RD 17/02

TO REGULATORY DIRECTOR OF ALL
WATER AND SEWERAGE COMPANIES AND
WATER ONLY COMPANIES

CAPITAL MAINTENANCE METHOD STATEMENTS

In our recent paper 'Maintaining water and sewerage systems in England and Wales: our proposed approach for the 2004 periodic review', we asked you to set down your plans for using the common framework in a brief method statement in July or August this year.

At the 8 May workshop and subsequently a number of your colleagues have sought some guidance on the scope and content of the method statement. This is attached.

Yours faithfully

BILL EMERY
Director of Costs & Performance

and Chief Engineer

We would like you to provide us with a short paper, by 2 August 2002, on how you intend to approach your assessment of long term capital maintenance needs in your business plan (draft and final) in the light of recent developments (including UKWIR's capital maintenance planning common framework and our consultation paper 'Maintaining water and sewerage systems in England and Wales: our proposed approach for the 2004 periodic review'). We would like to understand whether and how you will address the issues set down in MD161.

We envisage a statement of 4-6 pages (water and sewerage companies); 3-4 pages (water only companies).

2. Guidance on preparing your method statement

In the paper, we should like to see highlighted the key issues for your company, how your strategic assessment aligns with your detailed distribution zone and drainage area studies, and how far you consider you will be able to align your approach with the UKWIR common framework. Please set down the strengths and weaknesses in your information and how you would aim to mitigate the associated risks. Please state in which areas of service you are considering working up cost benefit options.

Points you might like to consider:

• How you intend to take account of advanced capital maintenance on serviceability indicators, changed operational effects, and other masking issues?
• What other indicators not used by us will feature in your assessment?
• Your approach to updating the asset inventory, any changes to data capture and systems and any impact such changes will have on the ability to compare condition profiles with previous asset inventory submissions.
• What data capture, research and modelling, and analysis is in place, or planned for the next review?
• How you will arrive at your assessment of economic levels of capital maintenance going forward?
• How you expect to demonstrate robust appraisals of:
  • physical asset base and rates of deterioration
  • efficient operational activities to maintain serviceability
  • optimal cost balance between operating expenditure and capital expenditure?
• What are the key assumptions you will need to make, and in which areas do you expect judgement to be required to be made in lieu of hard fact/information? What is being put in hand, in which of these areas, to reduce reliance on judgement in the future?
• Where you see the scope for future efficiency savings and your method for estimating them?
• How you will build improving efficiency into the forward looking analysis, to check that optimum solutions have been derived?
• How you will estimate overlaps between improvement programmes and capital maintenance?
• What sensitivity checks you envisage?
• What quality assurance procedures you plan to do?
• How you intend to confirm that the high level, serviceability-based assessment of capital maintenance matches detailed plans (medium term) and programmes (short term)?

We would like your reporter to comment on your statement. We would also appreciate comment on whether, in his opinion you hold sufficient data to be able to present robust, economic cases for capital maintenance at PR04.

4. Discussion and feedback

We will review your method statement. It may be helpful to meet to discuss what you propose. We will give you short, company-specific feedback later this year on your method statement.