In an Expert Focus article for Waterbriefing, Richard Whale, water market director for Atkins (a member of the SNC-Lavalin Group), provides a viewpoint of Ofwat’s interim responses to the PR19 submissions.

Richard Whale: With only three water companies having achieved the fast track status from Ofwat, there is no doubt that the position of the regulator has been challenging, and predictably so. What is also of interest is the key positions that have emerged concerning leakage, drainage and wastewater planning, direct procurement contracts and water resilience.

Leakage

Ofwat has acknowledged the general commitment across the water companies to the 15% leakage reduction target for AMP7, however, what is also apparent is that the regulator expects to see better performance on leakage by those companies with the highest leakage rates - a view shared by Michael Gove back in January.

Whilst it is unclear as to how ‘Sustainable Economic Level of Leakage’ in Water Resource Management Plans generally align with company business plan objectives on leakage, it is essential to acknowledge the overwhelming support from Government, Ofwat and water companies to quickly bring leakage down to politically and environmentally sustainable levels. As consultants, we have a significant role to play in this by looking at a suite of measures to support water companies deliver the business plan commitments efficiently.

Drainage and wastewater planning

What is also evident is the theme of resilience, and specifically the need for water companies to use a systems-based approach to risk evaluation and planning, even for the companies that have been fast-tracked. The specific mention of the need for water companies to provide detailed plans for their implementation of the drainage and wastewater management framework (which sets out the requirements and methodology to produce 25-year plans) is interesting and in my view is very welcome.

The Water UK framework, developed by the Atkins team, provides the basis for more collaborative and integrated planning with and alongside organisations that have responsibilities relating to drainage, flooding and protection of the environment. The plans, which will incorporate company-wide drainage and wastewater management plans, catchment plans and local drainage and wastewater strategies for sewage treatment, are required by 2022 and need to be incorporated into PR24. What is more pressing is the challenge to provide a detailed work programme by August 2019 to assure their delivery. This could represent a significant challenge to some water companies who have not yet started to progress along this route.

Direct Procurement Contracts

Whilst it is positive to see the number of major infrastructure projects promoted in the water companies’ business plans for 2020–25, it is surprising to see that only one scheme is promoted through direct procurement (Manchester Resilience).

Although Ofwat acknowledges that the case for direct procurement has been well applied, numerous projects have been rejected by the water companies who cite technical reasons and value for customers’ money as the rationale – reasons which Ofwat sees as unjustified. In contrast, Ofwat commends United Utilities for providing an example of good practice in its value for money assessment.   Whilst it is difficult to predict how water companies might now respond to Ofwat’s request for further information, there is no doubt agreement across the board on the genuine need for significant investment in these projects to ensure improved customer service and asset resilience.

Water resilience

A further theme is water supply resilience, which is highlighted through the provision of a £360 million investment in future resilience to facilitate the development of strategic water resources options for the South and South East of England. The funding, equivalent to 6.4% of the total scheme costs from the companies Water Resources Management Plans, allows companies to progress the assessment of long term strategic water resource schemes for the South and South East of England, including strategic transfers of water from the North West.

The proposed investment builds on the Atkins-led work undertaken for companies’ WRMPs, utilising the Water UK Long Term Planning Framework, which provides a step change in planning and delivering future resilience of water resources. The funding also provides a great opportunity to build on the collaborative approach to planning that has been developed to date, emphasising the continued need for companies and stakeholders to work together in undertaking more detailed feasibility and planning of these schemes. The way funding has been allocated would appear to ensure that all companies have been encouraged to have a stake and have active engagement in planning. This may however create a challenge for some smaller companies where support, collaboration and trust will be key.

Overall, what is clear from Ofwat’s assessment, and indeed the submissions of the water companies, is that AMP7 promises to be a fantastic challenge to all its stakeholders – a challenge which I am positive can be met through collaboration, innovation and determination.