Water & Wastewater Treatment

www.wwtonline.co.uk | WWT | JULY 2015 | 19 O ne of the key regulatory changes that water companies in England and Wales are adapting to for AMP6 is the requirement to present their spending in Total expenditure (Totex) terms, breaking down the boundary between Capex and Opex which has traditionally been central to their business plans. Ofwat has presented the move as one which will 'remove the shackles' from water companies, challenging them to come up with fewer asset- centric solutions, assets that are cheaper to run and maintain, and ultimately a more efficient, better value service for customers. But this also comes with a number of challenges: does the industry have Totex: now the shackles are off Industry Round Table For the first time in AMP6, water companies have been encouraged by regulator Ofwat to frame their plans in terms of Totex rather than within the constraints of Capex and Opex. How is the industry adapting? Participants in WWT's special round table event got to the heart of the issues Water, describes Totex as "a bit of a regulatory red herring – it's just the way that you have to calculate something, at the end of the day." More important, she says, is the new approach that it symbolises from Ofwat – on the one hand, water companies will have more freedom to achieve customer outcomes in the way they see fit, via capital and operational spending; on the other hand, such freedom comes with responsibility. "We've had very tight business plans for the past 25 years which were fairly prescriptive," says McMath. "You got given a list [of capital schemes] and you went away and ticked them off and if you didn't deliver them you had to give the money back to customers. With the move to an econometric modelled approach, effectively what Ofwat are saying is: it's your company; you need to invest in those assets as you like in order to maintain a level of customer service which is acceptable to your customers. I think there's a fundamental shi— in responsibility on to companies to think about long term investment, so I'm hoping it will really push us to think about whole- life cost and really investing in those assets for the longer term." What Thames is focusing on, she says, is ensuring it makes good decisions based on value to the business – and core to understanding that value is asset data. Whenever the company is investing - whether it be via Opex, Capex or Totex – it has to be sure that it is making the best decision on behalf of its customers, both in the short term and the long term. Whole-life calculations But what constitutes the long term? This is the key question when it comes to calculating whole-life cost, yet it is not one which has been satisfactorily answered, with different companies using different models and methodologies. Anglian Water has chosen a relatively arbitrary figure of 40 years as a timeframe for which to run a cost-benefit analysis for its asset decisions, although Graham Fulton, Totex Programme Leader at Anglian, admits that this figure is relatively arbitrary. Fulton says that the utility formed its thinking on Totex through carrying out a benchmarking exercise with various industries which already use Keith Hayward, Hydro International (le ) and David Widdowson, Yorkshire Water the right data and evidence to make the correct Totex-led decisions? Can it reach any consensus over the way Totex is defined and calculated? And what process and cultural changes are necessary? These and other issues were discussed at length by the participants in WWT's round table event on 'Totex and its Implications for the Water Industry'. Held last month in London, the round table was supported by event partners Siemens, Black & Veatch and Hydro International, with the discussion chaired by Paul Horton, Chief Executive of the Future Water Association (formerly SBWWI). Sarah McMath, Head of Strategic Business Planning at Thames James Brockett EDITOR, WATER & WASTEWATER TREATMENT

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