16 May Why Pollution Fines Should Be a Turning Point For Water Companies
Posted at 13:27 in Resilience by Rene Willemsen
Under investment and a lack of resilience have always posed a risk to the assets and infrastructure that utilities rely on to deliver their services effectively.
However, despite AMP6’s focus on customers (which is essentially a euphemism for serviceability and reliability), there is no shortage of instances where water companies are failing to maintain critical infrastructure.
The failure to proactively maintain critical assets poses a significant risk to serviceability, made all the more significant by the rapid ageing of much the UK’s water infrastructure.
As California’s Oroville Dam spillway incident has clearly shown us, ageing and deteriorating infrastructure – even on a grand scale – often goes unnoticed for extended periods of time before disaster strikes, fines are issued by regulators, funding is cut, and investor confidence is shaken.
We’ve seen this back home too in the form of major pollution incidents from a number of utility companies that have breached Environmental Agency regulations and been punished accordingly.
From sewer leakage into rivers to the growing impacts of flood ingress on key assets, asset failures are impacting on service continuity and threatening future AMP7 funding; There has never been more of an incentive for water companies to take asset resilience more seriously.
A Wise Investment
Although some companies cite front-loaded costs as the main barrier to investment in resilience, the ironic reality is that asset resilience and Totex contracting solutions actually save significant amounts of money in the long-term by extending the life of critical assets and identifying problematic areas before they develop into major incidents.
Pollution fines are nothing new within the water sector, but recent penalties and the associated adverse publicity have again raised awareness and challenged the value of traditional investment programmes that have favoured capital development over proactive maintenance.
Imagine the value created had the penalties imposed been available for investment in proactive maintenance providing robust, effective, and reliable processes, systems, and technology. To help put this into perspective, bare in mind that the costs of relining bunds, or refurbishing tanks, filter beds and storage tanks usually lie in the region of tens of thousands of pounds – significantly less than the direct costs incurred through fines, loss of service and indirectly the damage caused to investor confidence.
While I can’t speak for other technologies, it’s worth considering that our Polyurea protective coatings are guaranteed to extend the life of assets by at least ten years. The length of this guarantee alone shows that the financial case for asset resilience solutions cannot be contested.
This is especially clear in today’s climate where assets are continually subjected to the unprecedented risks from climate change, growing demand due to exponential population growth, and tougher regulatory markets that are forcing water companies to improve efficiency.
Then there’s the matter of AMP6 and ODIs.
Meeting ODIs For AMP6
Every water company will be aware that it is being judged on its performance against the commitments outlined in its business plans and the extent to which it delivers customer outcomes.
Equally important is that companies will be financially rewarded where ODIs are either met or exceeded. Where ODIs are not met, AMP7 funding will also be cut accordingly, making it even harder to meet subsequent business objectives.
Given serviceability, SIM survey results, interruptions to supply, leakage and pollution are widely regarded as the top five areas of Ofwat’s reward and penalty allocation, I believe the days of placing asset resilience on the backburner are well and truly over.
At a time when ageing assets are placed under mounting pressure from the environment and customer demand, a major pollution fine should no longer be seen as another bad news story but rather as a turning point heralding a new era of Totex asset stewardship.
For more information on Adler & Allan’s comprehensive range of asset resilience services for water companies and critical infrastructure, visit our dedicated website.