- Scottish Water

Transcription

- Scottish Water

Contents
1.
Board Overview Appendices......................................................... 3
2.
Performance for Customers Appendices .......................................... 3
3.
Business Influences Appendices .................................................... 4
4.
Operating Expenditure Appendices .............................................. 20
5.
Maintaining Service and Serviceability to Customers Appendices.......... 45
6.
Enhancement Capital Expenditure Appendices................................ 61
7.
Finance Appendices ................................................................ 75
8.
Revenue and Tariffs Appendices ................................................. 92
9.
Retail Development Appendices................................................. 106
10. Value Chain Analysis Appendices................................................ 106
Appendix A – Cost Base.................................................................. 107
Appendix B - Strategic Framework for Asset Management ....................... 111
Appendix C – Investment and Outputs Plan.......................................... 150
Appendix D – Maintaining the Supply Demand Balance............................ 154
Appendix E – Capital Maintenance Econometric Return (CMER) Methodology 176
Appendix F – Capital Investment Activities .......................................... 178
CONTENTS
Scottish Water: Second Draft Business Plan. Contents
1. Board Overview Appendices
No appendices included.
2. Performance for Customers Appendices
APPENDICES
Scottish Water: Second Draft Business Plan. Appendices
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BUSINESS INFLUENCES
Scottish Water: Second Draft Business Plan. Business Influences
3. Business Influences Appendices
Appendix 3.1 – PFI Contract Management
Background
Scottish Water inherited nine Private Finance Initiative (PFI) projects from its predecessor authorities
(West of Scotland Water Authority, East of Scotland Water Authority, and North of Scotland Water
Authority) in 2002, consisting of twenty wastewater treatment works and one dedicated sludge
treatment centre. Contract lengths vary between 25 and 40 years with expiry dates ranging from 2021
through to 2040.
As with any contractual arrangement, the PFI contracts confer rights and obligations on each party which
must be adhered to unless the parties agree otherwise. As such we cannot unilaterally change the way in
which these contracts operate. However, we exercise all of our rights under the contracts or seek to
agree changes to the contracts where there are cost or performance benefits to be realised. Agreeing
changes to the contracts is harder to achieve as the relevant PFI company will understandably seek some
form of compensation, whether financial or otherwise, in return for any such change in its contractual
obligations.
The introduction of the OPA regime has brought the issue of compliance at PFI works into much sharper
focus. However, in so doing so it has also exposed a weakness in the structure of the PFI contracts. This
relates to the fact that our contractual relationship is with the PFI company and not its operator, being
the party ultimately responsible for achieving robust compliance.
We set out below the typical structure of a PFI contract which demonstrates our limited ability to
influence directly the activities of the operator given its contract relationship is with the PFI company
and not ourselves.
nc
na
i
F
Lenders
ct
ire
d
e
ag
en
em
e
r
t
Scottish
Water
Services
Contract
Shareholders’
Agreement
Loan
Agreement
PFI Company
O&M
Contract
Turnkey
Contract
Design &
Construct
Process Design
Sub-Contract
Contractor
Operator
Detailed Design
Sub-Contract
Designer
Figure A3.1.1: Typical structure of a PFI contract
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Equity investors sponsors and
institutions
Notwithstanding the potential constraints placed upon us by the nature of these contracts, we set out in
this document how we challenge costs and are improving service levels even where that involves moving
outside the existing contractual arrangements.
Current Contract Management Activities
This section describes both the primary day to day and strategic contract management activities, relating
to the following three areas:
•
Cost minimisation;
•
Performance and risk management; and
•
Change management;
and provides examples of how these activities have produced benefits from both a cost and performance
perspective.
Cost Minimisation
In terms of the day to day contract management activities, the prescriptive nature of the tariff
structures contained within each of the contracts limits the scope to influence the financial cost of these
contracts. However, Scottish Water undertakes a range of activities to ensure that costs are minimised
primarily through the application of its contractual rights under the terms of each PFI contract. The key
BUSINESS INFLUENCES
Scottish Water: Second Draft Business Plan. Business Influences Appendices
areas which directly impact on costs are:
•
Contractual Service Fees. Determination of fees paid to the PFI companies linked to
volumes of wastewater and sludge treated and disposed of; and
•
Contractual Penalties. Application of relevant performance deductions to Service Fees to
reflect any failure to meet prescribed service levels in accordance with the PFI contract.
Contractual Service Fees
The PFI companies’ entitlement to payments is governed by the terms of each PFI contract and generally
takes the form of a prescribed tariff applicable per unit of volume of wastewater or sludge treated,
although three out of the four PFI contracts for the former North of Scotland Water Authority also take
into account the load of wastewater treated. Tariffs are adjusted annually to take account of inflation
in accordance with the PFI contract conditions, calculated from either a single index or basket of publicly
available indices. In addition, in some PFI contracts the PFI companies retain the liability in respect of
costs associated with business rates, SEPA charges, insurance and energy, some contain capping
mechanisms, and in others business rates and SEPA charge risk has been transferred back completely to
Scottish Water.
To ensure that the PFI companies only receive payment for sums that are contractually due under the
terms of the PFI contract:
•
regular flow meter validation exercises are undertaken to ensure that flow volumes are
measured accurately;
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•
flow audits are carried out periodically to ensure that only wastewater originating from the
sewer network is taken into account for payment purposes. Where necessary, flows are
adjusted to take account of any double counting, for example due to the re-circulation of
treatment works’ process flows or site drainage flows to a point upstream of the tariff flow
meter, or in the case of PFI operated network pumping stations to ensure that flows passed
forward to treatment do not exceed that stipulated in the SEPA consent; and
•
periodic audits are also carried out to check that imported sludge is properly sampled,
measured and recorded, and that the PFI companies’ records of imported sludge are
reconciled with Scottish Water’s records.
All flows and loads are recorded monthly and monitored to identify any short or long term trends and, if
necessary, inform the need to either to challenge a PFI company’s data or to undertake any further
investigations.
All monthly, quarterly and annual reconciliation invoices submitted by the PFI companies are checked by
reference to the actual volumes of wastewater flows and loads and sludge treated, prior to payment, to
ensure that the PFI companies receive only the payments to which they are entitled.
Also, four of the contracts make provisions to re-base tariffs to take into account changing flow
conditions (e.g. infiltration). In such instances Scottish Water negotiates such changes linked to an
evidenced based analysis of relevant flow data to ensure any tariff re-basing is fair and reasonable and
maintains the specified level of risk transfer.
Through these contract management processes we have secured around £6m of one–off savings and
around £2.6m of annual savings, which are excluded from our base costs.
Levying of Contractual Penalties
Each contract places an obligation on the relevant PFI company to comply with all legal and regulatory
requirements and adopt good practice in respect of the treatment and disposal of wastewater and
sludge, albeit that a majority of these risks are passed on by the PFI company to its operational subcontractor. Failure to meet these contractual standards results in specific performance penalties being
levied, the most significant of which relates to the failure to treat wastewater to a range of specified
final effluent quality parameters that mirror the SEPA discharge consent. In some projects the failure to
treat and dispose of sludge in accordance with the appropriate regulations and to keep odour emissions
below defined levels also leads to financial penalties.
The value of the contractual penalties varies between contracts with some operators being more heavily
incentivised to achieve compliance than others. The performance incentives defined in the former West
of Scotland Water Authority PFI contracts are fairly negligible when compared with the more significant
sums that can be levied under the former East of Scotland Water Authority contracts where, in any given
year, up to 10% could be deducted from Service Fees, and the former North of Scotland Water Authority
projects where the PFI companies lose the equivalent of a day’s revenue for a particular site if they fail
to achieve any of the required performance standards.
Table A3.1.1 below contains an overview of the contractual penalties levied on the PFI companies since
the contracts became operational, up until 31 March 2008, and highlights the extent to which we believe
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the operator is incentivised to ensure compliance.
Project Type
(Historical Performance)
Penalty
Impact
Number
of Contracts
Aggregate Penalties
Levied (£m)
High Performing
MIXED
5
0.3
Less Well Performing
HIGH
3
6.7
Less Well Performing
LOW
1
0.2
9
7.2
Total
Table A3.1.1: Penalties levied on PFI companies since contracts became operational
In respect of the application of penalties the following activities are carried out to ensure that any
failures to meet prescribed service standards are properly taken into account when determining
contractual penalties to be levied on the Service Fees:
•
periodic sampler audits to ensure that any effluent samples are collected properly and
analysed at suitable accredited laboratories consistent with good industry practice;
•
annual review and sample audit of performance data (e.g. computer records of odour
monitoring data, laboratory results) to ensure that all penalties associated with failures are
properly applied;
•
agreement with the PFI companies on how any missing sample data or laboratory analysis
results should be dealt with when assessing performance to fully incentivise the prompt
resolution of any sampling or analysis issues that inevitably arise from time to time when
measuring large volumes of data;
•
BUSINESS INFLUENCES
periodic sludge audits to ensure that all sludge is received, treated, and disposed in
accordance with the relevant regulations and in accordance with good practice; and
•
regular testing and calibration of instruments used to monitor performance (e.g. odour
monitors).
Other Measures
In addition to ensuring that each PFI company meets its obligations under the contract, we must do
likewise. In particular this involves the careful management and monitoring of those major traders (e.g.
food processors, paper mills) whose discharge is treated at a PFI site. In addition, where Scottish Water,
rather than the PFI company, is responsible for the infrastructure (e.g. pumping mains, inlet works)
which interfaces with the PFI works then we must ensure that such assets are operated and maintained
to an appropriate standard.
Performance and Risk Management
Operational and Compliance Management
At the time of awarding the PFI contracts, the former water authorities focussed upon ensuring that the
appropriate risks were transferred to the PFI companies and their sub-contractors (i.e. construction and
operations & maintenance), and that failure to manage the performance risks would result in financial
penalties being applied.
However, we are now seeking to achieve upper quartile customer service as measured through OPA. As a
consequence, ensuring that a wastewater treatment works is kept compliant has a greater impact upon
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the OPA performance of Scottish Water than any cost savings, arising from penalties for non-compliance,
would have upon meeting our financial targets.
In addition, incidents such as the pump failure at Seafield WwTW in April 2007 demonstrated that,
although operating risks had been fully transferred to the PFI company, it is Scottish Water’s reputation
which will suffer if and when major incidents occur.
Therefore, working within the terms of the existing contracts, we have expanded our contract
management activities to focus upon asset and process management compliance and reputational issues,
rather than solely being content to rely upon the financial penalty system; even in those projects where
it does act a suitable means of incentivising compliance with the effluent discharge consents.
For example, even on those projects with the strongest penalty mechanisms, the loss of OPA points
(seven of the PFI works are individually accountable for a potential loss of more than 30 points) hugely
outweighs any financial penalty associated with underperformance. For this reason, we have made
compliance with effluent and odour performance standards the primary objective of all the PFI
companies.
As we cannot unilaterally amend the contracts to reflect this change in focus, we have sought to work
with the PFI companies to ensure that their plants are properly maintained such that penalty regimes
become a secondary factor. To this end, and without compromising the basic tenet of risk transfer,
Scottish Water has adopted a more intrusive approach into both day to day operating practices and
maintenance issues to ensure that the PFI companies fulfil their obligations to operate and maintain their
assets to an acceptable standard.
Primarily these activities comprise a variety of monitoring procedures to assess environmental and
reputation performance and the potential risks to compliance, including:
Regular Meetings
•
Liaison meetings - These meetings, normally held monthly unless compliance is robust in
which case longer intervals may be appropriate, cover key issues such as plant performance,
breakdown and maintenance, odour performance, contractual and interface issues (between
PFI and Scottish Water operations). On projects where performance has been unsatisfactory
a more active dialogue takes place at Executive Director level. In addition sub meetings are
often held to provide a direct link between a PFI company and Scottish Water operational
staff.
•
Teleconferences - Where more regular formal discussions are required, usually deployed at
high risk sites, this tool is used to track progress in respect of specific operating and
remediation issues and its impact upon compliance risk as a short term control and
monitoring measure.
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Additional Activities
•
Site Audits - A regular programme of site inspections is carried out, with frequency of
inspection varying between fortnightly to annual depending on compliance risk. The findings
are reported to and discussed with the PFI companies and agreed actions followed up on.
•
PFI company / Operator Reports - Performance reports are generally issued on a monthly
basis and are promptly reviewed to identify any compliance risk issues which have not been
identified by other means.
•
Compliance Samples - The results of SEPA sampling and contractual sampling, taken for
compliance monitoring purposes, are monitored, both in respect to identification of any near
miss or deteriorating trends as well as to initiate any reaction to effluent quality failures.
•
PFI Notifications of Equipment Failures - The PFI companies are required to notify Scottish
Water of any equipment failures, which while not in themselves meriting an emergency
response, may require to be monitored if, with the passage of time, they may result in
heightened risk of non compliance or potential loss of performance.
•
Sludge Audits - These are undertaken on a rolling programme to identify any risk to the
treatment and disposal of sludge in accordance with regulatory requirements.
•
Third Party Audits & Data Analysis - Specialist audits are commissioned on an intermittent
‘as required basis’ (e.g. WRc compliance and odour studies), particularly in respect of
BUSINESS INFLUENCES
resource intensive audits or specialist studies in order to obtain a higher level of visibility
into a particular aspect of a site’s operations.
All potential risk issues identified from the above monitoring programme are logged and tracked to
ensure that actions are clearly identified, agreed with the PFI company and implemented.
Any high risk actions that are not progressing satisfactorily are escalated either informally or through the
formal PFI contract procedures. In this latter respect two contractual defects notices have been issued,
both in respect of Seafield WwTW, which has resulted in considerable unremunerated expenditure being
incurred by the PFI company to address specific shortcomings.
The WRc Site Audits
In tandem with Scottish Water’s more visible and intrusive approach towards the operation of the PFI
companies and their operators, we employed WRc to undertake a series of site and asset condition audits
at twenty of the PFI sites. These reviews took place between May 2007 and May 2008.
The conclusions reached by WRc ranged from half of the sites being considered to be operating
satisfactorily through to a contractual defects notice being issued in respect of Seafield WwTW requiring
significant improvements to be made.
Additional or accelerated asset maintenance work was identified as being required at the sites contained
within the Aberdeen, Almond Valley and Dalmuir projects. In respect of these sites the relevant PFI
companies have either demonstrated a commitment to addressing the major issues or a willingness to
expand and accelerate the programme of works in order to address actual and potential problem areas.
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No significant adverse comments were received from WRc in respect of the Ayrshire (MSI), Daldowie,
Highland, Moray and Tay projects.
All of the reports were shared and discussed with each PFI company in order that they were able to
support the conclusions contained within these audits.
Even those works which are not classified as being “at risk” require careful monitoring because, by 2014,
all plant and equipment will have been in operation for between 12 and 15 years. As such, even at those
plants which have encountered few problems to date, it is expected that significant mid-life capital
expenditure will be required over the next few years to maintain a position of robust compliance. For
this reason we propose to undertake these independent site audits at least every four years.
The audits, particularly at the more problematical sites, highlighted issues arising from the fact that risk
transfer operates not only between Scottish Water and the PFI company but also between the PFI
company and its construction and operations sub-contractors (see Figure A3.1.1). Typically, a PFI
company will seek to transfer all or a majority of risks to its sub-contractors. Although the focus is
currently upon the transfer of risk to the operating contractor, the legacy of construction related
problems have also had a knock-on impact in the operations of a works.
It is for this reason that a majority of the cost overruns related to operating related problems (e.g.
energy inflation) have been borne by the operational sub-contractor rather than at PFI company level.
As such, as a result of having underestimated a risk which results in an added cost burden, a PFI operator
may adopt a higher risk strategy in other operational areas in order to re-coup some of these losses, and
these can lead to a plant’s compliance being put at risk.
These audits have enabled Scottish Water to undertake a more informed dialogue with the PFI companies
and their operators as to what actions they require to undertake to ensure both compliance of the works
and adherence to their contractual obligations irrespective of financial consequences. The information
contained in these reports has been used to determine what level of retrospective remedial action is
required, if any, to be undertaken at no additional cost to Scottish Water in order to ensure that the PFI
companies comply with their contractual operating and maintenance obligations. Across the nine PFI
projects, significant additional investment has taken place in order that the PFI companies meet their
contractual obligations. Such measures have been taken both as a result of the direct actions of Scottish
Water (e.g. Defects Notice to address odour at Seafield) or by a PFI company who have realised the
shortcomings of their original technical solutions.
If it is expected that implementation of these measures will be sufficient to move a plant to a state of
robust and sustainable compliance, no additional action, other than the ongoing compliance monitoring
of performance, is likely. If, however, it is felt that even with the implementation of such actions and
ongoing levels of maintenance on the existing assets, the desired state of robust and sustainable
compliance with effluent and /or odour standards will not be achieved, albeit that the PFI company is
compliant with its contractual obligations, then the onus will fall to Scottish Water to seek ways of
implementing further works to achieve this state at our cost.
In circumstances where we require a PFI company to implement added enhancements, we will use such
circumstances to renegotiate some of the existing contractual provisions (e.g. penalty provisions) such
10
that these contracts become more aligned to the performance and compliance driven environment in
which Scottish Water is now operating.
The outcome of the WRc review is that although a number of additional capital interventions have been
identified as being required or accelerated, these will be undertaken at no cost to Scottish Water apart
from in relation to Dalmuir WwTW, where investment will be delayed until the outcome of the Glasgow
Strategic Study is completed. It is estimated that when complete this will result in around £11m of
additional and accelerated capital maintenance expenditure having been spent at seven of the PFI works.
The WRc studies have also helped Scottish Water to focus upon ensuring that a PFI company’s operator
deploys an acceptable level of process and operational expertise recognising that asset quality alone will
not guarantee robust compliance.
Unplanned & Unremunerated PFI Company Expenditure
In addition to the extra investment emanating from the recent studies undertaken by WRc during 2007
and 2008 there have also been a number of instances where PFI companies have undertaken additional
expenditure in order to operate and maintain their assets to an acceptable standard either voluntarily or
as a result of action taken by Scottish Water, associated with the adoption of a more aggressive approach
to risk.
Additional unplanned and unremunerated work undertaken by the PFI companies, some of which dates
back to the time at which these works were first being commissioned, is estimated to have been in
excess of £40m, although around £12m of this total is subject to an on-going contractual claims process.
BUSINESS INFLUENCES
Change Management
Periodically a requirement arises to change the provisions of a PFI contract, for example to align it with
the requirements of new legislation or changing objectives of Scottish Water. Each PFI contract defines
precisely how such changes should be applied at any time during the contract period, with changes
typically falling into three broad categories:
•
Necessary Change. A change arising as a result of the imposition of new requirements on
the provision of the wastewater and sludge treatment services that was not envisaged at the
time that the contract was signed, typically from the implementation of new legislation or
significant changes to trade effluent consents over and above the capacity of the works;
•
Scottish Water Change. A change made at the request of Scottish Water such as a
catchment extension; and
•
PFI Company Change. A change made at the request of the PFI company such as an asset
enhancement to improve plant performance or efficiency.
Generally all but the ‘PFI Company Change’ will entitle the PFI company to be recompensed for any
reasonable additional costs (taking into account any savings) incurred in meeting the change
requirements.
Therefore, a key contract management function of Scottish Water is to ensure that the implementation
of such changes is managed in such a way as to deliver best value by reference to:
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•
the origin of the variation which has given rise to the funding requirement;
•
the basis upon which it falls to Scottish Water to be liable for such expenditure;
•
the means by which the chosen solution has been determined by reference to an option
appraisal process; and
•
the basis by which Scottish Water has sought to obtain best value through the use of third
party due diligence exercises to challenge scope and minimise cost by ensuring, where
practicable, a competitive tendering process is undertaken.
Future Strategic Actions
The issues discussed in the above sections have been addressed within the context of the current
contractual arrangements. In order to realise a more fundamental step change in either cost or
performance terms it may require some more radical restructuring of some of the contracts. As we
outline in the following section, such an approach should be adopted selectively, focussing initially upon
those projects whose current performance is not aligned with Scottish Water’s own performance or
future aspirations.
If we were to pursue a strategy of seeking to regain control of under performing assets, by whatever
means, there would be a significant upfront additional cost associated with this process (e.g. buy out of
equity and potentially debt).
Existence of legally binding contracts
Both the individual PFI companies and Scottish Water are bound by long term contracts whose expiry
dates range from 2021 through to 2040. As such neither party can unilaterally amend terms within the
contract purely on the grounds that it would be beneficial to that party to do so.
However, where both parties are willing to amend the contract then this can be achieved. An example
would be the proposed tariff restructuring of the some of the projects entered into by the former North
of Scotland Water Authority to dispense with the wide volatility in payments which appear between wet
and dry years.
However, unless there is an over-riding requirement for either party (e.g. achieving compliance at a
consistently failing works) then it is unlikely that either party will re-negotiate in respect of a risk which
has worked to their benefit (e.g. Scottish Water has no appetite to permit a majority of the PFI company
operators to re-base the index which determines the annual uplift for energy costs where, at the point of
contract signature, they assumed this form of inflation would mirror the Retail Price Index).
Strategic measures to realise improved value for money and compliance
The scope to improve value for money would need to be thoroughly appraised before any form of
contract re-structuring should be given serious consideration.
The strategies which would lead to Scottish Water gaining a greater degree of control over the operation
and costs of providing the service would be:
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•
voluntary termination of the contract;
•
voluntary termination of the contract but with the external debt left in place; or
•
Scottish Water replaces the operator but all other contractual arrangements remain in
place.
Full voluntary termination
This approach has the advantage of ensuring that Scottish Water regains full control of the operations but
will be the most expensive because in addition to compensating the shareholders it would also involve
the repayment of the project debt and the incurring of breakage costs associated with this measure. A
schedule of costs, and their component parts, associated with voluntary termination based on a desk top
study undertaken on behalf of Scottish Water demonstrated that across all nine projects the average cost
of voluntary termination would be around £100m per project, with individual termination values ranging
from around £50m up to £160m.
However, moving forward we would realise the benefits associated with any efficiencies delivered in
respect of the direct operation and maintenance of the plant as well as not having to bear the cost of the
PFI company overheads and contributing towards their equity return.
The determining factor would be whether the upfront costs of termination would be outweighed by the
level of savings achieved in future years. In addition to assuming responsibility for operating and
maintenance costs and finance costs we would also assume the responsibility for future mid-life capital
BUSINESS INFLUENCES
maintenance.
As Government borrowing is not currently available to support such a course of action, we have not
engaged with any of the PFI companies in order to test more fully the likely cost implications both of
termination and the future liability which we would incur in operating and maintaining these sites in the
future.
Full voluntary termination of the contract but with the external debt left in place
This option has the same benefits as the full termination option but avoids the requirement to pay out
the debt element and incur any funding related breakage costs. This is based on the assumption that the
current funders would be willing for the PFI company to assign their liabilities to Scottish Water. As the
credit risk would switch from that of a single asset project finance company to a publicly owned utility
this should not represent an insurmountable issue. However, such a change would not be possible within
the current Government borrowing limits.
Scottish Water replaces the operator but all other contractual arrangements remain in place
Replacing the operator may assist Scottish Water in terms of improving compliance, unless the root cause
of the problem lies with the quality and capacity of the assets themselves, but it may not address the
issue of delivering better value. This is due to the fact that, as the existing contractual arrangements
with the PFI company will remain in place, we shall continue to pay the service fees on the existing
basis. The only means of circumventing this problem would be for Scottish Water to seek a voluntarily
reduction in the costs it received for operating a plant and for this saving to be deducted from the
service fees payable.
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14
From a contractual perspective this approach is the most complex as it would involve Scottish Water
having to perform the role of (i) operator, (ii) potentially as shareholder in the PFI company and (iii)
counter-party to the PFI company under the contract. Such an arrangement could actually result in
Scottish Water having less rather than more flexibility to improve both value and compliance as it would
be bound to adhere to more contractual obligations, especially at the operating level.
Summary
If it were appropriate to pursue some form of termination, the second of the three options outlined
above would be preferred. However, given the constraints on available public funding, we are unable
currently to pursue such a course of action in the 2010–14 regulatory period.
Proposed application of the strategic measures
Therefore, our focus will be to concentrate on those projects which are currently under-performing. In
the first instance we shall continue to focus on deploying the contract management tools. However,
where more extensive action is required we shall actively seek, within our available financing, to take a
more pro-active role in the operation of plants where compliance is or presents a future threat.
Scottish Water’s current strategy is to assume a “hold” position on all of its projects. However, it is
proposed that each project shall continue to be reviewed in light of these issues within the context of
the requirement to provide a robustly compliant service which delivers value for money to customers.
Appendix 3.2 – Customer Growth Forecasts
Introduction
In defining our view of customer growth within the household and non-household sectors we have used a
number of data and forecasting sources. The sources we used are:
•
General Register Office of Scotland (GROS);
•
New build returns to the Scottish Government, Communities Analytical Services (Housing
Statistics);
•
Stock 4 (demolitions) returns by local authorities to the Scottish Government, Communities
Analytical Services (Housing Statistics);
•
National House Building Association (NHBC) - New House Building Statistics;
•
WIC4 returns we make to the Water Industry Commission for Scotland;
•
Council Tax returns;
•
Experian economic forecasts;
•
Fraser of Allander Economic Commentary November 2008;
•
Central Market Agency (CMA) data; and
•
Business Stream data.
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Household Growth Projections
The basis of our household customer base is our WIC 4 data return to the Commission at September 2008
(this will also be the basis of our Annual Return 2009) to which growth forecasts are added.
In producing our growth forecasts we have used GROS as the major data source, consistent with
Ministers’ draft objectives for the 2010–2014 period. However, given the current economic outlook we
have developed a forecast that reflects the recent downward trend in the number of housing starts and
completions in Scotland and producing a short term forecast of housing starts and completions. We have
used a combination of Government and NHBC statistics to advise these forecasts.
Our hypothesis for the short term forecast is that there is a correlation between the number of housing
starts and completions, and that completions less demolitions equal the Council Tax increases. Table
A3.2.1 confirms that over time this hypothesis is valid.
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Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Housing Starts
NHBC
16,600
16,400
18,100
17,100
15,900
18,500
18,000
19,600
18,500
18,700
20,900
18,027
Housing
Completions
NHBC
17,000
16,400
16,900
17,500
17,200
17,200
18,400
18,200
17,500
19,900
18,900
17,736
-400
0
1,200
-400
-1,300
1,300
-400
1,400
1,000
-1,200
2,000
291
Govt Overall
Starts
23,140
19,583
22,642
23,071
22,908
22,216
24,242
26,716
26,337
28,288
26,753
24,172
Govt Overall
Completions
22,561
20,405
23,497
21,617
22,080
22,879
23,324
24,296
26,207
24,808
24,744
23,311
Difference
579
-822
-855
1,454
828
-663
918
2,420
130
3,480
2,009
861
% additional
completions
over NHBC
33%
24%
39%
24%
28%
33%
27%
33%
50%
25%
31%
32%
Govt
Demolitions
5,353
3,970
5,336
6,038
6,103
5,337
4,206
4,889
4,440
3,378
4,905
Govt
completions
less
demolitions
17,208
16,435
18,161
15,579
15,977
17,542
19,118
19,407
21,767
21,430
18,624
Council Tax
increases
20,282
17,576
16,723
36,743
17,702
17,869
20,188
19,867
19,289
18,262
Difference
Average
Table A3.2.1: Recent trend in the number of housing starts and completions in Scotland
Having demonstrated the historic correlation between NHBC and Government statistics we then used
NHBC forecasts to inform our short-term growth profile. NHBC data is derived almost exclusively from its
registered builders, who construct over 75% of the homes in the United Kingdom. As such they represent
a source of detailed, up to date information on new home construction activity in the house building
industry. We have used NHBC historical data and their most up to date information on house starts (i.e.
one month in arrears up to November 2008) to inform what is likely to be the downturn level of growth
until the recession is over. Thereafter, we have used growth figures at the level produced by GROS.
Figure A3.2.1 below demonstrates the recent change in house building.
Quarterly NHBC Household Starts
7000
6000
5000
4000
3000
2000
1000
0
2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008
Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Figure A3.2.1: Quarterly NHBC household starts
16
In addition we have sought to identify independent forecasts on the wider economy regarding the likely
length of the downturn. Whilst there has been considerable press coverage that the current downturn
cycle will last for two to three years there have been few respected organisations that are prepared to
commit to report what they believe will be the length of the current economic cycle. However the
Fraser of Allander Institute offered a number of cases in its Economic Commentary November 2008. In
forecasting growth we have used its central case which states
“This is our central case and in our judgement has the highest but unspecified probability of occurring.
In this case the growth of the principal components of aggregate demand slows down significantly in
2009 but begin to pickup again in 2010 returning to pre-crisis levels in 2011 or 2012.”
Our assumptions on growth are:
•
NHBC new build house registrations will continue at around 600 per month till the end of
2009 before recovering to GROS projections in Q4 2010;
•
to allow for non-NHBC reported construction, NHBC forecasts should be inflated by 32% (see
table A3.2.1);
•
demolitions will reduce significantly over the same period till the end of 2009; and
•
a six month time lag from registration to completion has been used.
Table A3.2.2 shows the changes to household growth assumptions from our first draft business plan in
BUSINESS INFLUENCES
May 2008.
Household forecasts
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Billed properties
May 2008
2,258,556
2,281,966
2,302,860
2,326,753
2,350,283
2,373,833
2,396,587
Billed properties
March 2009
2,258,556
2,274,747
2,285,235
2,293,438
2,313,877
2,335,513
2,356,681
-
7,219
17,625
33,315
36,406
38,320
39,906
Band D equivalents
May 2008
1,908,122
1,934,497
1,958,038
1,984,959
2,011,468
2,038,002
2,063,638
Band D equivalents
March 2009
1,908,122
1,929,781
1,941,691
1,951,005
1,974,214
1,998,782
2,022,818
-
4,716
16,347
33,594
37,254
39,220
40,820
Difference
Difference
Table A3.2.2: Changes to household growth assumptions from May 2008
Non-household growth predictions
We commissioned Experian Business Strategies to provide an economic outlook and trend analysis on
growth and future water usage within the industrial and business communities which are served by
licensed providers.
Previously Experian has undertaken econometric analysis to identify the historical relationship between
commercial water demand and economic factors such as industrial output and employment. The results
of this statistical analysis can be combined with forecasts of output and employment to provide
17
BUSINESS INFLUENCES
commercial water demand forecasts disaggregated by industry. As there is insufficient data on water
demand by industry sectors available to Scottish Water, Experian has applied the broad findings from
previous UK studies to the Scottish economic forecasts to derive an indicative projection of water
demand in Scotland.
In coming to its conclusion a number of factors were considered such as the impact of climate change,
the economic outlook informed by the Fraser of Allander Institute, Experian forecasts, the actual
downturn experienced in 2008/09, the need to reduce costs (including the adoption of more innovative
solutions by retailers), and customer pressure to be more environmentally sustainable. This results in
Experian forecasting reductions in customer numbers in 2009/10 and 2010/11 before starting to increase
again from 2012/13. We have applied these forecasts to customers with up to and including a 20mm
meter. Similarly consumption is forecast to drop in 2008/9 and 2009/10 before increasing again from
2010/11. We have applied the consumption forecasts over the overall measured customer base.
Table A3.2.3 shows Experian’s forecasts on customer and consumption growth.
Sector
Business Units
Water Demand
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Non Services
-2.96%
-1.50%
-1.26%
-1.41%
-1.31%
-1.02%
Services
-2.08%
-1.25%
0.20%
1.03%
0.92%
0.76%
Total
-2.23%
-1.29%
-0.05%
0.62%
0.55%
0.47%
Non Services
-1.13%
0.39%
0.29%
0.05%
0.04%
0.21%
Services
-1.01%
-0.62%
0.09%
0.49%
0.45%
0.37%
Total
-1.04%
-0.37%
0.14%
0.39%
0.35%
0.33%
Table A3.2.3: Experian’s forecasts on customer and consumption growth
In addition, from April 2009, for non-household premises that are being metered under the universal
metering programme, metered consumption details will be used for wholesale charging purposes, as
assessed charges, based on Rateable Value, will start to be phased out. From April 2011, metered
consumption will be the sole basis for charging for metered non-household premises.
We assumed in our first draft business plan that the effect of this change would be both revenue and
consumption neutral. However the average consumption in this sector is likely to be approximately 100
cubic metres per annum per property less than previously assumed, based on an initial extrapolation of
around 5,500 customers consumption supplied by Business Stream. This has largely been confirmed by a
further meter reading programme (12,000 meters read to date) undertaken by Business Stream on our
behalf. This equates to a loss of volume used for revenue generation of 1.45 million cubic metres in
2009/10, a further 1.45 million cubic metres in 2010/11 and a further final 1.45 million cubic metres in
2011/12 when the transitional arrangements end.
It was our intention to apply these growth forecasts to CMA customer base for 2008/09. However, having
reviewed the CMA customer base, we are concerned that it understates the size of the non-household
customer base, and we have therefore used the same higher customer base, supplied by Business Stream
in 2007/08, that was used as the basis of our first draft business plan.
18
There is significant activity being undertaken to verify the non-household customer base which may
result in a higher or lower customer base than assumed in this plan.
Table A3.2.4 shows the changes to non-household growth from our first draft business plan in May 2008.
Non Household forecasts
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Customers numbers May 2008
125,215
125,215
125,215
125,215
125,215
125,215
125,215
Customers numbers March 2009
125,215
122,422
120,804
120,744
121,518
122,209
122,802
-
2,793
4,411
4,471
3,697
3,006
2,413
Customer demand May 2008
(Ml/day)
160,824
161,114
161,395
161,686
161,983
162,345
162,723
Customer demand March 2009
(Ml/year)
160,824
160,375
158,394
157,125
156,254
156,770
157,260
-
739
3,001
4,561
5,729
5,575
5,463
Difference
Difference (Ml/year)
Table A3.2.4: Changes to non-household growth since May 2008
BUSINESS INFLUENCES
19
4. Operating Expenditure Appendices
Appendix 4.1 – Bad Debt Adjustment to Base
Introduction
This information paper sets out an analysis of the 2007/08 household bad debt charge and summarises
our planning assumptions for household bad debt over the 2010-14 period.
Historic Analysis
Cash Collection
Over the period 2002 to 2008 we have seen significant improvements in the level of household charges
collected on our behalf by councils. Figure A4.1.1 below illustrates the trend in household cash
collections.
HOUSEHOLD CASH COLLECTION RATES
Cumulative cash collection as a % of net
billing
OPERATING EXPENDITURE
Scottish Water: Second Draft Business Plan. Operating Expenditure
96.0%
95.5%
Cash collected...
95.0%
94.5%
94.0%
at 31st March 2008
93.5%
at 31st March 2007
93.0%
92.5%
at 31st March 2006
92.0%
at 31st March 2005
91.5%
91.0%
at 31st March 2004
90.5%
at 31st March 2003
90.0%
89.5%
89.0%
88.5%
88.0%
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
Year of billing
Figure A4.1.1: The trend in household cash collections to date
For example, for bills issued in 2002/03, 89.1% of cash was collected in the year of billing. By the end of
2003/04 total cash collected had risen to 93.0%, then to 94.2% by the end of 2004/05 and so on. The
rate of additional cash collection reduces year on year as outstanding debt reduces and the remaining
debt becomes more difficult to recover.
Bad Debt Provision
The level of bad debt provision required against cumulative bills issued is assessed at the end of each
financial year and calculated on a prudent basis for statutory accounting purposes. The bad debt charge
in any year reflects an estimate of the level of bad debt expected for bills issued in that year but also
the impact of any change to the level of provision made at the end of the previous financial year for all
bills issued to that point. Therefore the reported bad debt charge can vary from year to year as
provisions are adjusted to reflect cash collection activity.
20
Underlying Level of Bad Debt
To determine the underlying level of bad debt we have compared the total value of bills issued (post
credit adjustments) from 1996/97 to 2005/06 to the total cash collected against these bills as at 30
September 2008 as set out in table A4.1.1. We have excluded data from 2006/07 and 2007/08 as we still
expect to collect significant cash from customers in relation to these years’ bills.
Outturn prices Total to
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
£m
2005/06
Net household
billing
152.1
199.6
263.7
327.0
416.7
497.6
535.5
579.8
604.7
632.9
4,209.6
Cash collection
145.0
190.6
252.1
312.6
397.8
475.5
512.4
555.2
579.0
604.5
4,024.7
7.1
9.0
11.6
14.4
18.9
22.1
23.1
24.6
25.7
28.4
184.9
% Collection at
Sept 08
95.31%
95.47%
95.60%
95.61%
95.47%
95.56%
95.68%
95.75%
95.75%
95.52%
95.61%
Outstanding
debt at Sept 08
4.69%
4.53%
4.40%
4.39%
4.53%
4.44%
4.32%
4.25%
4.25%
4.48%
4.39%
Outstanding
Debtor
Table A4.1.1: Summary bad debt position to 30 September 2008
At 30 September 2008, the average level of outstanding debt on bills issued from 1996/97 to 2005/06 was
4.39%.
Bad Debt Provision 2006-10
The first two years of this price review period have seen atypical levels of additional historic cash
collection partly driven by incentives to local councils. However, since April 2008 there has been a
significant deterioration in the economic outlook for the UK. We expect that any further improvements
to the level of cash collected against bills issued from 1996/97 to 2005/06 will be off-set by an increase
in the bad debt level above 4.39% in respect of later years’ revenue.
2007/08 Bad Debt Charge
Operating costs for our wholesale business in 2007-08 were £259m which included a net bad debt charge
to the profit and loss account in the year of £12m. The headline bad debt charge of £12m incorporates:
1.
a charge for expected bad debt associated with bills issued in 2007/08. Our current long run
average level of uncollected debt is estimated to be 4.39% of net income as set out in table
A4.1.1 above. For 2007/08 bills this would equate to a bad debt charge of £29.6m; and
2.
an adjustment to the bad debt provision made at the end of 2006/07 for bills issued between
1996/97 and 2006/07. This adjustment reflects the latest available information on the level
of cash collection on this historic billing one year on as set out in Figure A4.1.1. At 31 March
2008 we estimated we could reduce provisions made for prior year bills by a total of £17.6m.
Rather than include the £17.6m adjustment as an atypical credit, following discussions with the
Commission’s staff in respect to our first draft business plan, we have adjusted our base operating costs
to reflect that the 2007/08 bad debt charge within our reported costs understated the base operating
21
22
cost level that would be incurred in the 2010-2014 period. The adjustment to base for bad debt is shown
in table A4.1.2.
2007/08 prices
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Forecast household income (£m)
673.7
676.1
678.5
681.3
689.1
697.2
705.3
Long run level of bad debt (% of income)
4.39%
4.39%
4.39%
4.39%
4.39%
4.39%
4.39%
Underlying bad debt charge (£m)
29.6
29.6
29.8
30.0
30.2
30.6
31.0
Bad debt charge 2007/08 (£m)
12.0
12.0
12.0
12.0
12.0
12.0
12.0
Adjustment to reported operating costs
17.6
17.6
17.8
18.0
18.2
18.6
19.0
Table A4.1.2: Adjustment to 2007/08 reported bad debt charge
Planning Assumption 2010-14
The planning assumption used in our second draft business plan is that we aim to maintain collection
levels at 95.61% of net income over the 2010-14 period. Therefore the level of bad debt will be 4.39% of
net income.
Achieving, and then sustaining, this performance over the 2010-14 period will be a major challenge as
our household customers’ ability to pay water and wastewater charges is likely to be adversely affected
by rises in unemployment and lower incomes due to the impact of the recession.
Appendix 4.2 - Approach to Non-Domestic Rates
This appendix provides Scottish Water’s approach for projecting non-domestic rates. This is outlined
step-by-step below.
Step 1 – Approach to Calculating 2007/08 Non-Domestic Rates
Scottish Water’s rates bill in 2007/08 was £32.9m of which £29.7m related to regulated business
activities excluding PFI works, comprising £20.6m for the water undertaking and £9.1m for wastewater
assets. The calculation of the rates bill is as follows:
Rateable Value (RV) x Uniform Business Rate (UBR) – Applicable Reliefs
Rateable Value (RA)
The rateable values for Scottish Water’s assets in 2007/08 are:
•
Water - £50m in 2007/08 prices; and
•
Wastewater - £21.6m in 2007/08 prices.
Uniform Business Rate (UBR)
UBRs are set separately for large properties (RV>£29,000) and small properties (RV<£29,000). Scottish
Water’s assets fall predominantly in the large property category. The proportions are provided in Table
A4.2.1 below.
RV
Water
Waste
Small
< £29,000
0%
15%
Large
> £29,000
100%
85%
Table A4.2.1: The proportions of UBR by rateable value and service
Applicable Reliefs
Rates costs allocated to regulated activities excluding PFI works for 2007/08 are set out below.
£m (2007/08 prices)
RV
UBR
Pence/£RV
Base Rates
Transitional
Reliefs
Other reliefs
&
adjustments
Rates Bill
Water - small
0.0
0.441
0.0
0.0
0.0
0.0
Water - large
50.0
0.444
22.2
-1.6
0.0
20.6
Total water
50.0
0.444
22.2
-1.6
0.0
20.6
Wastewater - small
3.2
0.441
1.4
0.0
-0.1
1.4
Wastewater – large
18.4
0.444
8.2
-0.1
-0.3
7.7
Total wastewater
21.6
0.444
9.6
-0.1
-0.4
9.1
Grand total
71.6
0.444
31.8
-1.7
-0.4
29.7
Table A4.2.2: Rates costs for 2007/08
Transitional relief relates to the implementation of the last revaluation effective from April 2005.
2007/08 is the last year of transitional relief and rates costs will increase by £1.7m from 2008/09.
Overall, this gives a rates bill of £29.7m for 2007/08.
23
Step 2: Assumptions Going Forward
We have made assumptions going forward on UBR, rateable value and relief assumptions. Each of these
is considered below.
UBR assumptions
For 2008/09 UBRs have been confirmed at 45.8p and 46.2p for small and large properties respectively,
which represents a 4.0% increase in nominal terms relative to the UBR for 2007/08. As seen in Table
A4.2.3, this does not result in any real increase in non-domestic business rates.
