1. Jon Greensill
SEAMS Ltd (UK)
What has the UK Asset Management Industry Learned Over the Past 10 Years?

2. Reflecting on Regulated Asset Management in the UK
Lessons learned and latest thinking
Water – Output Delivery Incentives & Totex
Roads & Rail – Could do Better?
Electrical Distribution – A Common Approach

3. Adoption of ‘Disruptive’ Technology – Geoffrey A. Moore
What group are you in?
And your organization?
Where is ‘Asset Management’?
Is it disruptive?

4. Of all the privatisations of the Thatcher government, perhaps the most controversial was the privatisation of water…

5. An Example UK Water Company
Population Served – 7.7M
Water Mains – 46,000KM / 28,000 Miles
Water Production – 1,800 MLD
Water Treatment – 2,500 MLD (>1000 Treatment Works)
~40% Metered
Leakage 440MLD (24%)
Some Current Issues..
Strategic Elan Valley Aqueduct Wales to Birmingham
Landlocked so Sludge Management
Recent adoption of Private Sewers
Flooding!
Of Treatment Works
Of Customers

6. 350,000 people without clean water supplies for 17 days
Climate Change – Tewksbury Example
2007
Mythe Treatment Works
350,000 people without clean water supplies for 17 days
(Cost to protect $10M)
2014

7. Severn Trent’s Long Term Asset Planning Journey

8. Output Delivery Incentives
What’s the challenge?
Each company has a set of industry wide and company specific outcomes that they must deliver – hard, measurable targets
Companies could choose from a ‘menu’ but had to prove it was choosing items relevant to its own customer base - (Customer Willingness To Pay)
There is serious money at stake. The incentives for the timely completion of major capital projects are high-impact, as minor delays can result in large penalties.
The incentives to reduce water leakage expose companies to penalties in excess of $1.1Bn and rewards of up to $450M.

9. Some Example ODI Measures…

10. Some Example ODI Measures…continued

11. Output Delivery Incentives
The regime prompts questions about the companies’ investment programmes…
What contribution – if any – does each project make towards achieving specific outcomes, or to the outcomes as a whole?
How can we get a clear view of our performance against achieving our outcomes on time and on budget?
How can we better link our capital & operational programmes to outcomes across the business?
These questions are hard to answer because individual projects may affect multiple outcomes set by the regulator, or none of them.
It adds to the need to have a combined asset/finance view of the world

12. Who is winning so far…?

13. Money is Money - Totex
Whilst Capex and Opex still have to be planned/reported the differentiation between the two is becoming less important.
Money is money, ie Totex. (Fast and Slow money)
The financial incentives for spending one type of money over another are changing
A natural extension of the concept of Whole Life Costing
Has a bigger effect on the organisation than you might think…
Different maintenance strategies
More planning/collaboration between disparate groups
Challenging some long standing assumptions
Transfer of budgets between departments
Supply Chain?

14. Return on Regulatory Investment (RoRE) now between ~0 and 10%
It depends on your point of view…
Return on Regulatory Investment (RoRE) now between ~0 and 10%

15. The Next set of Changes and Challenges
Retail Services
From April 2017, 1.2 million businesses and other non-household will be able to choose their water and wastewater service Retailer
Retail services includes meter-reading, billing and customer services.
Ofwat consulting on cost/benefits of allowing domestic households to choose suppliers
Security of Supply
Implications of leaving the EU – less water quality regulation?
Climate Change - Flooding

16. Now Water Industry generally accepted as very successful …what next?
‘’Why is it that other infrastructure - for example water - is funded by private sector capital through privately owned, independently regulated utilities... but roads in Britain call on the public finances for funding?’’
- Prime Minister David Cameron (2014)

17. A Government Owned Company (GoCo)
First step – 2015
A Government Owned Company (GoCo)
Became
Became
A government review concluded that … ‘’the institutional framework for the management of the strategic road by the Highways Agency (HA) creates cost-inefficiencies for the taxpayer and does not deliver the best outcome for road users. Reasons include a lack of long-term certainty on investment in the network, a working culture dominated by the processes of wider government and no continuous external pressure for efficiency’’

18. Key Impacts
A 5 year funding cycle rather than
Agreed with and monitored by the Regulator
Bring in-house the asset planning / decision making resources that were previously outsourced with 14 maintenance contractors
But simultaneously allow more regional decision making rather than centralised
More action to connect asset decisions to customer preferences (via ‘Passenger Focus)
More or less roadworks?
JTR vs Safety?

19. Forced to Address the Asset Planning Systems Problem

20. Relate Customer/Regulator priorities to Asset Decisions

21. Total population served ~70M

22. The UK and Ireland have recently adopted a standard approach for assessing and reporting
Asset Health
Asset Criticality
Developed over an 8 year period
Combined best practice from all groups
So far covers 63 asset types
Quantifies the risk of condition based failure of the network assets
Default values provided for all the required parameters
When in a model can forecast future health/risk/cost of failures based on different investment scenarios

24. Natural fit for Dashboard views
Convert the ‘complex’ methodology to a simple communication tool
Supports the investment planning decision making process
A common measure for Risk
Allows common comparison of
Different asset types within the same business
Different companies (which is what the regulator wants)
Gas networks about to start the same approach

25. Some ‘Asset Management’ initiatives start, are used by a few but never catch on
If they don’t ‘cross the chasm’ at the first attempt, they will be overtaken by something else
There has to be a driver for change

26. Summary of Key Points on UK Experience
The regulatory regime has forced large parts of the UK asset management water industry through several cycles of change (like it or not) relatively quickly by Utility standards.
Further change is inevitable and even though the next areas cannot be predicted exactly, the planning process in most companies is now more nimble and responsive
Financial and Asset Planning is more integrated – disconnections would be fatal. Supported by shared models
Relating Asset/Engineering decisions to Customer (and hence Regulator) outcomes is vital
Decision Support Tools are at their best when they act as a communication tool
Asset Planning is a vital corporate function – it deserves the same attention (and systems support) as other business functions.

27. Questions? Contact Me: Jon Greensill SEAMS Ltd (UK)