We believe this budget enables us to continue delivering our BSC obligations and our strategic priorities identified. BSCCo Business Plan 2019 / 2020

Budget

This part of the document details the budgeted costs for 2019/20 in support of our strategy as laid out earlier in this Business Plan. We believe this budget enables us to continue delivering our BSC obligations, particularly by implementing leading technology platforms, increasing our engagement with our stakeholders and focusing on developing our people capabilities to deliver structural solutions to the changes facing the energy industry.

This will be the fifth year that ELEXON, in its role as Settlement Services Provider for EMR, delivers its services via its subsidiary EMR Settlement Limited (EMRS) to Low Carbon Contracts Company Limited (LCCC) and Electricity Settlements Company Limited (ESC). All EMR related costs are fully funded by LCCC and ESC and the total costs of LCCC and ESC (which include those of EMRS) are consulted on separately by BEIS. Our participation also enables us to offset some of our overheads which would otherwise have been borne by BSC Parties (2017/18: £763k); £3.5m to date.

Table 01

Budget Summary

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
ELEXON Operational 21.5 20.8 23.2 (2.4) (11.5) 23 23.3
EMR Contribution (3.3) (3.0) (3.3) 0.3 10.0 (3.1) (3.1)
Subtotal 18.2 17.8 19.9 (2.1) (11.8) 19.9 20.2
Contracted Costs 15.3 15.1 18 (2.9) (19.2) 17.0 17.8
Total Regular 33.5 32.9 37.9 (5.0) (15.2) 36.9 38.0
Demand Led Costs 4.2 4.1 4.9 (0.8) (19.5) 3.7 3.7
System Strategy 5.4 5.3 9.9 (4.6) (86.8) 11.5 11.5
Market Development 0.5 0.3 0.5 (0.2) (66.7) 0.5 15.7
Total Projects 10.1 9.7 15.3 (5.6) (57.7) 15.7 15.7
Overall Total 43.6 42.6 53.2 (10.6) (24.9) 52.6 53.7

Table 02

Total costs of ELEXON regular activity

The budget to deliver BSC activity in 2019/20 including the detailed breakdown of work streams described in this Business Plan is £53.2m. This represents an increase of £10.6m (24.9%) against the current year’s forecast. Whilst this budget is substantially more than previous ELEXON budgets, it will ensure we are able to design, test and deliver our new systems, address the changes coming from industry while maintaining our support to BSC Parties. We have had 140 new BSC Parties since April 2015, which represents a 44% increase. There is evidence we do more to support them:

  • In 2015/16 our OSMs were in contact with BSC parties through either a teleconference or a customer visit 33 instances per month on average. We are already at 89 instances per month on average in 2018/19 and expect continued growth
  • The number of trading disputes raised have also increased by 52% across the same period, a trend we anticipate being sustained
  • We managed 171 more credit defaults in 2017/18 than in 2015/16 (475% increase) and the 2018/19 statistics show this is continuing
  • Modifications and changes raised are getting more complex and require an Budget overview average of four workgroup meetings now against 2.2 in 2015, which increased the efforts needed and the average time taken to progress change (it now takes 214 days for a Modification to be approved on average, 52 days more compared to 2015/16)
  • The consultations that have required attention have increased by 127%.

We have also proactively introduced the electricity market sandbox as means of supporting innovative business models and facilitating new technologies in the electricity market. We will move from the design to implementation phase of Market-wide Half Hourly Settlement, and as explained in our white paper (subject to a Modification), design the arrangements to enable consumers to have multiple providers.

In addition to the significant increase in our Business as Usual range of activities, as explained above, there are a number of industry-wide taskforces and reviews ELEXON has been invited to. As detailed earlier, these include the Energy Data Taskforce, EV Energy Taskforce, the BEIS/Ofgem review of codes and code governance, and actions arising from the Smart Systems and Flexibility Plan. This budget includes resources to allow us to effectively contribute to those joint BEIS/ Ofgem projects.

