Ofwat is calling for the water companies to adopt a systems thinking mindset at all levels of their businesses as part of their resilience business planning for the upcoming 2020-25 AMP7 investment programme

The call comes in the water regulator’s ‘Resilience in the round: Building resilience for the future’ report, published today.

The report sets out ways the water companies might respond to the resilience challenge and  embed resilience into long-term business planning and processes, together with a selection of case studies from companies and organisations across a range of industries.

Ofwat’s 2019 price review methodology consultation in July 2017 set out its draft resilience tests for the initial assessment of business plans and a further iteration of resilience planning principles.

The report says the concept of “resilience in the round” is at the core of how companies should approach the issue, including corporate, financial and operational resilience.

The need to adopt a systems thinking approach at all levels of their businesses will be vital for the water companies to have a better understanding of the interrelationships and interdependencies across the systems underpinning their service delivery.

These include macro systems of the broader natural environment, social systems, the economy and agriculture which operate in association with infrastructure systems such as communications and energy networks and highways drainage.

Impacts on any of these related systems can impact water and wastewater service delivery.

By taking a more systems based approach, Ofwat says companies will be able to see the bigger picture - benefits are likely to include:

• Better customer engagement by helping customers understand the wider context of resilience, e.g. the links between energy security and water security.
• Better planning by understanding system pinch points, eg. bridges vulnerable to flooding which also carry key water and communications infrastructure. Or potential weaknesses in company supply chains which, if well understood, can be better managed.
• Better value options to deliver for long term resilience, e.g. catchment management schemes using environmental systems to deliver long term resilience outcomes, technology solutions such remote sensing and control, big data and analysis, and potentially artificial intelligence as well as the ability to reveal commercial opportunities.

Water companies should  make more use of innovative market-based mechanisms

Ofwat also wants to see companies embracing opportunities to ensure the natural environment, which it describes as "at the core of water and wastewater service delivery", can continue to support long-term resilience. Managed well, the natural system underpins resilience but managed poorly, it will exacerbate many of today’s threats and introduce new threats in the future.

Companies should see the environment not simply as a resource to be exploited, but as a key enabler of long term, best value, resilience, the report says.

Upstream or catchment management (including Sustainable Urban Drainage Systems), water demand management and environmental market approaches should be assessed and implemented wherever they provide best value.

Water companies should also make more use of innovative market-based mechanisms to achieve environmental resilience where they deliver best value for customers. Highlighting  three examples - Wessex Water’s EnTrade, the Severn Trent Environmental Protection Partnership (STEPS), and Anglian Water’s “Slug It Out” – the report says these, and other catchment management and system operation models, have the potential to offer widely applicable lessons.

In Ofwat's view the water companies should now be actively seeking to adopt and develop these innovations to fully exploit their potential.

Natural Capital approach provides opportunity for ecosystems to be incorporated within resilience

The report also draws attention to the Natural Capital approach which provides an opportunity for the value of ecosystems to be better incorporated within the evaluation of resilience. In the 2019 price review business plans Ofwat is expecting companies business plans to consider their broader environmental impact.

The Natural Capital approach could be incorporated into assessments of the impacts of the impacts of company activities, and the impact they have on all facets of resilience in the round where appropriate.

Resilience is an important issue for customers

Resilience is also highlighted as important for customers and companies will need to ensure customers are actively involved in determining the levels of resilience they receive.

Citing examples from other sectors, the report says participation techniques can help companies understand customer behaviour and preferences to improve long term resilience

For example, NHS “Hack days” help policy makers collaborate with experts to work together with patients to create solutions to policy problems. “This type of method should be directly transferable to water companies”, the report says.

At the 2019 price review, part of the initial assessment of company business plans will be how companies demonstrate an appropriate planning approach to resilience management.

Ofwat says the companies will need to focus less on discrete elements of service delivery, such as financial planning, water resources, network operation and wastewater and shift towards a more integrated approach reflecting interdependencies between systems. More than this, planning processes will also need to reflect a deeper understanding of interdependencies with other sectors and systems, such as the energy network, the labour market and supply of critical skills.

Companies should also explore and embrace national, international, and multi-sectoral best practice in planning. There may be opportunities for more widespread use of business continuity management (BCM) standards in the water sector. For example, few UK water companies currently hold a ISO 22301 BCM accreditation, which specifies requirements for a management system to protect against and respond to disruptive incidents.

Smarter approach to resilience now needed

Ofwat says that while the water sector has historically invested in options which enhance capacity, especially operational capacity, it now expects to see companies looking at a wider set of factors in order to deliver ‘smarter’ options for the future.

These factors are likely to include:

• Valuing options which are scalable, adaptable and can be rolled out incrementally, to manage uncertainty without locking a company into fixed options which may subsequently not provide best value in the long term. For example, some demand management interventions can be scaled up and down in response to both short term and long term pressures.
• Addressing multiple threats through a single intervention. For example, enhancing network connectivity to reduce the number of customers reliant a single source of supply. This type of approach can provide water supply resilience to multiple threats such as outages, drought and contamination.

AMP7 business plans will need to develop resilience metrics

The report says that adopting a smarter approach is likely to lead to companies needing to commit to, and to measure, recovery performance levels. Ofwat has set out a clear expectation that as part of the 2019 price review business plans, companies will develop their own forward looking resilience metrics which will need to be focused on what matters for customers.

Referring to the Task and Finish Group on Resilience Metrics, the report says Ofwat expects to see the sector working in partnership to embed the metrics in business plans.

In the regulator’s view,  if customers are better able to understand the relative baseline resilience of the services provided by the water companies they will be “better placed to engage in discussions on levels of investment and costs of resilience options.“

Ofwat puts water sector resilience in the spotlight

Resilience, one of the four themes of Ofwat’s 2019 price review, is taking centre stage today at London’s Kia Oval, with senior figures from across the water sector gathering to discuss what 'resilience in the round' should look like in practice and how water companies can learn from the past experiences and best practices of other sectors.

Speaking in advance of the event, Ofwat Senior Director of Strategy and Planning John Russell said:

“Given the crucial service they provide to their customers, water companies must ensure they are thinking long-term about resilience - operational, financial and corporate. They must ensure they are prepared for the many - often unpredictable – challenges the future may hold, such as climate change, cyber-attacks or extreme weather events. Through today’s event and our ‘Resilience in the round: Building resilience for the future’ report, Ofwat is aiming to help companies get a better understanding of what resilience means in practice, by exploring best practice in the water sector and beyond”.

Click here to download Resilience in the round: Building resilience for the future