Issue link: https://fhpublishing.uberflip.com/i/1141870
ROUNDTABLE O nly a few years ago, totex was the biggest buzzword in utili- ties. Totex – or total expendi- ture – was the new approach to regulation and accounting intended to end the tradi- tional, perceived bias towards 'pouring concrete' or 'putting copper in the ground' – in other words, investing large amounts of money (capital expenditure) in physical as - sets. Under the old regulatory frameworks, utilities were effectively rewarded for doing this, as expenditure on maintenance or on non-physical solutions (operational expend- iture) was treated less favourably – meaning that 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 Utility Week asked industry lead - ers at a special roundtable bringing together pan-industry leaders, at Utility Week Live in Birmingham in May in partnership with Costain and sister titles Network and Water and Wastewater Treatment. 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 regula- tory shi' to focus on outcomes, giving utili- ties 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 local stakeholders at source, before they get to the treatment works. The focus on outcomes has been supported by regulatory incentives – Out - come Delivery Incentives (ODIs) have been particularly effective in the 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 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 [under AMP7]," noted one water company NETWORK / 24 / JULY/AUGUST 2019 The totex question Has total expenditure (totex) become enshrined in utilities' practices? A special pan-utility roundtable held at Utility Week Live sought to find out.