Water: Ofwat gets tough

Collaboration with customers and the supply chain is essential if water companies are to deliver the challenging cost savings demanded by the regulator for AMP 6, writes Bernadette Ballantyne.

Sonia Brown, Ofwat

Achieving a five percent reduction in water bills across the industry between 2015 and 2020, while delivering better service, will not be an easy challenge for water companies. Investment plans are still huge, at £43bn for AMP 6 but the pressure to justify investment is greater than ever. 

Right now water companies are cogitating over the draft determination delivered by Ofwat at the end of August and have until 3 October to respond. In some cases this means providing more evidence to justify why their proposed spend is higher than that expected by the regulator. “Some companies provided excellent, customer-focused plans. Others did not include sufficient evidence to justify their plans, and so we stepped in to make sure customers get a fair deal,” says Sonia Brown, chief regulation officer at Ofwat. 

“These are draft decisions and things could still change. Companies will be looking hard at where they need to submit new evidence and we will also continue to challenge hard to make sure that our final decisions result in the best possible deal for customers,” she adds.

  • Average 40% reduction in the time lost to supply interruptions
  • Reduction of 1,200 incidences of internal sewer flooding 
  • Cleaner water at more than 50 beaches with a target of zero serious (category 1 or 2) pollution incidents
  • Other pollutions incidents dropping by around a quarter
  • Saving of at least 340 million litres a day by tackling leakage and promoting
  • Water efficiency – enough water saved to serve all of the homes in Birmingham, Liverpool and Leeds. 

A target of 100% compliance on drinking water quality.\Water companies with the most work to do are Bristol Water, Thames Water and United Utilities. The regulator wrote to the three firms ahead of the draft determination to highlight its concerns and give them additional time to respond. At £562M Bristol Water’s estimates for wholesale water costs were 57 percent higher than those of the regulator who proposed investment of £359M. United Utilities meanwhile proposes investment in wastewater of £3.41bn compared to a regulatory estimate of £2.65bn. 

And Thames Water has been forced to reconsider its cost estimates for the Tideway Tunnel during the next five years, which are forecast at £655M compared to a regulatory estimate of £324M. 

A significant proportion of this is related to Thames’ assertion that it might have to delay the appointment of an Infrastructure Provider (IP) until October 2015 – after the general election. In this scenario Thames Water says it will need to invest an additional £110M however it did not identify what activities this investment would be required for meaning that Ofwat won’t sanction it without more data.

United Utilities meanwhile failed to demonstrate the need for several major wastewater programmes as well as adequately justify its costs.

At the other end of the spectrum South West Water and Affinity Water have been granted “enhanced status” by the regulator, meaning that Ofwat is already convinced that their plans offer best value for the customer and has therefore approved their spending plans early.

Whether the water companies have enhanced status or not the challenge to maintain and upgrade their assets more cost effectively remains. “For the industry this is not about driving savings through cheaper widgets, it is about the outcomes that we are looking to provide and how we deliver those outcomes through different delivery models that are more about collaboration and taking out the inefficiency that is perceived to be in asset creation,” says Andrew Cowell, head of the ACE Utilities Group and engineering director at MWH. 

As the regulatory feedback shows, data is all important for this. “BIM is going to play a role in AMP 6 because it enables some of these more efficient processes linking asset creation and operations through data and then into asset life cycle information management which completely aligns with the totex agenda,” says Cowell.

Water companies are already embracing collaborative working. This month Anglian Water announced two new AMP6 alliances worth £450M, which could run for as long as 15 years. From 2015 to 2020 Clancy Docwra and Kier MG will deliver Anglian Water’s £200M Integrated Metering and Developer Services (IMDS) programme. Barhale, Kier MG and Morrison Utility Services will deliver the £250M Integrated Operational Solutions (IOS) programme, consisting of small replacement and refurbishment projects. 

These awards followed on from an earlier announcement in May that Balfour Beatty, Barhale, Grontmij, Mott MacDonald, JN Bentley, MWH and Skanska would be delivery partners for the main capital works programme. All of Anglian Water’s alliance arrangements have the potential to run until 2030 subject to five year reviews.

Ofwat will publish its final determinations on 12th December.

If you would like to contact Bernadette Ballantyne about this, or any other story, please email