WET News

Good monthT- Bad month 4 WET NEWS OCTOBER 2017 News+ Firms must 'aggressively innovate' to avoid inflation impact – AECOM • Infrastructure group says that over AMP5, the sector experienced little or no inflation, warning this is about to change. W ater companies must 'aggressively innovate' and deliver work in AMP7 more efficiently as the sec- tor's inflation rises at a faster rate, AECOM has warned. According to the integrated infrastructure group, water industry inflation will rise at a faster rate than CPIH over the next five years, squeezing mar- gins for water companies in AMP7. It is forecasting that the difference between the inflation recorded by water companies' totex costs and CPIH will be close to 60% over the next five years, with totex costs rising 18% com- pared to an 11% rise forecasted in CPIH. Over the past eight years, the water sector has experienced an unchallenging period of infla- tionary growth that has been less than, or aligned with, RPI. This has enabled water companies to deliver programmed works within the allowed revenues as indexed by regulator Ofwat, even where company inefficiencies existed. A significant rise in inflation is an issue that water companies have not had to contend with since AMP4 (2005-2010) where double-digit percentage increases in inflation were expe- rienced. Cast iron products, for example, reached a peak of 19% annual increase in February 2009. Over AMP5, the sector experienced little or no inflation, with some items even recording a reduction in unit costs. While real inflation experi- enced in the sector over AMP6 has certainly increased, AECOM considers this to be still in line with RPI. However, AECOM warns that this is set to abruptly change in the coming years due to a number of regulatory and macro-eco- nomic factors that will force water companies to innovate how they manage inflation. If companies do not prepare for this changing environment an impact on margins is inevitable. Edward Day, senior consultant at AECOM said: "A significant rise in inflation will undoubtedly have an impact on mar- gins. Water companies will need to aggressively innovate and CONTRACT WINS Eric Wright Water has won a framework extension at Severn Trent. The com- pany will deliver mechani- cal and electrical repair works across Severn Trent's southern area assets as one of just three companies appointed to the framework. Marine civil engineering specialist ABCO Marine has been contracted by Yorkshire Water to inspect sewer outfall pipes along the coastline that stretch up to 3km out to sea to make sure they are in the best condition. Portsmouth Water has awarded a deal for Servelec Technologies to supply its FlowSure leakage detection software following a whole company six-month competitive trial, which detected 322 genuine anomalies, of which 43 were bursts. incentive models." said Day. Ofwat's PR19 DraŸ Methodol- ogy, published in July, confirmed the its proposal to index price controls to CPIH, largely discard- ing RPI which was used previ- ously. The regulator's rationale for a change from RPI is the need to utilise an inflation index which better reflects the inflation expe- rienced by customers. For the water companies how- ever, a change to CPIH will undoubtedly affect revenues, as historically CPIH has increased at a reduced rate compared to RPI. Over the past five years, RPI increased 12% whereas CPIH only reached 8%. Day said: "Combine this regu- latory change with the PR19 pro- cess set to be the most challeng- ing to date, the uncertainty Regulatory and macro-economic factors that will force companies to innovate how they manage inflation For innovation, as United Utilities launches its Innovation Lab to help tackle its business challenges For Thames Water? The Museum of London has been in talks with Thames Water to buy some of the monster Whitechapel fatberg! For United Utilities, ordered to pay a fine of £666,000 after pleading guilty to polluting the River Medlock with untreated sewage effluent in Greater Manchester back in 2014. For fatbergs as Thames Water gets to grips with the latest 'monster', this time in Whitechapel TEPPFA champions plastic pipes suitability for sewers • Campaign shines light on how plastic pipes have been successfully deployed in challenging situations. T he European Plastic Pipes and Fittings Association (TEPPFA), in partnership with four national associations, has launched a major multina- tional awareness campaign championing the suitability of plastic pipe systems for subterra- nean sewer applications to inform and inspire the civil engi- neering and utilities sectors. Discover: Plastics celebrates the flexibility, longevity and strength of plastic pipes – as well as their ease and speed of instal- lation – drawing on more than 20 years of independent research. The campaign drives aware- ness of the natural suitability of plastic pipes for sewer and storm- water applications. It also shines a light on real-life case studies from across Europe, showcasing how plastic pipe systems have been successfully deployed in many challenging situations, and are continuing to function dec- ades aŸer their installation. At the centre of the campaign is a dedicated knowledge hub which brings together the results of multiple wide-ranging studies into the performance and behav- iour of plastic pipes when used for sewers. These studies include the 100-Year Service Life of Grav- ity Sewer Pipes report, which investigated the effects of traffic loading and strain, corrosion and other factors on plastic pipes in both field conditions and labora- tory testing. Independently reviewed by an expert from the world of academia, the project proved that a 100-year in-service lifetime could be confidently pre- dicted for EN-compliant plastic pipes. Floris Bordewijk, chairman of the Applications Group Civils at TEPPFA, said: "For decades, we have invested substantially in excavating existing systems to assess their longevity; undertak- ing controlled lab research to quantify the benefits of flexibil- ity; and subjected plasticpipes to continual hours of strength test- ing. We know civil engineers are passionate about the quality of their designs, and by collating this wide range of compelling evidence, we can demonstrate that plastics display all the quali- ties required of a long-lasting sewer pipe system." Caroline Ayres, of TEPPFA, and director of BPF Pipes Group, said: "This strongly supported research by TEPPFA endorses much of the valuable work of our members on below-ground plas- tic pipes, and we wholeheartedly welcome this campaign, which will help set the record straight on plastic and enable specifiers and civil engineers to better understand its benefits." The UK's only gas, water and electricity health & safety conference ALAN FEAKINS Director of health, safety & environment EDF Energy STEPHEN KENNEDY Regional director MWH Treatment GARETH MULLEN Head of safety, health, wellbeing and security Thames Water PENNY TAYLOR Head of utilities team Health & Safety Executive PETER VUJANIC Head of health safety & environment UK Power Networks CLAIRE SIMMONDS Business leader health safety & wellbeing Severn Trent Water DAVID MATTHEWS Group head of safety Anglian Water JUDITH GRANT Associate director health and wellbeing MACE The early booking rate expires 20 October. Places limited - book your place today! www.utilityweek.net/hs SPEAKERS SUPPORTED BY: IN PARTNERSHIP WITH surrounding Brexit and its effect on Sterling, the significant skill shortages per- sisting in the infrastructure industry and increased infra- structure output buoying con- tractors' margins, and it appears likely that water companies' resultant cost inflation will sig- nificantly exceed CPIH during AMP7." more efficiently deliver works in AMP7 since their costs are likely to rise at a faster rate than indexed revenues." Innovation is a key theme on which Ofwat will assess water companies' business plans in PR19. The effect of inflation over AMP7 will ensure that companies will need to innovate to protect margins in a hostile inflationary environment where room for inefficient practices will be sig- nificantly reduced. "Although inflation will present an additional challenge to water companies in AMP7, alongside a historically low weighted average cost of capital (WACC), there are methods for mitigating and managing these risks if companies adopt the cor- rect procurement, contract and "…alongside a historically low weighted average cost of capital (WACC), there are methods for mitigating and managing these risks if companies adopt the correct procurement, contract and incentive models" Edward Day, AECOM

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