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UTILITY WEEK | 31sT OcTObEr - 6Th NOvEmbEr 2014 | 15 Policy & Regulation Every drought is reviewed and the lessons learnt, so systems have become progressively more resilient. These incremental improve- ments assume that they will always ensure a company stays one step ahead of changes in operating circumstances. Which is fine until there is a step change or shock to the system, whether from a natural event or from regula- tory reform. The next 15-20 years will definitely bring step changes, as the policy reforms set out in the water white paper Water for Life start to bite. Upstream reform will potentially intro- duce many more players into resource man- agement, which may bring other efficiencies through innovative approaches but which will complicate planning for water supply security. There will also be new supply arrange- ments – of uncertain and untested reliability – and new operating arrangements in terms of where water goes. This, and potentially blurred accountability during a drought, will mean that incumbent companies will want to be very confident that, come what may, they can continue to supply their customers. These factors all pose challenges, but not insurmountable ones. Abstraction reform is perceived as intro- ducing another risk, but is actually an essen- tial (and misunderstood) step to provide greater certainty. Maintaining the current system of abstraction licensing would mean that with climate change and evolving environmental needs existing licences would become pro- gressively more unreliable, either because the water was physically not available or because the Environment Agency would need to vary them to maintain a balance with the environment. Abstraction reform, under either of the options on which the Department for Envi- ronment, Food and Rural Affairs (Defra) has recently consulted, would create a more dynamic system – but it would be a system in which allocations and constraints were clear and understood. Changes would fol- low a planned and structured process; licence holders would need to view their allocation as no longer fixed and review their operations accordingly, and the operational changes and evolving resource constraints would need to be factored into WRMPs. In all likelihood there would also be con- versations between abstractors in different sectors about how to share resources and manage risk. The Environment Agency is committed to providing the information to facilitate these discussions. Think the unthinkable The reform agenda can at least be developed and phased to reduce uncertainty and risk, and to maximise the benefits, but the impact of other changes are more problematic. Pop- ulation growth is assumed to be an upward pressure on demand, but the demographics are complex. Where people choose to live, in what sort of property, and how much water they will use, all need to be taken into account in planning assumptions, but have big uncertainties attached. It is climate change, however, that poses the greatest uncertainty, and risk. Although recent years have seen a num- ber of extreme events – both droughts and floods – these have been within the param- eters of previous experience. There are two spectres that keep planners awake at night. The first is an extreme event that goes beyond previous experience and is outside the planning assumptions. The second is a step change in climate, rather than the gen- erally assumed gradual shi used in plan- ning. Either of these low probability, high consequence scenarios would severely test current approaches to resource planning and management, and companies' ability to maintain uninterrupted supplies. The current approach to water resource planning does not consider the social and economic costs of failure. But in the way in which London is protected by the Thames Barrier to a higher standard of flood risk than anywhere else in the country, and The Netherlands adopts a 1 in 10,000 year standard for strategic flood assets, there is a strong case for understanding and protecting against extreme drought events in at least some critical locations. The Environment Agency has just com- menced a study with the aim of advising Defra on strategic options (but not specific solutions) to increase water supply resilience in droughts of up to three years' duration, and with a return period of 500 years. The output from this work will inevitably catalyse the debate on what constitutes an acceptable level of risk, and the implications and costs of strategic solutions to reduce it. As the dust settles from PR14, and water companies start to consider the shape and direction of their next business plans, they would do well to think the unthinkable. How, exactly, would they deliver their com- mitment to no supply failure, ever? Or, to put it another way, given that the usual response to low probability, high cost events is insur- ance, what should be the insurance policy against supply failure? Ian Barker, managing director, Water Policy International Figure 1: Water company Forecasts oF average consumption Figure 2: the tWin track approach (england) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 2034/35 2035/36 2036/37 2037/38 2038/39 2039/40 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 2034/35 2035/36 2036/37 2037/38 2038/39 2039/40 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 190 180 170 160 150 140 130 120 110 litres per head per day demand measures supply measures