For 2009/10 a 5.0% increase in the nominal UBR has been applied. This is in line with the Chancellor’s
Pre-Budget Report (November 2008), in which it was confirmed that the September 2008 RPI would be
applied to UBRs from April 2009.
From April 2010 we have assumed that the UBR will reduce by 7.5% in nominal terms to correspond with
the experience from the April 2005 property revaluation in England and Wales. From 2011 onwards, we
have assumed that UBR increases will be in line with RPI. The implications of these assumptions are
provided in Table A4.2.3 below.
Actual
2007/08
Actual
2008/09
Forecast
2009/10
Forecast
2010/11
Forecast
2011/12
Forecast
2012/13
Forecast
2013/14
UBR small (£)
0.441
0.458
0.481
0.445
0.450
0.457
0.465
UBR large (£)
0.444
0.462
0.485
0.449
0.455
0.462
0.471
Inflation (RPI)
3.96%
0.45%
1.00%
1.35%
1.65%
1.95%
Deflator
1.040
1.044
1.055
1.069
1.087
1.108
Outturn prices
2007/08 prices
UBR small (£)
0.441
0.441
0.461
0.422
0.422
0.422
0.422
UBR large (£)
0.444
0.444
0.465
0.425
0.425
0.425
0.425
Table A4.2.3: UBR assumptions
Rateable value assumptions
Draft valuations have been issued to water and wastewater companies in England and Wales by the
Valuation Office Agency (VOA) for the property revaluation effective from April 2010. The VOA has
indicated that draft valuations for April 2010 show a wide range of increases over the April 2005
valuations of 50%-250%. Final valuations will be confirmed by the VOA in May 2009, but final rates’ costs
will not be known in England and Wales until October 2009 when the Department of Communities and
Local Government sets the UBR multipliers used to calculate rates bills.
The basis of property valuation is normalised across the UK with the harmonisation of UBRs in England,
Wales and Scotland. We therefore expect comparability between the final valuations issued by the VOA
for England and Wales and those that will be issued by the Scottish Assessors Association in January 2010.
For the second draft business plan, we have assumed the lower end of the indicative range of increases
contained within draft valuations for England and Wales as at December 2008 i.e.: an increase of 50% in
the rateable values for water and wastewater assets.
24
Actual
Actual
Actual
Forecast
Forecast
Forecast
Forecast
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Water
50.0
50.0
50.0
75.0
75.0
75.0
75.0
Wastewater
21.6
21.6
21.6
32.3
32.3
32.3
32.3
Total
71.6
71.6
71.6
107.3
107.3
107.3
107.3
£m (2007/08 prices)
Table A4.2.4: Rateable value assumptions
Relief assumptions
Consistent with the 2005 revaluation, we have assumed that transitional relief will also apply with regard
to the forthcoming revaluation. In 2010/11, 85% of the business rate charge has been applied, with 90%
in 2011/12, 95% in 2012/13 and 100% in 2013/14.
Step 3 – Non-Domestic Rates Forecasts
Based on the assumptions outlined above and our approach to calculating non-domestic rates, our
forecast costs are summarised in Table A4.2.5 below in 2007/08 prices.
£m (2007/08 prices)
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Water service
RV
50.0
50.0
50.0
75.0
75.0
75.0
75.0
0.444
0.444
0.465
0.425
0.425
0.425
0.425
Rates costs
22.2
22.2
23.2
31.9
31.9
31.9
31.9
Less: Transitional Relief
-1.6
-1.4
-1.0
-0.5
30.9
31.4
Weighted UBR (£)
Less: Anticipated Transitional
Relief from 2010 revaluation
Total
20.6
22.2
23.2
30.5
Base Year
20.6
20.6
20.6
20.6
20.6
20.6
20.6
0.0
1.6
2.6
9.9
10.3
10.8
11.3
21.6
21.6
21.6
32.3
32.3
32.3
32.3
0.444
0.444
0.464
0.425
0.425
0.425
0.425
9.6
9.6
10.0
13.7
13.7
13.7
13.7
-0.6
-0.4
-0.2
Increment – water service
31.9
Wastewater service
RV
Weighted UBR (£)
Total
Less: Transitional Relief
-0.5
Less: Anticipated Transitional
Relief from 2010 revaluation
Total
9.1
9.6
10.0
13.1
13.3
13.5
13.7
Base Year
9.1
9.1
9.1
9.1
9.1
9.1
9.1
0
0.5
0.9
4.0
4.2
4.4
4.6
2.1
3.5
13.9
14.5
15.2
15.9
2.1
3.5
3.5
3.5
3.5
3.5
0
0
10.4
11.0
11.7
12.4
Increment – wastewater service
Total increment
Of which certain
Of which uncertain
Table A4.2.5: Forecast non-domestic rates
25
Appendix 4.3 – Leakage
Introduction
This appendix outlines how we have calculated our transitional operating costs to achieve Economic
Level of Leakage (ELL).
Approach adopted
In 2007, Scottish Water commissioned the consultancy RPS Water to assist in determining the Economic
Level of Leakage (ELL). This work resulted in a report, “Determination of Scottish Water Economic Level
of Leakage – Final Report”, that was submitted to the Commission in December 2008. This document
provides the background assumptions and evidence used to assess our current estimate of the costs
associated with achieving ELL.
The incremental costs provided in this business plan are based on the active leakage control (ALC)
operating cost profiles provided in this report. As such they exclude the fixed costs associated with
leakage control, which are included in baseline operating costs. The table below provides the derivation
of the incremental operating costs based on the projections and assumptions in the recent report
provided to the Commission.
£m (2007/08 prices)
Active leakage control cost
profile
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
8.0
12.7
13.0
12.0
12.0
12.2
11.3
-0.9
-1.8
-2.6
-3.1
-3.5
-3.5
11.8
11.2
9.4
8.9
8.7
7.8
3.8
3.2
1.4
0.9
0.7
-0.2
Savings
Cost profile after savings
8.0
Incremental leakage costs
Table 4.3.1: Incremental leakage costs
26
Appendix 4.4 – Overall Performance Assessment and New Operating Costs
Introduction
This appendix outlines our approach to identifying new operating costs associated with OPA
improvements within the Ministers’ draft objectives. It provides a high level description of the approach
and an example.
Approach adopted
The approach that we have adopted for the classification of new operating costs relating to Q&SII,
Q&SIIIa and Q&SIIIb is based on the following definitions:
•
new operating costs associated with new legislative standards required in Ministers’ draft
objectives not associated with improving OPA service measures; and
•
new operating costs associated with Ministers’ draft objectives that relate to improving
service measures included within OPA measures.
The Capital Allocation Guidelines we have developed apportion capital costs to drivers. We have used
these capital allocation guidelines when apportioning new operating costs to drivers. Table A4.4.1 lists
those drivers for the Ministers’ draft objectives which also relate to OPA improvement.
Q&SII
Driver
Q&SIIIa &b
Driver
Wa5
CS1
-
CS12
None
-
WG4
SoSI absolute
Improvement in security of supply
-
WG4
SoSI target
Improvement in security of supply
OPA Measure
Driver
Inadequate Pressure
Properties removed from the register
Unplanned Interruptions
Reduction in number of properties at risk of
interruptions
Hosepipe restrictions
Drinking Water Quality
-
WG4
THM
DW2
DW2
All other parameters
DW3
Separated
Coliforms
DW3
DW3b
Manganese
DW3
DW3c
Iron
DW3
DW3f
Aluminium
DW3
DW3g
Turbidity
DW3
DW3j
None
-
-
Leakage
None
-
-
Sewer Flooding (capacity)
None
-
Sewer Flooding (other causes)
None
Sewer Flooding (at risk)
Properties removed from the register
WW Pollution Incident Cat 1&2
WW Pollution Incidents Cat 3
Sludge Disposal
Sludge in Agriculture Directive
Non Compliant WwTW
Water Environment and Water Services Act 2002
(Compliance with historic consents)
Water Pollution
WW1 &2
CS11
None
-
-
None
-
-
EC6
EC06
-
WQ01
Table 4.4.1: Matrix of drivers associated with OPA
27
Leakage is considered separately in Section 4 of the business plan and Appendix 4.3.
An example is provided below to outline the approach adopted.
Example – Autocode 31780 Winterhope WTW Upgrade
The Q&SIII drinking water quality project at Winterhope water treatment works (WTW) is forecast to
result in a new operating cost stream of £3,181 per annum. The project has the drivers and percentage
capital cost allocation set out in Table 4.4.2 below. The capital cost allocation is based on the
application of the Capital Allocation Guidelines, which are developed from Regulatory Accounting
principles.
% Allocation
OPA Related
OPA %
Allocation
DW13 – Disinfection Control
13.5
No
0.0
DW3B - Coliforms
13.5
Yes
13.5
DW3C - Manganese
13.5
Yes
13.5
DW3F - Iron
13.5
Yes
13.5
DW4A – Cryptosporidium Directions Wash Water Return
13.5
No
0.0
WSNI – Base maintenance
19.0
No
0.0
DW3J - Turbidity
13.5
Yes
13.5
Driver
Total
100.0
54.0
Table 4.4.2: Winterhope WTW upgrade driver and capital cost allocation
It can be seen from Table A4.4.1 that certain drivers associated with the Winterhope WTW upgrade are
defined as being related to OPA. The capital allocation associated with each of these drivers is used to
define this proportion. Table 4.4.2 indicates that 54% of the project is related to drivers which will
improve our OPA performance. The calculation of the new operating cost impact relating to OPA
improvement is therefore:
54% x £3,181 = £1,718
This is profiled for each year taking account of the project contractual acceptance date, the point at
which we begin to incur operating costs through the operation of the plant.
28
Appendix 4.5 – Operating Costs Efficiency
Overview
Scottish Water’s operating cost efficiency analysis is based on a methodology that is consistent with that
applied previously by Ofwat and the Commission.
Scottish Water’s Approach
The approach used by Scottish Water to assess relative efficiency is outlined in the flow diagram on the
next page. The process and assumptions made in each step are described below.
Box 1
Scottish Water has used 2007/08 data to re-estimate the most recently published Ofwat models
(2007/08)1, including Scottish Water asset and expenditure data; these are the modified Ofwat models.
This mimics the approach taken by Ofwat when it estimates efficiency challenges for English and Welsh
companies.
The expenditure data used for both Scottish Water and England and Wales is for 2007/08. The asset data
used is from 2007/08. The England and Wales data is estimated from the 2007/08 relative efficiency
assessment publication. The Scottish Water data is taken from our 2007/08 annual return.
The following issues regarding Scottish Water data used for the models should be noted:
Small Sewage Treatment Model
•
Service charges and support & general costs - Although the Scottish Water totals are
available in the annual return, the splits across different types of works are not. The totals
were proportioned across types of works using the direct cost figures.
•
Size band zero included - England and Wales do not have a band zero category. As discussed
with Commission staff, band zero for Scottish Water was added onto band one for modelling
purposes.
•
Septic tanks excluded - To ensure consistency with England and Wales figures, septic tanks
categories were excluded from this model estimation. Septic tanks are included in the
septic tanks special factor.
1
Relative efficiency assessment 2007/08 (http://www.ofwat.gov.uk/regulating/reporting/ltr_rd0209_releffassess07-08)
29
Box 1.
Modified 2007/08 Ofwat models
Based on 2007/08 data
Box 2.
SW econometric model
predicted expenditure
Box 3.
E&W econometric model
predicted expenditure
Box 4.
Adjustments
Box 5.
Residual calc: difference between actual
2007/08 expenditure and econometric
model predicted expenditure
Box 6.
Efficiency calc: adjustment of 10% to
water residual and 20% to sewerage
residual
Box 7.
Rank companies in order of efficiency
Box 8.
Chose E&W water and sewerage benchmark
company for comparison with SW
Box 9.
Efficiency challenge calc: catch up assumption applied to
difference between SW and E&W benchmark efficiency.
Box 11.
SW expenditure
Box 10.
Apply efficiency challenge to SW expenditure and apply
glide path.
Box 12.
Estimated Operating allowance
total for 2010 to 2014
30
Figure 4.5.1: Scottish Water’s approach to assessing relative efficiency
Business Activities Model
The following modifications were made to the sewerage and water business activities models.
•
The inclusion of Scottish Water Business Stream (SWBS)
An adjustment was made to the expenditure figures to allow for SWBS activity. The 2007/08
annual return expenditure figures do not include SWBS. Table A4.5.1 details the
adjustments made to allow for this.
£m (2007/08 prices)
Water
Sewerage
Total
23.0
14.1
37.1
2007/08 - Scottish Water business activities
2007/08 - Scottish Water doubtful debt
5.8
6.2
12.0
2007/08 - Business Stream estimate
12.0
9.5
21.5
Total business activities 2007/08
40.8
29.8
70.6
Table A4.5.1: Business activities models – SWBS adjustments
•
Bad debt adjustment
Following discussions with Commission staff, we adjusted our base operating costs to reflect
the 2007/08 underlying bad debt charge (see Section 4, Table 4.2 and accompanying text,
as well as Appendix 4.1). Our 2007/08 accounting bad debt charge understated the
operating cost level that would be incurred in the 2010/14 period.
The relative efficiency analysis has been developed to incorporate this adjustment. This
involves the following:
•
calculating the special factor to account for our underlying level of bad debt; and
•
adjusting the econometric modelling approach to reflect the changes to our data.
The process of deriving the special factor is provided in our free form special factor submission.
The following adjustments were made to the econometric models.
Adjust actual costs - The bad debt adjustment impacts on the actual costs allocated to the
water and sewerage business activities models. The adjustment made is provided in Table
A4.5.2.
£m (2007/08 prices)
Water
Sewerage
Total
Initial total for business activities models – (1)
40.8
29.8
70.6
Underlying bad debt
14.3
15.3
29.6
8.5
9.1
17.6
49.3
38.9
88.2
Residual bad debt allocation – (2)
Revised totals for business activities models – (1)+(2)
Table A4.5.2: Business activities models – underlying bad debt adjustments
The starting point for this adjustment is the total calculated in Table A4.5.1. The ‘Underlying
bad debt’ figure used in Table A4.5.2 is derived in Appendix 4.1. This is netted off the £12.0m
31
doubtful debt provision already included in the costs allocated to the water and sewerage
business activities models to give the ‘Residual bad debt allocation’. This additional sum is
included in the water and sewerage business activity model cost allocation. ‘Scottish Water
doubtful debt’, ‘Underlying bad debt’ and ‘Residual bad debt allocation’ have all been allocated
to the water and sewerage using the same proportions.
Re-estimate the business activities models - The water and sewerage business activity models
were re-estimated to include these adjusted Scottish Water costs.
Adjusting atypical costs - Scottish Water’s bad debt atypical costs are not included.
Box 2
Scottish Water explanatory variables are from the 2007/08 annual return. The model coefficients
(estimated in box 1) were applied to the Scottish Water asset data to produce predicted costs.
Box 3
England and Wales’ explanatory variables are based on estimated 2007/08 data obtained from the
2007/08 efficiency assessment. The model coefficients (estimated in box 1) were applied to the England
and Wales asset data to produce predicted costs.
Box 4
Material adjustments comprise the following elements:
•
special factors; and
•
atypical costs
Special Factors
England and Wales’ special factors are taken from the 2007/08 Ofwat efficiency assessment data. The
Scottish Water special factors are taken from the Scottish Water special factor submission for the second
draft business plan.
Atypical Costs
England and Wales’ atypical costs are taken from the 2007/08 Ofwat efficiency assessment data.
Scottish Water atypicals are outlined in Table A4.5.3.
£m (2007/08 prices)
Central Market Agency contribution
Water
Sewerage
Total
0.9
1.1
2.0
Table A4.5.3: Atypical costs
Box 5 and 6
The residuals from the econometric models have been reduced by 20% for wastewater and 10% for water.
This is the same approach as taken by Ofwat at PR04 and the Commission at the strategic review 2006–
2010.
Box 7
The companies are ranked according to their efficiency after the adjustments outlined for boxes 4, 5 and
32
6 are made.
Box 8
The benchmark used is the England and Wales 2007/08 upper quartile. The Commission has indicated
that it will use the 2007/08 upper quartile. A single upper quartile company has been used for operating
cost efficiency and capital maintenance, to ensure Scottish Water is compared with an actual
expenditure position, rather than a theoretical one.
We have adopted Anglian based on the ranking shown in table A4.5.4. The OPA ranking is based on
2007/08 information published by Ofwat, adjusted for measures not included in Scottish Water’s OPA
score (see Ofwat’s report: ‘Service and delivery – performance of the water companies in England and
Wales 2007-08’). The operating cost ranking is based on our analysis using 2007/08 estimates where
possible. The capital maintenance ranking adopts the 2006/07 Ofwat models and data set. (Ofwat has
yet to publish Capital Maintenance Econometric Returns (CMERs) for 2007/08).
Company
OPA
(2007/08)
Operating cost
(2007/08)
Capital maintenance
(2006/07)
Overall average
Yorkshire
3
1
2
2.0
Wessex
2
2
3
2.3
Anglian
1
3
4
2.7
Thames
6
6
1
4.3
Severn Trent
8
4
5
5.7
Northumbrian
9
5
6
6.7
Southern
4
7
10
7.0
Dwr Cymru
5
10
8
7.7
South West
7
9
7
7.7
United Utilities
10
8
9
9.0
Table A4.5.4: Water company rankings
We have selected Anglian Water as the benchmark company as it is upper quartile on operating costs and
capital maintenance and has featured in the upper quartile service level four out of the last five years,
which is consistent with the aims of our plan.
Box 9
The following have been assumed:
•
the total efficiency gap has been attributed to Scottish Water, to align with the
Commission’s methodology for the strategic review (this includes the portion of the
efficiency challenge belonging to SWBS);
•
the modified Ofwat models are used as the base point from which to assess the efficiency
challenge; and
•
catch-up is assumed to be 100% of the way to the upper quartile on a glide path over the
regulatory review period.
33
Box 10
A straight-line glide-path to the targeted level of operating expenditure has been assumed. The glide
path adopted is 25% of the efficiency gap as applicable in 2010/11, 50% in 2011/12, 75% in 2012/13 and
100% in 2013/14.
Box 11
The efficiency challenge has been applied to the cost categories as detailed in the table below. It has
been applied to cost projections from 2010/11 onwards.
Cost category
Application of the efficiency gap
2007/08 baseline costs
Applied to all categories with the exception of nondomestic rates and SEPA costs, which are outside of our
control.
Atypical costs
Not applied as there are no atypical costs in the
2010/11 to 2013/14 period.
Adjustments to base
Applied fully.
Increments to base – Certain, comprising
•
Non-domestic rates
•
Pensions
•
SEPA charges
•
Odour code of practice
•
Landfill tax
Applied to all categories with the exception of nondomestic rates and SEPA costs, which are outside of our
control.
Increments to base – Uncertain, comprising nondomestic rates and pensions
Not applied because non-domestic rates are outside of
our control and pension costs are uncertain.
Wholesale revenue management
Applied fully.
OPA improvement
Applied to leakage costs. All other elements are dealt
with through the ‘OPA absorption’ approach discussed
in Section 4 of the business plan
New operating costs – Ministerial objectives
Applied fully.
New operating costs - OPA
Not applied. Dealt with through the ‘OPA absorption’
approach discussed in Section 4 of the business plan.
Table A4.5.5: Application of the efficiency gap
Box 12
Our projected operating costs are provided in Section 4 of the business plan.
34
Appendix 4.6 – PFI
Additional Sludge Load to PFI Sites
We outline below the impact of Ministers’ draft essential Q&SIIIb quality objectives on PFI sites with
respect to the additional sludge production exported from Scottish Water operated assets to PFI sites for
treatment and disposal.
Sites impacting on PFI works
The tables below outline the sludge imports by site to the relevant PFI treatment site. The sludge
volumes provided are subject to rounding.
Site
Ashgill WwTW.
Commencement date
for beneficial use of
enhanced asset
August 2014
Total Additional
Sludge (tDS/annum)
1
Bothwellbank WwTW.
November 2011
418
Caldercruix WwTW.
November 2011
10
Carluke (Mauldslie) WwTW.
February 2012
138
Coalburn WwTW.
October 2011
5
Dunnswood WwTW.
December 2013
315
East Kilbride (Allers) WwTW.
February 2012
358
Greengairs WwTW.
December 2011
5
Hamilton WwTW.
May 2012
493
Lanark WwTW.
May 2012
226
Larkhall (Skellyton) WwTW.
December 2011
212
Neilston WwTW.
December 2013
2
Netherburn WwTW.
December 2011
2
January 2012
1
Salsburgh WwTW.
Wishaw (Carbarns) WwTW.
December 2014
Total for Q&SIIIb
Philipshill WwTW (Q&SIIIa)
486
2,672
October 2009
Total (TDS)
308
2,980
Table A4.6.1: Sludge imports to Daldowie STC
Site
Haddington WwTW
Commencement date
enhanced asset
December 2012
Total for Q&SIIIb
Dunbar WwTW (Q&SII)
Total Additional
Sludge (tDS/annum)
141
141
May 2008
Total (TDS)
338
479
Table A4.6.2: Sludge imports to Seafield WwTW
35
Commencement date
enhanced asset
Site
Total Additional
Sludge (tDS/annum)
Inverurie WwTW.
November 2011
243
Inverurie New WwTW.
November 2011
243
Brechin WwTW.
December 2011
73
Total
559
Table A4.6.3: Sludge imports to Nigg WwTW
The table below provides the projected additional sludge deliveries, by year, for each of the above sites.
Sludge Site
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
0
308
308
593
2,099
2,257
2,613
2,980
282
338
338
338
378
479
479
479
NIgg WwtW
0
0
0
191
559
559
559
559
Total (TDS)
282
646
646
1,122
3,036
3,295
3,651
4,018
Daldowie STC
Seafield WwTW
Table A4.6.4: Projected additional sludge deliveries to PFI sites
PFI Indexation
We provide in this section detail of PFI contract indexation for each site. The individual indexation
structures to be applied on an annual basis for each of the PFI contracts are summarised as follows.
Aberdeen
•
Although the indexation formula varies over time, the tariff applicable for each flow band is
currently indexed at 53.5% of the RPIx uplift. This will remain so over the next regulatory
period, with the exception of sludge imports which increase by 100% of the RPIx uplift. The
availability payment sum associated with the Nigg scheme will be indexed by 52.53% of the
RPIx uplift.
•
Indexation is applied using the published indices for the month of March, preceding each
contract year (defined as a financial year).
Ayrshire
•
The tariff applicable for the first flow band at all three schemes is indexed annually by
43.1% of the RPIx uplift whilst the tariffs applicable for the second and third flow bands
increase by 100% of the RPIx uplift.
•
Almond Valley, Seafield & Esk Valley
•
The tariff applicable for all three flow bands is indexed annually by 65% of the RPI uplift,
except for sludge imports which increase by 100% of the RPI uplift.
36
•
Daldowie
•
All tariffs applicable for all three flow bands are indexed annually by 90% of the RPI uplift.
•
Indexation is applied using the published indices for the month of April at the start of each
Dalmuir
•
A number of indices are in use and are weighted as follows: Average Earnings at 20%,
Machinery & Equipment at 5%, Distribution Services of Electricity at 20% and RPI at 55%. The
tariff applicable for the first band is indexed annually by 39% of the weighted indices whilst
the tariff applicable for the second and third flow bands increase by 100% of the weighted
indices.
•
Indexation is applied using the published indices for the month of January at the start of
each contract year (defined as a calendar year).
Highland
•
All tariffs applicable for all three flow bands and imported sludge are indexed annually by
RPI.
•
Indexation is applied using the published indices for the month of December, preceding each
contract year (defined as a calendar year).
Levenmouth
•
A number of indices with various weightings are used comprising:
Availability
Payment
Fixed 3% yearly increase
Band 1 Tariff
Band 2 Tariff
Sludge Imports
Tariff
39.3%
44.5%
5.8%
6.4%
IPE gas index
10.8%
8.5%
11.9%
21.3%
RPI
44.1%
40.6%
88.1%
78.7%
Average Earnings
Table A4.6.7: Levenmouth indexation weightings
•
For average earnings and RPI, indexation is applied using the published indices for the month
of February, preceding each contract year (defined as a financial year).
•
For IPE, indexation is applied using the twelve published indices for each month of the
current contract year (defined as a financial year).
37
Moray Coast
•
The first two tariff bands at all three schemes are indexed annually by 43% of the RPIx
uplift, whilst the third tariff band and sludge imports increase by 100% of the RPIx uplift.
•
Tay
•
Both flow bands are indexed annually by 45% of the RPIx uplift, with sludge imports by 100%
of the RPIx uplift.
•
Indexation is applied using the published indices for the month of December, preceding each
contract year (defined as a calendar year).
The actual inflation rates applied in 2008/09 and forecast for 2009/10 are as follows:
Project
Index and month
2008/09 (Actual)
2009/10 (Forecast)
Aberdeen
RPIx (March)
3.5%
3.4%
Ayrshire (MSI)
RPIx (March)
3.5%
3.4%
Almond Valley,
Seafield and Esk
RPI (March)
3.8%
2.5%
Daldowie
RPI (April)
4.2%
2.0%
Melded Rate
Melded Rate
Apr 08 – Dec 08 : 3.1%
Apr 09 – Dec 09 : 3.2%
Jan 09 – Dec 09 : 3.2%
Jan 10 – Apr 10 : 0.2%
Apr 08 – Dec 08 : 3.1%
Apr 09 – Dec 09 : 2.8%
Jan 09 – Dec 09 : 2.8%
Jan 10 – Apr 10 : 1.5%
AEI (January)
Dalmuir2
Machinery & Equipment and
Distribution Services (January)
RPI (January)
Highland2
RPIX (December)
Melded Rate 29.8%:
Melded Rate -6.0%:
AEI (February)
6.9%
2.8%
RPI (February)
4.1%
2.8%
IPE (Average over contract year)
128.6%
-18.4%
Moray Coast
RPIX (March)
3.5%
3.4%
Tay2
RPIX (December)
Apr 08 – Dec 08 : 3.1%
Apr 09 – Dec 09 : 2.8%
Jan 09 – Dec 09 : 2.8%
Jan 10 – Apr 10 : 1.5%
Levenmouth
Table A4.6.8: PFI inflation rates applied for 2008/09 and 2009/10
PFI Indexation and Financial Modelling
This section provides an overview of the PFI inflation adjustment used in our financial modelling of PFI
costs.
38
2
Inflation is applied in January of each year.
Approach adopted
As noted in Section 4, PFI related service fee inflation has been determined in accordance with the
specific indexation provisions contained in each PFI contract and which define the type and weighting of
indexation to be applied to different indices unique to each scheme. The inflation rates for PFI contracts
differ from the underlying inflation rate used in our financial modelling and an adjustment is applied to
ensure the inflation rates correspond.
The adjustment to the Financial Model is applied using the following assumption that underlying base
inflation is as shown in Table A4.6.9.
2008/09
Base Inflation (RPI)
3.96%
2009/10
0.45%
2010/11
1.00%
2011/12
1.35%
2012/13
1.65%
2013/14
1.95%
Table A4.6.9: Underlying business plan RPI assumptions
As outlined earlier, not all contracts utilise RPI as the relevant index. Furthermore, the above inflation
assumptions are made on the basis that the annual inflation allowance for a given financial year is
determined from the average of the twelve monthly RPI figures published during the financial year in
question. In 2008/09 we have applied the actual rates of inflation for each of the specific indices used in
the contracts (only two contracts utilise RPI alone), rather than the base inflation rate for RPI of 3.96%
used universally in converting real to nominal costs. A similar approach has been adopted for 2009/10
albeit that some of the actual index values are not yet known.
By contrast, inflation due under the terms of the individual PFI contracts is generally calculated from
indices published at the start of, or immediately preceding, either the calendar or financial year (i.e.
April) in question, rather than on an average over a financial year. For the 2010-14 period, given the
absence of sufficiently reliable forecasts for all the indices used in the contracts from 2010/11 onwards,
we have adopted the same rate of inflation used for RPI in these years as outlined in the above table.
All other non contract costs have been fully inflated at the assumed inflation rate for RPI as detailed in
the above table, including 3.96% in 2008/09 and 0.45% in 2009/10.
£m (2007/08 prices)
Real PFI Charges
Inflation–PFI Contracts
Nominal PFI Charges
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
127.8
127.7
127.7
129.9
130.1
130.0
5.6
7.1
8.8
10.9
13.1
15.3
133.4
134.8
136.5
140.8
143.2
145.3
Table A4.6.10: PFI Contractual inflation adjustment
The ‘Nominal PFI Charges’ in Table A4.6.10 are then converted back into 2007/08 prices using our
underlying RPI assumptions outlined in Table 4.6.11 to give ‘Real PFI Charges – Financial Model’. The
table below provides this reconciliation to the PFI charges used in the Financial Model.
39
40
£m (2007/08 prices)
Nominal PFI Charges
Inflation–Financial Model
Real PFI Charges –
Financial Model
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
133.4
134.8
136.5
140.8
143.2
145.3
5.1
5.7
7.1
9.1
11.4
14.1
128.3
129.1
129.4
131.7
131.8
131.2
Table A4.6.11: Financial model inflation adjustment
These adjustments ensure that PFI inflation is accounted for correctly in our calculations.
Appendix 4.7 – Projected Changes to PFI Service Fees - Seafield Odour
Improvement Works
Background
The original PFI contract, signed in 1999, contained a specific odour standard relating to permissible
levels of hydrogen sulphide emissions at the boundary (i.e. 10 parts per billion), which mirrored the
odour related condition contained within the detailed planning consent granted by City of Edinburgh
Council at that time.
In April 2006, the statutory Code of Practice on Sewerage Nuisance, Assessment and Control of Odour
from Waste Water Treatment Works (the “Code of Practice”) was introduced, which required the PFI
company and Scottish Water to produce an Odour Improvement Plan for Seafield WwTW.
The Odour Improvement Plan was based upon comprehensive odour investigations undertaken on behalf
of Scottish Water and the PFI company by specialist consultants, WRc, to investigate the causes and
sources of odour, and identify a series of relevant abatement measures. Five odour treatment options
were considered in the Odour Improvement Plan, with the preferred option recommended following an
analysis of costs and benefits of each option in accordance with the guidance contained in the Code of
Practice. The Code of Practice promotes a ‘step-wise’ or phased approach to implementing odour
improvements to avoid over-engineered solutions which are disproportionate to the scale of the problem.
This plan, requiring the first abatement measure of the five to be implemented, was approved by the
City of Edinburgh Council in May 2008.
The plan will involve covering the majority of the inlet works area and weirs to the primary settlement
tanks, and treating the odorous gases collected from these areas. Odour modelling indicates that around
70% of odour emissions will be removed and in excess of 90% of residential properties will be removed
from the zone where odour is predicted to have an impact.
The tender and negotiations in respect of capital and operating costs for odour improvement are at an
advanced stage, but not yet complete. We shall provide further information on incremental operating
costs, arising from the tender and negotiation process, once they are available.
Scottish Water Contractual Liability
Odour performance is measured daily. As the PFI contract requires 95% compliance with the contractual
odour standard, the PFI company is permitted 18 failures per year. Performance in relation to this
standard has been generally improving as set out in Figure A4.7.1.
41
140
120
100
80
60
40
20
0
2001/02
2002/03
2003/04
2004/05
Number Odour Events
2005/06
2006/07
2007/08
2008/09 (Part)
Odour Event Penalty Trigger
Figure A4.7.1: Seafield WwTW – odour events v contract penalty trigger (to end of January 2009)
Based on this recent level of performance, the PFI company is generally considered to be compliant with
its existing contractual odour obligations.
The implementation of the Odour Improvement Plan will deliver an enhancement to the site odour
performance, above that required and being achieved under the PFI contract.
As the new enhanced performance is a requirement arising from a new law since the date of contract
award in 1999, we are required to pay the full costs of achieving the higher odour standard. Any costs
associated with maintaining compliance with the existing odour standard must be met by the PFI
company.
Deriving Best Value
Final costs for the preferred option have yet to be established, although the overall capital cost is
estimated at around £16m. The associated ongoing operation and maintenance costs of the new odour
control facilities (e.g. power, chemicals, and maintenance activities) that the PFI Company will be
entitled to recover through additional service fees is also still subject to determination and negotiation
as part of the process set out below.
At each stage of this process, we challenge both the scope of works and their accompanying costs by
adopting a number of measures to ensure best value.
At the outset this primarily centred on defining the project scope of work in liaison with the
environmental regulators in terms of the content of the Odour Improvement Plan (i.e. only proceed with
the first phase rather than incorporating further phases into the first tranche of work).
This was achieved as a result of a series of investigations and analysis of odour performance at Seafield
WwTW being carried out by specialist consultants to thoroughly investigate the sources and causes of
42
odour emissions and potential odour improvement works required to address these issues. These studies
have looked at all aspects of odour generation at the works themselves, and also the sewer network
feeding the works, over approximately a three year period to ensure the issues were properly
understood.
This work has enabled us to provide to the City of Edinburgh Council an evidence based approach to
scoping the proposed improvement works such that the risk of expensive and potentially over scoped
“cover all” technical solutions is avoided. Such an approach is consistent with the requirements of the
Code of Practice.
Since the Odour Improvement Plan was approved, we have focussed on ensuring that the required works
were not over-scoped and that that all costs are robustly challenged.
In respect to scope, our strategy has centred on first ensuring that existing contract obligations are being
adhered to by the PFI company and, thereafter, challenging all elements of the PFI Company’s technical
proposals and associated costs. This has been reflected in the adoption of the following measures:
•
Ensuring that the PFI Company undertakes additional works where it is deemed not to be
compliant with its existing contract obligations. This process is currently being implemented
under the terms of a contractual defects notice issued in July 2007. Although the tender
and subsequent negotiation process is still ongoing it is estimated that the PFI company will
bear around £6m of unremunerated capital costs in complying with its existing contractual
obligations to improve overall performance of the works. In addition, Scottish Water
requires the PFI Company to ensure that any odour improvements driven by the need to
comply with those parts of the site regulated by SEPA under existing legislation (i.e. Waste
Management Licence) rather than the statutory odour Code of Practice are undertaken by
the PFI company without any recourse to Scottish Water;
•
Requiring that all capital improvement measures are procured by a competitively tendered
process in accordance with OJEU rules to ensure delivery of the project at competitive
market rates and in a transparent manner. Prior to commencement of the tendering process
and to ensure that this process delivers value, we and third party consultants have reviewed
and challenged the scope and have ensured the approach adopted avoids an over-engineered
specification;
•
A further part of this process has been to focus upon ensuring that design and construction
risk is properly transferred to the delivery contractor and that the PFI contract amendment
ensures the appropriate commissioning tests will be carried out over a prolonged period (i.e.
a minimum of one year) such that we can be satisfied that the new works deliver improved
odour performance in line with the required standard;
•
In addition, a third party technical due diligence review will be carried out by Scottish Water
and an external consultant on the preferred tenderer’s proposal prior to formal contract
award to satisfy us that the proposed technical solution is fit for purpose and will deliver
the requirements of the Odour Improvement Plan;
•
In respect of non-capital costs we are undertaking a critical review, benchmarking,
challenge and audit of PFI company direct costs (i.e. project development, project
management, and operator on costs in connection with the implementation of the
43
construction works, and ongoing operation and maintenance costs in respect to the upgraded
odour works). This work includes a requirement for the PFI company to demonstrate why
and how additional costs will be incurred (i.e. by reference to maintenance schedules,
design documentation and process specification), and to properly evidence such costs (e.g.
supplier quotes, staff rates etc) wherever possible tested against our own cost database. In
addition, a third party review will be carried out to test the PFI company’s assumptions and
costs. This will take into account dis-allowing costs related to sub-optimal performance of
any existing assets;
•
Ensuring that the PFI contract amendment documentation properly reflects the improved
level of service required by the upgraded works and that Scottish Water has the necessary
contractual means to apply appropriate performance deductions on contract payments when
the required level of service is not achieved, extending to the PFI company being obliged to
fund additional works if it has not met the specified performance criteria or failed to
implement the works in an acceptable fashion; and
•
In regards to funding this contract amendment, under the terms of the contract, the PFI
Company is only legally required to fund (but at Scottish Water’s cost) a small proportion
(around £3m) of the predicted additional borrowing requirement but is under a “reasonable
endeavours” obligation to obtain all of the borrowing needed. The PFI Company has
indicated that due to current fragile state of the financial markets it is very unlikely that it
would be able to procure funding for the whole amount of the required finance. However,
by using indicative costs of finance for a privately procured option (i.e. mixture of external
debt and shareholder equity) compared with procuring debt from the Scottish Government
there are significant financial benefits (around £1.4m per annum over the remaining life of
the contract) of pursuing the public debt option. Therefore, given that funding may not be
available via the PFI Company and given the cost benefits of public funding we plan to
procure this additional funding through borrowing from the Scottish Government albeit that
we will source £5m of the funding from financing provided in the 2006-10 period for PFI
capital improvement works.
Evaluation of the tenders is currently ongoing and we expect that the full process and the associated
costs of this upgrade will be known by summer 2009.
44
5. Maintaining Service and Serviceability to Customers
Appendices
Appendix 5.1 – Capital Maintenance Efficiency Analysis
Overview
Scottish Water’s proposed capital maintenance plan is set out in Section 5. This Appendix is a top-down
assessment carried out to validate the size of our bottom-up plan and efficiency challenge. Ofwat has
spent several years developing and re-estimating a series of econometric models that are designed to
compare capital maintenance expenditure between companies to understand relative efficiency. The
estimates here are based on a methodology that is consistent with that applied previously by Ofwat.
Ofwat will be using menu regulation for PR09 and will not be publishing a relative efficiency assessment
as in previous years. However, it has indicated that the recently collected Capital Maintenance
Econometric Return (CMER) data will be made available. The Water Industry Commission for Scotland
has indicated that the relative efficiency assessment should be based on the new CMER data but, as this
is not yet available, Scottish Water has used data and econometric models from 2006/07 to carry out this
assessment.
Scottish Water’s Approach for Second Draft Business Plan
The approach used by Scottish Water to verify the capital maintenance plan in Section 5 was to estimate
MAINTAINING SERVICE
Scottish Water: Second Draft Business Plan. Maintaining Service and Serviceability to Customers
three scenarios based on the Ofwat econometric models, with varying assumptions incorporating possible
input cost rises (detailed in box 11 below). The methodology for the first scenario is outlined in Figure
A5.1.1. The methodology for scenarios two and three is outlined in box 13. The process and assumptions
made in each step of the flow chart are described below.
Box 1
Scottish Water has used the most recently published Ofwat models (2006/07). The expenditure data
used is the England and Wales average over 2000/01 to 2006/07 in 2006/07 prices. This is the data used
by Ofwat in estimating the 2006/07 efficiency models.
The sewerage treatment model is applied at an aggregate company level. The model assumes constant
returns-to-scale, meaning that the results of applying it at a disaggregated level should not differ
significantly from applying it at an aggregate level. This can be illustrated by considering the sewerage
infrastructure model, which is of similar form. When the aggregate sewerage infra company level model
is compared with the area level model there is only a 1% difference in the predicted expenditure.
Scottish Water asset data for 2006/07 was sourced from the annual return.
45
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Box 1.
2006-07 Ofwat econometric models
Based on E&W 1997-98 asset data and average
2000-01 to 2006-07 expenditure data
Box 2.
Econometric model predicted expenditure.
Based on E&W 1997-98 asset data and
SW 2006-07 asset data back-cast to 1997-98
Box 10a.
SW and E&W historic
expenditure
(average 2002-03 to
2006-07 COPI
inflated to 2006-07
prices).
Exceptional item
expenditure
excluded from SW
data)
Box 3.
Special factor adjustments
Box 4.
Residual calc: difference between historic
expenditure and econometric model predicted
expenditure
Box 5.
Efficiency calc: adjustment of 10% to water
residual and 20% to sewerage residual
Box 6.
Rank E&W companies in order of efficiency
Box 7.
Chose E&W water and sewerage ‘frontier’
company for comparison with SW
Box 8.
Efficiency challenge calc: catch up assumption
applied to difference between SW and E&W
frontier efficiency.
Box 10b.
SW historic
expenditure
(average 2002-03 to
2006-07 COPI
inflated to 2007-08
prices)
Box 9.
Apply efficiency challenge to SW historic
expenditure and apply glide path.
Box 11.
Apply rising cost assumption
Box 12.
Add SW exceptional items
Box 13.
Estimated Capital Maintenance allowance total
for 2010 to 2014
Figure A5.1.1: Scottish Water’s approach to verify the capital maintenance plan 2010-2014
46
Box 2
Scottish Water explanatory data for 2006/07 has been back-cast to 1997/98, where possible, using the
difference between England and Wales 1997/98 to 2006/07 data. The 1997/98 asset data from the
2006/07 Capital Maintenance Econometric Return for England and Wales was compared with equivalent
data sourced from the 2006/07 Annual Return where available. A ratio of the two was taken for each
explanatory variable by company. The average ratio for each explanatory variable over all English and
Welsh companies was then applied to the Scottish Water 2006/07 asset data to back-cast it to 1997/98.
This back-casting of data was necessary because the capital maintenance econometric models use
1997/98 information for explanatory variables. Data prior to the establishment of Scottish Water is not
readily available in a consistent format. As a result, back-casting is considered to be the most
appropriate way of ensuring data consistency. This is consistent with the approach taken by the
Commission in the 2006-2010 Strategic Review of Charges. The 2006/07 Scottish Water asset data was
used for back-casting rather than earlier years as it is more reliable. The ratios are shown in Table
A5.1.1 below.
Explanatory variable
England and Wales average
ratio from 1997/98 to
2006/07
Households billed water (000s)
0.93
Non-households billed water (000s)
1.00
Number of sewage treatment works
0.99
Total load of works (kg BOD5/year)
0.94
Total connected properties at year end (000s)
0.94
Total length of main (km)
0.98
Total length of sewer (km)
0.94
Amount of sewage sludge disposed of via each route total (ttds)
0.53
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Table A5.1.1: Explanatory variable ratios
The following England and Wales data is not readily available to use for back-casting. Therefore no
change has been made on these variables:
•
number of pumping stations;
•
total combined sewer overflows;
•
storage capacity;
•
capacity of pumping stations; and
•
number of billed properties for sewerage.
