Water & Wastewater Treatment Magazine
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squeezing the supply chain, according to Richard Whale, water director at Atkins. "It's highly unlikely such efficiencies will be achieved by taking a business as usual approach to service delivery and we anticipate our clients to be more de- manding of AMP7 supply partners," says Whale. "As a consultant to water com- panies across England and Wales, we've fully recognised the need to promote the adoption of digital and BIM-based asset management tools and systems, AI, machine learning and system-led thinking to delivery more challenging regulatory outcomes for less." Customer Outcomes The operational targets that water com- panies have set themselves (performance commitments), and the structure of incentives and penalties that are attached to these (outcome delivery incentives or ODIs) were generally viewed by the regulator as needing further work. Only Anglian, South West Water and South East Water received a 'B' for the outcomes set in their plans, while 13 companies received a 'C'. Water companies have set ambitious performance commitments – most no- tably on leakage, where the cross-sector guideline was for a 15% cut by 2025, and some are aiming much higher, such as Yorkshire Water who have pledged to cut it by 40%. However, there were significant differences in approach in the application of outperformance 'caps' (which limit the incentives paid), underperformance 'collars' (which limit possible penalties) and 'deadbands' (performance ranges between which no incentives apply). For example, Yorkshire Water pro- posed not to place caps or collars on any of its ODIs, but Ofwat criticised this on the grounds that it might earn runaway outperformance incentives in areas that were not highly valued by customers. On the other hand, the regulator criticised Southern Water for proposing underper- formance collars on water quality compli- ance, pollution incidents and mains bursts, which would have limited the potential penalties the utility could incur if it slipped up in these vital areas. "One aspect that I think is going to be a real challenge for water companies is that Ofwat have reset the expectations around drinking water quality compliance and wastewater treatment works compliance, so that the common ODI for both of those measures is 100% compliance," com- ments Gardner. "There is a real tension in this space. Water quality of 100% is very challenging to achieve, not least because of issues such as customer-side lead pipes, while treatment works compliance of 100% would also require a real step change." 14 | MARCH 2019 | WWT | www.wwtonline.co.uk squeezed significantly," says Gardner. "There is a general theme of more for less. Outside of the fast track category, a number of the companies are quite clearly a long way away from the stretching ef- ficiency targets that Ofwat are expecting them to meet. Those companies are going to have to re-optimise their plan in the context of the challenges that Ofwat are placing upon them." The most likely ways that water companies will seek to achieve these efficiencies are technical innovation and The Works: PR19 • OFWAT'S INITIAL ASSESSMENTS – SUMMARY TABLE FAST TRACK Severn Trent, South West Water, United Utilities Plans ready to implement. Receive financial benefit, early decisions and early certainty SLOW TRACK Anglian, Bristol, Dwr Cymru, Northumbrian, Portsmouth, SES, South East, South Staffs, Wessex, Yorkshire Further work to do on plans. SIGNIFICANT SCRUTINY Affinity, Hafren Dyfrdwy, Southern, Thames Substantially rework and resubmit plans. Increased regulatory scrutiny. • PR19 ASSESSMENTS: WATER INDUSTRY REACTION Chris Loughlin, chief executive of Pennon Group Plc, parent company of South West Water: "We're encouraged that the regulator has a high regard for our business plan, particularly as it was shaped by our biggest ever consultation with customers. We are very grateful for the feedback we received. Our New Deal empowers customers to be part of our business and have more control. It redefines the relationship between a water company and its customers, and recognises our societal responsibilities." Severn Trent chief executive Liv Garfield: "I'm pleased that Ofwat has recognised the progress made across the sector, and I'm personally delighted we've been given fast-track status for the first time, showing Ofwat shares our belief that customers will get the best possible outcome from our plans for the next AMP. It's a great testament to everyone who was involved in pulling the plan together." Thames Water CEO Steve Robertson: "Thames Water is disappointed with today's announcement from Ofwat on our £11.7 billion five-year business plan, which is built on the feedback of nearly one million customers. We remain committed to our forward- looking plan... we are seeking Ofwat's permission to invest more in areas where we know it is needed. Instead, it appears that we are being asked to reduce our current levels of spending. We are concerned that this will make it harder to meet the needs of our customers amid the challenges of population growth and climate change." Consumer Council for Water chief executive Tony Smith: "We've not seen one plan that can be considered the finished article and there is still scope for improvement across the board, which we're pleased Ofwat recognises. Many companies have not stretched themselves on issues like reducing leakage and expanding support for customers in financial hardship." Environment Secretary Michael Gove: "I am disappointed to see that the plans submitted by Thames Water, Southern Water and Affinity Water have been assessed as requiring 'significant scrutiny', not least as these operate in the most water-stressed regions. I fully expect the revised plans to be more ambitious in delivering for customers and the environment." -For more discussion of PR19 and its effect on the industry, attend WWT's Asset Management Conference on May 2nd: details at event.wwtonline.co.uk/asset