Whitepaper: The Changing Needs Of The Water Industry
The history of the UK’s water industry is a rich tapestry of governmental legislation, collaborative projects and a changing infrastructure. What was once an environment where there were 1,000+ bodies involved in the supply of water has now been whittled down to just 20, with the benefits of economies of scale and better service delivery. Independent bodies established to regulate the water industry – such as the Environment Agency and Ofwat – keep tabs on water company activities, whereas projects such as WIMES and AMP7 aim to set the benchmark for performance, commitment and product specifications. It’s fair to say that the changing needs of the water industry has certainly shaped it, and that is something worth delving into. In this water industry whitepaper, we aim to show how legislation has impacted the water industry, and how AMP7 will continue to mould it. Active within the water industry ourselves – supplying WIMES compliant power supply equipment and maintenance services to a whole host of water companies and their suppliers – we’ve seen first-hand the changing needs of the water industry and can see it has a bright future ahead of it.
The Water Industry: A Brief History
Every single day, over 50 million household and non-household customers in England and Wales receive good quality water, sanitation and drainage services. These services are provided by 32 privately-owned companies in England and Wales, which include Affinity Water, Anglian Water, Bristol Water and Portsmouth Water, along with South West Water, Thames Water, Southern Water, Wessex Water and Yorkshire Water. While some parts of England and Wales enjoyed piped water supplies as early as the 15th century, it was only in the late 18th century that piped water was available to the vast majority of the population. Some years later, the building of sewers allowed many people to access an adequate level of sanitation for the first time.
By the early 20th century, the majority of people had piped water supplies and sanitation. Each area organised its own water and sewerage services, usually by an individual Act of Parliament or Royal Charter. By the end of the Second World War, there were more than 1,000 bodies involved in the supply of water and around 1,400 bodies responsible for sewerage, sewage treatment and sewage disposal. A lot of these bodies were local authorities, and planning for water resources was a highly localised activity, with little coordination at either a regional or national level. Post-war legislation aimed to consolidate water authorities so that they could benefit from economies of scale, and to provide funds for investment in rural areas.
The Water Resources Act 1963 led to further changes, mainly in response to a severe drought in 1959 and flooding events in 1960. In the 1970’s, The Water Act 1973 established 10 new regional water authorities. These authorities were responsible for managing water resources and supplying water and sewerage services on a fully integrated basis. These authorities took over control of the services that local authorities had previously been supplying.
The ten publicly owned water and sewerage authorities were privatised in 1989 (though initial plans for privatisation were paused in 1986). Privatisation was gained by transferring the water supply and sewerage assets, and the relevant staff of the ten existing regional water authorities into limited companies (the water and sewerage companies). This was accompanied by the raising of capital by floating parent companies on the London Stock Exchange, an injection of public capital, the write off of a large amount of government debt, and providing capital tax allowances.
To further protect the interests of customers and the environment, during the initial privatisation stages there was more restructuring of the industry. This included separating the roles of regulation and the provision of water and sewerage services. Three separate, independent bodies were established to regulate the activities of the water and sewerage companies:
The National Rivers Authority – which took over any remaining functions, assets and staff of the water authorities as the new environmental regulator.
The Drinking Water Inspectorate – as the regulator of good drinking water quality.
The Director General of Water Services supported by the Office of Water Services (Ofwat) – as the economic regulator.
These bodies now also regulate the statutory private water companies (the water only companies). In 1996, the functions of the National Rivers Authority were taken over by the Environment Agency. In 2006, the Water Services Regulation Authority (Ofwat) replaced the Office of Water Services and the Director General of Water Services.
With so much ongoing change – including the recent introduction of AMP7 – the needs of the water industry are always finding pace with the needs of the environment and consumers. The next section will outline water industry regulations, to show how projects such as WIMES and governmental legislation have shaped the water industry.
Current Legislation Within The Water Industry
The water and sewerage sectors in England and Wales have to comply with various Acts of Parliament and European Directives. The legislation covers the following areas:
Economic regulation of the sector.
Clean water supply.
Drinking water quality.
Flood and drought protection and adaptation.
The Water Industry Act 1991: Sets out the main powers and duties of the water and sewerage companies, therefore replacing that set out in the Water Act 1989, and defining the powers of the Director General of Water Services (now the Water Services Regulation Authority (Ofwat)).