Using these variables unadjusted is a reasonable assumption to make because most of the variables, for
which England and Wales data is readily available, do not change significantly over time, apart from
sludge disposal, which increased in 1999 as a result of compliance with the Urban Waste Water
Treatment Directive (91/271/EEC).
47
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England and Wales’ explanatory variables are the 1997/98 data obtained from the 2006/07 Capital
Maintenance Econometric Return (CMER). This is the data used by Ofwat in estimating the 2006/07
efficiency models.
The Commission has indicated that the new CMER data should be used to derive capital maintenance
models, but Ofwat has yet to make this available. The data used here is the best available at present.
Box 3
No adjustments have been made for Scottish Water special factors. England and Wales’ special factors
are taken from the 2006/07 Ofwat CMER.
Box 4
The residual is the difference between the actual historic expenditure and the predicted expenditure
produced by the models.
Box 5
The residuals from the econometric models have been reduced by 20% for wastewater and 10% for water.
This is the same approach as taken by Ofwat at PR04.
Box 6 and 7
The benchmark used is the England and Wales 2007/08 upper quartile. The Commission has indicated
that it will use the 2007/08 upper quartile. A single upper quartile company has been used for capital
maintenance and operating cost efficiency, to ensure Scottish Water is compared with an actual
expenditure position, rather than a theoretical one.
We have adopted Anglian based on the ranking shown in table A5.1.2. The OPA ranking is based on
2007/08 information published by Ofwat, adjusted for measures not included in Scottish Water’s OPA
score (see Ofwat’s report: ‘Service and delivery – performance of the water companies in England and
Wales 2007-08’). The operating cost ranking is based on our analysis using 2007/08 estimates where
possible. The capital maintenance ranking adopts the 2006/07 Ofwat models and data set. (Ofwat has
yet to publish Capital Maintenance Econometric Returns (CMERs) for 2007/08).
Company
OPA
(2007/08)
Operating cost
(2007/08)
Capital maintenance
(2006/07)
Overall
average
Yorkshire
3
1
2
2.0
Wessex
2
2
3
2.3
Anglian
1
3
4
2.7
Thames
6
6
1
4.3
Severn Trent
8
4
5
5.7
Northumbrian
9
5
6
6.7
Southern
4
7
10
7.0
Dwr Cymru
5
10
8
7.7
South West
7
9
7
7.7
United Utilities
10
8
9
9.0
Table A5.1.2: Water company rankings
48
We have selected Anglian Water as the benchmark company as it is at the upper quartile on operating
costs in 2007/08 and capital maintenance in 2006/07 and has featured in the upper quartile service level
for four out of the last five years, which is consistent with the aim of our plan.
Box 8
We have used a catch-up of 100% of the way to the 2006/07 benchmark company (Anglian) by 2013/14.
Box 9
We have used the assumption that 25% of the efficiency will be achieved in 2010/11, 50% in 2011/12, 75%
in 2012/13 and 100% in 2013/14. To achieve this, Scottish Water would have to deliver some efficiency
improvements before the start of the period and all of the efficiency improvements by the end of the
third year of the period.
Box 10a and 10b:
Adjustments to CMER data
Capital maintenance expenditure data is held on the Scottish Water Capital Investment Management
System (CIMS). CIMS was queried as at October 2008 to obtain the 2002/03 to 2006/07 expenditure data.
Table A5.1.3 contains the raw data taken from the system; 2007/08 expenditure data has not been
included as it is not used in the models. The data presented here is in nominal prices as reported in the
CMER.
2002/03
2003/04
2004/05
2005/06
2006/07
Average
2002/03 to
2006/07
36.6
44.8
38.8
43.9
31.5
39.1
2.6
2.6
3.7
3.1
2.2
2.8
Treatment
11.5
23.3
22.3
40.2
29.0
25.3
Management and General
10.3
8.5
11.3
22.1
22.3
14.9
1.1
0.4
0.3
1.6
1.9
1.1
55.9
57.4
101.7
77.8
57.6
70.1
2.5
2.0
10.6
15.6
6.7
7.5
Treatment
11.8
13.9
28.2
45.7
10.1
21.9
18.6
12.8
13.0
10.2
23.8
15.7
150.9
165.7
229.9
260.2
185.1
198.4
Nominal Prices (£m)
Wastewater
Infrastructure
Non Infrastructure
Sludge
Water
Infrastructure
Non Infrastructure
Total
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Table A5.1.3: Scottish Water historic recorded capital maintenance expenditure
Exceptional items have been deducted from the expenditure data used for the efficiency assessment.
Exceptional items from the 2002-2006 and 2006-2010 strategic review periods were therefore deducted
from the 2002/03 to 2006/07 data. Table A5.1.4 contains the expenditure data less exceptional items (in
nominal prices).
49
2002/03
2003/04
2004/05
2005/06
2006/07
Average
2002/03 to
2006/07
36.6
44.8
38.8
43.9
31.4
39.1
0.6
2.6
3.7
3.1
1.4
2.3
Treatment
11.5
23.3
22.2
39.1
17.4
22.7
Management and
General
10.3
8.5
11.3
22.0
19.4
14.3
1.1
0.4
0.3
1.6
1.9
1.1
48.8
47.7
91.8
69.9
43.6
60.4
2.5
2.0
10.6
15.6
6.7
7.5
Treatment
11.8
13.9
28.2
45.1
8.5
21.5
Management and
General
18.6
12.8
13.0
10.1
21.0
15.1
141.8
156.0
219.9
250.4
151.3
184.0
Wastewater
Infrastructure
Non Infrastructure
Sludge
Infrastructure
Water
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Non Infrastructure
Total
Table A5.1.4: Scottish Water historic recorded capital maintenance expenditure (excluding
exceptional items)
Scottish Water engaged Berkley Consulting for first draft business plan to review the allocation of
expenditure to capital maintenance, including a sample of approximately 10% of Q&SII projects. The
conclusion of the review was that the capital maintenance in Q&SII was understated and should be 4%
higher. To adjust for this, a 4% increase was applied to all expenditure figures from 2002/03 to 2005/06
inclusive. Although there is an over-hang of Q&SII projects in 2006/07 expenditure figures, they were
not identified or increased by 4%. This approach provides a more conservative estimate of overall capital
maintenance expenditure. Table A5.1.5 provides the adjusted figures (in nominal prices).
2002/03
2003/04
2004/05
2005/06
2006/07
Average
2002/03 to
2006/07
Infrastructure
38.1
46.6
40.3
45.6
31.4
40.4
Non Infrastructure
0.6
2.7
3.8
3.2
1.4
2.3
Treatment
12.0
24.3
23.1
40.7
17.4
23.5
10.7
8.8
11.8
22.9
19.4
14.7
Sludge
1.1
0.4
0.3
1.7
1.9
1.1
Water
Wastewater
Total
Infrastructure
50.8
49.6
95.5
72.7
43.6
62.4
Non Infrastructure
2.6
2.0
11.0
16.2
6.7
7.7
Treatment
12.3
14.5
29.3
46.9
8.5
22.3
19.3
13.3
13.5
10.5
21.0
15.5
147.5
162.2
228.6
260.4
151.3
189.9
Table A5.1.5: Historic capital maintenance split by econometric model category (excluding
exceptional items but including 4% increase for Q&SII)
Expenditure data used in the models
Scottish Water’s expenditure data is the average of 2002/03 to 2006/07. English and Welsh expenditure
data averaged over the period 2002/03 to 2006/07 was also used. Note that the Ofwat models were built
using 2000/01 to 2006/07 English and Welsh expenditure data, therefore this is not consistent. However,
50
this covers five years of the data period and ensures consistency between Scottish Water and England and
Wales in terms of the expenditure basis used to apply efficiency.
A 2006/07 price basis is used for the efficiency calculation, with a 2007/08
Year
COPI
price base used when applying the results to Scottish Water data. Scottish
2001/02
125.50
Water was formed in 2002; data prior to this is from the separate authorities
2002/03
128.25
and is not representative of Scottish Water as an entity. A five-year average
2003/04
135.25
is expected to be sufficient to smooth most of the lumpiness of capital
2004/05
145.00
maintenance expenditure and is not that different from the six or seven year
2005/06
151.00
averages previously used by Ofwat. Historic capital maintenance has been
2006/07
157.00
inflated using COPI. The indexation adopted is provided in Table A5.1.6.
2007/08
162.50
Table A5.1.6: COPI
Box 11
Figure 5.1.2 illustrates total spend patterns, periodic review submissions and
periodic review allowances in England and Wales for capital maintenance. All figures are in 2007/08
prices3.
Total Capital Maintenance historic, PR99, PR04 and PR09 expenditure estim ates- (£m ) (2007-08 prices)
Capital Maintenance Expenditure (£m)
3,000
2,500
2,000
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1,500
1,000
PR99
PR04
PR09
500
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213
201314
201415
Year
E&W Historic Spend
E&W PR Allowance
E&W PR Submission
Figure A5.1.2: Total capital maintenance historic, PR99, PR04 and PR09 expenditure estimates (£m)
The draft English and Welsh PR09 business plan submissions for capital maintenance show a rise of 24%
from the PR04 allowance. Ofwat published its view of companies’ draft PR09 business plans in December
2008. In this it suggests a reduction of approximately 14% should be made to companies’ draft capital
maintenance submissions4. This is illustrated by the dotted red line on Figure A5.1.2. It should be noted
3
4
The 2000/01 to 2006/07 historic expenditure figures were sourced from the 2006/07 Ofwat efficiency assessment publication and
the 2007/08 figures were sourced from the annual return data. The PR04 submissions and allowance figures were sourced from
the Ofwat Final Determinations. The PR99 allowance was calculated based on a statement on page 176 of the PR04 Final
Determination which states, ‘we have allowed for a 22% increase compared with the last review’. The PR09 initial allowance and
draft submissions were taken from ‘Capital expenditure for 2010-2015: Ofwat’s view on companies’ draft business plans’. Pg 10.
We have assumed the same spend for each of the five years for the PR figures as we do not have the expenditure profiles for the
companies. COPI was used for inflation.
‘Capital Expenditure for 2010-15: Ofwat’s view on companies’ draft business plans’ pg. 10.
51
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that this is not Ofwat’s final proposal. Companies will further justify their positions in their final
business plans which may result in Ofwat making revisions to its proposal for the final determinations.
Assuming that the current PR09 baseline allowance does not change for Ofwat’s final determination, the
evidence suggests that the allowance will rise from £1.75bn in 2000-01 to a forecasted £2.27bn in
2014/15, in real terms. (Note that this is based on first draft business plan assumptions that may change
for final determination). This would be a real movement of £0.52bn, or about 30%, over 14 years. This
works out at approximately 1.9% per year from 2000/01 to 2014/15.
Box 12
No exceptional items expenditure has been added for any of the scenarios. However, exceptional items
are outlined in Appendix 5.2 of the business plan. Historic exceptional items were excluded from the
2002/03 to 2006/07 data, as discussed in box 10a and 10b.
Box 13
The first scenario in Table A5.1.7 was determined based on the assumption in box 11 above that capital
maintenance expenditure should increase by an average of 1.9% pa. Scenarios two and three have also
been included in Table A5.1.7. These are estimates of the capital maintenance allowance based on data
obtained from English and Welsh draft plans for the Periodic Review 2009 (PR09).
For scenario two, a Scottish Water PR09 equivalent requirement (over four years) was determined by
applying the relative difference between Anglian Water’s PR09 submission and its 2006/07 econometric
result (from the model output described above) to Scottish Water’s 2006/07 econometric result. This is a
Scottish Water PR09 figure equivalent to the benchmark company (normalised by the models).
Scenario three uses the average water and wastewater company as the benchmark rather than Anglian.
A 14% reduction has been made to scenarios two and three in line with Ofwat’s view of the draft plans.
An additional 5% reduction has also been made to exclude exceptional items as per Ofwat’s view5.
These approaches indicate an overall base capital maintenance requirement of £826 to £878 million.
Scenario
Description
Rising cost assumption
Forecast
base maintenance
expenditure
£m (2007/08 prices)
1
Assumptions as described in flow chart. SR10
Exceptional items and special factors excluded.
1.9%
841
2
PR09 Forecast minus 14% for the proposed Ofwat
reduction, minus 5% for exceptional items
As per benchmark
company (Anglian Water)
826
3
PR09 Forecast minus 14% for the proposed Ofwat
reduction, minus 5% for exceptional items
As per average water and
waste water company
878
Table A5.1.7: Top - Down estimated capital maintenance 2010-14
The bottom-up capital maintenance plan outlined in Section 5 proposes the base capital maintenance as
£824m with £103m in additional exceptional items. This is broadly in line with the lower end of the
range of our top down assessment.
52
5
‘Capital Expenditure for 2010-15: Ofwat’s view on companies’ draft business plans’ pg. 27.
Appendix 5.2 – Capital Maintenance Exceptional Items
Introduction
During the development of our plan we have identified several capital maintenance exceptional items
over and above our base maintenance requirement. This appendix sets out these items and the reason
that they are exceptional.
Principles of identifying exceptional items
Our identification of exceptional items, over and above the investment required to maintain base
serviceability, has been based on the following principles:
1.
Investment required to support the delivery of the quality enhancement objectives, which
would not be required to maintain serviceability at March 2010 levels (accelerated
maintenance);
2.
Investment to replace or create new assets to support delivery of upper quartile service; and
3.
Investment driven by a one-off change in asset management policy relating to a specific area
of the asset base or service.
All other investment has been categorised as base maintenance and included within our bottom up base
maintenance plan.
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Summary
We have identified the capital maintenance exceptional items set out in Table A5.2.1 within our
investment plan. Details of each exceptional item are discussed below.
Exceptional item
£m (2007/08 prices)
Post Efficient
Value
£m
Accelerated maintenance
47.7
Leakage management
27.2
Chlorine gas replacement
19.4
Wastewater network monitoring
4.7
Water network monitoring
4.3
Total
103.3
Table A5.2.1: Exceptional items
53
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Accelerated Maintenance
Area of accelerated maintenance
£m (2007/08 prices)
Water Infrastructure
Value
£m
39.4
Waste Water Non Infrastructure
6.9
Water Non Infrastructure
1.4
Total
47.7
Table A5.2.2: Accelerated maintenance
Our quality enhancement driven water mains rehabilitation programme set out in Section 6 has allocated
£39.4m to capital maintenance. This allocation is the additional investment associated with structurally
replacing pipes as opposed to relining for quality purposes. The exceptional maintenance investment is
the incremental costs over the cost of relining, and is classified as exceptional as it is driven by the
quality requirement and not the base serviceability requirement. This approach is in line with RAR2.
Wastewater Non-infrastructure
In Section 6 we set out the investment required to deliver the quality enhancements required to deliver
the Ministers’ draft essential environmental objectives. When scoping these projects we have reviewed
the existing assets and identified the maintenance requirement to ensure compliance with the existing
standard, and then the additional maintenance requirement to support or deliver the enhanced standard.
This additional accelerated maintenance requirement of £6.9m is included as an exceptional item within
this plan. This requirement has been scoped and costed using the standard methodology set out in
Section 5: Annex One.
Water Non-infrastructure
In Section 6 we set out the investment required to deliver the quality enhancements required to deliver
the Ministers’ draft essential drinking water quality objectives. We have scoped this investment using
the same principles as set out for wastewater non-infrastructure above. This has resulted in an
accelerated maintenance requirement of £1.4m which is included as an exceptional item within this
plan.
Leakage Management
Previous Investment
Between 2002 and 2010 we have invested £46m of exceptional items in leakage management, which has
been focused on:
•
Delivering greater than 96% District Meter Area (DMA) coverage across Scotland to allow
further measurement and targeting of leakage;
54
•
installing additional Distribution Input (DI) meters;
•
installation of additional Pressure Reduction Values (PRV’s);
•
implementation of a Scotland wide continuous Per Capita Consumption (PCC) monitor;
•
improving data associated with Water Balance and reporting of Leakage Performance
Indicators (LPI); and
•
System improvements to improve business and regulatory reporting.
Future Investment
To support delivery of the economic level of leakage (ELL) by 2014, we have identified further
enhancements required to the current asset base and improved data capture and reporting systems.
These needs have been identified through our current leakage reduction activities and during our latest
assessment of our ELL submitted to the Commission in December 2008. These activities will increase the
confidence associated with our Water Balance and augment our assessment of the ELL. The investment
we propose in this area is shown is Table A5.2.3.
Scope
£m (2007/08 prices)
Deliverables
Post Efficient
Cost
£m
The provision of additional network meters and
Telemetry/loggers, on trunk mains (including DI meters) and
service reservoirs to improved the targeting of activity and
confidence of reporting.
77 (DI, SR & TM)new
network meters
2.8
The first time provision of service reservoir flow control valves to
prevent losses through overflows
43 new flow control valves
1.5
The creation of additional pressure controlled areas, to deliver an
estimated 3 Ml/d of leakage reduction.
20 new pressure controlled
areas
1.8
Breaking down the existing super DMAs in Edinburgh and Glasgow
to smaller DMAs to improve leakage management and productivity
85 new DMAs
2.2
The creation of additional Per Capita Consumption monitoring
zones to improve the confidence of the water balance.
22 new PCC monitoring
zones
0.4
Leakage related infrastructure rationalisation
Aligned with ELL Study
6.0
System development to support leakage analysis and reporting to
support the delivery of a robust Water Balance & ELL calculation.
Improvements to 4
systems
2.0
Data Studies to improve the analysis leakage and development of
systems to improve the capture of leakage management costs to
support the delivery of a robust Water balance and ELL
calculation.
31 data studies and 7 new
corporate system
improvements
7.9
Additional Metering and logging of WTW and WWTW
308 new meters
2.7
Total
MAINTAINING SERVICE
27.2
Table A5.2.3: Leakage exceptional item breakdown
Gap analysis and scoping
To establish the gaps within our leakage management systems we have used information from our current
leakage delivery programme and latest ELL report to identify areas for improvement. We have scoped
these gaps using asset specific information where available and generic solutions for standard
interventions based on our 2006-10 activities. The approach for each area is set out below.
Distribution Input
Following a full Distribution Input (DI) meter site survey and verification programme, due for completion
in March 2009, and analysis of ongoing regional and WRZ water balance projects, we have been able to
identify remaining meter installation locations that are required to enable improved regional and Water
Resource Zone Distribution Input monitoring and reporting in the 2006-10 period. To improve this we
55
MAINTAINING SERVICE
have scoped solutions for the installation of new meters based on the estimated flow rates and recent
installation activities.
Service Reservoir Losses
Through our leakage reduction activities we have identified service reservoirs with high losses due to
inadequate or no inlet flow control equipment. We have scoped the solutions to these issues using a
standard scope for flow control equipment at 43 sites in line with our specifications and standards.
Pressure Management Areas
During the development of our latest ELL assessment we have identified a further 20 areas for pressure
management; these have been scoped using our standard pressure management scheme design and the
information from the report.
Breaking down Super DMAs
We have reviewed the areas served by super DMAs and assessed that these should be split into 85
standard DMAs to manage them more effectively. These have been scoped using the standard DMA
scope, and taking account of the potential network problems which will be encountered doing this.
Per Capita Consumption Monitors
During the development of our latest ELL assessment we identified weaknesses in the coverage of our Per
Capita Consumption (PCC) zones and the additional information which was required. We have used the
standard scopes developed for PCC zones installed in the 2006-10 period when developing solutions for
the 22 new PCC monitoring zones.
Infrastructure Rehabilitation
Our latest ELL assessment has identified areas where infrastructure rehabilitation would be more cost
effective than additional Active Leakage Control. We have scoped these activities based on the areas
identified in the ELL analysis and the intervention approach used to scope up our serviceability mains
rehabilitation programme.
Leakage Data and Reporting Improvements
Through the delivery of our leakage reduction programme and our latest ELL assessment we have
identified deficiencies in our leakage data and reporting systems which require to be improved to ensure
a robust zonal ELL is established. We have scoped these requirements by identifying the new data to be
collected, analysis undertaken and reports produced. This has allowed us to identify the system changes
and enhancements required and data improvement activities to be undertaken. We have used our
experience of data improvements in the 2006-10 period when scoping these activities.
Metering of operational use at WTW and WWTW
Our latest ELL assessment has identified areas of non domestic demand with poor metering coverage,
primarily our WwTW and WTW which historically have never been metered. We have scoped the
installation of new meters based on our standard business customer metering programme and the number
and size of supplies requiring metering.
Costing
All areas of the programme were costed using a bottom up approach in line with Section 5: Annex One.
This comprised either the development of a unit cost for a standard solution or the use of unit rates from
56
2006-10 delivery programme.
Replacement of Chlorine Gas
We plan to move from chlorine gas to sodium hypochlorite for disinfection at water treatment works to
reduce the health and safety risks to our workforce. This policy is to be implemented from 2010 onwards
and is similar to policies implemented by Yorkshire Water, Severn Trent and Anglian Water.
Gap Analysis
In total we operate 66 WTW which use chlorine gas for disinfection. Of these we have prioritised 34 to
be changed to sodium hypochlorite in the 2010-2014 period. The priority sites have been selected on the
potential health and safety risk posed by the escape of chlorine gas, considering factors such as the
volume of gas stored and the proximity of those installations within the most populated neighbourhoods.
This will reduce the health and safety risk to our workforce at these sites.
Scoping
We have assessed the cost of replacing all 66 existing chlorine systems with alternative sodium
hypochlorite dosing systems. During the scoping exercise we have considered other disinfection
methods, including On Site Electrolytic Chlorination (OSEC), with the sodium hypochlorite option offering
the best whole life cost and therefore being the preferred option. We have restricted the 2010-14
investment proposals to 34 of these 66 sites, based on prioritisation of population affected and a realistic
delivery profile associated with supply chain capabilities.
Costing
To cost our proposed scope we have visited six of the priority sites and developed detailed bottom up
MAINTAINING SERVICE
costs based on the unit rates held within our costing system. The cost estimates for these sites were
then used to create a standard scope cost algorithm to cost the remaining 28 sites. This has identified
that the cost of replacing the 34 sites is £19.4m.
Real Time Monitoring of Combined Sewer Overflows (CSOs)
To improve our performance on pollution incidents we have identified the need to proactively monitor
our sewer network, particularly the operation of our combined sewer overflows (CSO). We therefore
propose to invest £4.7m of exceptional items expenditure to install flow and level sensors on
approximately 1,600 CSOs. By correlating the data between the sensors and the weather we will be
provided with an early warning of the inappropriate operation of overflows due to blockages within the
sewer. Through associated changes to our operational practice, we will be able to react more quickly,
preventing or reducing the severity of a pollution incident. In line with experience at other water
companies we anticipate the implementation of this technology will reduce the number and severity of
pollution incidents by up to 20%.
Gap Analysis
We currently have an asset stock of 3,991 CSOs and our initial assessment is that by providing monitoring
equipment in 1,600, we will obtain adequate coverage of the network to deliver our planned
improvements in pollution incidents. We will prioritise the installation of monitors across Scotland to
areas where there is a history of pollution incidents, and at bathing, shellfish and recreational waters.
Scoping
We have scoped the CSO monitoring programme based on a generic solution using integrated sensor and
telemetry unit packages and control centre receiving equipment used by other water companies.
57
MAINTAINING SERVICE
Costing
The cost of the CSO monitoring programme has been developed using quotes from specialist suppliers and
installation contractors and the standard costing methodology set out in Section 5: Annex One. These
costs are based on a phased installation programme and estimate a total cost of £4.7m for 1,600 CSO
sites.
Real Time Monitoring of Water Networks
To improve our performance on unplanned interruptions to supply we need to improve real time
monitoring of critical mains. This will allow operational management teams to identify unusual changes
in the networks’ performance, indicating potential imminent failures. Using this new technology will
allow us to investigate failures before they occur and, when they do occur, facilitate a faster response.
We have estimated that an investment of £4.3m, when linked to planned operational improvements will
deliver the reduction in unplanned interruptions set out in Section 2 of our plan.
Gap Analysis
To establish the gap within our network monitoring systems we undertook a study to identify the
information we would need to allow real time analysis and identification of changes in the network. This
study investigated the systems and technologies currently employed within English and Welsh water
companies to identify best practice and the system that best meets the needs of Scottish Water.
Using the findings of this study we undertook a detailed gap analysis against our current asset base and
established the locations where the installation of additional monitoring equipment would provide a
benefit. This analysis identified the need for a system of real time monitors encompassing 712 service
reservoirs, 180 key network locations, and 382 pressure monitors throughout the network at
approximately 10 km intervals.
Scoping
We have scoped the water network monitoring programme based on a standard solution involving the
installation of integrated sensor and telemetry unit packages and control centre receiving equipment
used by other water companies. Additionally we have included scope to increase the functionality of
existing equipment to provide the level of real time coverage required to reduce the levels of unplanned
interruptions that our customers experience.
Costing
Costs for the monitoring requirements identified have been built up using bottom-up estimates from
supplier quotations for specialist equipment cost information from the EES system in line with Section 5:
Annex One.
58
Appendix 5.3 – Capital Maintenance Management and General
Benchmarking
Introduction
This appendix provides a comparison of our Management and General (M&G) investment requirements in
the current and future investment periods, against the equivalent English and Welsh water and sewage
companies.
Background
Benchmarking against available industry data provides assurance that our plans are consistent with the
levels of expenditure for management and general support services when compared with the water and
sewerage companies of equivalent size and complexity in England and Wales. The benchmarking data
used within this appendix is the aggregated total M&G investment for each company, presented as
annualised average investment per property billed for water and wastewater customers.
Backward Looking Assessment - Current Investment Periods
The current M&G investment for Scottish Water and nine of the comparable water and sewage companies
in England and Wales has been extracted from 2006/07 CMER data and is presented in Figure A5.3.1 as
average annualised investment per service per billable property. This indicates that our historic run rate
for M&G investment is in the mid to low range when compared with the English and Welsh water
MAINTAINING SERVICE
companies.
Management & general expenditure per service per billed property
10.00
9.00
£ per service per property
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Anglian
Severn Trent
Southern
United
Yorkshire
Wessex
Scottish
Utilities
Northumbrian
Water
Figure A5.3.1: Total management and general expenditure from 2006/07 CMER
59
Forward Looking Analysis – Future Investment Period 2010-14
Figure A5.3.2 shows a comparison between our forecast M&G investment in the 2010-14 period against
the equivalent PR09 draft business plans for the comparator water and sewerage companies reduced to
reflect Ofwat’s initial adjustment to the companies’ plans. The data for the English and Welsh water
companies has been extracted from their published draft business plans and is used in the absence of
official data provided by Ofwat.
The data is presented as the average annualised investment per billable property per service. The
number of billable properties is the same as that used for the backward looking analysis for each
respective company.
This highlights that our forecast run rate for M&G investment in the 2010–2014 period is consistent with
the upper quartile performing English and Welsh water companies.
Management & general expenditure per service per billed property
16.00
14.00
£ per service per property
MAINTAINING SERVICE
12.00
10.00
8.00
6.00
4.00
2.00
W
es
se
x
Th
am
es
n
um
br
ia
No
rt
h
Tr
en
t
Se
ve
rn
n
An
gl
ia
W
at
e
r
es
Sc
ot
ti
sh
Ut
ili
ti
Un
it
ed
re
Yo
rk
sh
i
So
ut
h
W
es
t
0.00
Figure A5.3.2: Forecast total management & general expenditure in 2010-14 compared with adjusted PR09
submissions.
Conclusion
Scottish Water’s M&G investment for both the 2006-10 and 2010-14 periods appears to be within the
range of comparative water companies.
60
6. Enhancement Capital Expenditure Appendices
Appendix 6.1 – Capital Enhancement Overlaps and Synergies
Introduction
This appendix sets out our approach to identifying and dealing with overlaps and synergies within the
investment plan.
Key Principles
When developing the investment plan we have adopted the following key principles to ensure overlaps
are avoided and synergies identified:
•
Site based scopes were developed for non infrastructure enhancement and maintenance
investment to ensure a single integrated project was developed and cost is allocated
correctly;
•
Infrastructure investment was integrated at street level to ensure no duplication of
investment and correct allocation of investment to drivers;
•
Use of consistent data sets and assumptions in the identification of needs and development
of investment; and
•
Costs have been allocated to capital maintenance before enhancement where improvement
to an existing asset is required.
Primary Areas of Overlap and Synergy
The key areas of potential overlap and synergistic opportunities are set out in Figure A6.1.1.
Wastewater Service Overlaps
Water Service Overlaps
Internal
Sewer
Flooding
External
Sewer
Flooding
UID
Programme
Treatment and UID link
Strategic
Capacity
Low
Pressure
Quality
Driven
Rehabilitation
through impact on waterbody
Quality
Enhancement
Quality
Driven
Maintenance
Serviceability
Driven
Maintenance
Service
Driven
Rehabilitation
Manganese link
Security
Of
Supply
Leakage
Reduction
from WTW
Quality
Driven
Maintenance
ENHANCEMENT CAPITAL EXPENDITURE
Scottish Water: Second Draft Business Plan. Enhancement Capital Expenditure
Quality
Enhancement
Strategic
Capacity
Serviceability
Driven
Maintenance
Figure A6.1.1 : Areas of overlap and potential synergistic benefits
61
Our approach to taking account of these is set out below.
Water Non-Infrastructure Service
Security of Supply Programme
The main overlap and synergies with this area of the programme were the leakage reduction programme
and the growth programme. These elements were integrated through the Water Resource Plan (WRP)
supply demand balance which used the zonal level ELL assessment and growth models as key inputs. By
doing this all synergies were take account of when identifying the water resource zones in deficit (see
Appendix D).
Using this assessment the zones in deficit were identified and then zonal specific scopes developed to
resolve the overall deficit. The scopes included a combination of measures including leakage reduction,
developing new or increased sources, provision of additional treatment and installing network
connectivity. Where zones had predicted growth in them the costs were allocated proportionally
between the security of supply driver and growth driver.
A check was undertaken against the water quality enhancement programme to identify any WTW being
upgraded for quality reasons which were within zones requiring a security of supply improvement. This
identified 2 WTW at Gairloch and Inveasdale included in the cryptosporidium programme, which are also
included in the Q&SIIIa programme for quality enhancements. To deliver this investment efficiently, a
single strategic solution for Loch Maree has been included within our investment plan. To account for
the investment allowed for under Q&SIIIa we have only included for the net increase in investment,
above that allowed for in Q&SIIIa, to deliver the Q&SIIIb drivers of security of supply, growth and
cryptosporidium.
Quality Enhancement Programme
The level of overlap and synergy identified within the quality enhancement programme was small, due to
the programme being mainly focused on the installation of phosphate dosing on existing sites and the
construction of new membrane plants on sites with little existing treatment. The sites in these
programmes were all visited to ensure the quality enhancement and capital maintenance scopes had no
overlap.
For the membrane plant programme, we took account of any projected deficits identified using the WRP
supply demand balance and made an assessment of the additional reject water required for the new
process equipment. Where a deficit was identified, its resolution was included within the project scope
to ensure the solution will meet both the water quality enhancement and security of supply objectives.
As stated above two of the sites were located in water resource zones included in the security of supply
programme and these have been developed into a single strategic project to resolve all problems in the
zone.
Three further quality projects were identified as having growth requirement on them during the 20102014 period, which was taken into account during the project scoping and a single project put forward to
deal with the quality and forecast growth, consistent with the draft essential objectives.
62
Strategic Capacity Programme
The strategic capacity programme for the Water Service has been derived from the WRP supply demand
balance as set out in Appendix D, taking account of the reduction in demand from achieving ELL. Once
sites with potential deficit were identified, any being resolved by the Security of Supply programme or
Quality Enhancement programme were removed. The remaining assets identified as potentially requiring
a capacity increase to meet forecast developer demand for strategic capacity were included in the
programme.
Water Infrastructure Programme
Water Quality Rehabilitation Programme
Our water quality rehabilitation programme was developed following an assessment of the DMAs which
were causing water quality problems. These DMAs were investigated using our DOMS methodology to
identify the pipes at street level which required remediation and to determine the method of
remediation. When scoping and costing our interventions, where we are proposing to replace the mains,
we have allocated the incremental cost between relining and replacement to maintenance to take into
account the long term maintenance benefits arising from the investment.
During our DOMS investigations the levels of manganese in water leaving WTW was identified as a
potential area of concern in some cases. Where WTW were receiving investment in the 2006-10 period
for manganese removal it was proposed a further DOMS study be undertaken once the upgrades were
complete to understand the benefits within the network. Where WTW have elevated levels of
manganese, but comply with the regulations we plan to undertake further studies to determine the best
whole life cost solution between the installation of manganese removal followed by a one off network
clean and no manganese removal and a long term cleaning programme. Following completion of these
studies in the 2010-14 period we would expect to deliver the appropriate intervention in the following
investment period.
In addition to our quality driven rehabilitation programme, we have also developed a programme of work
focused on maintaining serviceability. We have developed this programme using our deterioration rate
models and DOMS methodology to identify the pipes in need of replacement. To ensure potential
overlaps between both programmes were taken into account, we have mapped the interventions at
street level to identify pipes which appear in both programmes as shown in Figure A6.1.2. Where this
has happened, we have removed the costs from the quality investment, but left the output in the DOMS
intervention report, as agreed with the DWQR, with costs allocated to maintenance only.
63
Zone RSZ004064-03
Muirdykes RSZ-Brookfield & Craigend DMA
Unlined iron mains not
targeted under
serviceability to be relined /
replaced for quality
Relining costs allocated to
quality, incremental costs
for replacement allocated to
maintenance
MAIN AREA OF OVERLAP
Unlined iron mains to be replaced for serviceability which also require
to be rehabilitated for quality. Full costs allocated to maintenance,
pipe to be replaced included in Quality DOMS rehabilitation Plan
Preferred
Material main
to be cleaned
allocated to
DW5 – full
charge to
quality
AC iron mains to be
replaced under
serviceability – full
allocation to base
maintenance
Figure A6.1.2 : Mains rehabilitation overlap analysis
Our experience of removing properties from the low pressure register in the 2006-10 period has been that
there have been few synergistic benefits with the mains rehabilitation programme. Our low pressure
programme for 2010-14 is based on the installation of pumps at affected properties and the provision of
new link mains to feed higher pressure water into low pressure areas. As a result, we do not expect any
synergistic benefits.
Wastewater Non-Infrastructure
Quality Enhancement Programme
Our quality enhancement programme has been developed site by site taking account of the existing
assets on site, their current performance, what they could potentially achieve, and what additional
equipment if any would be required to meet the new licence conditions. Additionally we have assessed
each asset against its current licence and identified what assets would require attention to ensure
compliance over the 2010-14 period. Using both assessments we have identified the scope of works
required to ensure compliance with the future quality standard. We have then allocated the scopes to:
•
Serviceability driven maintenance – i.e. maintenance required to meet the current consent;
•
Quality enhancement driven maintenance (accelerated maintenance) – i.e. maintenance
required to lift performance of the existing assets to meet the new standard, but not
required to comply with the current standard; and
•
Quality Enhancement – i.e. new process equipment required to meet the new quality
standard.
By developing a single project scope all overlaps are removed. Where sites in the quality enhancement
programme have been identified as having future growth demand, the costs of the enhancement portion
have been allocated proportionally to growth in accordance with the RAR.
64
Strategic Capacity
When developing our strategic capacity requirements we have used the growth model and SACDP (see
Appendix D) to establish the assets which we forecast will experience additional demand. Our site based
approach to delivering our investment programme ensures that the developer-driven strategic capacity
programme excludes all growth provided in other areas of the programme to ensure no overlap.
Wastewater Infrastructure
The main area of synergy within the wastewater infrastructure programme is between the UID
programme in Glasgow and the internal and external sewer flooding in support of the Commonwealth
Games 2014. As set out in Section 6, we are still developing this area of the programme and thus have
not been able to quantify its benefits. We expect that as we move through the 7 stage process, we will
be able to ensure these benefits are fully realised.
The other link with the UID programme is the WwTW quality programme in Glasgow due to the
interaction of discharges within the waterbody. The potential synergy from reduced discharges from
UIDs or improved discharges from WwTW was recognised by SEPA during the development of the plan and
will be explored as part of the Glasgow Strategic Study.
65
Appendix 6.2 – Approach to Uncertainties within the Enhancement
programme
Introduction
This appendix sets out the key areas of uncertainty we have identified within our investment plan and
sets out our proposals for dealing with them.
Key Areas of Uncertainty
There remain four areas of significant uncertainty within our investment plan, these being:
1.
Reasonable Cost Contributions (RCC);
2.
Provision of strategic capacity;
3.
Unsatisfactory Intermittent Discharges (UIDs) in Glasgow; and
4.
The required level of treatment for pesticides at Forehill WTW.
The factors driving the uncertainty and our proposals for dealing with them are set out below.
Reasonable Cost Contributions
We have developed our investment plan allowance for Reasonable Cost Contributions using the following
assumptions:
•
That the number of requests for RCC payments from developers in the future will be in line
with the GROS projected growth in property connections as set out in Appendix 3.2, and that
only 55% of these connections will be eligible for RCC payments (connections directly onto
existing mains are not eligible for RCC payments as they are Part 1 assets only), in line with
our experience in the base year 2007/08; and
•
That the size of the average RCC payments will be the same as that experienced in 2007/08,
which is set out in Table A6.2.1 below;
Service
2007/08
Water
£356
Wastewater
£896
Table A6.2.1: Average RCC payments in 2007/08
The key areas of uncertainties are:
•
An increase in new connection over and above our projection due to a quicker than expected
improvement in economic activity, or an increase in the construction of affordable housing
in line with the Scottish Government’s aspirations;
66
•
An increase in the average value of RCC payments due to developers building further away
from our existing infrastructure, hence increasing the average costs of providing RCC
payment for part 2 and part 3 assets; and
•
An increase in the eligibility rate for RCC payments due to less direct connection onto
existing assets.
To deal with these areas of uncertainty we propose this area of cost be treated as a ring fenced
allocation of financing and any increases or reductions in demand be dealt with through logging. This
will protect customers from paying for investment that may not be required within the period whilst
ensuring we can meet our statutory obligations. It should be noted that this approach may require an
increase in borrowing in the 2010-2014 period if development is not to be constrained.
Strategic Capacity
Our proposed investment in additional strategic capacity to accommodate new demand is set out in
Section 6 and Appendix D of our plan. This has been developed using the following planning assumptions:
1.
The population will increase in line with the GROS 2006 projections; we have used:
a.
The ‘standard migration scenario’ for assessing need at water assets to ensure alignment
with the 25 planning horizon for the Water Resource Plan; and
b.
The ‘low migration scenario’ for the provision of wastewater assets using a risk based
approach to take account of the current economic outlook, and the reduced developer
build rate experienced over the past six months.
2.
We have scoped and costed our programme based on the assets we have identified as requiring
additional capacity. Our scopes have been based on our assumed water abstraction and
discharge standards we will have to meet at these assets as, until developers confirm their
plans, we have yet to agree new licence standards with SEPA. Our assumptions are based on an
analysis of projects we have delivered in the 2006-10 period and the impact that they have had
on existing licence standards.
The key areas of uncertainty are:
•
The population growth and / or the number of properties increase at a rate higher than
allowed for in this plan resulting in an increased demand on the assets sooner than expected
and the levels of investment required to prevent development constraint;
•
The assets requiring additional capacity are different from those modelled due to developers
targeting different areas due to market conditions, development not identified within the
current council plans being promoted, or final housing densities being higher than planned;
and
•
The environmental quality standards required by new abstraction licences and discharge
licences are different from those assumed during planning. Until actual licence change
requests are submitted to SEPA new licence standards cannot be confirmed.
67
Our proposals for dealing with this uncertainty are to ring fence the allocation for growth only
projects as these are developer driven. Changes in demand and unit cost would then be managed
through the logging mechanism to reflect the actual programme of investment delivered. This
proposal protects customers from paying for investment that may not be required and ensures that
Scottish Water can fulfil its obligations in line with the Ministers’ draft objectives. It should be
noted this approach may require additional borrowing to be made available to ensure development is
not constrained.
UIDs in Glasgow
Throughout the development of the investment plan, the handling of the UID programme in Glasgow has
been identified as a potential area of uncertainty. To date we have undertaken a significant programme
of hydraulic and water quality modelling, in conjunction with SEPA , using the methodology of the seven
stage process to establish the initial need, scope and cost for investment. By December 2008 preliminary
Value Management sessions were held with all stakeholders. However, at this time the water discharge
standards required to meet the water quality objectives of the waterbody were still being developed by
SEPA, taking account of on-going water quality modelling, and therefore the full list of assets in need of
improvement may change. As such the costs currently held within the investment plan are based on
potential project scopes which are considered the best assessment of the current assumed needs. Some
of the proposals from the value management sessions are very large schemes involving major pumping
station reconstructions, large diameter rising mains or tunnels, all in the centre of Glasgow. Additionally
work is still ongoing with the Metropolitan Glasgow Strategic Drainage Plan (MGSDP) partnership to
identify and agree areas of overlap and where combined investment could deliver the needs of multiple
organisations at a lower overall cost. In summary the key areas of uncertainty with this area of the
programme are:
•
Discharge standards yet to be finalised by SEPA based on outcome of water quality
modelling;
•
Asset level needs yet to be finalised with SEPA following confirmation of discharge
standards;
•
Detailed project scopes yet to be established following completion of the above;
•
Detailed and accurate costs and risk analysis not undertaken due to the above;
•
Significant potential construction risks due to nature of projects and city centre location
(traffic management, contaminated land, unexploded ordnance, land purchase, ground
conditions);
•
Alignment of timescales with wider MGSDP strategic solution still to be confirmed;
•
Receiving WwTW upgrading requirement not yet identified or scoped;
•
Strategic study for River Clyde not due to report until 2012 could have a significant influence
on final solutions; and
68
•
Ability of the proposed investment to result in any improvement in the receiving water due
to significant influence of river bed sediments.
