Publication of Targeted Review of Asset Health

When assets fail, it can have serious effects on customers and the environment. A mains burst, for example, can lead to loss of water supply for extended periods of time as well as localised flooding, property damage and public safety hazards. A sewer failure can create major public health issues and environmental damage.

Water and wastewater companies have clear legal duties to maintain and manage their water supply and public sewer system assets, as well as to improve and extend them, in order to provide a good level of service to customers on a sustainable basis.

We have today (14 September 2017) published ‘Targeted Review of Asset Health and Resilience in the Water Industry’ undertaken on our behalf by CH2M.

We commissioned this report from CH2M to help us better understand how water and wastewater companies in England and Wales are approaching the measurement and management of asset health and how this contributes to their wider approach to resilience.

CH2M acknowledges that water companies have developed analysis to help model aspects of asset health risks and suggest where investment might be necessary. This report suggests that all companies have assurance processes in place relating to data, tools and systems as well as emergency response and the commissioning of new assets. This is part of the picture, but this study hasn’t tested or assured individual company processes, or assessed their effectiveness in practice.

The study highlights several long-standing issues of concern to Ofwat. We think there are a number of challenges and opportunities for companies:

  • Driving greater innovation in the sector. CH2M says the water companies in England and Wales have been active in trialling, testing and adopting technology, but this has not yet led to a clear step-change in either asset performance or understanding of risks to service. The report points out that innovation in other sectors is considerably greater.
  • Ensuring a long-term mind set is adopted when considering investment in asset health. Some companies said they tended to focus on performance within the review period and that they generally monitor asset health by considering current failure rates, rather than using leading indicators of long-term risks.
  • Developing a stronger understanding of how asset health affects service. CH2M highlights a particular concern for high consequence infrastructure assets, especially where the probability of failure is very low. Companies should consider developing further their understanding of the location of these assets, how the health of these assets will impact service, and consider whether capital maintenance needs to keep pace with asset deterioration. For non-infrastructure assets, CH2M believes there could be major opportunities for optimising maintenance strategies and improving efficiency through a better understanding of the underlying systems.
  • Better engagement with customers on how asset health affects resilience. The review highlights that some companies have difficulties in engaging with customers around asset health.
  • Responsibility for delivery all the way through the supply chain. Some water companies rely heavily on delivery partners, contractors and suppliers. CH2M suggested that these relationships may merit further scrutiny. In particular, there is not always evidence of an independent view and assurance when new assets (in particular, complex ones) are put into service.

Companies can meet these challenges. The UK is a mature market, and the stability of our regulatory regime supports companies taking a long-term approach to managing long-term assets. Moreover, technological developments and innovations provide many new opportunities to address these issues, and the sector has well established access to capital markets. We believe it is vital that companies address these issues now, in order to provide protection for current and future customers and to avoid damage to the environment.

In response to this report, we expect companies to consider carefully their approach to asset health in the context of resilience, and identify areas where they may be falling short. We expect company boards to assure themselves and us that they understand any risks to customers, in both the short and long term, and have plans in place that clearly address any issues.

We encourage companies to share their assessment of the health of their assets. Further ideas and challenges to water companies on how they might consider resilience are contained in our document, Resilience in the round.