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The UK Experience

The UK Experience. Christopher Royce Anglian Water Services. Agenda. UK development UK Regulation Common framework Lessons learned Data Performance Investment Risk Development areas Concluding remarks. Development. The move of utilities to a three ball model Owner Asset manager

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The UK Experience

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  1. The UK Experience Christopher Royce Anglian Water Services

  2. Agenda • UK development • UK Regulation • Common framework • Lessons learned • Data • Performance • Investment • Risk • Development areas • Concluding remarks

  3. Development • The move of utilities to a three ball model • Owner • Asset manager • Service provider • International models • Best practice from other large asset owners

  4. Regulatory process • Periodic review every five years • Prices for 2005 –10 just completed • Cost base submission • Draft business plans • Final business plans – April 2004 • Draft determination – August 2004 • Company representations • Final determination – December 2004 • Effective date – 1 April 2005

  5. Regulatory process Requires companies to state: • Costs and timescales for new obligations • What customers require • What service enhancements companies propose • Efficiencies • Future spend to cater for growth • Future spend projections for maintenance • Impact on customers bills Asset Management Plan (AMP4)

  6. Asset management • Quality obligations • Water • Wastewater • Growth • Service enhancements • Maintenance – serviceability to customers Maintenance is the focus of this presentation

  7. NEEDS OFWAT REVIEW (Every five years but 20 year horizon) Drinking Water Inspectorate What do we need to do? Environment Agency STRATEGIC BUSINESS PLAN 5 year contract with specific outputs How fast do we need to do it? Government & other groups Customers How much should it cost? Health Authorities Maintenance of assets ECONOMETRIC MODEL Annual reporting of progress and outputs The UK Regulation model

  8. Maintain serviceability based on current trends & information Stage A Is the future period different? Using risk based and other methods to estimate changes in the level of maintenance required for the future Stage B Scope for improvements in efficiency - general and company specific Stage C Taking account of overlaps between capital maintenance and enhancement programmes Stage D Ofwat 4 Stage Approach

  9. Future spend projections Developed through a common framework

  10. Why a common framework MD161 2000 (Maintaining serviceability to customers) ‘Each company needs to demonstrate how the flow of services to customers can be maintained at least cost terms of both capital and operating expenditure, recognizing the trade off between cost and risk, whilst ensuring compliance with statutory duties’ Competition Commission Referral ‘Given the importance of the issue, we are disappointed that the Director and the industry have not co-operated to develop an agreed methodology for assessing both serviceability to customer and asset condition’ Capital Maintenance Planning A common framework UKWIR Report Ref. No 02/RG/05/3

  11. CM Implementation Capital maintenance is defined as the renewal or refurbishment of capital assets in order to provide continuing service to customers and the environment consistent with current regulatory obligations. Stage A Historical Analysis Identify the historical levels of maintenance expenditure and serviceability indicator trends Stage B Identify future maintenance expenditure to meet regulatory objectives Stage C Compare and explain results of historical and forward-looking analyses; make the case for the required level of future maintenance Main focus for improvement in the development of the Common Framework

  12. Process Historical Analysis Forward-looking Analysis Conclusions

  13. Ofwat assessment

  14. Models and tools

  15. Application To apply the common framework you need to understand: • Asset deterioration rates • Likely changes in asset performance, and resulting impact on service • The costs of replacing assets, compared with the costs of maintaining deteriorating assets This all needs to be supported by robust data and information

  16. Data make it visible A download from an Operational Common Database indicates we have assets in the Wash and North Sea!

  17. Top down

  18. Top down measures

  19. Asset grouping Above ground assets Water Service Non Infrastructure Surface water treatment works Ground water treatment works Pumping stations Meters Plant, vehicles, offices etc. Wastewater Service Non Infrastructure Sewage pumping stations Sewage treatment works Sludge treatment facilities Plant, vehicles, offices etc. Water Infrastructure Mains Communication pipes Raw water reservoirs Treated water reservoirs Aqueducts Leakage maintenance Plant, vehicles, offices etc. Wastewater Infrastructure Critical sewers Non critical sewers Pumping mains Sewer structures Plant, vehicles, offices etc. Below ground assets

  20. Burst frequency model Service risk targets Intervention options Scenarios Weather data Optimal set of interventions Interruptions model Mains data Expert opinion Water quality model Repair costs Replacement costs Refurbishment costs Burst frequency model

  21. Bursts predictions

  22. Non infrastructure • methodology is based on Failure Mode Effects & Criticality Analysis (FMECA), incorporating reliability theory • identify generic asset groups, i.e. similar processes and consequences • identify principal failure modes • for each failure mode: • estimate probabilities of failure (failure rates) • estimate service consequences of failure & impact probabilities • estimate cost consequences of failure • identify intervention options • replace or refurbish and/or operational changes • assess costs and benefits of interventions • select optimal interventions

  23. Consequences of failure

  24. Failure rate data validation Expert panel estimate

  25. Wastewater treatment works - form of results • number of effluent quality failures per year • number of flow compliance failures per year • odour risk • flooding risk • pollution incident risk • sludge diversion/tankering risk • H&S risk • overall risk measure • cost

  26. Intervention Point Required Performance level When to invest

  27. Typical investment decision

  28. Intervention point Optimum for cost certainty £ Performance Cost risk Option 1 – cost certainty The amount of investment is capped at a fixed point in time Risk

  29. Optimum for performance certainty Risk £ Performance Performance risk Option 2 – performance certainty The level of performance is fixed and the investment will be flexible

  30. Common framework Ofwat have assessed the implementation of the common framework for each company and each sub service

  31. Development areas • Top Down vs Bottom Up Approaches • Risk Identification • Deterioration Models • Non Infrastructure – Measurement of the Consequences of Failure • IT Assets and other short lived assets

  32. Conclusion • Overall a good start in the UK • More emphasis in 2010 – 15 • Opportunities to share data • Some development areas Heralded as a success by Ofwat and the Industry

  33. Thank you croyce@anglianwater.co.uk

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