Our proposals to deal with the significant uncertainties in this area of the programme, supported by
SEPA, are to use the seven stage process to:
•
Establish the water quality standards to be met and the associated need for asset
improvement;
•
Develop the most cost effective solution taking account of the all strategic interfaces and
benefits; and
•
Undertake the investigations and project development to a stage which will allow the
delivery risks and project timescales to be understood.
Our proposed timeline for developing this area of investment is set out in Figure A6.2.1 below.
2009
2010
2011
2012
Collect/ collate data and information
Create / improve modelling tools
Undertake analysis, assessments, feasibility & pilot studies
Outline Strategy
understanding
Interim Strategy
understanding
Interim Strategy
understanding
Complete Detailed
Strategy
Local feasibility studies and / or detailed design
Knowledge granularity, detail, accuracy, completeness increasing
Figure A6.2.1: 2010–2014 UIDs in Glasgow strategic study timeline
Pesticide Removal at Forehill WTW
The third area of uncertainty is the proposed investment to protect against pesticides at Forehill WTW.
In the 2006-10 period it was agreed that a voluntary initiative should be established to champion the
reduction of pesticide use within the catchment to the benefit of the public water supply. This initiative
is ongoing but a recent government report confirms the DWQR view that the installation of full treatment
69
70
for pesticide removal may be required if the voluntary initiative is unsuccessful in reducing pesticide
levels. The key areas of uncertainty with this proposed investment are:
•
The levels of pesticide reduction that will be achieved through the voluntary initiative and
whether this will result in compliance with pesticide levels in final treated water samples;
and
•
During a sampling programme in early 2008, initiated following a problem identified in
England and Wales by the DWI, Forehill was identified as being at risk of compliance failure
from metaldehyde. We did not include this within our first plan as it was expected that
incoming EC legislation would ban the use of the chemical metaldeyhyde as a pesticide.
However we have been informed that a challenge by the UK Pesticide Safety Directorate is
to be launched and is likely to be successful. If this is the case, then additional investment
will be required to remove the chemical involving a high technology solution.
To deal with this area of uncertainty we propose that this investment be ring fenced until the full needs
and scope are agreed with the DWQR.
Appendix 6.3 – UID Programme 2010–2014: Greater Glasgow Area
Introduction
The driver behind the 2010-2014 unsatisfactory intermittent discharge (UID) programme is to improve
various sections of watercourses and water bodies located around Scotland as identified by SEPA.
Currently the programme is primarily split into Glasgow and other catchments which are referred to
under a general ‘Non-Glasgow’ category. This appendix sets out the scope and processes involved in the
studies currently ongoing in the Greater Glasgow area, and the scope of future study to be undertaken as
part of the wider Glasgow Strategic Study to define the long-term integrated and sustainable strategy for
wastewater treatment and collection systems in Glasgow.
Current Study Envelope
The designated water bodies covered under the Glasgow catchments are defined lengths of the River
Clyde, White Cart Water, the Tollcross Burn and the inner Clyde Estuary. As part of the inner Clyde
Estuary reach, the tidal sections of the River Kelvin and the White Cart are also included. To capture the
UIDs discharging to these watercourses, the drainage area catchments for Dalmarnock, Dalmuir,
Shieldhall and Paisley are being hydraulically assessed.
The study catchments and extents of water bodies identified for improvement during 2010-2014 are
shown in the Figure A6.3.1 below.
Dalmuir
Inner Clyde Estuary
Dalmarnock
Tollcross Burn
Paisley
River Clyde
White Cart Water
Shieldhall
Figure A6.3.1: – Study catchments and water bodies identified for improvement in 2010 -2014
71
Ongoing Programme of Study
For each section of watercourse and corresponding catchment, a similar programme of work was planned
at the outset. Initially the current hydraulic model for each catchment was identified and audited by an
independent external consultant. This enabled a scope to be established for carrying out a model
maintenance programme. The appropriate flow and rainfall surveys, asset surveys and CCTV surveys
were carried out, where required, to collect the information to update the hydraulic models. Once the
model has been updated and re-verified with respect to UID performance it will be subject to another
external audit. Following sign off from the auditor, the model can then be used to confirm catchment
needs and finalise the solution development process.
In parallel, an initial first pass needs and solution development process was undertaken using the existing
models, updated to reflect any known changes in the network, known development and, where possible,
any audit issues. The first-pass UID needs have been defined using the hydraulic models with existing
Glasgow Rainfall Time Series data. Freshwater quality needs for the Tollcross Burn, River Clyde and
White Cart Water were developed using a simplified mass balance approach, but the estuarial needs’
assessment was based on prescriptive Formula A or spill frequency as discharge licenses for these assets
impacting on the inner Clyde Estuary have not yet been agreed with SEPA. These first-pass UID needs
have been agreed with SEPA and are included in the Technical Expression for 2010-2014.
The solution development process has identified provisional options to deliver improvements to address
deficiencies identified during the first-pass needs’ assessment. Initial site visits have been undertaken
during the outline optioneering stage and an initial review of the Health & Safety and Operation &
Maintenance aspects pertaining to sites has been undertaken as part of this process. Information has also
been gathered, where available, with regards to geological aspects and land ownership issues relating to
selected sites. Any alternative sites have also been assessed during this time and further information has
been procured, where appropriate, to determine any environmental or archaeological impacts.
These options were presented to, and discussed with, stakeholders, including SEPA and Glasgow City
Council, at extensive optioneering workshops held towards the end of 2008. Drawing from these
optioneering workshops, a basket of options has been included in the business plan to remedy the firstpass UID needs identified. These options are considered provisional at this time due to partially verified
tools, unconfirmed discharge standards, links to the longer term Glasgow Network and Treatment
Strategy yet to be defined, and uncertainties in the delivery of joint and / or aligned solutions with other
stakeholders of the MGSDP projects.
Although we, and SEPA, recognise that an element of this first-pass work may be abortive due to the
uncertainties, this advance work will reduce the timeframe required to confirm the final needs and the
solution optioneering process later on in delivery of the Glasgow UID programme.
Glasgow Strategic Study
It is proposed that the final Glasgow UID needs and solutions will be defined as part of a 7 Stage Process
under the wider Glasgow Strategic Study (GSS) to define the long-term integrated and sustainable
treatment and collection systems strategy for Glasgow. As the wider study progresses and certainty is
gained in the setting of discharge standards, robustness of tools, links to wider MGSDP objectives and
requirements to support the Commonwealth Games 2014, the identification of UID needs and
72
improvements can be progressively isolated from the core study output for delivery. The main elements
of the Glasgow Strategic Study scope are summarised below.
Inner Clyde Estuary and Freshwater River Assessments
Further assessment of water quality processes and pressures, and the impact and benefits of possible
improvement options through further development and use of complex dynamic river and estuary water
quality modelling tools. These ongoing assessments are fundamental to informing discussions with SEPA
in defining appropriate improvements in discharge standards to be met at UIDs in Glasgow during 201014.
Catchment-wide Drainage Area Planning / UPM Studies (DAPs/UPMs)
Further hydraulic modelling activities to support the development of ‘catchment wide’ Drainage Area
Planning (DAP) studies, including Urban Pollution Management Studies. Utilising all existing knowledge,
the DAPs will consider a basket of local and strategic integrated sewerage improvement options across
the catchment that will encapsulate all the identified performance deficiencies and drivers for
improvement together i.e. environmental, hydraulic (sewer flooding), structural and operational We will
take account of wider activities such that the optimum intervention plan that meets with the MGSDP
objectives and requirements is developed.
Integrated catchment and 2D overland flow modelling (ICM/ 2D)
Further development and construction of integrated catchment models (ICMs) in areas where there is
knowledge of (e.g Tollcross Burn in Dalmarnock) or the evidence to suggest the existence of, complex
hydraulic interaction between the sewer system and local watercourses. Once built and verified the
models will be used to confirm the root cause of system deficiencies (existing and future) and also to
identify and quantify possible options for achieving the desired future performance
Surface Water Management Planning (SWMP)
Further identify corridors of opportunity and develop SWMPs for the urban drainage systems of Glasgow
and the Clyde Valley. These plans will seek to develop solutions to manage surface water in a more
sustainable manner, by allowing for the increased capture and reuse of water, slow absorption through
the ground, and more above-ground storage and routing of surface water separate from the foul sewer,
where appropriate. To maximise the benefits that could be achieved by reducing/ removing surface
water from the sewer system, and possibly small urban watercourses/ culverts, investigations will also be
undertaken into the use of other techniques including ‘retrofitting’ SUDS to existing buildings and
highways.
Long-term WwTW strategy (including optimisation and rationalisation)
Develop further our understanding of current performance and constraints, and a long-life cost benefit
assessment of the impact of current and likely future pressures on the WwTW. This work will include
assessments and analysis of hydraulic and process treatment capability and capacity, works odour
management, energy consumption and efficiency, and the outputs will provide a focused baseline WwTW
strategy which will then be used to inform the overall strategy.
Infiltration and Inflow Studies (I&I)
Undertake detailed assessments of infiltration and inflows into the sewer network within the study
boundary, to identify and quantify sources and potential cost beneficial interventions for reduction or
removal. This assessment is ongoing in the Dalmuir and Shieldhall catchments where high levels of
73
infiltration and inflows are thought to be exacerbating spills from UIDs in catchments identified for
improvement during 2010-14. These assessments will be extended to the remaining extents of the study
boundary as part of the Glasgow study.
Siltation investigations
Undertake targeted assessments in the sewer networks within the study boundary, to identify and
quantify where locations of high levels of siltation exist and the potential cost beneficial interventions
for siltation reduction or removal. Together with the output from the Surface Water Management
Planning studies, infiltration and Inflow investigations, this work will directly contribute towards
delivering the objectives and requirements of the GSS and MGSDP
Watercourse flooding assessments and prevention studies
Where knowledge (e.g Tollcross Burn in Dalmarnock) or evidence suggests that there is hydraulic
interaction between the sewer system and local watercourse, work closely with Local Authorities on their
flood prevention assessments and studies to ensure that the scope of proposals and our sewer network
proposals are complementary. This will also allow identification of more efficient and sustainable
integrated storm water solutions.
Investigations into non-Scottish Water asset improvements (e.g. estuary dredging or aeration)
There are pollution sources other than discharges from the sewerage systems and WwTW that are
contributing to the poor water quality in the inner Clyde Estuary and tributaries. From what is already
understood, and the additional knowledge that will be provided by the enhanced estuary and river water
quality assessments, detailed assessments and pilot studies will be undertaken into possible interventions
that could address the sources and/or consequences of these other pollution sources, and could form
part of the overall Glasgow strategy for receiving water quality.
Clyde Valley Rainfall Time Series Generation
A more accurate spatially varied rainfall time series has already been created for Glasgow to input into
the UID programme and will be utilised in determining final UID needs and solutions. It may be beneficial
to develop a similar series for the Clyde Valley dependent on the influence that upstream continuous and
intermittent discharges are shown to have on water quality of the River Clyde and tributaries.
Climate Change impact assessment
Make best use of the latest UK wide research and recommendations to identify and agree how climate
change should be accounted for (agree specific parameters or rules for sensitivity analysis) to ensure that
the long-term drainage strategy is appropriately future proof.
The scope of the Glasgow strategic study has been developed in consultation and agreement with SEPA,
and is documented at a more detailed level in the Glasgow Strategic Study Scope Definition document.
The Glasgow strategic study will evolve and the scope will have to adapt as our knowledge of the
complex systems and their deficiencies becomes more explicitly understood and defined.
The study timescales are shown in Figure A6.2.1. On completion of the study, we will be able to confirm
the need, scope and timescales for the UID improvements in Glasgow, and the future investment
requirement to achieve sustained and robust compliance at Dalmuir WwTW.
74
7. Finance Appendices
Appendix 7.1 – Financial Statements
Historic cost profit and loss account
£ millions
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Turnover
Household
642.2
673.7
704.5
736.7
736.8
754.1
774.5
797.5
Wholesale – primary
320.4
305.5
314.2
320.3
320.2
318.6
320.7
323.7
2.9
2.6
2.8
3.8
3.9
4.0
Wholesale - secondary
Other income
10.2
7.5
4.8
4.9
4.8
5.3
5.4
5.5
Total Turnover
972.8
986.7
1,026.4
1,064.5
1,064.6
1,081.8
1,104.5
1,130.7
Operating Costs
256.5
259.0
282.0
304.2
320.2
323.8
331.0
336.3
PFI
125.6
127.5
133.4
134.8
136.5
140.8
143.2
145.3
Depreciation
137.1
160.8
161.2
194.3
201.2
205.4
207.1
213.7
88.0
90.0
104.2
106.2
118.6
120.2
122.2
124.6
1.6
1.6
1.6
1.6
2.0
2.5
2.5
2.5
Amortisation of grants
-1.1
-0.9
-0.8
-0.8
-0.8
-0.8
-0.8
-0.8
Gain on sale of assets
-1.4
-9.3
-1.0
-1.0
0.0
0.0
0.0
0.0
Total Expenditure
606.3
628.7
680.6
739.3
777.7
791.9
805.2
821.6
Operating Profit
366.5
358.0
345.8
325.2
286.9
289.9
299.3
309.1
Interest
142.6
140.3
150.9
162.0
166.6
171.8
177.4
182.2
Profit Before Tax
223.9
217.7
194.9
163.2
120.3
118.1
121.9
126.9
68.2
37.3
55.7
47.1
33.6
33.1
34.2
35.5
155.7
180.4
139.2
116.1
86.7
85.0
87.7
91.4
FINANCES
Scottish Water: Second Draft Business Plan. Finances
Other Expenditure
Infrastructure depreciation
Amortisation of PFI
Tax
Profit After Tax
Table A7.1.1: Historic cost profit and loss account
75
FINANCES
Historic cost balance sheet
£ million
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
3,462.0
3,811.2
4,233.3
4,636.2
4,840.2
5,041.1
5,253.7
5,446.4
-20.7
4.8
10.0
-5.7
-4.4
3.6
4.2
5.1
3,441.3
3,816.0
4,243.3
4,630.5
4,835.8
5,044.7
5,257.9
5,451.5
Investments in subsidiary
0.0
34.6
34.6
34.6
34.6
34.6
34.6
34.6
Investment in financial
buffer
0.0
0.0
0.0
0.0
4.3
53.7
101.8
136.9
64.5
58.5
0.0
-26.1
0.0
0.0
0.0
0.0
Trade debtors
23.0
30.0
28.5
29.5
30.0
30.3
30.6
30.9
Other debtors
33.2
49.2
38.4
34.0
36.5
36.6
37.3
38.0
PFI ‘assets’
35.5
33.9
32.3
38.7
44.6
42.2
39.7
37.3
Stocks
2.9
3.6
3.4
3.5
3.9
3.9
4.0
4.1
Cash
3.3
-0.3
0.0
2.0
2.0
2.0
2.0
2.0
Deposits
0.0
27.4
43.7
0.0
0.0
0.0
0.0
0.0
97.9
143.8
146.3
107.7
117.0
115.0
113.6
112.3
Fixed Assets
Infrastructure Renewals
(Accrual) / Prepayment
Total Fixed Assets
Inter-company Loans
2006/07
Debtors
Total Debtors
Creditors
Trade creditors
-12.7
-20.0
-19.0
-18.0
-19.8
-20.0
-20.5
-20.8
Prepaid wholesale charge
-27.3
-18.5
-26.0
-28.0
-29.0
-29.0
-29.5
-30.1
Capital creditors
-79.4
-71.6
-89.2
-80.0
-72.5
-73.8
-74.9
-73.5
-128.8
-130.5
-131.8
-125.9
-127.9
-130.1
-132.8
-134.9
-9.1
-22.4
-23.6
-23.0
-23.0
-23.0
-23.0
-23.0
-60.7
-78.0
-76.1
-74.9
-74.2
-74.5
-75.1
-75.4
Total creditors
-318.0
-341.0
-365.7
-349.8
-346.4
-350.4
-355.8
-357.7
Net Current Liabilities
-220.1
-197.2
-219.4
-242.1
-229.4
-235.4
-242.2
-245.4
3,285.7
3,711.9
4,058.5
4,396.9
4,645.3
4,897.6
5,152.1
5,377.6
-205.4
-241.9
-296.3
-341.7
-365.4
-387.9
-410.1
-431.0
-56.0
-59.4
-51.0
-46.0
-35.3
-30.9
-26.5
-22.1
3,024.3
3,410.6
3,711.2
4,009.2
4,244.6
4,478.8
4,715.5
4,924.5
Accruals
Infrastructure income
Other creditors
Total Assets Less
Current Liabilities
Provisions
Deferred tax
Other
Net Assets
Debt / Loans
2,436.9
2,633.2
2,794.4
2,976.3
3,125.3
3,274.3
3,423.3
3,540.7
Other Reserves
133.4
133.4
133.4
133.4
133.4
133.4
133.4
133.4
P&L Account Reserve
454.0
644.0
783.4
899.5
985.9
1,071.1
1,158.8
1,250.4
Capital and Reserves
3,024.3
3,410.6
3,711.2
4,009.2
4,244.6
4,478.8
4,715.5
4,924.5
Table A7.1.2: Historic cost balance sheet
76
Historic cost cashflow statement
£ million
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
366.5
358.0
345.8
325.2
286.9
289.9
299.3
309.1
-1.4
-9.3
-1.0
-1.0
0.0
0.0
0.0
0.0
137.1
160.8
161.2
194.3
201.2
205.4
207.1
213.7
88.0
90.0
104.2
106.2
118.6
120.2
122.2
124.6
Amortisation of grants and
PFI assets
0.6
0.7
0.8
0.8
1.2
1.7
1.7
1.7
Change in working capital
62.5
-2.0
11.0
-7.0
-9.4
-1.1
-0.3
-1.4
Operating cash flow
653.3
598.2
622.0
618.5
598.5
616.1
630.0
647.7
Net interest
-143.2
-140.3
-150.9
-162.0
-166.6
-171.8
-177.4
-182.2
0.0
-0.6
-1.4
-1.7
-9.9
-10.7
-12.0
-14.6
-454.2
-634.0
-681.4
-713.9
-541.6
-534.2
-542.4
-534.2
Profit before interest and
tax
Depreciation of tangible
fixed assets
Infrastructure
maintenance charge
Tax
Capital payments
Infrastructure charges
9.1
13.3
7.2
8.4
0.0
0.0
0.0
0.0
-64.5
6.0
58.5
26.1
-26.1
0.0
0.0
0.0
Investment in subsidiary
0.0
-25.0
0.0
0.0
0.0
0.0
0.0
0.0
buffer
0.0
0.0
0.0
0.0
-4.3
-49.4
-48.2
-35.1
Sale of tangible fixed
assets
2.1
9.9
1.4
1.0
1.0
1.0
1.0
1.0
Net cash inflow/(outflow)
2.6
-172.5
-144.6
-223.6
-149.0
-149.0
-149.0
-117.4
-142.6
-454.4
-348.2
-248.3
-216.9
-229.1
-221.6
-182.8
142.6
258.1
187.0
66.4
67.9
80.1
72.6
65.4
(Increase) / decrease in
debt
0.0
-196.3
-161.2
-181.9
-149.0
-149.0
-149.0
-117.4
Change in cash/deposits
2.6
23.8
16.6
-41.7
0.0
0.0
0.0
0.0
Net cash inflow from
financing
2.6
-172.5
-144.6
-223.6
-149.0
-149.0
-149.0
-117.4
Inter-company loan
FINANCES
Financing
New Government Loans
Loan repayments
Table A7.1.3: Historic cost cashflow statement
77
FINANCES
Current cost profit and loss account
£ millions
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Household
642.2
673.7
704.5
736.7
736.8
754.1
774.5
797.5
Wholesale – primary
320.4
305.5
314.2
320.3
320.2
318.6
320.7
323.7
2.9
2.6
2.8
3.8
3.9
4.0
10.2
7.5
4.8
4.9
4.8
5.3
5.4
5.5
Total Turnover
972.8
986.7
1,026.4
1,064.5
1,064.6
1,081.8
1,104.5
1,130.7
Operating Costs
256.5
259.0
282.0
304.2
320.2
323.8
331.0
336.3
Turnover
Wholesale - secondary
Other income
Other Expenditure
PFI
125.6
127.5
133.4
134.8
136.5
140.8
143.2
145.3
Depreciation
163.6
192.2
232.3
256.1
271.0
276.3
290.8
303.4
88.0
90.0
104.2
106.2
118.6
120.2
122.2
124.6
1.6
1.6
1.6
1.6
2.0
2.5
2.5
2.5
Amortisation of grants
-1.1
-0.9
-0.8
-0.8
-0.8
-0.9
-0.9
-0.9
-1.4
-9.3
-1.0
-1.0
0.0
0.0
0.0
0.0
632.8
660.1
751.7
801.1
847.5
862.7
888.8
911.2
-7.3
-6.8
-7.5
-1.0
-2.1
-2.8
-3.5
-4.2
Operating Profit
347.3
333.4
282.2
264.4
219.2
221.9
219.2
223.7
Interest
142.6
140.3
150.9
162.0
166.6
171.8
177.4
182.2
Financing adjustment
-10.4
-3.6
-11.9
-1.8
-3.7
-4.7
-5.2
-5.9
215.1
196.7
143.2
104.2
56.3
54.8
47.0
47.4
68.2
37.3
55.7
47.1
33.6
33.1
34.2
35.5
146.9
159.4
87.5
57.1
22.7
21.7
12.8
11.9
Infrastructure depreciation
Amortisation of PFI
Total Expenditure
Working capital adjustment
Profit Before Tax
Tax
Profit After Tax
Table A7.1.4: Current cost profit and loss account
78
Current cost balance sheet
£ million
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Fixed assets
27,627.7
39,740.2
41,665.0
42,193.5
42,749.7
43,456.8
44,302.7
45,269.6
-20.7
4.8
10.0
-5.7
-4.4
3.6
4.2
5.1
27,607.0
39,745.0
41,675.0
42,187.8
42,745.3
43,460.4
44,306.9
45,274.7
Investments in
subsidiary
0.0
34.6
34.6
34.6
34.6
34.6
34.6
34.6
buffer
0.0
0.0
0.0
0.0
4.3
53.7
101.8
136.9
64.5
58.5
0.0
-26.1
0.0
0.0
0.0
0.0
Trade debtors
23.0
30.0
28.5
29.5
30.0
30.3
30.6
30.9
Other debtors
33.2
49.2
38.4
34.0
36.5
36.6
37.3
38.0
PFI ‘assets’
35.5
33.9
32.3
38.7
44.6
42.2
39.7
37.3
Infrastructure Renewals
(Accrual) / Prepayment
Total Fixed Assets
Inter-company loans
FINANCES
Debtors
Stocks
2.9
3.6
3.4
3.5
3.9
3.9
4.0
4.1
Cash
3.3
-0.3
0.0
2.0
2.0
2.0
2.0
2.0
Deposits / Gilts
0.0
27.4
43.7
0.0
0.0
0.0
0.0
0.0
97.9
143.8
146.3
107.7
117.0
115.0
113.6
112.3
-12.7
-20.0
-19.0
-18.0
-19.8
-20.0
-20.5
-20.8
Prepaid wholesale
charge
-27.3
-18.5
-26.0
-28.0
-29.0
-29.0
-29.5
-30.1
Capital creditors
-79.4
-71.6
-89.2
-80.0
-72.5
-73.8
-74.9
-73.5
-128.8
-130.5
-131.8
-125.9
-127.9
-130.1
-132.8
-134.9
-9.1
-22.4
-23.6
-23.0
-23.0
-23.0
-23.0
-23.0
-61.6
-79.7
-78.6
-77.5
-76.9
-77.4
-78.3
-78.8
Total Creditors
-318.9
-342.7
-368.2
-352.4
-349.1
-353.3
-359.0
-361.1
Net Current Liabilities
-221.0
-198.9
-221.9
-244.7
-232.1
-238.3
-245.4
-248.8
27,450.5
39,639.2
41,487.7
41,951.6
42,552.1
43,310.4
44,197.9
45,197.4
-205.4
-241.9
-296.3
-341.7
-365.4
-387.9
-410.1
-431.0
-56.0
-59.4
-51.0
-46.0
-35.3
-30.9
-26.5
-22.1
27,189.1
39,337.9
41,140.4
41,563.9
42,151.4
42,891.6
43,761.3
44,744.3
2,436.9
2,633.2
2,794.4
2,976.3
3,125.3
3,274.3
3,423.3
3,540.7
24,173.5
35,957.0
37,510.7
37,695.2
38,111.0
38,680.5
39,388.3
40,242.1
Total Debtors
Creditors
Trade creditors
Accruals
Infrastructure income
Other creditors
Total Assets Less
Current Liabilities
Provisions
Deferred tax
Other
Net Assets
Debt / Loans
Current Cost Reserve
Other Reserves
133.4
133.4
133.4
133.4
133.4
133.4
133.4
133.4
P&L Account Reserve
445.3
614.3
701.9
759.0
781.7
803.4
816.3
828.1
Capital and Reserves
27,189.1
39,337.9
41,140.4
41,563.9
42,151.4
42,891.6
43,761.3
44,744.3
Table A7.1.5: Current cost balance sheet
79
FINANCES
Current cost cashflow statement
£ million
Profit before interest and tax
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
347.3
333.4
282.2
264.4
219.2
221.9
219.2
223.7
-1.4
-9.3
-1.0
-1.0
0.0
0.0
0.0
0.0
Working capital adjustment
-7.3
-6.8
-7.5
-1.0
-2.1
-2.8
-3.5
-4.2
163.6
192.2
232.3
256.1
271.0
276.3
290.8
303.4
88.0
90.0
104.2
106.2
118.6
120.2
122.2
124.6
0.5
0.7
0.8
0.8
1.2
1.6
1.6
1.6
62.6
-2.0
11.0
-7.0
-9.4
-1.1
-0.3
-1.4
Operating cash flow
653.3
598.2
622.0
618.5
598.5
616.1
630.0
647.7
Net interest
-143.2
-140.3
-150.9
-162.0
-166.6
-171.8
-177.4
-182.2
0.0
-0.6
-1.4
-1.7
-9.9
-10.7
-12.0
-14.6
-454.2
-634.0
-681.4
-713.9
-541.6
-534.2
-542.4
-534.2
9.1
13.3
7.2
8.4
0.0
0.0
0.0
0.0
Depreciation of tangible fixed
assets
Infrastructure maintenance
charge
Amortisation of grants and PFI
assets
Change in working capital
Tax
Capital payments
Infrastructure charges
Inter-company loan
-64.5
6.0
58.5
26.1
-26.1
0.0
0.0
0.0
Investment in subsidiary
0.0
-25.0
0.0
0.0
0.0
0.0
0.0
0.0
Investment in financial buffer
0.0
0.0
0.0
0.0
-4.3
-49.4
-48.2
-35.1
Sale of tangible fixed assets
2.1
9.9
1.4
1.0
1.0
1.0
1.0
1.0
Net cash inflow/(outflow)
2.6
-172.5
-144.6
-223.6
-149.0
-149.0
-149.0
-117.4
-142.6
-454.4
-348.2
-248.3
-216.9
-229.1
-221.6
-182.8
142.6
258.1
187.0
66.4
67.9
80.1
72.6
65.4
(Increase) / decrease in debt
0.0
-196.3
-161.2
-181.9
-149.0
-149.0
-149.0
-117.4
Change in cash/deposits
2.6
23.8
16.6
-41.7
0.0
0.0
0.0
0.0
Net cash inflow from financing
2.6
-172.5
-144.6
-223.6
-149.0
-149.0
-149.0
-117.4
Financing
New Government Loans
Loan repayments
Table A7.1.6: Current cost cashflow statement
80
Appendix 7.2 – Asset Lives and Modern Equivalent Asset Value
Introduction
This appendix sets out:
•
our approach to valuing our assets on a modern equivalent asset basis and the change in
asset valuation from first to second draft business plan; and
•
our asset life assumptions for the second draft business plan, and their derivation, and
compares them with available industry data.
FINANCES
Gross Modern Equivalent Asset Values (MEAV)
Our operational assets have been valued using a MEAV methodology. Gross MEAVs have been established
by assessing the replacement asset at a component level and building up the value of the site based on
the sum of the components.
The asset dataset used to establish closing MEAVs at 31 March 2008 is that reported in Table H of the
Annual Return for 2007/08. Component level cost curves, primarily derived from our cost data, have
been applied to our existing operational components.
Our first draft business plan included a MEAV consistent with our Annual Return to the Commission in
June 2008 (AR08) and valued our assets at £36,194m. Since the first draft business plan, three material
issues have caused us to reassess the MEAV:
•
The cost curves and on-costs used for the investment plan, cost base and MEAV have been
revised;
•
We have re-assessed our valuation methodology for sewers, specifically the allowance for
building manholes; and
•
We have reviewed and updated our asset life assumptions.
The gross MEAV is summarised in Table A7.2.1 below and compared with that presented in the first draft
business plan in May 2008.
May 2008
Gross MEAV
(£m)
% of total
March 2009
Gross MEAV
(£m)
% of total
% change
11,556
31.9%
12,007
28.3%
3.9%
Water Non – Infrastructure
3,029
8.4%
3,750
8.8%
23.8%
Wastewater Infrastructure
18,641
51.5%
23,217
54.7%
24.5%
2,784
7.7%
3,314
7.8%
19.0%
184
0.5%
185
0.4%
0.5%
36,194
100%
42,473
100%
17.3%
Asset Type
Wastewater NonInfrastructure
Support Services
Total
Table A7.2.1: Summary of gross MEAV changes from the first draft business plan
81
FINANCES
The MEAV presented in this second draft business plan is derived from the same cost curves and on-costs
that have been used to determine the costs of our investment plan for quality enhancement. The asset
stock for this revised valuation is unchanged from that reported at AR08 with a small number of minor
adjustments identified through the Quality Assurance process. The MEAV reported here is 17% greater
than that reported in the first draft business plan and the increase in valuation arises solely from changes
to the costing of the assets, not from changes to the inventory.
Cost curves, on-costs and calibration factor
Revised cost curves
Since the first draft business plan, we have been improving the currency of our cost curves by
incorporating data from our current investment programme (Q&S IIIa) and retiring old data from before
2006. This has led to the cost curves being more representative of the scope of works of modern
projects and of the costs incurred in recent times. In addition, we have fundamentally changed the form
of some cost curves (e.g. control and monitoring equipment) to reflect cost relationships that have only
become apparent with the increased volume of data.
Revised on-costs (including application of site specific costs)
Likewise, we have now incorporated recent data concerning the costs of recent projects using our
current delivery model and we have more modern data about the on-costs applicable to delivering
projects in Scotland.
Sewer manhole valuation
As part of updating our costing to reflect more recent projects, it became evident that our first draft
business plan MEAV for sewers did not include the total cost of construction and specifically did not allow
for the cost of providing and building manholes along the length of the sewer. This correction adds 19%
to the valuation of sewers, compared with the first draft business plan MEAV.
Because this change has such a large effect on the overall MEAV, adding 9% to the total gross MEAV, we
commissioned an independent statistician to review our work. Professor RL Mattheys reviewed data from
our GIS system relating to sewer chambers to determine their depths and assumed that chambers of
unknown depth had depths pro rata to those of known depth. Our costing system generates costs of the
manholes, above the pipelaying costs, as an additional 18.0% for non-critical sewers and an additional
24.1% for critical sewers. This is an order of magnitude greater than the value that had been adopted for
the MEAV submitted at first draft business plan of 2.6%, which we can no longer substantiate. We have
confirmed that recent sewer-laying projects that we have undertaken have included costs for manholes
in a very wide range (6% - 100%) but with a median close to 20%. None has a manhole cost as low as
2.6%.
Other changes to gross MEAV
In addition to the material changes arising from the revised cost curves, on-costs and sewer manhole
valuations, two minor changes have been incorporated into the gross MEAV presented in this second draft
business plan:
•
82
Increased cost index value (COPI) - the COPI index has been revised from that applied in first
draft business plan, resulting in a general increase in costs of about +1%; and
•
Revised land calculation - on-costs have been removed from the valuation of land because
the acquisition of land alone (rather than building any assets on that land) does not require
material overheads (-1%).
Net Modern Equivalent Asset Values (MEAV)
Net MEAVs represent the depreciated value of the up to date asset taking into account the remaining
service life of the existing asset. Standard accounting asset lives have been assigned to each asset type.
The remaining service life of existing assets is derived from the date of component installation where
recorded. Where the date of component installation is not recorded the remaining service life is derived
FINANCES
from either the date of commissioning of the site or the date of last refurbishment. Where no dates are
available the remaining life has been derived from condition grades. This is a change in methodology
from that employed in the annual return for 2006/07 where the remaining service life of all assets was
assessed by means of condition and performance grades.
The total net depreciated value of Scottish Water’s non-infrastructure asset inventory (including support
services depreciable assets) is £3,647 million. This represents an increase of 12.4% from the first draft
business plan net MEAV (May 2008). Table A7.2. 2 below show the changes to the gross and net valuation
by asset type.
Although the gross MEAV has increased for sewage pumping stations, the net MEAV shows a decrease.
This difference is principally because of the proportional allocation of costs between civil and mechanical
components. After further analysis of EES, we deemed certain assets to have a higher mechanical
proportion. This change leads to a more rapid depreciation of sewage pumping stations because
mechanical components depreciate more rapidly than civil components.
Line
Ref.
Asset Type
May
2008
Gross
MEAV
(£m)
March
2009
Gross
MEAV
(£m)
Change in
Gross
MEAV
(£m)
May
2008
Net
MEAV
(£m)
March
2009
Net
MEAV
(£m)
Change
in Net
MEAV
(£m)
1,870
2,062
191
1,079
1,113
34
B1.3
Water treatment works [101]
B1.4
Water storage [102]
939
1,290
351
499
653
154
B1.5
Water pumping stations [103]
220
398
178
110
171
61
B1.9
Sewage pumping stations [109]
730
782
52
400
392
-8
B1.10
Sewage treatment works [110]
1,993
2,431
438
1,011
1,152
141
B1.11
Sludge treatment facilities by
disposal type [111]
61
100
39
40
60
20
B1.12
Support services [112]
184
185
1
106
106
0
5,997
7,248
1,251
3,245
3,647
402
Total
Table A7.2. 2: Summary of net MEAV changes from the first draft business plan
Asset Lives
The assumed lives of assets impact on the calculation of CCD in two ways:
•
Assets existing at 31 March 2008; and
•
New asset additions from 2008/2009
83
FINANCES
The following data was assessed as part of the MEAV project for each asset component in the asset
inventory:
•
% allocation between civils and mechanical / electrical components;
•
Gross MEAV for each component;
•
Assumed life for each component;
•
Remaining useful life for each component; and
•
Net MEAV for each component
Assets existing at 31 March 2008
CCD on existing assets for each year has been calculated by dividing the net MEAV for each asset
component by the remaining useful life of each component.
For Annual Return 2008 (and our first draft business plan), as part of the MEAV project, asset life
assumptions were updated and aligned with the asset lives held in our Financial System Fixed Asset
Register. This had the impact of changing the assumed asset lives for several asset types including
screens and telemetry which moved from 10 years (short) to 5 years (very short).
We have reviewed the assumed lives assigned to each asset component and reverted back the asset lives
for both screens and telemetry to 10 years. It was felt that this better reflected the true engineering life
and complied with the Commission’s guidance for completion of the annual return.
The resulting net MEAV by asset life category is set out in Table A7.2.3 below and shows a material
increase in the value of short life assets because of: the reallocation of telemetry and screens from “very
short” to “short”; the application of the new cost curves and on-costs; and the allocation between civil
and mechanical components. This reallocation has been performed for certain components in total and
has not been refined to separate those elements which truly have a very short life, such as electronic
control units. It is therefore possible that we are now marginally under-reporting the valuation of our
very short life assets.
84
May 2008
March 2009
Change
Gross
MEAV (£m)
Net
MEAV (£m)
Gross
MEAV (£m)
Net
MEAV (£m)
Gross
MEAV (£m)
Net
MEAV (£m)
260
81
60
29
-200
-52
3
1
986
342
983
341
1,778
747
2,142
893
364
146
0
0
0
0
0
0
Long
3,759
2,219
3,953
2,276
194
57
Sub total depreciating assets
5,800
3,048
7,141
3,540
1,341
492
197
197
107
107
-90
-90
30,197
30,197
35,225
35,225
5,028
5,028
36,194
33,442
42,473
38,872
6,279
5,430
Existing assets March 2008
Very Short
Short
Medium
Medium long
Infinite (land)
Infrastructure Assets
Total
FINANCES
Table A7.2.3: Summary of net MEAV by asset life category
When compared with a sample of gross MEAV data from English and Welsh final business plans from 2004,
Scottish Water’s asset life profile has a higher weighting to shorter life assets than the average but is not
an outlier as illustrated in Tables A7.2.4 and A7.2.5.
WaSC1
WaSC2
WaSC3
WaSC4
Total
Scottish
Water
March
2008
Very Short
282
239
65
57
643
60
Short
252
345
330
202
1,129
986
1,673
1,816
649
1,302
5,440
2,142
757
0
0
121
878
0
Long
3,243
2,597
1,269
2,809
9,918
3,953
6,207
4,997
2,313
4,491
18,008
7,141
Final Business Plan 2004
Gross MEAV (£m)
Medium
Medium long
107
Infinite (land)
Total
16,100
22,329
10,055
16,984
65,468
35,225
22,307
27,326
12,368
21,475
83,476
42,473
Table A7.2.4: Non-infrastructure MEAV (£m) by asset life category
WaSC1
WaSC2
WaSC3
WaSC4
Average
Scottish
Water
March
2008
Very Short
5%
5%
3%
1%
4%
1%
Short
4%
7%
14%
5%
6%
14%
Medium
27%
36%
28%
29%
30%
30%
Medium long
12%
0%
0%
3%
5%
0%
Long
52%
52%
55%
63%
55%
56%
100%
100%
100%
100%
100%
100%
Final Business Plan 2004
Gross MEAV (%)
Total
Table A7.2.5: Non-infrastructure MEAV (%) by asset life category
85
FINANCES
New asset additions from 2008/09
In order to allocate future investment to asset life categories Capital Analysis Forms (CAFs) from Q&S3
projects which had reached capex 3 stage were analysed. Future investment has been allocated to asset
life categories in the same proportion as recorded for the sample Q&SIII projects. CCD on new asset
additions is calculated by assuming a mid point for each asset life category and dividing the investment
by this assumed life.
The CAF analysis produces the profile of asset additions by asset life category set out in Tables A7.2.6
and A7.2.7 which shows:
•
a higher weighting to shorter life categories than the asset inventory as a whole; and
•
a profile similar to England and Wales.
WaSC1
WaSC2
WaSC3
WaSC4
Total
Scottish
Water
2010-2014
Very Short
104
96
20
86
306
165
Short
117
182
51
111
461
108
Medium
315
339
159
208
1,021
456
13
0
0
7
20
11
Long
117
233
55
179
584
344
666
850
285
591
2,392
1,084
2
-3
0
4
3
12
Average 2004-07
Asset additions (£m)
Medium long
Infinite (land)
1,041
Total
668
847
285
595
2,395
2,137
Table A7.2.6: Non-infrastructure asset additions (£m) by asset life category
WaSC1
WaSC2
WaSC3
WaSC4
Average
Scottish
Water
2010-2014
Very Short
16%
11%
7%
15%
13%
15%
Short
18%
21%
18%
19%
19%
10%
Medium
46%
41%
56%
35%
43%
42%
2%
0%
0%
1%
1%
1%
18%
27%
19%
30%
24%
32%
100%
100%
100%
100%
100%
100%
Average 2004-07
Asset additions (%)
Medium long
Long
Total
Table A7.2.7: Non-infrastructure asset additions (%) by asset life category
86
Appendix 7.3 – Current Cost Depreciation and the Infrastructure Renewals
Charge
Introduction
This appendix applies the Commission’s reasonableness check on the level of current cost depreciation
(CCD) and infrastructure renewals charge (IRC) in our plan with reference to actual maintenance
expenditure.
The Commission’s methodology (Information Paper 5) describes two separate tests Ofwat applies to
ensure customers are paying for an appropriate level of capital maintenance through their bills:
•
renewals accounting methodology; and
•
the ‘broad equivalence’ check.
FINANCES
Both tests aim to check whether maintenance expenditure is in line with the maintenance charges (IRC
and CCD) that affect price limits over the longer term.
IRC / Renewals Accounting Methodology
The IRC for the 2010-14 period is calculated by averaging infrastructure renewals expenditure (IRE) over
the seven year period from 2007/08 to 2013/14. Infrastructure maintenance expenditure is therefore in
line with the infrastructure maintenance charge that affects price limits.
Infrastructure
renewals
2007/08 prices - £m
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
Average
IRE
105
87
114
120
113
113
109
IRC
100
102
112
112
112
112
109
IRE : IRC
1.00
Table A7.3.1: Comparison of IRC and IRE
CCD / ‘Broad Equivalence’ Check
CCD calculated from the asset values and asset life assumptions set out in Appendix 7.2 is summarised
below. The MEAV and assessment of remaining useful life have a direct impact on our calculation of
current cost depreciation (CCD).
However, for this business plan we have set our cost of capital to achieve a target financial ratio of “flow
of funds from operations to debt”. Therefore any changes in CCD are offset by a change in the cash
return on RCV to maintain this ratio. As a result changes to the MEAV will not directly impact on
customer charges in this business plan.
87
FINANCES
The ‘broad equivalence’ check, which compares CCD with non-infrastructure capital maintenance
expenditure, requires projections of capital maintenance requirements over the longer term (OFWAT
applies the test over 28 years) and is applicable in a relatively steady state environment where the
maintenance requirement is fairly constant.
We have attempted an initial high level application of the ‘broad equivalence’ check. The approach we
have adopted estimates data for the period 2008/09 to 2021/22 (14 years) and compares maintenance
expenditure and CCD for assets existing at 31 March 2008. The methodology is set out below.