The Water Resources Act 1991: Sets out the responsibilities of the National Rivers Authority (now the Environment Agency) and introduced water quality classifications, aims and objectives.
The Competition Act 1998: Forbids any agreements between businesses that prevent, restrict or distort competition. It also stops any abuse of a dominant market position. Ofwat and the Competition and Markets Authority (CMA) shares enforcement powers in relation to the water and sewerage sectors.
Along with European Legislation, including the Water Framework Directive, Urban Wastewater Treatment Directive, the Floods Directive and the Sewage Sludge Directive, there is much legislation within the water industry which must be adhered to for customer safety and safe working practices.
WIMES (Water Industry Mechanical and Electrical Specifications) is a Pump Centre collaborative project. Its main goal is to provide common mechanical and electrical specifications for the UK water industry, with all major UK’s water companies being actively involved in the WIMES initiative. There are approximately 72 specifications, associated data sheets and 6 LCC models, which can be downloaded for free by anyone visiting Pump Centre’s website, irrespective of membership status.
There are 9 WIMES specification groups: 1.0 – Pumps; 2.0 – Process treatment; 3.0 – Electrical; 4.0 – Paints & Coatings; 5.0 – Screens; 6.0 – Screenings handling; 7.0 – Sludge treatment; 8.0 – Miscellaneous; 9.0 – CHP Installations.
Each WIMES specification has associated data sheets which guide water industry businesses with their business practices and processes. For example, ‘3.0 – Electrical’ has 14 associated data sheets, which include:
3.02(A): Profibus Networks
3.04: Low Voltage Electrical Specification for Package Plant
3.08: Electric Valve Actuators
Taken together, WIMES and governmental legislation create cohesion between the needs of the water companies and the demand from the general public. Putting safety measures in place and ensuring fair competition between water companies, they both set the foundations for a strong infrastructure that can be built upon for future improvements.
In the next section, we look at one such future improvement – AMP7.
AMP & AMP7
AMP7 – the seventh Asset Management Period planned by the UK water industry – runs from 2020 – 2025. As part of AMP7, water companies have pledged to spend more than £50 billion improving water services and customer support in their business plans to Ofwat (The Water Services Regulation Authority). AMP7 will continue the direction of water industry change set out in AMP6 which saw:
A shift away from large capital-intensive projects.
More investment in proactive rather than reactive asset maintenance.
Greater focus on whole life asset costs.
Optimising the performance of existing assets.
Significant investment in AMP6 in digitisation, automation, telemetry, sensors, metering, SCADA systems, Advanced Process Control systems, Smart Water and Wastewater Networks has enabled water utilities to collect volumes of water usage and customer data and capture more detailed asset management information than ever before. This has helped to formulate collective plans of the water companies in AMP7, most notably:
A 36% decrease in the time that water supplies are interrupted.
The plan to help 1.4 million customers each year with their water bills by 2025.
8000km of river improvements, benefitting people and wildlife.
A 90% reduction in the number of serious pollution incidents, from 52 today to around a half-dozen by the end of the period.
Companies are committing more resources and using new techniques, such as satellite imaging, drones, and even acoustic equipment invented by naval scientists, to find and fix more leaks, with the aim of reducing water leakages by 461m litres every day.
The preparation for drier weather by providing £450 million to explore new water resources such as reservoirs and moving water from areas with plentiful water supply to water-constrained areas.
These collective plans were confirmed by Ofwat in December 2019, and water companies are held accountable for delivering their plans, with their income tied to results. In fact, AMP7 provides financial rewards and penalties for performance (or underperformance) in delivering good customer engagement, affordable bills, resiliency in the water network, and innovation. Companies in Wales will follow a similar process and will publish their own proposals in relation to AMP7.
As part of the price review process in 2019, Ofwat set out four key themes the water companies are expected to take into account in their AMP7 business planning:
Great Customer Service: Demonstrating real responsiveness, reliability and innovation in the way in which companies interact with and service their customers.
Long-Term Resilience: Focusing on the long term, understanding and effectively determining risks and having the right people, infrastructure and processes in place, along with robust finances and corporate structures.
Affordability: Boosting efficiency and delivering water bills that are affordable for all, including people who are struggling to pay.
