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24 | 19th - 25th September 2014 | UtILItY WeeK Operations & Assets Market view O ver 50 years ago Joseph Heller published the now classic novel Catch-22. The book followed John Yos- sarian through his experiences of bureau- cratic operation and reasoning in a fictitious squadron in World War 2. The Catch-22 itself was a military rule with circular logic that described a "no-win situation". What has this to do with utilities? Well, if a recent report from the Intergovernmental Panel on Climate Change (IPCC) is anything to go by, a lot. The impact of climate change points to a future of changes in food security, flood- ing, water stress and biodiversity across the globe. With the environment underpinning the resilience (or otherwise) of the water sector, our economy and our wellbeing as a whole, there is general acceptance that more needs to be done to protect society for the future. Yet we seem bogged down by the kind of frustrating bureaucracy described in Heller's novel. There is a glimmer of hope however. To meet current challenges, water companies have been innovating in catchment-based solutions to find cheaper, more sustainable solutions to environmental problems. Such approaches seek to remove the cause of the problem rather than address the symptom. In the UK, catchment has seen some promising progress in recent years. Compa- nies including South West Water, Wessex Water and Severn Trent have pushed bound- aries and come up with programmes which have not only achieved cost reductions com- pared with traditional asset solutions, but also delivered broader benefits to society and the environment. On average every £1 spent on catchment has given £4 benefit. Off the back of these successes, in 2011, the Department for Environment, Food and Rural Affairs (Defra) launched its "catch- ment-based approach" and should be highly commended for doing so. This started a national process of plan- ning and the growth of catchment partner- ships between local communities and water companies. Since these partnerships started to spring up, their ambition has grown and where they once focused on water quality issues, they now encompass much broader thinking on water security and associated social and environmental issues. Knowledge hubs are developing to help different catchment partnerships share ideas and experience. However, despite this progress, there is a great deal more value to be had from catch- ment. If the future challenges outlined by the IPCC are to be met, some consider it imperative to develop catchment-based thinking and fully integrated spatial plan- ning further. The catchment plans currently being developed have no formal status, as water resource management plans do, and there are no long-term funding arrangements in place to maintain their longevity. As recognised in the recent Blueprint for Water review of water company plans, the take-up of catchment-based thinking also varies across regions and the development of cross-sector decision-making for catchment is in its infancy. Part of the barrier to greater adoption by water companies is the regulatory and deliv- ery structure. This is not surprising, because the sector was set up in the 1980s to increase investment in assets, not to manage invest- ment in the environment. Much like the move to increase water transfers in the water sector, a step change in regulation is needed to remove barriers to greater adoption of catchment. Perhaps most importantly, though, the incentives for water companies to choose catchment-based solutions over traditional asset solutions is weak. They both receive the same rate of return, yet the uncertainties and the wider benefits are very different. With- out long-term commitment to relationships, catchment programmes have less certainty on delivery – especially at a large scale. It is not surprising, then, that typically less than 1 per cent of water company plans are on catchment management activities. The future looks brighter, however, as larger numbers of stakeholders join in fund- ing catchments and exploit the potential in multi-functional land use. At Indepen, we estimate £100 billion or more will be spent in catchments in England and Wales over the next 15 years to meet the needs of the Water Framework Directive, flood management, existing environmental compliance standards and more. With pressure on the public purse and on water companies to keep bills down, there is a need for more collaboration on catchment from bodies with a vested interest in the wellbeing of local communities. Catchment- based solutions are a key lever to solving the dual problem of meeting future climate change challenges and reducing costs across many different sectors, not just water. However, to achieve these benefits a num- ber of changes are needed. In the water sector, with improvements underway in customer service, Ofwat needs to turn its attention to how to incentivise catchment-based solutions. Companies need to challenge themselves about what is pos- sible through these approaches. Meanwhile, the Environment Agency needs to think through how to deliver smarter compliance rules that do not push companies to end-of- pipe solutions and a risk-averse culture. For the water companies themselves there is a challenge in culture change – both inter- nally and in the way they work with others. Longer term, this raises some more important and fundamental questions about whether a move to a more integrated regula- tory, policy and delivery structure, aligned around natural resource management, is needed in England. The forthcoming Environment Agency consultation on 22 September to assess the option open to industry in meeting the chal- lenges of the Water Framework Directive could help anchor this debate. Unlike John Yossarian's experience in Catch-22, catchment-based solutions offer an opportunity for a win-win-win scenario. They are good for customers, good for the environment and good for stakeholders. Rob Scarrott, principal consultant, Indepen No catch-22 with catchment Rob Scarrott explains why innovative catchment programmes can deliver economic and environmental benefits compared with traditional end-of-pipe asset solutions.