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Price review 2009
PR09/12 13 June 2008 Dear Regulatory Directors Asset resilience to flood hazards: Development of an analytical framework Earlier this year we commissioned Halcrow to produce an analytical framework for assessing and improving asset resilience to flooding. The work by Halcrow is now complete and its report 'Asset resilience to flood hazards: Development of an analytical framework' has been published on our website. This work arose from last summer's floods and the need for a consistent approach towards improving asset resilience and service to consumers. The analytical framework delivers a number of the recommended actions from our December 2007 report, 'Water and sewerage services during the summer 2007 floods.' In our PR09 methodology paper, 'Setting price limits for 2010-15: Framework and approach' we asked companies to review the risk to their critical assets from flooding and to identify whether further investment is necessary. The analytical framework provides supplementary guidance on how to do this. It takes the form of a step-by-step process, outlining how to assess the service risks from asset flooding and how to identify appropriate options for increasing resilience using cost-benefit analysis (CBA). This process is consistent with our PR09 principles of taking a risk-based approach to asset management and applying CBA to justify investment decisions, within the context of consumer preferences and willingness to pay. We expect each company to use this report to support its approach to asset resilience within their business plans. Each company will need to demonstrate that it has identified the right set of measures to improve resilience, where appropriate, along with the time frame for taking action. We expect that the principles outlined within the framework will be applied in a clear and transparent manner. The additional benefits delivered by any new proposal to increase resilience should be clearly stated in terms of both increased level of service to consumers and increased flood protection offered. We recommend that the framework should be applied on a company wide basis before focusing on single assets. This is particularly important when a hazard can simultaneously have an impact on multiple assets. Wider geographical regions should also be considered when examining potential solutions. In some cases network interconnectivity can provide additional resilience to service and may result in a requirement for less intensive engineering solutions. Climate change presents new challenges in terms of risks from flooding and this is taken into account within the framework. It is clear that adaptation, in terms of increased resilience, will be necessary in the future. However, given the uncertainty associated with climate change, an adaptive approach – in which a series of smaller solutions (low regret) are adopted – is likely to offer the most appropriate response. Although the framework focuses on the risks from flooding, many of its steps can be applied to other hazards. We expect each company to consider the wider risks to its assets and apply the same principles in order to justify potential investments to increase resilience. Each company will be expected to work co-operatively with others to ensure that external risks, such as lack of access to sites or loss of grid power, are fully integrated into their risk management strategies. The application of this framework and each company's overall approach to resilience should be placed in the context of its strategic direction statements. We expect that resilience should be improved over time in a phased, transparent and systematic manner. If you wish to discuss any issues arising from this report, please contact me by e-mail at mike.keil@ofwat.gsi.gov.uk. Yours sincerely Dr Mike Keil Head of Climate Change Policy  |
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