All hands to the pump for PR19 - how utility leadership can turn threat into an opportunity

The toughest challenges faced by today’s water utilities are the ability to prove the resilience of their operations and reduce bills while still ensuring their customers are satisfied. With details of water regulator Ofwat’s PR19 consultation now out, it is clear that the nation’s utilities and boards are going to be under more pressure than ever to not only pass muster, but to prove ‘exceptional’ performance.

"Adopting this methodology allows companies to actively demonstrate that they have considered the full range of potential hazards and the risks they present to the ability to effectively function."

Arcadis has been working with United Utilities to develop a tool aimed at helping water companies understand exactly where they are in terms of the resilience of their operations, and what they need to do to excel.

Referenced in Ofwat’s consultation paper itself, this intricate benchmarking mechanism mirrors the regulator’s thinking and assesses water and wastewater systems against the potential threats they could face, such as flooding and security concerns

Adopting this methodology allows companies to actively demonstrate that they have considered the full range of potential hazards and the risks they present to the ability to effectively function. On top of this, through bench-marking, utilities can prove that they have identified a range of cost-effective interventions to deal with any given problem, can recover and respond quickly, and plan for the long term.

Accelerating your plan through to exceptional status

Ahead of PR19, Ofwat introduced a new rating of ‘exceptional’ for company business plans. Anyone wishing to achieve this new status in the initial assessment will need to prove genuine best practice and cross sector innovation in their approach to understanding and addressing resilience. Not necessarily an easy thing to achieve, as proved by the relatively low ranking of many of our UK cities in our Sustainable Cities Water Index, but the rewards could be huge. 

Securing this status not only boosts confidence on the part of customers but also those in the investment community. Those looking for stable returns are infinitely more likely to be drawn to opportunities where risk is demonstrably well managed and value is enhanced.  

A key means of achieving this is by looking broadly at business operations in line with resilience. Ofwat’s newly formed Task and Finish group has developed ten recommendations including the development of benchmarking, standards and metrics. Once risk is measured and understood, utilities can use this information to address other recommendations, such as increasing public engagement and ensuring resilience measures are legitimately funded.

Keeping the customer happy

It is an age-old problem but all utilities grapple with the problem of improving service while under pressure from the public and the government to reduce bills. Unsurprisingly, getting the balance right also features heavily in the consultation.

To truly make this work, investment must be targeted effectively and evidence needs to be given to support any claims made. Where inefficiencies are identified, money can be saved.
 
It was against this background that we applied the principles of asset resilience and impact assessment to identify cost savings against Southern Water’s capital maintenance programme, whilst managing service risk. It saw us receive a highly commended award from the MCA earlier this year.

Clearly, resilience and the consequential risks faced have the potential to be a real thorn in the side of utility leaderships. However, truly embracing risk can have huge dividends – be it through bringing in greater investment or proving better value to customers. PR19 presents the industry with a big opportunity and the benefits are there for the taking.