As outlined in 2018/19 ELEXON started the Architecture Strategy project which allowed us to establish a better understanding of the significant market changes that ELEXON is facing, and define how ELEXON’s processes and systems would need to evolve to address them. While we have continually been improving our processes, our core systems have been in place and served the industry well since the NETA arrangements came into force in 2001. The Architecture Strategy Project proposed a Foundation programme, which recommends moving to flexible and scalable platforms that will enable faster and more efficient delivery of change while building the capabilities required to capture future market opportunities and benefits to industry

The increased cost anticipated in the coming year is driven by the impact of our Foundation programme on our regular costs. The first release will be implemented and its first effects are reflected in this budget, as before efficiencies can take place it will increaseour operational and contracted costs while we run two systems in parallel and work on delivering future releases to our Foundation Architecture.

ELEXON is a not-for-profit entity, funded by electricity market participants. We do not carry any reserves or retained capital and any underspend against budget is always returned to parties. In light of this, budgeting for uncertainties in advance of any new financial year, with no other access to working capital, requires careful consideration. We need to address contingencies mindful of this constraint, while also endeavouring to set challenging financial targets for the business, which ensure we deliver the best possible value for money to the industry

In addition, due to ELEXON’s funding model and the absence of retained capital, after consultation with our auditors and exploring financing options, we are proposing, in accordance with allowable accounting treatment under accounting standard FRS102, not to capitalise this investment. Due to the phased nature of this transformation, we do not believe that this will materially impact the profile of our charges to industry compared to a “big bang” approach.

Table 02 below details the total costs of ELEXON regular activity net of staff and overhead costs for EMR activities (which are fully funded by LCCC/ESC) since NETA go-live in 2001/02 in real terms (in 2018/19 money after applying April RPI of each year).

It shows our success over the years in bringing costs down but also reflects in recent years our investment in future proofing our central systems, as well as the increased activity in a growing sector.

ELEXON operational

The budget for our operational costs for 2019/20 is £19.9m, 12.2% more than the current year forecast, and includes costs such as people, occupancy, staff related and administrative expenses, consultancy and legal support. This also includes income from EMR activities as a result of providing resources to our EMR subsidiary EMR Settlement Ltd for which it recompenses ELEXON. See table 03 below for operational costs budget.

Table 03

ELEXON Operational

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
People Costs 14,198 13,931 15,562 (1,631) (11.7) 15,053 15,328
Other operational overheads 7,349 6,842 7,590 (748) (10.9) 7,995 8,014
EMR Contribution (3,335) (3,043) (3,262) 218 7.2 (3,098) (3,098)
Operational Total 18,212 17,730 19,890 (2,160) (12.2) 19,950 20,244

People costs

People (employee and contractor) costs is expected to increase by £1,631K (11.7%) as a result of a higher average headcount necessary to deliver this
Business Plan. The headcount illustrated in Table 04 is an average for the year and does not represent the actual number of persons, but a full time
equivalent of those engaged, and therefore representative of the costs. To fulfil our role as the EMR Settlement Service Provider, via ELEXON’s 100%
owned subsidiary EMRS, we have contracted with LCCC and ESC to provide the services on day rates for those personnel working on EMR. Those rates fully
recover our management overheads, office overheads and occupancy costs on a not for profit basis. We have budgeted 29.5 FTEs to deliver the EMR
services. The £3.3m EMRS Contribution represents the income from LCCC and ESC to pay for EMRS, which is made up of people costs for those directly or
partially utilised to deliver EMR services, as well as a share of fixed overheads apportioned on a per person basis. The fixed overheads element of the
contribution defrays the fixed overheads that BSC Parties are currently paying, for example occupancy and the IT infrastructure, and is budgeted to be
£0.9m for 2019/20.

Table 04

ELEXON People Costs and Average Headcount

Item Year to March 2018/19 Budget Year to March 2018/19 Forecast Year to March 2019/20 Budget Variance to 2018/19 Forecast Variance to 2018/19 Forecast % Year to March 2020/21 Projection Year to March 2021/22 Projection
Average Employee Headcount 179.9 167.3 189.2 (21.9) (13.1) 185.6 184.6
Average Contractor Headcount 12.7 12.6 11.5 1.1 8.7 10.9 10.4
Average Total Headcount 189.6 179.9 200.7 (20.8) (11.6) 196.5 195.0
EMR Contribution (30.5) (23.6) (29.5) 5.9 25.0 (28.5) (28.5)
BSC BAU Headcount 159.1 156.3 171.2 (14.9) (9.5) 168.0 166.5

Contracted

A significant proportion of our costs of delivering the BSC arrangements come from contracted expenditure for the BSC Agents and contracted service
providers. These are predominantly fixed costs, linked to indexation.