Step 1:
We have estimated non-infrastructure maintenance expenditure (MNI) over the 14 year
period from 2008/09 to 2021/22. MNI requirements for 2008/09 to 2013/14 are set out in
Section 5 of our plan. We have assumed a 1.9% increase in the level of MNI per year from
2014/15 to 2021/22 reflecting the average forecast increase in capital maintenance
allowances in England and Wales as set out in Appendix 5.1.
Maintenance expenditure – 14 year average 2008/09 - 2021/22
(2007/08 prices - £m)
Total capital maintenance expenditure
£m
243
Less: infrastructure maintenance
-119
Total non-infrastructure maintenance (MNI)
124
Table A7.3.2: Non-infrastructure maintenance expenditure
Step 2:
CCD for assets existing at 31 March 2008 comprises two elements (i) CCD calculated from the
MEAV of assets at 31 March 2008 and (ii) CCD on the maintenance expenditure for these
assets from 2008/09 to 2021/22. CCD on enhancement expenditure is excluded from the
comparison.
CCD – 14 year average 2008/09 – 2021/22
(2007/08 prices - £m)
On assets existing 31st March 2008
On capital maintenance asset additions 2008-2022
Total CCD for assets existing 31 March 2008 (CCD-1)
£m
148
50
198
Table A7.3.3: CCD for assets existing at 31 March 2008
Step 3:
Only a subset of our assets will be replaced over the 14 year period under consideration.
However, the average CCD charge (CCD-1) relates to our full non-infrastructure asset
inventory. We therefore need to deduct CCD relating to assets being depreciated but not
scheduled for replacement in the period to enable a like for like comparison. We have
identified assets scheduled for replacement after 2021/22 from the remaining useful life
data contained within our asset inventory.
88
CCD – 14 year average 2008/09 – 2021/22
£m
(2007/08 prices - £m)
Total CCD for assets existing 31st March 2008 (CCD-1)
198
Less: Assets whose remaining useful life extends beyond 2021/22
-78
Adjusted CCD for assets existing 31 March (CCD-2)
120
Table A7.3.4: Adjusted CCD for assets existing at 31 March 2008
Result:
The adjusted average CCD (CCD-2) is 3% lower than the average non-infrastructure
maintenance expenditure over the period 2008/09 to 2021/22.
CCD – 14 year average 2008/09 – 2021/22
£m
(2007/08 prices - £m)
Total non-infrastructure maintenance (MNI)
124
Adjusted CCD for assets existing 31st March (CCD-2)
120
MNI : CCD-2
FINANCES
103%
Table A7.3.5: CCD reasonableness test result
Other factors which may influence the outcome of the test include:
•
Maintenance expenditure projections for the 2013/14 to 2021/22 period will include
expenditure to replace assets created since 31 March 2008 under quality and
enhancement programmes. As the basis of comparison is assets existing at 31 March
2008, maintenance expenditure for assets created since 31 March 2008, and the
associated CCD, should be excluded from the comparison. We estimate that this
would reduce the ratio of MNI : CCD from 103% to 98%;
•
Maintenance expenditure projections assume a level of future capital procurement
efficiency which is not reflected in our MEAV valuations at 31 March 2008. Our plan to
deliver the Q&SIIIb objectives includes an overall efficiency of 12.3%. Applying this
level of efficiency to our MEAV valuations and resultant CCD charge would increase the
ratio of MNI : CCD from 103% to 111%; and
•
Combining these two factors would result in a ratio of MNI : CCD of 107%.
Conclusion
Our asset data is not sufficiently developed to support a thorough application of the Ofwat ‘broad
equivalence’ test. A high level application, excluding CCD for longer life assets estimated to be replaced
beyond the period of comparison, suggests CCD is running at a level comparable with capital
maintenance expenditure to within an acceptable tolerance level.
89
FINANCES
Appendix 7.4 – Inflation Assumptions
Introduction
For the first draft business plan, we followed guidance from the Commission and set both RPI and COPI to
be 2.5% for each year from 2008/09 to 2013/14. Since then, the outlook for the UK economy has become
very uncertain and has changed the longer term forecasts of all observers. We have chosen to reflect
this uncertain outlook in our inflation assumptions and have used the following forward forecasts to
inform our view:
•
Bank of England CPI Forecast - November Inflation Report 2008;
•
Deloitte CPI Forecast – Fourth Quarter Economic Review 2008; and
•
Deloitte RPI Forecast – Fourth Quarter Economic Review 2008
Identifying a Suitable Forecast
The Bank of England (BoE) does not forecast RPI into the future but instead focuses on CPI. Deloitte’s
Economic Review forecasts CPI in line with the BoE and also forecasts RPI. Figure A7.4.1 shows Deloitte’s
fourth quarter 2008 view of CPI (purple) mapped on to the Bank’s fan chart, highlighting that its central
forecast is in line with that of the BoE.
Figure A7.4.1: BoE and Deloitte’s inflation forecasts
Forecasting RPI for Tariffs
Inflation applied to tariffs is set on an October to October basis to be applied to customer charges in the
following financial year. As an example, the RPI index for October 2008 has out turned at 217.7 whereas
the index for October 2007 was 208.9. This gives an annualised inflation rate of 4.21% which will be
applied to customer tariffs (less k factors) in 2009/10.
90
Deloitte’s Fourth Quarter Economic Review 2008 projects monthly RPI out to December 2010 which
allows us to forecast the RPI increases to customers for the financial years of 2010/11 and 2011/12.
Thereafter we have assumed that the UK economy will recover and RPI will move back towards trend.
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
RPI – Tariffs
4.24%
4.21%
-0.4%
1.2%
1.5%
1.8%
Index date
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Table A7.4.1: RPI - tariffs
FINANCES
Forecasting RPI for Operating Costs
The actual cost price inflation that we expect to face is based on the change in the average RPI index
over each financial year. The assumption of a rising RPI index presents a particular problem for financial
modelling for the 2010–2014 period as revenue recovery and cost rises in any given year are determined
at different points in time.
In a period of rising inflation (which we are assuming) these two inflation expectations will not be the
same. Traditionally, RPI is set as a constant (say 2.5%) and so the expected annual inflation at October
2009 would be the same as that expected for the financial year of 2010/11, thus regulatory financial
models only usually account for one RPI forecast. In using a rising RPI forecast, only using one RPI line in
the financial model will either overstate expected revenue or underplay our expected cost rises.
To account for this forecasting issue, we have applied forecast RPI to costs and tariffs separately in our
financial modelling so as to best capture our future cost inflation. Our assumptions are summarised in
table A7.4.2 with RPI separated between prices (October index) and costs (financial year index).
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
RPI - Costs
3.96%
0.45%
1.00%
1.35%
1.65%
1.95%
RPI - Prices
4.24%
4.21%
-0.40%
1.20%
1.50%
1.80%
Table A7.4.2: RPI assumptions for the 2010 – 2014 period
The RPI for costs is applied to our operating cost profiles and other elements of the building blocks that
require inflation adjustment, based on the average forecast in the financial year. The RPI for prices is
only used in the tariff setting part of the model so as to best predict the k-factors needed to generate
the required amount of revenue for the period, based on the forecast inflation to October of the
preceding year.
Forecasting COPI for Capital Investment
We do not currently have a forward looking forecast for COPI. In our second draft business plan we
propose to set COPI equal to the RPI –Costs index for the period 2008/09 to 2013/14.
COPI
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
3.96%
0.45%
1.00%
1.35%
1.65%
1.95%
Table A7.4.3: COPI
91
REVENUE AND TARIFFS
Scottish Water: Second Draft Business Plan. Revenue and Tariffs
8. Revenue and Tariffs Appendices
Appendix 8.1 – Rebalancing tariffs over four years
Overview
For this second draft business plan, the analysis underpinning the Frontier Report has been revisited to
incorporate revisions to the allocation of wastewater costs and a reduction in the water consumption at
unmeasured non-household premises, which has proved to be lower than the original estimate used in the
Frontier study. The imbalances between revenue and cost, identified in the Frontier Report and listed
below, still require to be addressed:
•
From the wastewater service to the water service;
•
From non-households to households (both water and wastewater), and
•
Between non-household sectors within water and wastewater:
o
From small water users to larger water users,
o
From foul waste to trade effluent, and
o
From foul waste to surface water drainage.
The incorporation of the refinements to the Frontier analysis results in slight differences in the target
revenue shares to be recovered from each customer sector, compared with our first draft business plan
and also on the rebalance impact6 on charges required to achieve the target shares.
Customer base forecasts for the second draft business plan have also been refined to reflect current
economic forecasts for house building and the economy in general. As a result, the relative value of the
household and non-household customer sectors in 2013/14, prior to rebalance, differs from that forecast
in the first draft business plan.
As with our first draft business plan, all imbalances, other than in relation to premises where Schedule 3
agreements exist for Trade Effluent Services, are redressed by 2013/14. The shortfall from Schedule 3
continues to be met by non-household wastewater customers. Recognising that wholesale charges for
some trade effluent premises will continue to increase dramatically by 2013/14 an alternative eight-year
rebalancing programme has been assessed which, while delaying the required increase in bills for some,
prolongs the period of cross-subsidy provided by other customers.
The combined effect of the revisions discussed above is summarised in Table A8.1.1 below which shows
the 2013/14 pre-rebalance revenue shares, the 2013/14 target rebalanced revenue shares and the
rebalance impact.
6
92
The rebalance impact is the increase in the 2013/14 charges caused by rebalancing. This is calculated by dividing the difference
between the 2013/14 target revenue shares and the 2013/14 revenue shares generated before making tariff rebalance adjustments
(the 2013/14 pre-rebalance shares), by the 2013/14 pre-rebalanced shares. For a customer sector with a pre-rebalance revenue
share of 30% and a target revenue share of 36%, the rebalance impact is tariffs being 20% higher than without rebalance (36-30)/30)
= 20%.
2013/14
Pre-rebalance
Revenue Shares
2013/14
Rebalanced Target
Revenue Shares7
Rebalance
impact
Households (Retail Revenue)
70.34%
71.13%
1.13%
Non-Households (Wholesale)
29.66%
28.87%
-2.67%
Water
44.61%
44.91%
0.67%
Wastewater
55.39%
55.09%
-0.54%
Household Water
33.91%
33.85%
-0.17%
Household Waste water
36.43%
37.28%
2.33%
Non-Household Water
10.70%
11.06%
3.34%
Non-household Foul
7.39%
5.01%
-32.24%
Non-Household SWD
9.07%
10.16%
12.03%
Trade Effluent
2.50%
2.64%
5.73%
Table A8.1.1 – Summary of target rebalance revenue shares and high level rebalance impacts
Table A8.1.2 below summarises the rebalance objectives adopted for the second draft business plan and
demonstrates that the different growth expectations for household and non-household customer sectors
from 2007/08 has a natural rebalancing effect by increasing the relative share of revenue from
households.
2007/08
Revenue Shares
(base year)
2009/10
Forecast
Revenue Shares
2013/14
Pre-rebalance
Revenue Shares
2013/14
Rebalanced
Target Revenue
Shares7
March 2009
Rebalance
impact
Households (Retail Revenue)
68.85%
69.69%
70.34%
71.13%
1.13%
Non-Households (Wholesale)
31.15%
30.31%
29.66%
28.87%
-2.67%
Water
44.51%
44.59%
44.61%
44.91%
0.67%
Wastewater
55.49%
55.41%
55.39%
55.09%
-0.54%
Household Water
33.18%
33.60%
33.91%
33.85%
-0.17%
Household Wastewater
35.67%
36.09%
36.43%
37.28%
2.33%
Non-Household Water
11.33%
10.99%
10.70%
11.06%
3.34%
Non-household Foul
8.14%
7.76%
7.39%
5.01%
-32.24%
Non-Household SWD
9.33%
9.13%
9.07%
10.16%
12.03%
Trade Effluent
2.35%
2.43%
2.50%
2.64%
5.73%
REVENUE AND TARIFFS
Table A8.1.2 – Rebalance targets adopted in our second draft business plan and the rebalancing
effect of growth
7
Revenue shares excludes rebalancing to Schedule 3 Agreement premises
93
REVENUE AND TARIFFS
Refinements to the Frontier Report
Target revenue shares have been re-assessed to take account of two factors. Actual water use
information derived from the non-household meter installation programme has reduced the estimated
water consumption at unmetered premises from that used in the Frontier study. This changes the level
of volume-driven costs to be recovered from the various customer sectors, for water, foul sewerage and
trade effluent, and results in the household share of revenue from both water and wastewater being
almost 0.2% higher than anticipated by Frontier.
We also revisited the cost allocation rules that underpinned the data used in the Frontier study and made
revisions that better reflected wastewater treatment costs. The result of the revised cost allocations is a
reduced share of wastewater costs allocated to trade effluent and larger shares allocated to foul
sewerage and surface water drainage services. As a consequence of these refined cost allocations, the
required household share of revenue increases by an additional 0.2%, compared with that predicted by
Frontier.
The combined effect of these revisions results in the household share of revenue being higher than
anticipated by Frontier (71.1% compared with Frontier’s anticipated 70.6%).
Impact on Household Charges
Table A8.1.3 shows the forecast annual charges for a household in council tax band D after rebalance has
been completed. The table also shows the forecast nominal changes in charges and the related k factor.
band D Water Charge
2009/10
2010/11
2011/12
2012/13
2013/14
£185
£184
£186
£187
£189
Nominal Increase - Water
-0.3%
0.8%
1.0%
1.1%
0.1%
-0.4%
-0.5%
-0.7%
£208
£210
£215
£220
Nominal Increase - Wastewater
-0.6%
1.4%
1.9%
2.3%
K for Household Wastewater
-0.2%
0.2%
0.4%
0.5%
£392
£396
£402
£409
Nominal Increase - combined
-0.5%
1.1%
1.4%
1.7%
K for Combined Household
-0.1%
-0.1%
-0.1%
-0.1%
K for Household Water
band D Wastewater Charge
Combined Charge
£209
£394
Table A8.1.3: Forecast household charges after rebalancing
Rebalancing Between Non-Household Sectors within Water and Waste Water
The second major output from the Frontier study was the production of individual cost-reflective
wholesale tariffs that would ensure the recovery of the correct share of costs from each group within the
non-household sector. These basic charges underpinned the 2008/09 wholesale charges scheme,
although adjustments were made within water charges to support the opening of the retail market in
April 20088. In this second draft business plan, our approach to rebalance is, by 2013/14, to have phased
8
94
For both water and wastewater charges, the balance of fixed and capacity volume charges were refined to support the opening of
the retail market. Additionally temporary phasing adjustment factors were introduced which generate additional revenue from
premises supplied through 15mm and 20mm water meters, which is used to mitigate the impact on LUVA premises as these premises
are phased onto cost-reflective charges.
out the 2008 adjustments, and to set individual tariff components to reflect the relationships established
by Frontier.
The revenue shares for these main non-household services, incorporating the updates to the original
Frontier study, are shown in Table A8.1.4. The impact of the high-level rebalancing requirements for
these non-household services are summarised below and discussed in more detail in the subsequent
sections.
2007/08
Revenue
Shares
(base year)
Non-Household Water
2009/10
2013/14
2013/14
Forecast
Pre-rebalance
Rebalanced
Revenue Revenue Shares Target Revenue
Shares
Shares7
March 2009
Rebalance
impact
11.33%
10.99%
10.70%
11.06%
3.34%
Non-household Foul
8.14%
7.76%
7.39%
5.01%
-32.24%
Non-Household SWD
9.33%
9.13%
9.07%
10.16%
12.03%
Trade Effluent
2.35%
2.43%
2.50%
2.64%
5.73%
Table A8.1.4 – Non-household revenue shares and rebalance impacts
Within non-household water, Frontier identified that the revenue received from large water use sites
(>100Ml per year) did not recover costs, while the charges for low-demand premises were too high. An
indication of the scale of the issue is evident from the percentage phasing adjustments shown in Table
A8.1.6. Accordingly, the removal of these phasing adjustments, which within this second draft business
plan is achieved by 2013/14, will cause wholesale charges at large-use premises to rise by more than
headline K factors while wholesale charges at premises supplied through 20mm water meters will reduce
REVENUE AND TARIFFS
faster than K.
For foul sewerage, the updated cost analysis supported Frontier’s conclusion that while there were some
imbalances between premises, depending on the size of the connection and the volumes discharged,
overall foul sewerage charges were too high and provided a subsidy to both Trade Effluent charges and to
surface water drainage charges.
As well as the cross-subsidy from foul sewerage, Frontier’s assessment of the trade effluent cross-subsidy
also identified that the level of the eight components of the Mogden formula were not cost reflective and
this created additional cross-subsidies between trade effluent premises. As a consequence of increasing
the share of trade effluent revenue (by rebalancing from foul sewerage), and rebalancing trade effluent
charges across the Mogden components, the annual trade effluent charges will increase for some
premises and reduce for others. The updated cost analysis identified similar imbalances between
Mogden charge elements to those identified by the original Frontier study.
In the following sections the impact of rebalancing is demonstrated at the level of the forecast individual
tariff elements and by reference to the forecast annual wholesale charges for typical premises.
Non-Domestic Rebalancing within Water
The forecast k factors that apply to the non-household water tariff basket are shown in Table A8.1.5.
95
REVENUE AND TARIFFS
2010/11
2011/12
2012/13
2013/14
0.9%
0.4%
0.3%
0.2%
Table A8.1.5: Forecast k factors
While the k factors indicate what is happening to the tariff basket overall, the changes to individual
tariffs within the basket are significantly different. Table A8.1.6 shows the forecast changes by tariff
element.
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
20mm meter
£69
£54
-21.3%
-24.4%
25mm meter
£133
£150
13.0%
8.5%
40mm meter
£526
£370
-29.7%
-32.5%
50mm meter
£949
£808
-14.8%
-18.2%
80mm meter
£1,845
£1,559
-15.5%
-18.9%
100mm meter
£2,001
£2,556
27.7%
22.6%
150mm meter
£4,213
£6,500
54.3%
48.1%
200mm meter
£31,595
£26,539
-16.0%
-19.3%
250mm meter
£84,254
£47,331
-43.8%
-46.1%
£104,265
£59,500
-42.9%
-45.2%
For volume in range 20m3 to 250Ml
£0.7046
£0.7814
10.9%
6.5%
For volume in range 250Ml to 1,000Ml
£0.5949
£0.6598
10.9%
6.5%
For volume >1000Ml
£0.3651
£0.4049
10.9%
6.5%
Capacity Volume Charge
£0.5180
£0.4830
-6.8%
-10.5%
47.5%
0.0%
LUVA premises 100-250Ml adjustment
-27.0%
0.0%
LUVA premises 250-1,000Ml adjustment
-23.0%
0.0%
19.0%
0.0%
Fixed Charges
(based on meter size)
300mm meter
3
Volumetric Rates (£/m )
Small meter phasing premium
LUVA premises > 1,000Ml adjustment
Table A8.1.6: Forecast wholesale water charges
The impact of these changes is best understood by reference to the forecast wholesale bills that will be
levied on licensed providers for typical premises.
Table A8.1.7 below shows the forecast impact on the annual wholesale water charges for nine typical
premises served by water meters between 20mm and 50mm, for a range of consumption. The terms
“low” and “high” volume relate to the range of consumption that would be appropriate for the size of
the meter. Overall the typical premises in Table A8.1.7 reflect the position for 99% of the premises
where meters are used for revenue purposes, with 20mm and 25mm meter sizes accounting for 84% and
12%, respectively, of all meters.
96
20mm Low Volume – 25m
3
20mm Medium Volume – 250m
20mm High Volume – 2,500m
25mm Low Volume – 2,600m
3
3
3
3
3
3
3
3
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
Real
Annual change
%
- over 4 years
£78
£60
-22.2%
-25.3%
-7.0%
£320
£274
-14.4%
-17.8%
-4.8%
£1,901
£2,027
6.6%
2.4%
0.6%
£2,327
£2,409
3.5%
-0.6%
-0.2%
£4,896
£5,257
7.4%
3.1%
0.8%
£5,731
£5,786
0.9%
-3.1%
-0.8%
£8,584
£8,949
4.3%
0.1%
0.0%
£10,289
£10,263
-0.3%
-4.2%
-1.1%
£46,100
£49,979
8.4%
4.1%
1.0%
Table A8.1.7: Forecast wholesale water bills for typical premises
For high-volume premises supplied through a 25mm meter, the table shows that the forecast wholesale
charge will increase by 3.1% real over the 2010-14 period. The forecast real increase equates to four
consecutive real annual increases of 0.8%. The forecast wholesale bill for a low use 20mm metered
premises will reduce by 7% real per year throughout the period. As can be seen for the majority of
premises forecast wholesale water charges will reduce in real terms over the four year period, while the
maximum annual real increase in this sector is expected to be around 1%.
There are 86 premises where the Large User Volume Agreement LUVA tariff (retail) formerly applied and
where annual consumption remains above 100Ml per year. These premises benefit from the adjustments
REVENUE AND TARIFFS
to the Frontier proposed rates that were incorporated within the 2008/09 wholesale scheme of charges
and consequently are adversely affected by their removal which will be achieved by 2013/14. The
forecast impact on five typical sites, demonstrating the range of consumption of LUVA sites, is shown in
Table A8.1.8 below. The table shows that the forecast wholesale charge for the LUVA1 premises
increases by 15.1% real over the period, equating to four consecutive real annual increases of 3.6%. If
the phasing period were extended over two regulatory periods a 15.1% real increase would equate to
eight consecutive real annual increases of 1.8%.
Forecast
prices
2013/14
Nominal
change %
9/10 13/14
Real
change %
9/10 13/14
Real
Annual %
- over 4
years
Real
Annual %
- over 8
years
£116,738
£139,978
19.9%
15.1%
3.6%
1.8%
LUVA 2 - 356Ml
£201,390
£269,936
34.0%
28.7%
6.5%
3.2%
LUVA 3 - 715Ml
£472,758
£604,117
27.8%
22.7%
5.2%
2.6%
LUVA 4 – 1,795Ml
£884,382
£1,058,983
19.7%
15.0%
3.5%
1.8%
LUVA 5 - 4,443Ml
£2,246,728
£2,288,458
1.9%
-2.2%
-0.6%
-0.3%
Wholesale Bills for
Sample LUVA Premises
2009/10
LUVA 1 - 164Ml
Table A8.1.8: Forecast wholesale water bills for typical LUVA premises
Non-Domestic Rebalancing within Wastewater
The Frontier report identified that foul sewerage charges subsidise both Surface Water Drainage (SWD)
and Trade Effluent. The outcome of the 2008 review was to lessen the rebalance onto trade effluent
97
REVENUE AND TARIFFS
with a larger share of revenue being attributed to foul sewerage and surface water drainage (as well as
from households). The target revenue shares are shown in table A8.1.9 below.
2007/08
Revenue
Shares
(base year)
2009/10
Forecast
Revenue
Shares
2013/14
Prerebalance
Revenue
Shares
2013/14
Rebalanced
Target
Revenue
Shares7
2DBP
Rebalance
impact
35.67%
36.09%
36.43%
37.28%
2.33%
Non-household Foul
8.14%
7.76%
7.39%
5.01%
-32.24%
Non-Household SWD
9.33%
9.13%
9.07%
10.16%
12.03%
Trade Effluent
2.35%
2.43%
2.50%
2.64%
5.73%
Total non-household wastewater
19.82%
19.32%
18.96%
17.81%
-6.06%
Total waste water
55.49%
55.41%
55.39%
55.09%
-0.54%
Household Wastewater
Table A8.1.9: Target wastewater revenue shares
Rebalancing to Trade Effluent
Our review of the wastewater analysis within the Frontier study established a revised trade effluent
share of revenue of 2.64%. In addition, our review confirmed the Frontier study that rebalancing is
required between the individual Mogden charge elements. Table A8.1.10 below shows the Mogden
charge elements that, by 2013/14, achieve the rebalancing identified within the updated cost analysis
from foul sewerage to trade effluent and within trade effluent, across the eight Mogden charge
elements.
2007/08
2009/10
Forecast
prices
2013/14
Ra - Availability – Reception
7.370
7.762
1.211
-84.4%
-85.0%
Va – Availability – Primary Treatment
4.907
5.168
0.538
-89.6%
-90.0%
Ba – Availability –Secondary Treatment
18.726
19.721
16.277
-17.5%
-20.8%
Sa – Availability – Sludge Treatment
16.050
16.904
0.801
-95.3%
-95.4%
Ro – Operating – Reception
11.881
12.513
6.882
-45.0%
-47.2%
Rates in pence
Vo – Operating – Primary Treatment
Bo – Operating – Secondary Treatment
So – Operating – Sludge Treatment
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
7.924
8.345
6.680
-20.0%
-23.1%
10.590
11.153
18.103
62.3%
55.9%
6.476
6.820
28.948
324.5%
307.5%
Table A8.1.10: Forecast wholesale trade effluent charges (in pence)
In summary the Availability (consent related) component is reduced while the Operating elements
increase, with the increase more pronounced on the factors that relate to the strength of the waste
discharged (Bo and So).
In this second draft business plan, phased rebalancing from foul sewerage to trade effluent starts in April
2010 concurrent with the rebalance between the Mogden elements, with the final step of phasing coming
in April 2013. In April 2010, those premises that currently benefit from capped trade effluent charges
(more than 50% of premises) will move to full charges for the first time. Many of these premises will
therefore experience higher than average increases in charges in 2010/11.
98
The combined effect of rebalancing from foul sewerage to trade effluent and rebalancing between
Mogden components is demonstrated by reference to the forecast trade effluent bills for six typical
premises shown in Table A8.1.11 below. As with earlier examples, the forecast annual real increases
under four and eight year phasing programmes are shown.
Premises
Business
Type
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
Real
Annual %
over 4 years
Real
Annual %
over 8 years
Full Charge Premises
TE Premises 1
Hospital
£87,197
£127,299
46.0%
40.2%
8.8%
4.3%
TE Premises 2
Hospital
£86,347
£97,976
13.5%
9.0%
2.2%
1.1%
TE Premises 3
Power
Station
£99,032
£62,844
-36.5%
-39.1%
-11.7%
-6.0%
TE Premises 4
Auction
Mart
£45,540
£68,372
50.1%
44.2%
9.6%
4.7%
TE Premises 5
Fabric
Dyers
£54,622
£63,203
15.7%
11.1%
2.7%
1.3%
TE Premises 6
Hospital
£57,041
£27,413
-51.9%
-53.9%
-17.6%
-9.2%
Capped Premises
Table A8.1.11: Forecast wholesale trade effluent bills for typical premises
The impact on the overall trade effluent community is demonstrated in Figure A8.1.1 to Figure A8.1.3.
Figure A8.1.1 shows the number of premises that will pay more and those that will pay less, in real
terms, by 2013/14. Figures A8.1.2 and A8.1.3 show, for each premises that will be paying more, the real
increase in the total wholesale charge over the 4 year period (vertical axis) and the corresponding year
REVENUE AND TARIFFS
on year real annual percentage increase that this represents (horizontal axis). Each point reflects an
individual property. Figure A8.1.2 shows the situation for premises affected by trade effluent capping;
Figure A8.1.3 relates to uncapped premises.
Number of Customers
80
PAYING LESS
943
70
PAYING MORE
496
60
50
40
30
20
10
U
nd
er
-2 25
3% %
-2
-2
4
1% %
-1 22%
9%
-1 20%
7%
-1 18%
5%
-1 16%
3%
-1 14%
1%
-1
-9 2%
%
-1
0
-7 %
%
-8
-5 %
%
-6
-3 %
%
-4
-1 %
%
-2
%
0%
-1
%
2%
-3
%
4%
-5
%
6%
-7
%
8%
10 -9%
%
-1
12 1%
%
-1
14 3%
%
-1
16 5%
%
-1
18 7%
%
-1
20 9%
%
-2
22 1%
%
-2
24 3%
%
-2
5%
0
Real Annual Recurring % Change
Uncapped
Capped
Figure A8.1.1: Impact of changes to wholesale charges on the trade effluent community
99
Capped Customers Increasing
Real 4 Year Total
Increase
£200,000
£150,000
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
30%
35%
40%
Real Annual % Increase recurring for 4 years
Figure A8.1.2: Impact on wholesale charges at individual capped trade effluent premises
Uncapped Customers Increasing
£200,000
Real 4 Year Total
Increase
REVENUE AND TARIFFS
£150,000
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
30%
35%
40%
Figure A8.1.3: Impact on wholesale charges at individual uncapped trade effluent premises
In light of the adverse impact on Trade Effluent charges, we undertook an analysis of the trade effluent
sector to look at the size of the trade effluent sector in Scotland compared with that reported by water
and sewerage companies in England and Wales. Our analysis, as shown in Figure A8.1.4, indicates a
considerable spread across water and sewerage companies in England and Wales of the share of volume
and revenue attributed to trade effluent.
100
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Anglian
Dwr Cymru
Northumbrian
Severn
Trent
South West Southern
Thames
United
Utilities
Wessex
Yorkshire
Scottish
Water
Figure A8.1.4: Trade effluent in the context of non-household waste water
Figure A8.1.4 demonstrates that our trade effluent share of non-household waste water volume
(excluding SWD volume), at 36%, is similar to other industrial areas of the UK. This suggests that the
level of trade effluent activity in Scotland is consistent with similar companies in England and Wales. In
REVENUE AND TARIFFS
TE in context of Non-Household Waste Water
comparison with the volume, the corresponding share of revenue (12%) is very low. This suggests that
current trade effluent charges are low, although a significant element of the revenue difference can be
attributed to the level of revenue generated from Schedule 3 agreement premises in comparison with the
volumes discharged. The degree of rebalancing proposed in this second draft business plan will move
Scotland closer to the companies in England and Wales.
Impact on Surface Water Drainage Charges of Rebalancing from Foul Sewerage
The Property Drainage and Roads Drainage forecast charges shown below increase the share of revenue
from Surface Water Drainage in 2013/14 to the 10.2% share identified by the 2007/08 cost analysis.
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
Real
Annual %
- over 4 years
Property Drainage
2.188
2.517
15.1%
10.5%
2.5%
Roads Drainage
1.405
1.616
15.1%
10.5%
2.5%
Pence / £RV
Table A8.1.12: Forecast wholesale surface water drainage charges
The 2.5% real annual charge increase impact on individual customers will be offset, at least partially, by
reduced charges for foul sewerage, but the extent for each customer is dependent on the volumes of
sewerage discharged and the rateable value of the premises.
Since the charges are applied to the rateable value of the premises, all premises will be equally affected
in percentage terms and vary linearly with rateable value.
101
REVENUE AND TARIFFS
Impact of rebalancing on foul sewerage tariffs
By 2013/14 foul charges will account for 5.0% of total revenue. This forecast foul sewerage rates are
shown in Table A8.1.13.
Fixed Charges
(based on meter size)
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
20mm meter
£79
£29
-63.9%
-65.3%
25mm meter
£158
£125
-21.1%
-24.3%
40mm meter
£622
£344
-44.7%
-46.9%
50mm meter
£927
£644
-30.5%
-33.2%
80mm meter
£2,510
£1,388
-44.7%
-46.9%
100mm meter
£4,459
£2,465
-44.7%
-46.9%
150mm meter
£14,285
£7,897
-44.7%
-46.9%
Capacity volume charge
£1.053
£1.086
3.1%
-1.0%
Standard volume charge
£1.263
£0.903
-28.5%
-31.4%
Volume Charges
Table A8.1.13: Forecast wholesale foul sewerage charges
Table A8.1.14 shows the forecast impact on the annual wholesale foul sewerage bills for typical premises
for a range of meter size and discharge volumes, and shows that the wholesale charges for the majority
of premises will reduce by around 20% in real terms by 2013/14 equivalent to four consecutive real
annual reductions of around 5.4%. If an eight year phasing period were to be adopted for trade effluent
the annual benefit to foul sewerage bills would be less than 2.8%.
Out-turn
prices
2009/10
Forecast
prices
2013/14
Nominal
change %
9/10 - 13/14
Real
change %
9/10 - 13/14
Real
Annual
change%
- over 4 years
Real
Annual
change%
- over 8 years
£87
£86
-1.3%
-5.3%
-1.3%
-0.7%
£387
£309
-20.1%
-23.3%
-6.4%
-3.3%
20mm High Volume
£3,079
£2,234
-27.5%
-30.3%
-8.6%
-4.4%
25mm Low Volume
£3,510
£2,631
-25.0%
-28.0%
-7.9%
-4.0%
25mm High Volume
£7,883
£5,757
-27.0%
-29.9%
-8.5%
-4.3%
40mm Low Volume
£8,714
£6,566
-24.6%
-27.6%
-7.8%
-4.0%
40mm High Volume
£13,570
£10,038
-26.0%
-29.0%
-8.2%
-4.2%
50mm Low Volume
£15,160
£11,595
-23.5%
-26.6%
-7.4%
-3.8%
50mm High Volume
£76,133
£55,181
-27.5%
-30.4%
-8.7%
-4.4%
20mm Low Volume
20mm Medium Volume
Table A8.1.14: Forecast wholesale foul sewerage bills for typical premises
Summary
Our second draft business plan redresses all imbalances, other than in relation to premises where
Schedule 3 agreements exist for Trade Effluent Services, identified by the Frontier study, as updated in
2008.
102
While wholesale charges for the majority of non-household premises will reduce, there are significant
increases anticipated for those premises where the LUVA (retail) tariff applied previously and at
significant numbers of premises with trade effluent discharges. It would be possible to extend the
phasing period for these premises and lessen the impact to some degree. However, such an approach
would prolong the period that other premises would be contributing to the cross subsidy.
On balance, while the increases may be dramatic for some premises, a four year phasing period strikes
the appropriate balance between those that gain and those that suffer charge increases through the
process.
Time Phasing for Rebalancing tariffs
Overview
As set out above, the level of Trade Effluent revenue and individual bills will increase due to the
rebalance requirements from foul waste charges to Trade Effluent. Charges at individual premises will
additionally be affected by rebalance between the eight charge elements within the Mogden Trade
Effluent charging formula. The latter effect will further increase bills at some premises while for others
the increases will be lessened or in some cases result in real reductions. Our second draft business plan
is based on rebalancing both effects by 2013/14, i.e. within 4 years. Additionally, the final element of
Trade Effluent capping will be removed in April 2010, increasing the charges for more than 50% of Trade
Effluent discharging premises. In light of the material impact on the wholesale charges at some
premises, alternative rebalance timescales have been assessed and are discussed below.
REVENUE AND TARIFFS
Alternative rebalancing scenarios
The Figures referred to in the table below show, in graphical form, the impact of wholesale charges
across the trade effluent community and at individual premises under the following three scenarios:
Rebalancing Scenarios
Scenario 1
Foul TE rebalance
achieved in:
Rebalance within TE
(across Mogden
elements) achieved in:
4 years
4 years
Adopted for the second
draft business plan
Scenario 2
Figures
Figures A8.1.1
Shorthand
Notation
4&4
Figure A8.1.2
Figure A8.1.3
4 years
8 years
Figures A8.1.5
4&8
Figure A8.1.6
Figure A8.1.7
Scenario 3
8 years
8 years
Figures A8.1.8
8&8
Figure A8.1.9
Figure A8.1.10
Table A8.1.15: Alternative phasing periods
Under scenario 1 (the basis of our second draft business plan) all cross subsidies both to the trade
effluent sector and within the trade effluent sector would be eliminated in 4 years. Scenario 2 prolongs
the phased removal of the cross-subsidy within the trade effluent community to 8 years, while Scenario 3
additionally requires the remainder of the non-household wastewater consumers to continue to provide a
cross-subsidy over an 8 year phasing period, requiring the revenue from foul sewerage charges to be
around 24% higher in 2013/14 than under the four year rebalance approach.
103
Figure A8.1.5 and Figure A8.1.8 show the number of premises that would pay more and those that would
pay less, in real terms, by 2013/14. The second and third graphs in each set (Figures A8.1.6 and 7 and
Figures A8.1.9 and 10) show, for each premises that will be paying more, the real increase in wholesale
charge over the 4 year period (vertical axis) and the corresponding year on year real annual increase that
this represents (horizontal axis). Figures A8.1.6 and A8.1.9 show the situation for premises affected by
trade effluent capping; Figure A8.1.7 and A8.1.10 relate to uncapped premises.
80
Number of Customers
PAYING LESS
PAYING LESS
807
PAYING MORE
PAYING MORE
632
70
60
50
40
30
20
10
0
U
nd
er
-2 2 5%
3%
-2 24%
1%
-1 22%
9%
-1 20%
7%
-1 18%
5%
-1 16%
3%
-1 14%
1%
-1
-9 2%
%
-1
0
-7 %
%
-8
-5 %
%
-6
-3 %
%
-4
-1 %
%
-2
%
0%
-1
%
2%
-3
%
4%
-5
%
6%
-7
%
8%
10 -9%
%
-1
12 1%
%
-1
14 3%
%
-1
16 5%
%
-1
18 7%
%
-1
20 9%
%
-2
22 1%
%
-2
24 3%
%
-2
5%
Uncapped
Capped
Figure A8.1.5: Impact on the trade effluent community under scenario 2
£200,000
£150,000
Increase
Real 4 Year Total
REVENUE AND TARIFFS
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
30%
35%
40%
35%
40%
Figure A8.1.6: Impact on individual capped customers under scenario 2
Real 4 Year Total
Increase
£200,000
£150,000
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
Figure A8.1.7: Impact on individual uncapped customers under scenario 2
104
30%
90
Number of Customers
PAYING LESS
PAYING LESS
985
PAYING MORE
PAYING MORE
454
80
70
60
50
40
30
20
10
Un
de
r-2 2 5%
3%
-2 24%
1%
-1 22%
9%
-1 20%
7%
-1 18
5% %
-1 16%
3%
-1 14%
1%
-1
-9 2%
%
-1
0
-7 %
%
-8
-5 %
%
-6
-3 %
%
-4
-1 %
%
-2
%
0%
-1
%
2%
-3
%
4%
-5
%
6%
-7
%
8%
10 -9%
%
-1
12 1%
%
-1
14 3%
%
-1
16 5%
%
-1
18 7%
%
-1
20 9%
%
-2
22 1%
%
-2
24 3%
%
-2
5%
0
Uncapped
Capped
Figure A8.1.8: Impact on the trade effluent community under scenario 3
Real 4 Year Total
Increase
£200,000
£150,000
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
30%
35%
40%
30%
35%
40%
REVENUE AND TARIFFS
Figure A8.1.9: Impact on individual capped customers under scenario 3
Real 4 Year Total
Increase
£200,000
£150,000
£100,000
£50,000
£0
0%
5%
10%
15%
20%
25%
Figure A8.1.10: Impact on individual uncapped customers under scenario 3
105
APPENDICES
Scottish Water: Second Draft Business Plan. Appendices
106
9. Retail Development Appendices
10. Value Chain Analysis Appendices
Appendix A – Cost Base
Introduction
We understand that the purpose of the cost base is to inform the assessment of the relative efficiency of
capital unit costs in comparison with companies in England and Wales, and allow an assessment of the
efficiencies to be applied to our investment plan where the data and method for deriving standard costs
and business plan estimates are the same.
We outline in Section 5: Annex One, of our second draft business plan our overall approach to estimating
the costs of our investment plan.
All cost base cost estimates have been prepared using cost algorithms generated from the Engineering
Estimating System (EES) or from our current framework contractors and suppliers’ rates. Our cost base
submission, which has been completed in accordance with the Commission’s guidance comparable with
reporting requirements for English and Welsh companies, relates to the efficiency assessment of £1,869m
(pre efficiency) of our investment plan.
Completion of Standard Costs
We have completed standard costs for all areas of the cost base that relate to the investment plan using
estimating methodologies consistent with the preparation of our investment plan. Our investment for
each category (reported in tables 1,3,5 and 7 of our submission) is an output from our investment
planning database.
When completing the cost base we have completed the standard cost questions except where:
1.
APPENDIX A – COST BASE
Scottish Water: Second Draft Business Plan. Appendix A – Cost Base
Forecast expenditure in an investment category is not greater than 2% of total expenditure
in that activity area;
2.
The type of work described is not carried out by Scottish Water and hence costing
information is not available, and is not part of the investment plan; and
3.
The type of work is not forecast to take place in the 2010-14 period.
The cost base tables 1, 3, 5 and 7 include all investment to address Ministers’ draft essential objectives
within our second draft business plan, to which we believe cost base derived efficiency applies. Non-cost
base derived efficiencies apply to strategic studies, Early Start for Q&SIV and Management and General
areas of the plan. The value of the investment plan excluded from cost base amounts to £456m (preefficiency).
Standard costs that are not being submitted are set out in table A.1 below.
107
Appendix A
Table Number
Line Ref
Description
Reason
Table 2 - Water
Infrastructure
Lines 5-7
Directional Drilling
Forecast expenditure is <2% of expenditure in
the activity area. We do not have historic cost
data for this method.
Line 11
New Communication Pipes
This is “Part 1” development where the work is
carried out, and paid for, by the developer.
Therefore we hold no cost data.
Lines 13 &
14
Household meters
Forecast expenditure is <2% of expenditure in
the activity area.
Line 1
New treatment works type
SW4, output 30Ml/d
Our 2010-2014 investment plan does not
include any new treatment works of this size
and type.
Line 3
New abstraction borehole
with simple disinfection
only, output 5Ml/d
The specific nature of this work (drilling a
borehole in chalk) is not applicable in Scotland
due to the geology of the area. Boreholes in
Scotland tend to be in river gravels, the cost of
which will not be comparable with chalk
boreholes as the method of drilling and casing
requirements are technically very different.
Line 5
Alterations to WTW type
SW2, output 30Ml/d
The maximum output of a site covered by the
DW23 programme is 11.5Ml/d. There is no work
proposed at a 30Ml/d site in 2010-14.
Line 6
Nitrate removal at a
borehole treatment works.
We do not carry out nitrate removal, and this
type of work is not part of the 2010-2014
investment plan
Line 12
Replacement of variable
speed pumps 6 to 9Ml/d
We do not undertake this type of work. Shaft
driven pumps specified by the cost base
question are not used by Scottish Water due to
reliability and operating cost issues and are
excluded from our Standards and
Specifications.