Innovation: By working with customers, making better use of markets and learning from best practice in other sectors to improve service and increase efficiency.
Water companies provide essential services to customers and the general public, operating as part of the critical national infrastructure in the UK. That’s not without its challenges however, with resilience-based changes common to all water companies including: climate change; population growth; ageing infrastructure; skills and labour affordability; economic conditions; environmental protection.
As part of their commitment to AMP7, water companies will be continually seeking the optimal resilience response to risks to critical infrastructure, processes, systems and networks. The water companies will also need to take into account the government’s ‘4Rs’ four box model which discusses key resilience components, including:
Resistance: Protecting or engineering assets and water systems to withstand resilience events.
Reliability: Ensuring assets and water systems have a wide and stable operating range to function under a resilience scenario.
Redundancy: Duplicating capacity so service can be maintained under a resilience scenario.
Response and Recovery: The ability to effectively recover after a resilience event.
A New Approach To Resilience: A Systems Thinking Approach
Prior to AMP7, Ofwat published a report calling for a systems thinking approach to water resilience and for water companies to adopt a systems thinking mindset at all levels of their business as part of their resilience business planning for the AMP7 investment programme. Ofwat has placed ‘resilience in the round’ at the core of how water companies should approach this issue, including corporate, financial and operational resilience. This is to ensure that water companies gain a better understanding of the interrelationships and interdependencies across the systems, leading to better service delivery.
Examples of a systems thinking approach include micro 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, flood defences, transport and highways drainage systems.
As part of this, all of the water companies’ AMP7 business plans comprise an increased focus on planned and preventative maintenance across all assets as varied as strategic mains pumps, biogas generation facilities, underground storage, reservoirs and dams through to all of the equipment that makes up the water and wastewater services and networks including pumps, filters, clarifiers, dosing systems and control systems.
The Water Industry National Environment Programme
Further to the AMP7 resilience plans, The Water Industry National Environment Programme (WINEP) is a main force in the AMP7 spending plans, with all water only and water and wastewater companies within England having to complete an overall programme of measures between 2020 and 2025 to meet the Environment Agency’s Water Industry Strategic Environmental Requirements.
Enhancing the environment
Improving, better managing and conserving water as a key resource for business, people and wildlife.
Protecting the water environment by contributing to the aims and achievement of water and biodiversity objectives.
Improving resilience in water infrastructure and the natural environment
Improving the resilience of water supply, wastewater, drainage, ecosystems and catchments to the risks posed by extreme weather, climate change and population growth.
Protecting communities from flood risks by setting out and putting in place cost-effective and co-funded solutions.
Achieving excellent performance
Sustaining a high level of performance and operating in a way that protects people and the environment – in other words, sustainable development.
Achieving 4* status on the Environment Performance Assessment.
Ofwat has acknowledged that various types of innovation, such as technology and new ways of working within the supply chain, will be imperative to delivering resilient water resources in the face of rising customer demand and expectations, population growth and climate change. To this end, Ofwat confirmed that it was making £200 million available for innovation activities for the period 2020-25 through the introduction of an innovation competition.
The water companies’ AMP7 business plans also reflect innovation trends, and these include:
Greater Collaboration: Ofwat’s new £200 million innovation fund is intended to stimulate further collective innovation working across the sector.
Artificial intelligence: Increased applications and uptake.
Digital Twins: Digital Twins will become a key decision making support tool for operational applications.
Improved Human Interface: For example, better customer experiences.
Super Internet of Things (IoT): Use of sensors and IoT will increase, as reducing costs makes mass usage considerably easier.
Computer Vision: The improved ability to identify places, objects and people via camera or sensor through technologies such as Utileyes and Mobileye.
5G Internet: Increased bandwidth will allow the collection and transmission of large amounts of data at much faster speeds.
Increased usage of Design for Manufacture and Assembly (DfMA) which seeks to reduce onsite work and use products that can be premade offsite.
Cybersecurity, Data Protection & Data Quality
With technology being such an important part of innovation, water companies will also need to consider their operational activities in relation to cybersecurity, data protection and data quality. In fact, under the new General Data Protection Regulation and Network and Information Systems Directive, failure to protect personal data could result in penalties and fines.
Customer data breaches and employee data breaches, leading to losses of personal data.
Loss of head office data and corporate network due to cyber attacks.
