Issue link: https://fhpublishing.uberflip.com/i/1141870
NETWORK / 25 / JULY/AUGUST 2019 delegate. He added that under the current regime, companies have "driven e ciency a er e ciency", 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 di• erently, 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 unsustainable chemical treatment plants, or whatever it might be." What challenges do utilities face in embracing totex? While the economic regulators Ofgem and Ofwat have led the drive for totex thinking, utilities businesses are still operating in a framework that is not entirely sympathetic. Accounting rules in particular remain a challenge. For example, in the energy networks industry, the shi towards smart grids and the 'distribution system operator' (DSO) model, whereby energy generation and demand is balanced at a local level, is driving the introduction of much greater monitoring and control on the system. This drives up the operational cost of running the grid – as does the additional sta ng required to manage and act on the data generated. Under current accounting rules, capital expenditure such as that on a new asset is depreciated – discounted from the balance sheet over a number of years – whereas operational expenditure comes straight o• the annual pro‰ t. Moreover, even where costs such as new technol- ogy systems or refreshes are classi‰ ed as capital expenditure, they are depreciated over much shorter periods of time than traditional long-life assets, making them less attractive from an accounting point of view. As one delegate said, "Whilst we're in a totex environment, in terms of your pro‰ t and loss, you've still got to keep your overheads down." With affordability riding high on the policy agenda, how are utili- ties prioritising their investment on asset maintenance and capital programmes? Delegates revealed that in some instances, they are having to 'sweat the assets', getting maximum life out of every piece of kit by prioritising maintenance over the capital ex- penditure required to build new assets. This approach is supported by new technologies which facilitate condition-based monitor- ing – rather than have a rolling programme of maintenance based on the age or usage of an asset, utilities are able to target their In association with: View from the chair: totex, or not totex? Seven years ago, totex was the biggest buzzword in the business – this was before 'innovation' was on everyone's lips, and long before most people had even heard of today's Labour leader Jeremy Corbyn with his headline-grabbing policy to renationalise the nation's energy and water companies. As the water and network industries prepared for PR14 and RIIO1, the introduction – or extension – of totex in the regulatory system was big news, with utilities keen to explore the approach but often worried about their ability to deliver. Fast forward to today, and we don't hear so much about totex. There could be two reasons for this change. Could it be that utilities have fully embraced totex, realised its benefi ts, and embedded it so deeply in their culture that they no longer need to talk about it? Or could it be that the 'totex' box has, on the surface, been ticked, and utilities have moved on the newer buzzwords? This was the question I put to delegates at Utility Week and Costain's recent roundtable on 'totex and transformation'. The answer was unexpected – and in fact, challenged the grounds of the question itself. Rather than a binary approach – totex, or not totex – it seems that the industry has moved on to a point where the question of totex has been absorbed in the much bigger issue of whole systems planning. That is to say, it's no longer just about whether to build a new asset or come up with another solution; rather, it's a question of looking holistically at the infrastructure system, cross-vector, and determining the best solution. It's a complicated picture, throwing up questions about who will govern a multi—vector system, and whose role it is to drive it forward. While government is struggling with the current Brexit-induced leadership vacuum, delegates name- checked the increasingly infl uential National Infrastructure Commission, chaired by Sir John Armitt, as having both the nous and the political clout to come up with the right solution. With the commission currently investigating regulation in utilities, watch this space. Ellen Bennett, publishing director, utilities. maintenance spend on assets that most urgently require it. While this is a logical approach, it does create di culties, because service must never be compromised – and delegates acknowledged that incidents such as last year's Beast from the East high- lighted what they tactfully called 'resilience gaps'. Likewise, energy networks are moving away from pure cyclic-based maintenance, and using new techniques, such as satel- lite monitoring, to improve e ciency and target investment at those assets that most urgently need it. Networks are currently signed up to an agreed set of common risk levels for each class of asset and have to col- lect a signi‰ cant amount of data to feed into the required risk assessments. What is the role of the supply chain in delivering a totex culture? As utilities move away from the traditional approach of '‰ x on fail' to condition-based monitoring, the skills required to run the network are changing. A network ‰ lled with sensors requires data and technology specialists to capture, interpret and act on the data they produce. For one delegate, this prompted the question: "Going forward, how much do we ask the supply chain to step into this?" Traditionally, the supply chain has built assets for utilities. Totex thinking, coupled with the emergence of new and more com- plex technologies, inevitably drives a major shi in this relationship. As the manage- ment of utilities becomes more complex, the supply chain is stepping into new service models, whereby a supplier might, for ex- ample, build, operate and maintain an asset on an ongoing basis. What role has innovation funding played in driving the adoption of totex? Delegates from the energy networks sector agreed that innovation funding has been critical in allowing them to experiment with di• erent approaches and drive a totex cul- ture within their businesses. The example of Project Freedom was cited – a collaboration between two networks, investigating multi- vector solutions to domestic heating. The learnings from such innovation projects are shared between the networks encouraging a collaborative approach to innovation. up with another solution; rather, it's a question of looking holistically at the infrastructure system, cross-vector, and determining the best It's a complicated picture, throwing up questions about who will govern a multi—vector system, and whose role it is to drive it forward. While government is struggling with the current Brexit-induced leadership vacuum, delegates name- checked the increasingly infl uential National Infrastructure Commission, chaired by Sir John Armitt, as having both the nous and the political clout to come up with the right solution. With the commission currently investigating regulation in utilities, watch