UK WIR The UK Experience Christopher Royce Anglian Water Services.

UK WIR

The UK Experience

Christopher Royce

Anglian Water Services

UK WIR

Agenda

UK developmentUK Regulation Common framework Lessons learned Data Performance Investment Risk

Development areasConcluding remarks

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Development

• The move of utilities to a three ball model• Owner• Asset manager • Service provider

● International models● Best practice from other large asset owners

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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

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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)

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Asset management

● Quality obligations• Water• Wastewater

● Growth● Service enhancements● Maintenance – serviceability to customers

Maintenance is the focus of this presentation

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The UK Regulation model

Drinking Water Inspectorate

Maintenance of assets

Environment Agency

Government & other groups

Customers

NEEDS

What do we need to do?

How fast do we need to do it?

How much should it cost?

OFWAT REVIEW(Every five years but 20

year horizon)

STRATEGIC BUSINESS PLAN

5 year contract with specific outputs

Annual reporting of progress and outputs

Health Authorities

ECONOMETRIC MODEL

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Ofwat 4 Stage Approach

Maintain serviceability based on current trends & information

Is the future period different? Using risk based and other methods to estimate changes in the level of

maintenance required for the future

Scope for improvements in efficiency - general and company specific

Taking account of overlaps between capital maintenance and enhancement programmes

Stage A

Stage B

Stage C

Stage D

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Future spend projections

0.0

0.5

1.0

1.5

2.0

2.5

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

Financial year ending 31 March

£ b

illio

n

Our projected capital maintenance

Companies' capitalmaintenance projections

Actual capital maintenance and companies'estimate for 2004-05

0.0

0.5

1.0

1.5

2.0

2.5

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

Financial year ending 31 March

£ b

illio

n

Our projected capital maintenance

Companies' capitalmaintenance projections

Actual capital maintenance and companies'estimate for 2004-05

Developed through a common framework

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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 PlanningA common framework

UKWIR Report Ref. No 02/RG/05/3

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CM ImplementationCapital 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 AnalysisIdentify the historical levels of maintenance expenditure and serviceability indicator trends

Stage BIdentify future maintenance expenditure to meet regulatory objectives

Stage CCompare 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

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Process

Focus the analysis

Select the planning objective

Design & initiate customersurveys (optional)

Identify failure modes

Obtain asset observations

Validate estimation methods

cost of failure

Develop estimation methods for:

probability of failure

consequences of failure

Forecast service

Identify intervention options

Estimate impact of interventions

Value service changes(optional)

Estimate intervention costs

Select optimal interventions

Monitor service and failures

Preparation

Service and costforecasting

Interventionanalysis

Forward-looking

Analysis

Collate and categorise costsConclusions

Compare & explain

Assess scope forfurther efficiencies

Present the case

A

Historical & current values

Expenditurereview

Service & assetperformance

review

HistoricalAnalysis

Identify typical expenditure

Select indicators

Reveal underlying trends

Identify historical expenditure

Draw conclusions

Identify asset categories

B

C

Historical Analysis

Forward-looking Analysis

Conclusions

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Ofwat assessmentIndustry totals from 2005-06 to 2009-10 Five-year total

£M Companies’ business plan projections 9,447

Five years of average expenditure over the period 1992-93 to 2001-02

7,401

Sta

ge A

Stage A – Ofwat assessment of expenditure required to maintain stable serviceability in 2000-01 to 2004-05

7,463

Aggregate % uplift assessed as necessary to maintain stable serviceability in 2005-06 to 2009-10

19%

Sta

ge B

Stage B – Ofwat assessment of expenditure requirements to maintain stable serviceability in 2005-06 to 2009-10

8,894

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Models and tools

Historical Performance Models

Predictive Performance Models

Option Models

Cost Models

Financial Models

Investment Prioritisation Model

Asset Groups

Risk Models

Asset Data & Information

Policy Performance Investment Data



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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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

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Data make it visible

A download from an Operational Common Database indicates we have assets in the Wash and North Sea!