Line 8
First time rural sewage
treatment, PE 200
First time provision is not part of the 2010-14
investment plan.
Line 9
Denitrification at existing
secondary treatment
wastewater treatment
works
Denitrification is uncommon in Scotland and
this type of work is not part of the 2010-14
investment plan.
Line 14
Extension to conventional
sludge treatment facility.
We do not have historical costs for sludge
digestion and this type of work is not part of
the 2010-14 investment plan.
Table 4 – Water
Noninfrastructure
Table 8
Wastewater Noninfrastructure
Table A.1: Standard costs excluded from business plan submission
Sources of Cost Data
We have developed our estimates for the standard costs using the same processes and source of costing
information as for the investment plan where possible to ensure consistency.
For the wastewater pumping stations, CSO and treatment works refurbishment standard costs, the
specific nature of the questions preclude a cost algorithm based approach. Accordingly we have
developed costs from bottom up estimates using our framework contractors’ tendered rates and prices,
supplemented with our current equipment framework suppliers’ prices to produce the standard costs.
These framework costs are the same costs used to cost projects within the current investment period
(2006-10). These data points, created during the costing of these projects, are held in EES and are those
108
used to generate the cost algorithms which have been used to cost our investment plan for the 2010-14
period.
For all the infrastructure lines and the majority of the treatment enhancement lines, the standard costs
have been produced using the cost algorithms generated from our EES data points, adjusted to meet the
cost base definitions with the appropriate level of on-costs applied. Where this has not been possible, a
bottom up estimate has been developed.
Treatment Process Identification
Unless the Commission’s guidance has prescribed otherwise (for example the specified assumption that
there is adequate alkalinity for Table 8 Line 10, “additional nutrient removal at existing secondary
works, pe 4,000”), we have been consistent with the way in which we have costed both the cost base and
investment plan.
Where the question allows, we have used our own specifications, process selection matrices, decision
trees and signature solutions to identify and design cost base treatment processes, which is consistent
with how we have costed the investment plan. Where the question is prescriptive and the treatment
process is defined we have used design criteria from our specifications when answering the question.
Examples of prescriptive questions are the pumping station and maintenance questions where scopes
such as replacement UV disinfection, refurbishment of inlet screens and refurbishment of rapid gravity
filters are set.
Consistency with the business plan has been achieved by ensuring that cost base table 8 lines 10 and 11
use the same treatment processes as the business plan. Process selection has been checked to ensure
consistency of both process selection and design criteria. In cost base Table 4, treatment process
selection is specified in the cost base definition, and we have ensured consistency with the Investment
Plan where possible.
Indirect Costs, Pain/Gain and Corporate Overheads
The approach taken to calculate indirect costs, pain/gain and corporate overheads for cost base is the
same as that taken for the estimation of the second draft investment plan in that the underlying data set
is the same for both. The cost base indirect costs have been developed to comply with the Commission’s
guidance.
Differences from Costs Submitted in 2005
Background
When formed in 2002, Scottish Water inherited limited cost data and hence the scoping and costing of
our 2006-10 investment plan and cost base was carried out principally through a sub contract to United
Utilities. The non-infrastructure (Enhancement) programme was scoped and costed using the SWS
costing system while cost consultants Faithful & Gould assisted Scottish Water with the costing of the
infrastructure and capital maintenance programmes utilising the inherited (Legacy) cost data.
To maintain consistency of approach between the investment plan and the cost base, United Utilities
developed the non-infrastructure (Enhancement) standard costs and Scottish Water prepared the
109
remaining standard costs using inherited (Legacy) cost data using the Equi-template system. Scottish
Water took responsibility for preparing the overall submission.
Approach to 2006-2010 Investment Plan and Cost Base Pricing
Since 2006, we have developed our own Engineering Estimating System (EES).
For the purposes of costing the investment plan for the 2010-2014 period and the cost base for the
strategic review of charges for 2010, we have developed a series of construction cost equations
(algorithms) for a series of commonly used process components. A series of construction on-cost
percentages has also been calculated from the same underlying project dataset.
A Project Estimating Form (PEF) has been developed to allow the engineering work scope for each
project to be married to the appropriate construction cost equation and on-cost to generate a project
cost estimate.
To maintain consistency of approach between investment plan scoping / costing and cost base, we have
used a broadly similar approach, using the PEF to prepare the standard costs required for the draft cost
base wherever possible.
As a result, there have been fundamental differences between the approach used in 2005 and in 2009. A
significant part of the explanation for differences in standard costs between 2005 and 2009 is due to the
use of United Utilities costing data and systems in 2005 and the development and use of our own costing
system for the 2010–2014 strategic review. Since 2005 there have been significant improvements to data
capture, data quality control, data checking and development of the cost base estimates, which result in
improved confidence limits of the standard costs produced in 2009 compared with 2005.
Special Factors
We have applied no special factors to our cost base submission.
Addressing Reporter Issues
The Reporter’s report on the first draft business plan cost base submission was published in June 2008. A
schedule of Reporter issues was compiled and each one addressed in turn. This schedule was shared with
the Reporter during the audit. The Reporter also reported to the Commission on our draft cost base
submission of 9 January 2009. We made a number of changes to the cost base scoping and costing arising
from the Reporter’s reports in June 2008 and January 2009.
110
Appendix B - Strategic Framework for Asset Management
Strategic Intent
We develop asset management plans for each category of asset to ensure we make appropriate
interventions to improve and maintain the quality of our product and our level of service. These
interventions can be either operational or capital investment. Our strategic intent is to select
interventions that optimise performance, cost and risk. To achieve this, it is essential that we
understand each of these parameters and the extent to which we can exercise trade-offs between them.
This critical information is contained within a number of systems.
The base information includes: inventories; condition assessments; transactional records of work done
and costs; current performance; risks to performance; future demands and performance expectations;
and investment delivery information.
The strategic framework, outlined in Figure B.1 below, provides an overview of the information, systems
and tools we use to manage our assets to achieve our strategic intent.
New asset
uploads
Financial
Information
(Peoplesoft,
Ellipse)
Growth
model
Strategic asset
capacity
development
plan
Asset
Inventory
data
(Ellipse,
GIS)
Current asset
performance
information
(PSP, Promise,
LIMS, Ellipse,
CDR)
Asset
capability and
gap analysis
Risk
Assessment
(DTIMS)
Condition
surveys
Telemetry
and
loggers
Water
sampling
data
(LIMS)
Customer
Information
(Promise, CAS)
Corporate risk
register
Asset
Specific
Investigations
(FMEA)
Future
Legislation,
Standards &
Objectives
Management
reports
(Business
Intelligence)
Intervention
Optimisation
(SWISS)
Studies
(DAS, DOMS,
DWSP, WRP,
DTIMS)
Intervention
Delivery
(CIMS, P3e,
mPrism,
Citadon,
Ellipse)
Assess
outcome and
feedback
Costing
data
(EES)
Figure B.1: Overview of Information, systems and tools used to manage assets
The collation and management of data and information is a key component of a wider asset management
strategy that covers:
•
Risk based decision making throughout the asset life cycle;
•
Identifying ways to meet enhanced service standards through the optimum combination of
improved operational practices and capital investment;
•
Providing assurance to our customers by adhering demonstrably to best practice asset
APPENDIX B – INVENTORY AND SYSTEMS
Scottish Water: Second Draft Business Plan. Appendix B – Strategic Framework for Asset Management
management processes and systems, supported by improving confidence in our asset and
customer data;
•
Driving innovation in the development of our tools, techniques and solutions; and
111
•
Future proofing our services by ensuring that our assets can meet the challenges of climate
change, customer expectations and legislative drivers.
Our strategic framework is founded on using the best available information to manage our assets to
secure the service our customers require at the lowest whole life cost. This requires us to continue to
improve and maintain existing data and gather new data where appropriate.
This appendix sets out the information and systems we use in preparing this business plan submission and
managing our assets. We have identified the overall coverage of our asset and modelling data along with
improvements made over the past three years and our ongoing development plans that support our asset
management strategy.
Information, inventories and systems
Overview
Scottish Water’s inventories and information systems are fundamental and essential tools for providing
efficient service to customers. We invest in the enhancement and maintenance of our information,
inventories and systems so that we can:
•
maintain and enhance service to customers;
•
improve our investment planning;
•
improve our efficiency; and
•
maintain and enhance our regulatory reporting.
Scottish Water uses a number of corporate systems to underpin the management of its assets. On its
formation in 2002, Scottish Water adopted a strategy to exploit the best performing systems from its
predecessor organisations, together with a limited number of new systems that have a proven track
record in their respective disciplines. This requires a number of systems to work together using system
integration to bring information together into a format that can be used for corporate reporting, through
the use of Business Intelligence.
The principal corporate systems for managing inventories and live operational information are:
•
Ellipse (the Works and Asset Management System);
•
GIS (Geographical Information System);
•
CAS (Corporate Address Server);
•
Promise (Customer Relationship Management);
•
PeopleSoft (Financial information);
•
CDR (Corporate Data Repository – including registers for interruptions to supply and pollution
incidents);
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•
LIMS (Laboratory Information Management System); and
•
CIMS (Capital Investment Management System)
In addition, we have systems that analyse data from the corporate systems to support our optimisation of
interventions to maintain or improve service. These are discussed in Section B4 of this appendix and
include:
•
PSP (Perform Spatial Plus – the water distribution analysis tool);
•
SWISS (Scottish Water Investment Support System);
•
DTIMS (Deighton Total Infrastructure Management System); and
•
EES (Engineering Estimating System).
Our Information Improvement Programme for 2006–2010 has already enabled improvements to:
•
Customer Service – enhancing OPA measurement and root cause analysis; streamlining our
planned maintenance regime to prevent breakdowns at key sites;
•
Investment Planning – improving the identification and prioritisation of investment needs
from asset surveys and new modelling tools;
•
Efficiency - creating an Advanced Scheduling system to ensure the right person is assigned to
the right job at the right time, reducing rework; and
•
Regulatory reporting – Confidence grades have been improved in 24 of our key reported
measures.
Core Asset Information - Ellipse (Asset Inventory and Works management)
Ellipse is the Works and Asset Management System (WAMS) used to manage the inventory for assets which
are above ground and to manage all operational work undertaken on Scottish Water assets, whether
above or below ground. It groups assets, for example by Water Operational Area (WOA), Water Supply
Zone (WSZ) and District Metered Area (DMA). It is a fully integrated Enterprise Asset Management
application suite introduced in 2003 with about 600 users in Asset Management, Customer Service,
Customer Operations, Wholesale Billing, Stores and Scottish Water Solutions business teams.
The asset inventory, or Equipment Register, is one of a number of core functions of Ellipse and is at the
heart of Ellipse. It contains the master listing of all above-ground assets owned or operated by Scottish
Water and also contains the master listing of operational zone assets that are required to plan and record
against underground assets, such as water pipes, the work done including its time and cost. The assets
within the inventory are structured into a hierarchy that provides intelligent grouping and association of
related assets to enable work management and cost capture. This is also where the master asset coding
is held, providing a unique identifier that is common across all systems.
The asset inventory is structured like a tree to allow assets to be associated with their locations, zones
and regions, as well as with other assets on the same site. Within Ellipse, the term asset can mean a
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physical site, structure or a piece of equipment. Equipment is allocated to a series of higher-level
assets. This allows detailed cost capture of work to specific assets within a site.
The inventory holds information regarding the physical attributes of the assets and equipment as well as
latest information from surveys regarding condition. The capacity of almost every function (e.g. water
treatment works, sewage pumping station) is recorded but the capacity of each unit within a works has
not yet been captured universally (e.g. kW rating of every pump, capacity of every tank). We describe
our recent surveys of above-ground assets in Section B3 of this appendix.
In addition to the asset inventory, we use other core modules within the Ellipse Works Management suite:
•
Works Manager – provides users with a view of currently committed and future work;
schedules work orders and maintenance scheduled tasks (planned maintenance);
•
Maintenance Schedule – a grouping of reminder notices which identify the work that should
be performed on what equipment, how frequently and by people with which skills;
•
Stores – requisitions by field staff; stores records on usage and pricing; and
•
Work Orders – grouping of more than one task into a single Work Order to enable tracking of
all tasks associated with a single operational issue.
We have developed system integrations to enable information to be passed between Ellipse and other
corporate systems. This integration provides the means by which these other systems can benefit from
the core Ellipse data such as asset inventory, work orders and the cost of labour and materials. The
integration process protects the core data within all linked systems by ensuring that only one system
holds the master record of any inventory or schedule. This is a key strength which reduces data
duplication and therefore allows data cleansing activities to focus on value add improvements rather
than those related to keeping systems synchronised.
Figure B.2 is a diagrammatic representation of the major integrations.
GIS
Peoplesoft
CDR
Promise
Ellipse
PSP
CAS
Asset Inventory
Open Enterprise
Works Management
Mobile field
systems (IMS)
LIMS
Business Reporting
Figure B.2: Key systems integrations with Ellipse
Core Asset Information - GIS (Below ground Asset Inventory)
The Geographical Information System (GIS) is used to manage the inventory for assets which are below
ground; it is the spatial tool for location of assets. GIS shows the location of these assets against
Ordnance Survey digital map backgrounds so that assets can be viewed spatially and located by field
staff. In addition to the spatial location of each asset, textual information about these assets is recorded
e.g. material, size, depth, age and condition grade.
For water supply assets, the relationship from raw water resource zones through to the area served by a
water treatment works (Water Operational Area) is defined, which is then broken down further into sub
areas supplied from treated water storage assets (Water Supply Zones) and then onto District Metered
Areas (DMAs) for leakage management. Similar relationships are in place between wastewater assets,
linking assets that are within the same drainage areas and catchments.
These zones are important in describing how the water and wastewater networks operate and give
invaluable information for network management, financial reporting and managing emergency incidents,
an activity for which GIS is used heavily. GIS is the corporate home for displaying all spatial data, not
just asset data. For example, Scottish Water has a requirement to know about various environmentally
protected areas which are, in effect, drawn onto the GIS map to enable Scottish Water easily to identify
these areas.
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We put new procedures in place in 2006 to assess all GIS updates to keep the GIS data in step with Q&SIII
water and wastewater rehabilitation schemes. The procedure involves sampling a number of schemes to
check compliance with guidance notes (which describe how such schemes are to be reflected on the GIS)
and make a comparison with the “as-built” plan. Any discrepancies are communicated back to the GIS
operators to ensure resolution and to identify where re-training may be required. In addition improved
quality assurance ensures that all operational status changes to non-infrastructure assets are flagged in
GIS to ensure that the appropriate changes are made to the connected infrastructure assets. The time
taken to make these assessments is monitored to ensure sizable backlogs do not occur.
GIS also has the capability to display information held in other corporate systems that have some form of
spatial reference (e.g. structured address, National Grid Reference). For example, GIS shows live
customer contacts from Promise. During incidents, this functionality enables a spatial representation of
calls coming in to the contact centre. GIS has links to Promise, Ellipse, LIMS (Labware), Corporate
Address Server (CAS) and to certain Business Intelligence environments. There are currently 75 users of
GIS who have write access and approximately 800 read only users.
Corporate Address Server (CAS)
The Corporate Address Server (CAS) is the inventory for postal addresses which are sourced from the
Ordnance Survey. CAS is linked to many other Scottish Water corporate systems (e.g. Promise, Ellipse,
LIMS) enabling consistent address information. This is critical to allow us to relate customer and
premises information consistently to our assets when analysing performance trends and assessing future
risk to service.
Promise - Customer Relationship Information
Promise is the Scottish Water customer relationship management (CRM) system. This is an Oracle
product which has been in use since 2002. It consists of three main components:
•
Oracle TeleService - automates contact centre work processes and gives the contact centre
agent a single view of customer contact history;
•
Oracle Field Service - enables contact centre agents to schedule work for field agents; and
•
Oracle Mobile Field Service - enables field personnel to connect to the customer
management system remotely via Promise laptops, obtain work instructions which have been
scheduled for them and to submit progress on job completion from the field.
Promise allows customer contacts to be grouped into categories known as service requests (SR) e.g.
water rising, odour complaint. These SR types are used by contact centre agents to record why a
customer has contacted Scottish Water, helping us to analyse serviceability trends. The information from
the customer contact is used by the field agent to undertake an assessment of the problem and to enable
him or her to fix it or to arrange for follow-on work to be done.
Promise information is important when assessing both operational and asset performance. We can
analyse volumes and locations of customer contacts to assess where assets are failing and where
investigations, capital investment or operational intervention is required.
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Promise has approximately 600 users of whom about 300 are mobile field users.
Financial Information - PeopleSoft
PeopleSoft is an Oracle Enterprise Financials System and is used by Scottish Water to manage and report
on all financial information. This includes the management of all costing information relating to assets
and therefore this is a key corporate system integrating with the Asset Management systems. PeopleSoft
contains both a General Ledger and a Projects Ledger, the former being where all financial information,
including all costs, is held. Direct operating costs are structured within a department and product coding
hierarchy which is based on a relationship to Ellipse function and stage details for operational assets.
PeopleSoft Projects Ledger provides sub-analysis, below the General Ledger, of direct operating costs by
project and job (work order) which can also be related to lower-level operational assets. The Projects
Ledger also captures all capital project financial transactions by individual project.
This information is used to determine the whole life costs of the assets and assess the appropriate timing
of either operational or capital interventions.
CDR – Corporate Date Repository - Serviceability Information
We developed the Corporate Data Repository (CDR) as part of our 2006 – 2010 Information Improvement
Programme. It allows us to manage data which does not naturally fit other corporate systems. We
develop CDR applications (using Oracle technology) to enable users to enter and maintain data which is
then accessible from data universes from which corporate reporting can be run. CDR applications which
exist currently are Interruptions to Supply, Low Pressure Register, Flooding Register, CSO Register,
Environmental Pollution Incidents, Drinking Water Quality events notification and Licensed Provider
notification (for retail market operation).
Interruptions to Supply (ITS)
The ITS corporate application within the CDR holds data on planned and unplanned interruptions to
supply effected by Scottish Water, Scottish Water Contracting and external contractors, working on our
behalf. Figure B.3 below shows the type of data held, including mains sizes, interruption type, dates and
times water was off, and who carried out the job.
There is a link from the handheld devices used by field staff which feeds the data into the application.
There is also a link to Ellipse to check for planned interruption data which is pulled into the application
to pre-populate fields.
Network operators and burst squads complete the form on their handheld devices and this information is
then fed straight into the application. If this is not possible, a paper form is completed and passed to
the local administration office for manual input to the system. This data is input manually for work
carried out by Scottish Water Contracting and external contractors. The local administration team
monitors and reviews the interruptions in its own area. If the number of properties affected in any one
incident reaches 100, the Regional Manager is advised immediately.
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Figure B.3: Example of data held for interruptions to supply
An exception page is available highlighting where an entry from a handheld device has been rejected and
these are checked and amended regularly, where necessary. Once a record has been closed it can only
be re-opened by the super-user backed up by a numbered change request form. A register of forms,
detailing changes requested, is held centrally.
The interruption to supply information is used when undertaking our network risk assessment to identify
zones that may require asset replacement or reinforcement to protect future service to our customers.
Low pressure
An interim low pressure register was established rapidly during 2006 and commissioned in February 2007
as a tactical application to ensure that we could report properties by address. A new low pressure
strategic corporate application has now been commissioned which replaces the tactical application. The
improved processes associated with the new corporate application will enable further improvements in
the recording, investigation and resolution of contacts received from customers as well as a greater
understanding of low pressure problems. The corporate application also builds on the integration of key
data facilitating one version of the truth and improved reporting. This will improve the visibility and
management of poor water pressure complaints.
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Figure B.4: Low pressure strategic corporate register
The location of every property on the register is recorded so that it can be placed geographically. The
system can generate reports for regulatory returns and for internal management of the low pressure
process and resources.
We continue to work to improve the processes and systems for recording, managing, resolving and
reporting low pressure.
The low pressure register is used to target investment and operational improvements to reduce the
number of properties with low pressure.
Flooding register
We maintain our flooding register using a corporate tactical application which we implemented in 2005.
This has enabled us to improve our recording of flooding incident data and associated information, such
as the provision of temporary mitigation measures, and the undertaking of flood alleviation schemes. It
also allows recording of reasons for any changes to information contained in the register thereby
providing an audit trail.
An additional benefit of this system development is that read-only access has been provided throughout
Scottish Water for all those interested in sewer flooding, giving them an improved and wider knowledge
of flooding.
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Figure B.5: Example of a flooding register record
The introduction of the application has also facilitated a controlled method of changes to information
contained in the register and better recording of the reasons for these changes. Additions, removals or
changes to the register are reviewed and undertaken by a single user, the Flooding Register Manager.
During 2006, we initiated a review of the flooding register to improve confidence in its accuracy. This
review consisted of the collation and assessment of flooding information including:
•
Customer surveys;
•
Drainage area studies;
•
Historic data sources;
•
Customer contact records; and
•
Miscellaneous information e.g. third-party flooding reports, media articles.
This review has resulted in a better understanding of the causes and impact of flooding across Scotland
and, as a result, there has been a significant reduction in the number of locations recorded as being at
risk.
During 2007, we introduced a new process for the investigation and recording of flooding incidents as
part of an integrated flood management action plan. This process involves three checkpoint stages to
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facilitate improved quality control over updates made to the register. By early 2008 this had shown an
improvement in the investigation and recording of flooding incidents and production of supporting
documentation.
The register provides us with a single source of information that informs our planning for investment and
operational interventions. We prioritise investment by modelling its effects on the network and thereby
identify the number of properties that will be removed from the register by any proposed investment.
CSO register
The Combined Sewer Outfall (CSO) register is another corporate tactical application which holds the
intermittent discharge (ID) data. The system links to the corporate asset inventory held in Ellipse, which
in turn links to Scottish Water’s Geographical Information System (GIS). Ellipse provides a unique
identifier, location and status for each intermittent discharge and the CSO application provides detailed
information on performance, size, discharge point, receiving waterbody, etc. The quality and quantity
of the data is continually being improved by Drainage Area Studies (DAS), Operations and strategic
planner knowledge and information from the unsatisfactory intermittent discharge (UID) capital
programme. New information and changes to the UID programme, resulting from the investigation work,
are fed back into the CSO application continuously to maintain the accuracy of the records.
Figure B.6 below shows an example of an entry in the CSO register.
Figure B.6: Example of a combined sewer outfall (CSO) record
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Drinking Water Quality Sampling – LIMS
Our Laboratory Information Management System (LIMS) is used to provide information on all analytical
work carried out in our laboratories. This includes the quality of drinking water at treatment works,
service reservoirs and at customers’ taps. The analysis of both regulatory and operational sample data
allows us to monitor asset performance to identify any deterioration trends and make either operational
or capital interventions to prevent failure to meet required standards.
Furthermore, LIMS provides information on operational wastewater analyses carried out to augment the
regulatory sampling and analysis information provided by SEPA.
Business Intelligence (BI)
Our strategy of adopting a series of different corporate systems requires us to have very effective system
integrations to allow information to be brought together into a format that can be used for corporate
reporting.
Business Intelligence is the term used to describe this warehousing of data from all our corporate systems
which allows us to use the various information streams. This technology has been used in two principal
ways:
•
to create system specific reporting environments or Operational Data Stores against which
business reports are created and shared; and
•
in the creation of reporting environments or warehouses that allow analysis and reporting
across different systems. This depends on common keys across corporate systems in Scottish
Water e.g. equipment number, which has been consistently applied to systems where
integrations have been built. This not only enables systems to communicate with each other
but also provides the crucial link needed to make Business Intelligence a reality.
Corporate Reporting
Our strategy has been to build a comprehensive reporting service to maximise the benefits from existing
data and minimise offline reporting. As a platform to enable users to view data seamlessly from multiple
systems, a corporate Business Reporting Centre (BRC) has been developed to exploit our Business
Intelligence and the huge volume of data contained therein. The BRC is a central repository for reporting
non-financial corporate information and represents the vision of “one view of the truth”. This repository
is held in a shared area enabling all Scottish Water staff easy access through a read-only view to
corporate data.
Figure B.7: Business Reporting Centre (Phase 1)
All reports are based on information, from auditable processes, held in corporate systems. The report
specifications and reports have been signed by the relevant key stakeholders. These reports are the
“Corporate view of the truth” and are run to tie in with corporate reporting timetables. They are held as
.pdf reports to avoid any unauthorised changes.
There are currently about 200 reports published within the reporting centre; more are being added
regularly. These are used for purposes such as regulatory returns, leakage management, OPA, KPI
reporting, thus showing an increased confidence in our data.
Inventory management – investigations, surveys and audits
Origination and quality of asset inventories
Our asset inventory – both non-infrastructure (above ground) and infrastructure (below ground) - was
created initially by data transfer from the three former Scottish water authorities. The information held
in GIS on infrastructure assets originated even earlier, in the paper records held by the former regional
councils. These were digitised and entered into the GIS products used by the three water authorities.
Completeness of these drawings was generally good but differing levels of effort were made by the
former water authorities to track down missing records and different quality assurance regimes were in
place. Since then, gaps have been filled as part of our routine activities and through specific projects in
the 2006–2010 period and as part of our DOMS investigations programme and through data returns from
field operations such as burst repairs.
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GIS holds condition and performance information about all potable water mains (including trunk mains)
and sewer gravity pipes and rising mains. The information about the infrastructure associated with the
transmission of treated water is good. In contrast, we know that there are gaps in the information about
the sewer infrastructure and raw water networks and we have projects planned to improve the
completeness of data for these two cases. As the details for most infrastructure assets were taken from
paper record drawings, not all lengths of main have all of the key attributes that we would wish; the key
attributes on the water supply network are material type, diameter and age. To reduce the number of
unset values, values for these key attributes have been inferred from connected mains. Where this has
not been possible and house age data is available, this information has also been used to in-fill estimated
age on the mains. Given the extent of these assets, opportunistically obtaining values for the missing
fields when they are excavated or otherwise surveyed would take hundreds of years to yield a complete
dataset. Therefore, infilling using inferred values offers a cost-effective way of providing key values at a
reasonable confidence grade.
During the 2006-2010 period, we have been making significant efforts, as part of our Information
Improvement Programme, to locate historic network records to ensure that they are stored safely and to
compare them against the digital data within GIS. Thousands of paper records have been found through
this investment. All “as-built” rehabilitation drawings from the Q&SII period were checked against GIS
and modifications to GIS were made as necessary.
Asset surveys
During 2007, we completed a programme of over 5,000 site surveys at unit level. These surveys have
provided us with easily accessible information about each site, including photos, videos and sketches
provided by the surveyors, which enables us to resolve many uncertainties about the capacity,
configuration or condition of assets. The surveys have provided or confirmed condition and performance
grades on all the units that could be accessed readily during the site visits.
Table B.1 below presents the number of Scottish Water operational functions that have been surveyed.
Function Type
GWS
RWP
SDN
SPS
STC
STW
TWP
TWS
WTW
Ground
water
source
Raw
water
pumping
Secondary
disinfection
Sewage
pumping
station
Sludge
treatment
centre
Sewage
treatment
works
Treated
water
pumping
Treated
water
storage
Water
treatment
works
Surveyed
in 2005/06
13
11
0
66
0
88
38
12
210
Surveyed
in 2007
66
48
179
1,736
21
812
438
1,437
71
Total
surveyed
79
59
179
1,802
21
900
476
1,449
281
Total in
inventory
at 31-Mar2008
80
72
218
1,886
22
1,966
502
1,446
299
Table B.1:
Scottish Water surveyed operational functions (2007)
We gathered information about each unit at each works, including:
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•
Unit type or description;
•
Number of each Unit;
•
Unit Tag Number(s);
•
Operational status;
•
Year of construction or installation;
•
Year of decommissioning (if appropriate);
•
Date of last major refurbishment and extent of refurbishment;
•
Condition and Performance grade (Buildings and Civil);
•
Condition and Performance grade (Electrical & Mechanical);
•
Reason for condition grades;
•
Reason for performance grades;
•
Confidence grades – (e.g. whether information was directly surveyed (A1) or advised by a
knowledgeable local operator (C2));
•
Operational observations; and
•
Health and safety observations.
In addition, we gathered evidence to support and validate the findings of the surveys and included video
recording and photographs of the following:
•
Location / Function entrance;
•
Panoramic views of the complete location;
•
A photograph or video sequence depicting each process stage;
•
Photographs that support the description of specific defects or grade assessments; and
•
Photographs highlighting Health & Safety concerns.
Asset surveys comprised a visual inspection of the assets only; no equipment was opened, altered or
interfered with in any way and confined spaces were not entered (for Health and Safety reasons). The
following units were omitted from the survey:
•
washwater and service water pumps;
•
re-circulation pumps at biofilters; and
•
lifting equipment.
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The surveys did not capture information below unit level (e.g. information about individual pieces of
equipment, such as pump motors, valves or actuators).
Nonetheless, our inventory now holds over 80% of the condition and performance grades for building and
civil engineering structures, and over 75% of the condition and performance grades for electrical and
mechanical units.
Inventory maintenance
The non-infrastructure (above ground) asset inventory is constantly being updated to reflect new assets
and modifications to existing plant. Our routine processes have been fine-tuned to ensure that we
receive updates reflecting changes to the asset base, using the asset data return process. We have a
dedicated helpline to enable data requests to be received, managed and recorded in accordance with
SLAs. The SLAs ensure that the team responsible for uploading data changes into Ellipse (using the asset
data return process) tracks and reports on the status of data requests effectively and efficiently.
All of these improvements have resulted in much greater confidence in data among the data owners and
provides an excellent foundation for continuing to improve confidence in Scottish Water inventory data.
Distribution zone studies
Our approach to undertaking Distribution Zone Studies, which we refer to as DOMS investigations, is
summarised in Figure B.8 below:
Water Network Investment Prioritisation
Distribution Operation and Maintenance Strategy (DOMs)
Process
Level 1
Prioritisation
•
•
WOA
Performance
history.
Investigation List
Prioritise Need
Level 2a
Desktop
Investigation
•
•
Performance
history trends
Preliminary
intervention
programme.
Investigate Need
Level 2b
Detailed
Investigation
Network
Interventions
Level 3
Investigation
•
Field Work
•
Capex
•
Determine full
range of
interventions.
•
Opex
•
Data
•
Forward-looking
analysis.
•
Asset Planners and Operations are
involved throughout the DOMs
Investigation Process
•
Asset Planners raise “hotspots” that are
subject to review
•
Investigation process identifies cost
effective interventions that help control
serviceability indicators
•
Simple scoring and engineering
judgement used to evaluate priorities wrt
to serviceability indicators
Confirm and Cost Need
Intervention
•
Post Scheme and
On-going
Assessment.
Appraisal
Figure B.8: Overview of DOMS process
Our programme for completing DOMS investigations has been prioritised based on a review of corporate
data. We use condition and performance datasets to rank all zones across Scotland and this ranking is
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updated every two years. We then proceed to the Level 2a (desk-top) and Level 2b (site-based
investigation) to confirm the need for an intervention and an assessment of the likely intervention. Due
to the time taken to undertake such investigations across all zones, we focus our analysis to concentrate
on the main performance issues within the zone. For example, in some zones with no structural issues
but with water quality problems, our investigation is primarily a water quality assessment, although we
will also take pipe samples to confirm the condition of the assets within the zone.
The current coverage of DOMS investigations is shown in Annex 2 and is summarised in Figure B.9 below.
WOA Investigations
Hotspot Assessments w ithin WOA
(213)
Abbreviated DOMS Investigations Complete (106)
Full DOMS Investigation Complete
(19)
Full DOMS Investigation Underw ay
(29)
Figure B.9: DOMS investigation coverage
Table B.2 below summarises current distribution zone study activity and planned future workload,
relating to both maintenance and enhancement plans.
2006-10 Activity
2010-14 Activity
Forecast
Complete
March 2009
Ongoing
Desktop
maintenance
planned
Fieldwork
development
planned
Number of Zonal Plans
125
29
130
24
Population covered
62%
36%
90%
7%
26,973km
16,202km
39,029km
3,976km
Network Length
Table B.2: Water distribution studies programme
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In the 2006-10 period we forecast to have completed 154 DOMS investigations at Water Operational Zone
Level undergoing pipe sampling, pressure logging and water quality sampling. In addition to this, we
forecast to have completed 38 water quality focussed investigations at Regulatory Supply Zone level.
In the 2010-14 period we plan to undertake maintenance of 130 existing studies through desktop analysis
using information from our corporate systems. We plan to undertake desktop and fieldwork investigation
for 24 WOAs. In addition, we have investigated water quality performance in 84 regulatory supply zones
as part of the DW5 Start Early programme and plan to complete an additional 119 water quality focussed
investigations during the 2010-14 period.
Beyond 2014 we expect to continue with maintenance of existing studies using desktop analysis and
limited fieldwork if required. We have also assumed that we will require to undertake further studies.
Drainage Area Studies
Overview
Drainage Area Studies (DAS), promoted by Scottish Water, are carried out to the DAS Quality Systems
2007 specification based on ‘Sewer Rehabilitation Manual, Volume I’ (WRc, 2001), an industry standard
document. These studies require a high level of investment, in both time and money, to attain a good
level of coverage and detail.
Before incorporating any changes to models, the studies are subject to an initial audit to assess if they
are fit for purpose. If the study passes the audit, its contents will be used and any updates incorporated
into the models. If the study fails, any deficiencies are assessed in order to make a decision on whether
the study should be used.
Governance
A DAS working group has been set up comprising representatives from Scottish Water and a number of
external consultants involved in the DAS programme. The terms of reference for this group include
monitoring of, and reporting on, the implementation of all the drainage area study work and to suggest
any improvements to the specification.
A second group, the Waste Water Modelling Steering Group comprising key Scottish Water stakeholders,
has also been set up to ensure a holistic approach to future wastewater studies.
Through improved maintenance and management of these assets, we will provide network models,
reports and associated data which can be used with a high level of confidence. This will then provide a
strategic overview of the needs of a network along with a programme of work to be carried out offering a
further opportunity to improve programming efficiencies and reduce overall costs.
Coverage
At April 2006, we had 188 completed DAS which covered 69% of the connected population.
The population covered and the study area status can be seen in Table B.3 below. During the 2006-10
period, we commissioned 12 new studies and updated 29 existing studies. That will provide a total 200
DAS by March 2010 covering 87.8% of the connected population. We plan to complete a further 2 new
DAS during 2010-14 and to maintain 74 of the existing DAS, providing total coverage of 88.8% in 2014.
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71.9% of the population will be covered by DAS that do not require maintenance in 2014.
Drainage Area Study Programme
March 2006
Complete
Complete
no
maintenance
required
maintenance
required
Number
of plans
159
29
Population
covered
81.3%
4.5%
March 2010
New
study
Complete
Complete
no
maintenance
required
maintenance
required
12
126
74
2%
71.5%
16.3%
March 2014
New
study
Complet
Complete
no
maintenance
required
maintenance
required
2
101
101
1%
71.9%
16.9%
Table B.3: DAS coverage
A review of all DAS completed to-date is planned; this review will examine the current models and
reports and compare them with changes that have occurred in the catchment since the study completion
including changes in operational regimes, new legislative drivers as well as changes within the network.
The output of the review will be costed with recommendations to bring the current stock of drainage
area studies up to date.
Planning asset interventions
Investment prioritisation
Monitoring performance trends shows us where we can safely extend replacement cycles (and where we
must not) and helps us to control capital maintenance costs and maintain service standards.
The Capital Maintenance Plan is a dynamic output of the process which defines these replacement cycles
within a broader business management framework. The basic premise of this plan is to identify service
maintenance needs and to optimise intervention strategies to maintain service.
The plan covers all competing demands for Capital Maintenance Investment including support services.
The business cases for each service area are robustly challenged. Senior Management decides on the
balance of investment across all service areas supported by the Scottish Water Investment Support
System (SWISS), a tool for investment optimisation based primarily on risks to service9.
All competing needs for investment are entered into the SWISS system. This scores the risk of a service
failing by combining how likely this is with the consequence that this would have to the customer. The
SWISS process combines individual competing needs into coherent sub-programmes of projects which can
then be balanced to provide the optimal results in terms of costs and performance.
The sections below detail our investment planning methodologies and how we are continuing to improve
our practice for each service area.
9
The SWISS optimisation process is an evolution of Scottish Water’s previous SWARM approach with improved links to other
information systems and coverage extended to all competing capital maintenance demands.
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Water Infrastructure (Water Mains, Water Meters, Dams, Water Intakes and
Aqueducts)
The need for investment in Water Infrastructure is identified predominantly through system by system
investigations associated with our Distribution Operation and Maintenance Strategy (DOMS)10, as shown in
Figure b.8 above. This approach not only targets investment but also controls how we operate a calm
water network, given that steady-state operation provides the best levels of service. Our water
infrastructure management systems include Perform Spatial Plus, Strumap and Infoworks and are used to
identify areas for investigation to improve performance.
We use the existing DOMS to support the intervention model on water infrastructure. This allows us to
identify the required water infrastructure investment and ensures the consideration of all available data
and asset information at the correct point in any investigation, thus driving timely interventions in areas
of the network. The staged output from the level 2b detailed study produces Capex 1 forms for one or
more interventions. Once the on-site actions are completed, a post-renovation assessment (Level 3) will
be implemented and then reviewed periodically to monitor the success of any intervention. DOMS
studies and any associated work are fundamental in terms of identifying capital maintenance investment.
Water Distribution Performance Analysis - Perform Spatial Plus
Perform Spatial Plus (PSP) is our Integrated Network Management water distribution analysis tool. This
system uses asset data from the principal corporate systems concerning the number, type, location and
the classification of properties. It is principally used for leakage management and serviceability
performance of assets. PSP is an Oracle-based product.
PSP enables us to create bespoke performance reports based upon asset information and hydraulic data.
The software standardises and records supply and distribution asset structures enabling us to create
industry standard performance reports and to prioritise investment. Combined with the Strumap spatial
data engine, PSP integrates with systems such as GIS, Telemetry, Billing, Promise, Laboratory
Information (LIMS) and Ellipse to provide an integrated view. Remote datasets can be updated using
Oracle’s inbuilt replication functionality.
The benefits of PSP include:
•
integration of asset and hydraulic data - service failures can be overlaid with current and
historic hydraulic data (including leakage) and cost of delivery information;
•
dynamic performance data analysis and validation – enables automated data imports from
logger or telemetry interfaces; standardises and validates data format;
•
leakage reporting, including Economic Leakage targets, producing industry standard reports
on levels of leakage and bursts;
•
leakage modelling – enables production of reports on leakage profiles for individual areas,
providing analysis and understanding of the cost of water; tracks, forecasts and allows
10
130
Scottish Water’s implementation of the DOMS framework has been independently reviewed under an audit run jointly by the DWQR
and DWI. The 2005 audit confirmed Scottish Water to be in the top three of UK companies and the further audit of 2006 confirmed
our advanced position amongst our peers.
setting of realistic targets for leakage that can be achieved through pressure management,
leakage reduction, customer education, metering and grey water strategies; and
•
Key Performance Indicators - collection and evaluation of information for specific KPIs and
data for regulatory reporting.
Investigations that identify investment needs are managed by our team of planners. The DOMS screening
investigations (Level 1) proceed area by area across the whole country to examine all aspects of network
performance relating to serviceability using PSP. This is used to identify areas of the network that are
performing poorly and affecting the customer. PSP visually displays water network assets and associated
performance information such as bursts, customer contacts, leakage levels and water quality data.
Other systems such as the low pressure register and interruptions to supply data are used in a coherent
approach to target problem areas of our network through our Integrated Network Management Systems
(INMS).
Figure B.10: Example PSP screenshot showing locations of reported bursts
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Figure B.11: Time series data: data transferred and integrated from Scottish Water Telemetry and
Logger packages
The objective of the Level 1 investigation is to provide a prioritised list to be taken forward for site by
site (Level 2) investigations.
During the Level 2 investigation, the use of PSP is key to the identification of the problem and of the
potential solutions. An initial scoping study and cost/benefit analysis (Level 2a) generally produces a
number of obvious projects which can be taken forward directly. However, for some locations, field
work such as pipe testing may be required to confirm the problem, hydraulic modelling may be necessary
to assess broader system impacts, or a number of possible solutions may merit consideration (e.g.
replace a main, line it or swab it). In such instances this requires a more detailed (Level 2b) study.
The Level 2 assessments identify clear business cases for investment or operational interventions that are
then assessed against other competing needs. Where these qualify as business priorities they are taken
forward either as projects for feasibility, design and construction or within operational plans. The
business priority of the project is reconfirmed at each major stage in the project’s delivery.
Once completed, the post-renovation assessments (Level 3) will be reviewed periodically to monitor the
success of our overall processes.
We also identify investment in our water infrastructure through other processes tailored to address the
asset types concerned, such as our dams, critical mains, aqueducts and water meters. However, each
tailored process serves only to establish the case for investment which is considered consistently against
all other priorities.
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Water balance and leakage management tools
Our leakage reduction programme is one of our top priorities and is being progressed separately from the
DOMS driven work described above. We have established the basic network setup and other tools which
will allow us to achieve our leakage targets through Active Leakage Control (ALC).
The work to date is primarily the construction of District Meter Areas (DMAs), each serving an average of
around 1,000 properties, with flow measurement to cover more than 94% of properties supplied by
Scottish Water. Additional work includes ensuring that existing meters are fit for purpose and
implementation of a pressure management programme. With the basic network structure established,
we now use PSP to monitor and report leakage performance across Scotland. This also allows our ALC
programme to target key areas and monitor the volumes of water consumed by our customers.
The accuracy and auditability of the Top-Down Water Balance calculation has been improved as part of
the Information Improvement Programme. The data gathering processes and systems management has
been improved which has resulted in a better understanding of water usage and leakage.
There are a number of components comprising the Top-Down Water Balance monitoring and reporting.
There are formal processes and procedures in place for the sourcing of the data required for the
calculation of each component of the Water Balance. The data sets are held in databases and
spreadsheets which enable speedy processing and production of information in the required formats.
