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Utility Week 22nd September 2017

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10 | 22ND - 28TH SEPTEMBER 2017 | UTILITY WEEK Policy & Regulation Analysis T he long-term resilience of the water sector is being threatened by many and varied risks. Climate change, geopoliti- cal developments, the erosion of public trust in institutions, rising cyber-crime and eco- nomic uncertainty are bearing down on the sector, casting into question its readiness to deal with the fallout of a major shock to any one, or potentially several, of these areas. Ofwat has recognised this ominous envi- ronment in its dra framework for PR19. Embracing its relatively new duty to further the resilience of the sector, as established by the Water Act 2014, it has placed resilience at the core of the upcoming price control and suggested a challenging definition of "resil- ience in the round", which will push compa- nies to show they have robust strategies for managing financial, corporate and opera- tional resilience in their business plans. It's a broad definition, which Ofwat chief executive Cathryn Ross says has shaken the confidence of some company chief execu- tives who worry "that somehow it is too all- encompassing and too challenging". But worries or not, Ross holds out little hope that Ofwat will dilute its expectations of company resilience planning in its final methodology. Speaking at the regulator's recent resilience forum, she said she had no sympathy with such a lack of ambition. Pro- viding resilience in the round is "no more or less than a water company's job. It is also no more or less than customers and society expect," she commented. However, the regulator is not leaving companies alone to guess at what good resil- ience in the round strategies might look like. Its London resilience event welcomed a host of company chief executives as well as the leaders of all three water regulators (Ofwat, the Drinking Water Inspectorate and the Environment Agency) to discuss what robust corporate, financial, and operational resil- ience should look like in practice. To open their minds to different ideas, a line-up of eminent speakers from other sec- tors, including academia, manufacturing, defence and security, and finance, provided insights and experience. The result was a stimulating if slightly unnerving day of soul searching. Speakers made it abundantly clear that, however low the probability may seem, the worst can happen and only those with well rehearsed, well supported plans for response and recovery – not just risk mitigation – will survive such tests. Recounting his experience of chairing the "failed" tripartite committee of the Financial Services Authority, the Bank of England and Treasury in the run-up to the financial crisis, Sir John Kingman (now group chairman of Legal and General) told his audience that its downfall stemmed from "a colossal failure of imagination", particularly with regard to the KEY POINTS FROM OFWAT'S RESILIENCE FORUM SYSTEMS THINKING Companies need to do more to build awareness of the interdependen- cies between water companies, and between the water system and other public services and utilities infrastructure networks. CUSTOMERS Companies must push beyond customer engagement to make customers active par- ticipants in the design and delivery of resilience plans. LEARNING AND INNOVATION Companies need to be more proactive in learn- ing from others, both within the sector and beyond, to bring diver- sity of perspective to risk management and resilience planning. This will help them to be more innovative in their approaches to resilience. PRACTICE Experts emphasised that coping strategies for major risks must be thor- oughly drilled. This might include simulating cyber and physical attacks on infrastructure or putting emergency generators through their paces. Without such testing, the likelihood that plans will fail in the eventuality of a real disaster are high. Resilience in the round Ofwat is making resilience a key part of PR19, so what should water companies do to satisfy the regulator? Jane Gray writes.

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