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



Top down

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Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



Top down measures

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Asset grouping

Water Service Non Infrastructure

Surface water treatment worksGround water treatment works

Pumping stationsMeters

Plant, vehicles, offices etc.

Wastewater Service Non Infrastructure

Sewage pumping stationsSewage treatment works

Sludge treatment facilitiesPlant, vehicles, offices etc.

Wastewater Infrastructure

Critical sewersNon critical sewers

Pumping mainsSewer structures

Plant, vehicles, offices etc.

Water Infrastructure

MainsCommunication pipesRaw water reservoirs

Treated water reservoirsAqueducts

Leakage maintenancePlant, vehicles, offices etc.

Below ground assets

Above ground assets



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Burst frequency model

Burst frequency model

Interruptions model

Water quality model

Optimal set of interventionsMains

data

Weather data

Expert opinion

Service risk targets

Intervention options

Scenarios

Replacement costs

Repair costs

Refurbishment costs



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Bursts predictions

Bursts Predicted

0

50

100

150

200

250

300

350

400

450

19

86

198

7

19

88

19

89

199

0

199

1

19

92

199

3

199

4

19

95

199

6

199

7

19

98

19

99

200

0

20

01

20

02

200

3

20

04

20

05

200

6

20

07

20

08

200

9

20

10

20

11

201

2

20

13

20

14

201

5

20

16

20

17

201

8

20

19

20

20

Year

To

tal

Bu

rsts

Actual Future - Average Weather Data

Past Predicted Future - Same W eather As Past

Future - Average Rolling W eather



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Non infrastructuremethodology is based on Failure Mode Effects & Criticality Analysis (FMECA), incorporating reliability theoryidentify generic asset groups, i.e. similar processes and consequencesidentify principal failure modesfor each failure mode:

estimate probabilities of failure (failure rates)estimate service consequences of failure & impact probabilitiesestimate cost consequences of failure

identify intervention optionsreplace or refurbish and/or operational changes

assess costs and benefits of interventionsselect optimal interventions



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Consequences of failure



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Wastewater pumps

0

1

2

3

4

0 1 2 3 4 5 6 7 8 9

Age (years)

Fail

ure

Rate

(p

er

year)

Failure rate data validation

Expert panel estimate



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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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

Wastewater treatment works - form of results



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



Condition / Performance

Time

Condition

Operational Maintenance

Overall Performance

Required Performance level

Intervention Point

When to invest

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Typical investment decisionOperational Cost / P.E. vs Performance of STW

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-80 -60 -40 -20 0 20 40

Performance Score

Oper

atio

nal

Cost

/ P.

E. Capital Solutions ?

Learn Lessons

Opex Efficiency ?

Opex Solutions ?

ExpectedOptimum



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Cost riskOption 1 – cost certainty

The amount of investment is capped at a fixed point in time

Risk

£

Performance

Optimum for cost certainty

Intervention point



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Performance riskOption 2 – performance certainty

The level of performance is fixed and the investment will be flexible

£Risk

Performance

Optimum for performance

certainty



Option Models

Cost Models

Financial Models


Asset Groups

Risk Models





Option Models

Cost Models

Financial Models


Asset Groups

Risk Models



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Common framework

Company banding

Leading

A

Above intermediate

B

Intermediate

C

Below intermediate

D

Trailing

E

Factor applied to expenditure (excluding exceptional items)

100%

75%

50%

25%

0%

Number of sub-services assessed in each category (total 64)

5

22

29

7

1

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

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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

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Conclusion

Overall a good start in the UKMore emphasis in 2010 – 15Opportunities to share dataSome development areas

Heralded as a success by Ofwat and the Industry

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Thank you

[email protected]

UK WIR The UK Experience Christopher Royce Anglian Water Services.

Documents

uk wir future

uk wir development

uk wir ofwat

customers maintenance

future maintenance expenditure

common framework slide

02rg053 slide

presentation slide