Where possible, the data is sourced from the Scottish Water Business Reporting Centre; all reports held
here are based on information from auditable processes held in corporate systems and report
specifications that have been signed by the relevant process owners.
Water Service –Non-Infrastructure (Water Treatment Works, Pumping Stations,
Service Reservoirs and Secondary Disinfection)
During 2006-10 we are investing to enhance assets to improve water quality. This has skewed our capital
maintenance investment at the sites that are being enhanced because we must ensure the existing
apparatus is fully functional to realise the benefits from the enhancement. Moreover, it is efficient to
perform maintenance investment at the same time as enhancement investment to minimise the
overheads of site projects.
As we move into the 2010-14 period this pattern is changing. Our attention will shift to maintaining our
higher specification of assets delivered through the substantial enhancement programme and to the
needs in other areas of our asset base.
Our current planning processes are led by our network of area asset planners who are based within each
of our operational areas. They have the responsibility of being the asset owners responsible for applying
our overarching approach from initial need identification through sponsoring of investment projects to
the acceptance of the completed project.
The processes involve a series of risk assessment workshops following the Failure Mode Effect Analysis
process. This was formerly maintained by our asset planners on our Scottish Water Asset Risk
Management (SWARM) system. This has now been extended in functionality and coverage through our
new Scottish Water Investment Support System (SWISS).
133
Our area asset planners are responsible for maintaining an up to date risk profile of the water treatment
works, pumping stations, service reservoirs and other major assets in their area. They assess the
likelihood of each major item of equipment failing and the impact that this would have (primarily on our
service).
Our central team screens candidate sites based primarily on the risk assessments from our area asset
planners. In addition it takes an overview of the programme which looks beyond the regional or area
boundaries that are managed by the asset planners, including:
•
Consideration of investment needs identified through our new Water Safety Plans. This is
the new best practice standard spearheaded by the World Health Organisation and supported
by DWQR. These plans fully consider the risks of contamination to the water supply from
“source to tap” and put in place mitigation measures to reduce these risks. Investment is
only one such measure. By 2010 we will have over 50% of our population covered by these
water safety plans with 100% coverage by 2014;
•
Items that are most efficiently addressed as rolling programmes of specialist work covering
multiple sites. Such programmes include the phased replacement of units in our membrane
filtered Water Treatment Works; and
•
Sites being considered for strategic rationalisation. We continue to review opportunities for
more efficiently supplying our customer base from a smaller number of sites. Accurate
information to quantify future maintenance needs is a necessary input to such strategic
reviews and where we decide to rationalise this will affect our maintenance investment
decisions.
Finally our central team reviews the initial priorities with a consideration of performance, sites incurring
high levels of reactive maintenance and sites containing critical assets.
The list of sites identified by our screening is then subject to detailed scoping by experienced engineers.
Performance cost and other data for the site is collated and (in most cases) a site inspection is
undertaken. A site scoping report is then used to update the area asset planner’s preliminary assessment
for each item of equipment considered on each site. The confirmed priorities from this process can then
be coherently promoted for feasibility and design work using the information within the scoping report.
This information is then input into our investment decision support tool SWISS that allows us to optimise
the required suite of interventions to deliver our objectives for the most efficient cost.
Wastewater Infrastructure (Sewers, Pumping Mains, Overflows and Outfalls)
To help us to minimise flooding from sewers, our monitoring shows us both where this occurs and the
main cause of the flooding. Whilst we seek to reduce all sewer related flooding over time, we prioritise
internal flooding of customers’ properties above other flooding. In our planning, we distinguish between
flooding caused by excessive rainfall (hydraulic flooding) and that caused because a sewer is blocked by
debris, such as tree roots, or a collapse (together known as ‘flooding other causes’).
Pollution incidents affecting the environment can arise in the event of failure of our pumping mains or
equipment at our sewer overflows.
134
There are two main channels
through which our current
investment planning on
sewers is initiated. Firstly,
areas susceptible to sewer
blockages are primarily
initiated through plotting of
patterns of flooding
incidents (the Internal
Flooding Other Causes or
IFOC process).
Figure B.12: Aerial plot of incidents
Secondly, structured analysis of our operators’ experience is used to screen areas (Hotspots) susceptible
to service problems including flooding from excessive rainfall, infiltration and blockages. In each
instance this only initiates the process which then leads on to a structured programme of prioritisation,
investigation, analysis and execution of projects together with a follow up to ensure that we have
achieved what we were intending.
Flooding due to blockages is
normally associated with
smaller diameter sewers11.
We keep careful records of
all our customer contacts
and how we have responded
to any immediate problems.
This gives us an accurate
database of the location of
flooding incidents and
whether they caused
internal or external flooding.
Figure B.13: Sewer record extract
We analyse these sewer flooding records by postcode area to identify clusters of problems. These are
then prioritised through point scoring systems that reflect both the numbers of properties affected and
whether the flooding was inside properties or in gardens etc. This screening process identifies the
priority areas which are then subject to more detailed investigation.
11
Scottish Water has the responsibility for the small “lateral” sewer connections to customers’ properties which sewerage companies
in England and Wales do not.
135
Teams of specialists investigate each priority area using CCTV cameras mounted on small
wheeled vehicles that can enter our sewers. These identify the nature of any problems in
each area and the most cost effective solutions12 to these problems. This enables us to
compare costed solutions against the issues in each area and thus allows us to target our
investment efficiently. The images below give an impression of a typical problem discovered
in sewers; the image on the left shows a sewer that is over 80% blocked by roots, the image
on the right shows the pipework after it has been re-lined to resolve the problem.
Figure B.14: Sewer survey images
After the targeted solutions have been implemented, records are updated and periodic monitoring
assesses the success rate of the process.
Our Internal Flooding Other Causes (IFOC) management process is effective at identifying patterns in our
customer contact data for significant numbers of similar problems (where we are almost always called to
clear chokes). However, initial screening based on our data is less effective for issues where our
customers are less likely to call us, which are more mixed in nature or where we protect customers by
proactive operational management. To address this, our Hotspot process utilises the knowledge of our
operators initially to screen problem areas for which we can then develop consistent cases for
investment based on our data.
Our Hotspot process proceeds though the main stages as follows:
•
Operational staff are invited to submit their priority areas causing hotspots of service
problems at routine liaison meetings with our planning staff;
•
Our planning staff then examine each candidate hotspot including a review of customer
contacts (telephone contacts, customer letters, MSP contacts), our computer based (GIS)
records of our sewer network, our computer (drainage area study) models of how our
networks operate, any ongoing IFOC studies together with reports of pollution incidents.
This identifies the sewers where further investigation is required;
•
The sewers identified are then subjected to a camera survey to determine the likely cause
of the problems and thus the best ways to address these problems are identified. The small
136
12
This may include replacement, relining, cleaning or simply advising customers to stop flushing inappropriate items down their
toilets.
feeder sewers (laterals) are also investigated subject to approval being given by the land
owner;
•
The service risks together with the costs of addressing these are thus clearly identified and
are then reviewed against other business priorities; and
•
Priority projects are then progressed through feasibility, design and construction. These are
reconfirmed as remaining in the priority ranking at key approvals stages using our SWISS
decision support tool.
In addition to our IFOC and Hotspots processes, we also identify investment through other channels. For
example, there are tailored processes to address infiltration of fresh or salt water into our sewers, to
maintain the integrity of our critical sewers (that pass under critical infrastructure such as major roads or
railways) and to maintain our computer models that assist us in the management of our network.
However, each tailored process only serves to establish the case for investment which is considered
against all other priorities on a consistent basis.
Wastewater Non–Infrastructure (Wastewater Treatment Works, Sludge Treatment and
Wastewater Pumping Stations)
Our current planning processes systematically identify where our investment can be best targeted at
delivering the best service. This proceeds through clear stages so that once we commit to construction
contracts we are confident that this is focussed on efficient delivery of our service priorities.
Our wastewater treatment works are screened through a weighted scoring process. This scoring takes
account of:
•
the asset performance records against discharge consent standards;
•
the risk of failing to meet the standards set with SEPA on the quality of the treated
wastewater we discharge back to the environment;
•
sites where there is a significant amount of equipment in poorer condition (based on
condition grades in our asset inventory, regularly updated through asset surveys and asset
planner / operator feedback);
•
sites where we are incurring significant costs reacting to equipment failures;
•
the risks logged by our staff who manage the assets involved (based on our SWARM/SWISS
system); and
•
our assets which are identified as critical and where failure would have the highest impact.
Our wastewater pumping stations are screened similarly to treatment works but the risks of pollution
incidents or flooding replaces the discharge quality risk.
The sites identified by our screening are then subject to detailed scoping by experienced engineers. This
generally involves a site inspection together with a collation of the performance, cost and other data
associated with the site. This is drawn together in a site scoping report which serves two purposes.
137
Firstly, it provides (for each item of equipment) a clear basis for assessing priorities based on the service
risk and cost of refurbishment. Secondly, the report provides the key information required to initiate
feasibility and detailed design work for the items of equipment that pass the priority test.
The feasibility and detailed design work that follows identifies the most effective means of delivering
what is required. As this establishes more precise costs and benefits, the project is rechecked in SWISS
as remaining a priority. In some instances we may choose to defer work on individual items of
equipment.
Our view of our optimised plan continues to be updated during the construction and handover process.
Supply Demand Management Information
In Appendix D we have outlined our approach to supply demand management. We take account of
information regarding our current asset capacity and future demand predictions in our asset management
plans to ensure we make the best whole life cost decisions regarding future investment in both
enhancement and maintenance of our assets.
Planning and exploiting information improvements
Information strategy
During the 2006-10 period, we are exploiting our existing corporate information systems and integrating
them to provide a single platform for managing, reporting and planning our work.
Our Information Strategy for the 2010-14 period will introduce new systems and processes that will
provide:
•
Real-time access to all relevant customer, premises and asset information for each task, to
ensure staff are assigned to the right jobs at the right place at the right time;
•
Easily accessible trended data on serviceability to customers enabling better targeting of
capital maintenance;
•
Consistent application of key business processes throughout Scottish Water to improve the
quality and consistency of our service; and
•
Comprehensive control and assurance of information relating to supply points, people (staff
and contractors), assets, sustainability and cost.
Managing our work effectively requires us to develop and maintain three inventories: asset inventory;
supply point inventory; and staff inventory (Scottish Water’s staff and contractors’ skills and availability).
We use the diagrammatic representation in Figure B.15 below to show the three inventories.
138
Manage Business Performance
Execute Work
Single View
of Assets
Manage Assets
Single View
of Resources
Single View
of the Customer
Manage Work
Manage Customer
Single View
of Work
Manage People
Asset
Inventory
Manage Supply Chain
SW Staff
Inventory
Supply
Point
Inventory
Figure B.15: Purpose and objective for inventories
Confidence grades
In broad statistical terms, we aim for every measure used to substantiate an intervention on our assets
(either capital investment or a change in operational practice) to have a confidence grade no worse than
B3 (i.e. within +/-10%). This will be a major improvement from previous regulatory periods in which key
information for some performance measures was known only to a confidence grade of C5 (+/- 50%).
Information investment requirements
We continue to identify and define the detailed investment activities required to deliver our information
strategy. We have consulted widely with managers across Scottish Water and compared our capabilities
with best practice. Improvement needs identified include:
•
Review of data models and data architecture of Ellipse and GIS (put in place in 2003) to
support the processes for operation of the retail market;
•
Development of processes to support forward-looking tools for asset management planning
(for example, the non-infrastructure deterioration and reliability models), and integration of
those tools and their processes into business-as-usual, with a strong focus on root cause
analysis;
•
Development of processes to capture asset failure data – modes, consequences, causes and
costs – and allocate to assets at equipment level to enable us to optimise capital
maintenance investment;
139
•
Dynamic real-time geospatial tools integrated with telemetry for root-cause analysis that
will reduce asset failures and improve service to customers;
•
Development of a fully audited self-serve portal into our asset inventory which will increase
opportunities for owners of assets and people working on assets to propose data
improvement which can be quality assured and released for use in a controlled way; and
•
Further development of end to end processes for our key activities within Scottish Water to
drive efficiency and improved customer service
Inventory improvement needs
During the 2006-10 period, we are making significant improvements in our inventory, providing improved
confidence grades. Asset and premises surveys, along with improvements in field data capture and
reporting have enabled better work management, capital maintenance planning and regulatory
reporting.
This progress has improved the completeness and confidence grades of our data and enabled us to make
decisions on a regional, functional and customer service basis. However, to achieve upper quartile
industry performance, we need intelligence on the root causes of service failures at a detailed asset
level. We also need the ability to trend and analyse that data and we must become experts at using it.
Finally we must meet the new information demands put upon us through changing environments and
legislation, for example the Water Framework Directive (WFD) and Controlled Activity Regulations. It is
this granular level and functionality of information, supported by focussed analysis and new reporting,
that will enable bottom up business plans to be generated accurately and converted into specific and
targeted capital investment projects and operational interventions.
Improvement needs include:
•
For selected indices, capture of sub-threshold and headroom data to show underlying trends
(e.g. diminishing headroom) when main indicators are stable;
•
Further surveys of non-infrastructure assets at unit level (building on those done to date) to
capture size and capacity data sufficient to inform MEAV valuations directly, rather than by
inference from the capacity of the whole works;
•
Review of the historic gaps in the infrastructure inventory, where data has been difficult to
infer from historic Drainage Area Studies, to assess the criticality and hence the value from
more detailed analysis of the data to enable uploading to the corporate inventory;
•
Improved capture of asset failure frequency data, consequence data and causes of failure to
support deterioration and reliability modelling;
•
More comprehensive capture of data on energy use at each site to identify the relationships
between consumption and output (e.g. pumping power) and CO2 emissions at asset, site,
zone, region and company level, both embedded and operational;
•
140
Capture of additional data on intervention costs and benefits relating to social and
environmental costs to improve cost benefit analysis;
•
Capture of ecological and habitats data and management of stakeholder engagement
information to support implementation of the WFD;
•
Improved data capture and processing for Security of Supply Index zones, supply demand
planning and drought planning;
•
Improved data capture on household and non-household meters to facilitate analysis for
proactive meter replacement;
•
Inventory completion at electrical and mechanical (equipment) level – i.e. at a more
detailed level than the current unit level surveys - with processes to support fast updating
for dynamic asset management. This will allow us to hold maintenance records at
equipment level to identify the relative performance of individual pieces of equipment (e.g.
to compare the performance of different manufacturers’ pumps);
•
Development of self-service functionality to allow authorised personnel to enter data to
corporate systems (including changes to inventories) while maintaining full quality assurance
and audit trails; and
•
Exploitation of automated corporate reports, highlighting changes, such that stewards of the
inventory and registers can monitor changes and assess the validity and reasons for the
changes.
For us to deliver our strategy, we need the information quality, completeness, granularity and
functionality that will be delivered by activities such as those above. In so doing we will build historic
data trends at detailed asset levels to support those currently being trended at regional levels, thus
enabling more robust bottom up evidence of investment needs for future business plans, capital
programme developments and operational plans.
Information reporting needs
During the 2006-10 period, we are making significant improvements in our information reporting. Robust
and reliable serviceability and OPA reporting has been established.
Further improvements are still required, however, including:
•
Development of systems and processes to facilitate more frequent and automated analysis of
serviceability and expenditure data, including forecasts of service and cost, sub-threshold
indicators and CO2 emissions;
•
Completion of our Business Reporting Centre, providing immediate access for all staff to
corporate reports that are updated frequently providing a single view of inventories and of
performance; and
•
Improving compliance with end-to-end processes, meaning that everyone involved in
gathering, analysing and reporting information follows the same process consistently and
auditably, using new technology to simplify and improve compliance with data entry using
field devices.
141
142
Figure B.16: Business Reporting Centre (using InfoView access)
Figure B.16 is a screenshot from the existing Business Reporting Centre which provides access to
corporate reports. We also publish monthly reports in a simple (PDF) format in a shared directory to
provide easy access for all staff to the corporate information about asset data, KPIs, OPA figures, etc. in
a controlled manner.
In the 2010–2014 period, we intend to develop the underlying infrastructure to enable cross-system
reporting. Currently, we make limited use of the IT architecture which has enabled us to draw reports
from many systems. For example, we can already report on water quality by combining, in our data
warehouse, information about the results of water samples (LIMS) with information about the assets
(Ellipse) and any customer contacts that relate to the premises at which the samples were taken
(Promise). For many other performance measures, however, we cannot yet generate corporate reports
through this data warehouse and continue to rely on manual reporting from stand-alone systems.
Non Corporate Infrastructure
Systems
H & S Accident Helpline, Peoplesoft, Quest,
Symology, Optima, Primavera P3, CIMS,
Symposium, Water Balance, Byelaws,
Customer Connections,
Planet FM, IMS, GIS,
Telematics, Fleet
Corporate Infrastructure
Tactical Apps
SF at Risk, Crysis
etc
Ellipse, Promise, CAS, Lims
Limited Connectivity - PSP,
telemetry,
Trade Effluent,
CDR Applications
Gemini
ITS, EPI, Reservoir
Safety, Low Pressure
Data Storage
Data
Warehouse
Single System reporting
Data Mart
Data Mart
Manual
Reporting
Methodology
Manual Database and Spreadsheets
Data Mart
BRC
Business
Report (s)
Business
Report (s)
Business
Report (s)
Collation and manual intervention
Personal Directories
Outputs
BRC
Cyclops, Sundry Billing, Customer Connections, HR, SEPA, WWT, DWQR, H&S,
SR10, CISP, Ops performance report, CS Performance report, SOMS, OARS,
Annual return, OPA, PAAG
Figure B.17: Current limited cross-system reporting capability
Figure B.17 above shows diagrammatically the limited extent to which our systems feed information into
the corporate data warehouse from which automated reports can be produced. We have prioritised
developing management and regulatory reports concerning our principal performance measures,
including OPA. This has enabled us to generate reports for one of the Commission’s Annual Return tables
automatically from the data warehouse. This information is now available at all times, not just once a
year for the Commission’s return.
143
144
Figure B.18: Corporate reports of regulatory measures (pressure and interruptions)
We intend to generate many more such reports to provide our management, and our regulators, with
consistent quality-assured information. However, there remain many systems that stand alone and
require significant manual intervention to produce routine management reports. Therefore, in the 2010–
2014 period, we plan to increase significantly the proportion of our corporate information that is
available through the data warehouse, as shown diagrammatically in Figure B.19 below. In this way, we
will be able to configure routine reports with robust quality assurance and easy access.
Non Corporate
Infrastructure
Peoplesoft, Symology,
CIMS, Symposium,
Byelaws, Planet FM,
IMS, Telematics,
Fleet
Corporate Infrastructure
Ellipse, Promise, CAS, Lims, Limited Connectivity PSP, Telemetry, Trade Effluent, Gemini,
H & S Accident Helpline, Quest, Optima,
Primavera P3, Water Balance,
Customer Connections, GIS
CDR Applications
ITS, EPI, Reservoir
Safety, Low Pressure
2010 - 2014
Data Storage
Cross System reporting
Data Mart
Data Mart
Data Mart
Manual
Data Mart
BRC
Business
Report (s)
Business
Report (s)
Business
Report (s)
Business
Report (s)
Business
Report (s)
Business
Report (s)
2010 - 2014
Personal
Directories
Business Reporting Centre (BRC)
Partial Annual return,
SOMS, OARS
- Cross System Reporting
- Corporate System Adaptation
- Look Up application
- Forecasting Information
- Snapshot
- Dashboards
Figure B.19: Future enhanced cross-system reporting capability
Field data capture needs
Looking forward into the 2010-2014 period, to improve further the volume of updates of infrastructure
data in GIS sourced from field based work tasks, we plan that our mobile field technology (which includes
mobile GIS functionality) be extended to include the ability for field staff to mark up any changes
necessary. These changes would be sent back for quality assurance and then released to the GIS user
community for use. We realise that the success of such a system requires not only system changes but
also significant process development and we have included provision for this investment in this plan.
145
Our information investment plans also include CSO data audits and management of non-sanitary CAR
compliance to enable further adoption of corporate sources for data that will result in the removal of
reliance on tactical applications such as the CSO tactical application. This investment will also enable
end to end process improvements to be delivered to give us a clear picture of the asset, its performance
against compliance rules and to enable those involved to take proactive and timely action to minimise
the risk to our environment.
Investment management and reporting needs
We have already embarked on a major project, as part of our Start Early activities, to redevelop and
enhance our systems and processes for managing and reporting our capital investment. The Capital
Investment Systems & Processes (CISP) project is due for completion during 2009 to enable the 2010–2014
programme to be managed entirely through these new systems. The scope of the project is shown
diagrammatically in Figure B.20 below.
Automated Interface
Manual Process Link
CISP System Scope
Approvals Workflow
QUEST
Peoplesoft
SW
Business rules
for approvals
Includes (but no limited to):
Update Asset Info
Forecasts and Payment Approvals
Actual Project Costs
Investment Needs
Project Status, LBE and Mi estones
Costing
Database
(EES)
Audit Trail of
approvals/
rejections
Programme and Projects
Asset Info
SWISS
Investment
Planning
Application
DLAs
Data
seline
SRx Ba
tes
pda
st U
s
Co
ate
tim
t es
jec
ro
p
r
Ente
- Master source for Capital Investment Baseline Data
- Capex forms replaced by system functionality
- Project data pre-populated where relevant
- Linkage to asset information systems
- Action Plans
- Capital Maintenance Plans
- Replacement for full programme and CIR access
databases
- Consolidation of project risk data requirements
- Removal of the need for capex trackers through
integrated reporting solution
- Gateways configured to check for mandatory
information
- Access to all relevant users, based on security
profiles
Security and Access Rights
Asset
Information
Systems
User Roles
Document Management System
SW Users
----------Delivery
Partner
Users
Data Mart(s)
Dynamic Reporting Interface
Accountability (can see who entered data and how it has changed);
Visibility (access to data based on user role and security model);
Flexibility (query builder for comparisons, trends, progress, exceptions etc);
Consistency (only one version of the data at any given time based on agreed
refresh rates).
Fixed Reports
Figure B.20: Capital Investment Systems and Processes project scope
Web-based services – internet and intranet
Delivery of our information strategy will require us to improve the services we provide to our customers
and to our staff and contractors, in many cases through web-based applications. We expect to upgrade
the services we offer over the internet to increase self-service by customers and to reduce calls to the
Contact Centre by providing up-to-date relevant information on line that meets customers’ needs.
146
Planned improvements to tools and processes
Water infrastructure
As we progress towards better levels of service our emphasis will move towards predicting where
problems are about to occur rather than by examining and addressing the history of where they have
occurred. We have initiated work on best practice tools to enable us to do this. In addition to predictive
targeting of investment, these tools will also allow us to project, at a detailed level, the sums we require
to invest to maintain our infrastructure.
Predictive Network Planning
Common Framework for Capital Maintenance
Planning
Figure B.21: Predictive network planning process
These predictive tools are particularly important for our underground assets simply because unlike our
treatment works they are buried and we cannot see them. We can only infer what is happening to our
overall infrastructure base from a limited number of samples.
We are implementing a predictive model of the water network across Scotland. This tool has allowed the
future deterioration of assets to be identified along with the consequential impact on customers. The
work has been used to assist in identifying cost effective investment in network assets to meet
serviceability targets for the 2010–2014 period and beyond.
The approach draws on the common framework for capital maintenance and seeks to determine the
likelihood of failure and consequence of failure associated with network assets. This work will also
identify key data sets which require to be improved further to enable confidence in the model’s
predictions to be increased.
Water non-infrastructure
Our customers are currently benefiting from significantly improving levels of service arising from our
investment in increased water quality standards and improved operational practice.
147
As we move towards the 2010-14 period our attention is shifting to stabilising serviceability at the new
higher levels.
Our current risk assessment processes currently rely on expert judgement informed by historic
performance data. Our Asset Managers review the process and challenge the need for investment before
projects progress beyond the screening stage. Whilst we can have some confidence that we are correctly
identifying relative priorities, we cannot yet claim to have a robust mechanism from which to project
forward needs (from increasing likelihood of failure as assets deteriorate).
Improved asset data processes already in hand are yielding higher quality cost and performance data at a
more granular level. We plan to continue to gather this information to establish an adequate record to
enable us to apply more predictive tools for quantifying future maintenance investment and targeting
this with increasing effectiveness. This will become effective during the 2010-14 investment period. We
are currently reviewing our options of which tools and data constitute the best value for money.
Wastewater infrastructure
Data on our IFOC process suggests that it is continuing to yield very significant benefits to customer
service but that this is reducing as we progress through the priority ranking. We believe that during the
2010-14 period, the benefit of the process will diminish as we approach the best levels of customer
service that can be supported by the underlying serviceability of our assets. The benefits of the Hotspot
process are similarly expected to yield a diminishing but currently valuable return.
We know that when we approach higher levels of customer service we will need to shift our attention to
understanding the future ability of our sewers to maintain this service. In simple terms we need to
predict where deterioration of our sewers is about to cause problems rather than addressing where there
are already patterns of problems.
We are already implementing new planning tools. We are implementing Wastewater Infrastructure
deterioration models, to identify the sewers with the poorest condition and performance and with the
highest likelihood of reducing serviceability to customers.
This approach will allow development of a process that predicts future expenditure over a range of
serviceability scenarios and delivers a pipe specific intervention plan.
The Infrastructure Risk Management approach will deliver individual elements of a risk based approach to
capital maintenance. The approach will be designed to appraise requirements at an individual asset
level, which will then allow deliverable projects to be created for investment.
An assessment of the consequence of asset failure will be undertaken looking at the impacts on customer
serviceability (including flooding, pollution, and societal disruption), together with an assessment of the
probability of failure being undertaken, which is based upon statistical analysis of previous failures, asset
condition (from CCTV inspection) and expert knowledge. This ensures an assessment of overall risk is
obtained. This overall risk is used to prioritise the assets into those which would provide most benefit
through intervention (capital or operational investment). The Infrastructure Risk Management approach
will also establish the rates at which the probability of asset failure increases (through asset
deterioration) and decreases through intervention (capital and operational). These relationships govern
the rate of investment required to maintain (or achieve a higher) base serviceability. By introducing a
148
costing element to the system a cost benefit approach can be applied, which in turn can lead to the
ability to optimise investment on assets so that best whole life cost solutions can be achieved across the
whole asset stock.
Once established the system will allow optimising of investment planning. This allows variables such as
flooding targets or yearly investment levels to be fixed and the resulting risk and change in other
variables analysed.
Wastewater non-infrastructure
During the 2006-10 period we are focussing our maintenance investment on sites where we are failing to
meet the required standards. As we move into the 2010-14 period the balance will shift to the sites
which are on the borderline and with four years of further deterioration could be expected to result in
such failures. These clear priorities are efficiently managed by our current approach and we have no
specific plans for enhancing our information systems relating to wastewater non-infrastructure.
Annexes to this Appendix B
Annexes 1 – 4 are provided electronically under separate cover. Annexes 1 and 3 are Excel workbooks
that are best examined electronically and do not lend themselves to useful printing. The file references
are listed below:
•
SR10 Appendix B Annex 1 - DOMS Level 1 Details.xls
•
SR10 Appendix B Annex 2 – Typical level 2A Scoping Study Report.doc
•
SR10 Appendix B Annex 3 – Drainage Areas.xls
•
SR10 Appendix B Annex 4 – Example DAS.doc
149
APPENDIX C – INVESTMENT AND OUTPUTS
Scottish Water: Second Draft Business Plan. Appendix C – Investment and Outputs Plan
Appendix C – Investment and Outputs Plan
Introduction
This appendix sets out our investment and outputs plan covering the period 2002/03 to 2013/14. This
appendix should be read in conjunction with Sections 5, 6 and Table C, which is provided electronically
with this business plan.
Data Tables
Included with this plan are four tables covering:
•
Actual and forecast investment and outputs in Quality and Standards II;
•
Actual and forecast investment and outputs in Quality and Standards IIIa;
•
Our forecast pre-efficient investment and outputs in our base plan, encompassing all
essential elements plus desirable elements required to deliver upper quartile performance,
for Quality and Standards IIIb; this table also includes the post-efficient view at project
level; and
•
Our forecast pre-efficient investment and outputs for the remaining desirable elements of
Quality and Standards IIIb, this table is not profiled for reasons set out in the profiling
section.
All data tables are expressed in 2007-08 prices adjusted using the agreed COPI profile.
Ministers’ Draft Objectives Classification
Our investment plan is based on Ministers’ draft objectives statement of 10 December 2008, in which the
essential and desirable classification is defined. This has been translated into Technical Expression 6.1
which has been signed off by the quality regulators and Scottish Government to reflect the requirements
to deliver Ministers’ draft objectives.
Investment Profiling
In developing our plan we have created integrated delivery projects that address all the maintenance,
enhancement and growth requirements at the specific assets. We plan to implement strategic solutions
where these are cost effective. This plan is better defined than our 2006-10 plan was at the same stage
in development, which has enabled us to initiate our early start delivery programme.
In our bottom up capital maintenance plan we define the investment and projects that are required to
maintain service levels at an upper quartile level. As this investment is based on our current view of
service and asset performance, we will keep these projects under review to ensure that the timing and
mix of projects is appropriate to meet our objectives.
Base Programme Profile
We have developed our investment plan taking account of legislative compliance dates, the delivery of
studies to inform Q&SIV, and Ministers’ objective to create continuity in delivery of investment across
150
regulatory periods.
Our programme is based on project delivery templates derived from the delivery of our Q&SII and Q&SIIIa
programmes. These templates, which are based on an 80% probability of achieving milestones, provide
the delivery timescales to each project milestone and the typical percentage of total project
expenditure at each milestone.
We have profiled our plan to deliver as many benefits to customers as possible within the 2010-14 period
and obtain the highest possible level of regulatory sign off by March 2014. However, to ensure continuity
of investment delivery and to take account of the uncertainties within the plan, we have profiled a
residual programme value of £140m accounting for 6% of the benefits to customers and 7% of the outputs
requiring regulatory sign-off, for the period after March 2014.
Addendum Profiling
We have not profiled the projects within the addendum to our plan as the inclusion of any desirable
project requires to be considered within the total plan for efficient delivery, the interaction with other
projects in the plan and the overall available resource in the market.
Key Changes from First Draft Business Plan
Our first draft business plan included a base plan and two addenda; one for the River Clyde and the other
for Minor Revisions. The key changes from our first draft business plan have been driven by the
confirmation of Ministers’ draft essential objectives. Our second draft business plan is based on
Ministers’ draft essential objectives and elements required to deliver upper quartile customer service
performance. The remaining Ministers’ draft desirable objectives have been included as an addendum to
the plan.
The detail of our base investment plan and addendum is set out in the data tables that accompany this
plan, and a summary of the key changes from our first plan is set out below:
•
The majority of investment associated with the Water Framework Directive in terms of
Water Resources and Wastewater Treatment has been moved to the Addendum;
•
Loch Ryan WwTW upgrade has been included in the base plan;
•
A proportion of the CAR Non–sanitary consent programme has been included within the base
plan;
•
Surface water outfalls have been prioritised and some moved to the addendum;
•
Compliance with the flooding bill and meeting the current recommendations of the Pitt
Report have been added in to the base plan;
•
The proposed investments for providing appropriate physical treatment and cryptosporidium
protection have been included in the base plan, with further works identified within the
addendum for the lower risk sites;
•
The strategic lead pipe replacement programme has been moved out of the base plan and
into the addendum and replaced with a survey programme to understand the extent of the
problem;
151
•
A proportion of disinfection control sites have been moved from the addendum and into the
base plan;
•
Enhanced borehole security and other additional security measures have been included in
the base plan;
•
Mains rehabilitation zones not failing under steady state conditions have been moved into
the addendum;
•
Compliance with the remaining recommendations of historic incident reports, and the
removal of the remaining water main to sewer cross connections have been moved to the
addendum;
•
Some of the malodour reduction measures have been moved to the addendum; and
•
The reduction of internal sewer flooding to churn levels and the removal of all low pressure
properties which are exclusions have been moved from the base plan to the addendum.
Cost Allocation to Investment Drivers
We have allocated costs in the following manner consistent with the requirements of RAR2.
Enhancement and growth investment has been proportionally allocated based on the existing population
served and future population served.
Environmental Quality Programme
For the Wastewater Quality Enhancement Programme, costs have been allocated to drivers taking into
account the legislation driving the investment requirements. SEPA have only included drivers that
change the licence standards. Where existing assets were assessed as capable of meeting the new
licensed standards for a specific driver, no costs were allocated. The table below sets out the driver
groupings and how the costs were allocated.
Driver Combinations
Allocation Rule
EC01 only
All costs allocated to EC01
EC01 / EC03
Appropriate treatment costs allocated to EC01 and provision of disinfection and or
relocation of outfall allocated to EC03
EC01 / EC04 / EC10
Delivery of 2 mg/l Phosphorus standard cost allocated to EC01. Delivery of tighter BOD
standard costs allocated to EC10 and delivery of tighter Ammonia standard allocated on a
percentage basis determined from a review of assets where SEPA identified alternative
consents for EC04 compliance only.
EC01 / EC10
All costs associated with meeting 2 mg/l P standard (1mg/l at >100,000 PE sites) at these
sites allocated to EC01. All other costs to EC10 (BOD, ammonia and P beyond 2mg/l).
EC04 / EC10
Delivery of Phosphorus and BOD improvement costs allocated to EC10. Ammonia
reduction costs allocated on a percentage basis determined from a review of assets where
SEPA identified alternative consents for EC04 compliance only.
EC10 only
All costs allocated to EC10
Table C.1: Driver combinations and allocation rules
Where maintenance was identified at a site level to deliver the quality enhancement investment, this
was allocated directly to the maintenance driver.
152
For the wastewater infrastructure programme the majority of investments have only a single driver.
Where there are multiple drivers they have been allocated on an equal proportional basis.
Water Quality Enhancement Programme
For the Water Quality Enhancement Programme, costs have been allocated to drivers taking account of
the legislation driving the new standard and the process equipment required to deliver the standard. In
the enhancement programme, the primary overlaps are between Cryptosporidium Risk Reduction (DW23)
and Disinfection Control (DW13) drivers. Where these drivers both occur at a site, all costs have been
allocated to DW23 as the solution (a membrane plant) required to deliver the cryptosporidium output
will, by default, deliver improved disinfection control.
For the Water Mains rehabilitation programme, all quality investment has been allocated to DW5; the
incremental costs of pipe replacement over relining have been allocated to accelerated base
maintenance.
Allocation of New operating Costs
All new operating costs have been allocated to drivers based on the capital cost allocation rules.
Q&SII & Q&SIII Residual Programme Value
Our Table C for the completion of Q&SII and Q&SIIIa programmes is consistent with our Quarter 3 2008/09
capital investment return (CIR). As set out in Section 6 of our second draft business plan, there are
uncertainties regarding the final outturn costs of delivery and any increase will consequently reduce
forecast out-performance from the 2006-10 period.
Projects Associated with OPA Improvement
We include only two projects solely associated with OPA within our enhancement programme, these
being the exceptional items set out in Appendix 5.2 for water and wastewater network monitoring. We
have identified within Table C the projects which are required in Ministers’ draft objectives that also
provide an OPA benefit.
Cost Estimating Overall Approach
Approach to Cost Estimating
Our approach to cost estimating is set out in Section 5: Annex One of this plan.
Desirable Element Costs
The desirable enhancement programme has been costed using the same methodology as our base
programme as set out above. Where quality requirements are included in both the desirable and
essential programme at the same asset, we have allocated only the incremental increase required within
the desirable programme.
Where we have identified a growth demand on an asset in the 2010-2014 plan that is also included within
the desirable programme for quality enhancement, we have made a full allowance for the upgrade
required to deliver the developer-driven demand in the essential plan, and allowed only incremental cost
increases to deliver the desirable quality enhancement only. We have taken this approach to ensure that
the developer-driven growth allocation is sized correctly.
153
APPENDIX D – SUPPLY DEMAND BALANCE
Scottish Water: Second Draft Business Plan. Appendix D – Maintaining the Supply Demand Balance
154
Appendix D – Maintaining the Supply Demand Balance
Overview
This appendix sets out our plan for maintaining the supply demand balance for both water and
wastewater services. It considers all activities which will impact on the supply demand balance including
domestic and economic growth, leakage reduction activity, the impact of overlaps with the quality
programmes, and the impact on our sludge recycling strategy. When developing our plans, we have used
industry best practice, in an integrated manner, to ensure all synergies and overlaps are taken account of
when identifying the investment to maintain the supply demand balance.
Water Service Summary
Table D.1 summarises our forecast supply demand positions at 2010 and 2018 and our proposed
interventions detailed in this section.
Table D.1 shows that the forecast net impact of demand increase is balanced by investment in 2006-10
and the reduction of leakage to ELL at a company level. However, this overall company position masks
that the relationship, at a zonal level, of increasing demand, additional capacity and leakage reduction
will vary from one zone to another. As set out in detail in our Water Resource Plan, the deficits in some
zones will be eliminated, while the supply demand balance will deteriorate in other zones.
Supply / Demand Element
Aggregate deficit at March 2010
Net impact of demand increase to 2018, 2006-10 enhancement programmes and leakage
reductions in 2010-14
Total Zonal
Deficit
Ml/d
-61
0
Deficit removed through Security of Supply investment
50
Deficit removed through 2010-14 water quality projects
2
Deficit removed through developer-driven growth programme
2
Remaining Deficit
-7
Table D.1: Summary of water service supply demand improvements
Water Service Strategy
The overall aim of the water service strategy is to accommodate forecast growth in demand and meet
the company level of service for drought resilience which would see drought orders not being required
more frequently than 1 in 40 years in any supply zone. Where investment is required to restore this
balance we aim to deliver this in the optimum way to meet the needs of customers, enable economic
development, and minimise our impact on the environment. To determine this we have adopted the UK
water industry best practice water resource planning approach and methodology as outlined in Figure D.1
below.
Supply Demand Balance
Feasible
options
list
Option
identification
Supply
side
Leakage
Options
appraisal
&
decisions
Investment
Need
Surplus/
deficit
Demand
side
Current
Demand &
Forecast
Supply
demand
balance:
dry year
Current
Supply &
Forecast
Reductions in
DO (inc WFD &
WQ)
Imports
& exports
Household
Nonhousehold
Headroom
Climate
change
Current
supply
Figure D.1: Supply demand balance methodology
To understand our current and forecast supply demand balance, we have produced a zonal level Water
Resource Plan forecasting the supply demand balance for the next 25 years. This analysis has shown that
we are currently in deficit in 92 of our 230 water resource zones based on the dry year annual average
assessment and that our Q&SIIIa quality investment and leakage reduction to ELL by 2014 will address
less than half of this deficit.
Company Target Level of Service
Our company service standards in relation to drought resilience are:
•
Hosepipe restrictions will be imposed in a water resource zone once the process to apply for
a Drought Order has been initiated;
•
Drought Orders should be required no more frequently than once every 40 years for a water
resource zone; and
•
Standpipes / Rota Cuts will only be considered under extreme drought conditions.
These standards have been developed based on customers’ perception that Scotland is a country rich in
water resources and to align broadly with the rest of the UK water industry as set out in Table D.2. Our
Water Resource Plan has been developed to achieve and then maintain the supply demand balance
against these standards.
155
156
Company
Hosepipe Ban
Drought
Rota Cuts or Standpipes
Northumbrian
No Restrictions
No Restrictions
Never
Yorkshire
Once in 25 years
Once in 80 Years
Once in 500 years
South West
Once in 20 years
Once in 40 years
Never
Dwr Cymru
Once in 20 years
Once in 40 years
Never
Anglian
Once in 10 years
Once in 40 years
Once in 100 years
Scottish Water
Once the process to apply
for a drought order has
been initiated
Once in 40 years
Only under extreme
circumstances
United Utilities
Once in 20 years
Once in 35 years
Never
Severn Trent
Once in 33 years
Once in 33 years
Never
Thames
Once in 20 years
Once in 20 years
Never
Southern
Once in 10 years
Once in 20 years
Only in civil emergency
Table D.2: Company level of service comparison
In addition to drought resilience, we must understand our ability to maintain supplies during peak
demand conditions and remain within the abstraction limits set by our licences.
Supply Demand Balance Assessment
Our approach to assessing the supply demand balance for each water resource zone is set out in Figure
D.2, this shows each of the components of supply and demand used to determine whether a zone is in
surplus or deficit.
Supply Demand Balance for Black Esk, Kettleton, Moffat, Winterhope and Langholm WRZ at 2013/14
Headroom
3.21 Ml/day
Demand reduction to LRELL
5.63 Ml/day
Dry Year Critical
Period Demand
Supply side interventions
Residual leakage following
4.99 Ml/day
Outage
reduction to SRELL by 0.41
0.06 Ml/day
Ml/day to
Deployable Output. The
17.01 Ml/day
min. of:
(before LRELL reduction)
• WTW Capacity
• Yield (at target LoS)
• Raw Water Transfer
• CAR Licence
Other uses
0.59 Ml/day
Water available for use
24.97 Ml/day
Non domestic demand
(before security of supply
6.98 Ml/day
investment)
Domestic demand
7.8 Ml/day
Demand
Deficit
Supply
Figure D.2: Overview of the typical elements within the supply demand balance for Black Esk,
Kettleton, Moffat, Winterhope and Langholm water resource zone.
Components of Demand
Non Domestic Demand covers the current and forecast demand from our commercial customers, both
metered and unmetered. For metered customers, we use the billed metered volumes, which include
customer side leakage. For unmetered customers, we have collected early meter readings covering 30%
of our full business metering stock and prorated the demand for the remaining unmetered customers. By
2010 we plan to have nearly all of our non domestic customers metered which will improve the accuracy
of this calculation.
Domestic Demand covers the current and forecast demand from residential customers and is 99.99%
unmetered. We assess this demand using council property counts, calculate occupancy rates using the
GROS household population, apply a per capita daily consumption figure based on data from our PCC
monitors, and include an allowance per property for customer side leakage based on a recognised
methodology.
Other demand is a combination of distribution system operational use and water taken for temporary
usage from hydrants by the fire service and by customers with standpipes.
