Utility Week

UTILITY Week 16 05 14

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10 | 16th - 22nd May 2014 | UtILIty WEEK Interview tive is to generate insightful information to improve decision-making on the asset base and investment priorities. The alliance is already feeling the benefit of bringing this outsider in, Gosden says. "IBM has really mixed up traditional thinking… they've a dif- ferent way of attacking problems." Third, the timing is interesting. Eight2O was set up two full years ahead of day-one delivery, which kicks off next April. Graham Keegan has been chief operating officer of Eight2O for a year now. He is a veteran of both the water industry generally, and joint venture-type delivery models specifically, most recently as chair of the Veolia/Costain/MWH joint venture 4Deliv- ery. He says the early contractor involvement (ECI) phase (2013-15) is a real boon on a number of levels. It has allowed him to "set up a culture, a new envi- ronment and get everybody into this new way of work- ing". Keegan admits it was no walk in the park. The supply chain was understandably sceptical about Thames' commitment to true partnership working ini- tially. But he says the company's behaviour so far – the "listening phase", the fact that supply chain-side ideas have been acted upon, the fact that Thames has for- mally thrown in its lot with contractors – has built trust. Keegan knows this is a continuing challenge: "Trust can be destroyed in one silly email if you're not care- ful… We watch out for how everyone's feeling. What are people saying about us? Are we giving the right behav- iours? Are people taking the right approach? Are people supportive of one another? Are there any factions build- ing up?" Another key advantage of the early start is that Eight2O can hit the ground running. Keegan is confident the inter-AMP dip that has blighted the water contract- ing industry for years simply won't happen this time around for Thames. He says: "We're looking at the AMP6 programme two years in advance and at how the work is falling away in AMP5, and we're marrying those two differences… if you can have the build up at the same time as you have the drop off, that's how you minimise the dip." Finally, Keegan says ECI has provided "thinking time ahead of the major delivery phase – to engage brain". In fact, there has been a real push on encouraging supply- side partners to innovate, contribute new ideas and trust Eight2O to deal with them fairly. According to Keegan, the alliance is working through "literally hundreds" of ideas that have been pitched so far from the supplier community. So, in Keegan's expert view, does Eight2O really amount to a new approach to AMP delivery? It does, he says. "Alliancing is a word many people use. We've seen lots of JVs, lots of partnering, but the way we're approaching this is unique." He says there is a "real con- nection with being inside Thames – I've never seen that before… They include me and the team as a department almost, and that's one of the cultural changes. So I think it is very different. I'm not sure there's anybody who's gone into this depth of alliancing." Eight2O will build on Thames' AMP5 achievements, which include, according to Gosden: a fast-start (£1 bil- lion of a £5 billion capital programme invested in the first year); four successful framework contracts respon- sible for delivering half the whole programme; a suite of on-time major projects including the £635 million Lee Tunnel; and the reinvestment of 100 per cent of capital efficiency gains for customer benefit. For AMP6, Thames proposes a totex of around £7 billion: £3.16 billion for water wholesale and £3.8 billion for wastewater wholesale – plus £500 million to cover its Thames Tideway Tunnel investments (con- struction costs will be borne by a separate infrastructure provider). Particular high- lights of its two wholesale plans (one for water, one for wastewater) include: 10 per cent leak- age reduction by 2020 supported by the replacement of 880km of mains; reduction of supply interruptions; the installation of 900,000 smart meters; protecting 1,800 properties from internal sewer flooding; cutting pollu- tion incidents; reducing odour risk for 6,600 homes; and supplying one-third of company power needs from home-grown renewables. Contrary to the impression given by much of the media, average bills will fall slightly from £360 in 2015 to £358 in 2020, if the cost of the Tideway Tunnel is excluded. Adding in the £8 a year cost of the tunnel takes the average 2020 bill to £398, which is still among the lowest in the industry. Efficiencies deriving from Eight2O have already been factored in to these numbers. "So we're already behind the plan by about £160 mil- lion," says Gosden. Thames did not get an entirely glowing report from Ofwat on its business plan. In particular, its wholesale wastewater totex was deemed too high (£3.8 billion com- pared with Ofwat's threshold of £3.58 billion) and insuf- ficiently evidenced. Gosden takes an optimistic view: "The best thing about the risk-based review is it has pro- vided a view, and it's enabled us, and all the other water companies, to commence a dialogue with Ofwat." The two main factors muddying the wholesale waste- water number are how Thames has incorporated Tideway Tunnel costs into its plan and uncertainty around spend- ing on the national environment programme, which (helpfully) won't be set by the Environment Agency until aer final determinations. Gosden says it's now more about explaining its numbers to Ofwat and working to resolve uncertainty than about reducing the numbers. He does not anticipate a great deal of change in Thames' broader wholesale plans: "We're listening very carefully… to customers and to the feedback of the risk- based review, and we're considering it. But we do really believe in our fundamental core plan. We put a hell of a lot of work into that plan to make it very evidence-based and connected very much to what customers were saying to us. So in the core part of the plan, would we expect to see a huge amount of change? That is unlikely." While it requires some management, Keegan says regulatory business plan ping-pong will not unduly hin- der Eight2O's start: "It is slightly in limbo but there's a big core element of the work that we're confident will go ahead and that's what we'll put our main focus on." Even excepting the tunnel, it is never going to be plain sailing for England's largest, highest-profile, most- scrutinised water company. Gosden and Keegan are the first to admit that Eight2O has yet to prove itself, and that while they think its particular brand of alliancing is right for Thames, they can see the merits of other AMP6 deliv- ery arrangements being drawn up around the industry. That said, both are clearly excited and delighted by the alliance they have come up with to tackle the chal- lenges of AMP6. Keegan concludes: "It's really exciting when you think, we could actually get something dif- ferent this time. We could do this. We could crack those problems we've been having for years." "You need collaboration for people to feel able to put their best ideas on the table, and for everybody to succeed from that"

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