Water & Wastewater Treatment Magazine
Issue link: https://fhpublishing.uberflip.com/i/1131895
14 | JULY 2019 | WWT | www.wwtonline.co.uk Taking stock of totex The Talk: Events J ust a few years ago, totex was the biggest buzzword in utilities. Totex – or total expenditure – was the new approach to regulation and accounting intended to end the traditional, perceived bias towards 'pouring concrete': in other words, investing large amounts of money (capital expenditure) in physical assets. Under the old regulatory frameworks, utilities were effectively rewarded for do- ing this, as expenditure on maintenance or on non-physical solutions (operational expenditure) was treated less favourably, meaning companies that built more were valued higher and ultimately made more money. Totex, enshrined in AMP6 and RIIO1, the current regulatory regimes for water companies and energy networks, was meant to end all that. Did it work? That was the question WWT asked at a special roundtable, held in partnership with Costain and sister titles Network and Utility Week, which brought together pan- challenge will come in the next regulatory cycles. What impact will AMP7 and RIIO2 have on utilities' approach to totex? The new regulatory regimes for water companies and energy networks are put- ting unprecedented pressure on utilities to deliver more for less. "Totex thinking is going to have to come more to fruition [un- der AMP7]," one water company delegate noted. He added that under the current regime, companies have "driven efficiency a–er efficiency", and there simply isn't the headroom to continue making savings in this way. Thus, a true step change, embrac- ing the potential of disruptive technology to really do things differently, will be required. "Totex thinking has got to go to the next level," he said, "as you get disruptive tech- nologies that actually work, that will give us a mechanism for not building unsustain- able chemical treatment plants, or whatever it might be." Has total expenditure (totex) become enshrined in utilities' practices? A special pan-utility round table held at Utility Week Live sought to find out industry leaders at Utility Week Live in Birmingham in May. These are some of the questions we asked, and the answers we heard: How far has totex been adopted? It's a mixed picture. Delegates agreed that utilities had adopted totex thinking to an extent. This has been driven by the regulatory shi– to focus on outcomes, giv- ing utilities the freedom to deliver those outcomes in new and different ways – for example, via catchment management, whereby water companies address water quality issues with farmers and other lo- cal stakeholders at source, before they get to the treatment works. The focus on out- comes has been supported by regulatory incentives – Outcome Delivery Incentives (ODIs) have been particularly effective in water sector. But this is just the start. Delegates sug- gested that while totex thinking has been applied to the current asset base, the real