Revised budget

Transcription

1 Revised budget For consideration and approval by MOSL member companies 16 March 2016 Executive summary Member companies are invited to approve this budget as the basis for funding the work of Market Operator Services Limited (MOSL) in the financial year 2016/17, leading to the opening of the competitive market for non-household water customers in April This budget should be read in conjunction with the MOSL Business Plan, which was approved by members at a special meeting on 15 October 2015, and the MOSL quarterly budget update on 28 January The budget covers the final two pre-launch stages of the market opening programme, notably: testing and shadow market operations. To aid comparison, the budget is presented in a format consistent with the original, indicative budget for 2016/17 and includes narrative supporting each key element. The proposed budget for 2016/17, combined with the forecast outturn for 2015/16 shows an increase in funding requirement of 365,000 to 24.4 million on the 24.0 million market opening budget that was presented in the MOSL Business Plan. The additional funds are required to improve resilience in a number of areas of the programme (see below) and will be drawn down from the contingency monies already invoiced. MOSL will explore opportunities to offset the need to draw down this contingency and improve cost efficiency as we move from testing and shadow markets to the operational stage. Outlined below are some of the key elements making up the budget including material changes to the indicative budget presented to member companies in September 2015:

2 MOSL business costs MOSL business costs include: management and governance arrangements, finance, statutory audit, general legal, insurance, office computing, business continuity planning, premises (based on a London location), HR and recruitment. The 2016/17 budget includes an increase of 56k for MOSL business costs. CEO & Board costs have increased by 30k to create the capacity to introduce two independent committee members to strengthen the Audit Committee and Remuneration Committee and a slight increase in Nonexecutive and CEO personal assistant costs. Finance, HR & Admin costs have increased 26k as a result of the delivered savings replacing the previously contracted position of CFO with a permanent employee and achieved reduced office costs by moving to alternative premises in Holborn in November 2015 being offset by an increase in the provision for the staff bonus pot and additional recruitment costs both associated with shifting towards a more permanent staffing mix. The additional bonus is only a provision at this stage. The MOSL Remuneration Committee has been established and will make recommendations to the Board on how the performance management scheme will operate; the level of funding required; and any excess funding will be returned to members.

3 Communications & engagement Communications and engagement with members is a key factor in the successful delivery of the market in April Communications and engagement costs include five Portfolio Managers and a team of three inhouse communicators. Portfolio Managers manage relationships with 5-6 participants each, supporting their readiness by providing two-way communication, co-ordinating plans, joining up delivery and managing issues and risks. The communications team, supplemented with external support as necessary, is responsible for ensuring that all documentation is developed and delivered to members in a timely way via online and offline channels, eg marketing, web sites (including forums) and face-to-face events. The team is also responsible for media relations and wider stakeholder management These costs are showing a reduction of just under 70k due to changes in the resource mix for Portfolio Managers, all of whom have been recruited on permanent contracts, together with a reduction in travel budgets to reflect experience to date. These savings are partially offset by the planned appointment of two additional Communications Executives, reflecting the higher workload than initially anticipated and investment in audio and video conferencing equipment to enable greater interaction with members remotely, reducing the need to attend meetings in London and the ability for members to review audio/video recordings at their convenience. Market Design and Operations Market Design and Operations costs include: a market design team to manage and administer the codes and provide secretariat services to the Interim Codes Panel (ICP); a market operations team to qualify and administer market entry, exit and manage disputes, and a regulatory affairs role to take the lead within MOSL on overall market readiness and market assurance. The 2015/16 budget was based on the assumption that the freezing of the codes would eliminate the need for external legal advice and technical support in the run up to Market Opening. This has not materialised and an additional 90k has been included for specialist legal support plus additional resilience has been included to market design authority of a further 14k. A further net 20k has been added to Market Operation to allow for a more senior Operations position, which has been partially offset by savings market analyst costs. An additional 140k has been included under Regulation to reflect the ongoing need to support tariffs and enable MOSL to discharge its responsibilities with respect to the performance of the operational terms. These costs are partially offset by a 118k reduction in OWML transition costs. CMOS Implementation & Support CMOS Implementation and Support costs include: the design, build, maintenance and operation of the CMOS system (pre-market) by CGI; a data partner (CGI); and a test partner (SQS). It also includes the internal costs associated with: managing and assuring delivery by MOSL s service delivery partners; the provision of MOSL s business systems; and the design and implementation of MOSL s digital strategy in support of its Target Operating Model.

