Human Influences
Leadership
Authority
Skills and Competencies
Performance. Initiatives
Communications
Morale
OJ L Barrett
...
Internal Auditing A Managers Course 2002
Security and confidentiality
Budgets and Planning
Financial accuracy
Taxation
Investment evaluation
Regulatory reporting
Operational targets
Contract exposure
Measurement of trading
Environmental exposure
New products
Business Opportunities
Short/ Medium/ Long term
planning
Projections
Corporate Governance
The Institute of Internal Auditors — United Kingdom and Ireland
Organisations tend to develop methods for identifying and measuring risk. Effective
communications and information flows are essential if risks are to be properly managed
across the organisation. The following sets out 15 phases of a typical risk process
(though in practice they tend to be somewhat abbreviated):
The Risk Management Process
1.
Raise awareness and gain commitment (incl. the allocation of resources)
2.
Plan the project and develop initial programmes (this must include a definition of
terms and objectives)
3.
Identify and analyse the risks and their source (at all levels in the organisation and
linked with individual management objectives)
4.
Assess the likelihood of occurrence (making sure a clear distinction is drawn
between inherent and residual risk
5.
Assess the probable business impact (in terms of exposure/ value over different
periods of time)
6.
Rank the risks (classifying as high, medium and low according to the business
priorities)
7.
Determine the overall risk strategies (what is acceptable and what is not)
8.
Assess the adequacy and effectiveness of current safeguards
9.
Devise specific action plans to mitigate or otherwise deal with those risks
10.
Implement plans
11.
Embed risk management into day to day working practices (through measures of
ongoing control and risk self assessment)
12.
Monitor progress and success (of all the risk management actions)
13.
Review (periodically assess the effectiveness of arrangements, the changing
status of risks and new threats within the business environment — consider
independent review or audit if one does not already exist)
14.
Revise arrangement where necessary
15.
Report (internally at appropriate levels and, where required by Regulation, to
appropriate external bodies)
J L. Barrett
Internal Auditing — A Managers Course 2002

MANX ELECTRICITY AUTHORITY

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