1. UK WIR The UK Experience Christopher Royce Anglian Water Services

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

3. UK WIR 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. UK WIR 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. UK WIR 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. UK WIR Asset management ● Quality obligations Water Wastewater ● Growth ● Service enhancements ● Maintenance – serviceability to customers Maintenance is the focus of this presentation

7. UK WIR 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

8. UK WIR 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

9. UK WIR Future spend projections Developed through a common framework

10. UK WIR 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. UK WIR 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. UK WIR Process Historical Analysis Forward-looking Analysis Conclusions

13. UK WIR Ofwat assessment

14. UK WIR Models and tools

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

17. UK WIR Top down

18. UK WIR Top down measures

19. UK WIR Asset grouping 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. Wastewater Infrastructure Critical sewers Non critical sewers Pumping mains Sewer structures Plant, vehicles, offices etc. Water Infrastructure Mains Communication pipes Raw water reservoirs Treated water reservoirs Aqueducts Leakage maintenance Plant, vehicles, offices etc. Below ground assets Above ground assets

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

21. UK WIR Bursts predictions

22. UK WIR 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. UK WIR Consequences of failure

24. UK WIR Failure rate data validation Expert panel estimate

25. UK WIR 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

26. UK WIR Required Performance level Intervention Point When to invest

27. UK WIR Typical investment decision

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

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

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

31. UK WIR 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. UK WIR 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. UK WIR Thank you croyce@anglianwater.co.uk