4 CMOS Vendor delivery shows a reduction of 705k in expenditure, due to timing differences in the schedule of payments under the CMOS contract with 726k of payments being brought forward into 2015/16 during final contract negotiations. This is shown as an adjustment in calculating the total funding requirement at the bottom of the Proposed 2016/17 budget. SQS has been appointed as MOSL s test partner on a time and materials basis. These costs have increased by 163k in 2016/17, reflecting a delay in mobilising this service in 2015/16 and an increase in the level of testing required to accept the system and assess market readiness of participants as the requirements have been defined. CGI has been appointed as MOSL s data partner on a time and materials basis. These costs have reduced by 192k reflecting a reduction in the scope of the data partner s role. The reduction in costs for the data partner are offset by an increase of 150k in Delivery Team costs, for three data analysts to reflect data management being a core capability for MOSL as the enduring Market Operator. Delivery Team costs have also increased by 103k with the material changes required to provide additional resilience in the areas of IT management and vendor management. An additional 205k has been included to support the design and implementation of MOSL s digital strategy and Target Operating Model. Programme management Programme management includes: project managers embedded within each of the Market Services, Market Engagement and Delivery teams to deliver the necessary planning and control; and a central programme office to co-ordinate and integrate delivery within the overall central programme and with participants. This service will drive the delivery across the MOSL programme of work actively to ensure the intended outcomes are delivered on time and within budget. There is a 11k decrease in this area against the 2016/17 Budget due to a small change in the contractual arrangement. Independent Audit and Assurance Independent audit and assurance is a provision for two independent audits of MOSL s readiness to go active and go live in order to give members and the Board further verification in addition to the certification supplied by the Executive. There is no change to this area in the 2016/17 Budget. Change management Since the Business Plan was approved, Ofwat has approved seven code changes recommended by the Interim Codes Panel. Five of these changes have been categorised as each having a low impact (i.e. less than 10k), one has an impact of between 10k- 100k and a further code change impact is currently being assessed. A release strategy is being prepared setting out how changes will be incorporated into the CMOS system and deployed. Currently all of the changes can be funded out of the contingency monies already invoiced. This situation will be kept under review and, as previously advised, members will be notified should there be a need to re-open the funding requirement to preserve the contingency funds. Details of all approved changes can be found on the Open Water website. Future changes

5 As the programme progresses through user acceptance testing (UAT) and shadow market we would expect further code changes to be recommended by the ICP. We will continue to work closely with the panel to assess both the market and financial impact. No code changes are currently accounted for in the budget therefore we will keep trading parties informed of any potential additional funding requirements. Feedback has been received from participants around the requirement for an additional environment as part of the test sandpit. This environment is not contracted by CGI and is not included within 2015/16 or 2016/17 budget. We will work with CGI to understand the cost of this environment which will be initially funded for from the already invoiced contingency and as stated above members will be notified if there is a funding requirement to make good the contingency funds. Outturn The current Outturn is forecasting a 2015/16 overspend of 519k due to the bought forward CMOS payment of 726k occurring in 2015/16 which was budgeted for 2016/17. This cost has been partially offset by 2015/16 underspend (excluding CMOS) of 207k driven by delays in resourcing, more efficient staffing mix and delayed start of test partner work. The forecast under spend (excluding CMOS) has been deducted from the 2016/17 funding requirement. The bought forward CMOS payment will be paid out of contingency in 2015/16 and collected through the 2016/17 funding requirement. The final position will be reflected in the 2016/17 funding requirement once the year has been finalised and pre invoicing. Invoicing Once approved funding company members will be invoiced for their full contribution to the MOSL budget in May 2016.

6 Indicative 2017/18 budget The 2015/16 Business Plan indicated a likely enduring market operator cost range of 7.6m - 9.2m. In advance of work that is underway to develop the Target Operating Model for the enduring market operator and in advance of any experience from deploying CMOS, there is no new information upon which to base a revised indicative forecast for 2017/18. The MOSL Board would note, however, that these costs are early estimates and are highly likely to change. The Board would also highlight to members that the 2017/18 budget will need a substantial provision for changes to codes and systems in the first full year of the market being open as experience grows. Work will begin on developing the 2017/18 business plan for the enduring market operator costs during the summer, for consultation with members during the autumn. The intent is to agree this with members before the end of the 2016 current calendar year.