The National Infrastructure Commission has written to Ofwat to highlight some of their concerns regarding the industry’s attitude to asset management.
The Commission is particularly concerned about the present approach to managing ageing underground assets, with a lack of consistent cross-sector understanding of the rate of likely asset deterioration over time.
They suggest Ofwat needs to develop a more consistent and future looking approach to how the health of assets is measured and reported, and this should then inform the amount that will need to be allocated over multiple investment periods (AMPs) to ensure water networks remain resilient.
The letter highlights that at the last price review (PR19), Ofwat allowed company investment based on plans to renew water mains at a rate of 0.4 per cent per year which – once you bear in mind that around 40% of assets were renewed or replaced over the previous 30 years – suggests assumed asset lives of up to 180 years for the rest.
The letter states: “The Commission believes that Ofwat should take a lead on asset health and, building on its work on asset management maturity, develop consistent forward-looking metrics for defining and measuring asset health. This could be underpinned by a regulatory mechanism requiring companies to develop a longer term and more in depth understanding of the health of their assets, which is used as the basis for investment proposals. This could be in the form of a licence requirement or an appropriate incentive mechanism.
“A better understanding of long term asset health will enable the water sector to prepare for future climate resilience challenges. As set out in the Climate Change Committee’s third Climate Change Risk Assessment, some water assets are particularly vulnerable to projected changes in climate. For example, water pipes will be more vulnerable to bursts caused by drought-related soil movement, increasing leakage rates. As the sector seeks to reduce leakage, a better understanding of asset health will also enable a higher level of preparedness for future resilience challenges. For service performance and resilience reasons, and the need to understand asset condition to enable multi-AMP planning, the Commission encourages Ofwat to play a leadership role and work closely with companies.”