To reduce risk in the Foundation architecture we are running legacy systems in parallel with the new technology platforms until such time as we can
retire these legacy systems. We are focusing on upgrading and enhancing our current underlying infrastructure of the central systems in 2019/20 to
future-proof the infrastructure and technology for the coming years.

The main drivers of our £2.9m (19.4%) increase are as follows:

  • Central Systems – during the transition period to the new platform, to reduce risk, an approach has been adopted to continue to run the legacy
    systems for some BSC Agent processes for a transition period. This risk mitigation approach gives rise to a £1.701k increase, but avoids a
    “big-bang” implementation and increases the opportunity for a stabilisation period and ensuring that the new platform does not introduce any
    unintended consequences or risk
  • Increased Data Transfer Service (DTS) costs of £575k directly relating to an estimated, increase in usage, and announced price increase from
    Electralink.
  • We have built in a contingency of £250k for this transitional period, which will be returned to Parties if unutilised.

Table 05

Contracted Costs

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
Total Contracted 15,282 15,098 18,026 (2,928) (19.4) 17,044 17,755

Demand led

This area of our budget is entirely demand driven, and is set to ensure that we are appropriately funded in order to be able to implement changes
requested by industry.

The budget for BSC systems releases has been set at £4.7m. This is an increase on the previous year’s budget, as well as our current forecast for
2018/19, due to the increasing amount of change we are seeing within the industry – in particular the Project TERRE implementation into GB market
arrangements which is budgeted to cost approximately £2.1m. The remainder of the £2.6m budget is attributed to scheduled BSC changes based on the impact
assessment of known modifications with estimates based on historic change costs.

Table 06

Demand led

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
IA – Modification Proposals 100 50 105 (55) (110.0) 105 105
BSC Systems Releases 3,900 3,900 4,732 (832) (21.3) 3,500 3,500
Panel Committee Projects 129 70 50 20 28.6 50 50
PAF Review 99 89 37 52 58.4 – –
Total Demand Led 4,228 4,109 4,924 (815) (19.8) 3,655 3,655

System strategy

The Architecture Strategy was approved and endorsed by the ELEXON Board in 2016/17 and discussed with the BSC Panel. In the next few years, we are
committed to transform and transition (Foundation Programme) the current ageing BSC Central Systems to a platform using modern technologies, which will
be easier to maintain, mitigate the risks of failure and deliver better value for money to BSC parties, as well as greater flexibility for future market
arrangements.

Phase 1 was successfully completed, and in May 2018 the Board approved further investment over the next two years to deliver Phase 2 of the Foundation
Programme.

In 2018/19 we are developing a new party management platform and a new data and calculations platform. We are also delivering the BSC changes (P344)
required to support the TERRE solution.

This has enabled us to use a stable, hybrid architecture in legacy and new foundation that we will further develop and enhance. We have included a
budget of £9m in 2019/20 for provision of the Foundation programme.

Table 07

System Strategy

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
System Strategy 5.4 5.3 9.9 (4.6) (86.8) 11.5 11.5

Market development

The budget for Market Development has been set at £0.5m to allow us to cover any non business-as-usual activities regarding the developments within the
GB energy market.

There remain a number of industry developments that require ELEXON to continue to monitor, engage and informally assess impacts outside of the formal
change process. These include developments from European network codes (particularly assignment of our existing roles), review of codes and code
governance , closer cross-code collaboration to improve the customer experience, Brexit and its impacts on the BSC and the potential for discussions on
the future role of the independent system operator (especially its new responsibilities as proposed by Ofgem). In particular, the recently announced
joint BEIS and Ofgem review of codes and code governance is unknown in scope or duration, but ELEXON will participate in and support this review.

In addition, we will continue to engage with new market entrants and their proposed business models, seeking to ensure the BSC enables innovation and
will further explore providing data to our customers accompanied by insightful analysis. Furthermore, we need to understand the potential impact upon
the BSC of the proposed new Retail Energy Code (REC). We have again budgeted for these market developments should we require to backfill or seek
additional support, expert advice or guidance.

Table 07

System Strategy

Item Year to March 2018/19 Budget £’000 Year to March 2018/19 Forecast £’000 Year to March 2019/20 Budget £’000 Variance to 2018/19 Forecast £’000 Variance to 2018/19 Forecast % Year to March 2020/21 Projection £’000 Year to March 2021/22 Projection £’000
Market Development 0.5 0.3 0.5 (0.2) (66.7) 0.5 0.5
Pursuing our strategic priorities and cover any non BAU activities regarding the developments within the GB energy market."