157
Leakage is calculated by subtracting all demand components from the measured distribution input (DI)
volume put into supply at WTW. Our economic level of leakage has been calculated in line with the
methodology supplied to the Commission in December 2008. From this assessment we have identified at
Water Resource Zone level the volumetric reductions in demand which will be delivered by reducing
leakage to ELL, and in deficit zones what further leakage reduction may be achievable to restore the
supply demand balance before implementing supply augmentation schemes. The remaining residual
leakage covers leaks across the networks which are not currently economical or practical to reduce.
Headroom is an industry standard methodology that determines the required excess demand above the
calculated demand to take account of uncertainties within the each of the supply and demand
components; these include the accuracy of un-metered demand assessments, future demand projections
and the accuracy of meter readings.
Components of Supply
The Water Available For Use (WAFU) assessment takes account of all constraints on the maximum output
of a WTW including raw water resource availability (yield), abstraction licence limits, raw water mains
capacity and WTW capacity. Additionally an outage allowance is included which allows for planned and
unplanned temporary loss of deployable output.
Deficit
The deficit is the difference between the demand side components, including headroom, and the WAFU
including Outage allowance. It represents the additional WAFU or demand reduction required to meet
our company level of service for drought resilience.
Full detail on this assessment is set out in our Water Resource Plan.
Water Resource Plan (WRP)
Our draft Water Resource Plan (WRP09) has been updated from WRP08 taking account of ongoing data
improvement activities including improved yield assessments, non domestic customer and distribution
input meter data, and our December 2008 leakage assessment and reduction profile to the ELL.
The WRP provides a 25 year forecast of the supply demand balance taking account of many factors
including tightening environmental legislation, projected population and economic growth, the impact of
water quality projects, asset rationalisation and the economic level of leakage. It is updated regularly
and provides the audit trail for the methods and assumptions used in the analysis.
Within the WRP potential options to restore the supply demand balance have been assessed and a
strategy developed for achieving the required level of service. Ministers’ draft objectives for the 2010 –
2014 period include the restoration of the supply demand balance in 15 of our deficit zones as essential
objectives, which will result in 99% of customers receiving the company level of service, and the
remaining 17 zones as desirable objectives.
Through the use of the WRP process, the supply demand deficits and priority for resolution have been
identified by using the industry standard approach. Table D.3 below summarises the output of our
WRP09.
158
Water Resource Planning
2010-14 Business Plan & OPA Measurement
Dry Year Critical Period
Dry Year Annual Average (DYAA)
No. Zones
with deficit
remaining
Population
served
No. Zones
with deficit
remaining
Population
served
SOSI
Score
SOSI Band
Current Assessment
(2007/08)
132
1,498,000
92
1,473,000
-2
Band D
March 2010 forecast
85
916,000
48
893,000
34
Band D
March 2014 forecast
without SOSI
investment
49
828,000
32
822,000
46
Band D
March 2014 forecast
with SOSI
investment
33
65,000
17
60,000
91
Band B
Table D.3: Supply demand deficit assessment forecast to 2014
It should be noted that whilst Dry Year Annual Average demand is used to calculate the OPA rating for
Security of Supply Index, it is the dry year critical demand period that is used for water resource
planning and intervention development.
It can be seen from Table D.3 that, at March 2014, there will be 16 zones serving 5,000 people which
have a dry year critical period deficit but not a dry year annual average deficit. In these areas, we will
maintain the security of supply during critical periods by tankering water between zones. We plan to
maintain this practice unless it becomes uneconomic to do so.
Water Service Demand Assumptions
In developing our second draft business plan we have undertaken a medium term planning methodology,
focused on a 2018 planning horizon to identify assets which are forecast to become stressed due to
increased development and population growth and migration.
Modelling Assumptions
Change in Domestic Population
Our supply demand assessment for each water operational area has been undertaken using the GROS
principal projection for population change between 2006 and 2018. The 2018 planning horizon has been
adopted for this assessment to ensure that we should not need to invest for growth at the same asset in
both the 2010-14 and 2014-18 periods, and to align with the structure plans published by the local
councils. For the purposes of water resource planning, we have used the GROS principal projection
model to align with the WRP 25 year planning horizon; this indicates that the Scottish population will
increase by 177,300 between 2006 and 2018.
To allow us to understand how this will affect our asset base we have applied a methodology that
allocates this increase in population through our growth model to each of our assets based on the GROS
2006 council level forecast population changes, the GROS 2006 forecast household numbers and the
council housing land audits. The model also takes into account demographic movements around Scotland
and hence over the asset base, which we estimate to account for a net increase in required capacity of
159
160
32,633 PE on the assets in areas of population growth. Figure D.3 shows the expected population change
across local authority areas.
Forecast Population Change within Local Authority Areas (Principal Projection)
Edinburgh, City of
Fife
Aberdeenshire
West Lothian
South Lanarkshire
Perth & Kinross
Highland
Scottish Borders
East Lothian
North Lanarkshire
Falkirk
Stirling
Angus
Clackmannanshire
Orkney Islands
East Renfrewshire
South Ayrshire
North Ayrshire
Dumfries & Galloway
Argyll & Bute
Glasgow City
Eilean Siar
Moray
Shetland Islands
East Ayrshire
Midlothian
West Dunbartonshire
Inverclyde
Dundee City
Renfrewshire
East Dunbartonshire
Aberdeen City
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
Change in Population
2010-14
2010-18
Figure D.3: Forecast population change within local authority areas for GROS principal projection.
Change in Commercial Demand
To account for increases in commercial demand we have used information provided by Experian for
revenue forecasts to establish the potential change in demand from existing non domestic customers. No
allowance has been made in our plans for significant increases by single users or new large users; should
these circumstances occur, the provision of services will be discussed with the appropriate licensed
provider with any required investment for their domestic requirements being drawn from the growth
allocation as set out below.
Managing the Supply / Demand Balance
To establish the probability of an asset requiring investment in the 2010-14 period to maintain the supply
demand balance (SDB) to 2018, we undertook a gap assessment using our Water Resource Plan SDB at
2018. This approach allows for the identification of both treatment and raw water deficits resulting from
growth.
Our assessment has indicated that we will need to accommodate the additional demand set out in Table
D.4.
Component
GROS Principal population projection
Population
Equivalent
Treated
Water
[Ml/day]
No.
WTW
Raw
Water
[Ml/day]
Number
of WTW
177,300
217
217
32,633
89
89
209,933
128
128
Demand accommodated by existing assets and
leakage reduction to ELL
173,813
111
102
Residual new demand to be accommodated
36,120
0.18
17
7.28
26
220
0.04
3
0.04
2
New demand accommodated under security of
supply programme
31,276
0.02
1
6.37
15
New demand accommodated under developer
driven programme
4,624
0.12
13
0.87
9
GROS Demographic movement
Total new demand on assets
New demand accommodated under water quality
programme
Table D.4: Water service demand growth impact to 2018
For our developer-driven growth programme we have undertaken sensitivity analysis of our gap
assessment by running the analysis using the GROS low migration scenario. This indicated that the
number of affected WTW requiring additional capacity would remain the same but there would be a
reduction of one site requiring raw water augmentation and the overall PE to be accommodated would
reduce by 1,800. As the impact of using the GROS low migration scenario is negligible, we have used the
principal population projection to be consistent with the 25 year WRP methodology.
Economic Leakage Assessment
We assessed our level of leakage for 2007/08 as being 924Ml/d measured using the Integrated Flow
Method (“top-down”) by which total leakage is the residual once all other demand components have
been measured or estimated and subtracted from the Distribution Input figure. Now that we have
increased DMA coverage to over 96% we intend to include the Independent Night Flow Measurement
Method (“bottom-up”) when reporting leakage from 2009.
We have completed our first assessment of our economic level of leakage (ELL) covering both the shortrun economic level of leakage (SRELL) which balances the short–run marginal cost of leakage
management against short-run marginal cost of water and the long-run economic level of leakage (LRELL)
taking into account investment to maintain the supply demand balance. Both assessments have been
integrated into our WRP09 and hence our SoSI and Growth deficit assessments.
Based on our current information we have assumed for this plan that our 2013/14 leakage will be at the
currently assessed ELL of 654Ml/d from our December 2008 leakage assessment.
Leakage Strategy
Fundamental to improving service to customers and reducing the risk of supply deficits is the reduction in
leakage, which is described fully in our Leakage Strategy provided with this plan. Moving to the
economic level of leakage will both improve our supply demand balance and our overall efficiency.
161
Demand Management
We are responsible for ensuring the efficient and sustainable use of our water resources including the
promotion of demand management. We have done this through information on our website, leaflets and
‘Save-a-Flush’ promotional offers in collaboration with Water Watch Scotland, and are currently
undertaking water efficiency audits at our own assets.
Within our Water Resource Plan we have made no allowance for water efficiency initiatives as analysis
has demonstrated they are not a cost effective method of restoring the supply demand balance. In the
longer term we are committed to identifying water efficiency opportunities across our customer base and
anticipate that the introduction of competition into the commercial market will result in licensed
providers delivering cost effective demand management as part of their service.
Section 29E Opportunities
We have investigated our current investment plan, particularly in the areas of maintaining supply
demand balance and improving security of supply, but currently found no specific areas where Section
29E is of benefit. We will continue to assess this as our investment plan for strategic capacity develops
in the 2010-14 period.
Assessing Investment for Growth
The assessment of investment needs for the Security of Supply programme is set out in Section 6. The
investment to deliver growth identified at sites on the water quality programme has been assessed at a
project level and costs allocated in line with RAR2. When developing investment allowances for the
Growth only programme we have adopted the following principles:
•
Growth only projects at small WTW, with a capacity of less than 2 Ml/day; we will resolve
any existing deficit at the same time as providing the additional capacity to meet forecast
growth in demand to ensure investment is delivered efficiently;
•
Growth only projects at larger WTW, with a capacity greater than 2Ml/day; we will ensure
no detriment to the existing supply demand position but we will not resolve an existing
deficit until we have confirmed the full benefits arising from leakage reduction;
•
Growth projects will only be initiated once the developer has met the five criteria set out in
the Ministers’ draft objectives; and
•
The overall growth programme will be managed as a ring fenced programme with capacity
provided to meet actual developer demands.
Where assets have been identified as having a supply demand restriction we have developed our
investment plan for:
•
Small WTW by scoping the minimum feasible treatment plant capacity to resolve the deficit.
In some cases this will result in a plant larger than required for the demand but the
minimum size practical to build efficiently;
162
•
Large WTW by assuming the deficit position will be managed by undertaking long run leakage
reductions over and above those planned to get to ELL; and
•
Additional raw water capacity has been costed on a per Ml/day basis using the average unit
rates generated from projects of a comparable size from the security of supply programme.
Water Service Capital Expenditure Implications
Reducing Leakage
Our Water Resource Plan has identified that planned leakage reductions in the 2010-14 period will
remove the dry year annual average deficit position in 16 water resource zones serving over 70,000
customers.
In our capital maintenance submission in Section 5 we have set out investment of £27.2m under an
exceptional item to support leakage management activities and improve the confidence of our ELL
calculation.
In Section 4 we set out the change in operating costs over the period associated with delivery of the
leakage strategy.
Capital Expenditure – Restoring Security of Supply
Benefits of investment from 2006-10
When developing our proposals to restore the Security of Supply in our deficit zones we have taken
account of the benefits that will be delivered by our leakage reduction to ELL and from the 2006-10
quality enhancement programme as set out in Table D.5.
This indicates that the Q&SIIIa water quality enhancement, growth and abstraction relicensing
programmes will deliver an increase of 8 SoSI points by 31 March 2010 and a further 15 SoSI points on
completion of the residual programme.
The reduction in leakage to 50% of ELL by 2010 is forecast to deliver 28 SoSI points and a further 4 SoSI
points by 2014 upon the achievement of ELL. The small improvement in SoSI attributed to the remaining
50% closure of ELL is due to the leakage reduction primarily being in areas which will be in supply
demand surplus by 2010, hence having no impact on the remaining deficits.
Taking account of the above and the planning and development time required, particularly for our small
sources in environmentally sensitive areas, we have prioritised 15 of our 32 water resource zones in
deficit for improvement. Resolving the deficits in these zones will increase our SoSI score by 45 points,
achieving a 2013/14 position of 91 SoSI points (DYAA) which equates to a band B position in the OPA
measurement. We plan to resolve the remaining zones in the 2014-18 period.
163
Activity to improve DYAA SoSI Score
Population
in deficit
zones
Contribution
to SoSI
Score
Cumulative
SoSI Score
2007/08 Recorded SoSI Position
1,473,000
0
-2
2008/10 Improvement through Q&SIIIa Quality Enhancement & Growth
Programme
1,372,000
8
6
2009/10 50% Closure of Economic Level of Leakage
893,000
28
34
Delivery of Q&SIIIa Residual Quality Enhancement and Growth
Programme
881,000
15
49
Impact of forecast growth by 2018 in targeted SoSI deficit zones.
881,000
-7
42
2013/14 100% closure of Economic Level of Leakage
824,000
4
46
2013/14 Improvement through Q&SIIIb Quality Enhancement programme
822,000
0
46
60,000
45
91
2013/14 Improvement through targeted SoSI investment
Table D.5: Planned improvement in SoSI score by contributing element
Security of Supply Improvement Profile
Our planned Security of Supply improvement profile, as measured using the Security of Supply Index
(SoSI) is set out in Figure D.4 below. This is based on the delivery of benefits from leakage reduction to
ELL, the water quality and growth investment in the 2006-10 period and the investment approaches set
out in Table D.5 above. This package of measures will move us from SoSI Band D to Band B, indicating
marginal deficit against target headroom by 2014. Our plan is to move to Band A (no deficit against
target headroom) by 2018.
SoSI Improvement Profile
SoSI Band A
100
90
SoSI Band B
80
70
SoSI Score
SoSI Band C
60
50
40
30
SoSI Band D
20
10
0
-10
2007/08
ELL Programme
2008/09
2009/10
2010/11
2006-10 Water Quality & Growth Programmes
2011/12
2012/13
2013/14
2010-14 Security of Supply Programme
Figure D.4: SoSI score improvement profile
Proposed Investment 2010-14
When developing supply restoration proposals we adopted the hierarchy set out below:
1.
Leakage reduction to ELL;
2.
Demand management (currently limited measurable benefit and discounted on economic
grounds);
3.
164
Optimise the conjunctive use of existing sources and treatment assets to ensure maximum
water resource capacity;
4.
Provide new raw or treated water links between supply systems; and
5.
Develop new raw water sources and increased treatment capacity.
We propose to improve the Security of Supply during the 2010-14 period in the water resource zones set
out in Table D.6, along with the cost allocation for each scheme.
Deficit at
2013/14
without
SoSI
investment
(Ml/D)
Population
Affected
(PE in
2014)
Capital
Cost of
SoSI
(£m)
Quality
Investment
(£m)
Growth
Investment
(£m)
Total
Capital
Cost
(£m)
Opex
Leakage
Reduction
past ELL
(£m)
Afton, Bradan and
Penwhapple
-1.54
223,926
-
-
-
-
0.1
Bonar Bridge WRZ
-0.83
1,629
3.4
-
0.2
3.6
-
Loch Maree Strategic
Scheme (Gairloch WRZ
and Inverasdale WRZ)
-0.42
1,378
3.7
3.0
0.2
6.9
-
Ardrishaig WTW
-0.53
5,755
0.7
-
-
0.7
-
Auchneel, Barclyle,
Palnure, Penwhirn WRZ
-3.97
27,465
1.0
-
-
1.0
-
Black Esk, Kettleton,
Moffat, Winterhope and
Langholm WRZ
-10.62
48,113
4.3
-
-
4.3
-
Fife WRZ
-16.83
375,009
28.6
-
2.2
30.8
0.1
Inveraray WTW
-0.54
1,320
1.8
-
-
1.8
0.4
Killin WRZ
-0.21
1,055
1.0
-
-
1.0
-
Broadford WRZ
-0.63
1,096
1.5
-
0.1
1.6
-
Gorthleck WRZ
-0.34
601
2.9
-
-
2.9
-
-12.31
73,482
5.2
-
0.5
5.7
0.1
Osedale
-0.31
649
2.9
-
0.1
3.0
-
Tarbert (Western Isles)
-0.56
1,019
0.4
-
-
0.4
-
Carbost
-0.15
479
3.6
-
0.2
3.8
-
-49.79
762,976
61.0
3.0
3.5
67.5
0.7
Water Resource Zone
Inverness and Nairn
WRZ
Total
Table D.6: Water Resource Zones to be brought back into balance during Q&SIIIb
Capital Expenditure – Providing for Growth in demand
To provide for demand growth in the water service we have included investments to resolve or maintain
460
138
4,026
Growth (PE)
Treated Water Deficit
Number of Sites
3
13.7
14.3
0.6
Raw Water Deficit
6
Raw Water Deficit
7
Raw Water Deficit
both raw and treated water deficits. The overlaps between the two are shown in Figure D.5.
Capital Cost (£m)
Figure D.5: Venn diagram showing the overlap in yield and treatment capacity increase investment
at growth only sites.
165
166
To address the medium term demands from population growth as identified previously in Table D.4 we
intend to provide 4,624 PE of additional strategic capacity through increased asset capacity or additional
raw water resources. Table D.7 sets out the split of this investment and the additional capacity which
will be provided.
(2007/08 prices)
Number of
WTW
Deficit due to existing
demand and forecast
growth Ml/day
Additional PE
served
Cost
£m
13
1.02
598
26.1
7
0.72
254
2.5
714
28.6
WTW Capacity
Raw Water Yield
Total additional PE served and £m excluding overlap
Table D.7: Summary of growth only capital investment
In Table D.7 the total PE is the net additional PE provided once overlaps between treated water capacity
and raw water yield are taken into account. The overlaps at site level are shown in treatment and raw
water PE overlap on some sites as there is both a raw water and treatment restriction.
In two zones we propose to maintain the current supply demand deficit position through the use of
leakage reduction. We would only look to improve the deficit under the draft desirable objectives.
Table D.8 sets out the proposed investment and forecast increase in deficit to be offset with further
leakage reductions past ELL.
(2007/08 prices)
LRELL
Number of
WTW
Forecast
increase in
deficit Ml/day
PE
Cost
£m
2
0.71
3,910
0.2
Table D.8: Summary of growth only operational investment
For each of the sites where we expect to provide additional capacity, we have set out in Figure D.6 the
additional population to be served, and the cost of additional capacity per person.
300
400
350
300
250
Cost Per PE (£k)
250
200
150
200
150
100
50
0
100
50
Cost Per Growth PE
Cost per PE Raw water Provided
Lintrathen WTW
Corsehouse WTW
Mallaig New WTW
WTW
New Kyle Of Lochalsh
Kilmelford WTW
WTW
Lochaline WTW
Cost per PE capacity provided
Kilchrenan Taynuilt New
New Onich WTW
Port Charlotte WTW
Arinagour (Coll) WTW
Cladich W T W
Ballygrant W.T.W.
Craighouse WTW
Gigha New WTW
Achnasheen New WTW
Torridon New WTW
0
Additional PE
4,000
Water Service Developer Driven Investment
2018 Growth
Figure D.6: Unit cost analysis growth only projects.
Figure D.6 shows that the cost per person is high where the forecast population increase is small. This is
due to two reasons; some of the assets currently have deficits which will be resolved as part of the
scheme, hence the costs per unit of growth are high; and experience has shown that the fixed costs of
providing a small WTW is disproportionately high when compared with larger treatment works due to the
loss of economies of scale.
The two lowest unit cost projects are those for Corsehouse WTW and Linthrathen WTW which are based
on maintain the current deficit using further leakage reductions. This approach has been taken as the
deficits in the zones are small and the zones are large enough for further leakage reductions to be
available.
New Development Capital Expenditure – Reasonable Cost Contributions
In our investment plan we have allowed an investment of £17.8m for reasonable cost contribution
associated with water networks assets provided by developers.
Sustainability Reductions Required by SEPA
Investment driver WR1 covering controls on abstraction to protect the downstream waterbodies under
the Water Framework Directive (WDF) is not included in Ministers’ draft essential objectives and thus no
costs or outputs are included within our plan.
During the development of our Security of Supply investment we have consulted SEPA on the zones that
we propose to tackle to identify any potential overlaps with the WR1 programme. As none of the zones
we propose to tackle forms part of the 2006-10 WR1 programme (78 zones) or the draft desirable 2010-14
WR1 programme (36 zones), we have assumed that abstraction reduction under WR1 will not be required
at our existing sources. When identifying new sources for development to deliver our Security of Supply
improvement programme, we have ensured that the proposed abstractions would meet the requirements
of the WFD standards.
167
Sewerage Service Strategy – Balancing Wastewater Supply Demand
Wastewater Service Summary
This section of the appendix sets out our investment requirements to maintain the wastewater supply
demand balance, taking account of forecast growth.
Wastewater Service Strategy
Our wastewater service strategy is to ensure compliance with our WwTW licences through the
maintenance of the supply demand balance. We aim to do this through a risk based approach operated
with SEPA to match the capabilities of our wastewater assets with the environmental capacity of the
receiving waters. Where investment is required to maintain this balance we aim to deliver this in the
optimum way to meet the needs of customers, enable economic development, and minimise impacts on
the environment. To determine this we have adopted the UKWIR approach to long-term, least cost
planning for wastewater supply demand balance planning as outlined in Figure D.7 below.
In line with recent changes in planning legislation introducing Strategic Development Plans, we will work
with the Planning Authorities to highlight areas where we have surplus capacity to encourage zoning of
development in areas where there will be low infrastructure development costs.
Figure D.7: UKWIR Methodology for wastewater supply demand balance planning
Additionally through our asset adoption policies we will continue to ensure, where appropriate, new
drainage systems are separated to reduce the volumes of storm water entering the sewerage system and
hence the cost and environmental impact of treatment and pumping. This approach will minimise the
levels of flooding in the sewerage system and the number of storm overflows becoming unsatisfactory.
Wastewater Supply Demand Balance
To undertake stage one of the UKWIR methodology we had to create a supply demand balance to identify
168
assets in deficit or forecast to move into deficit. This was undertaken by establishing the elements of PE
demand on a WwTW asset and comparing it with the available PE capacity from our 2007 SACDP,
adjusted to take account of Q&SIIIa investment and information provided from our recent development
capacity assessment programme. For assets operated under PFI, catchment growth is covered by the
services agreements and we have included for any additional PFI charges within Section 4. Accordingly,
we have not included PFI assets within our analysis.
Elements of Increased Demand
Additional Flows from New Domestic Customers
We anticipate an increase in demand from new customers, principally generated by an increasing
population and demographic movement across our asset base. We have assessed the potential demand
increase on our wastewater assets by 2018 using the 2006 GROS low migration population projection
scenario. We have adopted this scenario to account for the current downturn in economic activity and
shorter development cycle for wastewater assets. The 2018 planning horizon has been adopted to ensure
that we do not have to invest in the same asset for growth in subsequent regulatory periods. Based on
the GROS low migration scenario the Scottish population is forecast to increase by 66,869 between 2006
and 2018.
For the quality enhancement projects, we have used the GROS principal projection as, unlike the
developer-driven programme where the need will be confirmed once the developer is in place, we are
expected, under the draft objectives to deliver the required additional capacity in conjunction with the
quality project.
To allow us to understand how this potential increase in demand will affect our asset base, we have used
the same growth model as was applied to the water service. The models’ assessment of the demographic
movements around Scotland, and hence over the asset base, was a net increase in demand of 71,522PE
on the assets in areas of population growth. Figure D.8 shows the expected population change across
local authority areas for the low migration scenario.
Forecast Population Change within Local Authority Areas (Low Migration Projection)
Edinburgh, City of
Aberdeenshire
Fife
West Lothian
Perth & Kinross
South Lanarkshire
Highland
East Lothian
Scottish Borders
Falkirk
Stirling
Clackmannanshire
North Lanarkshire
Orkney Islands
Angus
Eilean Siar
Shetland Islands
East Renfrewshire
Argyll & Bute
South Ayrshire
Moray
North Ayrshire
Midlothian
Dumfries & Galloway
East Ayrshire
West Dunbartonshire
Inverclyde
Dundee City
East Dunbartonshire
Renfrewshire
Aberdeen City
Glasgow City
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
Change in Population
2010-14
2010-18
Figure D.8: Expected population change across local authority areas for the low migration scenario
169
Additional Demand from New Commercial Customers
With Scotland’s economic growth being largely driven from the service sector, we do not anticipate the
connection of significant trade effluent dischargers to our systems. As there has been no commercial
developer-driven demand in the 2006-10 period we have made no provision for new demand in the 201014 period.
Additional Demand from Existing Customers
In our supply demand balance we have made no allowance for increases in flow from our existing
domestic or commercial customer base. We have no information indicating that the base levels of flow
from our household customer base will increase. Similarly licensed providers have not indicated any nonhousehold customers wishing to increase their trade effluent discharges.
Increased Hard Area Drainage & Increases in Rainfall Intensity
Scottish Water is experiencing an increase in surface water run off due to increasing areas of
impermeable paving and building extensions within catchments. When undertaking drainage area models
we utilise a figure of 4% increase, over 25 years, in impermeable area for combined networks to account
for these effects; this is in line with UKWIR industry assumptions.
The current climate change models suggest that the rainfall intensity will increase as the climate warms
up. However, the current models do not provide sufficient granularity for catchment level modelling as
the effects are expected to be influenced by local conditions. Accordingly no climate change effect is
currently included in our assessment of increasing waste water run-off.
The impact of increasing paved areas and rainfall intensities on our sewer network increases the
frequency of spills from combined sewer overflows and the number of sewer related flooding incidents.
The impact on the treatment assets is limited as they are typically protected by storm overflows at the
inlets which ensure the consented flows are treated.
Target Headroom
Our target headroom for planning purposes has been set to provide sufficient capacity at each asset to
meet the 2018 projected population. The use of newly acquired flow and load data and site specific
assessments has allowed us to improve our approach to understanding the headroom available. However,
it will not be until we have long term WwTW flow data, from which we can relate increased development
and population to base flow, that we will be able to refine our assessments of available headroom.
Through investment to comply with the SEPA consent matrix in the 2010-14 period, we will gain the
ability to collect this long term flow information allowing us to improve our approach.
Wastewater Treatment Works Capacity
We have used our Strategic Asset Capacity Development Plan (SACDP) to establish the existing capacity
available within our wastewater treatment works, adjusted to take account of the additional capacity we
are providing during 2006-10. Where we have recently undertaken development capacity assessment
studies we have updated the available capacity in the SACDP to take account of this new information.
170
Wastewater Supply Demand Balance Assessment
Our supply demand assessment is set out in detail below, following the UKWIR methodology. Table D.9
summarises the main components of the elements of demand and our proposed methods of meeting
them.
Components of Growth Demand and Supply
Population
Equivalent
GROS low population projection
66,868
GROS demographic movement
71,522
Increase in commercial demand
Total new demand on assets
Number of
WwTW
0
138,390
Demand accommodated by existing assets and at PFI works
118,880
Residual new demand to be accommodated
19,510
138
New demand accommodated under developer driven programme
11,376
124
New demand accommodated under environmental quality
programme
12,976
21
Adjustment for use of principal projection in quality programme
-4,842
-7
0
0
Remaining new demand
Table D.9: Wastewater service components of supply and demand
Stage 1 – Initial assessment of the probability that investment is required
Our supply demand assessment for each catchment has been undertaken using the elements of increased
demand forecast out to 2018, as set out under the above section on elements of increased demand,
compared against our SACDP asset level capacity assessment as set out above. Using this assessment we
were able to establish the probability of an asset requiring investment in the next four year period to
ensure the supply demand balance is maintained until 2018.
Stage 2 – Assessment of Potential Consequences
Our SACDP has been developed on the basis of a simple risk matrix taking into account our knowledge of
the assets and potential impacts on the receiving waters as agreed with SEPA through the Memorandum
of Understanding (MoU). For the purposes of developing our second draft business plan, when assessing
the investment needs, we have assumed that the forecast demand must exceed the available strategic
capacity by more than 10% before including the asset in the investment programme. As a result the
assessed additional capacity requirement by 2018 for the developer-driven growth programme reduces
from 19,292PE at 225 WwTW to 11,376 PE at 124 WwTW as shown in Figure D.9. This excludes growth of
12,976PE at 21 quality enhancement programme sites; which have been sized using the principal GROS
projections as investment is confirmed at these sites.
171
Wastewater Service Developer Led Requirement
50
45
40
Nr of WwTW
35
30
25
20
15
10
5
0
5
10
15
25
50
100
250
500
1,000
3,000
Additional PE Required
All Growth
Proportion where Growth >10% of Existing Capacity
Figure D.9: Wastewater service part 4 asset growth requirement
Stage 3 – Investment Modelling
The scoping and costing of quality enhancement projects is set out in Section 6, with the growth
allowance being included through application of the RAR.
In scoping and costing our developer-led growth programme we have adopted the stage 3B assessment
methodology of scheme specific investment for all assets.
Stage 3B – Catchment Investment Modelling
To establish the investment to maintain the supply demand balance we have identified standard solutions
for each asset identified in Stage 2. The principal assumptions we have made in this assessment, based
on our experience from 2006-10 are:
•
65% of licence standards will remain the same. Where the licence standards are not
changing, the solution will involve the installation of a parallel process unit to treat the
forecast growth; and
•
35% of licence standards will be tightened resulting in an additional stage of treatment,
typically a move from a septic tank to a septic tank and submerged aerated filter (SAF) or
septic tank and reed bed. Where the licence standard is tightening, a combination
treatment stage will be provided to treat both the existing flows and forecast growth to the
new standard utilising as much of the existing equipment as possible.
Standard solutions were developed covering 10 discrete sizes of asset to replicate what will happen in
practice when using the most efficient off-the-shelf components.
Stage 4 – Business Plan Preparation
In our business plan we have integrated our quality and growth programmes at asset level to ensure all
overlaps and synergies are accounted for; assets with a quality driver were excluded from this growth
programme analysis. Our remaining developer-driven growth programme has been formulated and
included in our investment plan as named assets with proposed capacities. This forms our growth
‘portfolio’ which will be implemented as demand materialises.
172
Impact on Sludge Strategy
Our sludge strategy is based on utilising the most sustainable and cost effective route for recycling in line
with the Safe Sludge Matrix. When assessing the increased demands within this section we have updated
our sludge model assessments and determined that no additional strategic sludge handling capacity will
be required to accommodate the increased loads. We have made no allowance for site specific sludge
handling equipment at this stage as our analysis indicates that the majority of capacity increases will be
on sites where sludge is removed for treatment by tanker to strategic sites.
Social and Environmental Costs
As the schemes we will actually deliver will be driven by developers we have not at this stage undertaken
analysis of the social and environmental costs of our proposals. This will be reviewed for each project as
it is promoted to ensure that the most appropriate solution to meet the increased demand is deployed.
Effects of Environmental Legislation & Climate Change
When providing additional capacity at wastewater treatment assets the scope and cost of the upgrade
are influenced by the current size of the works, proposed increase and receiving water capacity. The
Urban Wastewater Treatment Directive (UWWTD) has particular qualitative consent limits which require
minimum level of treatment, irrespective of the capacity of the receiving water for population
equivalents above 2,000 and 10,000PE. Within our developer-driven growth programme we have not
identified any site where this will be an issue and consequently have made no allowance for it.
During the 2006-2010 period, when providing additional capacity, our existing licence conditions have
been tightened to ensure the water quality of the receiving waterbody is maintained in line with its
current standards. Where this has occurred, the costs have been increased as the additional treatment
requirements cover the whole capacity of the works, and not just the additional PE being provided. To
help plan for this, we have worked with SEPA updating the MoU and have included an allowance within
our programme for 34% of assets to have consents tightened. Until the final demand is confirmed with
developers, SEPA will not be in a position to confirm the revised licence conditions at every asset.
Scottish Water will work with SEPA to ensure revised licences are appropriate to the capacity of the
receiving waterbody and scale of development.
As set out above, climate change will mainly affect the sewer network in terms of storm overflows and
sewer related flooding. As we have limited data on the effects at a local level, we have not allowed for
it within our investment plans. We have however, with SEPA, identified the need for rainfall intensity
meters to allow us to collect catchment level data and trends to identify the local effects on changing
storm intensity; these are included in Ministers’ draft desirable objectives.
Sewerage Service Capital Expenditure Implications
Growth Capital Expenditure - Wastewater Treatment Works (Part 4 Assets)
Development of proposed investment within our growth only programme has been based on the following
key principles:
•
Growth projects will only be initiated once the developer has met the five criteria set out in
Ministers’ draft objectives; and
173
•
The overall growth programme will be managed as a ring fenced programme with capacity
provided to meet actual developer demands.
Our proposed expenditure on wastewater treatment works is set out in Table D.10, split into assets with
developer-driven growth investment and assets with linked quality enhancement expenditure. The
linked enhancement expenditure is allocated to the growth programme in line with the proportional
allocation rules, based on the consented and projected population equivalent (PE).
Programme Area
Investment
Outputs (PE)
(2007/08 prices)
Growth on Quality Programme Sites
3.5
12,976
Growth-only Investment
55.7
11,376
Programme Total
59.2
24,352
Table D.10: Proposed expenditure on wastewater strategic capacity provision
For each of the sites where we expect to provide additional capacity we have set out in Figure D.10 the
cost of additional capacity per person and the additional population to be served.
Variation in Cost Per PE at Wastewater Growth Only Sites
1,400
90
80
1,200
70
1,000
60
800
50
40
600
30
400
20
200
10
0
0
0
10
20
30
40
50
60
70
80
90
100
110
Number of Schemes
Cost Per Additional PE (£k)
Additional PE
Figure D.10: Summary of the unit rates within our wastewater growth programme
Similar to the Water Service, it can be seen from Figure D.10 that the cost per person is high where the
forecast population increase is small. This is due to two factors:
•
Some small WwTW are located inland and discharge to small waterbodies; as a result they
require higher levels of treatment to prevent a reduction in environmental quality of the
receiving waters; and
•
The fixed costs associated with providing very small WwTW is disproportionaly expensive
when compared with works serving in excess of 200 additional PE due to the loss of
economies of scale.
174
Additional PE
Cost Per Additional PE (£k)
New Development Capital Expenditure – Network Assets (Part 2 & 3 Assets)
Our proposed expenditure on network assets is split into three categories as set out below. We have not
allowed for investment in the provision of first time sewage provision as SEPA have not identified any
communities which would give an environmental benefit from being connected to the public sewerage
system at present.
Reasonable Cost Contributions – Part 2&3 Wastewater Network Assets
In our investment plan we have allowed an investment of £43.8m for reasonable cost contribution
associated with wastewater networks assets provided by developers.
Sewer Flooding – Emerging Properties
In our investment plan we have allowed an investment of £38m for new properties added to the internal
sewer flooding register during the 2010-14 period (60% of the total cost assumed to be enhancement with
the other 40% being capital maintenance) as a result of growth in the catchment, through infill
development and increased areas of impermeable paving. This is based on an average annual rate of 72
new properties per year being identified as at risk from internal sewer flooding at a frequency of once in
10 years or more.
Emerging Unsatisfactory Combined Sewer Overflows
In our investment plan we have made no allowance for emerging unsatisfactory combined sewer
overflows. Our approach is to work with SEPA to identify new UCSOs and prioritise future investment in
them on an environmental needs’ basis to ensure all investment is targeted at meeting the most
significant pressures on the receiving water bodies.
175
APPENDIX E – CMER
Scottish Water: Second Draft Business Plan. Appendix E – Capital Maintenance Econometric Methodology
Appendix E – Capital Maintenance Econometric Return
(CMER) Methodology
Introduction
The initial CMER requirement was for a submission of 9 tables of 2002/03 asset data and 2 tables of
expenditure data spanning from 2000/01 to 2007/08 as stated in the second draft business plan guidance.
However, additional guidance was sought from the Commission and the following was agreed:
•
2003-04 data is acceptable for tables 1,2,3,4,5,6,8 and 9;
•
PFI data is to be excluded;
•
2004/05 data for table 7 is acceptable;
•
Expenditure data for 2000/01 to 2007/08 is asked for in the guidance, however it is
recognised that it may not be possible to provide reliable information for the initial years;
•
Reporting on the four regions (North West, North East, South West and South East) for table
5,6,7,8 and 11 is acceptable; and
•
Exceptional items costs are to be reported by year, water/wastewater and from 2002-03 to
2007-08.
Tables 1 to 9 are the same tables as submitted in our first draft business plan. These tables were quality
assured internally and audited by the Reporter at the time of submission.
Tables 10 and 11 contain expenditure data that is different from that submitted in the first draft business
plan as this was updated to reflect our Quarter 2 Capital Investment Return 2008-09 analysis of data
giving full 2007-08 expenditure. The data provided also addresses the following matters:
•
additional requirement in the second draft business plan guidance to reconcile expenditure
data with section 5 of the business plan and to identify exceptional items; and
•
the removal of security projects from capital maintenance as advised by the Reporter
following the first draft business plan.
Methodology
Data Collection
The data tables cover asset data (or potential explanatory variables) in tables 1 to 9 and expenditure
data (or potential dependent variables) in tables 10 and 11. For the purpose of explanation of
methodology, the asset and expenditure data is considered separately.
Asset Data
The flow chart Figure E.1 illustrates the processes followed to derive the asset data for tables 1 to 9.
Where available, the asset data was taken from the 2003/04 Annual Return tables. The line references
176
in the Commission’s guidance were followed where appropriate. Otherwise a judgement was made as to
which data line was an appropriate match to the definition given in the guidance. Data lines not directly
available in the Annual Return were derived from source databases or other available relevant data. The
source databases were those used to assemble the original 2003-04 Annual Return submissions.
Data available from 2003-04
annual return tables?
NO
YES
Source data available?
NO
YES
Derive data from
available relevant
data source
Extract data from
2003-04 source
databases
APPENDIX E – CMER
Scottish Water: Second Draft Business Plan. Appendix E – Capital Maintenance Econometric Methodology
Input to CMER
Figure E.1: CMER compilation process
Expenditure Data
Expenditure data for 2002/03 to 2007/08 was reported in table 10 and 11 in outturn prices.
Capital maintenance expenditure data is held on the Scottish Water Capital Investment Management
System (CIMS). Table 10 and 11 data is how the projects stand at a point in time on the system (derived
here at October 2008) consistent with the second quarterly Capital Investment Return (CIR). This can
change depending on when the system is queried because we do not have a static view of a project's
spend and split until it has been closed and has passed through the CAPEX 6 project milestone. Changes
to projects in CIMS occur where allocations of growth, capital maintenance, quality and enhanced level
of service are reassessed at each CAPEX stage.
As discussed above, the expenditure data are different from those submitted in the first draft business
plan as a new cut of data was obtained from the systems (the first draft plan submission was extracted
from CIMS at March 2008 whereas this submission was extracted from CIMS at October 2008).
The capital maintenance projects were allocated to business categories according to the definitions
provided based on data held in CIMS and the CMER definitions.
177
APPENDIX F - CAPITAL INVESTMENT
Scottish Water: Second Draft Business Plan. Appendix F - Capital Investment Activities
178
Appendix F – Capital Investment Activities
Introduction
This appendix provides commentary on the Appendix F tables.
Water Mains Renewal
Quality Enhancement
As set out in Table F.1 below, the lengths of mains we have renewed for quality reasons has increased
substantially since 2002, and we expect this to continue in the 2010-2014 period. In the 2002-06 period,
our mains rehabilitation programme was mainly serviceability based and targeted at reducing the number
of condition grade 4 and 5 assets, though there was a small number of quality schemes. In the 2006-10
period, we commenced quality-driven mains renewals in a small number of zones agreed with the DWQR.
Following improvements to the level of treatment and a detailed programme of zonal investigations, we
plan to increase the level of quality-driven mains renewals to ensure that the quality of water leaving our
treatment works is not degraded by the condition of the water mains.
Investment Area
2002-06
km
2006-10
km
2010-14
km
-
132
330
Quality Reline
72
387
994
TOTAL
72
519
1,324
Quality Renewal
Table F.1: Water mains renewal rates due to the quality enhancement programme
Base Serviceability
Through our deterioration modelling and bottom up programme build we have determined that 1,275km
of mains renewal are required in the 2010-2014 period to maintain service to customers, an increase
from the 968km we forecast to complete in the 2006-10 period.
The base renewal figure, when combined with quality driven intervention, provides a renewal rate
comparable with the best performing English and Welsh companies as shown in Figure F.1 below.
Long term water network rehabilitation rates
Average network renewal per year
2.50%
2.09%
1.94%
2.00%
1.77%
1.77%
1.62%
1.62%
1.50%
1.22%
1.19%
1.11%
0.96%
1.00%
0.57%
0.50%
SR
N
AN
H
SX
W
SW
TM
S
W
SH
YK
Y
NW
T
NE
S
SW
T
SV
T
0.00%
Company
Figure F.1: Comparison of Scottish Water 2002-14 water mains rehabilitation compared to 18 year
water industry average
Sewer Renewal & Renovations
Base Serviceability
Our proposed level of sewer rehabilitation remains stable from the 2006-10 period at 0.18% of the
network. This rehabilitation work will support delivery of our service improvements associated with
pollution and flooding as set out in Section 2 of our second draft business plan. Figure F.2 compares our
renewal rate for 2006-14 with the water industry between 1997 and 2008.
Comparison of Average Sewer Rehabilitation rate with E&W
0.19%
0.18%
0.15%
0.15%
0.14%
0.12%
0.10%
0.09%
0.10%
0.08%
0.07%
0.06%
0.05%
0.05%
YK
Y
T
SW
S
TM
SV
T
AN
H
SR
N
W
SH
W
SX
NW
T
SW
0.00%
NE
S
% of network rehabilitated per annum
0.20%
APPENDIX F – CAPITAL INVESTMENT
Scottish Water: First Draft Business Plan. Appendix F – Capital Investment Activities
Company
Figure F.2: Comparison of Scottish Water 2006-14 average sewer renewal rates against 1997-2008
water industry trend
179

- Scottish Water

Transcription

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