Threat of data corruption for critical datasets, loss of systems and prolonged recovery times.
Infiltration of network and control systems, impacting and disrupting water supply and sewerage services to customers.
Companies at all points in the supply chain will be asked about their water security measures, especially when it comes to the prequalification stage and beyond when the water companies and their Tier 1 partners put schemes of work, equipment and services out to tender where suppliers will need to demonstrate that they can meet these requirements.
For smaller companies, Cyber Essentials can be a strong protective measure against threats such as hacking and phishing, as well as providing data protection. Cyber Essentials is a government-run scheme that focuses on 5 key controls: patch management; malware protection; secure configuration; access control; boundary firewalls and internet gateways. Taken together, Cyber Essentials can provide reassurance that customer data and employee data is protected, and signals to other water companies and stakeholders that cybersecurity is a chief concern.
Great Customer Service
Ofwat’s PR19 outcomes framework comprised of two key elements:
Performance commitments which detail the services that customers should receive and set out the level of performance that the water companies commit to achieve within the 2020-25 period.
Outcome delivery incentives (ODIs), which are reputational and financial incentives for the companies to deliver on their performance commitments, as well as outlining the financial and reputational consequences of outperformance or underperformance.
These incentives means that water companies have to return money to their customers if they fall short, but also provides the opportunity to earn extra financial rewards if they improve their performance and provide customers with a high standard of service.
In AMP7, the water companies are also expected to meet common performance commitments and these include:
External sewer flooding.
Internal sewer flooding.
Leakage supply interruptions.
Mains bursts/mains repairs.
Per capita consumption (PCC).
Two new performance commitment indicators related to measuring customer satisfaction include C-MeX and D-MeX.
The customer measure of experience (C-MeX) is designed to incentivise water companies to offer an excellent customer experience for residential customers, across both the retail and wholesale parts of the value chain.
C-MeX consists of two surveys – the customer service survey of residential customers who have recently contacted their company in relation to that most recent contact, and the customer experience survey of random members of the public to determine their experience of their water company.
In both surveys, respondents are asked how satisfied they are with the service provided, and how likely they would be to recommend the water company to family or friends. This net promoter score result is measured and reported separately to the C-MeX score – which is used to calculate financial incentives.
The developer services measure of experience (D-MeX) is designed to incentivise water companies to offer a great customer experience to developer services customers, which include small and large property developers, self-lay providers and those with new appointments and variations (NAVs). These customers can also comprise residential customers that have new mains connections installed.
D-MeX includes a qualitative element, which is a survey of developer services customers who have recently carried out a transaction with their water company, and a quantitative element which measures performance against a set of Water UK developer services level of service metrics.
Water companies are aiming to meet the affordability performance indicator in various ways.
For example, Affinity Water will reduce the average water bill by 1.6% in real terms by 2025 and a further 2% in AMP8, and will also create their own set of commitments dedicated to supporting customers in vulnerable circumstances. They will be increasing the number of customers receiving support through social tariffs from 57,000 in 2019-20 to 83,000 in 2024-25.
The UK water sector operates in an increasingly fast-paced and changing environment where global trends including climate change, environmental degradation, economic and social change, technological and digital transformation, population growth and demographic shifts are shaping business and society worldwide. The water industry’s infrastructure assets are related and interdependent with critical infrastructure in other sectors such as transport, energy and communications. Given the capital-in tensive nature of the water industry, coupled with the need for new investment, and its impact on customers and communities, water companies need to be financially resilient to the round and be able to weather any unexpected events. Adapting to meet customer needs and adhering to performance commitments sets the stage for a collaborative future not only between the water companies themselves, but also between customers and the water companies they use. This presents opportunities for water companies to expand on their operations and be rewarded both financially and reputionally for their efforts.
The water industry has come a long way since the 18th century, with changes in structure, regulation and legislation to contend with. With each Act brought into play, and each project set up by the water companies themselves, the common goals of cohesion, fair prices and environmental sustainability has paved the way for some pretty exciting developments. And though AMP7 may not be without its challenges, AMP7 provides opportunities for customers and communities to have their voices heard, so that water companies can provide them with the high standards of service they deserve, bolstering public interest and public trust. We may only be at the start of AMP7, but we can’t wait to see the positive impact it has, and what AMP8 will have in store.