Charging analytics

This section outlines how we expect to charge the budget to BSC Trading Parties. Table 8 contains charging proposals from Section D of the BSC. All of the charges presented in Table 9 exclude Value Added Tax (VAT). See table 09 Section D – Charging *

The BSC Panel has endorsed a review of Section D Charges (BSC Cost Recovery and Participation Charges) to ensure that they are appropriately set and fit for purpose. It has instructed ELEXON to engage an Issue Group in assessing what behaviours are driving the costs, whether the current charging structure is fit for purpose and, if not, what alternative approach BSC Parties would prefer. The Panel has encouraged the Issue Group to focus on simplicity and cost reflectivity, with a particular emphasis on charges that are currently without drivers and those that have not changed since pre- NETA Go-Live.

Table 09

Charging*
  • £500 Application Fee
  • Membership fee of £250 per month
  • CVA Metering System Monthly Charge of £50 per month. CVA BM Unit Monthly Charge (other than for Supplier BM Unit) of £100 per month (this charge is levied on each pair of BM units in the case of an exempt generator)
  • For communication line and TIBCO charges, please refer to the ELEXON website
  • Notified Volume Charge per Gross Contract MWh at a rate of £0.0005/MWh
  • For all Base SVA BM Units a charge of £100 per month
  • For all Additional SVA BM Units a charge of £60 per month
  • SVA costs split:
    • 50 percent of costs are paid by generators on basis of metered energy volumes
    • A fixed fee of £0.00632 per SVA Metering System per month
    • Remainder allocated on Suppliers Non Half Hourly MWh market share.
    • All remaining costs split on basis of metered energy volumes.

* These are based on the current charges. They are subject to change following a periodic review approved by the Panel. Please refer to the BSC website for current rates.

Based on the information in Table 8 examples of charges to BSC Parties are provided.

Firstly, the 2019/20 Annual Budget is set out in Table 10.

Secondly, various assumptions about the size of the market are made. These are presented in Table 11.

Thirdly, the charging regime from Section D of the BSC in Table 11 is then applied to costs in Table 12 based on the assumptions in Table 13. This gives the estimated charges (either specified charges or £/MWh fees) as shown in Table 12.

Table 10

Assumed split of costs

Item 2018/19 Budget 2018/19 Forecast 2019/20 Budget
SVA Costs 4.4 4.8 5.6
Other Costs 39.2 37.7 47.5
Total 43.6 42.5 53.2

Table 11

Market assumptions

Market Assumptions 2018/19 Budget 2018/19 Forecast 2019/20 Budget
Number of Trading Parties 443 460 477
Sales – Notified Contract Volumes 917 810 840
Purchases – Notified Contract Volumes 917 810 840
Generation 251 245 254
Supply 248 242 251
NHH Supply 132 125 130
HH Supply 126 126 130
CVA BM Units 765 76 793
SVA Base BM Units 180 205 213
SVA Additional BM Units 4 140 145
Data Line 72 72 75
Comms Software (5 users) 28 28 29
Comms Software (additional user) 0
CVA Metering Systems (MSIDs) 898 903 936
HH Supply (MSIDs) 30,701,514 30,906,459 31,049,998

Table 12

Expected charges

Charge Item 2018/19 Budget 2018/19 Forecast 2019/20 Budget
Specified Charges
CVA BM Units (£/month) 100 100 100
SVA Base BM Units (£/month) 100 100 100
SVA Additional BM Units (£/month) 100 60 60
Data Line – estimated average (£/month) 700 700 700
Comms Software – average quad2 processor (£/month) 1,080 1,080 1,080
Comms Software {additional user} (£/month) 22 22 22
Contract Traded (£/MWh) 0.0005 0.0005 0.0005
CVA Metering Systems (£/month) 50 50 50
Base Monthly Charge (£/month) 250 250 250
SVA
HH SVA Ops (£/msid/month) 0.01 0.006320 0.00632
NHH SVA Ops (£/NHH MWh) – – –
Gen Energy SVA (£/MWh) 0.009 0.010 0.011
Main Charges
Energy fee (£/MWh) 0.06870 0.06745 0.08498