David Black, Senior Director, Water 2020 at Ofwat, has outlined the regulator's concerns about how shortcomings in the water companies’ approach to asset management and maintenance are impacting on resilience, a key theme of PR19.

Consideration of operational resilience and how well companies assessed and prioritised risks to the delivery of the services over the next five years and over the longer term was an important element of Ofwat’s initial assessment (IAP) of the companies'  PR19 business plans

Speaking at a water industry conference on asset management In Birmingham last week, David Black told his audience:

“We know the water sector is asset intensive …… So what did we find in the IAP assessment of operational resilience?

“Disappointingly, most business plans lacked a clear line of sight between the risks to resilience identified by the company, the proposed mitigations presented in the plan to tackle these risks, and how these mitigation plans are reflected in performance commitments.”

Understanding the condition of both above and underground assets is critical both to developing an effective asset maintenance programme and ensuring that asset replacement is targeted at the right place and the right time, he said. In contrast to other utilities, the water sector is “highly dependent on reactive maintenance or fixing problems when they appear.”

For PR19, Ofwat has introduced the following four mandatory common asset health Performance Commitments so that companies’ performance can be more easily compared:

• mains repairs (bursts)
• unplanned outage
• sewer collapses
• sewage treatment works compliance

In addition to the common PCs, the water companies were also able to develop bespoke performance commitments to reflect their own customers’ needs and preferences.

For the first time in a price review, the regulator also allowed companies to propose asset health outperformance payments or rewards, alongside underperformance payments or penalties.

According to David Black, Ofwat expects companies to systematically consider options that enhance the reliability, resistance, redundancy, response and recovery of systems and services.

However, delegates heard that "in particular" Ofwat had found that “bespoke resilience performance commitments often did not reflect companies’ approaches to resilience or their asset management strategies.”

Bespoke resilience performance commitments (e.g. percentage of population supplied by single supply system) could be used to complement common asset health commitments (which relate to asset reliability) – however, “bespoke resilience performance commitments were rarely used in this way,” he added.

He went on to explain that at a corporate level, while the business plans usually described “well established systems and processes” to identify and assess risks to resilience, these were "not fully integrated" into the companies’ decision making. While the firms generally had some form of asset management system in place, the effective use of such systems to inform asset health improvements in the context of resilience risks had not been clearly demonstrated in their plans, Black said.

“As a consequence, there is insufficient evidence that the identification, assessment and mitigation of risks to resilience are embedded in companies’ decision making and oversight.”

Following the initial assessment , Ofwat has set out a detailed set of actions for companies falling short of expectations to address. The regulator has also asked them to “review and address our concerns around the stretch of their asset health performance commitment and level of outcome delivery incentives”,

David Black commented:

“I am confident that with further work companies approach to resilience and asset management can address the challenges the sector faces.”

Looking beyond the current PR19 Price Review, to the next investment period 2025-30, he told delegates:

“One issue emerging from PR19 is the dependence on backward looking measures of asset health and raises the question of whether we could develop more forward looking metrics. We have set out two new forward looking measures for operational resilience as part of our common performance commitments.”

“ I am conscious that developing robust new measures takes time, particularly, if shared measures are to be developed across companies, so an early start on this will be required for PR24.”