Utility Week

14 | APRIL 2022 | UTILITY WEEK Water Download report continued from previous page Key fi ndings from the report Resilience and climate change – the big ticket in PR24 • Signi cant investment is needed to meet more stringent environmental legisla- tion and public expectations. But details are yet to emerge of the extent and pace of reducing discharge from Combined Sewer Over• ows (CSOs) into rivers, which will be a determining factor in business plans. • There is concern that public misunder- standing over CSO discharges could result in misplaced demands that could divert investment away from other important environmental programmes that may be more bene cial. • PR24 is being seen as a transitional price review; there is discernible change in regulatory culture in recognition of the huge challenges facing the sector around resilience, with the focus for water companies on long-term strategic planning. • Universal backing exists for Ofwat's long-term approach to AMP pro- grammes, which requires water com- panies to take a 25-year view. However, water companies would like to see more • exibility in spending programmes and certainty of spending guarantees across AMPs. T his would also smooth out peaks and troughs in projects and sup- port fragile supply chains. • The industry needs a market-level Weighted Average Cost of Capital (WACC) to bring responsible investors into the market. • There are signi cant pressures facing the industry in relation to resilience to climate change and the national ageing asset base – bills may need to rise to provide investment in asset health. • Cost modelling for total expenditure needs to re• ect the changes needed to assets going forward rather than being based on historic data. Performance commitments – the need to think di erently • Expected new performance commit- ments for reducing embedded carbon dioxide emissions may force a rethink of companies' route maps for meeting zero carbon by 2030. • Ofwat is considering introducing perfor- mance commitments to reduce green- house gases from process emissions and embodied carbon. • Water companies are concerned that performance incentives do not match long-term strategies and fall back on traditional Outcome Delivery Incentive (ODI) measures. • Water companies want an element of local ODI to match speci c consumer requirements. • More mechanisms for partnership work- ing are needed – and skills to match, together with measurements for resil- ience and carbon emission reduction. A ordability – a di erent approach needed • Water companies support the introduc- tion of a national social tari— . • But they think it is time to address how to pay for water more generally, based on universal monitoring and di— erenti- ated tari— s. Digital and innovation – essential tools for nding new options for delivery • There is ongoing need to harness tech- nology and associated business change to deliver e˜ ciencies and reduce cost to serve – there is some scope to do this with machine learning and AI but there are limits to the e˜ ciency savings this can produce. The opportunities are not limited to these areas. • A proliferation of monitoring devices will continue to enable analytics to improve performance and service. • There is an urgent need to drive more value from data – the appetite for open data proposals is strong but the sector is lacking in data skills, and the skills to deploy and maintain the new physi- cal and non-physical assets and systems that will help deliver that value. • There is support for Ofwat to extend the innovation fund – but this should not detract from individual innovation fund- ing in business plans. • There needs to be mechanisms in PR24 that incentivise collaboration and part- nership working. Comment Liz Parminter and Greg Bradley, PA Consulting "It's a genuinely transformative period for thesector" PA Consulting is delighted to have partnered with Utility Week to undertake this research on behalf of the water industry. At PA, we create value by combining our regulatory expertise with our practical asset management experience, assembled through a newly formed team of former opera- tors, regulators and supply chain practitioners. This enables us to work with clients to deliver real results and outcomes, from "strategy to spanner". Importantly, we are under- pinning all of this with digital expertise – clients are asking us to help them realise the bene ts of digital in a real and practi- cal›way. It's a genuinely transforma- tive period for the sector. We're witnessing a major push for the water sector to implement new value frameworks and long-term delivery strategies that can help navigate di— erent scenarios for climate change, technology, environment and customer demand. All of this comes as the sector emerges from the Covid-19 pandemic, which has created new opportunities to work remotely and collabora- tively, and while the post-Brexit environment brings the largest investment in UK infrastructure in decades. Liz Parminter and Greg Bradley, partners, energy and utilities at PA Consulting Download the report Download Shaping and Preparing for the Price Control, written and researched by ex-Utility Week content editor Denise Chevin, free at: https://utilityweek.co.uk/ pr24-shaping-and-preparing-for-the-price- control/ in association with A Utility Week insight report in association with PA Consulting SHAPING AND PREPARING FOR THE PRICE CONTROL

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